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June 24, 2020

Public colleges heading into fiscal storm

Photo | Edd Cote Worcester State University

Some public colleges and universities in Massachusetts face the risk of cash shortfalls in the coming fiscal year, and the sector as a whole is expected to grapple with longer-term financial challenges from the COVID-19 pandemic, according to an analysis presented Tuesday to the Board of Higher Education.

Last month, higher education officials announced they planned to work with EY-Parthenon consultants to assess the pandemic's impact on public colleges and universities. That assessment, which contemplated three different scenarios, was discussed at Tuesday's board meeting.

Under the most pessimistic model, as many as eight of the 24 institutions -- four state universities and four community colleges -- could encounter a situation where they do not have enough cash to cover a month's expenses, assuming they do not cut costs or deploy other mitigation strategies.

EY-Parthenon's Haven Ladd, who presented the risk assessment, said the nine state universities and 15 community colleges are considering a "wide range" of mitigation options. He said an ongoing restructuring of some Massachusetts State College Building Authority (MSCBA) obligations would allow all the state universities to avoid shortfalls, though that move would not affect the community colleges.

The analysis did not identify specific campuses at risk of shortfalls. Ladd said it found that the potential shortfalls were "relatively far into the future," falling late in fiscal 2021.

"That is a good thing because time is on the side of financial planners, and the more time that institutions have, the more strategies they can [use to] mitigate risk, mitigate this cost reduction, and make sure they still have enough cash to pay for their obligations," Ladd said during the board's Zoom meeting.

All 24 public institutions analyzed -- the assessment excluded the five-campus University of Massachusetts system -- are expected to be in a "notably worse" financial position in June 2021 as compared to June 2020, Ladd said.

"That, in our view, would reduce their resiliency to cope with continued adverse outlook for enrollment, and perhaps state appropriations, going into FY '22," he said.

After abruptly transitioning to remote learning in the spring to accommodate social distancing as the presence of COVID-19 grew in the U.S., colleges and universities are now confronting a wide degree of financial uncertainty including questions about enrollment, state appropriations levels amid a sharp economic downturn, and the potential for future campus shutdowns.

"What we want you to know, and all the board members to know and the secretary to know and the state to know, in three words, is: We've got this," Bridgewater State University President Frederick Clark said. "We do. It's not going to be easy, and we will need your help, and everyone on this call."

Department of Higher Education Commissioner Carlos Santiago told the board Tuesday that he had approved a motion authorizing the MSCBA to issue refunding bonds "to provide fiscal relief for state universities over the next two years." Clark said that move will "help us significantly in FY '21 and a bit in FY '22."

The issuance of 2020 restructuring bonds, Ladd said, is projected to alleviate $53 million of MSCBA revenue assessments in the 2021 fiscal year.

State appropriations represent 30 to 40 percent of state university and community college revenues, according to the EY-Parthenon presentation, which calls for budget-writers to "consider any current and future impact -- the larger the cut, the higher the charges to students and the greater the risk to fiscal sustainability."

Though state revenue collections have been hammered by the pandemic and are projected to end up billions of dollars below initial estimates, campus leaders said they will advocate for more state support as the fiscal 2021 budget process continues to play out. The new fiscal year begins a week from Wednesday, and lawmakers postponed the budget process in hopes of better understanding the full scope of the pandemic's economic fallout.

Worcester State University President Barry Maloney said there needs to be "open conversations ... about state appropriation as a mechanism, as a tool, to help our campuses not deplete our reserves in the months and years ahead."

Bunker Hill Community College President Pam Eddinger said she's not worried as much about fiscal 2021 -- "We know we're going to get through somehow," she said -- as the following year.

"If we are stripped to the core, stripped to the bone, in FY '21, we will be in no way way ready to be prepared for the short-term training that's important for economic recovery," she said.

Eddinger said the schools "can't count on the federal government, for various reasons that you know already," and at Bunker Hill, "we can't really strip any more from my students."

"There's no disguising it, it is the state aid that we need," she said.

UMass President Marty Meehan delivered his own presentation, telling the board that the system lost about $123 million last semester, including refunded room and board fees, halted research grants, and lost event revenue.

"This is more than a one-year challenge. This is a two-and-a-half year challenge," Meehan said. "If you study recessions, the last two, you can see that Massachusetts budgets have been affected not in one year, but two and three years. We're going to work as hard as we can to try to increase state funding or save state funding, but it doesn't look that great right now."

Education Secretary James Peyser offered a cautionary note on the budget picture, noting state revenues "have been shrinking dramatically."

"We don't know where the bottom is of all that. We also don't know what the federal government is going to do to support the state budget going into FY '21," he said. "But we shouldn't kid ourselves, that this is going to be a fiscal year that looks like anything that we've had in the recent past. This is going to be a very challenging fiscal year for everyone and for every function of state government, higher education included, and we just need to do our best to try to make the best of a bad situation, but I think we also need to be realistic, as we go into this year, about what is possible."

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