CHAPEL HILL (Oct. 22, 2020) – North Carolina is navigating the treacherous financial waters of the coronavirus pandemic for now. But the UNC Board of Governors’ October meetings were permeated by a sense of foreboding about next year.
“Our campuses are half-way through the most challenging semester in at least a generation,” UNC System President Peter Hans told the board. “There’s no perfect answer for the decisions we face.”
The System’s campuses will continue with a flexible approach to instruction, Hans said, but “The year ahead will bring deep financial and operational challenges.”
The System will not ask the General Assembly for new programs in 2021, Hans said, but will instead seek to protect its core mission.
Similarly, Board Chair Randy Ramsey said the financial challenges ahead are real, and the universities can’t depend on another federal relief package.
“This pandemic will affect state revenues for years, and the UNC System will not be immune to those impacts,” Ramsey said.
AT THE BOARD’S BUDGET AND FINANCE Committee meeting Wednesday, Chief Financial Officer Jennifer Haygood told the committee that money from the state’s General Fund makes up 25% of the UNC System’s budget.
The shift in the state’s income-tax filing deadline from April to July this year created an artificial shift in revenues from 2019-20 to the current budget year, which boosted state reserves to $3.9 billion.That might put North Carolina in a better position than some states, Haygood said.
But there are also warning signs: In August and September, state revenues were higher than in 2019, but less than projected. And the state might see a shrinkage in sales-tax revenue.
The 2020-21 budget relies on income-tax revenues from 2019, which were stable, if not healthy. But the 2021-22 budget will rely on 2020 income, which will reflect the job losses and diminished economic activity during the pandemic.
With a 7.3% unemployment rate in September, Haygood noted that more than 350,000 people are still unemployed in North Carolina.1
“That’s people who will not be paying the taxes that they were pre-recession,” she said.
“We are indeed planning for Fiscal ’22,” Elizabeth Hardin, Chief Financial Officer at UNC Charlotte, told the committee. “Public-sector recessions are delayed.”
In addition, campuses have seen skyrocketing costs during the pandemic for information technology and testing that at UNC Charlotte includes a new lab and wastewater testing in dorms. In response, the university has limited hiring and transportation and postponed capital projects, Hardin said.
Haygood and Hans said that rather than ask campuses for budget requests, the System Office has set out four budget priorities for 2021-22:
- Funds for growth in enrollment – Hans noted the UNC System is one of few in the country that saw an increase in students this year.
- Continued funds for NC Promise, which guarantees tuition of $500 a semester for in-state students at Western Carolina, UNC Pembroke and Elizabeth City State University.
- Compensation increases for University employees.
- And full funds for reserves for four new buildings from the 2016 Connect NC bond issue that will come online in 2021-22, and 11 that received one-time money this year.
Funds for enrollment growth, NC Promise and new buildings would amount to an additional $90 million, Haygood said, while each 1% increase in compensation for UNC employees would amount to $30 million.
“We are in a very uncertain budget situation,” she said. “We certainly think this is going to be a tall order given the constrained revenue environment.”
Hans told the committee he has urged UNC chancellors to be fiscally cautious, though he also noted that faculty and staff haven’t had raises from the state “in a few years.”
Though a second federal stimulus package is possible, Hans said, “I think we’re taking a fiscally responsible approach.”
The University will ask state legislators for additional flexibility with furloughs and other personnel measures, as well as ability to carry forward any savings it achieves, rather than return those savings to the state, he said.
He also noted that UNC-Chapel Hill, NC State and East Carolina University, which have shifted all classes online, face loss of revenues from athletics, housing, dining and transportation.
Board member and former state budget director Art Pope said the state’s revenues can change quickly. “For the next year’s budget, it … could be a substantial reduction,” he said.
The state should think about savings during the current budget year as well as the next, Pope said.
At Pope’s request, the committee added a point to its budget priorities that the University System will identify additional one-time savings for the latter half of 2020-21 and 2021-22 to meet contingencies.
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