Financial Implications of COVID-19 Planning
A message from President Wendy Raymond
At such a difficult time–for our community, for our families, for our neighbors, and for so many people around the globe–I am proud of the way the Haverford community has come together to meet the challenges we have faced in the COVID-19 pandemic, while remaining true to our core values and principles. Your hard work, good will, and dedication to our mission enable us to remain a beacon for those seeking an outstanding undergraduate liberal arts education guided by a commitment to trust, concern, and respect for all, in all we do.
Throughout our response to this public health crisis, my Senior Staff colleagues and I have endeavored to prioritize the well-being of students, faculty and staff. To that end, the College has maintained the full base pay for all employees through the end of the semester, irrespective of whether they can work remotely, on campus, or neither. The College also provided our students refunds for room and board, while continuing to pay student workers even when our new operating environment precluded many from being able to do their customary work as College employees. And we have found ways to provide supplemental support for students in need in a variety of ways including through the LIFTFAR program, which our alums–and students–have generously and enthusiastically supported.
The alumni body’s commitment to intergenerational equity is just one instantiation of how together we steward Haverford as a “perpetual institution,” one of the core principles that guides us. Our commitment to keeping Haverford strong for future generations of students necessarily informs decisions we make today. These decisions in the face of adversity will have long-term implications for our ability to provide a full and robust Haverford experience to students into our third century and beyond.
And so, together, we must now focus on the meaningful challenges before us, and the steps we will take in response. While we do not know, and cannot know, the full scope of the pandemic’s disruption to higher education, nor the extent of the disruption nor how long it may last, we remain confident in Haverford’s mission and values. Here, then, is an outline of our current thinking.
Timeline. We are envisioning and modeling academic and programmatic scenarios for up to three more semesters, through fall of 2021. We will collaborate closely with Bryn Mawr College in making plans for 2020-21 and beyond because our curricula are tightly interwoven. At Haverford, a newly constituted Academic Continuity Presidential Advisory Group complements the planning work of our Senior Staff. Joint planning by both campuses occurs through the BiCo COVID-19 Continuity Group, co-chaired by Bryn Mawr President Kim Cassidy and me. Financial planning for academic and programmatic scenarios is being conducted separately on each campus.
Fundamental Financial Position. Thankfully, Haverford sits in an improved financial posture relative to the operating deficits we have addressed over the past several years. In fact, this March, the College was poised to present to the Board of Managers our first full-accrual, break-even GAAP budget in more than a decade–a milestone resulting from the hard work and determination of every member of the community. The College also lowered and flattened its annual debt obligations and has noticeably improved its cash liquidity positions, all of which are important–and stabilizing–in unsettled economic environments such as the current one. And thanks to significant and generous philanthropic support, the College recently completed a number of major capital projects on budget, on time, and on scope, including the Sharpless Hall renovation, VCAM, and Lutnick Library. These projects have enhanced the academic program and student experience while addressing deferred maintenance, leaving the College far better positioned than it has been in many years in terms of both the condition of our campus and the financial obligations it represents.
Current Financial Environment. As we are all aware, the financial implications of the COVID-19 crisis are myriad. They are substantial for many of our students, faculty, staff, alumni, and their families. The College, too, faces similar and related financial impacts from the pandemic. We already know that the unexpected cost to Haverford College will be significant; as of this writing, we believe that the negative impact on gross revenue for the spring semester —and what we know for this summer—may exceed $6 million. We also need to anticipate the possibility that there will be additional lost revenue and increased costs in our budget for the balance of the 2020-21 fiscal year.
Outlook. Forecasting future scenarios is not easy given so much uncertainty about the course of the pandemic and its continuing impact on colleges and universities. We all hope to have our vibrant, exceptional on-campus, residential program fully operating come fall of 2020—just four months from now. Nonetheless, even such a positive scenario would bring a meaningful deficit that could run to millions of dollars due to anticipated declines on multiple fronts, including but not limited to:
- changes to financial aid levels of our students whose families’ incomes have significantly decreased;
- a possible decrease in annual fund support as alumni and friends face their own hardships;
- lost revenue from various other income sources; and
- increased costs to support the migration of the College and our faculty, students, and staff to potential future times of remote pedagogy.
Our more severe financial scenarios, such as what will happen if Haverford is operating remotely for a semester or a year, project an even more significant negative budgetary impact on the College. In addition to the declines in revenue noted in the better-case scenario above, this more severely negative fiscal situation could result from developments such as loss of room and board revenue, or if a relatively large number of students in the Class of 2024 defer enrollment (and/or if a higher-than-expected number of continuing students take leaves of absence).
Complicating matters, the College’s endowment—which subsidizes all operations on an ongoing basis—has declined due to the large drop in global equity markets. To be clear, the endowment has weathered relatively well the overwhelmingly negative market conditions, but the decline is meaningful nonetheless. Our endowment spending policy allows the annual draw to be smoothed over time. Still, the decline in the endowment's value may lead to an unsustainable spending rate, and bringing the spending rate to a sustainable level could lead to a reduction in endowment revenue for annual operations of millions of dollars.
