UM officials taking pay cuts amid projections of up to $1B in losses from COVID-19

Kim Kozlowski
The Detroit News

The University of Michigan is bracing for up to $1 billion in financial losses this year as a result of the COVID-19 pandemic, its leader warned Monday. 

The projected shortfall come from UM's three campuses and Michigan Medicine, the university's hospital system and will result in a freeze in salary increases to faculty and staff and pay reductions to executives, according to an email sent Monday by UM President Mark Schlissel.

UM is the second public university in Michigan to announce tightened finances to prepare for an expected economic storm following the closure of dormitories, pivot to distance learning and uncertainty when students will return to campus amid the novel coronavirus outbreak.

Losses at UM are expected in such areas as uncertainties around class demand, ability to safely bring students to campus, nationwide economic slowdown, possibly more need for patient care and potential decreases in state support and federal research funding.

"These uncertainties continue to impose a set of very real challenges on the university," Schlissel wrote. "Virtually all sources of revenue the university relies on for daily operations are in question. At the same time, we are managing new costs that arose quickly."

Schlissel said the university's best estimate is it faces anticipated losses of $400 million to $1 billion through 2020.

Though Schlissel outlined numerous ways the university will work to save on costs, he let faculty and staff know the cuts could still get deeper — and possibly include layoffs.

"All of these actions may be reconsidered as financial conditions change," Schlissel said. "Additionally, the pandemic may require us to make even more difficult decisions in the future, including employee compensation cuts, mandatory furloughs and layoffs."

The UM president, however, did not address how UM's projected loss will impact tuition for students.

Board of Regents Chairman Ron Weiser said that's because there are too many unknowns about the virus that will factor into tuition, such as whether there will be residential classes or partial residential classes or whether upper-class students will choose to take a gap year until a vaccine against the virus becomes available.

Another big unknown, Weiser said, is the return of UM's international students, who made up 15% of UM's 45,574 student population during the winter semester. 

"I don’t think anyone is in a position to take a look over that hill," Weiser said.

Michigan State University on Friday announced a tuition freeze for 2020-21 in addition to measures to grapple with its financial future amid the COVID-19 outbreak.

While MSU did not put a figure on a projected shortfall, officials said they would be reducing travel, changing construction and remodeling projects and reviewing hiring plans. All executives will receive pay cuts of 2% to 7%, based on salary levels, likely through June, and maybe for a full year. MSU President Samuel Stanley is taking a 10% pay reduction. 

“The core of a land-grant university’s mission is to provide access to quality, affordable education for all — no matter the challenge or circumstance,” Stanley said on Friday.

Earlier last week, Central Michigan University also announced a tuition freeze.

"The future is uncertain, and this has posed many challenges for Michigan students and their families," CMU President Robert Davies wrote a few days later in a Detroit News editorial.

In Schlissel's letter, he outlined values guiding the UM's decision-making and said some of UM's unexpected expenses occurred when its hospitals and clinics responded to the pandemic and lost revenue from non-urgent medical procedures and outpatient clinics.

The university also gave students refunds for housing and dining, and parking to employees.

"These were the right things to do to support our community but were not part of our normal budget or monthly cash flow calculations," Schlissel said. "Additionally, the need for financial aid will likely increase as the families of many of our students have experienced reductions in income."

To address the financial gap, Schlissel, along with the chancellors of the UM-Dearborn and UM-Flint campuses, will voluntarily reduce their monthly salaries by 10% through the end of the calendar year. Other executive officers, including UM Athletic Director Michigan Warde Manuel, also agreed to a 5% cut to their salaries.

University of Michigan President Mark Schlissel

The financial uncertainties from the pandemic “continue to impose a set of very real challenges on the university,” Schlissel wrote. “We also know that the future will not return to what we knew as ‘normal,’ at least not immediately and perhaps for much longer.”

In addition to executive salary reductions, UM's president said there are numerous ways the university will address the losses.

Among them: all non-essential costs will be suspended, such as travel, conferences and the use of consultants. The university will also avoid new financial commitments and put construction projects on pause.

Staff in non-critical operations may voluntarily and temporarily take an unpaid furlough or temporarily reduce their work hours ranging from 60 to 120 days.

All hiring is frozen, and salaries for employees will be frozen, including merit increases, "with the exception of those related to faculty and staff promotions that have already been approved, are part of the faculty tenure and promotion process, or are contractual adjustments prescribed by collective bargaining agreements," Schlissel wrote.

"We are striving to protect employees’ jobs as much as possible even as the pandemic, and society’s response to it, continues to evolve. Special banks of paid time off and a commitment to paying faculty and staff through April have helped us to weather the initial stages of the pandemic and maintain as many aspects of normal life as possible for employees."

Schlissel noted some have suggested tapping into UM's $12.4 billion endowment to mitigate the financial blow.

"Like many personal investments, our university endowment has suffered large but uncertain losses," Schlissel said. "Nonetheless, it continues to be an essential resource for funding student scholarships on our three campuses, supporting critical medical research and other costs that ensure success of programs across the university."

Schlissel said the endowment "provides the support necessary to ensure we can deliver on our longstanding commitment as a public university to keep quality education affordable, and hundreds of units rely on the stability it provides through ongoing funding streams."

"Much of our endowment supports funds that can be used only for a specific purpose," he said. "We are committed to honoring these agreements with our donors and to maintaining the endowment’s ability to support scholarships, important programs and the long-term stability of the university."

Schlissel said he expects to prevail over the challenges.

“The University of Michigan is an institution that has stood the test of time for more than 200 years,” he added. “While it will not be easy, U-M will overcome this pandemic and we will — as we always have — uphold our public mission and the promise we have made to those we serve.”

Schlissel also promised transparency. 

“I want you to know that I pledge to be as proactive as possible with sharing information about any changes that affect us going forward,” he said.

He also said more steps might need to be taken in the future.

“For instance, work that is available now under the current conditions may not be available in future months," Schlissel said. 

"We also must keep in mind the operational and resource needs when we are able to ramp back up. This will depend on state orders and federal guidelines, and it’s important to note that it won’t be like flipping a switch."

Schlissel ended his letter with hopes for a fall semester.

"We’re already working to plan for a more gradual return to normal activity, informed by strong public health guidance," the UM president said. "I remain cautiously optimistic that we will be able to deliver a public health-informed fall semester on our three campuses."