University of Minnesota mulls taking on more than $80 million in debt to cover budget deficit

Faced with a daunting budget shortfall, the University of Minnesota could take on more than $80 million in debt to help cover losses in the athletics department and student housing revenue.

U administrators presented their plan to cover a $166 million budget gap to the Board of Regents on Thursday. Most of that deficit — $123.5 million — stems from losses in athletics, parking and student housing and dining revenue.

"Roughly 75% of the projected shortfall for the institution is isolated in our auxiliary operations," said Julie Tonneson, the U's associate vice president and budget director.

Fewer sporting events, lower residence hall occupancy and "very little demand" for campus parking due to employees working from home has contributed to the U's financial state. Students who opted to live in campus housing this fall paid less than in past years because the university delayed dormitory move-in by two weeks and offered the option to move out by Thanksgiving, when all classes shifted online.

University leaders proposed taking out an $82 million loan to help pay for these auxiliary losses. The rest of the shortfall would be covered by $30 million in savings from employee furloughs and pay reductions and $50 million in university fund balances, among other things.

The U has taken steps to curb spending since the onset of the pandemic, including freezing hiring and merit pay raises and implementing pay cuts and furloughs for employees making more than $60,000 annually. President Joan Gabel, her cabinet and top sports coaches also took 10% pay cuts, which will net about $2 million in savings this fiscal year.

"We have done a lot already to bring that [deficit] down," Gabel said. "We are taking it very seriously."

The $166 million shortfall could grow even larger this spring if the university were to close campus dormitories due to COVID-19, or if the Big Ten Conference were to cancel college basketball, Tonneson said.

Regent Ken Powell, chairman of the board, said the loan is a viable short-term solution to a problem that could be resolved by next fall if college sports and campus housing can operate as they normally would.

"I think the idea there is that those are going to come back … and we'll be able to recover that income," Powell said, adding that the university can likely secure the loan at an "extremely low interest rate." Regents will act on the budget plan at a later date.

Attorney and alumnus Michael McNabb, a critic of the U's spending, suggested alternatives to borrowing such a large sum. The university could more aggressively trim its personnel costs, he said. The U has more than 27,000 employees, with salaries and benefits representing nearly two-thirds of the school's expenditures this year.

Administrators could also cut back on spending for consulting firms and professional services, McNabb said. He pointed to documents submitted to the regents this week that showed the university is seeking an outside partner to help it streamline its administrative services and find recurring savings.

"There are other ways to deal with this and incurring this debt is not going to provide a permanent solution for the crisis in higher education," McNabb said. Regent Michael Hsu said he thinks the university should make more of an effort to cut administrative costs, "but nobody has the appetite to do it."

Hsu also questioned the university's October decision to cut the men's gymnastics, men's tennis and men's indoor track programs. Cutting the three sports will save about $1.6 million per year. He asked Tonneson why the university could not include that amount in a potential loan and keep the sports.

"The … savings is really pointless when you're talking about such a huge loss," Hsu said. Tonneson countered the decision is not that simple and would require more analysis. "There are some larger context numbers around that decision," she said.

Regent Mike Kenyanya said he supports the budget plan, noting that early retirement incentives and temporary furloughs have helped the university avoid laying off employees during a time of economic uncertainty. He also argued the university has cut back on some personnel costs by not filling all its vacancies.

"Everyone's been able to effectively chip in and bear that burden together," he said.

Ryan Faircloth • 612-673-4234