More than half a dozen Massachusetts community colleges and state universities could rapidly burn through their cash in the worst-case financial scenario for the next academic year, leaving them on shaky footing, according to a report released on Tuesday.
The state’s community colleges and four-year institutions, which serve primarily low-income and minority students, will be able to make it through the upcoming fiscal year by drawing on reserves, making budget cuts, and restructuring debt, Massachusetts higher education officials said.
But they are likely to have significantly reduced their financial cushions and face much more difficulty in the years ahead, according to a $250,000 report from EY-Parthenon, a consulting firm, commissioned by the Massachusetts Department of Higher Education.
The 2021 fiscal year, which starts July 1, “will cause a substantial reduction in liquidity,” said Haven Ladd, a managing director of EY-Parthenon.
But the Massachusetts higher education department declined to identify the public campuses most at risk due to the financial pressures of the coronavirus pandemic, which is likely to shrink enrollment and reduce tuition and room and board revenue.
Higher education officials said that while regulators have a responsibility to inform students, parents, and the public if the future of these campuses is at risk, it is too early and the institutions are working to develop plans to stabilize their finances.
“If there was a school that wasn’t going to make it, we would say, ‘they’re not going to make it.‘” said Chris Gabrieli, chairman of the Massachusetts Board of Higher Education. “That isn’t the case.”
The Massachusetts Department of Higher Education commissioned the EY-Parthenon study in May to assess the potential impact of the coronavirus pandemic on state institutions and their financial stability.
Massachusetts has 15 community colleges, six state universities, and three specialized colleges.
The University of Massachusetts system is separate and was not included in the EY-Parthenon report. It is doing its own financial forecasting.
Higher education experts believe that COVID-19 could worsen financial problems for many colleges and universities. Institutions have been forced to invest more money in online technology and coronavirus testing capability, while likely having to reduce the numbers of students on campus to maintain social distance requirements, reducing tuition and room and board revenue.
But much of the attention has focused on private colleges. Public institutions in Massachusetts are facing similar financial strains with less money coming from the state government due to reduced tax revenue.
EY-Parthenon projected that community colleges face between $27 million to $118 million less in revenue next year, depending on how badly enrollment and state aid falls. For state colleges, the drop could be between $74 million and $248 million.
The report found that at current spending, without significant reductions, one community college was in danger of running out of enough cash to cover a month’s worth of expenses this upcoming academic year.
In the worst case scenario, if the institutions saw a 20 percent decline in state funding and an additional 15 percent drop in tuition and fee revenue from declining enrollments, four community colleges and four state colleges wouldn’t have enough cash next spring to cover one month of expenses. Traditionally, community colleges and four-year public universities in Massachusetts have enough cash to cover on average between four to six months of expenses.
But the state is trying to restructure its construction-related debt, which should help the universities significantly reduce their payments for the next two years by pushing out more of the costs into the future, Gabrieli said.
That should ensure that the four-year institutions avoid dipping below the one month of cash threshold, Gabrieli said.
Community colleges don’t have as simple a solution and higher education officials are working with the ones most at risk to ensure they remain stable. The public institutions are discussing furloughs and other cuts to save money, he said.
“We are facing a very challenging and sobering climate,” said James Peyser, the Massachusetts secretary of education. “But it’s not a crisis.”
Still, public higher education officials said that institutions need to prepare for much tighter budgets and find ways to reduce their costs, especially with state funding likely to decline and uncertainty about student enrollment. The campuses, which often operate independently, need to consider whether they can share services to save money, similar to the UMass system which makes large purchases as a group.
“We are in survival mode,” said Martin Meehan, president of the UMass system. “We have to find the most efficient way to deliver a high quality, affordable education.”
The community colleges and state universities will likely will have to make cuts in services and employees, public higher education officials said.
“We can’t rely entirely on reserves. We can’t think of FY21, but have to think of FY22 and FY23,” said Paul Mattera, a member of the state higher education board and the chairman of the Salem State University Board of Trustees. “There are tough decisions that are being made. . . . Balancing the budget is going to be terribly difficult and have some human toll.”