Gallagher says budget up in air as Pitt sees $40M in losses


The closures caused by the COVID-19 virus crisis are putting a financial strain on the University, Chancellor Patrick Gallagher said in an interview last week, which will make the coming year “a very unusual financial year. We are trying to figure out how that budgetary process will look.”

“The University is facing one of its largest potential financial shocks in its history,” Gallagher said. “We don't really know how big it's going to be; it's pretty big already.”

Gallagher estimated the University’s net losses so far at around $40 million — nearly half coming from pro-rated refunds of fees for room and board after students were asked not to return from spring break. Revenue also has been lost through the closing of the dental clinic and the daycare center, plus changes in funding from the NCAA.

Pitt has been able to absorb some of these losses because it had previously refinanced some debt in anticipation of major capital projects, like the construction of a new recreation center on O’Hara Street.

“In some sense what's happening is the University is acting … like a self-insured entity, and we're underwriting losses,” Gallagher said. “We were going to use that cash to invest in things like facilities. You end up having to turn off all of these things that we wanted to do so that you've got the self-insurance capacity to deal with the potential loss. And we either have to pay ourselves back over time, or we have to forego what we would have done otherwise. There's no free lunch. We either push this on to the future, or we pay an opportunity cost.”

Gallagher told Senate Council, this is “an enormous advantage because it means we can make the decisions about how we deal with finances at a point where there's much more certainty about what life looks like after this COVID pandemic. Many colleges and universities will not have that luxury … you will see universities fail.”

At Pitt, some projects, like the Bigelow Boulevard overhaul, will definitely continue because of safety concerns.

“A giant pit in the middle of Bigelow is a problem,” he said. “Some of these projects we're dealing with critical utility upgrades. We can't lose power and cooling and data and other critical infrastructure. Some of these were life safety improvements to take care of fire systems, and we don't want to stop those activities.”

The budget for the upcoming fiscal year, 2020-21, will probably be “a very baseline budget … more compatible with this limited kind of operation we're in now,” Gallagher said. “We don't cut things that are the DNA of the university — our core programs or faculty, we do not want to cut them. Even in the face of all of this uncertainty, when those things are gone, they're gone and it takes years to rebuild them. So that's critically important.”

The University wants to shed other costs, such as for contracting, transportation and utilities, when they’re not being used.

“We're asking the schools and other programs to try to manage against what's probably a moving target this year, and we'll probably have one or more budget amendments as the year goes on and we kind of figure out what we're facing,” he said.

Some of the losses will be offset by the federal stimulus package passed last month — the CARES (Coronavirus Aid, Relief, and Economic Security) Act — which provides $14 billion in grants directly to institutions of higher education.

Pitt will receive $21.3 million, with at least half required to go to emergency financial-aid grants to students. Arizona State University topped the list with a total allocation of $65.3 million and Penn State comes in second with $55 million.

The other big monetary concern for Pitt and the other state-related universities is what the appropriation from the state will be this year. On April 16, Gov. Tom Wolf estimated the state is facing a $5 billion deficit. Gallagher said there has been talk in Harrisburg of splitting the appropriation bill into two pieces — one that would go through December and another “once they kind of figure out what they're facing.”

“But absent any large amount of federal support to the states, we may be facing a serious likelihood of a large reduction in state appropriation, particularly in that second bite of the apple, because I think things are not going to be any better at that point,” he said.

Gallagher also spoke about all these financial challenges at the April 16 Senate Council meeting, where he said, “As crazy as the last month has been, we may be in for 12 to 18 months of this.”

“Almost every type of revenue that we depend on has become uncertain,” he said. Tuition revenue could drop even if enrollment remains strong, because more students may require need-based aid. Fundraising is likely to take a hit because donors are struggling. “Our revenue sharing from tickets and athletics events and contracting and hosting things are all going to be down sharply. Our endowment … is already down because of all the volatility in the market.”

What about the fall?

The next big question the University faces is can operations return to normal in the fall.

“Of all the assumptions to make, the one I can tell you is a good assumption to me, is that back to normal is probably not likely for the fall because there will be no vaccine or no widespread immunity,” Gallagher said at Senate Council. “So the question really for us is what kind of off-normal should we be planning and preparing for. And the answer is, we don't know.”

Provost Ann Cudd will form a task force after the end of the semester to look at all possibilities, from continuing at our current operating level to opening fully to having some sort of hybrid of the two.

Options the task force will look at include ways to de-densify the campuses or ways to be in and out of containment mode where the University oscillates between “red flag days and yellow flag days.” Gallagher said they want to look at scenarios that will mean life on campus isn’t all or nothing.

He said they hope to have some scenarios outlined by the end of May and then make a final decision until mid-summer. But he made clear that any decision would be based on what public health officials are saying.

“We're going to be saved by experts,” Gallagher said. “All the sort of push back on expertise and we're at a time when our superstars, our rock stars are people who have spent their whole career studying infectious disease.”

Also, Rob Rutenbar, senior vice chancellor for research, is working with the associate deans of research to look at how to restart labs and other research facilities. Only 12 percent of research staff are now on campus. “You don't just walk in and flip on the switches and come back to work,” Gallagher said.

While he made no promises about tuition rates, Gallagher said, “It’s very hard for me to see upward movement on tuition when families are under such tremendous financial pressure.”

If students don’t return to campus in the fall, they won’t be charged for services like room and board that they can’t use, he said.

Through all the chaos surrounding the pandemic, Gallagher said there are two things at Pitt that are not in turmoil: “Our mission of people making the world a better place through knowledge has never been truer. And I think the other one is just supporting each other. We will be able to look out for each other and support our students, our faculty and our staff and our communities as we come through this.”

Other highlights from Gallagher’s remarks

On students still on campus: As the semester ends, Gallagher said, students who have no place else to go will not be evicted. “Being on campus is no picnic,” he said, and he commended those students for taking social distancing seriously.

On April 26 celebration of graduates: “We just felt that it wouldn't make sense to not mark the moment when the students completed their degree requirements, even though they're not on campus,” he said. The half-hour celebration will start at 11 a.m. and be for graduates at all levels. Kathy Humphrey, senior vice chancellor for Engagement, is leading the planning for a special weekend this fall to honor 2020 graduates. “The idea is to really create a lot of things happening so people really have the reason to come back on campus and kind of reconnect.”

On helping staff: “We're very concerned about the financial impact on our employees; that's a given. … We've been trying to be as flexible as we can on what is work, so that people don't have their livelihood impacted.” He said they will keep looking at what state and federal programs are offering to look at if some staff might do better taking a voluntary furlough and collecting unemployment. For more information about changes for staff, see related story.

On Panther Hall students whose belongings were discarded: As of now, this situation has only impacted two students, according to the University. Gallagher said Pitt’s intention is to make good on the losses the students incurred. “It was an incredibly regrettable mistake. People were trying to move fast, and I think there was a misunderstanding and these things happen. It's clearly not the students’ fault.”

On Pitt-related COVID-19 cases: The University has tracked about 20 cases of people who were still interacting with campus. Gallagher said that since the Pitt community has dispersed, it’s unlikely the University would know about other cases that it wasn’t directly involved with tracking.

Susan Jones is editor of the University Times. Reach her at or 412-648-4294.


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