The Federal government issued an executive order to pause all payments of federal assistance as of 5:00 January 28th excluding Social Security, Medicare and assistance provided directly to individuals. Clarification came that the pause would not affect student Pell grants but great confusion continued among colleges and universities as to what the impact of the pause would be. Fortunately, just before the pause was to go into effect, a judge ordered the pause paused until Feb. 3rd. As currently understood, the pause will stop all federal payments to colleges and universities for research grants, construction projects and other programs that have received federal funding that are contrary to President Trump’s agenda. There is great uncertainty as to which programs, if any beyond student aid, are exempt from the pause and which programs will ultimately continue to receive federal funding.
The implications for colleges and universities are significant as they receive more than $50B just in research funding. They have many people on their payrolls who are supported by these federal funds and many construction projects which are funded in part or whole by federal funds. Federal funds, excluding student aid, can account for more than 25% of the budgets of some institutions. If the pause is reinstated, colleges will have the choice to suspend payments to the people supported by federal funds and to suspend the projects which have federal funding during this pause or fund them out of their own resources in the expectation that the pause will end soon and the funds will again flow to the universities. Many schools do not have the necessary cash to assume these additional expenditures. This action by the government will further weaken the many colleges and universities which are struggling financially and are already strapped for cash. Schools are working to marshall all of their reserves, assess how much access they have to lines of credit and review whether or not they can borrow from their endowments if they have endowment funds. Many are going to need to call special meetings of their Board’s to get permission to access this cash especially if they plan to borrow from their endowments.
The memo implies that Federal funds which are supporting any activities which are inconsistent with the President’s agenda will be cancelled and thus institutions are risking the possibility of not getting reimbursed for funds that they may put out to pay faculty and staff that are supported by Federal funds and to continue capital projects with federal funding during this pause. This puts institutions in the extremely challenging position of quickly assessing every program supported by federal funds and deciding the likelihood that the program will pass the Fed’s litmus test that the program or project is consistent with the President’s agenda and thus the funds are likely to be restored or if it’s a program that may not pass the litmus test, if they want to fund it and are financially able to fund it within their budget if the Federal funds are cancelled. This is a significant diversion from the business of running the university and needs to be done with little clarity of how broadly the Federal departments will interpret what expenditures support the President’s agenda. It is likely that interpretations will differ from one agency to another. Schools receive Federal funding from multiple agencies including the Departments of Education, Defense, Agriculture Energy, Health and Human Services, Transportation to name a few. This pause is further exacerbating the financial challenges that many of our colleges and universities are facing.
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