How UNC-Chapel Hill plans to fix its budget deficit and address COVID financial losses
For months, UNC-Chapel Hill leaders have been working to address three major financial challenges totaling more than $1 billion.
Members of the campus Board of Trustees heard details Wednesday and Thursday about how the university plans to balance its budget by June 2022.
Nate Knuffman, UNC-CH’s chief financial officer and vice chancellor for Finance and Operations, said taking no action is not sustainable and that university-wide budget cuts are “prudent and fiscally responsible.”
The issues stem from the university’s $100 million structural deficit, about $200 million of revenue losses from COVID-19 and a deferred maintenance backlog totaling about $850 million.
How UNC is fixing its budget
In January, UNC-CH leaders ordered a 1.5% reduction in personnel and a 7.5% reduction in operating funds for the current fiscal year. That will be followed by another budget cut of the same size for the 2022 fiscal year.
Schools, departments and units across campus had two weeks to come up with action plans, which were approved in March.
The cuts are mostly coming through eliminating vacant positions, consolidating programs and better utilizing space, according to Knuffman. He said plans have avoided large-scale reductions-in-force and across the board furloughs.
With these cuts, UNC expects to eliminate the $100 million structural deficit and balance its budget by June 30, 2022.
At a press briefing after the trustees meeting, UNC-CH Chancellor Kevin Guskiewicz was asked how many faculty and staff members are impacted through furloughs or layoffs. He said he did not have an exact number, but “very few employees” are affected.
Where did UNC financial problems come from?
The $100 million structural deficit is essentially a mismatch of recurring revenue and expenses over the past decade. That $100 million is about 3% of UNC-CH’s annual budget, and the problem should be fixed by these budget cuts.
Over the past year, universities across the country have been hit hard by revenue losses due to the coronavirus pandemic. UNC-CH saw its biggest losses in income-producing units, including athletics, campus housing, transportation and parking.
Knuffman said those losses are approaching $200 million, but financial assistance from the state and federal government have helped.
UNC-CH is set to receive a third round of federal funding of about $45 million to address COVID-19 losses. That’s on top of the $43 million the university already received.
This round of the Higher Education Emergency Relief Fund allows some more flexibility than previous COVID-19 funding in that it can be used for revenue losses, according to Knuffman.
UNC plans to split the money 50-50 between direct student aid and institutional needs. The money has previously been spent on COVID-19 testing, personal protective equipment, and support for student success, IT and classrooms.
The university’s growing deferred maintenance backlog is primarily much-needed repairs and renovations for academic and administrative buildings.
To address this, Knuffman noted that North Carolina expects a 15% increase in revenue compared to previous projections, which is about $4 billion. Knuffman said that economic forecast for the state could lead to one-time funding for repairs and renovations and reduces the possibility of more cuts.
Knuffman said some have asked why budget cuts are necessary at all with with this additional funding. He said the money from the state and federal governments, which has some restrictions, is one-time funding, which means it isn’t a permanent solution.
“What we’re trying to solve through our budget process is really a structural deficit where we’re trying to align recurring revenue and recurring expense,” Knuffman said.
UNC growing enrollment
UNC-CH is also looking to increase undergraduate enrollment each of the next four years, which will add tuition dollars and state appropriations.
Guskiewicz said student demand to attend UNC-CH has held up, even through the pandemic.
The university admissions department saw a 20% increase in applicants this year, with nearly 54,000 applications for undergraduate admission. Last fall, UNC-CH had its highest enrollment ever, with nearly 4,500 undergraduate students in the first-year class.
Guskiewicz said he wants to “build the largest-ever Carolina community” and plans to do that will be presented at the trustees meeting in May. The plan will focus on short-term and long-term growth, which will add to UNC’s revenue, reputation and campus experience.
“We will grow, but we have to do it responsibly,” Guskiewicz said.
UNC-CH plans to welcome students, faculty and staff back to more typical semester next fall, particularly as more people are getting COVID-19 vaccines.
UNC-CH is opening a student vaccination clinic on campus on March 31 and will receive an initial allocation of 2,000 doses of the Johnson & Johnson vaccine to give eligible students.
This story was originally published March 25, 2021 at 4:52 PM with the headline "How UNC-Chapel Hill plans to fix its budget deficit and address COVID financial losses."
