As the University begins the spring 2021 semester in the midst of the pandemic and continues unfolding its COVID-19 safety plans, Penn State President Eric J. Barron in a question-and-answer session shares more about the University’s financial outlook and how COVID-19 has affected the institution’s fiscal health.
2020 was a challenging year for everyone across a number of fronts, including our University. Can you talk about how you think Penn State has navigated the pandemic so far?
President Eric Barron: As I’ve said a number of times, the University’s response has been deliberate, coordinated and flexible, all with health and safety as our priority. I again want to give credit to our resilient and innovative faculty and staff, as well as our students, who all quickly transitioned to various modes of teaching, learning and working. The efforts that have been put in place to continue to provide a world-class Penn State education to our students are nothing short of phenomenal.
The pandemic has had a significant financial impact on the University, however, through revenue shortfalls and additional investments needed to respond to the pandemic. So far, we have been able to manage the financial impacts through a combination of federal aid and a series of strategies we have employed to reduce expenditures. While it has been challenging and we remain concerned, we are positioned to come out of the pandemic financially stable.
So, how seriously has the pandemic affected Penn State’s budget thus far? Are there numbers that can be aligned with the impact?
Barron: Thanks to our focus on cost-savings and efficiency we were in a strong financial position heading into the pandemic. Up to this point in the pandemic, the University has experienced an approximately $400 million financial impact across the University, including in Auxiliary and Business Services and Intercollegiate Athletics. This includes $55 million in expenditures to support remote operations and enhance on-campus health and safety, with a significant portion devoted to COVID-19 testing for our community members as part of our comprehensive testing strategy for students and employees in the fall and spring semesters. The spend also includes everything from purchasing masks, hand sanitizer, personal protective equipment and cleaning supplies, to computers and other information technology equipment needed to transition to remote learning and remote work, as well as covering the cost of other related expenses, such as travel cancellations. Another critical priority for me has been to attempt to keep our employees as whole as possible during this crisis.
We have managed to offset the $400 million financial impact with approximately $90 million in non-student aid from the federal government and another approximately $90 million in budget cuts and deferments and through other strategies. These efforts included a base budget cut of 3% in units across the University; deferring some construction and maintenance projects; a pause in hiring except for critical positions; no general salary increases for employees in 2020; and energy and travel savings. The rest comes from our critical reserves, which have helped Penn State weather past crises like the 2008-09 recession and the line of credit we secured for short-term borrowing that allows the University to borrow up to $250 million, of which we’ve tapped $50 million.
As we are only about halfway through the academic year, we’re still realizing the numbers and the pandemic is ongoing. So, Penn State — like other institutions and sectors of the economy — may not know the full impact of COVID-19 for quite some time.
What are some of the major contributors to the $400 million financial impact?
Barron: Some of the areas where we’ve experienced large revenue declines include Auxiliary and Business Services, which oversees housing contracts for students residing on our campuses, food services and the University’s hotel (Penn Stater and the Nittany Lion Inn) and dining operations, which were completely shuttered for much of the pandemic and are still not operating at pre-pandemic levels. While we are pleased the impacts on enrollments have been modest, based on flexible options provided to students during COVID there has been a reduction of tuition revenues, reflecting modalities and accommodations for those who are not physically able to be on campus. Lastly, Intercollegiate Athletics has seen constraints on collegiate sports and severe limits on fan attendance that have obviously impacted its finances.
Can you talk a bit about the most recent round of federal support and whether it includes support for students?
Barron: We have been awarded about $85 million through the Higher Education Emergency Relief Fund II passed and signed into law at the end of December. Of that amount, the government mandated that $27.5 million will go to Penn State students in the form of emergency financial aid grants. We’re still working through how we will get those funds to our students and how the remaining funds will be allocated to best support Penn State’s needs as we continue to navigate the challenges of the pandemic. Last spring, Penn State received an additional $55 million from the same federal relief fund. Approximately $27.5 million of that aid was designated for emergency financial aid grants for Penn State students, while the rest was used to ultimately support employees and lessen the impacts of the pandemic on the University, particularly in our Housing and Food Services operation.
What additional steps has Penn State taken to aid students financially during the pandemic?
Barron: We recognized early on the financial hardship the pandemic presented to our students and their families. In the midst of the COVID-19 challenges, last summer tuition was adjusted to immediately help families in need. We also froze tuition rates for both in-state and out-of-state students for the 2020-21 academic year. This freeze marks the third consecutive year we have not raised tuition for Pennsylvania residents. When the pandemic began last spring, we provided prorated refunds to students for their room and board, and we adjusted campus and housing meal plan charges to reflect the temporary shift to remote learning at the start of the spring 2021 semester. What’s really been heartening is how Penn State’s alumni and friends have continued to support the University, even in the face of a global pandemic and economic downturn. For example, leading up to the pandemic, we raised $477 million for the Open Doors Scholarship Program. In the time since, we’ve surpassed $485 million for the program. The generosity and support we continue to see is a testament to the faith donors, alumni and friends have in Penn State and our ability to move past this crisis. And beyond financial support, I’m constantly awed and inspired about how our campus community has come together to help and support one another. There are so many heartwarming stories of individuals and groups trying to contribute in their own way. For example, the various Lion’s Pantries at our campuses have really stepped up to help students in need. We had a group of ceramics students who wanted to help, and so they started a project called “Bowled Over” where they created and sold limited-edition bowls to help support the pantry at the University Park campus.
Looking forward, how do you feel about Penn State’s position as we move further into 2021?
Barron: While Penn State has been persevering through this global crisis, the University remains financially stable by all measures, despite weathering financial challenges associated with revenue impacts and unanticipated expenditures due to COVID-19. Although we don’t know how much longer the pandemic will last, our enrollment figures are stable, our credit rating is strong, and our people are resilient. We’re cautiously optimistic about 2021 and I’m hopeful that in time large-scale vaccinations, coupled with continuing masking and physical distancing measures, will allow us to return to many facets of campus life.