While it is still in the early days of this most unusual fall semester, I want to thank you for your many contributions to our strong start. No doubt it is even more hectic than usual, but we should take a moment to pause and reflect on the incredible personal and campuswide resiliency and resolve that have brought us to this point. Despite continuing difficulty, you have persevered. What we have accomplished and overcome since March is nothing short of astonishing. Thank you and well done.
While our challenges are not over, we are making headway. Early planning is paying off and the creativity and tenacity that we all bring to managing problems as they occur are providing reason for optimism that can carry us forward. Today, just a few days past enrollment census, I can report that we’re in a slightly better financial position than we had anticipated since my last update.
To briefly recap, in May we estimated a potential budget shortfall of between $45 million and $85 million, with the primary drivers being an anticipated reduction in state funding due to the economic downturn and a COVID-19-induced enrollment loss that could reach 15%, based on national studies. In July, I updated you with a new projection to include current trends and other information available at that time and concluded that we would likely need to manage a shortfall near the $85 million mark in fiscal year 2020-21. As we finalize the budget for this year, our outlook has improved. Today, the board approved our general fund budget recommendation with a $76 million reduction—$9 million better than we were anticipating in the middle of the summer. There are three positive developments that have led to this improved position.
First, we committed to putting students first. Nine of Michigan’s 15 public universities raised their rates this year. As our students and families faced economic difficulties, we held the line with no increase in tuition, fees or housing. While this may have added to our budget challenges, it was the right thing to do for our students and their families.
Second, in addition to holding the cost of attendance down, we have been proactively meeting the pandemic-induced enrollment crisis head-on. As of census, our fall enrollment is 20,490, down 4.6% from last year. This change in total enrollment is better than the 10 to 15% decline many experts predicted and puts us on par with the pre-pandemic demographic models that predicted a 4.5 to 5% decrease in Michigan’s college-going students this fall. So while we didn’t gain ground, we also did not lose any, despite the pandemic-generated headwinds impacting high school graduates taking gap years, limitations on international travel and the fallout from the worst economic downturn since the Great Depression. To get here, everyone from admissions to financial aid to orientation to our colleges had to operate in a new way and look creatively for new opportunities. For example, this year we grew by 585 students through our expanded partnership with Guizhou University of Finance and Economics in China, and we also slightly increased out-of-state enrollment. Clearly, the value of a Western degree is strong both within the state and around the globe.
Third, early on we anticipated the unprecedented financial loss that we are today experiencing and have been proactively managing the budget situation for months. Together, we made some extremely difficult decisions and are implementing those measures. Let there be no doubt that these actions were not taken lightly, and they have been painful. My goal was to navigate a course to re-established financial planning stability across this fiscal year and next. Though we continue to face uncertainty, the goal was to avoid even more painful mid-year budget cuts—a practice that had become too familiar—and preclude another budget cut next year as well.
I also want to emphasize that we have limited increases in expenses to 1% of the total 2020-21 budget. These include $1.6 million in contractually required increases, required utility increases and fulfilling our existing debt obligations. In addition, within that 1%, I have also established a $2 million Mountaintop Initiatives fund, which will be invested in the University’s efforts to advance equity, inclusion and racial justice. This is a crucial investment as we strive to eliminate systemic racism and racial inequities.
So, where does this leave us? Certainly there are bright spots, but we must remain clear-eyed about our challenges going forward. So, let me put this year’s final general fund budget in context, starting with our tuition and fee revenue.
The number of students enrolled, often referred to as headcount, is just one factor when it comes to the impact of tuition and fees on our budget. The other major impact this year comes from the mix of course delivery methods. I encourage you to review our tuition and fee structure, set in June 2019 by the Board of Trustees. Undergraduate students are charged the tuition rate that is associated with their course delivery method. This year, many undergraduate students are paying less than they would in a normal year because of the more favorable cost structure for virtual courses among upper-division (juniors and seniors) and out-of-state students. The rates for virtual delivery methods among upper-division undergraduate students and out-of-state students are the same as for in-state, lower-division (freshmen and sophomores) students. The shift to virtual delivery for many of our courses has resulted in significantly less revenue collected than we would have received had courses been delivered in-person as normal. For about 10% of our students, the rate structure and their course schedules led to scheduled tuition and fees greater than what they would have been with in-person instruction. For those students, we provided scholarships that ameliorated that difference.
The other important component of our budget is state funding. Based on the state’s own revenue forecast, I anticipate that its budget challenges will continue due to falling tax revenues at least for this fiscal year and next. Based on these forecasts, higher education’s share of the budget and actions taken to date, we expect that there will be a cumulative 20% reduction in state funding.
As a reminder, we closed last fiscal year with an 11%, or $12.5 million, reduction in state operational funding. While the state aimed to ease this burden by providing $12.5 million in federal CARES Act funding, that solution does not fully provide the relief we need. While the CARES funding helps us with one-time COVID-related expenses, those funds come with tight restrictions and specific allowable uses. For example, they cannot be used to backfill operating budget shortfalls or revenue deficits or fund normal payroll expenses. As we look forward, the state of Michigan has estimated an additional state revenue shortfall for fiscal year 2020-21. The CARES Act funding was a one-time payment, so we cannot count on that support for budget-planning purposes. Given the estimated state revenue shortfalls and continued uncertainty over an economic recovery, it is unclear as to how the state will fund higher education for fiscal year 2020-21, 2021-22 and beyond.
While I’ve been discussing developments in our general fund budget so far, we need to be cognizant of the considerable revenue losses elsewhere on campus, including housing and meal contracts, student assessment and enrollment fees, and distributions available from endowment funds. Each of these factors will create pressure on our overall financial outlook.
In considering our financial picture over the coming two years, we should think of our situation like a marathon rather than a sprint. There will be positives and negatives along the way, but we must plan conservatively over the duration. When we find things are more positive than anticipated, we will adapt. In that vein, the $9 million difference between what we anticipated and what we have now formally budgeted will be returned to each division, proportional to their share of the general fund budget. As I did with their plans for cuts, I am asking division leaders to be strategic as they adapt to this better-than-anticipated outcome.
Please know that your contributions to our University are valued and are making an important difference during one of the most challenging periods in our history. Thank you again for everything you are doing for WMU.
Trustees adopt 2020-21 budget