University of Minnesota President Joan Gabel projects deficit of up to $175 million in current fiscal year

The University of Minnesota is looking at a projected budget shortfall of $150 million to $175 million by the end of the fiscal year in June, President Joan Gabel announced in a letter to faculty and staff this week.

The pandemic-related shortfall had been expected, but its scope wasn't known until now. And it remained unclear exactly how the U will plug the financial hole.

In her letter, Gabel wrote in broad language that she has a plan that "includes additional unit and centralized cost-saving measures" and "further use of balances and reserves," but provided few specifics.

She offered one detail: Pay cuts and furloughs will continue through the second half of the 2021 fiscal year, which ends June 30. When the pay reduction program began in June, Gabel said administrators would reconsider whether the cuts would be necessary for the entire fiscal year. That answer now is yes.

The U has more than 27,000 employees, with salaries and benefits representing about 63% of the school's expenditures this year. The pay cuts, which affect most employees who make more than $60,000 annually, will save the U up to $50 million. Gabel, her cabinet and top sports coaches each took 10% pay cuts.

"The plan will maintain current levels, meaning that the highest paid among us continue to take the largest cut," Gabel wrote.

But those cuts are only a fraction of the money the U will need to find.

The current pandemic-adjusted operating budget of $4 billion, adopted in June, includes the freezing of hiring and merit pay raises. U leaders initially adopted an optimistic budget that assumed a return to normalcy by this fall. That didn't happen.

Board of Regents Chairman Ken Powell said he won't know more until the regents meet during the week of Dec. 7.

"I'd be happy to talk with you once we have the docket material for the board meeting which will detail the components of the deficit and the president's plan for solving the budget shortfall," Powell said in an e-mail.

Regent Michael Hsu has been dubious for months about the Gabel administration's cautious response to the pandemic and described the deficit as a big problem.

"The question is, how are we going to pay for it?" he said.

U officials faced a deficit in the 2020 fiscal year, finishing on June 30 with a $65 million shortfall. To cover the gap, they used $22 million from the U's central reserves, $24 million in uncommitted funds and roughly $19 million in federal funding.

State appropriations make up about a third of the university's budget, but lawmakers are ill-positioned to help out. Gov. Tim Walz will release the state's updated budget numbers Tuesday, but they're not expected to be robust; the state is also looking at a multiyear, multibillion-dollar deficit.

Rochelle Olson • 612-673-1747

Twitter: @rochelleolson