Chancellor Blank: Campus budget and furlough update
This message, sent from Chancellor Rebecca Blank to all employees on Oct. 26, is in the process of being translated into multiple languages.
To our employees,
This has been a year unlike any other in the history of our institution. I’m tremendously proud of the way everyone in our campus community has pulled together amid great adversity.
Through the summer and fall we’ve targeted October as a month where we would be able to make a clearer assessment of our finances, looking ahead to 2021. I want to recap the steps we have taken to date and explain why we will be launching an additional set of furloughs and expense reductions.
In response to the emergence of COVID in March, we took several immediate steps to reduce costs and mitigate the financial damage:
- Freezing salaries and most hiring
- Pulling back funds planned as new budget investments during this fiscal year
- Eliminating most travel and other discretionary costs where possible
- Implementing a round of progressive furloughs for most employees, including 15 percent salary reductions for senior leaders, which will be completed this week (Oct. 31)
- Implementing work-share programs to keep people partially employed when their units had to be temporarily shut down
- Using reserves to cover some of our losses
These measures reduced our expenses significantly, most notably through $27 million in savings from furloughs and salary reductions. I want to recognize that while these actions were essential, I know they represent a significant sacrifice by our employees and programs.
We are not out of the woods yet. The pandemic will affect UW into 2021 and beyond. Our tuition receipts are down by roughly $24 million and our research enterprise is on track to receive $28 million less than anticipated. Our budget crisis is exacerbated by the fact that while many revenue sources are down, COVID-related expenses continue to climb.
UW-Madison will also incur costs of approximately $50 million between last fiscal year and the current fiscal year, a combination of giving GPR (General Purpose Revenue) dollars back to the state due to the Governor’s order to state agencies (a so-called lapse) and covering unfunded pay plan costs. We also face an uncertain state biennial budget process over the next eight months. We applaud interim UW System President Tommy Thompson’s advocacy for a state budget that will assist campuses through this period.
In addition, auxiliaries (the units that fund themselves with revenues they generate) have experienced particularly acute revenue reductions. For instance, in Athletics, we haven’t been able to hold most sporting events or sell tickets. Conference Services can’t host guests or operate conferences. The Wisconsin Union has been affected by a limited Terrace summer season. In total, auxiliaries are facing a shortfall of roughly $150 million. Because auxiliary enterprises are self-funding by design and other parts of the budget are strained, auxiliaries will need to resolve their own budget problems, though campus will try to provide some assistance where we are able.
Overall, we estimate that we will have approximately $320 million in combined lower revenue and increased costs between March of 2020 and the end of the current fiscal year (which ends on June 30, 2021) than we were planning for last January. Some of this shortfall has already been offset by the reductions we’ve implemented. The remaining gap is still very large, however, larger than any that we’ve faced in any past year. It will take careful stewardship to chart a path back to financial stability.
Our plan attempts to keep the most important things moving forward, where possible, while reducing costs to balance the budget where necessary. We will continue the campus’ hiring freeze – we are only authorizing positions approved by the relevant vice chancellor or school/college dean — and discretionary expense reduction controls in place for the balance of the year. But further reductions will be necessary.
Furloughs and Pay Plan
The most difficult of these reductions will be a continuation of our progressive furlough program. We will implement another six months of these furloughs, beginning on Jan. 1 and continuing through June 30, 2021. We have delayed the start date on this next round of furloughs to allow employees time to plan, and most employees’ pay will return to its full level in the months of November and December before furloughs restart. Note that many employees on position-specific furloughs will continue with reduced hours starting November 1.
Furloughs will be structured the same way as the 2020 program and will again ensure smaller reductions for lower-paid employees and larger reductions for higher-paid employees, ranging from 3 furlough days (1/2 day each month) to 6 furlough days (1 day each month). This means furloughs will reduce employees’ pay over these six months by between 2.5 percent and 4.6 percent, depending on the number of furlough days required. The vice chancellors and I will again take a 15 percent salary reduction over these same six months, while the school/college deans will take voluntary 10 percent salary reductions.
I recognize the hardship furloughs create on employees, particularly those at the lower-end of the wage scale. The impact of furloughs will be buffered slightly by the implementation of a long-planned 2 percent wage increase to employees, partially funded by campus, beginning in January. This increase will offset most of the furlough’s impact for our lowest paid employees. We plan to move forward with these increases despite the budgetary hardships we face and note that these raises increase base pay which will continue long after furloughs are no longer required.
Similarly, I am also glad to announce that we will move forward in implementing a $15 minimum wage for hourly employees, following through on a commitment we made one year ago. The increase, effective January 17, 2021, will primarily affect workers in custodial, animal care and food-service positions. The minimum wage increase will not apply to temporary or student employees.
Taken together, the new pay plan and increase in minimum hourly wages will make our second round of furloughs even more progressive than the first. More details on furloughs are available on the Office of Human Resources website and additional information will be shared by email.
FY22 Budget Process
Furloughs alone will not be enough to balance the budget, so we also expect to announce further budget cuts in the next several weeks for all GPR funded units as we begin the FY22 budget process. While some further reductions will be necessary, we expect to avoid the sort of dramatic cuts that many feared this year would bring. This is not to say these cuts will be painless, but we hope a substantial share of these reductions can be achieved through attrition, our hiring freeze, and the other budgetary reduction measures we have already put in place.
Each school/college/division will need to determine what strategies to employ to address immediate and long-term budget deficits and will have discretion to do so in the manner best suited to their particular situation. Given the uneven impact of the crisis on some of our divisions and their revenue streams, there will likely be a small number of units where staff layoffs may be needed to meet significant budget shortfalls.
We have talked and will continue to talk with employee shared governance groups about the budget and will attempt to structure our plans to have as little impact on employees as we are able.
I recognize that this is difficult news, but until we can resume normal operations, we will need to deal with the consequences of this pandemic on our organization. With these actions behind us, UW–Madison will be in an even stronger position to fulfill our public mission. In the meantime, I want to thank you for all that you continue to do for the university.