As we enter the second month of the extended shelter-in-place order, I begin with gratitude for your generous response and hard work. We have had to make some monumental decisions we could not have imagined when the academic year began, including moving about 3,200 students off campus, transitioning nearly 1,300 classes and our work to a remote environment, and postponing Commencement exercises. It has not been easy. I realize that these have been very stressful and anxious times personally and professionally for all of you. But your steadfast commitment to Santa Clara’s mission and our students, your care for each other, and your flexibility and resiliency represent the best of who we are. Thank you.
To guide our decision-making in these weeks, our leadership team has relied on three principles:
- protect the safety and well-being of our community;
- preserve and invest in our core academic mission of teaching, learning, and research; and
- minimize the financial impact of the shelter-in-place orders and the related economic downturn, while trying to avoid furloughs and layoffs.
Inspired by our Jesuit tradition, we have aimed to make the right decisions, in the right way, at the right time, focusing on people, who are the heart of what Santa Clara is about. Along the way, we have regularly communicated with you by email, social media, and virtual town-halls, and we have consulted with our colleagues as part of our collaborative governance system.
In this spirit of transparency and principled decision-making, I write now to describe our current financial condition, to summarize actions that we have taken or will take to respond to our financial challenges, and to outline how we are planning for the future.
Financial Condition and Impacts
Like other universities, the most immediate and severe financial consequence of the pandemic is the loss of auxiliary revenue, such as room and board. Of our 3,400 on-campus students, only 200 remain because they have no viable alternative for housing. To a lesser degree, we also face other losses after canceling income-generating campus events and conferences through at least June 30.
All told, these losses total approximately $12 million, in a year in which we were forecasting only a modest budget surplus. In addition, if fundraising trends in past economic downturns are any indicator, we will likely see a steep decline in our annual giving this year and in coming years.
Facing these losses, on March 23, we announced a series of remedial measures, including the suspension of all non-essential expenditures (including travel) and a hiring freeze, with only a few mission-critical exceptions. In addition, 24 members of our senior leadership, including deans, voluntarily took a 90-day pay reduction in ranges of 10-20%. This list includes coaches as well. I am grateful for their selfless response.
Fortunately, our spring enrollment in undergraduate and graduate programs remained more or less stable. For a university that relies on tuition for 80% of its annual revenue, this is significant. This is a sign of the value of a Santa Clara degree and the deep, personal care for students that we offer.
To ease unexpected burdens on our faculty, staff and students, two emergency assistance funds were established. Thus far, we have awarded grants to 531 students, totalling $241,500. Likewise, 21 faculty and staff members will receive grants in early May, totalling $10,250. Thanks to all who helped to organize and contributed to those emergency funds.
The University has applied for funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Part of these funds are reserved for students and universities. Based on a formula stipulated by the Department of Education, Santa Clara is slated to receive $3.5 million. Half of this amount must be dedicated to direct aid for students in need. We are developing a process for distribution to those students, according to Department of Education guidance. The remainder of the funds, when we receive them, can be used for institutional support or other financial needs. More information will be provided in an upcoming weekly COVID email update.
Financial Outlook and Additional Actions
Because of your cooperation and generous spirit, the measures outlined above helped blunt the financial impact of the massive disruption in our operations. At present, our best estimate is that we will close our fiscal year with a deficit of between $4-5 million. While it certainly could have been worse, we need to make up for that deficit in the next fiscal year (FY21), which begins on July 1, 2020.
In addition to the deficit, next academic year will bring with it challenges equal to or exceeding those we faced this year. First, given the severe economic downturn, we expect to increase our financial aid budget beyond what was approved in February. This necessary expense stems from our commitment to ensure greater access and affordability to a Santa Clara education. Second, both undergraduate and graduate enrollment face headwinds not seen in a decade because of the uncertainty caused by the pandemic, families’ inability to pay tuition, and visa and travel restrictions that might impact international students. At present, we are on track to meet our enrollment targets for first-year and transfer students. Graduate enrollments are also tracking well, although we are concerned because some of our programs are heavily dependent on international students. We expect these numbers to be fluid through the summer, as we respond to more information about the pandemic’s impact.
Some have wondered why we do not simply take money from our endowment to cover our losses. There are two primary reasons why most universities avoid that tactic. First, most of the endowment is restricted for certain specific uses and cannot be used for general operations or to cover a deficit. Second, the purpose of the endowment is to provide operational funds in perpetuity. Currently, we rely on endowed funds to support 8% of our operating budget. To take money from the corpus of the endowment will diminish that operating support and will also deprive us of “seed money” to invest in future initiatives that will make us strategically competitive. As of last week, our endowment, currently valued at $920 million, has suffered an 8% loss since its high in late December.
