Units across campus are working to mitigate the financial impacts of the pandemic.
Updated Jan. 26, 2022
In March of 2020 as the COVID-19 pandemic unfolded, UC Davis began to experience lost net revenues and increased operating expenses. We continue to incur additional one-time costs in fiscal year 2022 to support public health while striving to achieve our campus mission. The financial impact of the COVID-19 pandemic is limited-term. Through strategic local actions and access to much-needed federal relief funds, UC Davis is addressing these impacts so that they do not affect the long-term financial status of the campus.
At the beginning of the pandemic, UC Davis and the UC system quickly took action to:
- Ensure liquidity through working capital borrowing
- Access market gains from our investments
- Access available federal funding sources
- Pause faculty ranges and merit programs for non-represented employees, reducing expected cost increases for fiscal year 2020-21
- Adjust retirement system funding to reduce costs for fiscal year 2020-21
UC Davis established the following principles to guide our mitigation strategies and supplement the budget framework principles.
- Protect, to the greatest extent possible, against COVID-related indefinite layoffs.
- Defer new permanent or one-time cuts in fall 2020 and winter 2021 quarters.
- Recognize the need for shared sacrifice, including central campus and units.
- Deliver working capital options that partially and temporarily mitigate budget impacts, recognizing that repayment strategies are needed and will result in long-term tradeoffs.
- Invest to support the reopening of campus to meet public health guidelines as a high priority.
Highlights: One-time funding sources
A number of one-time funding sources have been identified to address critical limited-term uses. Some items below are estimates based on the known information and planning underway at this time. These estimates will be refined and the range of options will be narrowed in the coming months. Central budget actions will be managed to best fit solutions to needs.
Three different federal acts have provided appropriations to a Higher Education Emergency Relief Fund (HEERF). They are all similar in purpose, but each has slightly different requirements, guidelines and timing. For our internal communication purposes, we have been calling them HEERF I, II and III. Each one consists of funding designated for emergency student financial aid and funding to support institutional operational needs due to the pandemic. The amounts below only reflect the institutional support portion of the allocations. These funds can generally be used to defray the costs associated with COVID-19 response to allow learning to continue and to replace revenue lost as a result of the pandemic, subject to federal requirements.
Higher Education Emergency Relief Fund
- HEERF I (Coronavirus Aid, Relief and Economic Securities Act, a.k.a. “CARES Act”) Institutional Funding ($17 million one-time)
- UC Davis received $17 million in institutional support from the federal CARES Act in Spring 2020. The federal Department of Education guidance evolved and primarily allowed these funds to support for lost revenues linked to refunds to students. For our campus, those costs were related to study abroad fees and housing and dining contract refunds and we have applied these funds to these programs, representing a fraction of expected losses.
- HEERF II (Coronavirus Response and Relief Supplemental Appropriations Act, 2021) Institutional Funding ($34 million one-time)
UC Davis received $34 million for institutional support from the federal stimulus funding approved in December 2020.
- HEERF III (American Rescue Plan) Institutional Funding
UC Davis received $45 million for institutional support from the American Rescue Plan approved in March 2021.
- Minority Serving Institution Funding Under HEERF I, II and III
- UC Davis received small amounts of funding under the Minority Serving Institution (MSI) category of HEERF I, II and III. HEERF I-MSI provided $137,000, HEERF II-MSI provided $187,000, and HEERF III-MSI provided $326,880. Generally, these funds are eligible to be used for the same type of activities as the HEERF institutional support funds (above) and are being applied to activities that tend to serve a significant number of underrepresented minority students.
Other one-time funding sources to support COVID-19 financial mitigation needs
- Working Capital Loan and Internal Borrowing (up to $200 million one-time)
- The campus established a loan program for units with extraordinary needs and the ability to repay. To date the campus has approved $70.2 million in internal loans that will be repaid over 10-20 years. These loans are primarily for auxiliaries and revenue generating units and allow these units more time to recover losses and mitigate what would otherwise be significant rate increases to users. This program leverages a working capital bond sold by the University of California in July 2020 to support working capital needs, including backstopping operational shortfalls resulting from extraordinary losses in auxiliaries, uncertain enrollment results, and increased COVID response costs. The bond will require regular debt service payments, including interest. A strategy to support payment of the debt service obligation is built into this internal borrowing strategy.
- Federal Emergency Management Agency (FEMA) Reimbursement (up to $10 million one-time, estimated)
- FEMA reimbursement is limited to expenditures required for direct response to the public health crisis to protect health and life. UC Davis is pursuing FEMA reimbursement for eligible costs such as COVID-19 testing, providing vaccinations, and necessary PPE and disinfection supplies.
