Building Financial Resilience to Strengthen Our Academic Enterprise

Dear Drexel Colleagues,

In following up on last week's message to faculty and professional staff, we held a University update and conversation this morning about our plans for meeting Drexel's financial challenges while becoming a more academically innovative and resilient University. A recording of the event, which was hosted in person and via livestream, will be shared in the coming days.

This is not the end of the conversation. We will continue to share updates and provide opportunities for questions and feedback as we work together to position Drexel to prevail during this challenging time for higher education. We are moving forward along parallel tracks. On one track, we have a well-developed, community-driven plan, originating in Drexel's strategic planning process, to strengthen our academic enterprise and transform our University for future success and impact. On the other track, we are in the midst of implementing our multi-year expense-reduction and revenue-generation plan to address our financial challenges.

Restating the Goal

The key to building financial resilience is to bring our operating expenses into permanent alignment with our recurring revenues, thereby ending our recently increased reliance on unsustainable designated, restricted and non-operating funds to balance the budget. Under our plan, we will achieve sustainable, positive operating margins by fiscal year 2027 through $150 million in expense reductions, cost avoidance, and revenue growth.

This process necessitates making some difficult decisions to reduce our expenditures, but we know we cannot cut our way to financial resilience. Therefore, we will continue to pursue every opportunity for additional ongoing revenue streams in order to invest even more in our students, our people, and our strategic initiatives.

In addition, the University will pursue one-time expense reductions and revenue opportunities, such as real estate monetization, in order to maintain appropriate liquidity and to fully fund important initiatives, including Academic Transformation and the voluntary retirement incentive plan.

Understanding the Budget Challenge

Today's presentation explained the factors contributing to the University's structural deficit. Those factors include: declining enrollment leading to a $40 million drop in net tuition revenue, room, and board over the past 10 years, including an additional $150 million investment in financial aid to promote access and affordability; a $10 million investment in student success primarily for advising and counseling; and a $25 million investment in cybersecurity, public safety, and other critical areas that that contribute to the rising costs of doing business.

The University has already identified more than $25 million in increased revenue and approximately $80 million in cost reductions toward reaching the $150 million goal that will be implemented through a combination of measures. Those measures reflect difficult decisions to implement budget reductions in the administrative and academic units, as well as changes to employee benefits. Completing this phase of expense reductions by the end of the calendar year will provide time and space to further evaluate vacant positions and make strategic decisions about how best to align our administrative structures to support our emerging new academic structure more efficiently and effectively.

We want to focus the remainder of this message on how these changes will impact all of us.

Supporting Our Faculty and Professional Staff Through Change

In crafting the FY25 budget, it was imperative that we include a salary increase pool. After evaluating multiple models, we chose an option that will benefit the majority of our faculty and professional staff. Beginning January 1, 2025, we are implementing a 4% salary increase for all eligible employees making a base salary of less than $100,000 a year, which includes non-unionized employees who were employed before July 1, 2024, and have not had a salary increase since that time. Base salaries for those earning $100,000 or more will remain at their current levels, with one exception: members of our senior leadership team will receive a salary reduction for FY25.

As we move forward to implement our plans for achieving academic transformation and building financial resilience, we are preparing to make several important changes to our businesses practices to address the needs of our faculty and professional staff members during this time of transition.

For example, we are changing our performance development process for professional staff. Last month, Human Resources announced a pause to annual performance reviews. This pause will provide more opportunities for supervisors and direct reports to derive the full benefits of constructive discussion and critical feedback without an overly cumbersome process. Later this month, Human Resources will provide further details on a revised performance review process that will encourage managers and employees to have meaningful conversations on how best to adjust to shifting workloads and emerging strategic priorities.

We also reaffirm our commitment to maintaining a flexible work culture — through hybrid and remote work options — that allows us to deliver services and support to students and all Drexel stakeholders from any location at any time, while preserving sensible boundaries to promote a healthy work-life balance.

On the subject of work-life balance, we have heard many times about the immensely restorative effects of holiday breaks. As a result, we are extending this year's Thanksgiving and winter vacation breaks to give you a little extra time off to rest, recharge and enjoy the holidays with loved ones. This year, Drexel will close on Wednesday, November 27, creating a five-day Thanksgiving break. Winter Break will begin two days early, on Monday, December 23.

As we move through these changes together, we will explore more opportunities to recognize the hard work of our faculty and professional staff and will establish forums for you to provide input and feedback.

Elaborating on the Impacts to Our Faculty and Professional Staff

As we previously shared, we anticipate that a small reduction in our workforce will occur in November. Every administrative and academic division was required to cut expenses. In some cases, those cuts necessitated a reduction in staff positions. In most cases, the reductions were achieved through leaving vacant positions unfilled.

We will finalize the workforce reduction plan after enrollment in the voluntary retirement incentive plan concludes and its impact is assessed.

Final decisions on workforce reductions will not be made lightly. To the contrary, they will be based on careful analysis and considerations made at the unit level.

Individual meetings will be held with those whose positions are eliminated. During this difficult time, these colleagues will receive personalized support, including career counseling, job placement assistance, and other resources.

While we anticipate no further budget reductions for this calendar year, implementation of academic transformation will entail shared services, which could bring about some additional personnel changes down the road.

Changes to employee benefits will also have a direct impact on our faculty and professional staff. Those changes include:

• Suspension of employer contribution to employee retirement plans for calendar year 2025, with savings split between FY25 and FY26;
• Copay changes — including the elimination of Tier 1 medical network for Penn and Tower Health, which granted no copays for primary care visits. There will also be an increase for in-network copays for urgent care (from $35 to $50) and for emergency room visits (from $100 to $250; waived if admitted to hospital); and
• Elimination of SEPTA benefit due to the 46% increase in cost and our inability to negotiate more favorable terms that would keep this benefit for the approximately 600 employees who utilized it most.

The University will continue to fund, on average, 70% of medical and prescription drug benefits for faculty, professional staff, and their families. However, with the start of the open enrollment period around the corner, we wanted to be transparent about the fact that employees will have an average 5% increase in medical and prescription drug costs for calendar year 2025. This increase is due to rising utilization rates and increased healthcare costs in the market; it is not related to the expense reductions we are taking to address the budget imbalance. The industry average increase for healthcare costs for 2025 is approximately 8%. At Drexel, the 5% increase means the majority of individuals covered will pay $75 more per year, and families will pay $336 per year.

All other benefits will remain flat with no plan design changes or increased cost. And due to the Drexel-Salus merger, benefit-eligible employees will have access to enhanced vision, hearing and speech benefits, beginning Jan. 1. All details regarding benefits for 2025 will be provided before the open enrollment period begins on October 23. Please look out for those communications from Human Resources.

Moving Forward Together

We understand how challenging these reductions will be. As we move to implement these reductions and transform our University, we will continue to embrace transparency. We will provide periodic updates on our progress toward building financial resilience. We also will seriously consider your suggestions for improving Drexel's institutional effectiveness, which you are invited to share through this form. Finally, we will continue to engage you as active partners in shaping Drexel's future — for which we will always be grateful.

Sincerely,

Denis P. O'Brien
Interim President

Helen Y. Bowman
Executive Vice President, Treasurer and Chief Operating Officer

Paul E. Jensen, PhD
Executive Vice President
Nina Henderson Provost