QUINCY -- Quincy University leaders warned faculty and staff Friday to be prepared for significant budget adjustments because the school's financial picture is worse than originally thought.
A small group of university officials and QU Board of Trustees members told employees during a closed-door briefing that the university is facing an unexpected $5 million budgetary shortfall this fiscal year.
As a result, the university's leadership is putting together a restructuring plan that might include the elimination of positions, salary and benefit reductions, noncompensation reductions, and the need to tap into certain restricted funds to help pay for general operations.
The university also is launching an immediate fundraising campaign targeting supporters and alumni, but it also might have to consider short-term borrowing.
"We know we have to raise a lot of money," Delbert Mitchell, vice chairman of the Board of Trustees, told The Herald-Whig.
"We believe we have a fine university, a good product, a good asset for Quincy, but we have serious financial problems. However, we are committed to finding solutions and developing a plan of action going forward to resolve the financial problems of the university -- not just in the short term but in the long term."
Mitchell was one of the board members who addressed the faculty and staff Friday in the Hall of Fame Room inside the campus's Health and Fitness Center, where employees were told about the severity of the financial crisis and the process for formulating a plan to resolve it.
Also speaking was the Rev. Tom Nairn, who is chairman of the Board of Trustees; Tom Ponto, the university's new chief financial officer and interim chief operating officer; and Robert Gervasi, the university's president.
University faculty and staff members later gathered in small groups with Nairn and Ponto to ask questions about the financial situation and possible plans to resolve it.
Ponto will be gathering suggestions from faculty and staff as he puts together an action plan to address the financial crisis. He will present his recommendations at a special Board of Trustees meeting scheduled for Nov. 19. The board might take action then or seek more alternatives, Mitchell said.
Gervasi told The Herald-Whig that at least two budget-planning groups comprising faculty and staff members will be holding meetings within the next couple of weeks to provide input to Ponto on how the university should approach its financial restructuring plan -- now and in the future.
"This is not going to be fixed in a year," Gervasi said.
"We're looking at a number of expense reductions, increased special funding and support from our lenders to reorganize some of our payment schedules."
Gervasi said QU is fortunate to be working with a consortium of local lenders "who appreciate the importance of Quincy University and are willing to do what they can, within appropriate limits, to help us through this crisis. But we have to demonstrate our resolve to make the painful choices to do what we can as well."
How situation arose
Both Mitchell and Gervasi said the extent of the university's financial woes came to light this summer.
The university's former CFO, Tim Weis, who left QU in July to take a job at Illinois College, presented the Board of Trustees with what was described as a "balanced budget" in May for fiscal 2017, which began June 1.
Gervasi said QU alum Tom Pollihan volunteered for three months to handle the CFO duties on an interim basis. He said it was during that period that Pollihan and auditors discovered the budget was not balanced.
When Ponto took over the CFO position Oct. 1, "he looked at everything and determined that we're actually headed toward a $5 million loss" with the 2016-17 budget, Gervasi said.
The shortfall, he said, includes about $3 million in cash expenses and about $2 million in noncash depreciation.
"The bottom line is we're spending more than we're taking in," Gervasi said.
Contributing to this shortfall were a number of factors. Among them:
• The university still has not received reimbursement from the state for about $500,000 in promised funding for a new campuswide database management system installed in November 2014.
• The state has failed to produce $1.2 million in Monetary Award Program grants promised to about 300 students.
• "Multiple errors" were made in budgeting assumptions.
• The university increased its debt to make a series of improvements to the football/lacrosse stadium, but it hasn't realized all benefits because the lacrosse program hasn't started yet.
• The university has experienced a decline in its "net tuition revenue" because of increased financial aid given to students.
Tuition revenue drop
Gervasi noted that QU saw its largest freshman class in 20 years this fall, but overall tuition revenue declined.
"That freshman class has the highest financial need in our history," he said. "We have a lot more students, but they have a lot less ability to pay."
Gervasi noted that the university awards about $15 million in tuition assistance or scholarships annually to QU students, many of whom might not otherwise be able to afford to attend the school.
Mitchell said the university might need to rein in some of the aid and scholarships that it offers, but doing so can't be done quickly. He said the university made a commitment to provide the aid and scholarships, and "we can't pull that back" from current students.
"When next year's class comes in, maybe we can provide them with less aid-- assuming we can get them to come," Mitchell said. In that way, the school can begin to reduce its aid and scholarships total "one year at a time," he said. "So it will take a whole four years in order to resolve that particular aspect."
Mitchell said the Board of Trustees wants to continue to increase enrollment, which is the challenge facing many colleges and university's across the country as the cost of tuition keeps escalating.
Boosting enrollment, particularly with students who require less financial aid, is the key to increasing "net tuition revenue," which is used to pay salaries for staff members and other operations.
"We don't want to shrink the size of the university," Mitchell said. "The board's desire is to figure out a way that we can increase net tuition revenue and increase enrollment."
He said offering new programs like lacrosse is one way the school can attract new students and boost the net tuition revenue.
"That's the type of thing that we're looking for," he said.
QU did not increase its tuition this year, but the Board of Trustees has agreed to bump the tuition by 1.8 percent next year -- the same amount as the Consumer Price Index, Gervasi said.
Gervasi offers plan
The financial shortfall facing the university will require immediate belt-tightening, but Gervasi and Mitchell were unable to say what actions will be taken until after the board's special meeting Nov. 19.
"Everything is on the table," Gervasi said.
He said the board will probably need two years to eliminate the budgetary shortfall.
"This year the brunt of any reductions regrettably are going to fall probably disproportionately on noncontract administrative and staff employees," he said.
Mitchell said that with the financial forecast worsening, Gervasi approached the board with a plan earlier this month to realign his executive duties.
The plan called for Gervasi to remain as president but focus more on fundraising and external relations. Meanwhile, Ponto would serve as interim chief operating officer, in addition to his CFO duties, and focus on finances.
As part of that plan, Gervasi offered to voluntarily give up one-fourth of his salary to help ease the financial crisis.
Trustees approved that plan last Saturday.
Second year in red
This marks the second consecutive year QU has experienced a budget shortfall. According to Mitchell and Gervasi, the university last year was presented with a budget showing a projected $500,000 deficit, but the shortfall actually turned out to be about $1.4 million.
The university cut several full-time positions, borrowed some money, and tapped into some unrestricted funds to make up the difference.
Gervasi said the university will be looking to use some restricted funds earmarked for endowments -- provided that the donors give their approval for that use.
Gervasi noted that QU has about $14 million to $15 million available in endowed funds for restricted purposes, such as special scholarships.
Fundraising is going to be a major focus of the university's effort to dig itself out of the financial hole. Mitchell said the university will be calling on many of its longtime supporters for help through this difficult period. He said the amount raised will help determine how much in expenses has to be cut.
"We're going to get through this thing, but it's going to require help from everybody," Mitchelll said.