TO:  University of Idaho Faculty and Staff
FROM:  Scott Green, President
DATE:  July 1, 2020
SUBJECT:  Recapping Our Budget Challenges and Decisions

---

When I returned home a year ago, I knew we faced budget challenges. What I didn’t know was the full magnitude of these issues and how we would be further challenged by a global pandemic. While this has been exhausting for all of us, what I have found at every turn is a Vandal Family that cares deeply about this university. Each of you is dedicated and determined to do what is best for our students, our state and each other. For that, I am grateful. In summary, we have accomplished much together. We have:

• Reduced our operational spending in FY20, not only hitting our $14 million reduction target but, excluding one-time expenses due to COVID-19 and the voluntary separation programs, exceeded it.
• Cut our cash burn rate by $13 million, or over half, including the impact on our cash inflows due to COVID-19 (and may be even better once we close the books).
• Reduced our Other Post-Employment Benefits (OPEB) liabilities by $11 million. This will be recognized in our FY21 financial statements.
• Passed a budget that, depending on any lingering effects on enrollments due to COVID-19, should eliminate our deficit by FY22.
• Produced a new budget allocation model that will be more sustainable because it will tie funding to enrollments, persistence, collaboration and efficiency, all characteristics of successful educational institutions.

The details of these successes are provided below.

Reducing Expenditures by $14 million for FY20

We went into FY20 with significant increases to employee benefit costs and a projected tuition revenue shortfall. We also needed to improve our net position to meet new accounting requirements reflecting future obligations to university retirees. We knew we could not address the full deficit in one year but did make $14 million in cuts to the FY20 budget.

We worked together, holding each college and unit accountable for preserving accumulated cash and reducing expenditures. This level of attention reduced spending and controlled budgets enough to realize the full $14 million reduction to our operating expenses, excluding the one-time costs of implementing the VSIP and ORIP programs. The full cost of those programs was recognized this year, but the benefit will be recognized in financial statements over the next two fiscal years.

Simultaneously, we kicked off our first working group — the Sustainable Financial Model Working Group. After several months of work and refinement, the whitepaper proposing a new funding model is now available for your comments. We will solidify the metrics to be used and model this plan through FY21 and implement it in FY22.

The state, feeling the effects of a slowing economy, implemented a 1% holdback in late 2019. In response to this one-time event, we implemented voluntary furlough, which many of you graciously participated in, allowing us to meet this holdback without permanent cuts. COVID-19 certainly prevented more people from taking voluntary furlough as we pivoted to the new normal. However, we did realize about $300,000 of this goal, with the rest funded from the operational savings achieved in excess of our $14 million target. The state also told us to prepare for a potential 2% holdback in FY21, which did indeed come to fruition.

We revamped our Other Post-Employment Benefits to phase out full benefit coverage for certain future retirees, while keeping our commitment to those who already have retired. We were the only institution in the state and among our peers to offer such a robust program. This change will result in a reduction of OPEB liability of $11 million that will be recognized in our FY21 year-end balance sheet.

Permanent Cuts and Additional Challenges in FY21

The $14 million in budget cuts from FY20 were made permanent in FY21 along with an additional $8 million needed to eliminate our operating deficit.

Again, this was not easy, but together we found ways to make it happen.

To help us meet this goal, we provided two opportunities for faculty and staff to benefit from early separation from the university. The Voluntary Separation Incentive and Optional Retirement Incentive programs resulted in more than 110 of our colleagues participating. While no amount of money can replace the institutional knowledge and dedication of this group, their departure does equate to $8.4 million in salary savings and $3.1 million in fringe benefit savings. In addition to these voluntary separations, colleges and units unfortunately were forced to issue non-renewals to 39 faculty and staff to reach their budget targets (including 13 faculty non-renewals for contracts that end in FY21).

I am grateful for the years of dedicated service these Vandals have given and wish each well as they leave the university for retirement or the next chapter of their journey.

We outsourced the textbook portion of the VandalStore, keeping the remaining services with the talented VandalStore team. The buying power of our new partner, Texas Book Company, enabled the university to turn a loss-making activity into a revenue stream. We reviewed outsourcing some of our facilities work, but in the end decided this was not the best way to proceed.

