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Pepperdine University

University Financial Update

April 13, 2020

Thank you once again for who you are and how you represent Pepperdine. In the midst of the relentless uncertainty caused by the ongoing pandemic, you have modeled stability, consistency, and compassion. You are just who our students need most in times like these—enduring examples of faith, character, and composure. I am proud to be numbered among you in our Pepperdine family.

I am writing to you today to update you on the financial strength of our university, as well as to inform you of the financial stresses the current outbreak is imposing. My intent is always to be transparent, realistic, and hopeful when I talk about University financial matters. As we daily navigate the issues that challenge higher education across the nation, and here at Pepperdine, I continue to be inspired by the thoughtful analysis and thorough research demonstrated by our leaders across the University. Thank you for the energy and intellect you are devoting to helping Pepperdine chart a pathway through this storm.

Over the past few weeks, the Steering Team has been engaging in thorough financial and academic scenario planning for the remainder of the spring, the summer, and the fall, as well as contemplating the long-term impacts of COVID-19. We will continue scenario planning as events unfold. I offer my deep appreciation for the offices of Phil Phillips, our chief operating officer; Greg Ramirez, our chief financial officer; and Jeff Pippin, our chief investment officer for their exceptional leadership in analyzing the financial challenges occasioned by this outbreak. I am also deeply appreciative of our provost Rick Marrs and his team of deans who, together with our dedicated faculty, consistently deliver excellence in teaching and in scholarship. Although much more information and analysis will be required before we have completed the exhaustive assessment necessary to meet the financial challenges we will face, I want to share with you now a few important considerations that are emerging as we analyze our scenarios.

As you know, institutions and corporations around the world are working to manage the profound financial impacts of COVID-19, and Pepperdine is not immune. Based upon our current projections, we estimate the cost impact of the coronavirus to be up to $22 million in this fiscal year ending July 31, which includes room and board refunds, canceled international and domestic programs, and projected reduced enrollment in summer programs. Depending upon how long the pandemic lasts and how much it impacts the fall semester enrollment and other revenue sources, we have projected potential sizable additional shortfalls over the course of the fall term. Although the University is in a strong financial and liquid position to endure this looming financial crisis, we need to limit our expenses to match our projected revenues while maintaining alignment with our mission of academic excellence and Christian faith. The potential impacts may be significant and long-lasting, and they may require creative solutions and difficult decisions. As we face these current and possible future challenges, I want to assure you of the non-negotiable guiding principles that inform and reflect every decision we make:

  1. Our faith informs our decisions. Our community can be confident in the fact that our university leadership is in constant prayer over every decision we make. We are seeking God's wisdom and discernment at all times, and we appreciate your prayers for our Steering Team.
  2. Our people come first. Our students, faculty, and staff make us who we are. They make us distinctive from all other institutions of higher learning. Our intent is, to the greatest extent possible, to take care of the physical and economic health of our people first, especially those most vulnerable.
  3. Our mission is our priority. As our resources become increasingly limited, it is critical that we focus those resources on the core elements of our mission. We must remain focused on providing a world-class academic education and a life-changing transformative experience for our students.
  4. Our university must stand on solid financial ground. Our decisions must contribute to the continued, strategic long-term financial stability that is sustaining us through this unprecedented disruption. We also believe that thoughtful stewardship of the personnel and resources with which we have been entrusted should be a primary consideration.
  5. Our communications are direct and transparent. At all times, and especially in times like these, our community must trust its leadership. We intend to earn and keep your trust by communicating decisions when they are made, with an explanation of why they are made, as well as the process of how they were made. Our goal is to always communicate in a direct and transparent manner.

Consistent with the above principles, we have already made the decision to honor all currently anticipated wage and benefit commitments through the end of the University's fiscal year on July 31, 2020, with the intent to steward well and protect, to the greatest extent possible, the University's most important asset—its people. In combination with this decision, it is imperative that we implement heightened stewardship of our resources. Accordingly, it will be important for each of us to continue to exercise intentional financial discipline in every area of the University. In the near future, our provost and chief operating officer will share expense optimization guidelines with supervisors to utilize within each department.

Each year, as we work through the budget process, we look for ways to fund merit increases to recognize the exceptional work done by our faculty and staff. It is hard to imagine a year in which a merit increase would be more deserved than this year. Your efforts have been truly extraordinary in the midst of overwhelming circumstances. As we look at the potential budget impacts over the next three to twelve months, however, a responsible fiscal approach dictates that we forego merit increases for next year (FY21). This is not a decision we have reached lightly, and we deeply appreciate your understanding and shared commitment to the University's stability during this economic downturn. As you can appreciate, this likely will not be the only tough decision we will have to make in the overall best interest of our students, personnel, and mission. As such, I wish to thank you, in advance, for your patience and understanding as we navigate our way through this unprecedented storm. We look forward to brighter days when your commitments and contributions can again be recognized by merit increases.

Despite the size and scope of this challenge, I remain encouraged, sustained by our God who is faithful and bigger than the problems we face, and surrounded by a community of strength and solidarity. I believe we will come through this stronger because this hardship will embolden our faith and knit our community closer together. I believe we are equal to the task, and more importantly, I believe God is with us.