From the Desk of Willie Brown
The HDAE Budget Breakdown
Fiscal year 2019-2020 was an unprecedented time for Housing, Dining & Auxiliary Enterprises. In March 2020 it was determined the campus would go virtual for the remaining portion of winter quarter and all of spring quarter. With this decision HDAE sent home and refunded a majority of the students living in University-owned housing. This resulted in one quarter of revenue loss for our housing operations. Additionally, all other operations were impacted through closures, including many retail dining operations, the UCSB Campus Store, the University Center, the Events Center, The Club & Guest House, and Conference & Hospitality Services. Transportation & Parking Services revenue was greatly reduced with students, staff and faculty learning and/or working from home. These closures produced significant losses to HDAE operations and we continue to see those losses in fiscal year 2020-2021.
As a UC self-supporting auxiliary program, HDAE is required to cover our costs through the fees we collect from students living with us, staff/faculty eating in our establishments, guests staying at our Guest House, parking in campus lots, and visitors for conference services and meetings. We do not receive funding from core funds (state general funds), and we base our fees for all our operations on two factors (1) what it costs to operate and (2) debt service. Operating and maintaining facilities is our responsibility ─ this includes day-to-day operations, routine maintenance and renovations. To accomplish this the bond holders require a Debt Service Coverage Ratio (DSCR). Meeting this DSCR helps HDAE establish ratings that give us favorable interest rates and ensures to the bond holder that we can cover the operations, debt, and maintain the building for the life of the building. The DSCR is 1.25, which means if our debt service is $1,000/annually, our net income before debt service needs to be $1,250. Meeting this DSCR is the driving force when creating an annual budget for HDAE operations. The original budget reflected a $10 million deposit to reserves. However, in fiscal year 2019-2020 our losses were $36.8 million ($10 million anticipated surplus + 26.8 in actual net losses).
HDAE started the 2019-2020 fiscal year with approximately $82.4 million in "reserves." The $36.8 million loss reduced our reserves to $45.6 million. These reserves were earmarked for renovations to our aging buildings. However, we’ve now had to put all projects not already in progress on hold.
We were hopeful for the 2020-2021 fiscal year to provide us an opportunity to return to semi-normal operations in the fall and continue to build on that throughout the remainder of the year. However, we now know that we are starting this year with large deficits, which will require us to pivot on creating an operating budget that provides for our students, staff and the campus as a whole.
Revenue impacts:
- All conference services were cancelled for the summer of 2020, this cancellation results in a $10 million loss.
- Undergraduate housing limited to necessity only, this results in a $100 million loss.
- The Club & Guest House is temporarily closed, this results in a $1 million loss.
- The Campus Store is limited to online orders, this results in a $3.5 million loss.
- The UCen is closed for the summer and fall quarters, this results in a $1.1 million loss.
- Parking is impacted with no students and a majority of staff working from home, this results in an $800,000 loss.
Total anticipated losses for fiscal year 2020-2021 for HDAE = $116.4 million.
Based on our projections, the impact to HDAE is expected to be losses exceeding $153.2 million. These losses could decrease depending on winter and spring decisions. Additionally, we still will need to pay our annual debt service. We will end up depleting 100% of our reserves and we are working with campus leadership on how to mitigate the additional shortfall.
| 2019-2020 Budget | |
| Annual Revenue Budget | $189 million |
| Annual Expense Budget | $140 million |
| Net Income before Debt | $49 million |
| Debt Service | $39 million |
| Debt Service Coverage Ratio (DSCR) | 1.25 |
| HDAE Reserve Balance | |
| Beginning Reserves | $82.4 million |
| Net Loss 2019-2020 | ($36.8 million) |
| Ending Reserves | $45.6 million |
| Potential 2020-2021 Budget | |
| FY20/21 anticipated losses | ($116.4 million) |
| Debt Service | ($39.1 million) |
| Ending deficit Reserves FY20/21 |
($109.9 million)
|
While what is detailed above is a bleak picture, our hope is that once campus returns to normal operations we will recover as an organization because as an auxiliary we rely on user fees and not state funds to generate revenue. If you have questions or feedback, please email willie.brown@auxiliary.ucsb.edu. Thank you.
~Willie Brown
