With a uniquely demanding spring semester now behind us, it is time to look ahead to decisions that will prepare the College for the coming year—a year that we know will also present extraordinary challenges. I recognize that the relentless pace needed to manage the present makes it very difficult to focus on the future. Nevertheless, it is critical that we move quickly on all fronts to prepare for the coming academic year and beyond. Given the magnitude of the challenges institutions like Lafayette are facing, we will need every inch of runway.
I write to outline the current status of our planning efforts, the budget impacts we are projecting, and the difficult decisions, including compensation reductions, that are needed in response to those impacts. In all of these decisions we continue to be guided by three priorities: sustaining the excellent liberal arts and engineering education for which Lafayette is highly regarded; supporting the faculty and staff who are integral to delivering that education to our students; and preserving the flexibility necessary to adjust to a rapidly changing environment.
We know that this memo will not answer all the questions you may have about the information below, so we invite you to register for and attend a community town hall on June 1 at 3 p.m.
Planning for 2020-21
As you know, many members of the campus community have been engaged in efforts to plan for fall 2020 and spring 2021. While much is still unknown, we know that we will be better equipped for any scenario if we strive for flexibility and adaptability in how we think about the academic program and residential life. The working groups already established are being coordinated by an Implementation Plan Development Group, chaired by VP Annette Diorio, that is preparing a draft plan for discussion in the coming weeks. We have laid out a decision timeline that calls for the release of a target scenario and plan for the fall semester in mid-June, with a final “go/no go” decision date of August 3 to confirm the viability of the proposed plan in light of the external circumstances we find ourselves in at that time.
Projected budget impacts
At the same time, we have been refining financial models that project the impact of various scenarios on the College’s budget in 2020-21 and beyond. The projected deficits under any imaginable scenario are dramatic. With tuition, room and board fees as the College’s primary source of revenue, a potential reduction of 10 to 30 percent in the number of enrolled students would create significant shortfalls, and both surveys and informal input indicate that many students may choose to sit out a semester or year if they feel the experience may be inevitably compromised relative to their usual expectations of a Lafayette education. There will also be major costs associated with creating an environment that supports physical distancing protocols. Our models show projected deficits ranging from $20 million at the low end, assuming that we are mostly open with nearly all of our students next year, to an upper end of $60 million in the event of extended remote learning or a complete shutdown.
The current economic environment will have additional impacts on our resources. Fundraising is likely to be down as many families struggle with reduced income, while demands on our financial aid programs are likely to rise. The College’s endowment has diminished in value as a result of market volatility, which will mean a reduction in its regular and critical infusions into our operating budget. Should we need to turn to the endowment for additional support beyond our annual draw, that will further limit its future capacity, requiring continuing budget reductions over the next several years.
The actions already taken, which were outlined in my April 6th memo to the community, were a first step in what we now recognize must be a more extensive series of expense reduction strategies. We learned in 2008-09 that colleges that acted decisively experienced the best outcomes. Lafayette moved swiftly at that time to cut budgets, freeze salaries, and implement other cost savings measures. We were thus well positioned to recover swiftly as well.
Similarly, we expect to be well served now by moving to a deeper level of reductions in a variety of areas. To that end, we will be reducing the capital budget by $4.1 million, reducing non-compensation budgets by an average of 10 percent, eliminating some planned transfers to the endowment, and utilizing both primary and secondary contingencies to recover $5.7 million.
The above actions are helpful, but given that the largest expense in our budget is compensation at 40 percent, it is impossible to achieve significant budget savings without reducing compensation. Recognizing that compensation expenses can only be reduced in two ways—by eliminating positions, or by reducing the compensation offered to all employees—we are pursuing compensation reductions on the principle that, as painful as they may be, they are preferable to job losses for our community.
In arriving at the steps outlined below, we have consulted with the Faculty Academic Policy Committee, the Faculty Compensation Committee, and the Administrative Council. We appreciate their thoughtful advice and candor. We have sought to develop a compensation plan that reflects equity across a range of salary levels and clarity about the tradeoffs involved in balancing retirement contributions against salary reductions.
We recognize that these compensation changes will present significant challenges for all of us, and that we are asking for sacrifices at the same time that everyone is working hard to support the mission of the College. We hope that taking these steps now will preserve faculty and staff positions and help sustain the long-term health of the College.
With these goals in mind, we are announcing the following measures:
A progressive pay reduction for employees earning $37,000 per year or more effective July 1, 2020 of between zero and 6 percent, depending on salary level.
A suspension of the College’s contribution to the retirement plan for 2020-21 effective July 1, 2020, and a corresponding elimination of the mandatory retirement contribution from employees.
The institution of a furlough program in June and July 2020 for a limited number of employees who cannot fulfill their job responsibilities while the physical operations of the campus are restricted, or whose work can be better spared in the summer. Employees who wish to explore a voluntary furlough during this period should speak with their supervisors.
Please note that implementation of the above measures for our union employees will be subject to further discussion.
This plan for compensation reduction, though difficult, is graduated and asks the most of those who earn the most. Three-quarters of Lafayette’s employees will experience reductions below 5 percent; the average reduction is just slightly over 3 percent. Cabinet officers will all experience salary reductions of 6 percent or higher. Provost John Meier will take a 10 percent salary reduction, and I as President will take a 15 percent reduction in salary.
By spreading compensation reductions between salary and retirement contributions, this plan strives to preserve as much immediate income as possible for employees. Those who wish to prioritize long-term retirement savings over immediate income might consider redirecting salary into increased voluntary retirement contributions.
These compensation reductions will lower College expenses by approximately $9 million in the coming academic year. This is only a portion of the projected $40 million-plus deficit, so we must continue to seek additional operational and programmatic efficiencies. Recognizing that much is still unclear as we plan for the year ahead, we will assess the impact of these compensation reductions in early November in light of our actual enrollment, revenue, and losses. At that time, we will be in a position to confirm whether these reductions should be maintained for the year as planned, lightened, or potentially intensified.
We will continue to work to sustain Lafayette’s long-term strength while making every effort to preserve Lafayette’s most important asset: our people. I thank you for your commitment to the College, and appreciate your continued understanding and support as we navigate this difficult time together.
President Alison Byerly