Facing estimated $260M in losses, Penn State announces cost-cutting measures, potential layoffs
With Penn State facing at least $260 million in projected losses over the next 14 months, university President Eric Barron announced a series of cuts and belt-tightening measures early Thursday evening — including reducing the salaries for some employees who “do not have work they can perform” by 50% through June 30.
In a letter first emailed to university employees, Barron outlined several cost-cutting measures such as a 3% unit reduction that could result in layoffs for the next fiscal year and deferring several capital projects. He also said some employees — namely those in auxiliary units and the Office of Physical Plant — will be paid half their salaries from May 4 through June 30 because the coronavirus is currently preventing them from working “through no fault of their own.”
Barron said the university “believes” the affected employees should also be eligible for unemployment and stimulus support, potentially limiting the financial impact on families. The number of those affected was not released.
“There are too many uncertainties at this time to make workforce projections after June 30,” Barron wrote, “but we will continue to assess circumstances and provide updates regarding whether further steps are necessary.”
According to Barron, the university has already lost more than $100 million since March — when the university effectively closed the campus and moved to online-only learning March 16 in the wake of the global pandemic. The university, which is currently planning to host in-person classes in the fall, is anticipating an additional $160 million revenue loss in the education and general funds budget alone through June 2021.
Barron attempted to allay some fears by outlining Penn State’s “healthy reserves” and “strong credit rating,” but he also didn’t underscore the seriousness of the COVID-19 impact.
“So, from now through at least the end of the fiscal year (June 30), we do not plan on further furloughs or layoffs,” he wrote. “However, we face many uncertainties, and there may still be a need to impose measures like these in the future.”
Employees in the auxiliary units and Office of Physical Plant — which includes Teamsters Local No. 8 — are among the hardest-hit because many are unable to work. The auxiliary units were previously self-sustaining with revenue generated from hotels/conference centers and events at the Bryce Jordan Center but, with that revenue now flatlined, there’s a severe budget shortfall.
Penn State plans to pay those employees the 50% with funds from the federal Coronavirus, Aid, Relief and Economic Security (CARES) Act. The university received $55 million total, with plans to put half toward emergency student financial aid with the other half helping impacted employees.
The deferred capital projects will save an estimated $60 million, although specifics on what those projects are have not yet been released. The 3% unit reductions will also occur after deans, chancellors and vice presidents meet over the next two weeks. “While we prioritize employees,” Barron wrote, “there may still be some related job impact.”
Barron announced he will contribute 10% of his monthly salary to the Employee Assistance and Student Assistance funds, and he asked the university’s senior leaders to voluntarily do the same.
It is unclear if Penn State’s highest-paid employee, football coach James Franklin ($5.4M+), will follow suit. A spokesperson said she did not have that information at this time.
“Supporting students and employees in need is critically important to both Molly and me,” Barron wrote, referring to his wife, “as we know how challenging this time is for many.”
The university previously announced that it would reduce tuition costs for this summer, and it said Thursday that it would now freeze tuition for the 2020-21 school year, pending approval in July by the board of trustees.
Barron ended his letter by bolding that the university entered the coronavirus crisis on “solid footing,” which should allow Penn State to weather this “comparatively well.” He intends to schedule a town hall in the “coming weeks” with more details on that to be released as it draws nearer.
“It pains me to have had to deliver such hard news, and I know you have many questions,” Barron wrote. “We must be realistic, yet optimistic.
“It is my hope that this crisis is a short-term shock to our economy and way of life, similar in some ways to a natural disaster. We are a world-class university, with diversified research and educational capabilities, and poised to thrive in our marketplace — both now and in the long term.”
This story was originally published April 23, 2020 at 6:10 PM.
