Public Colleges Face Gut Punch From States’ Covid Deficits

(Bloomberg) -- America's public colleges and universities are facing one of their toughest financial challenges ever as the economic collapse hammers state tax collections and tens of thousands of students opt to wait out the pandemic or study online.

With the recession ravaging the finances of millions of American families, as well as students balking at the risk of heading back to campus and fewer arriving from overseas, public college administrators say they expect enrollment to plummet this fall. Traditional revenue sources such as housing and dining -- even collegiate sports like football, a cash cow -- have all been upended, while the colleges take on staggering costs to conform campuses to social distancing and provide new technology for virtual classrooms.

At the same time, states are being forced to slash subsidies for higher education as record budget deficits mount and the prospect for massive federal help dims. That's adding to the financial pressure colleges were already contending with due to rising tuition costs and stagnant enrollment.

“As states continue to feel immense financial pressures, we worry greatly the burden may be disproportionately felt by public higher education,” said Craig Lindwarm, vice president for government affairs at the Association of Public and Land Grant Universities.

Even with the fall semester poised to start, the outlook is uncertain, with some schools refining their plans as the number of cases soars far above what they'd initially hoped for and the testing remains in some places dogged by bottlenecks and delays. Fitch Ratings in June had estimated fall enrollment could drop between 5% and 20%.

California lawmakers in June slashed spending on higher education by $1.7 billion, causing a 12% cut to the University of California's budget for fiscal 2021. The system's flagship campus in Berkeley said Covid left the school $340 million short of its budget projection, a dramatic turnaround from when it had expected a $60 million surplus a year ago. School officials recently were forced to say they may not be able to open for a fall semester after fraternity parties led to a jump in covid cases.

Ohio reduced funding for the state's public colleges and universities by $110 million in May, according to Governor Mike DeWine's office. The University of Kentucky estimates it will see about a 16% decline in freshman enrollment this fall. The school is facing a $72 million shortfall.

The federal government's more than $2 trillion stimulus package provided states with some help with the costs of responding to Covid-19, including about $14 billion for emergency relief for higher education institutions. But lobbyist groups like the APLU say it is not enough.

“As a public institution, we do really hope that the states see funding,” said Angie Martin, vice president for financial planning and chief budget officer at the University of Kentucky. “If not, it could be a real double whammy for us because we are also incurring a lot of costs right now.”

“We've budgeted conservatively,” said Martin. “The storm has not cleared, and a lot of it is going to depend on what the federal government does.”

The Board of Trustees at the University of Akron, a 20,000 student campus that's part of the University System of Ohio, had to eliminate 178 faculty and staff positions as part of its need to cut $65 million from its $325 million budget. With about 60% of the budget being personnel, the layoff is expected to save $16.4 million -- or 5% -- of its budget. The school has said freshman enrollment could be off by as much as 20%.

“We looked at every possible financial scenario before we did this,” said University of Akron President Gary Miller. “We consulted pretty widely with the union and various shared governance groups, and it was just very clear that we really had to do this. And we had to do this right now because the university does not have the financial reserves to wait this out.”

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