The University of Michigan is working to better understand how long the COVID-19 pandemic will last while assessing its short- and long-term financial effects.
All of the university’s major sources of revenue are in question, while at the same time, large, sudden and unexpected costs have been incurred due to the pandemic. The university currently faces estimated anticipated losses of $400 million to $1 billion for the rest of the calendar year.
Unexpected expenses include the pandemic response at U-M’s hospitals and clinics, coupled with loss of revenue from non-urgent medical procedures that have been cancelled or postponed. The university issued refunds for employee parking and rebates for student housing and dining. These were important measures but not part of our normal budget or monthly cash flow calculations. Additionally, demand for financial aid will likely increase in future semesters as the families of our students have experienced reductions in income.
Revenue uncertainties include demand for classes, the ability to safely bring students to campuses, the nationwide economic slowdown, potentially greater needs for patient care, and levels of state support and federal research funding that may change.
The situation continues to evolve, and the pandemic may require the university to make more difficult decisions in the future.
The University of Michigan is an institution that has stood the test of time for more than 200 years. While it will not be easy, U-M will overcome this pandemic and uphold our public mission and the promise we have made to those we serve.
The principles underlying these decisions were developed in conjunction with the executive team and key senior leaders to align with U-M’s core values to guide decision-making:
- Deliver the mission of the University of Michigan. We take pride in the work we are doing to enhance society and recognize the many communities who rely on us.
- Value, protect and support our people. We will seek and implement the best guidance possible for the health and safety of our students and employees. We will also prioritize students’ academic progress and financial aid and strive to minimize adverse impacts on regular employees. The success and well-being of all members of our community are crucial to education, research and patient care at U-M, now and into the future.
- Preserve the University of Michigan’s long-term excellence. We are responsible not just for the university’s success today, but for its future. Together, we continue to demonstrate the importance of academic excellence, including the inseparable values of diversity, equity and inclusion. No crisis can change this fundamental truth. We will have to work and think differently to uphold these values.
- Communicate effectively and thoughtfully with our community. We will continue to share information with as much transparency and as quickly as we can on our COVID-19 website and in communications with individual units.
All of the university’s major sources of revenue are in question, while at the same time, large, sudden, and unexpected costs have been incurred due to the pandemic. The university currently faces estimated anticipated losses of $400 million to $1 billion for the remainder of this calendar year. This includes all three campuses and Michigan Medicine.
University leaders have previously announced that all units must work to preserve financial resources wherever possible. Some of the actions announced April 20 are amplifications of previously announced plans, or they draw a clearer line for how we will proceed in the coming months. These actions apply to all three campuses and Michigan Medicine and help the university make progress to address the financial gap and the ongoing challenges of the COVID-19 pandemic.
All of these actions may be reconsidered as financial conditions change. Additionally, the pandemic may require us to make even more difficult decisions in the future, including employee compensation cuts, mandatory furloughs and layoffs.
All non-essential expenditures are to be suspended, and new financial commitments are to be avoided until further notice for all three campuses and Michigan Medicine. Examples of expenses that should be minimized or eliminated include, but are not limited to, the following:
- Travel (All international travel and all domestic air travel is currently restricted per previous university guidelines).
- Hosting, food and beverages.
- Professional development.
- Events (holiday; employee recognition).
- Outside marketing and advertising.
- Outside printing.
- Prizes, gifts and awards.
- Event tickets.
- Supplies (all categories, including office, computer, etc.).
- Computer equipment.
- Major equipment purchases also are suspended unless deemed essential to university operations or research activity and the impact to the university’s cash flow is considered.
There will be a regular review of expenditures in these types of categories by the university’s executive officers. In all categories, there may be needed exceptions for expenditures that are critical to the university mission and that can be approved by university’s executive officers. This includes computer equipment needed for remote activity that is considered critical.
Research projects that are fully funded by federal sponsors can continue their normal operations and spending. Those directing these funds are asked to ensure that uses align as much as possible with urgent and mission-critical expenditures. Researchers are encouraged to continue pursuing external support for their work. The Office of the Vice President for Research developed a series of FAQs regarding the financial implications of COVID-19 on U-M research operations.
All hiring is frozen with the possible exception of staff or faculty in roles considered critical and those fully funded by federal grants. Units may still hire student employees as appropriate. The university will honor its outstanding offers extended to staff or faculty. Michigan Medicine will continue to apply its own criteria based on patient-care needs. This freeze includes temporary staff positions across the university. In addition, some temporary staff positions will not be continued.
Faculty hiring freeze: This guidance applies to all faculty hiring (tenure track, research and clinical). Those already in the process may proceed. A dean may seek an exception from the provost to hire if it is deemed essential to the mission. Exceptions for faculty with appointments in Michigan Medicine will be provided by the executive vice president for medical affairs. These exceptions will be rare and should be based on the need to deliver the university’s core mission.
Staff hiring freeze: This applies for staff positions in non-critical roles for all three campuses and Michigan Medicine, and strengthens previous university guidance. Staff positions funded by federal grants may proceed.
The hiring freeze includes temporary staff positions. Student positions may be filled as appropriate. During this pandemic, the university is striving to protect regular employees’ jobs as much as possible. To address financial pressures, some temporary staff positions outside of mission critical activities will not be continued.
There will be no increases to base salaries effective immediately and through the end of the upcoming budget year. This will include merit increases that would typically occur on Sept. 1 and reclassifications, with exception of those related to faculty and staff promotions that have already been approved, are part of the faculty tenure and promotion process, and are contractual adjustments prescribed by collective bargaining agreements.
