Guest Column by Katie Rader | What Do Penn’s Austerity Measures Mean?

When Penn started sending weekly emails about the COVID-19 crisis in early January, it may have seemed like an overreaction. But by now, daily emails from the Penn administration about changes for our community have become all-too-familiar. For the past month, the messages have been about ensuring safety and security in this time of global pandemic. Penn set up a $4 million dollar emergency response fund to support staff and the local community, in addition to another $2 million that was committed by the hospital.  Part of the $4 million plan was a commitment to pay out the contracts of dining workers with Bon Appétit who lost their jobs when the university closed down in mid-March. This was a concession made in response to a public pressure campaign and fundraiser in support of these workers. In addition, the $4 million will go towards $1500 tax-free grants to staff. These are important measures that will provide much needed support to University employees. 

But this month we are also seeing the advent of a new kind of message: fiscal austerity. In an email to the campus community from Penn Provost Wendell Pritchett and Executive Vice President Craig Carnaroli on Monday April 14, the University announced that it would be instituting “significant measures” to mitigate this time of fiscal uncertainty. Where will they focus? According to the email, Penn will be focusing their “financial mitigation actions” on compensation of employees, who constitute 60% of annual expenses. What they have announced so far are hiring freezes on permanent and temporary positions for students, faculty, and staff; limited pay increases and mid-year salary adjustments. The announcement does indicate that these limits on pay increases and salary adjustments will only apply to faculty and staff who make over $70,000 per year, a clear recognition of the fact that those are the workers most in need of support at this time. Penn has since clarified that the hiring freeze will not be applied to graduate teaching assistants, non-tenured lecturers, and health system employees.

Penn is not the only institution to institute hiring freezes and to minimize discretionary spending. The economic crisis spurred by the public health crisis have had particular impacts on colleges and universities, and ones that highlight the massive inequities in our higher education system. Associations like the American Council on Education have estimated that colleges and universities will require $50 billion to account for the losses in revenue streams and the refunds they are making to current students. The $2 trillion federal stimulus passed by Congress at the end of March, included a $12.5 billion Higher Education Relief Fund. While the Act does not come close to the funding that is needed, it will provide much needed support for public universities and institutions without large endowments, many of which were already struggling to get by. The Higher Education Relief Fund is intended to allay the “costs of shifting classes online, and for grants to students for food, housing, technology, and other purposes.” Institutions are required to apply half of these funds to financial aids and grants directly to students, but they have “significant discretion” over how they allocate the other half. Philadelphia area colleges and universities received about $95 million, nearly $10 million of which will go to Penn. To date, Penn and other local institutions have not indicated how those funds will be used. 

And while the threat to public universities and smaller colleges is very real, for anyone familiar with Penn’s $14.7 billion endowment or President Amy Guttman’s annual salary of $3.9 million, Pritchett and Carnaroli’s announcements are perplexing. Penn is, after all, a tremendously wealthy institution. Penn’s 2020 Budget forecast is $10.8 billion in expenditures and $11.2 billion in revenue, which is nearly the size of the entire Coronavirus Aid, Relief, and Economic Security Act Higher Education Relief Fun. Nearly $8 billion of both those figures are associated with the health system. The “Academic Component” of the budget and expenses account for $3.5 billion.

While the University anticipated a $330 million surplus in 2020, reduced revenue from tuition, fees, and sponsored programs could alter that significantly — although to date, the University has declined refunding tuition payments for masters students, among others. But this picture elides the opportunity to draw down more funds from the endowment, which it has drawn on quite conservatively. According to Penn’s own endowment reporting, In a normal operating year like 2019, the endowment contributed $581 million for university expenses, roughly half of which is used for instruction or educational purposes. This constitutes about a five percent payout from the endowment, which is a rough target determined each year according to Penn’s “spending rule.” The “spending rule” is not a fixed entity, it can be adjusted. So while the $10 million grant from the CARES Act might seem like a drop in the bucket to an institution like Penn; a slight adjustment in its “spending rule” would be significant. 

The idea that austerity measures must come from compensation or discretionary spending reflects the bizarre relationship universities like Penn have with their endowment. In fact, Pritchett and Carnaroli do not even mention the endowment as a possible source of financial stability. These are not emergency funds meant for a rainy day, rather they are huge reserves of capital intended to accumulate greater wealth. But in this time of international pandemic, why wouldn’t the university adjust this “spending rule” and avoid cutting into the paychecks of its workers and students? 

While Penn’s focus on continuing to support staff under $70,000 is commendable, this is truly a moment for the Board of Trustees and the Penn administration to be more transparent about why fiscal austerity is falling on the backs of their employees and students. These are unprecedented economic circumstances, but as the 17th largest charity in the United States with a multi-billion dollar endowment, Penn should not be asking students, faculty and staff to tighten their belts. This is a time to use Penn’s  tremendous resources to support the Penn community and broader Philadelphia community. 

KATIE RADER is a Ph.D. candidate in Political Science. Her email address is krader@sas.upenn.edu.