Impact of COVID-19 at Denison
Dear Faculty and Staff,
I am writing with an update on the impact of the COVID-19 crisis at Denison. As I said in May at the State of the College presentations and Faculty Workshops, higher education will be one of the hardest hit sectors by the COVID crisis along with retail, travel, and a few other sectors. Denison entered the COVID crisis healthier than most colleges, but we will not be unscathed. We need to prepare to manage a set of significant financial challenges that will last at least the next two academic years.
Next week, Human Resources will send you a letter announcing that we are delaying any decisions about salary increases until December, when we have a better sense for next year’s revenue. We don’t expect that we will be able to do salary increases next year, but we are also not ready to make a final decision. At this point, we expect revenue to decline from last year between $7 million-$12 million, assuming campus is open, and $20 million-$30 million (or more) if we were in a remote format for part or all of the next academic year.
Our expenses each year are about $130 million. We cover our expenses with $44 million from the endowment, $74 million from student tuition, room, and board, and $12 million from the Annual Fund and other sources. As our revenue decreases, we will need to reduce our expenses. The good news is that we have taken steps to be able to manage a $10 million decrease in tuition, room, and board revenue. This includes reductions we made to summer construction projects and capital expenses, some reductions and reallocation of operating budgets, and steps we took over the last 18 months to prepare for what we thought would be an eventual economic downturn. A revenue decrease greater than $10 million will require more substantial reductions.
The next academic year (and probably the following two years) are going to be financially challenging for the following reasons:
- Financial Aid: The recession has reduced the incomes of many Denison families. We need to increase financial aid packages to make sure students can attend in the fall. This work is ongoing, but we expect it to be at least $7 million for the academic year and this will be compounded over time.
- Fundraising: Recessions lead to reductions in philanthropy. At this point, we do not have a sense of the magnitude, but colleges like Denison expect at least a 10% reduction. Enrollment: We expect a decrease in enrollment. Assuming campus is open, we expect some students will not return to campus in the fall and/or will decide to take a gap semester or year. If we are in a remote format for any part of next year, that number will climb substantially. Decreased enrollment reduces tuition and board revenue while our fixed costs are unchanged.
- Expenses: At the same time, we will have significant expense increases due to steps we need to manage the COVID virus on campus. Those costs could easily exceed $2 million.
A multiyear challenge for Admission and student enrollment: Given these COVID related dynamics, we expect a multiyear financial challenge. For example: we count on rising high school seniors to visit Denison over the summer as part of their college tour. This will not happen this year. In particular, prospective families from the east and west coasts are not traveling. This will hurt midwestern liberal arts colleges in next year’s college admissions cycle. Likewise, the extra-financial aid we are giving out to the classes of 2022, 2023, and 2024 means these classes will generate less revenue to cover expenses than expected for the next four years.
We are already seeing many colleges, including wealthier private colleges, taking steps to manage the financial crisis on their campuses. These are steps that many other colleges are taking that I would like to avoid, if possible, at Denison:
- Compensation: Reducing salaries and benefits. In particular, we are seeing colleges reduce salaries, contributions to retirement accounts, health care coverages and college tuition assistance programs.
- Staff: Laying off staff and, in some cases, faculty. We expect layoffs and furloughs at colleges and universities to increase through the summer and into the fall. Programs: Cutting programs including those that support students and, in some cases, academic programs.
- Budgets: Reducing program budgets on both the academic and non-academic sides.
Two other steps are being talked about less openly but are worth mentioning:
- Financial Aid: Reducing need-based financial aid for lower-income students.
- Faculty: Replacing full-time tenure track faculty with contingent or part-time faculty.
None of this is good for higher education, but it is where higher education finds itself. These are the actions that I am trying to avoid us having to take at Denison. To do that, we are managing our expenses carefully. It won’t be a normal year.
A lot is being written about the financial crisis across higher education. Here are a few articles that are worth reading:
- Reductions in Public Universities- Inside HigherEd
- Forbes Analysis of Higher Ed Financial Crisis
- COVID Pandemic and Faculty Layoffs
- Higher Ed Reductions To Retirement Plans
Out of respect for other colleges, I tried to select articles that do not focus on any one college. Hence, these articles tend to focus on larger public university systems. If anybody wants articles on our peer colleges (many liberal arts colleges are announcing cuts), please email me privately.
This article is also worth reading. It lists the 169 highest ranked colleges who are still admitting students as of this June. In total there are 776 colleges who are still looking for students, which is a 49% increase over last year.
I want to repeat what I said in May at the State of the College presentations and Faculty Workshops. The steps we took with the 2015 Strategic Plan put us in a very strong financial position pre-pandemic with respect to student enrollments and our financial model. On June 30, we will finish the largest fundraising campaign in Denison’s history. The Strategic Plan and the Campaign combined will allow us to get through the COVID crisis with fewer reductions than other colleges. But, we won’t get through it without cuts, reductions, and shifts in resource allocation. Simply put - we will not have the resources to meet every need, even needs that are important. We also need to manage for ongoing and secondary impacts to be expected beyond the 2020-21 academic year as noted.
Let me comment a little bit on the complexity of the different forms of risk we face:
Getting through next year will require us to manage the public health crisis as well as averting crisis for our mission and people.
- Health: All our decisions have to be responsible and reasonable in light of managing the health challenges - that’s an absolute, and the very top line priority.
But we need to make sure that we do this while also averting enormous consequences to our mission and people.
- Mission: Our students deserve the life-shaping liberal arts education that brought them to Denison. What we do matters. We need to do everything we can to deliver to our students the curricular and co-curricular experiences that they need and deserve.
- People: We need to continue to pay our faculty and staff. Over 800 people depend upon Denison for employment.
All of these things matter. They are connected to our mission and long-term health. They are also the right thing to do.
Some members of our community have asked me if we can just spend down our endowment to get through this challenging time. The endowment is not a rainy-day fund. It is the long-term financial foundation of the college. Legally, we cannot spend the endowment. What we can spend is the income we earn from investing the endowment. Generally, for Denison, this is 5% of the endowment or about $44 million a year. Likewise, most of our endowment is restricted by the donor to very specific purposes. We can only spend the income for the purposes the donor intended for the gift. Finally, the endowment provides a financial foundation that we count on each year ($44 million). If we spend it down, it will generate less income in the future. Hence, we trade one financial problem for another.
The endowment itself is also threatened by the COVID crisis. We count on the stock market increasing each year to generate the income to cover the 5% we spend. The volatility of the current stock market could cause lower return rates in the near term and thus the $44 million we count on each year could actually be lower in upcoming years.
Our priorities are to responsibly manage the risks of COVID-19 and to protect our mission and people. This means focusing simultaneously on community health measures, financial aid for our students, and paychecks for our faculty and staff. We cannot eliminate the risks of COVID-19, but at this time we believe that we can responsibly manage the risks through the robust and aggressive measures we have been developing. Protecting our mission and people depends upon our ability to open the campus. At this point, I feel very good about our plans to make that happen, but I am very aware that so much remains fluid, unpredictable, and unknown at this point and therefore will continue to monitor the landscape carefully.
Finally, I want to thank the faculty and staff for everything you are doing to help the college navigate the tremendous set of challenges presented by the COVID crisis.
Read more of Adam Weinberg's speeches and writings.