To address both our current deficit and proactively address anticipated shortfalls next year, we will take the following actions during the upcoming fiscal year (FY21), which begins July 1:
- We will continue the limit in discretionary spending to only mission-critical expenses until further notice;
- We will continue the freeze in hiring, with exceptions for mission-critical positions granted by either John Ottoboni, Chief Operating Officer, or Lisa Kloppenberg, Provost;
- We will delay our previously planned merit increases, although salary increases resulting from recently announced faculty promotions will be honored. Given the delay in merit increases, we have decided to delay rent increases for faculty and staff in University housing;
- We will explore reducing the University’s contribution to the retirement plan for a period of time, in consultation with the University Benefits Committee.
We commit to paying salaries through June 30, 2020 for all full-time and benefits-eligible part-time employees at their current base rate of pay. If during the next fiscal year we face a significant loss in tuition revenue or another disruption like we experienced this spring, we will have to thoughtfully and collaboratively explore additional options, including possible layoffs or furloughs. We would also need to examine the possibility of a reduced work week, asking some employees to not work on certain days and/or to use vacation days to the extent available.
As you know, we have two major construction projects substantially underway: the Sobrato Campus for Discovery and Innovation and the Schott Athletic Excellence Center. We will complete those mission-critical projects because it is more expensive to delay them than to finish them now and because we have already raised most of the money for the projects.
While we must continue reducing our costs, we still must make longer-term investments in the core academic functions of the University so that when this turbulent time recedes, Santa Clara will be positioned for long-term success. Balancing short-term response and long-term investment will remain a priority for me as a leader.
Planning for Next Academic Year
As Provost Kloppenberg recently wrote, our hope is to resume in-person instruction in the fall if we can do so while safeguarding the health and safety of our community. Like other sectors of the economy, we are dependent on directives from local and state officials, with whom we are in regular communication. Critical to resuming operations on our campuses will be the availability of widespread testing and the ability to track infections. Reopening our campuses safely will require disciplined and careful planning as we imagine what social distancing might be required in our classrooms and laboratories, residence halls, libraries, dining facilities, and athletics and arts spaces. We are actively looking at a wide range of scenarios.
To assist in our planning, I have established a COVID-19 Resilience and Recovery Working Group, which will report to me. The group is comprised of the following teams or focus areas:
- Teaching and Learning, led by Lisa Kloppenberg, Provost
- Financial Planning, led by John Ottoboni, Chief Operating Officer
- Campus Operations, led by Chris Shay, Associate Vice President for Operations
- Staff Engagement, led by Molly McDonald, Chief of Staff, President’s Office
- Student Experience (including Student Life, Athletics, and Campus Ministry), led by Jeanne Rosenberger, Vice Provost for Student Life & Dean of Students
- Legal Guidance and Government Relations, led by Bridget Colbert, Interim General Counsel
- Communications, led by Celine Schmidek, Associate Vice President, University Marketing and Communications
The team leaders will solicit wide input and communicate our plans as they become clearer, based on information we receive from local and state officials. We should have more clarity during the summer regarding our plans for fall 2020.
Some Final Thoughts
There is much to digest and absorb in this update. To answer your questions, Lisa Kloppenberg and I will host a virtual town hall on Wednesday, May 6, from 10:30-11:30 a.m. You can submit questions now using this form. Watch for the Zoom link to follow.
I realize that I have relayed to you stark though unsurprising realities. While we need to address these realities head-on, we also must not lose sight of the many signs of hope that have emerged in this painful time. We have collected many of these encouraging stories about how our Santa Clara community has responded with such creativity and generosity. I invite you to read and view them.
At my inauguration, I proposed the image of a Jesuit university as a place of generous encounter. Little did I know then how much that image would come to life. Our encounter—our presence—is different than we imagined at year end. Yet, our care for one another and for those far beyond our campuses has unfolded with inspiring magnitude. The intensity of these recent months, and the accompanying solitude, have only amplified my love for this place and for the people here.
Not since the Great Depression and World War II has Santa Clara University faced such a challenge as we are facing now. But like those generations before us, I have no doubt that we will rise to the present challenge. Clear-headed, calm, and generous in spirit, we will get through this, with God’s help and the help of one another.
With deep gratitude and much hope,
Kevin F. O'Brien, S.J.