Update on Financial Impact of Coronavirus
As we enter another week of managing through a global crisis that has disrupted our personal and professional lives at a level inconceivable a few short months ago, I write with important information about the impact of the coronavirus pandemic on the finances and operations of the college and how we have organized ourselves to respond.
But first I want to acknowledge the dedication and generosity of the Bates community. Everyone has stepped up in remarkable ways to carry forward our core academic mission. I feel privileged to work with such inspiring colleagues, and I thank you for making it possible for us to adapt our collective work to radically transformed circumstances.
Financial Impact of the Pandemic
It will be some months before we understand fully the financial impact of the pandemic on the college in the time, since March 13, when we asked students to leave campus and complete the current semester remotely. I think it is important, however, that we share what we are learning as we move forward so that we can all understand what we’re up against and why certain actions will be necessary.
With the shift to remote learning for the winter semester, we spent approximately $4 million to cover unexpected expenses, including refunds for room and board, travel assistance for our highest-need students, and work-study supplements for aided students. These costs have been partially offset by savings to operations, led by Dining Services, Facilities, Athletics, and Advancement. Additionally, we will receive approximately $950,000 in funding from the federal stimulus. Based on what we know so far, we expect that net losses to date will amount to between $1.5 and $2 million.
In addition to these unanticipated costs, our endowment — like the rest of the market — has suffered material losses in the first quarter of this year, and uncertainty with investments continues. We also expect to feel the ongoing impact of the pandemic in a slowing of contributions to The Bates Campaign and downward pressure on annual fundraising.
As we have announced previously, given current public health guidance, all of our in-person summer programs have been cancelled, notably the Bates Dance Festival, the Gordon Research Conferences, various athletic camps, an array of summer opportunities for Bates students, and the Trek Across Maine. We estimate the losses to the college associated with having an idled campus for the summer at between $750,000 and $1 million. It is important to note that our typical robust schedule of summer programs not only yields modest revenue for the college, it also makes it possible for us to provide year-round employment for a number of our employees. The absence of summer programs thus puts additional pressure on college labor costs.
Academic Year 2020–21
The pandemic has caused historic job losses and put financial pressure on families across the country. We anticipate that Bates families will require more financial aid in the coming year, and we will do our best to accommodate the increased need. We expect that it may cost an additional $6 million to fund financial aid for academic year 2020–21. Additionally, the pressure on our endowment and philanthropy will continue in light of broader economic circumstances.
Addressing the Problem
In order to preserve our capacity to deliver on our mission now and into the future, we have identified a series of actions aimed at putting ourselves in the strongest possible position to weather the ongoing financial disruptions associated with the pandemic.
Actions Taken to Date
As explained by Vice President for Finance and Administration Geoff Swift in this April 3, 2020, update, we have already taken the following actions:
- We implemented a hiring freeze on all staff positions, meaning that no new staff positions will be posted and no hires will be made without express approval by the Vice President for Finance and Administration.
- We suspended all discretionary expenditures that are not critical to the operation of the college. Any other expenditures must be expressly approved by the senior staff member of the requesting department.
Supplementing these measures, we have decided that the following steps are necessary, both to account for the financial impact we have already incurred and to maximize our flexibility to address financial challenges in the 2020-2021 academic year. Please know that we make none of these decisions lightly. Rather, we have looked for ways to preserve jobs and income through this very critical period, while also protecting our ability to deliver on our mission and to secure the long-term financial sustainability of the college.
- Leadership Salary Reductions. For fiscal year 2021, I will take a voluntary 20% reduction in salary. All other members of the Senior Staff will take a voluntary 10% reduction through the end of the current calendar year, with a plan to reassess based on how the academic year unfolds.
- Staff Salary Freeze. We will freeze all staff salaries at current levels through fiscal year 2021, except for increases associated with promotions.
- Faculty Salaries for FY21. As required by the Faculty Handbook, faculty contracts were issued by the college in February 2020, before the impact of the global pandemic was understood on college campuses. These contracts specified an increase in faculty salaries for fiscal year 2021. The Dean of the Faculty has written to the faculty outlining the inequity of providing raises to faculty while freezing staff salaries and indicating that we are prepared to issue revised contracts to faculty that would keep their salaries at current levels. Salary increases due to promotions will be honored and will be retained in revised contracts.
- Retirement Contributions. The college will suspend its contributions to employee retirement accounts for fiscal year 2021. This includes the 9% contribution for all eligible employees, as well as any matching funds, up to 3%, contributed by the college. Individuals, however, may continue to contribute to their own retirement accounts.
