COVID-19 impacts Berkeley budget, reduction measures required

Chancellor Carol Christ, Executive Vice Chancellor and Provost A. Paul Alivisatos, Vice Chancellor for Administration Marc Fisher, and Vice Chancellor for Finance and Chief Financial Officer Rosemarie Rae sent the following message to the campus community on Wednesday:

We write today to share the latest update on the campus budget. First, though, let us assure  you that our decisions are being guided by a commitment to sustain the excellence of our education and research missions, protect the health of our campus community, and preserve as many jobs as possible. Thank you all for the work you have done during an incredibly challenging time in our university’s history.

Budget status

Unfortunately, we are confronting challenges posed by the pandemic with a weak financial foundation due to the combined factors of insufficient state support for the university and no tuition increases for eight years.

As we have communicated previously, the effects of  COVID-19 on our campus budget are significant and projected to total more than $340 million. As detailed below,  we will be able to mitigate much of these financial impacts of COVID-19 through short term borrowing, federal funding, and human resource actions leaving a gap of $65 million for fiscal year 2021. Compared to financial pressures that Berkeley has faced in the past, the current situation is distinct in four ways. First, multiple revenue streams are affected. Second, we face a need to increase expenditures in some areas to support and facilitate remote work and instruction, testing and cleaning. Third, there is great uncertainty regarding the length and severity of the pandemic. Fourth, we do not know what the lasting effect the pandemic may have on student choices, higher edu cation generally, or on the broader economy.

Our financial challenges fall into two categories. The impact of COVID on some functions, such as housing, dining, and other auxiliaries, has resulted in immediate losses in revenue and/or increased operational costs. While the short-term impact on these functions is significant, the long-term financial prospects for these services are excellent once we more fully re-start on-campus operations. The other category includes areas where we expect longer term duration and impacts, including State General Fund support; tuition and fees; and on-going necessary investments in remote learning and working.

We believe it is both realistic and prudent to anticipate that serious financial challenges will likely persist at least three years into the future.

Mitigation efforts

As you are aware, we have worked to mitigate COVID’s impacts in a variety of ways, including:

• Implementing a hiring freeze; and

• Implementing a freeze on merit and cost-of-living  increases for staff and faculty, respectively.

In addition, we have secured $30 million in federal funding for the campus through the CARES Act, $15 million of which was allocated directly to student emergency aid and the remainder to be  applied against losses from cancelled housing and dining contracts. We are also seeking assistance from the Federal Emergency Management Agency (FEMA) for coronavirus-related costs.

Unfortunately, all of these measures combined still leave us with a significant shortfall. Adding to the complexity is the degree of uncertainty regarding our fall enrollment, particularly with our international student population and the likelihood that the state support we will receive will be reduced from current levels unless the federal government passes additional stimulus funding  before October 1st. For that reason, we are redoubling our advocacy efforts at the federal level, working closely with our higher education colleagues across the country, but a positive outcome is not guaranteed.

While our philanthropic efforts in recent years have been impressive and notable, those funds play only a limited role when it comes to budgetary challenges. Much of the money that is raised is designated by our donors to a specific fund, endowment, or project and is not available to provide budget relief. And, while many units have cash reserves, they are often restricted as to use or designated for specific purposes.

Additional expense reduction measures required

Therefore, we must consider additional measures to reduce our expenses for fiscal year 2021 with the understanding that our financial health will be reevaluated mid-year and each subsequent year during the recovery period as conditions change. Given that compensation and benefits account for a large proportion of our budget, expense reduction unfortunately must include workforce-related actions.  It is our goal to minimize permanent layoffs and instead achieve savings through voluntary actions, attrition, and temporary layoffs. At present, the UC Office of the President has decided that the campuses should not offer additional options such as an early retirement or a furlough program.

Currently, the following measures are available to us, and we will need to implement some combination of them in order to meet our financial challenges, preserve our academic mission, protect the community’s health and minimize permanent job losses:

• A retirement incentive program for faculty (enhanced provisions in Pathways to Retirement agreements), for a limited window of time.  (The incentives include an extension of the time faculty can keep their offices and labs, increasing the payment for recall teaching, and recalling faculty for research.)

• Voluntary Separation Program for Staff (with incentives based on years of service)

• Temporary work reassignment

• Temporary Layoffs (while maintaining benefits)

• Temporary and permanent reductions in time (benefits remain intact if you are at 50% time or greater, however service credit does not)

• Voluntary salary reductions.

More information is available on the People & Culture COVID-19 information website.

Addressing questions and concerns

We will be arranging a series of budget discussions and presentations with faculty and staff groups to answer questions and invite input. This coming Monday, July 20, from noon-1:30 pm, Chief People & Culture Officer Eugene Whitlock will hold a Managers’ Forum to explain the budget reduction measures that are available pertaining to human-resource actions. In addition, we will hold a Campus Conversation on Friday, July 31, from noon-1 pm. We invite you to pose questions for the panelists or leave a comment on the campus coronavirus website by clicking on the “contact us” box.

Deans, department chairs, vice chancellors, and managers and supervisors will receive budget instructions by the end of July. As has historically been the case, decisions about how best to achieve budget targets will be made at the local, departmental level.

We realize this news contributes to an already stressful time. We remain committed to transparency in our decision making and listening to your concerns. We have come together in remarkable ways over the last few months to sustain our mission, which is more important than ever. In fact, in our 150-year history as a university, we have demonstrated our resilience during times as challenging as the one in which we find ourselves. Let us continue to do so.