Important financial updates for the 2020-21 fiscal year

As we bring the current fiscal year to a close and begin a new fiscal year, we want to give you a candid picture of where we are in regards to the College’s financial outlook and the decisions we are making to respond to the extraordinary conditions that we face. While the College began fiscal year 2019-20 in a strong financial position, the COVID-19 pandemic has created a significant and continuing challenge to the College’s finances. For example, for the current fiscal year (which ends June 30), supporting our students this spring with room and board refunds and travel assistance meant more than $4 million in unanticipated expenditures, some of which we were able to offset through the prudent steps we announced in March.

In addition, thanks to the effective work of the Business Office staff, working with the Office of Strategic Initiatives, the Dean of Students Office and the Financial Aid Office, the College secured CARES Act funds totaling approximately $1.5 million. Half of these funds have already been distributed to our students, with the majority of the funds going to those students with the highest need. The remaining half will be used to offset some of our unexpected expenditures  from fiscal year 2019-20. Another $1.3 million was raised for the Oxy Fund with nearly $200,000 for Athletics on the April 20 Day For Oxy.

Our attention is now squarely focused on fiscal year 2020-21, which starts on July 1. As we look ahead, we know the effect on the College will likely be substantial. COVID-19 has wreaked economic havoc around the world; higher education and Occidental are not immune. Institutions of all sizes and types are wrestling with a range of impacts due to the pandemic. As announced on June 15, we intend to reopen our campus this fall. However, that doesn’t diminish the financial concerns ahead of us.

While there are some unknowns for fall that will likely impact our revenues, we can identify with certainty a number of factors that will negatively impact the outlook for next year:

• Tuition, room and board. This is the single largest source of revenue for the College, typically providing two-thirds of our operating budget. COVID-19 uncertainty will impact enrollment of new students and increase the attrition of current students. Our most optimistic projections forecast a first-year class about 15% below our target. We also anticipate that many current students may choose to sit out a semester or a full year.  

• Financial aid expenses. With the substantial impact that COVID-19 has had on family incomes, we will need to spend significant additional resources in anticipation of the increased financial needs of our students and their families. Occidental’s commitment to access, as embodied in our policy of meeting the full demonstrated need of each student, will not change.

• Investments in COVID-19 response. Necessary investments in areas such as remote learning technology and health and safety (testing and personal protective equipment and tents for outdoor classrooms, for example) will place further strain on the 2020-21 budget. 

• Secondary revenue streams. In a typical summer, Oxy generates roughly $1 million in revenues from auxiliary services such as summer camps, conferences and filming. With stay-at-home orders continuing through the summer, we are forecasting a severe reduction in summer revenues.

Given these factors, we are projecting the net operating deficit will be between $18 million and $35 million--which equates to about 15% to 30% of our annual budget. Although we need to wait until mid-September, after the student census date, to have a better understanding of our financial situation, we can say with certainty that our operating deficit will be substantial.

Unfortunately, it’s also clear that we cannot rely solely on our two chief sources of non-enrollment based revenue, our endowment and philanthropy, to completely address our deficit. The endowment typically produces about 15% of the operating budget. We have a commitment from the Board of Trustees to draw a larger proportion of the unrestricted portion of the endowment in 2020-21 to help meet the anticipated deficits. However, the majority of the endowment consists of restricted funds that are dedicated to purposes designated by donors. And there are practical limitations on the amount of unrestricted funds we can use. In addition, we must ensure that the endowment can be preserved to guarantee the future and quality of Occidental in the years ahead. While we will continue to benefit from the generosity of our donors--the recent success of The Day For Oxy being the latest example--the far-reaching economic impact of the pandemic will inevitably affect giving levels to the College.

Given that we know we can't solve the deficit through endowment or philanthropic measures, we have to take a hard look at our operations now and begin implementation of a series of proactive steps in the short term to confront these looming shortfalls. Because of the urgency of the situation, we cannot wait until September. We also must begin the planning process to address the longer-term structural changes needed to address our sustained financial challenges.

This will not be easy. Meeting the challenges posed by the pandemic will require flexibility, imagination, fortitude, and some tough choices. All of us will be called on to make sacrifices--temporarily, we hope--to preserve the quality of our academic program and best serve our students. We will be guided by the following principles:

• Upholding our mission and values

• Maintaining our commitment to an excellent academic program and residential experience

• Keeping each other safe and continuing our culture of care

• Acting in both the College’s short-term and long-term interests

There have been extensive and thoughtful deliberations with senior staff and incoming President Harry Elam over the past several weeks. We have also consulted with members of faculty who were designated by Faculty Council to serve as liaisons with the administration on this matter, and had conversations with represented and unrepresented employees. With approval from the Board of Trustees, we are announcing the following steps:

• All members of the senior leadership, including both the outgoing and incoming presidents, will be taking voluntary pay reductions ranging from 4%-10%.

• We are implementing a salary freeze for faculty and staff positions, except those that are contractually required or linked to promotions.

• We are continuing the current hiring freeze. Any exceptions to the freeze will require approval by the president.

• We will be suspending the employer matching contribution to the 403(b) retirement plan from August 1, 2020 until July 1, 2021. Employees will continue to receive the 6% employer contribution that does not require an employee contribution. Additional information about the changes to the retirement plan can be found here.

• Over the course of the fiscal year that runs from 7/1/20-6/30/21, we will be implementing progressive furloughs for non-faculty employees who accrue vacation.

  • Employees who earn less than $50,000 annually will be furloughed for 5 work days

  • Employees who earn $50,000 - $99,999 annually will be furloughed for 10 work days

  • Employees who earn $100,000 or more annually will be furloughed for 15 work days

Employees may use vacation time during their furloughed period(s) to maintain full salary. Health benefits are not affected by furloughs. Additional information about furloughs can be found here.

• We will be changing our vacation accrual policy. Employees will maintain the time already earned but, going forward, accrual rates will change resulting in reductions of potential vacation earned for many, though not all, employees. Additional information about this change to vacation policy can be found here.