University on track to balance budget by June 2022
University administrators answered the call to address the structural budget shortfall by aligning resources more closely with the academic mission of the University.
In an unprecedented way during a historic moment in time, University leaders have come together to comprehensively address Carolina’s financial challenges and begin developing a first-ever central budget.
Two months ago, the University announced steps needed to balance its budget, including asking school and unit leaders to make tough reductions to personnel and operating funds. With a large majority of those schools and units reporting back on their progress, the University will balance its budget by the target date of June 2022, University leaders said in an interview this week with staff from The Well.
They will also give an update at today’s Faculty Council meeting.
“The deans, vice chancellors and vice provosts have leaned in mightily during this process,” said Chancellor Kevin M. Guskiewicz. “I appreciate their commitment to participate and contribute in a strategic way that reduces spending while protecting the mission of the University.”
The savings they reported come largely from a combination of eliminating vacant positions, retirements, cuts to senior leadership positions and also evaluating and starting to consolidate certain legacy programs.
At the same time, the University is working to restore the budgets of a number of academic and community engagement centers and to protect faculty and staff who are essential to the academic and research mission.
As reported earlier, the University faces three main budget challenges — a $100 million structural deficit, around $200 million of lost revenue due to COVID-19 and $850 million in deferred maintenance.
“These deficits make budget reductions the only responsible step,” said Executive Vice Chancellor and Provost Bob Blouin. “Budget cuts always hurt, especially in the short term, but they do not have to have a catastrophic effect on the campus. Done strategically, budget reductions force everyone to align resources with the University’s mission.”
The budget challenges have been a catalyst to force changes that will ultimately make schools and units more focused and the University stronger in the long run, Guskiewicz said. The University’s early response to the pandemic — not filling open positions unless they were absolutely critical and closely reviewing spending requests — gave the University a leg up in meeting its financial challenges. For instance, non-personnel spending was down $70 million in the first quarter of fiscal year 2021.
Meanwhile, Vice Chancellor for Finance and Operations Nate Knuffman said he is making progress on developing a centralized budget model.
“Carolina has operated in a decentralized financial environment that is inefficient and out of date,” Knuffman said. “This new centralized budget will help preserve the financial well-being of the University for years to come.”
In January, when the call went out to schools and units for cuts — 1.5% to personnel funds and a 7.5% reduction to operating funds across schools and units for both fiscal year 2021 and 2022 — the office of finance and operations provided eight principles to help guide decision makers (see “8 budget principles” below).
8 budget principles
- 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.
- Reduce budgets strategically, not across the board.
- Streamline current processes and procedures to help reduce expenditures, eliminate redundancies and mitigate impacts on staff workload.
- Ensure any non-recurring reductions used to meet fiscal year 2021 targets are complemented with longer-term budget decisions that convert non-recurring reductions into recurring adjustments.
- Decisions about cost reductions should always consider the impact on revenue generation.
- Reductions that have the effect of shifting costs to other areas will not be permitted.
- Consult broadly to determine the best reduction options. Units should communicate openly, honestly and frequently about their budget reduction process and their reduction decisions.
- Balance personnel reductions across all layers of the University with a focus on reducing the number of senior administrators in our organization.
Here are more details on the recent progress toward addressing the University’s three main budget challenges.
Deans and other leaders from the University’s schools and units submitted their budget proposals last month to address the decade-old structural deficit of approximately $100 million, around 3% of the University’s annual budget.
They largely reduced personnel costs by eliminating vacant positions, including positions at the associate vice chancellor and vice chancellor levels in the administration that will save over $2 million annually. University leaders said they may also ask senior administrators to take a temporary salary reduction and are still determining those details.
Senior administrators and deans have evaluated their outdated legacy programs and are adjusting, realigning and consolidating some programs to also achieve a cost savings.
One area the University has prioritized for reinvestment is its academic and community engagement centers, including the Sonja Haynes Stone Center for Black Culture and History, the American Indian Center, the Carolina LatinX Center, the Carolina Women’s Center and the Asian American Center. Leaders have committed to these centers a base level of support and are working on developing and implementing a standard funding model to facilitate their success, which will be complemented by a strategic planning process to be completed by the start of the new academic year.
The University is also committed to continued funding for the VITAE program (Valuing Inclusion to Attain Excellence), which attracts accomplished and talented new faculty members from underrepresented and other groups for tenure track or tenured appointments. Both the investments in academic and community engagement organizations and the commitment to VITAE align with Build Our Community Together, the first strategic initiative in Carolina Next: Innovations for Public Good.
COVID-19 revenue loss
To help address the $200 million in revenue loss due to the pandemic, Carolina is set to receive an estimated $45 million from the federal government’s latest Higher Education Emergency Relief Fund (HEERF), on top of $43 million already received in two previous HEERF packages. This money is used for direct student aid, public health protections such as COVID-19 testing and PPE, student success support, information technology and classroom support, and will be applied to revenue losses in some of our auxiliaries.
State appropriations are likely to help address the deferred maintenance shortfall. Knuffman said state revenues are expected to be higher this year than anticipated. As a result, the University is cautiously optimistic state appropriations may go a long way toward much needed repairs and renovations on our campus.
University leaders said they will continue reporting on progress made on all fronts.
“We know these decisions have been difficult and appreciate the time and effort that everyone put into each plan,” Guskiewicz said. “Thanks to this hard work, we are on track to address our structural budget shortfall and are on a sustainable path forward to continue the University’s critical teaching, research and service mission. We will also be better positioned to make strategic investments that align with Carolina Next: Innovations for Public Good.”
The Well’s Behind the Numbers series will continue in the coming weeks.