FY21 institutional budgets are under pressure. Here’s how SFOs are reining in costs and finding new revenue sources.

Expert Insight

FY21 institutional budgets are under pressure. Here’s how SFOs are reining in costs and finding new revenue sources.

The financial impact of COVID-19 was immediate but continues to deepen across the fall. Early spring surveys indicated that simply responding to COVID cost campuses millions—$7 million on average, or 3.7% of an institution’s annual operating expenditures according to EAB. More recently, institutions like The New School, George Washington University, and the University of Massachusetts system are estimating revenue shortfalls in the hundreds of millions.

This bleak outlook has prompted financial contingency planning at every level of the institution. For cost centers like Facilities, the pressure to reduce expenditures is almost immediate. To understand just how much Facilities departments have been impacted, the Facilities Forum conducted research calls and virtual working sessions across August and September. This article documents the scale and impact of FY21 budget cuts to date. It also catalogs what cost-containment tactics (and a few revenue-generating ideas) Facilities leaders have taken or plan to take soon.

Scale of FY21 budget cuts on facilities units

Across early September, over two dozen SFOs convened to discuss budget pressures facing their units. They shared the following data across two polls.

How significantly has the Facilities/Estates operating budget changed in FY21? (Or how much do you expect it to change?)

SFO survey responses to FY21 budget changes.

The majority (88%) of SFOs reported some degree of cuts for fiscal year 2021. While 42% reported cuts in the 6 to 10% range, over a quarter (27%) reported an 11% budget reduction or more. Importantly, these cuts may represent less than the Facilities unit ultimately saves the institution. One SFO reported that while her CFO sought 20% budget cuts across the board, Facilities had been compelled to cut nearly twice that figure.

Where are you anticipating/have you already made cuts to staffing in FY21? Select all that apply.

SFO poll results regarding budget cuts anticipated or made.

The second poll reveals the impact of labor-related cuts. Half or more of SFOs reported making or planning cuts to unit management/leadership and grounds/landscaping. This reflects the seniority of middle- and upper-management employees, who are more likely to be eligible for retirement incentives. As a result, some SFOs raised concerns about institutional knowledge leaving the organization—exacerbated by ongoing hiring freezes. On the grounds front, the landscaping cuts reflect the diminished importance of curb appeal in a reduced occupancy environment.

In the middle, 46% of SFOs reported cuts to dining and events staff, though in some cases employees have been cross-trained to perform new roles, such as becoming COVID-19 policy ambassadors. And while 38% of SFOs reported some cuts to trades employees, many were reluctant to aggressively decrease maintenance staffing to preserve technical expertise and continue maintenance activities considering unanticipated building accessibility.

Finally, custodial staffing levels were among the least likely staff to be impacted. However, the custodial outlook varied significantly across campuses. Some SFOs report reduced need for custodial staff—particularly those that were able to formally close out buildings across the spring and summer—as cleaning guidelines have evolved. Others bemoaned the continued need for “hygiene theater.”

Facilities-focused cost containment strategies

Across these conversations, the Facilities Forum also documented Facilities-centric cost containment strategies. The strategies are divided into two categories: staff-neutral cost containment strategies and staff-facing cost containment strategies. Leaders have worked hard to protect staff from cuts, but the reality is that approximately 60% of university expenditures are tied to staff. And the scale of COVID-19’s financial impact means it’s nearly impossible to avoid staff-facing cuts.

