University of Minnesota's pandemic budget struggles continue with projected $39 million deficit

The University of Minnesota lost about $214 million in revenue over the past two years amid disruptions from the COVID-19 pandemic and is facing another budget deficit this year.

The U's budget shortfall for this fiscal year, which ends June 30, is estimated at $39 million, administrators told the Board of Regents on Thursday. Administrators hope the university's budget outlook will continue to improve as the pandemic wanes, but there is concern about how inflation will affect finances over the next year.

"They will remain higher than we have had to manage in many years," U Budget Director Julie Tonneson said of inflation rates.

University leaders dealt with the more than $200 million in budget shortfalls between March 2020 and June 2021 through internal reallocations, employee furloughs and pay reductions, and the use of central reserves and about $80 million in federal COVID-19 stimulus funds.

This year's projected deficit includes losses of about $16 million in tuition revenue; $13 million in housing, parking and dining revenue; $9 million in other revenue where sales have been slower than expected; and $1 million in expenses for masking and COVID-19 testing.

The U's Athletics Department, which had to take on debt to cover revenue losses last year, is in better shape now, Tonneson said. At worst, she said the department is projected to be $8 million in the red. But it could also end the year breaking even or possibly making money.

"All of these activities are doing better than last year," Tonneson said. "They're just … a little bit worse than we anticipated."

There will be no federal relief funds left next year. Administrators and regents discussed how high inflation could make crafting next year's budget more difficult.

University leaders said they are prioritizing pay increases for employees, acknowledging that many employers in the private sector are offering wage bumps of more than 5%, and public and nonprofit organizations are raising pay 3 to 5%.

"We can't expect to get the most talented people without dealing with the market, and we have some competition out there," said Myron Frans, the U's senior vice president for finance and operations.

To pay for employee wage increases, the university may have to raise tuition, use some of its state funding appropriation or make budget cuts.

The U remains committed to only increasing tuition at or below the rate of inflation, Tonneson said. A 1% increase for all students next year would generate $9.5 million in new revenue.

"We're already well out of alignment in what we're asking from Minnesota students," Rosha said.

Regent Vice Chairman Steve Sviggum agreed that university employees deserve pay raises. But he said the school should also strive to reduce its personnel count so it can comfortably pay employees more.

Ken Powell, chair of the Board of Regents, encouraged administrators to incorporate some recent endowment fund gains into next year's budget. Most endowment funds are restricted for specific uses, but a small amount generally makes it into the budget.