Early closings due to coronavirus could worsen UConn deficits

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Early campus closures due to any spike in COVID-19 cases during the school year could raise the University of Connecticut's fiscal 2021 operating deficits to $116 million or higher from the current $74 million, the school president told state lawmakers.

UConn and its health system are experiencing the biggest shortfalls in the university’s 130-year history, president Thomas Katsouleas told members of the General Assembly’s joint appropriations committee on Friday.

“Our response, including the cuts we’ve been making, are reflective of a challenge of that magnitude,” Katsouleas said, adding that both “pivoted in a nimble way,” when the coronavirus escalated.

Monday marked the beginning of UConn's fall semester. The university's plan launches with in-person classes available, with increased online capability and a plan to go fully online at Thanksgiving, or sooner if circumstances force it.

With the university projecting a $74 million loss for fiscal 2021 including fall and spring — or roughly 5% of its annual budget — university officials have identified $48 million in mitigating items to bring the remaining loss to $26 million, chief financial officer Scott Jordan said.

Nationally, the coronavirus will accelerate the transformation of the higher education business model with varying credit effects, said Moody’s Investors Service.

“Some universities previously resistant to change will have to take more expansive steps to adapt to the transformation,” Moody’s said. “While highly disruptive over the next one to two years, with varied credit effects on individual universities, the initiatives will ultimately be credit positive for the sector as a whole, driving innovation and growth.”

UConn operates its main campus in Storrs and regional campuses in Avery Point, Hartford, Stamford and Waterbury.

Jordan said the university before COVID cut departments by 3% to 4%. To mitigate the pandemic hit, UConn cut them by 13% more and made university-wide reductions of $10 million.

Further chopping included 5% and 10% cuts to management and senior-management pay, respectively; elimination of four of its 22 sports — men's cross country, men's swimming and diving, men's tennis and women's rowing — and hiring and spending freezes.

UConn is requesting $2.8 billion from the state budget office to cover COVID expenses in fiscal 2020 and 2021, the latter through July 31. The university has officially received pre-approval from OPM for half that amount from the Coronavirus Relief Fund.

“No funding has been transferred yet as we await the outcome of the FEMA reimbursement,” Jordan said, referencing the Federal Emergency Management Agency.

Based on OPM guidance, he said, UConn will submit requests for reimbursements for COVID expenses incurred to FEMA, which will pay up to 75% of eligible expenditures. The state has committed to reimburse the remaining 25% from the relief fund, and 100% for those not eligible for FEMA reimbursement.

Early closing, should coronavirus metrics spike, could bring the request for additional state support request to $56 million, Jordan said. If the estimated state unfunded legacy costs are included at $30.9 million, he added, the requests reach $87 million in the early-close scenario.

Before COVID, UConn housed more than 12,000 students on campus. Subsequent efforts to "de-intensify" the Storrs campus dropped the total to 5,000, Jordan said. The impact was an additional loss of $6.2 million, with the total loss from baseline $28.6 million.

The quick suspension of in-person learning amid coronavirus spikes at schools like the University of North Carolina and the University of Notre Dame underscores the threat to UConn. On the other hand, Connecticut, hit hard by the first wave of COVID-19 in March and April, has low new case rates compared to many other states and a positive test rate of less than 1%, according to the John Hopkins University Coronavirus Resource Center.

Even if UConn Health's mitigation efforts materialize, the system projects a $76.9 million shortfall through the end of FY 21.

UConn Health consists of John Dempsey Hospital and medical and dental schools at its flagship Farmington facility; UConn Health at Downtown Storrs; medical and dental clinics and graduate programs.

Although governed by a common board of trustees, the university and UConn Health maintain separate budgets and are legally separate entities for operating funds and state appropriations.

UConn Health lost $70 million in net patient revenue in fiscal 2020 due to the pandemic, said its CFO, Jeffrey Geoghegan.

The state itself faces deficits that could exceed $3 billion for each of the next two fiscal years. The next biennial cycle will start next July.

Budget director Melissa McCaw said she projects a rainy-day fund balance of $942 million, or 4.7% of fiscal 2021 net general fund appropriations, at the end of the fiscal year following a draw of $2.1 billion to balance the budget.

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