June 22, 2020: Update on financial impacts of coronavirus pandemic
Dear Spartan colleagues:
Last month I wrote to you about the budget implications our great university is facing due to the coronavirus pandemic. As we close our fiscal year June 30 and look ahead to start the next budget cycle, I wanted to provide an update about some of the decisions and actions we are taking to address lost revenue. We continue to estimate an approximately $300 million loss for the next fiscal year; however, the budget situation continues to change.
The Michigan Legislature has yet to decide higher education funding for the coming year, and as I mentioned previously, there is the risk of a significant decline in MSU’s state allocation based on forecasted large decreases in state revenue and new expenditures associated with the pandemic. Combined with other factors, this unprecedented situation is causing MSU leadership to make many difficult budget and employment decisions that affect the campus community.
MSU will continue to deliver on its core mission as an inclusive community with strong academic disciplines and a liberal arts foundation. Despite our challenges, we will continue providing a world-class education, conducting high-caliber research and advancing outreach and engagement locally and globally. There will be shared sacrifices – but in true Spartan spirit, we will come together and weather the storm.
Capital projects
One area in which the university can preserve resources is by deferring previously scheduled capital projects. Infrastructure Planning and Facilities has posted a list of projects we will pause, defer or reconsider until a future date. In total, this will save MSU nearly $77 million.
Unit spending
Each unit on campus is being asked to make a minimum of a 3% budget reduction. The Office of Planning and Budgets has started its communications to colleges and units about this process and continues to provide updates to leadership on the progress of identifying reductions. We estimate MSU will save $20 million through this process.
Personnel decisions
As previously announced, all MSU executive managers and deans are taking a 2% to 8% temporary pay cut based on salary levels, and I am taking a 10% pay reduction. Previously these cuts were for FY 2020, but now also will extend into FY 2021.
Some departments at MSU started furloughing some staff members in May. Those of you who belong to one of MSU’s labor unions may have received updates from your unions about this process. These discussions have been important because union contracts historically have not had provisions for furloughs (unpaid time off while retaining health care benefits). At this time, 716 employees have been furloughed, including 280 that were voluntary. We continue to look for ways to partner with our unions to address this challenge. While we must take these actions to preserve our university’s ability to continue its important mission, they are in no way reflective of our employees’ hard work and dedication to MSU; each of our employees is at the core of providing exceptional experiences to tens of thousands of students. In these trying times, we will continue to do our best to support employees affected by these actions.
As referenced in prior communications, we also have taken steps to implement a wage reduction for non-union faculty and academic staff. In order to address our projected budget deficit, we needed an average of a 2.3% salary reduction from this group. Upon consultation with academic governance, the University Committee for Faculty Affairs, the Academic Specialist Advisory Committee and the Council of Deans, it was suggested we work to avoid academic layoffs as well as protect those at the lower end of the compensation scale. Therefore, we are implementing a temporary wage reduction using a graduated scale ranging from 0.5% for those with the lowest salaries to 7% for those with the highest salaries. This scale fits within the principles of shared sacrifice across the university.
These reductions will take effect Sept. 1. Reductions will be in effect for at least one year but may be extended depending on the university’s financial situation as this unprecedented pandemic continues to evolve. More details about your individual circumstances will be shared by Academic Human Resources in the coming weeks. This pay reduction will not currently apply to non-tenure system and non-continuing appointment system teaching faculty or academic staff represented by the Union for Non-tenure Track Faculty (UNTF). Consistent with their collective bargaining agreement, I have asked MSU Human Resources and Academic Human Resources to begin discussions with the UNTF concerning how we can best work together toward these goals.
Retirement contribution matching
I also previously mentioned a possible reduction in MSU’s retirement plan contributions. Since that time, we have taken steps toward implementing this proposal. Effective July 1, MSU will reduce its matching contributions from 10% to 5% of employees’ compensation. In order to receive the 5% match, employees must still contribute 5% of their compensation to the retirement plan (just as an employee must do now in order to receive the match). At this time, this will apply only to executive management and non-unionized faculty and academic staff, because MSU cannot unilaterally implement such a change for employees covered by collective bargaining agreements.
Similar to the wage reduction, this temporary retirement reduction will be in effect for at least one year and will be re-evaluated as we learn more about the university’s long-term financial circumstances. More information about the reduction in MSU’s retirement plan contributions will be provided in the coming weeks.
This was a particularly challenging decision to make, and I know it will be difficult for those affected, but hard decisions like this were needed. Greater cuts in wages would have more negative impacts on individuals’ immediate take-home pay and ability to support themselves and their families. We believe this approach is a better balance for employees across the university and upholds the value of shared sacrifices.
Moving forward
Even with the actions outlined above, we will need to identify additional savings to address our long-term financial circumstances given the multi-year impacts of decreases in state appropriations and enrollment. We will continue to seek to engage with our unions on employment and compensation matters.
I know this continues to be a very challenging time. Please know that I remain proud of our employees, their collective spirit and dedication to our university. There is no softening the impact of these decisions. The excellence of any university rests on the quality and well-being of its people, and everything that can be done to protect our team is being done. It is our hope that most of these burdens will be temporary, and the principle that such burdens are borne together by us will preserve the excellence of Michigan State for a world that needs the best we can give, now more than ever. Thank you for your sacrifices and your understanding.
Sincerely,
Samuel L. Stanley Jr., M.D.
President