Dear Faculty and Staff,
As we begin our second week of remote learning at the undergraduate College, and our third week at the Institute, I write with a financial overview. Many of you have asked me about the impact of COVID-19 on Middlebury’s financial position and our ability to weather the pandemic. In this letter I set out to answer those questions and communicate two additional things: that the road we are on is a most difficult one and could be for weeks and possibly months ahead, and to ask for your understanding as we make decisions in an incredibly fluid environment.
With the long-term financial effects difficult to predict—it will be some time before we fully understand the magnitude of this public health crisis—we have focused our financial projections on the near-term: through June 30, 2020. We have also begun modeling what we think fiscal year 2021 could look like, and I will be reporting out on that at a later date.
While we start from a position of strength, I must emphasize that this does not mean we will be back to business-as-usual anytime soon. The degree of disruption to our Middlebury operations is simply too great, as we are witnessing in all of higher education and in virtually all sectors of the national and global economies. There is no way to downplay the impact that the pandemic will have on our institution.
Continuity of Wages
The administration has made a commitment that I want to share with you immediately: that Middlebury will continue to maintain wages for all benefits-eligible employees through June 30, 2020, regardless of an employee’s accrued Combined Time Off and Sick Leave Reserve.
We understand that by calling out June 30, many employees might feel that something dramatic will happen after that date. And while we cannot guarantee that that will not happen, we are naming the date because it is what our best budget projections allow us to say at this time.
We know there are insecurities and stresses around the continuity of wages. They are real, and we wish we were in a position to guarantee wages indefinitely. However, the economic challenges and shifting circumstances are considerable. We have done our best to ensure that the actions we see being taken today by so many educational institutions—furloughs, reduced salaries, layoffs—are not now occurring at Middlebury.
The Current Budget Context
Even at this unprecedented time, with sharp declines in volatile financial markets, Middlebury’s balance sheet is strong, thanks to the hard work we all undertook over the past four years to reduce operating deficits to nearly zero. At the same time, we continue to pay down our longer-term debt. These are two indicators of a sound fiscal state, and they form the sturdy platform that an institution like ours needs at the base of its operations, in good times or bad. They alone cannot shelter Middlebury from the worst effects of a global health and economic crisis, but they put us in a better position to navigate it.
Another core asset that influences our financial health is Middlebury’s brand in the higher education marketplace. At the College we have already secured more than half of our incoming fall class through early decision, and deposits for regular-decision students are coming in strong, up slightly over last year at this time. At the Institute in Monterey, admissions numbers are tracking to the long-term enrollment plan developed last year. At the Bread Loaf School of English and the Writers’ Conferences, we continue to monitor the situation. And as we have reported earlier, we suspended all Schools Abroad following guidance from world health authorities and have resumed courses remotely where we are able.
We continue to receive deposits for this summer’s Language Schools and are working diligently to build a robust remote learning experience if it turns out that we cannot host language students on campus. We will make a decision soon regarding the status of those programs, but please note: Language Schools and Bread Loaf revenues count in next year’s budget cycle, not fiscal year 2020.
Our analysis of the impact of COVID-19 on this year’s budget takes into account all the factors above.
Projected Impact on Finances Through Fiscal Year 2020
Given all the factors I just described, we estimate that we will have a total revenue shortfall related to COVID-19 of $17.3 million in fiscal year 2020.
The breakdown looks like this:
- Undergraduate student refunds for unused room and board: $7.9 million
- Refunds for Study Abroad students: $0.9 million
- Projected fundraising shortfall in the fourth quarter of this year: $7.5 million
- Lost revenue from auxiliary sources: $1.0 million
In addition to the lost revenue, we are incurring new expenses related to COVID-19 of $800,000.
We plan to offset the $17.3 million revenue loss and the $800,000 in new expenses incurred this year by significantly curtailing spending on operations that are unrelated to compensation and benefits. We implemented a hiring freeze and estimate that savings from food (since we have a fraction of our students on campus), travel, and other operating costs could amount to $7.5 million, and possibly more. In addition, we are receiving $1.8 million in federal stimulus support.
This nearly $9.0 million net impact from COVID-19, when added to a $4.0 million deficit we had earlier anticipated for this year, results in a projected $13.0 million deficit for the year ending June 30, 2020.
We will cover this deficit by drawing on reserves from the endowment, an action that must always be considered carefully and undertaken rarely. The endowment draw will be coupled with savings across all our budgets: We will ask employees to discontinue discretionary spending, halt services that are not currently under contract, and postpone purchasing until fiscal year 2021. We firmly believe that with these measures, the total amount of loss will be manageable and allow us to remain committed to our core value of wage continuity for our faculty and staff.
Outlook for Fiscal Year 2021
We will continue to monitor developments concerning the pandemic and its impact on Middlebury—our campuses in Vermont, Monterey, and around the globe—and on our communities, the nation, and the world at large. We are hopeful that conditions will stabilize and begin to improve over the next eight weeks. At the same time, we will plan conservatively in developing the fiscal 2021 budget, adjusting our expectations for budget growth and asking department heads to consider how we can reduce expenses without affecting our ability to deliver the Middlebury experience, in all its forms.
This is work we must do in partnership, and we will rely on input from our faculty, staff, and students as we build our financial strategy. We will then ask our Trustees to support our collective recommendation on how we can best navigate the year ahead.
I want to take this moment to recognize the excellent work of the Budget Advisory Committee, made up of the following faculty, staff, and students: Rick Bunt, Amy Carlin, Jeff Cason, Kenshin Cho, Alberto Citarella, Bob Cole, Justin Edson, Enrique Garcia, Katie Gillespie, Noah Graham, Jim Larrabee, Sujata Moorti, Dana Olsen, Tim Parsons, Hannah Ross, Thor Sawin, John Schmitt, Katy Smith Abbott, Edin Suljanovic, and Meghan Williamson, and the rotating members of the College’s Educational Affairs Committee: Florence Feiereisen, Anne Goodsell, Paula Schwartz, Rebecca Tiger, and Jeremy Ward.
President Patton and our senior leadership team are confident that we will see the institution through this time of walking uncharted territory. We are ever mindful of the devastating toll that this pandemic is having on loved ones, friends, neighbors, and communities everywhere. We are deeply impressed by how Middlebury has come together during this crisis, and the effect that your individual attention to social distancing is having on slowing the coronavirus. You have our heart-felt thanks and appreciation.
We are equally grateful to all our faculty, students, staff, and families for adjusting to our emergency way of teaching and learning, ensuring that the truly essential business of Middlebury will continue. Thank you, and I look forward to being in touch again soon.
EVP for Finance and Administration