Unexpected enrollment, benefits changes bolstered a bleak COVID year budget

Stronger-than-projected fall and spring enrollments, a successful experiment with winter session and steady research activity helped turn the tide on a university operating budget for the fiscal year that ended June 30 and started with an estimated $41 million shortfall last July.

A tuition freeze, $3.2 million decrease in state operating support, an anticipated $2.5 million less in interest income on university investments and anticipated losses ($2.2 million) in indirect cost reimbursements due to a scaled-back research enterprise were outcomes of much uncertainty in the first six months of the COVID-19 pandemic. But researchers persisted and reimbursed costs held steady, and students enrolled at a higher pace than anticipated. The 2020 winter session pilot, not yet in the picture last July, enrolled 2,140 mostly upper division undergraduates and brought in $3.6 million in tuition revenue. By year's end, a projected $33.4 million loss in tuition revenue for the year turned out to be closer to a $13 million deficit, and the estimated $41 million revenue gap was closer to $19 million.

"We saw resiliency in our students to continue or complete their educations," said Bonnie Whalen, associate vice president for institutional financial strategy who leads ISU's budget management team. "Our FY21 budget was built at a time of great uncertainty, in the early months of the pandemic. We didn't see the level of enrollment reductions we thought we could."

Strategic decisions paid off

"We're grateful to the campus community for its patience during a difficult budget year," said senior vice president for operations and finance Pam Cain. "The changes we implemented, some temporarily, some permanently, helped reduce expenses to better align with our reduced revenue."

Last summer President Wendy Wintersteen announced a series of strategies aimed at closing the gap between revenue and expenses for FY21. They involved everything from the university's first retirement incentive program in a decade to the president refusing 10% of her own salary. Below are a few others:

  • A temporary reduction to the university's TIAA/VALIC retirement match by 2 percentage points, from Sept. 1, 2020, through June 30, 2021.
  • Changes to the health and dental insurance plans that increased employee premiums and co-payments on office visits and prescription drugs.
  • Salary and benefit savings due to a recruiting hold on noncritical faculty and staff vacancies from March 24, 2020, through June 30, 2021.

Whalen said budget units also achieved operational savings because of reduced or canceled travel, equipment purchases, space improvement projects and other activities during the year.

One of the most impactful strategies was the retirement incentive option (RIO) program under which 318 employees retired from the university and selected a benefits option for two or three years. However, due to payouts of accrued vacation hours and the fact a large number of employees retired on the last available date, June 30, Whalen said the RIO didn't result in net savings in FY21. The projected savings in the new fiscal year is $10.3 million among general fund units and another $4.3 million in other units. Units impacted by the program will reallocate their savings to priorities.

Federal relief funds

In three rounds, March 2020 and 2021 and December 2020, Iowa State received nearly $112 million in federal Higher Education Emergency Relief Funds (HEERF) for pandemic-related expenses and lost revenues. While 45% of it ($50.6 million) is for direct aid to students -- $21.7 million of which has been awarded -- the remaining $61.3 million is intended to help the university cover an estimated $11 million in additional costs and millions in lost revenue since March 2020. Another pandemic cost was refunds to students -- residence, dining, courses, parking -- totaling about $15.3 million and paid last summer at the end of the 2020 fiscal year. Whalen said her budget team is working to make the best use of HEERF funds, a $547,688 grant from the state Department of Education (also sourced from congressional funds), and Federal Emergency Management Agency reimbursements. The first priority will be to cover additional costs and the student refunds, she said. The goal is to complete that puzzle-pieces process by late fall.