- Accessing Investment Gains ($120-$135 million one-time)
- At the end of FY 2019-20, campus sold Total Return Investment Pool (TRIP) funds to be able to recognize a sizeable appreciation in market value. In January of 2021, campus made another similar transaction to recognize additional market appreciation. We may use $15-$30 million to fund an FFE associated with the central campus portion of the internal borrowing strategy discussed above. The balance of approximately $120-$135 million is available for other mitigation or investment needs.
- Unit Sources ($50 to $80 million one-time)
- There is an expectation that units will use internal resources to cover a portion of COVID-19 losses incurred. Potential mitigation funds in units include, but are not limited to:
> Operational savings resulting from the curtailment of operations
· Reduced travel, entertainment, and meeting expenses
· Employee vacancy savings
· New one-time expense savings including delayed faculty start-ups
> Carryforward balances
> Extraordinary payout from unit-managed FFEs
> Revenue from increased 2020 Summer Session enrollment
> Resources from a one-time rebate of the UCOP Tax Assessment in FY2021
> Net revenue from increasing revenue generating activities.
It is recognized that within units these savings and potential revenue sources may be distributed across operational units, faculty accounts, and held in various fund sources. However, given these unprecedented times, it may be necessary for unit leaders to leverage and redistribute these resources to address COVID losses.
In May 2021, units submitted mitigation plans to address pandemic-related losses from March 2020 to June 2021 that are not otherwise being addressed through campus programs. Units reported local mitigation actions totaling over $64 million. These plans were reviewed by the Budget Framework Advisory Committee and considered part of the campus budget process. These plans help identify unit capacity to address mitigation needs within unit sources as well as inform other budget decisions.
Highlights: One-time funding uses
The following are examples of how UC Davis is using these one-time funding sources to address our one-time mitigation needs. Amounts indicated are not yet final as the pandemic is ongoing, and we have not yet finalized all allocations.
- State Budget Reductions and Enrollment (Tuition) Shortfalls ($50 million)
- The primary source for core fund support is state appropriations and student tuition. The state reduced the appropriation for UC Davis by $45 million in the 2020-21 budget. Although the state restored this funding for 2021-22, we must still mitigate the lost funding in 2020-2021 on a one-time basis. In the 2020-21 academic year, tuition revenue was $4 million lower than in the prior year due to changes in undergraduate enrollment.
- Lost Revenue Due to COVID-19 (>$126 million)
- COVID-19 revenue losses and increased expenditures have not been evenly distributed across units. Auxiliary and other self-supporting units experienced the greatest net losses and, in most cases, those losses are expected to grow. As noted in the principles above, any set of solutions requires a shared approach with both central and unit actions that will likely occur over multiple years for the units with the most significant impacts.
- Campus Ready Operational Expenses ($25-40 million)
- COVID-19 screening (testing), contact tracing, isolation and quarantine, cleaning and disinfection, and other campus responses are substantial and continuing.
- Supplemental Funding to Support Remote Instruction ($1.8 million)
- The Provost authorized an investment of up to $500,000 per quarter in additional instructional support for undergraduate courses to provide the best possible remote experience during Fall quarter. These funds are expected to largely be used for additional TA and Reader support.
- COVID-Impacted Research Funding Program (up to $1 million)
- The Provost approved a COVID-Impacted Research Program that provides grants to early-career faculty to hire up to two quarters of GSR support to address lost research productivity. Program details are available from the Office of Research.
- Scientific and Administrative Recharge Mitigation ($12.4 million)
- Although research activity was curtailed in early response to state and county directives, much of the expense associated with research infrastructure provided through research cores, vivaria, and similar operations that recharge extramural contracts and grants, continued. For the scientific and administrative recharge units (campus core facilities, contract and grant based recharges, administrative recharges) that had extraordinary losses due to the COVID-19 pandemic, campus identified a need for one-time mitigation funding.
In May 2021, the campus mitigation program allocated $1.9 million to scientific recharge units for actual losses incurred from March to December 2020 (Round 1).
In Nov. 2021, the campus allocated an additional $10.5 million to scientific and administrative recharge units for actual losses incurred through June 2021 (Round 2). In this second round of funding, both FY 2019-20 and FY 2020-21 losses were evaluated in total, and funding provided in Round 1 was taken into account.
- Unit Losses and Increased Expenditures Due to COVID-19 (varies by unit, estimated at $10-$20 million total for items not addressed above)
- As noted above, under "One-time Funding Source Highlights," central actions do not address all losses for all units. Units are expected to address some losses and increased costs with internal savings, reserves, and revenue generation.