Update on Fiscal Year 2021 Finances

To: Faculty, Other Academic Appointees, and Staff
From: Robert J. Zimmer, President, and Ka Yee C. Lee, Provost
Subject: Update on Fiscal Year 2021 Finances
Date: March 17, 2021

Over the past year, we have navigated an evolving financial outlook for the University given the far-reaching impact of the COVID-19 pandemic as well as pre-existing budgetary challenges. We write today with an update on the University’s finances for the current fiscal year and the next.

The outlook has improved since our last update in November thanks to concerted efforts across the University, though continuing challenges will require sustained and aggressive efforts to manage costs. The improvements will allow us to end some major cost-reduction measures as scheduled on June 30, 2021, including reinstating employer retirement contributions, and allowing for the resumption of merit-based salary increases. As detailed below, we do not anticipate the need for additional steps such as University-level furloughs or layoffs, which we have managed to avoid during the current environment.

Update on the Fiscal Year Ending June 30, 2021

In November, we provided a financial outlook for fiscal year 2021, anticipating a financial deficit of approximately $150 million for the year. Thanks in large part to the efforts of faculty and staff across the University in restricting non-personnel spending and avoiding all but the most essential financial commitments, our most recent projections show a budget deficit range of $113-133 million for the fiscal year – $17-37 million lower than previously projected. This reduced figure is encouraging and is the result of tireless work by colleagues across the University to ensure that we remain on a financially sustainable course. One cost containment measure – the temporary suspension of employer retirement contributions to the 403(b) defined contribution retirement plans – reduced an estimated $57 million in expenditures and allowed us to avoid making cuts in other areas, most notably avoiding widespread layoffs or furloughs.

Though the deficit reduction is encouraging, it also reflects the significant financial challenges the University continues to face as a result of both COVID-19 financial impacts and pre-existing budgetary challenges. We will continue to face the effects of COVID-19 for the foreseeable future, including COVID-related expenses such as establishing testing and vaccine clinics for University personnel, and continued reductions in revenue in housing, dining, and other areas. We must continue to uphold current cost-reduction measures through June 30 to further mitigate the impact of the pandemic on the University budget, and some measures will need to continue into the future.  

Financial Outlook for Fiscal Year 2022

For fiscal year 2022, which begins on July 1, 2021, we will begin easing some of the cost-containment measures that have been in effect over the past year. Specific changes include:  

1. Reinstatement of Employer Retirement Contributions to ERIP and CRP. Effective July 1, 2021, the University will fully reinstate employer contributions for fiscal year 2022 to the 403(b) defined contribution retirement plans, ERIP and CRP. The reinstatement will go into effect for eligible employees at all income levels. Note that in some cases, an employee contribution is necessary for the University to make a matching contribution. We will be working with our union partners to discuss the impact of this change as required by the respective bargaining agreements where applicable.

2. Reinstatement of Merit-Based Salary Increases. Effective July 1, 2021, the University will reinstate the ability of departments and offices to offer merit-based salary increases. As usual, increases are based on approval by the appropriate academic unit or administrative office.

3. No Additional Cost-Containment Measures Currently Anticipated Beyond Those Non-Personnel Measures and Hiring Limitations Already in Effect. We do not anticipate additional financial measures affecting faculty and staff, though measures to limit staff hiring and non-personnel spending will continue.

Questions have arisen about the role of the University endowment in addressing operational deficits. While annual endowment payout is one component of the University’s operating budget, the majority of the endowment is legally restricted and must be used for designated purposes. 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. We also need to balance the needs of future generations with our challenges today.

Despite ongoing financial challenges, over the last year we have greatly expanded the University’s efforts and financial commitments to reduce the impact of the COVID-19 pandemic on our campus and the South Side more broadly. We are proud of the outstanding work of our faculty, staff, students, and many others to limit the spread of the virus, protect the health and safety of our community, and support our neighbors in meaningful ways.

Through the perseverance and shared commitment of our community, we are confident that we will emerge from this difficult period with a renewed focus and energy on the distinctive research and education mission of the University. Thank you for all of your work on these important goals. We will continue to provide updates on our financial progress.