Apr. 17, 2020 – A Message from Interim Chancellor Susan R. Wente: The Economic Impact of COVID-19
Dear Vanderbilt colleagues,
This is an incredibly difficult time for all of us, but through it all, I am proud of how our Vanderbilt community has come together to ensure that our education and research mission can continue. Faculty and staff all across Vanderbilt have responded with volumes of outstanding work in response to the COVID-19 crisis.
Looking ahead, we are facing continued challenges on more than one front. First, there is the unprecedented global effort to slow the spread of COVID-19 disease and to keep our most vulnerable protected. Numerous and complex decisions will need to be made in the coming weeks and months to ensure our community remains safe while we simultaneously adapt to ensure continuity of our teaching and research missions. In addition, the necessary actions to respond to the COVID-19 pandemic have created economic challenges for businesses and organizations around the world and across nearly every industry, including higher education and our university.
As we confront this dual health and economic crisis, we must remain steadfast in the constant pursuit of our mission and the ideals outlined in our Academic Strategic Plan. These core commitments are at the front of my mind as we consider scenarios that will ensure the university’s success today and into the future.
To be clear, because of years of careful stewardship, Vanderbilt University is in a strong financial position relative to our peers. This will allow us to take a more proactive and strategic approach to managing through these difficult economic conditions. It enables us to make near-term decisions with the long-term in mind and carefully phase in any needed budget changes to ensure we can advance our mission today and for many years to come, just as we have for the past 147 years.
However, we are not immune to the significant economic impacts. In the current fiscal year, which ends June 30, we anticipate that the negative budget impacts associated with COVID-19 to Vanderbilt University will exceed $30 million. Depending on the length of the pandemic, we could incur significant additional losses in revenue and increases in costs over the next several months.
These pandemic-specific economic impacts will be exacerbated further by extremely challenging global economic conditions, which are likely to impact all of society for the next few years.
It is nearly certain that the slowdown in national economic activity, sharply rising unemployment levels and overall current economic downturn will affect the university in many ways. Consider the three major funding sources driving Vanderbilt University’s operating budget:
Tuition
Tuition across all ten of our schools and colleges provides the largest portion of our operating revenues and is critical to sustaining excellence in our academic mission by supporting our faculty and staff. With the global economic downturn, the need for financial aid is likely to increase over the next few years, and this will then result in less net tuition revenue. Regardless, should we face increased need for student aid, we will hold firm to our mission and values and continue our commitment to Opportunity Vanderbilt and our graduate/professional aid programs.
The endowment and gifts
Like all of our peers, Vanderbilt’s endowment has recently lost considerable value due to the sudden international economic crisis. This will result in lower revenue distributions to support our budgets over the next several years. Contrary to the belief by many outside of higher education, we are limited in how we can use endowment funds because our endowment is not one large, flexible pot of money. It comprises nearly 3,000 different funds, with varying legal restrictions and requirements, supporting a wide range of institutional needs and purposes. Complicating matters going forward, our donors’ capacity to support the university – through current-use and endowed giving – will likely be diminished during the economic downturn.
Grants and contracts
Funding from grants and contracts also provides a significant portion of our annual operations, and the work supported is fundamental to our core mission of discovery and knowledge. The financial implications for research operations and funding due to COVID-19 disease management and the economic downturn remain unknown, but we will closely monitor potential effects as we plan for both short-term and long-term continuity.
Going forward, we must hope for the best while planning for all possibilities. With our primary tuition and endowment/gift revenues expected to decrease for multiple years, as outlined above, we will need to adapt our business model and manage our expenditures while also being entrepreneurial. I am confident that our faculty and staff will continue to innovate and to identify and maximize new and emerging revenue sources to support our work and mission.
It is difficult at this point in time to know exactly every step we will need to eventually take to address these complex challenges. For this reason, we are modeling several scenarios, considering such variables as the duration of the pandemic, financial market activity and conditions, other signals of economic health, and trends regarding the higher education choices that students and their families make in response to the global crisis.
Through all of this, I assure you that we are doing our best to take care of our people based on the best information we have at any given time. As you know, we recently extended our remote work period through April 30. Overall, we have preserved staff pay and benefits, regardless of one’s ability to work remotely, for nearly seven weeks.
In this next phase of financial stewardship, we are taking the following steps to control costs and prepare ourselves for our best assessment of the current and ongoing economic realities:
- All discretionary spending for the remainder of fiscal year 2020 (which ends June 30, 2020) is suspended;
- All staff hiring is restricted and will require enhanced justification and explicit vice chancellor or dean approval;
- A short-term Voluntary Staff Departure Incentive Program is under development and will be launched on April 20, 2020. The existing assisted early retirement plans for tenured faculty will also remain available;
- Annual salary merit increases for upcoming fiscal year 2021 will be deferred until further notice;
- A review is underway of all construction and renovation projects to determine which ones should be delayed;
- University leaders will continue working together to examine all of our activities and identify opportunities to gain new efficiencies and maximize results through restructuring or other organizational changes; and
- University leaders and business officers across the university are working together to develop and submit revised budgets for fiscal year 2021 that reflect a decrease in spending and lower revenue expectations.
Based upon current known conditions, there is no plan at this time for across-the-board university layoffs or furloughs. Any potential staffing changes related to current and future economic conditions will continue to be managed by individual schools, colleges and units. All of the steps described above will be implemented with an eye toward achieving overall reductions in total university expenses in the 5-10% range for upcoming fiscal year 2021.
These will be difficult actions for all of us. While solutions will not be one size fits all, all of our decision-making will continue to be grounded in our commitment to trust, transparency and teamwork and guided by several key principles:
- We will protect and safeguard the health and safety of our community;
- We will use the best available methods, research and data to make our decisions; and
- Our One Vanderbilt culture of collaboration and commitment to thoughtful deliberation will continue to steer our actions.
All of the actions that we take in the weeks and months ahead to respond to these extraordinary circumstances will be focused on ensuring our ability to pursue our mission for generations to come.
As we develop various scenarios to respond to this economic uncertainty, I will continue to partner closely with our deans and vice chancellors, the Vanderbilt University Board of Trust and Incoming Chancellor Daniel Diermeier. We are all committed to listening closely to the recently established advisory groups of dedicated faculty and staff for input across the range of decisions that must be made.
The extreme uncertainty of these times is unprecedented. While we cannot predict the future and do not have all of the answers today, I am certain of the strength and vitality of our great university and of its promise to not only survive this challenge but to emerge stronger for it. Thank you for your exceptional efforts, your understanding and your commitment to working together.
Sincerely,
Susan R. Wente
Interim Chancellor and Provost