In a town hall meeting Wayne Magdziarz, senior vice president, chief financial officer and chief business officer at Loyola, explained how current trends in university revenues and expenses are unsustainable and cuts to the operating budget will be necessary.
Loyola CFO Discusses Fiscal Challenges and Upcoming Budget Cuts
In the second series of university finance town halls hosted this school year, Wayne Magdziarz, senior vice president, chief financial officer and chief business officer at Loyola, explained to members of the Loyola community the fiscal realities and challenges the university faces in the coming years.
Magdziarz prefaced his comments by acknowledging other universities have been experiencing economic issues recently and Loyola has not been spared, although he said Loyola is well-positioned to handle the challenges.
He said current trends in university revenues and expenses are unsustainable and the budget for the upcoming fiscal year will need to consider these realities. Magdziarz said $20 million will need to be cut from the fiscal year 2024 budget — which totals approximately $635 million, The Phoenix reported — for the 2025 fiscal year budget.
Based on projections presented by Magdziarz, which assume first-year student enrollments hold constant and annual tuition increases come in around 4%, the university’s expenses will exceed revenues by fiscal year 2026. Currently, expenses at Loyola are growing at twice the rate of revenues.
“We are not in a position now of worrying about balancing our budget this year or next year, but we’re getting close,” Magdziarz said during his remarks.
The key factors contributing to these conditions, according to Magdziarz, are a leveling-off in revenue from tuition, an increase in non-salary operating expenses since the pandemic and pressures from the broader economy, mainly the persisting inflationary conditions.
Magdziarz said the university has been hard hit by price increases across its operations. One of the largest areas of increase has surrounded insurance costs. He said Loyola’s proximity to Lake Michigan and past history of flooding has made property insurance particularly expensive.
After years of continuous increases in the number of enrolled students, the trend is set to end as over the coming years total enrollment isn’t projected to exceed approximately 16,900 students, Magdziarz said.
Approximately 65% of Loyola’s revenue comes from undergraduate and graduate tuition, Magdziarz said, so the university’s budget is very sensitive to fluctuations in enrollment. The university budgets for first-year enrollment to total 2,750 students, Magdziarz said — a 5% decline in first-year enrollment in a given year would result in a loss of $13 million in revenue.
He also highlighted a decreasing number of high school graduates in coming years. The projected number in the Midwest is set to peak in 2024 and decrease in the following years, Magdziarz said. This means colleges and universities will have to compete for a smaller pool of students by offering more financial aid and scholarships, only further driving down revenue from tuition.
In fiscal year 2023, the university’s budgeted results of operations, or revenues left over after expenses, is forecasted to total $13 million. In fiscal year 2024, the university budget calls for $5 million to be left over. This is a significant decline from where these totals were prior to the pandemic. From fiscal year 2013 to 2018, the net surplus ranged from $30 million to $43 million.
Magdziarz said surpluses are either invested back into the departments and divisions which generate them or are put towards the university’s endowment.
Magdziarz outlined several possible university-wide changes which could be made to reach the fiscal goals he said are necessary. In the short term, this includes drawing on endowment funds instead of using funds from the operating budget in some schools and departments. Loyola has a relatively small endowment compared to other similar universities, totaling just over $1 billion as of June 2022, The Phoenix reported.
Additionally, Magdziarz said the university could reduce or even suspend compensation increases for faculty and staff during the 2024 fiscal year. Other non-critical functions and expenses may need to be suspended, and he said other spending will need to be examined and curtailed across the university.
He also said the university will have to be more prudent in filling vacant staff positions. There are currently around 130 vacancies. He said another possible option is looking at the real estate Loyola owns and possibly selling some properties which aren’t envisioned for future university expansion.
Over the next three or four years, he said the university will have to look at its operating structures to identify areas suited for cut or cost reduction. Resources will have to be reallocated to schools and programs which are best suited for growth and best benefit the university’s bottom line. He also said the university will need to continue upping its fundraising efforts, particularly to fund student scholarship support.
Magdziarz said the university is considering asking all non-student-facing departments to submit a “permanent expense suspension plan” by June 1, 2023 and all schools and academic units to submit a plan to the provost’s office by July 1, 2023.
“This is by no means a crisis,” Magdziarz said. “But I assure you it would be if we were showing these same slides two years from now.”
Featured image by Holden Green