Penn State president says cuts will be deeper than anticipated as leaders finalize layoff plans

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A Penn State administrator directed university leaders representing nearly all departments to submit the number of employees they plan to lay off by the end of June, according to internal communications obtained by Spotlight PA.

Justin Schwartz, interim executive vice president and provost, directed chancellors, deans and other university leaders on the Academic Leadership Council to provide the administration with “your best estimate of the total number of positions from your unit that you predict are necessary to eliminate during this fiscal year” by March 31, according to the messages.

The university declined to provide an approximate timeline for when employees will know if their job is being cut. (Read the university’s full response here.)

“Any reduction in workforce is not something University leadership takes lightly,” the university said in a statement to Spotlight PA. “These are very difficult decisions that are being reviewed in a careful manner and the hope is to keep these changes to a minimum. Attrition is obviously a preferred measure for reductions in employee numbers.”

The administration under President Neeli Bendapudi is attempting to balance its budget by 2025 after the system operated last fiscal year with a general funds budget deficit of more than $125 million. Bendapudi told the university community in September she did not anticipate the financial challenges. University trustees, who have approved Penn State’s budget for years, also expressed shock last year.

In an internal memo sent to university leaders in February, Bendapudi acknowledged that while the university is “not in a financial crisis,” the system is “in a vulnerable state.”

Since the deficit revelations last summer, the new administration implemented a “strategic hiring freeze” and is implementing a new budget model for the coming fiscal year. University officials, including the senior vice president for finance and business, have promised that under the new model unit budgets will not increase by more than 4.6% or decrease by more than 4% each fiscal year to ease the transition.

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However, Bendapudi said in her memo that her team is conducting individual unit reviews and that “some units are addressing significant historical financial issues, in which case they will have additional needed reductions in spending.”

WPSU reported on March 3 that the College of Engineering will cut positions. Penn State’s senior director of university public relations, Lisa Powers, told the news organization that some layoffs are “impossible to avoid,” marking the first public acknowledgment of layoffs by the university. The engineering college’s budget is slated to be cut by less than 1% in the upcoming fiscal year.

The university declined to identify for Spotlight PA the units that may receive greater-than-expected budget cuts.

“Each unit across the University has different financial circumstances and this means each unit faces different corrective measures and, unfortunately, some may be facing more difficult decisions in the coming weeks and months,” the university said in a statement. “These units cannot remain in a deficit forever and all aspects of the budget are being thoroughly reviewed and a multi-pronged approach is being instituted. Some necessary steps to correct course within units could include a request from the unit for subvention funds from the Provost’s office to alleviate a portion of their deficit.”

Penn State publicized Bendapudi’s memo on Monday in a release that stated there could be “limited layoffs” to fix unit budgets. Last year, Bendapudi and other university officials said there were no plans for mass layoffs.

In her February memo, Bendapudi wrote the administration’s original budget request to the board of trustees included “aspirational asks” as well as required funding. The total amount of that budget request is not clear, but it would reportedly increase the budget deficit to $245 million.

The university told Spotlight PA the aspirational budget included “potential growth opportunities for a unit that may require additional investment,” such as operating costs or office space.

Bendapudi’s memo stated the university had $350 million in reserves last summer and was using more than $100 million in reserves a year to fund “commitments.” The university declined to say what those commitments involved.

Penn State, according to its latest audited financial statement, has more than $1 billion in cash or cash equivalents on hand. The university told Spotlight PA the cash referenced in the statement is different from the reserves.

In her memo, Bendapudi said the reserves can affect the university’s financial rating, reputation and accreditation.

In September, the board approved the fiscal year 2023 budget with a $149 million deficit in the university’s general fund.

The trustees approved the current deficit with “the expectation that we would present budgets with smaller deficits for fiscal years 2024 and 2025 in July 2023,” Bendapudi wrote in her memo.

The university told Spotlight PA the budget process for the 2024 and 2025 fiscal years is ongoing.

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