There will be no increases to base salary in the FY2021 budget, with the exception of promotions described above. Bargained for employees will receive increases consistent with their contracts. For faculty, exceptions for promotions include those associated with in-process and scheduled promotions of tenure track, research track and clinical faculty to associate or full professor. For staff, exceptions for promotions include promotions that are already in the works or those that are part of a planned “ladder” based on time in position. Any exceptions to this policy will be rare and must be approved by an executive officer.
President Schlissel is cutting his monthly base salary by 10 percent starting May 1 through the end of this calendar year. For the same period, the Dearborn and Flint chancellors have volunteered to reduce their salaries by 10 percent, and the remaining executive officers, chief diversity officer and athletic director have volunteered to reduce their salaries by 5 percent. This is in addition to the same provisions for no merit increases that have been announced for all employees.
Ann Arbor deans not covered by the executive officer cuts have decided collectively to personally donate funds that will provide support for student and staff emergency needs.
Due to the COVID-19 pandemic, U-M is offering two voluntary programs for staff:
- A temporary furlough program for staff in non-critical operations.
- A temporary reduction in hours.
In each case, employees would be able to return to their regular positions and hours at the end of the approved period (including any mutually agreed upon extensions). Staff with regular, non-temporary appointments in Ann Arbor, Dearborn, Flint and Michigan Medicine are eligible.
Temporary furloughs and temporarily reduced hours are voluntary, and requests must be made between April 27, 2020, and May 8, 2020. Approved voluntary furloughs and reduced hours can start upon unit approval but no later than May 30, 2020.
Furloughs are temporary layoffs/leaves that do not lead to termination. Staff members are still U-M employees while on furlough and they return to their position on a pre-arranged date. Furloughs can be offered by a unit to employees or furloughs can be requested by individual employees. In both cases, participation is voluntary, and the unit must approve it. Units determine whether to approve requests and areas performing critical operations can opt out of the program.
During the temporary furlough period, the staff member:
- Does no work for the unit and receives no pay.
- Remains a university employee.
- Is eligible to file for unemployment compensation.
- Does receive continued university benefits.
- Does continue to receive the university contribution toward their benefit plans (health, dental, long-term disability, life), and the university also will pay the monthly employee contribution for health insurance.
- Retains accrued vacation and sick time (additional time will not accrue).
Staff or units may request a temporary reduction in hours (reduced effort). Staff with effort that remains at or above 50 percent retain benefits and university contributions and return to their previous level of effort on a pre-arranged date. Staff members must receive unit approval for temporary reduction of hours.
During the temporary period of reduced hours, the staff member:
- Reduces weekly work hours (effort) by 15 to 45 percent (as agreed upon).
- Is eligible to file for unemployment compensation.
- Continues benefits (with appointments remaining at or above 50 percent effort) at the same premium rates paid before reducing hours.
- Accrues vacation (or PTO) at reduced effort.
- Receives other paid-time-off benefits prorated to the reduced effort (holidays, funeral days, etc.).
- Returns to their regular effort after 60 to 120 days (on the return date approved by the unit).
- Unemployment: A claim for state unemployment compensation will not be contested by the university unless the employee was offered and declined redeployment to another position. Eligibility for and the amount of unemployment benefits are determined by the state of Michigan. (The current maximum state weekly benefit is $362 and may include an additional weekly supplement of $600 from the Federal CARES Act through July 25, 2020.)
- Benefits: Upon return from furlough, the accrued employee contribution portions of the dental, life, LTD, legal and vision premiums for the period of absence would be deducted from pay. The employee portion of the health care premium is waived for the period of absence and will not need to be paid upon return. There will be no university contributions to the retirement savings plan during the period of furlough.
- Job security: The unit will hold a position for the employee to return to at the end of the approved period, including any extensions. If business circumstances change to such an extent to indicate a Reduction-in-Force is warranted, the relevant policy/contract language would apply.
- Paid time off: The employee’s regular available paid time off balances will be maintained. Emergency COVID-PTO banks will no longer be available to those who take a furlough. The federal Emergency Paid Sick Leave Act (EPSLA) paid time off bank will remain available until program expiration on December 31, 2020.
- Early recall: If university operations require early recall from voluntary furlough or reduction in hours, a minimum of one-week notice will be provided.
In accordance with Gov. Gretchen Whitmer’s directive, contractors have paused construction on campus. We will re-evaluate our financial ability to resume projects already in construction and projects that are proposed for design. U-M is currently assessing how the pandemic will affect the overall capital plan for projects in the future.
Like many personal investments, the university endowment has suffered large but uncertain losses. U-M’s endowment continues to be a needed resource for funding student scholarships on our three campuses and costs that ensure success of programs across the university. It provides essential support to ensure the university delivers 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.
Over the past 20 years, the university’s long-term investment strategy and spending policies have generated nearly $4.7 billion in endowment distributions to support vital U-M operations.
The university’s endowment is essential to sustaining academic excellence because it provides a guaranteed, never-ending source of income to support student scholarships, professorships, innovative programs, learning opportunities and life-saving research. Donors who contribute to the endowment do so because they want to support the university and positively impact U-M students and academic programs 25, 50 or 100 years from now.
Much of our endowment is dedicated to funds that can be used only for a specific purpose. The university is committed to honoring these agreements with our donors and to maintaining the endowment’s ability to support scholarships, programs and the stability of the university.
University leaders remain cautiously optimistic that we will be able to deliver a public health-informed Fall semester on our three campuses. The university is working to plan for a gradual return to normal activity, informed by strong public health guidance from the federal and state governments and U-M public health experts. It’s important to note that ramping up operations won’t be like flipping a switch. Units across the university are developing plans based on the latest information and projections, even as the situation continues to evolve. We will share more information as it becomes available.