President Elam provides a further update on the budget for Occidental’s 2020-21 fiscal year.
Dear Members of the Occidental Community,
Thank you all for your hard work and positive spirit over the course of this very demanding summer. I am writing to you in these unprecedented times to provide an update on our fiscal year 2020-21 budget. While we have not finalized the budget, after much care and deliberation we have made some important preliminary decisions, including some which will impact our workforce.
The unrelenting spread of the COVID-19 virus has had significant fiscal repercussions for Occidental, as it has California and the nation. On March 31, the College announced that COVID-19 would have an outsized impact on this year’s budget for a number of compelling reasons, including losses of revenue due to the necessary movement of students off campus last spring. While protecting health and safety, our July 15 decision to go remote for the fall --informed by expert medical advice and driven by the resurgence of COVID in Los Angeles and other parts of the country--also has had a financial impact. Though final fall enrollment numbers are not yet known, this year’s budget has been further challenged by the rise in numbers of incoming students who have decided to take a gap year, and by some returning students who have committed to stopping out for the fall semester. What we are sure of is that the loss of room and board for the semester represents a substantial revenue loss to the College. Thus, with all this change and uncertainty in revenue from tuition, room and board, we anticipate an operating deficit that may be as much as one third of our operating budget—significantly higher than our expectations for losses back in June.
I lay out these economic realities as a backdrop to explain the circumstances we face and the principles guiding all of our financial decisions going forward. For all of us, it is paramount to address this operational deficit while holding fast to Occidental’s values and mission to deliver a rigorous and intellectually stimulating liberal arts education that is anchored in the cornerstones of excellence, equity, community, and service - as well as our emphasis on social justice. Given our commitment to community and, as much as possible, transparency of processes, the senior administration has sought to engage all the various stakeholders in this evolving process. Since July 15, we have held meetings with staff, faculty, the Faculty Council, the Administrator Staff Council, unions, as well as with the leadership of the ASOC to share the unfolding work of the administration as well as to hear their perspectives, suggestions, and concerns. At the same time, we have worked closely with the Board of Trustees, as they have the ultimate fiduciary responsibility for the school and its endowment.
Throughout, a major tenet in our decision-making has been to preserve as many jobs as we can; I keenly appreciate how economically vulnerable so many are in our community and in this country right now. So please know that the painful decision to furlough is made only after careful consideration of all other options. I would add that, in addition to keeping as many positions as viable in these circumstances, I have sought also to protect faculty and staff salaries. We do so both with the recognition that people's livelihoods are at stake, but also because reducing salaries would adversely affect our ability to retain and recruit the high caliber of faculty and staff we have now and will need for our future.
With this all in mind, the first set of budget decisions we made sought to reduce services and expenses and increase endowment payout, in order to minimize the impact on personnel. These include:
A larger draw on the endowment. In 2019/20, the endowment contributed $18 million to the annual operating budget. This year, through an increased percentage draw and the repurposing of one-time endowment funds, approximately $35-45 million will be used to fund operations.
A reduction in centralized expenditures, such as facilities renovations, insurance premiums, and utility costs will result in approximately $6 million in savings.
Previously announced actions, including salary freezes, senior staff pay cuts, a hiring freeze and the reduction of the 4% match for retirement benefits, provide roughly $5 million in savings.
And, as announced, we required all the vice presidents to present 10-15% cuts for their departmental budgets. However, given the mounting depth of our budgetary deficit, we have needed to implement even steeper cuts to the non-personnel budget lines across all departments, with cuts averaging 18-25%, with some non-academic areas cutting as much as 50%, to generate approximately $5 million in additional savings.
Unfortunately, because salaries and benefits are such a major part of our budget, these actions alone will not be enough to cover the operating deficit that we face for this current fiscal year. Thus, we have had to make some very difficult personnel decisions. One of our greatest strengths and therefore greatest concerns in this process is our people, particularly in this time of pandemic. As incoming president, I have become increasingly familiar with the special community that is Occidental College, and know that any loss of staff has great consequences for the school as a whole. So throughout, as I have mentioned, we have sought to limit job loss. To that end, as a first step, by freezing hiring for 34 open positions this year, we expect to save about $2.5 million. However, the hiring freeze alone is not sufficient to cover the remaining deficit and we have had to turn to temporary layoffs or furloughs.
In determining who would be subject to furlough or layoff, our primary consideration is the operational impact of a remote semester with a greatly reduced number of students on campus. Our residential campus will be significantly different during the fall semester. These operational changes will impact departments and individual positions within those departments, in some cases, reducing or eliminating, for the time being, the need for certain types of work.
Please note that our final personnel decisions are subject to the ongoing conversations with represented employees and their unions. We also believe it our responsibility to notify first those impacted employees over the course of this week and next before making any detailed announcement.
Still, in the service of transparency we wanted to share with you our strategy for instituting furloughs or work interruptions for those employees whose workloads are most disrupted by the dearth of students on the campus this fall. There will be two categories of furloughs or work interruptions, and the specified furlough or temporary layoff period will be September 1, 2020 through December 30, 2020, although it may extend longer, depending on what the spring brings.
The first category is a “100% furlough," meaning impacted employees will not work or receive salary during the specified period. The other category is a “partial furlough," with the most common variety being a 50% furlough. Under a 50% furlough, for example, the impacted employee would work for two weeks followed by two weeks of furlough, continuing in an alternating fashion during the 4-month period.
Our furloughed employees will be able to file for unemployment with the State during the time of their furlough. Assistance with filing for unemployment benefits and other related issues will be provided by the Human Resources office. Importantly, Occidental will offer all our impacted employees in these two categories the same medical, vision, and dental insurance benefits that they had before being furloughed. In addition, a small number of permanent layoffs is still under consideration.
Clearly, the painful decisions we must now undertake are a reflection only of the state of the College budget, not of the value of any furloughed employees. Yet, this does not make this furlough decision any easier. We all hope to welcome them back to our community as soon as we possibly can. Facing the continuing uncertainty for the spring semester, we will monitor the impacts of the pandemic and determine to what extent conditions will permit us to return more students to campus and resume some form of in-person instruction. Once all impacted employees have been communicated with, a process that I expect to be complete by Friday, August 14, we will come together as a community in an all-campus town hall to provide further updates.
I thank you all for your many contributions to Occidental and I am deeply aware and appreciative of your continued perseverance and understanding as we navigate these challenges. To be sure, the road ahead is difficult and uncertain. Yet, I have great confidence in the resilience of this community and in the strength and optimism that we can find in one another. Together we shall withstand and even become all the stronger.