We fulfilled our annual requirement to review all academic programs through the Program Prioritization process. This was done simultaneously with college budgeting; the impacts of one is intertwined with the other. We asked everyone to be intentional in rehiring and document any requests to rehire. In many cases, you have chosen to help curb costs by pausing any hiring. That effort doesn’t come without work — each of you has been asked to pick up slack and take on extra duties. Thank you for putting the university first.

Impacts of COVID-19

Just as we were getting our feet under us and looking forward to putting our financial challenges behind us, coronavirus hit our world, our state and our university. With unprecedented speed and agility, university faculty moved more than 4,000 class sections online in less than a week. Asking students to not return to campus from Spring Break no doubt protected those most vulnerable in our community, but it also came with financial strain. Refunds for housing, parking and other student services began to gnaw away at the gains we had made. We experienced losses in revenue from canceled events and increases in expenses as we moved rapidly to improve technology to support online course loads.

Then the state of Idaho implemented a 5% holdback as revenues across the state plummeted due to COVID-19 response, including stay-at-home orders and business closures, and that caused us to implement a mandatory furlough for the coming fiscal year rather than eliminate more positions.

CARES Act money from the federal government first provided some cash to our Spring and Summer 2020 students. A second allotment of $3.4 million came to the university to help offset some of the costs associated with the pandemic. This federal money was welcome, but it fell well short of covering the impact the campus closure has had and will have on our university. We anticipate losses could exceed $15 million, depending on the impact COVID-19 has on fall enrollment.

To help meet the setback from COVID-19 we implemented mandatory furlough for all employees. Furlough assignments are based on your salary and are available for viewing in VandalWeb. For more details about furlough, visit the FAQ.

Other resources are available, and we continue to apply for funding to help mitigate the impacts of COVID-19 but also to help us invest in things such as technology (high-speed internet, primarily) at our Extension sites to enable students to succeed wherever they are in our state.

While we have made cuts and adjustments in some areas, we have continued to invest in fundraising and marketing — with the needs of our students at the forefront. We raised more than $650,000 during Vandal Giving Day, smashing previous records, and are using those resources to encourage students to join our great institution this fall. It seems to be working. Last weekend we welcomed 138 prospective students to our Moscow campus to experience what a residential campus has to offer. Our Advancement team has also raised over $48 million this year, the second highest total in our history, to further fund scholarships, research and telling our story. While almost all of this money is restricted by donors for a specific purpose and not available for general operations, it is important for laying the foundation for our future. This result has paid for our investment in this talented team many times over.

Our public-private partnership (P3) opportunity is hitting high gear. The request for proposals was posted this week, and we are working with four finalists who will visit Moscow this summer to better understand our utility infrastructure and help them frame a proposal to best serve our needs. This 50-year lease will provide the university with cash up front that we will place in an endowment. The earnings and amortization of principal will be invested in our students in the form of scholarships and online support, in research and in telling our story, as well as funding a capital maintenance plan for the steam plant.

The Idaho Central Credit Union (ICCU) Arena is taking shape, and we are moving closer to seeing the Idaho Center for Agriculture, Food and the Environment (CAFE) become a reality. Why are we continuing these endeavors in the face of the budget challenges? These capital projects are funded by gifts, the State of Idaho and student fees, not through operational dollars. If we did not spend these dollars on this infrastructure, we would have to return it to the donors, state and students. Seeing a new building go up is inspiring and hopeful when so many other things are challenging us. These buildings are part of our future — our positive and productive future.

I am excited about the potential of the University of Idaho. As you have read, we have accomplished so much this year despite all that was thrown at us. Not only is our long-term future bright, but in the near term, I can’t wait to see our students back on campus and in our classrooms in August. There is no doubt we will have challenges. But it is imperative we plan for all contingencies, stay flexible and work together to continue to provide the quality residential academic experience our students want and expect. As a destination campus, the University of Idaho cannot thrive without it. Our success depends on the Vandal Family continuing to work together, putting our students and university first.

Keep Calm and Vandal On.

Scott Green
President

president@uidaho.edu
uidaho.edu/president