September 14, 2020
Dear Amherst Faculty and Staff:
The Board of Trustees recently approved our budget proposal for the current fiscal year (FY21), which runs from July 1, 2020 through June 30, 2021. Given the extraordinary financial challenges brought by COVID-19, this has been the most difficult budget process in many years. In addition, it is becoming clear that these challenges will persist to some degree for years, and will require significant and lasting changes to our budget – both revenues and expenses – to fully address. I write to you today to share the financial strategy behind the FY21 budget and to outline a path forward from here.
The Impact of COVID-19 on Amherst and Other Institutions of Higher Education
As described in messages to you in March and in May, the financial impacts of COVID-19 on all colleges and universities, including Amherst, are extensive. Since then, these pressures have grown more severe, as higher education institutions grapple with immense and unprecedented disruption to every element of their work. Colleges and universities have incurred millions of dollars in new costs to deal with the effects of the pandemic at the same time they are experiencing significant loss of revenues from the inability to bring all of their students back to campus. Many institutions are now facing crises of survival. Many more – including elite colleges and universities – are making previously-unimaginable decisions to reduce or eliminate staffing, compensation, facility projects, and programming.
Here at Amherst, we enter this time of uncertainty better positioned than most to meet these challenges. Our strong financial position has allowed us to prioritize the health and safety of our community and to provide the best learning experience for our students within the unavoidable limitations of the pandemic. As a result, we brought back only the number of students that we felt we could support effectively, invested heavily in on-campus safety measures including the most robust testing protocol that we know of, and enhanced the quality of remote education. We knew that these decisions, though necessary, would be costly from a financial perspective. Below, I describe the financial impact of this, and the steps we have taken to address.
$34 Million Impact on Amherst’s FY21 Budget
We estimate that the “all-in” financial effects of COVID-19 will total $34 million in the current fiscal year alone. With a typical-year budget of $200 million, this means that the pandemic has impacted one out of every six dollars in our budget, the most severe financial disruption to the College in generations. The following factors have contributed to this impact:
Lower Tuition, Room & Board Fees ($16 million): Enrollment-related revenues will be down nearly 25% from the prior year as a result of a reduced student presence on campus (leaves/gap years, remote learning) and higher financial aid (living allowances for remote learners, waiver of student work expectations, and higher financial need given economic pressures on families).
New Expenditures to Deliver Education During a Pandemic ($12 million): We have invested heavily to provide a safe and effective learning experience for all students. These expenditures include a robust on-campus COVID-19 testing protocol for students, faculty, and staff; pay premiums to ensure adequate staffing in essential areas; online learning enhancements including the use of third-party platforms, training, and faculty stipends for using summer research time to adapt their courses for online delivery; tent rentals; masks and other protective equipment; additional staffing in custodial services, health services, and residential life; more aggressive cleaning and dining protocols, and many more.
Lower Ancillary Revenues ($6 million): Reduction or elimination of income-generating summer programs and other events, lower anticipated current-use gift revenues, etc.
Actions Taken to Date
We have identified $28 million worth of actions to address the $34 million COVID-19 impact:
Expense Reductions ($12 million): Budget managers across campus have already identified many ways to reduce spending in FY21 in areas such as travel, events, supplies, equipment, and outside consulting, among others. In addition, we have deferred spending on facility maintenance and renovations, temporarily reduced senior staff salaries, frozen pay rates for staff and faculty, and instituted a hiring freeze for most staff positions.
Increased Endowment Spending ($16 million): Even before the pandemic hit, Amherst was poised to increase its endowment spending by $4 million from the previous year as a result of our regular plans to grow budgetary support from the endowment. As a result, endowment spending would have funded about 53% of our operating budget. Even before the pandemic, Amherst already supported a greater proportion of its budget from the use of its endowment than nearly any other college or university.
Given the financial demands of the pandemic, we have requested, and the board has approved, the extraordinary step of distributing an additional $12 million from the endowment in FY21. This one-time distribution will directly cover expenditures, described above, that we are incurring to deliver education during a pandemic. As a result, Amherst will fund over 60% of its FY21 budget from the endowment, by far the highest in our history and likely an unprecedented figure in the history of our peers. In addition, our endowment spending rate (dollars spent from the endowment as a percentage of the total endowment value) will be higher than at any time during the last quarter-century, while remaining within a prudent range. We believe that we can take this important one-time measure as a result of many years of careful fiscal management. This allows us to focus on the difficult task of delivering education and support services in a safe and effective manner without the disruption that intensive short-term cost cutting would bring. The seriousness of the present moment makes this an important time to enact such a step.
Work that Remains to be Done: Short-Term
In the near-term, we will continue to work hard to identify ways to close the remaining $6 million budget gap, either through increased revenues or reduced expenditures. We hope to do so in ways that are minimally disruptive to the hard work of delivering education and services during a pandemic. To do so, we will need everyone’s assistance and vigilance to defer or avoid spending and conserve resources throughout the entire fiscal year.
Work that Remains to be Done: Long-Term
Balancing the FY21 budget will be a start, but there is much more to do. Even in the best-case scenario, there will be lasting financial impacts on Amherst College from COVID-19:
- We will likely need to continue spending significant resources on safety measures and alternative approaches to education, student support, and operations.
- Comprehensive fee revenues and gift receipts likely will be constrained as students, families, and alumni contend with a struggling economy marked by high unemployment.
- Investment market risks remain elevated. Thankfully, the endowment has rebounded quickly from its March lows, and the endowment remains strong. However, uncertainties abound, and we cannot simply rely upon elevated spending from the endowment as a recurrent strategy.
Collectively, these impacts will likely total a substantial annual budget gap in the coming years. Thus, a “return-to-normal” from a budgetary standpoint may not occur for years, and will take hard work and tough decisions to accomplish. Thus far, the actions we have taken, while effective in the moment, are short-term measures. Future budgets could be even more difficult as we deal with the ongoing financial effects of the pandemic and find it unwise or impossible to repeat these temporary measures. Instead, we must make more lasting adjustments to our revenue model and to elements of our expense structure.
In the past, the Amherst community has always risen to the challenge when facing financial difficulties. Individuals from across the community have come together to assess the situation, provide input, and evaluate options. We will do so again in order to accelerate the pace of our recovery and position Amherst College to thrive in the post-pandemic future. Adjustments to existing revenue streams and expenses are only a part of this work. There will also be opportunities to envision new revenue streams to support our work, and to invest in emerging needs and aspirations, some of which, including anti-racism, have already been announced.
To accomplish this, first and foremost we will need everyone’s understanding of these challenges and good will as we work together to address them. We will engage existing governance groups deeply in this work, especially the Committee on Priorities and Resources, a faculty-chaired committee with membership from the student body, faculty, and Employee Council. We will create opportunities and solicit direct input from anyone - students, faculty, staff, and alumni - who has ideas and wishes to participate. In addition, we will establish a broadly-representative working group to evaluate these ideas and make recommendations for budgetary adjustments that preserve our core priorities but are also responsive to the very real financial limitations that the pandemic has brought and will leave in its wake.
I have no doubts that Amherst College will emerge from this situation very well-positioned strategically and financially for continued success in the future. I look forward to engaging with all of you in the work that lies ahead. Please don’t hesitate to reach out to me with questions, suggestions, and ideas.
Chief Financial & Administrative Officer