Budgeting for the Unknown

Anyone who’s ever created a budget—for a home, a business, a project–knows that making it balance is an exacting endeavor. Too little money coming in or too much money going out can wreck the entire plan.

But what happens when it’s not even clear how much money will be coming in or going out? That’s the dilemma WPI faced in spring 2020 as COVID-19 swept around the world. The university sent students, faculty, and staff home, shifted to (mostly) remote operations, and refunded about $7 million in student room and board payments. As financial administrators—most of them working remotely—started developing a budget for the 2020–21 academic year, they could not even be certain if or
when students would return to campus.

“Our business is generally predictable, but we had absolutely no idea what we were going to face once we sent almost everybody home,” says Jeff Solomon, WPI’s former executive vice president chief financial officer. “What turn would the virus take? Things were well outside of our control, and there wasn’t a ‘right’ budget.”

It was a challenge that colleges and universities across the country confronted in 2020. Some responded by laying off or furloughing employees, deferring capital projects, cutting programs, and halting admissions. WPI officials hoped to avoid the most drastic measures, but they had to prepare for lower enrollment revenue from students and increased spending on measures to detect and mitigate the spread of COVID-19 on campus, to support students whose families encountered pandemic-related financial problems, and to de-densify residence halls.

Mary Calarese, associate vice president of finance, put together budget projections for a variety of scenarios, including one in which a 15 percent drop in undergraduate enrollment revenue and a 35 percent drop in graduate enrollment revenue would leave the university with a $60 million loss. “We looked at scenarios ranging from mild impacts to drastic impacts,” Calarese says.

Solomon also met regularly with a group of WPI trustees, who recommended that the university balance the budget without dipping into reserves. It helped that he and his team had been working with WPI’s board for several years to understand the institution’s potential resiliency in a crisis. “We knew what reserves were available and how our debt was structured,” Solomon says. “We knew how spending could be cut back. We felt we could manage through this, so we didn’t panic.”

The resulting 2020–21 academic year budget totaled $233 million, down from about $248 million from 2019–20. It was assumed that revenue from undergraduates would be down 5 percent over the previous year and revenue from graduate students would be down 20 percent. The budget also included $10 million in new COVID-19 spending to run a testing program, support students financially if necessary, and rent a Worcester hotel for undergraduate student housing.

During the months that followed, there were surprises. Instead of dropping 5 percent, full-time undergraduate enrollment grew 3 percent over 2019–20. Total COVID-19 spending, originally projected at $10 million, totaled closer to $13.5 million because of testing, protective equipment for workers, overtime for cleaners who were sanitizing spaces, renovations that allowed the WPI townhouses to be used as quarantine and isolation space, and classroom technology to accommodate remote learners.

Another positive surprise was $11 million in federal funding that WPI received under higher education provisions of the CARES (Coronavirus Aid, Relief, and Economic Security) Act of 2020, which provided support for students and the university.
“Usually, we establish a budget plan—everyone who has a role in implementing it does their work—and then we check the results against the plan,” Calarese says. “This past year, open communication and flexibility were more important than ever as we managed within an unpredictable environment.”

WPI did not need to use reserves for operations, according to Solomon, and remained on course to end the academic year
projecting a modest operating budget surplus. “We remained vigilant and we managed to our budget, but we knew we had the financial ability to withstand a crisis,” he says. “We’ve always managed conservatively, and that gave us the opportunity to be thoughtful in our response to the pandemic.”

And while the pandemic meant that WPI’s financial team had to remain constantly attuned to revenue, spending, and the budget, Calarese says it also revealed opportunities to collaborate with partners across campus, to institute new work policies for employees, and to evaluate how operations might be different in a post-pandemic world. “We think 2021–22 will be a transitional budget year,” Calarese says. “We’re not returning to pre-pandemic budgets. Instead, we’re looking at how COVID-19 has changed the way people do business and trying to learn how that might impact budgets in 2022–23.”