University to lose up to $116 million to coronavirus expenses, raising questions about AU’s future

Weeklong furloughs, paused retirement plan contributions spark faculty concerns

University to lose up to $116 million to coronavirus expenses, raising questions about AU’s future

Editor's Note: This article appeared in The Eagle's October 2020 virtual print edition

The price of 2,325 students’ tuition and fees for a 2019-20 year at American University. The salaries of 672 full-time professors in 2018. The price of living in a double-occupancy dorm in Anderson Hall — if the building needed to fit 11,490 students during the 2019-20 academic year.

These are equivalent to what the University projects it will lose from the impacts of the coronavirus.

In May, President Sylvia Burwell announced in an email to the AU community that “using a more conservative approach,” the University could lose $100 million in revenue and increased costs for the 2021 fiscal year. 

Since then, that number has increased, due to the financial strain of an entirely virtual semester. 

Over the summer, the University announced a hybrid plan for the fall, including a mixture of in-person and online classes. Freshmen and some sophomores would spend money to live on campus. After an increase in coronavirus cases and the implementation of a new D.C. quarantine rule, AU reversed its original decision. The University moved all classes online, canceled almost all on-campus housing and discounted tuition by 10 percent. 

In September, the University announced an estimated loss between $104 and $116 million. This loss equals about 9 percent of the University's net assets, according to AU’s 2018 tax forms. The impacts of these losses on the University will last until fiscal year 2022, according to Fanta Aw, vice president of campus life and inclusive excellence. 

AU Chief Financial Officer Doug Kudravetz said that the finalized amount depends on the enrollment and circumstances of the spring semester. 

“The 116 [million] really assumes that we're going to be online in the spring again,” Kudravetz said. “The president always tells me don’t say the worst case, but we’re planning for the worst case.” 

In an email to The Eagle after the spring plan was released, expanding some in-person operations, University spokesperson Stacie Burgess said that the estimates from September will not change for the spring semester, and that any additional revenue from housing will be more than offset by additional costs for testing requirements and other measures.

Burwell also announced that to cope with financial losses, AU would pause new construction, cut salaries for her and her cabinet, implement a hiring freeze, require an employee furlough, and stop merit increases for faculty and staff making more than $40,000 annually. Additionally, the University will not match employee contributions to retirement funds for a year. 

According to Kudravetz, the University’s losses come from issuing housing and dining refunds to students in March, increased investment in technology to help support employees and students for the online semester, the 10 percent tuition discount for the summer and fall and funding benefits for contract workers.

The 10 percent tuition discount caused the University to lose around $27 million, and the lack of housing and dining revenue this semester meant the loss of another $20 million, according to Kudravetz. 

“We've been tuition dependent for so long and we've always talked about additional sources of revenue, but quite frankly, we haven't done a good job of seeking other sources of revenue,” he said. 

In fiscal year 2018, AU’s endowment was about $695 million, according to the University’s most recent budget report. However, the University is using about $38 million in endowment income to help offset the losses, according to Kudravetz. This is the maximum amount of unrestricted income that the University is able to use. 

The University was also given $6.3 million from the federal government as part of the CARES Act, according to the U.S. Department of Education. Kudravetz said that half went to student aid, which is the minimum required by the government. The University used the other half to offset costs, such as housing and dining refunds from Spring 2020, Kudravetz said. 

Impacts on faculty and staff 

As part of the effort to cope with financial losses, the University is requiring all employees making over $40,000 to take five furlough days, or a temporary unpaid leave of absence, between November and April. 

According to a budget report released by the University in March 2019, AU was slated to spend $258 million on salaries for full-time faculty and staff, adjunct faculty, and part-time staff in fiscal year 2021. 

“Nobody’s happy about it, but there’s really nothing else they can do,” said John Heywood, chair of the Faculty Senate. 

In an email sent to the AU community in April, Burwell announced that she would receive a 15 percent pay cut, while the executive team – the provost and vice presidents – would take pay cuts of 8 percent. In another email sent at the end of September, Burwell announced that deans, former deans who have returned to the faculty, former provosts and the former president will all be taking salary cuts. However, the aggregate savings of pay cuts are small compared to the losses accumulated due to the pandemic.

“It more functions as a show of good faith. It's not going to affect whether people were going to be laid off,” said Dan Bauman, a data reporter for The Chronicle of Higher Education. “But it might be easier if the president can feel better about him or herself and it might be easier, politically on campus, to ask for those tough decisions to be made if people believe that you’re also suffering alongside them.”

Faculty and staff are also concerned by AU’s paused retirement plan contributions. While employees can put away as much as they please into their retirement fund, the University will not double match their contribution this year, as they have in previous years. In fiscal year 2018, the University spent $3.3 million on pension plan accruals and contributions, according to tax forms. 

“For the folks getting ready to retire, it’s concerning,” Heywood said. “It’s a really good deal, it’s a wonderful thing. The worry is that they won’t return. They said they will return, but it’s always in the back of your head. People’s retirement is important.”

Athletics

While athletics are not as prominent a part of life at AU as at other universities, the department is facing some of the most extreme financial strain because of the pandemic, compared to other departments. 

The athletic department receives revenue from sporting events each season, most notably from soccer in the fall and basketball in the winter, according to Josephine Harrington, deputy director of athletics. Since the Patriot League announced its cancellation of all fall sports seasons, there has been no competition this fall.

While many other Division I programs have been eliminated as part of budget cuts, due to COVID-19, Harrington said that she does not foresee the department cutting any sports, as AU is already at the NCAA Division I minimum. 

Because all new construction projects have been stopped, the future of The Center for Athletic Performance is uncertain. The University announced the project in September 2019, following a $3 million donation from prominent donors Denise and Jack Cassell. 

Harrington said that before the pandemic hit, the University had just begun a planning stage for The Center for Athletic Performance, but is now awaiting further direction from the University. 

Harrington would not comment on any cuts to athletic scholarships, saying that they fell under the purview of the financial aid office. 

Looking ahead

After using all the unrestricted funds from the endowment and other reserves for fiscal year 2021, the University finds itself at a crossroads. 

According to Kudravetz, reserves had been built up over 20 years, and using them has come at a risk. 

“It also limits our flexibility and limits our future investment opportunities. So we have to continue, we have to be disciplined and begin to build that back as soon as we can, to build back those reserves because they're important for the University to have,” Kudravetz said. 

The University said, for fiscal year 2021, it isn’t considering large-scale layoffs or cuts to financial aid and scholarships, health and wellness services, Title IX, equity and support services, academic support services and student employment wages. 

While the University had initially discussed the possibility of another furlough week or salary reductions, Burwell announced on Oct. 12 that there will be no further University-wide personnel actions taken for now, including additional furloughs or salary cuts. 

Kudravetz said that the reserves have allowed the University to avoid large-scale layoffs, but without the reserves, future investment opportunities are limited. 

Overall, the University has identified $104 million in savings to date for fiscal year 2021, but some, including Student Trustee Ben Holtzman, worry that AU has a long way to go until it is in the clear. 

“What [are] the sustainable solutions to acquiring the savings necessary to make sure that the institution can get through another rainy day like we're doing right now?” Holtzman said.

nheller@theeagleonline.com ssolano@theeagleonline.com 

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