University leaders announce plan to address budget challenges

After months of analysis and deliberations, University leaders are moving forward with a plan to address Carolina’s budget challenges, the Carolina community learned in a campus message sent Jan. 15. The letter came from Chancellor Kevin M. Guskiewicz, Executive Vice Chancellor and Provost Bob Blouin and Interim Vice Chancellor for Finance and Operations Nate Knuffman.

The plan implements a 1.5% reduction to personnel funds and a 7.5% reduction to operating funds across schools and units for FY20-21, followed by another 1.5% reduction to personnel funds and a 7.5% reduction to operating funds in FY21-22. The reductions in central funds will be balanced with revenue-generating strategies to help the University maintain critical financial momentum.

Implementing intentional and strategic budget reductions now will enable the University to balance its budget in 18 months. In addition, the University will have the ability to reinvest in school and unit initiatives that align with the goals of Carolina Next: Innovations for Public Good.

“We’ve spent the past 10 months meeting one on one with University leaders and speaking frankly about our budget challenges at Faculty Council and Employee Forum meetings. Some of you have been engaged in conversations about the state of our budget in your own units, as well. While Carolina’s financial problems did not begin with the coronavirus pandemic, it has exacerbated the need to address the budget,” they wrote.

Carolina has operated in a highly decentralized financial environment that is inefficient and out of date in today’s world, the message continued. The last time the University operated with a balanced budget was nearly a decade ago. The plan is to tackle the budget challenges in a reasonable and strategic manner while creating a more sustainable financial model for years to come.

“The imperative now is to find ways to reduce our spending to protect the financial health and viability of the University,” they wrote. “Our campus leadership team is committed to meeting this challenge together.”

As a reminder, the University faces three significant financial challenges: a roughly $100 million structural deficit in the University’s central funding sources (less than 3% of the University’s total budget), an estimated $200 million deficit in the current fiscal year directly due to the impact of the pandemic and around $850 million in deferred maintenance.

“We have worked hard at managing the impact the pandemic has had on our current economic challenges,” the message continued. “We are also working with various stakeholders to address deferred maintenance. The structural deficit, however, is one that we must address together as a University community. While we realize these numbers look concerning, we are confident that the plans we are putting in place are manageable solutions.”

The budget plans will be developed and implemented over the next several months by deans at the school levels and vice chancellors at the unit levels. A Finance and Human Resources team will consult with schools and units on potential tools and strategies for meeting the scheduled reductions. That will put the University on stronger footing, the message continued, and allow it to continue facing down the still unknown pandemic impacts and tackle the deferred maintenance deficit.

To help guide decision-makers, the University outlined eight budget reduction principles:

1. Reductions should be consistent with the role and mission of Carolina and the University’s strategic plan, Carolina Next: Innovations for Public Good. Protect activities that are central to the University’s mission.
2. Reduce budgets strategically, not across the board.
3. Streamline current processes and procedures to help reduce expenditures, eliminate redundancies and mitigate impacts on staff workload.
4. Ensure any non-recurring reductions used to meet FY20-21 targets are complemented with longer-term budget decisions that convert non-recurring reductions into recurring adjustments.
5. Decisions about cost reductions should always consider the impact on revenue generation.
6. Reductions that have the effect of shifting costs to other areas will not be permitted.
7. Consult broadly to determine the best reduction options. Units should communicate openly, honestly and frequently about their budget reduction process and their reduction decisions.
8. Balance personnel reductions across all layers of the University with a focus on reducing the number of senior administrators in our organization.

“We recognize that solving for budget shortfalls, especially during a year full of so much uncertainty and pain, can be unnerving,” Guskiewicz, Blouin and Knuffman wrote. “We are committed to ensuring that this process is as fair and equitable as possible — and to protecting our mission and our people. The actions we take now to balance the budget will allow us to reap the rewards of greater funding flexibility in the future.”

“Over many decades, Carolina’s mission has been fueled by the vision of our faculty, staff and students. We have a lot of work ahead of us, but we remain confident that, together, we will overcome these challenges, balance our budget and put ourselves in a stronger position to deliver on the hopes and dreams we share for a better world. Thank you for your continued patience, support and commitment to Carolina.”

To help explain the complexities of the University’s finances, The Well is launching a series called Behind the Numbers, which will cover revenues, expenditures and other important topics.