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Penn State Cuts Pay by 50 Percent for Some Employees

by on April 23, 2020 5:41 PM

Faced with "significant financial loss" amid the COVID-19 pandemic, Penn State will cut some employees' pay by 50 percent for two months, but is not as of yet planning furloughs or layoffs, President Eric Barron said on Thursday.

"As a result of the impacts of COVID-19, some of our employees do not have work they can perform – through no fault of their own," Barron wrote in a message to the university community. "In order to support these employees despite the lack of work at this time, the University will continue to pay them 50% of their salary from May 4 to June 30."

The cut includes Teamsters Local Union No. 8 employees, whose representatives have reached a tentative agreement with the university that is expected to be finalized soon.

Barron said the cuts largely impact in the Office of Physical Plant and auxiliary units, which rely on self-sustaining funds such as room and board fees, hotel and conference center revenue, and concerts and special events at the Bryce Jordan Center.

A university spokesperson said about 2,000 employees will be affected.

"Unfortunately, because of COVID-19, we have had to cancel events; our hotels are empty, as are the majority of our residence halls; and our food services operation has been idled," Barron wrote.

Penn State intends to use federal stimulus money, separate from funds designated to assist students, to continue paying these employees. The university received about $55 million from the Higher Education Emergency Relief Fund created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, half of which is for emergency financial aid grants to students.

Employees who have their pay cut will still receive benefits. Barron said that based on discussions with state officials, he believes they also will be eligible to receive unemployment compensation and the additional Federal Pandemic Unemployment Compensation support.

While no furloughs or layoffs are planned, Barron said there are too many uncertainties to make projections for any measures that would need to be taken beyond June 30.

Since March, the university has incurred projected losses of more than $100 million. For the next fiscal year Penn State anticipates an additional $160 million revenue loss in its education and general funds budget alone.

"Our planning scenarios take into consideration that Penn State, like other universities, will face reduced enrollment – which impacts tuition revenue," Barron said. "We likely also face a reduced state appropriation, given the negative impact that the pandemic has had on our state tax revenues."

Bracing for the revenue losses, education and general funds budgets are expected to be reduced by 3 percent for 2020-21. Barron said deans, chancellors and vice presidents will determine how best to absorb the reductions.

"While we will prioritize employees, there may still be some related job impact," Barron wrote. "We are a large, complex enterprise and our units are distinct in their structure, thus the effects of these cost-saving measures will not be felt equally. There will be more to share once we have received each unit’s report and can look at the impact broadly and specifically."

Based on discussions with the Board of Trustees, Barron said some capital projects will be delayed, saving about $60 million. 

Pending approval by the trustees, Penn State plans to adjust tuition for the summer session, which will take place remotely, and freeze tuition for 2020-21.

Looking forward, Barron said the university maintains a strong credit rating, healthy reserves and borrowing capacity.

"The University entered this crisis on a solid footing, which will enable us to weather this crisis comparatively well, positioning us to recover – despite the pain," he said.

Barron intends to hold a town hall in the coming weeks to further discuss more specifics and answer questions.

He added that he has asked senior leaders to make voluntary contributions to the Employee Assistance or Student Assistance funds and that he will make monthly contributions of 10 percent of his salary.

"We hope, of course, to return to more normal on-campus operations by the fall, but no one can fully predict what will happen with the pandemic," he said. "It pains me to have had to deliver such hard news, and I know you have many questions. We must be realistic, yet optimistic. It is my hope that this crisis is a short-term shock to our economy and way of life, similar in some ways to a natural disaster. We are a world-class university, with diversified research and educational capabilities, and poised to thrive in our marketplace – both now and in the long-term."

Geoff Rushton is managing editor for Contact him at [email protected] or find him on Twitter at @geoffrushton.
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