Our view of the near- and medium-term future is also clouded by some key unknowns. Centrally, nearly three-fifths of our annual budget support is generated from net student revenue (tuition, room, and board, minus financial aid). Fortunately, interest in Haverford College remains high, and the applicant pool for the Class of 2024 was strong. As we approach our May 1 notification deadline, the class is on pace to be fully subscribed as in prior years. That said, we are cognizant that health and economic concerns may cause some students to rethink their college plans for the fall.
But unless and until conditions demand, we have resolved to implement only those savings adjustments we know we need to make today, even as we prepare for potential what-if scenarios in the future.
The Path Forward. We have taken time to observe the course of the pandemic this spring and to anticipate as much as we can about the future. We have reflected on many possible steps Haverford could take in response. Our plan calls for meaningful change because the College must reduce its costs given the financial impacts that we have already incurred along with those we expect in the near term. I also note that we are enacting these savings measures already taking into account the federal CARES Act stimulus funds for which Haverford could be eligible.
Here, then, is our initial set of operational changes:
- Discretionary Operating Expenses Halted
Each employee, department head, and senior staff member should halt all non-essential expenditures. College-sponsored travel should not occur prior to July 6, 2020. Unspent budget dollars in the current year cannot be subsequently expended in fiscal year 2020-21.
- Hiring Freeze
The College is implementing a hiring freeze through September 1, 2020, at a minimum. Vacant positions that have not been filled will not be posted. Any exceptions will require approval of the senior staff member who has oversight for the administrative division; there will also be a supplemental review by me, in partnership with Senior Vice President Mitch Wein, to provide final approval. We estimate that a majority of the more than two dozen currently vacant positions will remain unfilled through the summer at least. (Summer employment has been halted, though as noted in my previous message, some student work over summer may be able to proceed as planned.)
- Summer Employment Review
Given that the College will limit operations through at least July 6, some employees will be temporarily reassigned to other needed work on campus, as an alternative to staff reductions. If another, alternative position does not exist (or if the alternative position is not suitable), the employee might be furloughed for the summer. In all such summer furlough cases, the College will maintain and fund their current healthcare benefits, unchanged. This planning is currently underway, and supervisors will contact impacted employees as soon as possible.
- Salary Freeze, Reductions, and Benefit Adjustments
With 58% of the College’s total expenditures consisting of faculty and staff compensation, changes in salaries and benefits are required for us to offset our budget shortfall. Accordingly, the College will not be providing salary increases for employees for 2020-21, while Senior Staff members will be immediately reducing their salaries by 5% for at least the remainder of the calendar year, as I take a 10% salary reduction. In terms of retirement benefits, the schedule of employer contributions for the 403b plan is changing so that there will be no employer contributions for two months in 2020 and then the employer contribution amount will be set at 10% of base pay instead of 11%. Employee elective deferrals will be unaffected by this change.
- Deferral of Capital Projects
A few important capital projects, which are externally funded from existing bond proceeds or restricted philanthropic support, will continue. These projects include Music and the HVAC upgrade for Hall Building. A few other essential renovation and repair projects that improve safety or remediate an existing problem will continue. However, we are deferring many other capital projects (totalling slightly more than $3.5 million in capital expenditures). Please note that non-urgent requests of Facilities will be postponed.
The Role of the Endowment. Haverford has a sizable endowment that provides a measure of stability in times like this. However, it is important to remember what an endowment can and cannot do. Haverford’s endowment is composed largely of restricted funds that are legally inaccessible to the College other than for the specific use intended by their original donor; much of this restricted funding supports indelible foundations of the College, such as financial aid and endowed professorships. Our endowment funds are intended to provide operating resources to the College in perpetuity. Spending endowment dollars in unsustainable ways today means reducing funds available to students, faculty, and staff next year and for the rest of Haverford’s future. So, unlike a savings account or “rainy day fund,” the endowment is not available to make up current budget shortfalls except in the most extreme, existential crises for the institution.
Forward together. I know and acknowledge that these required operational changes at Haverford will not be easy for many in our own community. I understand and acknowledge that these changes may feel discouraging, particularly when we are all working so hard, and well, together. This news comes with the context that many colleges and universities are facing core challenges in this uncertain and difficult environment, just as many Americans and families around the world—including in our Haverford community—are suffering economic, social, and emotional hardships. While that context provides a comparative backdrop, it does not necessarily make it easier to navigate through the closer-to-home impacts of a global pandemic.
Right now, these measures allow Haverford to continue to do its best to retain our employment base, while we simultaneously prepare for future realities that are currently unknown to humankind. We are in the business of preparing for the unpredictable. As Louis Pasteur famously said, chance favors the prepared mind. Haverford and Haverfordians continually aim to be as prepared, smart, and creative as possible; this preparation is especially important now. I am confident that our community has as prepared a “mind” as any in the world. That preparedness, in combination with our partnerships with Bryn Mawr College, Swarthmore College, and colleagues across the world, will continue to lead us forward.
I will continue to be in touch each Thursday by email. Please stay engaged at the COVID-19 hub and in conversations with Senior Staff members and me for more information about how we will continue our planning across our community and the roles we can all play in advancing Haverford’s educational mission, no matter what form(s) it takes.
Thank you again for all that you do for Haverford.