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How UNC's budget challenges have grown since the onset of the pandemic

DTH Photo Illustration. The University Development Office provides endowments and funding for various projects on campus.

UNC continues to experience growing financial challenges, with the potential impact extending over $1 billion.

While the University has faced budgetary issues for the past several years, the problems have been exacerbated by the pandemic. 

Chancellor Kevin Guskiewicz said that while the full severity is still unknown, financial challenges remain focused within three areas: a structural budget deficit, COVID-19 revenue losses and deferred maintenance. 

“First we have a structural budget issue, which is the gap between our recurring revenues and recurring or ongoing experiences,” interim Vice Chancellor for Finance and Operations Nate Knuffman said at November’s Faculty Council meeting. “This gap has evolved over the past several years at Carolina, and we estimate it totals approximately $100 million this fiscal year.”

Additionally, the pandemic continues to affect UNC’s income-producing auxiliary units — housing; dining; transportation and parking; campus health; athletics; and the faculty practice at the school of medicine. Knuffman said these impacts could be as high as $200 million this fiscal year.  

Both the structural and COVID-19-related impacts add to the estimated $300 million financial loss this fiscal year. The University faced a $100 million loss the previous fiscal year, which ended in June.

The University is also facing an estimated $850 million worth of deferred maintenance, which Knuffman said is primarily located in academic buildings. 

“We have challenges and we’ve said from the beginning of the pandemic on multiple occasions that every revenue source at the University is threatened and that is unchanged,” Guskiewicz said at the November Faculty Council Meeting. ”But our focus has been, and will continue to be, protecting our core mission and our people.”

Moving into spring 2021

A limited number of students is set to return to campus in January, but it is unclear how much they might impact revenue.

“There are many factors that go into these decisions about bringing more students back to live and learn on campus,” Guskiewicz said at the meeting. “By bringing more students back, yes, it will generate some revenue, but it does not come without a cost especially when we think about the covert related expenses for preparing the campus and the additional testing.”

But COVID-19 cases and hospitalizations are higher now than prior to the beginning of the fall semester.

Jay Smith, a history professor, said the pandemic’s course has led him to believe it is unwise to reopen campus in the middle of winter, when more students could be put in jeopardy. Smith said given the bleak outlook and the lack of an off-ramp or contingency plans in the event of an outbreak, the spring reopening plan is worse than the fall plan. 

UNC spokesperson Kate Maroney said the University does not view the situation as an on/off switch. Maroney said many options are at the University's disposal to adjust operations if needed to address potential issues.

Guskiewicz said at the December meeting of the Faculty Council and Employee Forum that he is confident that measures in place will ensure the safety of the campus community. 

Any significant changes made to the spring semester will be announced by Jan. 9, Guskiewicz said in a Nov. 23 email to the campus community.

Smith said he believes the rush to reopening is driven by finances.

“I think that the moral thing to do and the clear epidemiological choice is to switch to remote instruction for the spring and to go to the BOG and the legislature and plead for mercy for some forthcoming state support — with possibly federal support coming — to tide us over to the 2021-2022 academic year,” Smith said.

Media representatives for the UNC System and North Carolina House of Representatives Speaker Tim Moore did not respond to requests for comment.

Mitigation planning

Moving into the new year and spring semester, the budget situation will be a high priority, especially considering a lack of state or federal financial support, Knuffman said at the meeting. 

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“Our mitigation efforts will focus on protecting jobs and minimizing the impact to our most vulnerable workers,” Guskiewicz told The Daily Tar Heel.

Thus far, the University has saved between $60 and $70 million from non-personnel spending, including the postponement of many capital projects, Knuffman said at the November Faculty Council meeting.

Becci Menghini, vice chancellor for Human Resources & Equal Opportunity and Compliance, also said at the November meeting that cuts to personnel lines, such as eliminating vacant positions or delaying hirings, are being discussed as ways to save money. She said UNC and the UNC System have been advocating to the General Assembly for an early retirement option as well.

She said options such as across-the-board furloughs or salary reductions for all employees would have to be approved by the legislature, but provide more of a one-time savings.

UNC’s endowment has also been mentioned as a way to offset budget shortfalls. But Knuffman said 92 percent of the $3.9 billion endowment is restricted, and many of the other funds are already allocated. 

Andrew Perrin, a sociology professor, said at the November Faculty Council meeting that economics literature shows universities are “too conservative in hoarding” endowment money, specifically in regards to endowment returns, which can be adjusted to be more aggressive.

Guskiewicz said at the meeting that the University is discussing that option in looking at next year's distribution. 

Smith said universities' default setting is often to regard endowments untouchable and say they are not to be extracted from. 

This is unprecedented, its unique, potentially financially catastrophic for the UNC System. And now is the time — if there's ever been a time — to dip into the endowment for help," he said. "This is the moment.”

Smith said in an op-ed for The Daily Tar Heel in October that in the event of salary cutbacks, University administrators should be the first to take a reduction. 

“If only for symbolic reasons, it would be helpful for community morale for administrators to volunteer to absorb large cuts to their own salaries if circumstances require, as it looks like it will,” Smith said. “The rhetoric of ‘We’re all in this together’ and ‘Shared sacrifice’ is going to be called on.”

Knuffman said in a statement that the University is committed to using all the tools available to manage the budget situation, and that administrative units are not immune to mitigation measures.

University Desk Editor Maddie Ellis contributed reporting.