Deficit increases from $28 to $49 million if university closes before Nov. 1
The Fiscal New Year began with financial uncertainty for the University of Connecticut as Chief Financial Officers from UConn and UConn Health shared plans to request $104.9 million in state funds to cover looming budget deficits.
At the board of trustees meeting Wednesday, UConn Chief Financial Officer Scott Jordan said the university will ask the state for $28 million to cover COVID-19 losses and expenditures. UConn Health Chief Financial Officer Jeffrey Geoghegan said the medical school hopes for an additional $76.9 million from the state to balance the budget.
Gov. Ned Lamont, who spoke at the board of trustees meeting before the budget presentation, commended UConn for its response to the COVID-19 and addressed the financial stress caused by the pandemic.
“I owe you guys an incredible debt of gratitude of just how complicated this all is economically,” Gov. Lamont said.
The Governor said that Connecticut’s $3 billion “rainy day fund” puts the state in a better financial position than its neighbors. Within the next three months, he added, there should be more clarity on the economic aid UConn will receive.
If the university does not receive additional state support, UConn must implement major spending reductions, according to Jordan.
“We are hopeful for federal help [and] for state help, but the clock is ticking on the fiscal year, and we are asking all departments of the university to start preparing additional cut plans,” Jordan said.
Under these reductions, academics would lose $17 million, administration would lose $10 million and athletics would lose $1 million, according to Jordan. He added that departments are working on cost reduction plans that include payroll cuts, layoffs or dipping into surplus fund balances.
“This additional $28 million in cuts will cause pain at the university,” Jordan said. The university has reduced a predicted deficit of $76 million to $28 million through realized and planned mitigation efforts that will result in $48 million in savings by the end of fiscal 2021, according to Jordan. Already, the university has cut $2 million from academics, $9 million from administration, and $2 million from athletics approved by the board of trustees on June 24.
The university ended fiscal 2020 with a $2.4 million deficit achieved by funding from the Coronavirus Aid, Relief, and Economic Security Act and a freeze on spending and new hires, and additional expense cuts.
Jordan said the driving cause of this year’s deficit is losses incurred by the reduction of residential students on campus and the rising cost of financial aid. The university saw a $67 million drop in housing and dining revenue at its residential campuses.
One fear of UConn officials is the financial impact of an early close. Jordan said if UConn closes on Nov. 1, the remaining deficit will jump from $28 million to $49 million. Each week closed before Nov. 1 will result in a loss of $2 million per week.
The university fully intends to remain open for the entirety of the semester. In addition to the 245 isolation beds at Mansfield Apartments, the university will add an extra 100 beds at the Graduate Hotel. Under the agreement, which starts Oct. 7, UConn has “exclusive use” of the hotel at a rate of approximately $60 per room, per night.
“Our modeling suggests that to continue to remain open through the end of the academic year, we may need some more beds,” Jordan said. “The purpose of this contract is to give the university enough flexibility to continue to provide care for those students and remain open in the event we have a spike in cases on campus. This really does represent confidence on our part, and on student affairs, and SHaW’s part, that we can manage through this.”
UConn Health Chief Financial Officer Jeffrey Geoghegan said that prior to the hit of the COVID-19 pandemic in March, UConn Health operated with a surplus of revenue. However, the cost of battling the pandemic, and the inability to provide outpatient services and perform elective surgeries, sent UConn Health into a spending deficit, ending fiscal 2020 $18.9 million in the red.
The original fiscal 2021 deficit for UConn Health was $114.9 million. Geoghegan said that UConn Health plans to mitigate $56.9 million by the end of the fiscal year through federal funds, capital deferral plans, furloughs and a financial improvement plan.
The request to the state for $76.9 million includes the remaining $58 million fiscal 2021 deficit and $18.9 million deficit from fiscal 2020.
Geoghegan said that the Centers for Medicare & Medicaid Services also granted UConn Health a loan of $45 million that he hopes will sustain UConn Health through the year in the event that state funding does not come until the end of the year. Chief Executive Officer of UConn Health Dr. Andrew Agwunobi said the loan essentially acts as a cash advance on a hospital’s Medicare accounts. Once the payback period begins, the services UConn Health provides to Medicare patients serve as payment until the $45 million loan is paid off. He added that many hospitals across the nation took this loan and that a possibility for loan forgiveness exists.
Both UConn and UConn Health remain hopeful that they will receive the necessary funding from the state but understand the challenging economic position of the university. “We’re going to have some difficult days ahead financially,” said Board of Trustees Chair Dan Toscano.