Economic impacts from the COVID-19 pandemic have so far added up to a $210 million hit to the UC Davis budget—with the potential for losses to grow. Campus budget leaders have announced strategies to address and mitigate these financial challenges, with principles that require shared sacrifice, but emphasize protecting employees from indefinite layoffs and continuing to support student academic success.
As the pandemic unfolded and the campus adapted to support reopening in accordance with public health guidelines, the financial impacts accumulated. Classes were moved online, personal safety precautions were implemented, and a variety of standard operating procedures were swiftly reimagined to respond to the “new normal.” Meanwhile, the State of California as a whole was impacted, resulting in a decrease in state funding to UC Davis of $45 million, a reduction of more than 10 percent over the previous year. Each of these changes took a financial toll, adding up to the estimated $210 million impact so far. This impact is expected to be limited-term and affects all fund types campuswide—something the campus must address with short-term adjustments and strategies—while structural budget impacts to core funds are addressed through the annual budget process and budget framework.
Embarking on a process to mitigate pandemic impacts
To address many of these financial impacts, Provost and Executive Vice Chancellor Mary Croughan has announced a set of budget mitigation strategies. The strategies were developed in consultation with the Budget Framework Advisory Committee, Academic Senate Committee on Planning and Budget, Chancellor and Provost Leadership Councils, Budget and Institutional Analysis and other leaders across campus.
“I am working closely with campus leaders on mitigation strategies to identify one-time funding sources that can carry the university through the coming year and address extraordinary needs due to the pandemic,” Croughan said in a recent midyear budget update letter. “Mitigation requires shared sacrifice campuswide and locally. We will continue to make decisions collaboratively, following a principled process with a focus on our strategic priorities.”
Campus continues 5-year budget process in parallel with pandemic mitigation
In 2019, former Provost Ralph Hexter alerted the campus to the projected structural deficit of $80 million to $100 million in core funds if no decisive action was taken. By January 2020, the campus had launched a five-year process to rebuild the budget framework with the goal to reduce ongoing reliance on core funds, primarily state funds and tuition revenue, by $80 million to $100 million by 2025.
Croughan has noted that the budget framework process must continue while the campus works toward short-term solutions to the pandemic impacts. In particular, the ongoing impacts of state budget reductions and lower than expected enrollment will need to be addressed and added to the framework plan.
Both the mitigation strategies and the budget framework plan are guided by core principles, primarily a commitment to student success, a shared sense of responsibility and accountability, and an emphasis on the good of the university as a whole. In addition, a set of principles developed specifically for the mitigation strategies guide this distinct effort. These include protecting against COVID-related indefinite layoffs to the greatest extent possible; deferring new permanent or one-time cuts in fall 2020 and winter 2021 quarters; recognizing the need for shared sacrifice; delivering working capital options to help mitigate budget impacts; and investing to support the reopening of campus in accordance with public health guidelines.
“Through it all our top priority must be to support our students’ academic success and achieve equitable outcomes for all UC Davis students. We must also continue to move forward on our key strategic initiatives addressing critical research and service needs of California and beyond. We maintain our commitment to faculty, academics, and staff as our employees are key to our mission of providing a productive learning environment and performing research and service that matters,” Croughan noted.
All campus units must make budget adjustments
One mitigation strategy is all campus units are expected to use internal resources to offset a portion of the losses, totaling approximately $40 million to $55 million in one-time funds. This could come in the form of operational savings, carryforward balances, or other revenue sources. Units will be expected to develop their own mitigation plans to manage internal resources and help reduce the overall financial impact of the pandemic.
“Now more than ever, we must continue to engage our entire campus community to shift mindsets and find creative solutions that generate savings, create revenue generation, and streamline our work,” Croughan wrote in her midyear budget update letter.
More information is available on current mitigation actions.
Strategies identified to mitigate pandemic financial impacts
Other mitigation strategies involve a number of one-time funding sources, including internal borrowing, federal assistance, payouts of campus enhancement funds, investment gains and unit sources. All combined, these strategies are expected to significantly reduce the current limited-term financial impacts of the pandemic. Mitigation strategies will be rolled out to address the most critical needs first and the strategies and available fund sources will be applied based on what best fits the needs identified. More detail on the strategies is available here.
The campus has already begun reviewing applications for loans for auxiliary and self-supporting units with extraordinary losses and has released a call for proposals to mitigate impacts on scientific recharges.
Next steps as fiscal impacts become more apparent
In the coming months as more information on the full extent of the financial impacts of the pandemic are known, estimates will become more precise and additional central budget actions will address the critical needs of the campus. The Regents will provide more information on systemwide efforts to identify one-time savings.
“Though the financial pressures can be daunting, I assure you that we will see the university through these current financial challenges,” Croughan wrote. “Together, we have proven over these last few months that we can adapt in challenging times and outgrow expectations as an organization.”