- Faculty Hiring Freeze. Tenure-track faculty searches scheduled to begin in the 2020–2021 academic year are suspended, and the Dean of Faculty has instituted a hiring freeze on any unfilled visiting assistant professorships for the coming academic year. Any exceptions must be expressly authorized by the Dean of the Faculty, and will be granted only under extraordinary circumstances.
- Re-evaluate Capital Projects. We will carefully assess the list of capital projects slated for completion this summer and next academic year and determine which ones should move forward based on their centrality to our mission, where they are in development, and the net cost of stopping and restarting forward progress versus proceeding as planned.
By now, we have all come to understand that one of the only constants in the current situation is uncertainty. This is a defining reality as we turn our attention to planning for the fall semester.
Planning for the Fall
The essence of our educational model is that our students live and learn in a residential community. We educate the whole person through a range of experiences inside and outside the classroom that transform lives and deepen over lifetimes. It is thus our fervent hope that it will be safe to welcome the Class of 2024 and transfer students in person in the fall, and to welcome back the rising sophomores, juniors, and seniors whom we have sorely missed having on campus this spring. At the same time, we must prepare for alternate possibilities, depending on the course of the pandemic and public health guidance regarding the health and safety of our campus community.
To help us with planning, Dean of the Faculty Malcolm Hill and I appointed a Working Group composed of faculty and staff to advise us on a set of institutional decisions that we will need to make over the next six to 10 weeks to determine academic plans for the fall semester and to manage college finances in the face of the ongoing implications of the coronavirus pandemic. The Working Group is divided into two teams — one focused on potential calendar modifications, teaching models, and adjustments to operations for the fall, and the other focused on the implications of various scenarios for college finances. The teams have begun meeting to address a series of questions specific to their spheres of inquiry, with the goal of providing options and recommendations, with supporting analysis, for action by the college.
As the teams explore different scenarios and assess their implications for the revenue and expenses of the college, we will need to consider potential actions, in addition to those announced today, to reduce the impact of the coronavirus pandemic on the financial health of the college. Because the largest share, by far, of our operating budget is devoted to compensation, we may need to contemplate furloughs or other actions, depending on how plans for the coming academic year evolve. Please know, however, that we do not — and would not — take any decisions of this type lightly. We have worked very hard to date to protect our employees despite significant financial losses and to preserve the ability of the college to return to normal operations once the pandemic is behind us.
A Word on Endowment
As we consider various measures to find cost savings from current operations, we are often asked why we cannot repay budget shortfalls out of our endowment. It is easy to think of the endowment as a “rainy day” fund, or savings account, that sits in the bank until we need it. In fact, however, the endowment is an active asset that contributes a meaningful portion of our operating budget every year. The size of the annual contribution from endowment depends on the amount of the underlying principal, together with gifts received and net investment gains made, over time.
Furthermore, donors give to the endowment to support specific programs and initiatives, meaning that much of the endowment is restricted to particular purposes and cannot be used to address shortfalls in our general operations. More fundamental, endowments are meant to provide a revenue stream to the college in perpetuity, so that future generations of students have access to a Bates education equivalent in scope and quality to the experience of today’s students. Any draw on the endowment, therefore, requires us to balance the needs of current operations against our obligations to future generations. As a practical matter, this means that we only turn to the endowment as a last resort, after maximizing savings from current operations and accumulated budget reserves.
Extending Current Working Arrangements
In the interest of public health, Bates has reduced the number of people on campus by transitioning most employees to remote work and by prudent scheduling to limit the number of employees needing to be physically present on campus at any given time. We will extend the current working arrangements through at least May 15, 2020, the time period of Maine Gov. Mills’ current executive order. We will adjust arrangements, as necessary, as we learn more.
I know that this is a sobering letter, landing at a time rife with stress and uncertainty. Many of you are working harder than ever before to fulfill your professional duties while also caring for children and families and adapting to complex routines for carrying out daily tasks. I truly appreciate the strength and grace in evidence every day from all corners of this community.
As the days lengthen and warmer weather makes it easier to get outside, I hope that we are all beginning to feel our spirits lighten a bit. This pandemic will eventually be behind us, and until then I want you to know that I will devote my every effort to seeking the best possible outcomes for Bates. In the meantime, I want to thank each and every one of you for your commitment to the mission of the college and to each other.
Please stay safe and healthy.
All my best,