Financial Update from President Ken Kitts - April 10, 2020

Dear Colleagues:

As we move deeper into the Stay at Home period ordered by Governor Ivey, I thought this might be a good time to share a few preliminary thoughts on how the coronavirus outbreak could affect UNA’s finances.  I have spoken with some of you in recent weeks and know there is concern on this point.  That’s completely understandable given the number of media reports about business closures and other adverse economic developments across the country.  If it’s any consolation, similar discussions are underway on every college campus.  

While it’s clear these are uncertain times for American higher education, I want to emphasize that we are dealing with many unknowns regarding the economic impact of this pandemic.  We’re months away having the firm data we need to assess any long-term damage to the economy and take stock of what all of this will mean for our state and University.  Even so, certain parts of the financial picture for UNA are slowly beginning to come into focus.

I’ll begin this overview with some much-needed good news.  Despite the slowdown in the economy, we are hearing from our governmental relations team that a cut to our state appropriation for the current fiscal year is unlikely to occur.  These encouraging reports are reflective of the healthy tax receipts in the first half of FY 20 as well as the protections offered by Alabama’s Rolling Reserve Fund – a safeguard put in place after the financial crisis of 2008 to protect the education budget from this type of shock.  As long as this calculus continues to hold, we should have access to most of the funding we need for the remainder of this fiscal year.  That, in turn, will give us the time and space we need to see what transpires and to plan carefully for whatever lies ahead. 

Another bright spot is the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that became federal law on March 27.  Of the $2.2 trillion in relief funding that legislation provides, $14 billion is marked for direct aid to institutions of higher education.  Allocations will be based on a formula that focuses heavily on the number of Pell Grant recipients on individual campuses.  While the final numbers still have to be confirmed, we believe our University’s share of CARES Act funding will be between $5 and $6 million.  These are one-time (non-recurring) dollars that must be spent on support for students and costs associated with the coronavirus response.   In addition to this initial injection of funding from the federal government, there is talk in Washington of the need for a second stimulus package.  We will continue to monitor those discussions closely.

Other budgetary news is less encouraging.  Specifically, this economic downturn comes at a bad time for UNA with regard to Project 208.  As I shared with you last month, we began the 2020 legislative session with considerable optimism.  State officials were beginning to embrace our pleas for funding equity, as evidenced by Governor Ivey’s recommendation that UNA receive an increase of 15% (the highest percentage increase of all universities) in our state appropriation for FY 21.  That recommendation had just made it to the legislative branch when the pandemic hit and everything ground to a halt in Montgomery.  

The extent of the damage to state tax revenue is not yet clear.  However, it seems unlikely there will be new dollars available for FY 21 – and funding cuts for that fiscal year are certainly not out of the question.  Similarly, the state bond bill that higher education officials were counting on to assist with capital construction projects now appears to be a long shot.

Enrollment represents another area of budgetary concern.   One consequence of the financial crisis of 2007-08 is that state support for higher education declined sharply.  In response, student tuition and fees have increased and now represent the leading source of funding for public colleges and universities.  This shift in resources has been especially pronounced in Alabama.  Today, state funding accounts for 28% of UNA’s total budget, while student tuition and fees account for 70% of all revenue.

Fortunately, we have experienced great enrollment success of late – up 17% over the past five years – which has given us the new dollars we need to support faculty and staff and to grow the University.  This spring’s headcount at the University was a very robust 7,285 students.  Prior to the coronavirus outbreak, we were on track to welcome another large class of new students and celebrate additional records in the fall of 2020. 

Now we are confronted by new uncertainties surrounding enrollment in higher education.  Important questions have arisen about the extent to which all colleges and universities will be able to resume normal operations in the fall.  Even so, we remain confident in UNA’s position and stand ready to adjust as necessary to meet changes in the external environment or new marketplace demands.  Along the way, we will communicate broadly with key stakeholder groups and will continue to involve faculty, staff, and student leaders in the decision-making process.

In closing, I want to commend all members of the UNA family for working together for the larger good.  We have responded to the recent challenges as well as any university in the state, and I hope you all share in the pride of that accomplishment.   So, thank you for all you have done, are doing, and will continue to do to see our University through these trying times.

Dena and I send our best wishes to you and your families.

Ken Kitts