Financial measures to prepare for fall

In the past months, your creativity, nimbleness and compassion have allowed DePaul to continue serving students during some of the most challenging circumstances in this university's and this nation's history. Though we are physically apart, you confronted these times together, whether it was adapting courses to remote delivery, supporting our students in the wake of George Floyd's murder, or continuing to report to campus to keep DePaul running. Thank you for everything you have done and will continue to do for our university and our students, and all the personal sacrifices you have made along the way.

While we are encouraged by some of the early enrollment numbers for Fall, like universities across the country, DePaul has begun planning for significant financial repercussions as a result of COVID-19. The university already was under financial stress when the pandemic hit. As we look ahead to Fall, we expect additional pressure on our revenue streams. This includes the following:

• $13 million in foregone revenue due to the cancellation of a previously planned tuition increase for 2020-21
• $13 million in foregone revenue as a result of plans to significantly reduce occupant density in the residence halls in 2020-21
• $11 million in planned cost reductions that were due to be implemented this month, but were delayed in order to give the institution more financial flexibility during these early months of the COVID-19 crisis  
• $11 million in anticipated auxiliary revenue shortfalls in areas such as food service, leasing and other auxiliary revenues due to the university's efforts to reduce campus density

The $48 million in variances detailed above were not anticipated in March 2020 when the board of trustees approved the university's proposed budget for fiscal year 2020-21. This amount does not take into account any effect the progression of COVID-19 may have on Fall enrollment—a factor that will not be known until September.

The Strategic Resource Allocation Committee, which includes representatives drawn from faculty, staff, students, deans, and other DePaul administrators, has had, at times, very challenging and yet ultimately highly productive conversations over the last month about the financial outlook for next fiscal year. SRAC discussed steps that might be taken over the near term to address, in part, the anticipated $48 million in variances detailed above for the coming year. The group gave serious consideration to finding cost savings that would not disproportionately affect one group at DePaul more than another and that would be proportionate to the anticipated shortfall. Their conversations were guided by our mission of caring for students, providing educational opportunities, promoting our academic enterprise and taking care of one another.

After much deliberation, SRAC recommended a phased approach to addressing expected shortfalls, with immediate measures to address the expected loss in auxiliary (non-enrollment) revenues and increased expenses. While the recommendations are significant, the measures are proportionate to the problem, almost entirely temporary and do not involve workforce reductions, furloughs or broadly implemented reductions to staff and faculty base pay. The finance committee of the board of trustees recently endorsed  the following action items proposed by SRAC and, on June 10, the Board of Trustees approved these recommendations. 

* Read explanation below

These measures can be reversed at any time if the revenue outlook improves substantially. DePaul administrators will perform an initial review of the plan in no later than one year to determine if it should continue.

As we look ahead, DePaul will follow these guiding principles to prioritize devoting DePaul's resources to:

• Fueling academic innovation and academic quality and achieving enrollment goals in a highly competitive market to strengthen our university and strategically position us for the next 125 years;
• Supporting academic success and personal growth for our diverse community of learners;
• Taking steps to ensure the health and safety of the university community and of the communities where we study, work and live.

We would like to share more details with you on each decision to provide additional context and explanation.

Pausing the endowment RTP policy

The endowment return to principal, or RTP, policy is a mechanism for spurring long-term endowment growth that has been in place at DePaul for more than 20 years. Under the RTP policy, annual earnings associated with the portion of the endowment that has no designated spending purpose are reinvested (returned to principal) instead of being spent. This is akin to an individual with an investment account who chooses to reinvest the earnings to help that account grow rather than spending them.

The portion of the endowment with no designated spending purpose has been derived over time through set-asides of institutional operating surpluses. In contrast, donor gifts, which make up the majority of DePaul's endowment, have designated spending purposes and the university uses those funds consistent with the gift spending policy.      

The temporary pausing of the RTP policy will increase the size of the distributions taken from the endowment thereby supplementing the university's operating revenues.

Reducing departmental budgets

DePaul's approach to achieving a 10 percent reduction in departmental budgets will focus on the strategic needs of units. The precise method of how these reductions will be achieved is now being determined by the executive officers (president, provost and executive vice president) within their respective divisions, but budgets related to travel, catering and other activities likely to be diminished in the coming year will be obvious areas of focus.  

Reducing the university's 403(b) contribution

DePaul will temporarily reduce the university's 403(b) match to the retirement plan from 10 percent to 5 percent for all faculty and staff. This will take effect on Oct. 1, 2020. Employees will be able to continue contributing toward the 403(b) plan, in accordance with the annual IRS contribution limits. Members of SRAC endorsed this measure because it would affect all employees—both faculty and staff—as compared to other proposed measures that would disproportionately affect one group more than others or lead to job losses and reduced take-home pay.

Reducing student employee budget

Because a portion of DePaul's annual student employee budget typically goes partially unspent, a reduction of $3 million is not expected to have a significant impact on actual student employment levels or upon the wages or work hours of student employees. No students are expected to lose jobs as a result of this reduction.

Suspend capital spending

DePaul already has taken the measure of suspending spending on routine capital projects, such as roofing and masonry repairs, HVAC upgrades, and window, plumbing, flooring and furniture replacements. While capital maintenance projects are not expense items that directly impact operating income, they do consume working capital and do result in increased depreciation expense. These projects will be deferred until it makes sound financial sense to resume them. Capital improvement items, such as the need for more remote-enabled classrooms and specialized facilities needed for new academic programs will not be affected by this budgetary item.

Executive pay reductions

DePaul's leadership understands the need for the financial burden to be shared broadly and that financial measures should not place an undue burden on lower-earning employees. As a result, in addition to the reduction in the university's contribution to their 403 (B) match from 10 to 5 percent, they have agreed to reduce executive pay by 5 percent for vice presidents and deans; 10 percent for executive officers; and 15 percent for the university president.

While these measures will go far in helping DePaul in the short term, the university very likely will need to find additional cost-savings in the Fall to bolster our finances. The finance committee of the board has directed the administration to develop concrete plans for additional steps to be taken in the Fall should enrollment and revenues deviate significantly from the budgeted amounts. The committee's members asked for tangible and specific plans to address the university's structural issues that have existed for some time and have been exacerbated by the pandemic.

Indeed, SRAC members already are planning to continue conversations on how DePaul might address revenue shortfalls from lower-than-expected Fall enrollment and longer-range planning. More difficult decisions are ahead.

We thank the members of SRAC for their collaborative work thus far, for their candid insights during our recent deliberations and for the obvious care they have for our students, each other and this university as a whole. This was seen in their recognition of the centrality of academics to DePaul's mission and in their advocacy for avoiding workforce reductions, furloughs and pay cuts before the implications of DePaul's Fall enrollment on university finances are known.

We recognize and appreciate that our faculty and staff are committed and devote their immense talents to this institution. You inspire us daily and remind us that our students are in good care. As we continue confronting new realities together, please know how much appreciation we have for you and every member of this community.