Fewer students, bigger deficit: $30 million budget gap emerges
Photo Courtesy of The Panther Archives
Chapman is projected to face a $30 million deficit for the 2025-2026 fiscal year due to lower-than-expected enrollment and the anticipated low enrollment in the coming year. The budget deficits highlight the broader challenge of tuition dependency, where 72% of the university’s income is directly tied to incoming enrollment.
Harold Hewitt, the executive vice president and chief operating officer said the delays with Free Application for Federal Student Aid (FAFSA) are to blame for low enrollment, something the university could have never predicted.
“Easily, 90% of the private universities across the entire country were equally surprised. So, no one here failed, the government failed,” Hewitt said.
First-year enrollment at private universities is down 11%. At Chapman, that number translates to 4%.
According to Hewitt, the university operates on five-year financial plans, accounting for students from their freshman year through graduation. This year, Chapman saw a substantial decrease in enrollment by 247 fewer first-year students. As a result, the university is facing an estimated $25 million deficit for the current 2024-2025 fiscal year.
The decline in enrollment also resulted in a drop in the number of students using Chapman housing. Chapman will see an estimated 800 bed shortfall in student housing for the fiscal year 2025-2026, but Hewitt declined to discuss the details of how it unfolded.
“I know who is responsible for that, and I’m not going to talk about that in a public setting,” Hewitt said.
Hewitt added if the university had established a budget for housing that was consistent with low enrollment rates, the number of students in beds would not have a large effect, if any, on the budget deficit.
Students will be required to live in Chapman housing for three years instead of the previously two years required, but Hewitt said it is unrelated to the budget situation. Chapman recently acquired Chapman Court, a $160 million apartment building to accommodate more student housing.
“As long as we provide really nice facilities, we hope that we are taking the sting out of the requirement,” he said.
In addition to Court and the other student housing buildings, Chapman currently owns 160 houses near and around the campus. Hewitt stated the main purpose of buying these properties is to create a buffer between the campus and the neighbors.
“We're not taking money away from the operating budget when we use those resources to acquire property,” said Hewitt.
The university has an existing fund called Building and Real Estate Acquisition (BREA) to buy property.
“It is also likely that we will be far more selective (about property) than they have been due to the perceptions and optics and concerns that the community has,” he added. “But so much of it depends on what property comes up.”
According to an email sent on Nov. 12 by Hewitt and Norma Bouchard, executive vice president, provost and chief academic officer, the university will reduce their BREA fund transfers and delay planned construction projects.
To address the budget deficit the university will also increase tuition by 4.5% rather than 3.5%, starting in the 2025-2026 academic year. In addition, the room and board charges also had a 1% increase from 2.5% to 3.5%. The decision to increase the price levels will generate a net of about $3 million more than the 3.5% increase would have, according to Hewitt.
Chapman’s tuition from 2023-2024 for a four-year degree is 43% higher than the national average.
Hewitt said while the university cannot predict budget deficits, Chapman and the board are well aware of the national conversations around the excessive price of private higher education and are addressing these concerns.
“From the standpoint of the industry we are increasing at a lower rate than almost all of our peers,” he said. “Say a decade ago we were increasing tuition six to eight percent a year, so we paid attention to the discussion about price sensitivity.”
Hewitt said one way Chapman is trying to overcome high price points is by significantly increasing financial aid.
“We are currently internally funding over $120 million annually, with the rest coming from the federal government and endowment,” he said.
Faculty raised concerns about job terminations and salary compensations at the town hall, but Hewitt reassured these jobs are secure.
“Faculty positions are protected, all of them,” he said. “Adjunct, non-tenure track, tenure track. None are being considered for elimination at all for budget reasons.”
However, Hewitt said salary raises during a multi-million dollar financial deficit were not sustainable.
Positions that are subject to elimination are staff and administration both in academic and administrative areas, according to Hewitt. But to address the $25 million deficit for this year, the only measures taken were the elimination of vacant or open positions. Nineteen positions were eliminated which generated about $2.2 million in savings for this year, according to Hewitt.
According to Hewitt these terminations will continue into the 2025-2026 year.
“It looks like we are going to have to do that again this year,” he said.
Hewitt said that while there were no layoffs, the burden still falls on the employees to absorb the work. At the town hall meeting, there were inquiries about an increase in compensation for the increase in work; however, Hewitt said adding to salaries would defeat the purpose of eliminating the empty roles.
Other strategies to combat the budget deficit are the endowment and reducing operating budgets that do impact students, according to Hewitt.
Hewitt explained the idea behind investing finances toward the endowment is security and ranking.
“What an endowment does, if it's large enough, is it protects the university from changes and fluctuations,” he said.
The endowment principal is not to spend and the interest generated provides stability when tuition, donations and federal support fluctuate.
Interest generated by endowment earnings supports institutional priorities year after year. This kind of stability is especially important for activities that cannot readily be started and stopped, or for which fluctuating levels of support could be costly or debilitating. Endowments frequently support student aid, faculty positions, innovative academic programs, medical research, and libraries
Hewitt stated that President Daniele Strupa set a vision for the university’s budget goals and increasing the ranking among R2 institutions.
R2 institutions are doctoral universities with high research activity. Institutions that are given this title are awarded research/scholarship doctoral degrees and reported at least $5 million in total research expenditures in the fiscal year 2020.
“When you look at the top-ranked R2 universities in the country and compare them to Chapman, one significant difference really stands out,” said Hewitt. “They are all much more significantly endowed than we are.”
Hewitt stated that the endowment has grown significantly but emphasized that many of the resources required to expand the endowment fall outside the scope of the budget office.
“The endowment was $134 million, and today is $850 million,” he said. “We have a goal of reaching 2 billion by 2038, and all of that is tied up and trying to create resources for the organization that don't depend on my role”
According to Hewitt, the university will ban travel in 2025-2026, with exceptions for conferences, teachers on the tenure track and fundraising.
Hewitt said cutting administrative discretionary travel will reduce the budget deficit.
“That is going to be over half of the $10 million,” he said.
As for the future of Chapman, Hewitt said expanding was not the goal.
“We are focusing on quality, not quantity,” he said.
Hewitt said the most important aspect of making financial decisions is not adversely impacting students and faculty.
“We want to make most of the reductions in areas that are not going to be visible to students,” said Hewitt. “Our efforts are intended to protect and preserve the success of our mission.”