Update on Financial Measures
To: Members of the University Community
From: Robert J. Zimmer, President
Subject: Update on Financial Measures
Date: June 10, 2020
In light of the continuing impact of the pandemic on the global economy and the University’s finances, one of the guiding priorities of our response is to ensure that the University remains on a financially sustainable course to support the enduring values and distinctiveness of the University’s commitment to education and research for the long run. The pandemic is affecting every major revenue source of the University, and the impact is significantly more negative than past economic crises. I am writing to share additional steps that need to be taken to help stabilize our finances, and to provide the necessary long-term foundation for realizing the University’s highest academic values for generations to come.
I am deeply grateful for the work and dedication of the entire University community in responding to the dramatic challenges of the pandemic with fortitude, resourcefulness, innovation, and concern for our community. The financial uncertainty of this time makes this intensive work even more challenging. Although all units of the University will share this burden in some way, we must proceed with the understanding that some areas will require increased investments, including our commitment to providing extensive financial aid for students and supporting the work of our faculty.
As I outlined in my message of May 7, the University is facing a deficit of $220 million for this fiscal year, and the economic difficulty and uncertainty is expected to continue for the foreseeable future. We are committed to overcoming these challenges, and the previously announced measures – slowing or pausing academic and staff hiring, suspending discretionary spending, reducing non-personnel expenditures, and maintaining faculty, staff, and administrative salaries at current levels (except when contractually required) – will help reduce the financial impact caused by the pandemic.
Given the uncertainties the virus presents, we also anticipate a substantial financial shortfall over the next academic year. Lost revenue and the resultant deficit are projected to be worse in the coming year than the current year, even with the actions taken to date, requiring us to take additional steps. Although these measures will be difficult, the following actions, along with those we have already implemented, are projected to reduce the deficit, though they will not eliminate it based on the scale of the challenges we face. We pursue these actions with the express desire to minimize reductions in staffing, to the best of our ability, as we manage our way through the severe financial impacts of the pandemic.
- University Leadership Pay Reductions. In addition to the personal philanthropic commitments University Officers have made to the University of Chicago Odyssey Scholarship Program, all University leaders will see a temporary reduction in their salaries, effective July 1, 2020, for a period of 12 months. My compensation, in addition to the Provost’s and the Executive Vice President for Biology and Medicine, will be reduced by 15 percent, 5 percent of which will be donated to the Odyssey Scholarship Program to help support our students. The Executive Vice President of Biology and Medicine will see an additional compensation reduction from the Medical Center. Deans and Officers will take an 8-10 percent reduction in compensation. This action is in line with my leadership team’s commitment to contributing to the solutions necessary for fulfilling the distinct mission of the University during these financially challenging times.
- Voluntary Staff Furloughs and Hours Reduction. The University previously provided staff with up to six weeks of paid leave that could be used for reasons related to COVID-19. Staff members who have need for additional time may elect a voluntary unpaid furlough. We also understand that many staff members’ circumstances have changed as a result of the pandemic. To accommodate changing staff needs while reducing University spending, we are allowing staff to voluntarily reduce their hours. For these voluntary actions, the staff will continue to receive benefits such as health insurance during the affected period.
- Mandatory Staff Furloughs. While our intention is to bring at least part of the University community back to campus in time for Autumn Quarter, we expect that operations will not return to normal for some time. Because of this, we have made the difficult decision to begin temporary furloughs for staff members who are largely unable to perform their duties remotely. We will take measures to mitigate the impact of a mandatory furlough, including an increase to 100% of our coverage of health care insurance premiums. As the University implements a phased approach to returning to campus operations, our hope is to recall these employees as soon as conditions allow.
- Temporary Suspension of Employer Retirement Contributions to ERIP and CRP. The University is reducing employer contributions for fiscal year 2021 to the 403(b) defined contribution retirement plans, ERIP and CRP. Employer contribution rates will be reduced to 1 % for eligible employees making $130,000 or less per year and suspended altogether for eligible employees earning more than $130,000 per year. This action is necessary to reduce our financial expenditures without making cuts in other areas. All eligible employees will still be able to make employee contributions to their retirement plans but will not receive a University matching contribution. We will be working with our union partners over the coming weeks to discuss the impact of this change in benefits as required by the respective collective bargaining agreements. These changes are expected to take effect July 1, 2020. Additional details regarding these changes will be made available in the coming days on the University’s Benefits website.
- Non-Personnel Expenditure Reductions. The University will begin making a number of additional non-personnel expenditure reductions. Further information on these changes and follow-up on implications of all of these changes to unit budgets will be forthcoming from the Provost and the Vice President and Chief Financial Officer in coming days.
In times like these, questions naturally arise about the role of the University endowment in our financial situation. While it is fortunate that the endowment remains in a good position to provide support long into the future, those funds cannot address the scope of our current challenge. One reason is that the endowment relies heavily on gifts that support education and research at the University in perpetuity. Annual payouts from the endowment enable the University to address priorities over the long term, including comprehensive financial aid for students. We cannot legally repurpose restricted funds for different needs, at the expense of future students and faculty, and we must adhere to the intent of the donors who initially gifted these funds.
Some of the financial measures that we must take will be painful for our community. But I am confident that by working together in keeping with the University’s enduring academic values, we will overcome these challenges and continue to build upon the University’s distinctive and ambitious approach to research and education.