What a Budget Deficit Means for the University of Redlands

What a Budget Deficit Means for the University of Redlands

Gone are the massive life-sized printing machines scattered across campus. Now, students do their printing through wireless printers in select locations.

This is only one of the several cost reduction measures by the University of Redlands in the past few years. Other changes have included personnel downsizing, cuts in travel expenses, a stricter petitioning process for living off-campus, and modifications to certain support programs. The reasons for these changes are a deficit on the operating budget due to the COVID-19 pandemic and declining student enrollment, Vice President of Finance and Chief Financial Officer Kevin Dyerly explained.

The university’s operating budget comes from students’ tuition and room and board fees, endowments from donors, and revenues from renting venues to conferences in the summer. A deficit occurs when the university’s costs are more than its revenues.

In a town hall on September 29, President Krista Newkirk revealed the university’s deficit, stating that the University of Redlands is currently using its reserves to pay for its operating expenses. The reserves are funds set aside from the university’s previous revenues, which were built up from 2012 to 2018 when enrollment was higher, stated Dyerly. In the past three years, the university has been drawing from these funds to offset the complications of the pandemic.

“So the reserve balance was $24 million in 2017-2018. This year, it’s closer to about $14.7 million and we would anticipate that it could be closer to $11 million by the end of the year,” said Dyerly. In other words, the reserves are not limitless and can only help the university through the next few years.

A primary cause of this issue, according to Dyerly, is a reduction in student enrollment, particularly in the School of Business. Even prior to the pandemic, declining enrollment in MBA programs was already a national issue. A survey in 2018 found that almost three-quarters of MBA programs saw the number of applications to their institutions shrinking. Rising inflation was also a concern during these years, especially when the University of Redlands decided not to raise tuition to keep pace.

However, the COVID-19 pandemic has had “the most profound impact” on the university’s revenues, noted Dyerly. With in-person standardized testing being disrupted and recruitment programs being done virtually, enrollment at the University of Redlands decreased by 8% in the 2020-2021 academic year. Dyerly also cited a national trend in declining college enrollment, stating that Redlands is “no exception.” Student enrollment and the associated housing charges are a major source of revenue for the university, but this source was disrupted by the 2020-2021 academic year being online.

Despite this fact, Dyerly clarified a common misconception about the university’s housing policies. It might seem like the university stopped allowing students to live off-campus this academic year, but this is not the case. Students have always been required to live on-campus for the duration of their undergraduate degree. The previous years just saw higher enrollment that limited the number of rooms available, but this year with lower enrollment, there are more spaces available for students.

“I think that was difficult for some students to be able to experience because it wasn’t what they were used to, but it wasn’t a change in policy. It was just continuing implementing the policy based on student enrollment and demand,” said Dyerly.

A more serious issue is the rising inflationary costs of food, which reached 10.9% this past October, according to the U.S. Bureau of Labor Statistics. This extraneous expenditure presents additional challenges for students’ meal plans and dining structures.

“Harvest Table, just like the university or any organization, is always looking at, ‘How do we try and make sure that we can deliver what students are looking for within a reasonable cost’ and so they’re always evaluating ways to be able to do this as efficiently as possible,” said Dyerly.

That is why the university has been embarking on several projects that aim to increase student satisfaction and student enrollment and consequently revenues for the university. The renovation of Anderson Hall is one of those projects, a “very intentional decision to make investments in the campus itself.”

“We feel like it’s important to make those investments to make the experience for our students better, safer, and more accessible,” said Dyerly.

After the pandemic, the university recognized a need to attract more students. It issued $52 million in bonds to finance the renovations. In other words, the money needed does not come from the operating budget and will not impact the current deficit.

“The way we’ve structured the borrowing is, there’s about four years before the additional debt service, which is the payment that we’re making to pay off that debt, increases by a few million dollars. So we have a few years to plan for and integrate the additional service into our operating budget. Afterwards, hopefully some of those investments have generated some return through increased revenue,” explained Dyerly.

Other projects include accessibility support in older buildings, modernizing classrooms, building an eSports arena and a varsity eSports program, as well as sustainable energy solutions.

“Those are all coming from the issuance of those bond proceeds, and I would say that the prioritization of those projects was improving the student experience, making investments where we think it will help us become more competitive and support growing enrollment, addressing health and safety issues, and creating and providing better accessibility to buildings. Those were four of the key priorities,” said Dyerly. Some projects are also financed through fundraising, added Dyerly.

In the long run, however, more practical solutions are currently being developed.

“We’re in the process of working through and developing and implementing a strategic plan, and trying to rebound in some areas and enrollment, so that we can get to a more financially healthy position here in the next couple of years,” said Dyerly. “And as part of that strategic plan, we’ll be building out a financial multi-year budget model that needs to be able to forecast us getting to a much more structurally healthy place where revenues are exceeding expenses and we’re able to replenish that reserve fund for the next big rainy day or whatnot. So that’s what we’ll be working on here over the next four to six months.”

Regarding tuition, Dyerly agreed that there is likely to be an increase in student tuition, citing inflation as the challenge.

“That said we will likely have a tuition increase that will be within the range of where a lot of higher education institutions are. And I think it will still be a modest increase relative to what we’re seeing in inflation,” said Dyerly.

Despite all these troubles, Dyerly reassured students that the university is doing its best to deliver the educational services it is known for and to support students in any capacity. He encouraged students to speak up about their needs through platforms such as the town hall or the student government.

“How do we become more resourceful? What are some of the things that we’ve been doing that aren’t really effective? What could we not do so that we could actually devote our resources to something else that is effective or has strong student satisfaction?” are some of the questions Dyerly would like to ask students.

Lastly, Dyerly affirmed, “If you read the history of our first 100 years, you get an appreciation for the fact that over the course of the first 100 years, we had our challenges like almost every college or university does, and we continued to survive and thrive and innovate. And I’m confident that we will continue to do so.”

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