Universities across the United States have cut costs in the wake of the pandemic. In order to manage budget shortfalls, Johns Hopkins is pausing employee retirement contributions, reducing top leader compensation, furloughing, and laying off employees. With an increase in expenses and the massive decrease in revenue, the university must bridge a “budget gap of more than $100 million” (Anderson 2020).

Similar to other sectors, universities are assuming that the economic impacts of the pandemic will persist for the foreseeable future. Ronald J Daniels, president of Johns Hopkins, states that for the next fiscal year, there will be a shortfall of $375 million. Starting July, the president and provost will take a 20% salary cut with other top officials taking a 10% cut (Anderson 2020). There will be a freeze on faculty and staff salaries as well as furloughs and layoffs in some areas of the university. Lastly, this year, the university will pause its contributions to the 403(b) and 457(f) retirement account plans, which will save $100 million (Anderson 2020). Many universities from small colleges to ivy league schools are also experiencing salary and hiring freezes. Other universities such as Davidson College will allow students to defer fall tuition payments, and William & Mary will have an upcoming tuition freeze. However, families want partial reimbursements from the spring tuition since classes were moved online.

Furthermore, university executives may be anticipating endowments to decrease in the coming years, similar to this year. For example, Yale University’s president mentioned that the school’s endowments, which provides funding for a third of the budget, has decreased since the pandemic. With the shift online, universities such as MIT are facing $50 million in unexpected costs and unearned revenue; which include costs for equipment and reimbursements for housing and dining plans (Anderson 2020).

As all educational institutions have been negatively impacted by the pandemic, the search continues for the most effective process to reduce costs in order to balance the budget. Due to cost-cutting measures, university executives may anticipate lower amounts of state funding and foundation grants from previous years. An Associated Press article reports that in the last fiscal year, the state of Washington alone, “appropriated $2.2 billion for higher education, including $377 million in student financial aid. Colleges and universities collected $1.5 billion in tuition and fees” (Washington 2020). However, since higher education is considered discretionary spending, appropriations for the next fiscal year could decrease substantially. Due to the increase in expenditures caused by outfitting campuses to comply with CDC regulations, such as more online lectures and reconfiguring dorm rooms, a decrease in spending will create further challenges for university executives to balance the budget (Washington 2020).

The article also does not consider the potential impacts of future policy changes and how these cost cuts will affect university resources. For instance, the Center on Budget and Policy Priorities reports that budget cuts seen in K-12 can result in decreasing “teacher quality and extending learning time” (Leachman 2019). Similar impacts can be observed in higher education. Additionally, future government spending policies could impact tuition, student loans, and specific funds available for different programs such as the STEM program. The Associated Press article reports legislators intend to meet for a special session in the summer to help alleviate the budget crisis. One result may include Congress “amend[ing] a law capping tuition” which would further lead higher education institutions into steeper deficits (Washington 2020).

Overall, institutions of higher education will continue to face the current economic fallout for years to come. In order to mitigate the damage of underfunded infrastructure, universities will need favorable policies, innovative and cost-friendly processes, and open dialogues with politicians to balance the budget. Universities will need to balance this challenging task while attempting to uphold their educational quality.

References

References

Anderson, Nick, Daniella Douglas-Gabriel, and Susan Svrluga. “Rising Expenses, Falling Revenues, Budget Cuts: Universities Face Looming Financial Crisis.” The Washington Post. WP Company, April 23, 2020. https://www.washingtonpost.com/education/2020/04/23/rising-expenses-falling-revenues-budget-cuts-universities-face-looming-financial-crisis/.

Leachman, Michael, and Eric Figueroa. “K-12 School Funding Up in Most 2018 Teacher-Protest States, But Still Well Below Decade Ago.” Center on Budget and Policy Priorities. Center on Budget and Policy Priorities, April 23, 2019. https://www.cbpp.org/research/state-budget-and-tax/k-12-school-funding-up-in-most-2018-teacher-protest-states-but-still#_ftn19.

“Washington Colleges, Universities Brace for Big Budget Hit.” U.S. News & World Report. Associated Press, May 25, 2020. https://www.usnews.com/news/best-states/washington/articles/2020-05-25/washington-colleges-universities-brace-for-big-budget-hit.