Budget Outlook Improves; Hiring Freeze for Critical Hires Lifted

University President Darryll J. Pines, Senior Vice President and Provost Ann Wylie, Vice President and Chief Administrative Officer Carlo Colella, Interim Vice President and Chief Financial Officer Brian Burnett, and Associate Vice Provost of Academic Affairs Cynthia Hale sent the following email to the campus community this afternoon: 

Today, we write to share the latest update regarding the COVID-19 pandemic’s impact on the university budget. We want to assure you that our decisions are being guided by a commitment to sustain the excellence of our education, research and service missions; protect the health, safety and well-being of our campus community; and minimize the impact to the most vulnerable of our community. We are extremely grateful for all the work that many of you have done during these incredibly challenging times in our university's and nation's history.

Impact of Pandemic on University Budget
As we informed you in September, the effects of COVID-19 on our fiscal year 2021 campus budget were significant: approximately $281.7 million. This revenue budget shortfall was approximately one-third due to state-supported losses, and two-thirds of the losses were associated with auxiliary units and other non-state activities. As detailed below, together we have mitigated much of these financial impacts of COVID-19 through a series of measures that include short-term borrowing, federal funding, base budget cuts, energy and travel savings, and deferred maintenance and renovation projects during fiscal 2021.

However, compared to financial pressures that the University of Maryland has faced in the past, the current financial situation is distinct in four ways:

• To our knowledge, this is by far the largest financial crisis in the history of the university;
• Virtually all of our revenue streams are affected at the same time;
• We had to increase expenditures to minimize the risk of the spread of COVID-19 to our campus community and within the city of College Park and Prince George's County, and to pivot to online instruction while maintaining instructional excellence; and
• There is still some financial uncertainty regarding the duration of the COVID-19 pandemic and its impact on the FY22 budget.

Our financial challenges fall into two broad categories:

• Auxiliaries and Self-Support Activities: The impact of COVID-19 on some functions, such as housing, dining, athletics, transportation and other auxiliaries, has resulted in immediate losses in revenue and/or increased operational costs in those units. While the short-term impact on these functions is significant, the long-term financial prospects for these services are more optimistic but may take several fiscal years to address. For example, Intercollegiate Athletics has lost an estimated $40 million in revenues (ticket sales, sponsorships, etc.) this year, which will be covered through a loan from university reserves and paid back as revenue streams recover.
• State Support: The impact of COVID-19 on the state of Maryland's budget support to the campus has been significant, resulting in a loss of 7.5% of base funds, or approximately $46.3 million. We have faced restrictions on tuition and fee increases, and mandated investments in remote learning and teleworking. While FY 2022 is now looking better than previously anticipated, the loss of recurring base funds in FY 2021 will have a significant impact on our ability to carry out our mission going forward. 

Guiding Principles and Priorities
In consultation and with input from many campus community stakeholders, including the University Senate leadership, the Senate Executive Committee, the Senate Committee on University Finances, senior academic leaders, broad-based task forces and working groups, and the University System of Maryland, we adopted the following guiding principles and priorities to help inform our final budget decisions:

1. The university must protect the health and safety of its students, faculty and staff.
2. The university must protect the most vulnerable members of its community.
3. The university must ensure the research and teaching missions.
4. The university must permit flexibility in the implementation of budget reductions.
5. The university must be fully transparent about its path forward.
6. The university will execute a balanced approach to budget reductions.

Budget Mitigation Measures
Following the above guidance and priorities, we implemented a number of mitigation strategies to limit the financial impact of COVID-19 for FY 2021, including:

• Implemented a hiring freeze that was effective March 31, 2020;
• Restricted non-essential travel for all university employees as a health and safety measure, and a cost-saving measure;
• Reduced the energy load on our physical plant, resulting in some cost savings;
• Utilized a portion of the university fund balance reserves to offset COVID-related revenue losses and expense increases;
• Implemented a permanent budget reduction in state-supported activities of 5% For FY 2021;
• Reduced Facilities Renewal expenditures; and
• Reduced other central budget allocations.

Temporary Salary Reductions Revoked
In November, we saw some improvements in our financial situation as a result of our mitigation efforts and support from state and federal stimulus efforts. Thus, we announced to the campus community that we would forego temporary salary reductions for the majority of our employees. While we were pleased to announce this cessation of these salary reductions, at the time it was essential that the university community continued to diligently comply with spending reductions, the hiring freeze and other budget mitigation measures in effect. Unknowns remain, and the fluid situation may require different or additional measures in the future.

Federal and State Relief Funds
Earlier this fiscal year, we received $21.5 million in federal funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The act established the Higher Education Emergency Relief Fund (HEERF I). Of the $21.5 million received through the HEERF I funding, $10.75 million was allocated directly to student emergency financial aid. The remainder was used to offset costs associated with expenses related to COVID-19. We also received state Department of Budget and Management funding of $5.44 million for FY 2020 costs and $16.5 million for FY 2021 for a total of $22 million. With the passage of the Coronavirus Response and Relief Supplemental Appropriations Act (HEERF II) in December, we received $10.75 million for student aid and $22.1 million for institutional support for FY 2021. Finally, under the American Rescue Plan Act recently passed, we anticipate the university will receive $58 million from the Department of Education’s Higher Education Emergency Relief Fund (HEERF III), of which 50% will go toward student aid. Cumulatively, non-recurring funds related to COVID-19 impacts, total approximately $84 million to our central budget.

We are extremely grateful to the state of Maryland and Congress for this non-recurring funding that offsets a significant portion of our current year budget shortfall.

Looking Ahead
Our comprehensive budget mitigation strategy, coupled with strong advocacy efforts with our state and federal delegations in collaboration with our higher education colleagues, has resulted in significant relief with funds derived from the HEERF financial support. The funds apportioned to the university from these legislative decisions have enabled us to reduce our FY 2021 shortfall significantly. We are now estimating that the remaining FY 2021 shortfall will be approximately $36 million. Because of this improved financial situation for FY21 and a more favorable financial outlook for FY 2022, we are in a better financial position than at the beginning of the Fall 2020 semester.

We will lift the hiring freeze effective Friday, April 2 for critical and essential faculty and staff. Supervisors and unit heads should be certain all new hires are critical and essential to the operation of the unit and that funds are clearly available.

However, this improved financial status does not mean we are out of the woods. Even as we implement this comprehensive strategy to address our current shortfall, we acknowledge that our approach does not replace the loss of $46.3 million from our base state appropriations. In addition, some auxiliary units may need to take additional budget reduction measures this year and possibly into FY22 or FY23 to deal with revenue losses. Due to the ongoing economic uncertainty nationwide, we are expanding our advocacy efforts with our state and federal delegations, while also working closely with our higher education colleagues across the country.

We are pleased to bring you this updated and improved financial news about our university. We also thank every member of our community for working with us to mitigate as many of these challenges as possible. Together is the only way to succeed.

Darryll J. Pines
President, University of Maryland
He/Him/His

Ann Wylie
Senior Vice President and Provost
She/Her/Hers

Carlo Colella
Vice President and Chief Administrative Officer
He/Him/His

Brian Burnett
Interim Vice President and Chief Financial Officer
He/Him/His

Cynthia Hale
Associate Vice Provost of Academic Affairs
She/Her/Hers