Facing $70M shortfall, UK extends furloughs, hiring freeze, cuts retirement contributions

UK, budget, COVID-19
University of Kentucky campus. Mark Cornelison | UK Photo

LEXINGTON, Ky. — University of Kentucky President Eli Capilouto on Tuesday announced that UK is confronting challenges more daunting than the institution has faced in decades.

Most of the institution’s revenues are expected to decline, many significantly, Capilouto wrote to the UK campus in an email Tuesday morning.  As a result, the university’s core instruction- and service-related functions are facing a $70 million shortfall next year, a challenge that will force the institution to make reductions so that it can be positioned to “lay a foundation for the future.”

“Many of these decisions will cause pain. They will require shared sacrifice,” Capilouto said in the campus message. “But they are necessary, if we are to meet our financial obligations, honor our principles of education, research, service and health care and lay a foundation for the future.”

Specifically, Capilouto said the anticipated shortfall is the result of two large financial buckets, totaling some $70 million. The first — more than $40 million — results from projected declines in revenues from enrollment and short-term investments.

Nationally, families are grappling with economic uncertainty and anxiety, making it difficult for many to plan for college. And the markets, Capilouto said, have continued a roller-coaster ride, but on balance are down significantly in response to COVID-19.

Another $30 million is the result of ongoing financial commitments and increased costs, Capilouto said. That includes commitments for scholarships, health premiums for employees, and an “essential commitment” to raise starting wages for workers to $12.50 an hour.

To confront the shortfall challenge, Capilouto said the university — in conjunction with its Board of Trustees — will initially enact eight strategies that will help reduce costs for the coming year:

  • Continuing a hiring pause, announced several weeks ago, for the foreseeable future.
  • Enacting low-activity/no-pay policies in units where work has ceased or been reduced significantly — effectively a furlough plan where for a period of 90 days, UK will pay both the institution’s and employee’s share of health premiums.
  • Implementing in some units layoffs or reductions in force.
  • Reducing for one year the university’s retirement contributions to individual employees from 10% of the employee’s salary or wages to 5%. The UK board will consider this proposal at its May 5 meeting.
  • Not providing merit increases July 1 for the coming year. For the last seven years, UK has enacted merit increases for employees. As a result, UK is not going to increase employee health premiums or parking rates in 2021.
  • Delaying expansion of a planned family leave policy.
  • Delaying plans to make mandatory participation in UK’s retirement program for new employees hired after July 1, 2020, who are under the age of 30.
  • Moving forward with shared services for several key areas and exploring additional areas in the coming months.

“The fact that so many institutions across the country are making many of the same decisions makes them no less painful. We will be challenged and tried in ways most of us have never experienced,” Capilouto said. “We will get through this. We will be innovative and resourceful. We will find new ways and create new approaches to meet daunting challenges. After all, as Kentucky’s university, we were created to serve this Commonwealth. Now, once again, we must show the world what Kentucky can do.”

For more information and updates, along with President Capilouto’s message to the campus, visit www.uky.edu/coronavirus/budget.