Staff-neutral cost containment strategies

  • Adjust existing contracts.
    • Renegotiate contracts with vendors to reflect changing service level and coverage needs (e.g., waste or recycling).
    • Dining, residential, and other auxiliary facilities staff are the most common areas to cut back staffing or service levels.
    • Reduce subcontracting spend.
  • Cancel or do not renew contracts. Force majeure clauses can provide an out here; however, not all types of services may be covered.
  • Reduce threshold for purchase orders requiring signoff to better manage spend. Senior leadership meets on regular basis or reviews requests electronically before signing off.
  • Leverage alumni connections, or intra/interinstitutional partnerships to secure better rates. Reach out to alumni in PPE or related industries to source better rates. Or enter into a procurement partnership with other colleges, campuses within the system, or regional competitors to lock in a better rate for needed products.
  • Scale up in cleaning services, pull back in other areas. Grounds-keeping and trash collection are among most frequently reduced service levels. For trash collection, a common target is to reduce or eliminate emptying office trash cans. If institutions opt for the latter option, they must provide centralized bins for faculty and staff to use.
  • Lock down or close out unoccupied buildings. Formal closure can reduce utility costs; however, research activity and social distancing can increase square footage needs.
  • Engage in energy-saving performance contract. Partner with energy saving company (ESCO) or utility provider to fund or be reimbursed for utility infrastructure upgrades that reduce energy consumption.
  • Change building set points—even for low- or moderate-occupancy spaces. Institutions that can formally close out buildings can more quickly reap utility savings. But at least one institution has adjusted setpoints—for example, raising the daytime temperature a few degrees—for buildings with lower occupancy.
  • Recommission existing buildings. Campus-wide recommissioning can lead to utility savings of millions of dollars annually. The pandemic provides an opportunity to work in normally occupied buildings.
  • Exit or renegotiate leases. Weigh any financial penalties of a premature exit against cost savings of dropping lease. Most institutions are deploying this strategy for leases covering off-campus administrative departments.
  • Pause/reprioritize capital projects. Delay important but non-urgent projects and cancel ones deemed no longer necessary based on anticipated changes to space use.
  • Sell under- or unutilized buildings to developers. This strategy typically focuses on off-campus spaces, but does require demand from potential buyers and is therefore less viable in certain markets (e.g., rural environments).

Cost containment strategies impacting staff

  • Focus resources on staff defined as “essential”. Some roles consistently in lower demand during pandemic operations (e.g., dining services, athletics, event setup).
  • Cross-train non-essential staff to help with demand areas. Staff can be retrained to help with custodial tasks, manage PPE and disinfecting supplies on campus, etc.
  • Change contributions to pensions. Can reduce or eliminate employer contributions for all or some employees.
  • Reduce contributions to retirement funds.
    • Do not contribute to employees who make $0 in personal donations
    • Only match contributions once per year
  • Do not award bonuses. Can adjust based on pay, tenure, other compensation, etc.
  • Reduce senior-level pay. Positively impacts morale by demonstrating that burden will be shouldered by decision-makers.
  • Reduce or eliminate merit increases
    • Reduce or eliminate staff merit pool.
    • Set a performance threshold for merit increases; e.g., no merit increases for underperforming employees or no increases for employees above a certain pay band.
  • Mandate furloughs. These can target management, frontline staff, or all roles at the institution. Typically, higher paid employees experience longer furloughs than lower-salaried employees.
  • Offer an early retirement incentive plan. Some SFOs have worked with HR to craft specific plans for Facilities employees. A major component is the incentive. Based on EAB’s conversations across August and September, institutions have offered a range of incentives. A large public institution reported a one-time payment of $25,000. Another large public institution didn’t offer a flat bonus, opting for 2 years of health insurance coverage for departing employees and their families (translating to approximately $38,000). A regional private university reported offering employees free tuition for children or grandchildren opting to attend the institution. 

Revenue-generating strategies

  • Tap into available federal funding. Some US institutions are applying for FEMA funding, though the source is currently oversubscribed and prioritizes smaller, less resourced institutions. Beyond that, Canadian institutions who rent property to small businesses can consider applying to the Canada Emergency Commercial Rent Assistance program to receive 50% rebates if they agree not to charge more than 25% rent to tenants (note the deadline is October 30, 2020).  
  • Monetize off-campus residence halls or underutilized buildings. A few SFOs are in early conversations to sell or lease buildings to developers.
  • Increase (or supplement) cost recovery from research division. All institutions have a facilities and administrative fee researchers must account for in their grants. One institution reported introducing a new fee of $15 per square foot per month to account for rent (or operating costs more generally).

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