FAQ archive: Financial implications

The below questions and answers pertain to the October 2020 update on the university’s finances.

What is Johns Hopkins’ current estimate of the fiscal impact of COVID-19?

The university’s mitigation actions and efforts to restart research, clinical, and educational activities, along with some unexpected, one-time factors, significantly improved JHU’s financial foundation. An original estimate, shared in April 2020, was that without mitigation efforts we could see projected losses of $100 million in FY20 and $375 million for FY21 (July 1, 2020 through June 30, 2021).

As a result of the very strong performance of many of our divisions in the first three quarters of the last fiscal year, as well as mission support for the School of Medicine from the Johns Hopkins Health System, increased federal funding, and some expense reductions as a result of the pandemic, we finished FY20 with a modest $75 million surplus (1.2%) on a budget of $6.5 billion. However, substantial challenges remain for the current fiscal year, for which we currently project a $73 million deficit, a figure that would be far worse without the one-year pause on retirement contributions and the salary freeze enacted for FY21.

Much uncertainty remains, particularly if the winter months bring another surge in COVID cases and subsequent disruptions to our operations.

Last updated: Oct 15, 2020 8:51pm

Will the university continue its austerity measures, including halting 403b contributions and the salary and hiring freeze in FY21?

We plan to continue the austerity measures put in place for the current fiscal year (July 1, 2020, through June 30, 2021). Even with them in place we still project a deficit of $73 million, and we must continue to exercise fiscal caution given the possibility of a second COVID surge or economic downturn. However, we do not anticipate significant additional mitigation actions this fiscal year, and we are working closely with the divisions to ensure that we can keep our commitment to resume retirement contributions, salary increases, and hiring in the fiscal year that begins next July (FY 2022). The end of those austerity measures is built into the university’s multi-year planning for FY22 forward.

Last updated: Oct 15, 2020 8:59pm

Why are austerity measures necessary if the university finished FY20 with a surplus?

The better-than-expected result in FY20 reflects three strong quarters of fiscal performance across most divisions before the COVID pandemic, as well as one-time factors such as increased federal funding and mission support for the School of Medicine from the Johns Hopkins Health System. The suspension of retirement contributions was not a factor in that result, as it did not take effect until the beginning of FY21 in July. This fiscal year, we will experience a full year of COVID’s effects, and we project a loss of $73 million even after the austerity measures. If they were not in place, the deficit would be much worse.

Last updated: Oct 15, 2020 9:01pm

Under what conditions would the university reconsider the pause in retirement contributions?

We continue to expect a significant loss in the current fiscal year (July 1, 2020, to June 30, 2021), and we are concerned about the possibility of additional financial impacts from a second surge in COVID cases that would require another shutdown of clinical, research and other operations, worsening our position. As a result, we continue to operate conservatively. However, if our results continue to improve throughout the fiscal year, we will reconsider our austerity measures, including the pause on retirement contributions.

Last updated: Oct 15, 2020 9:06pm

University divisions have announced furloughs and layoffs over the past few months. Will there be more?

Although the university-wide mitigation measures announced in April greatly reduced the need for employment actions, furloughs and layoffs were regrettably necessary within some units of the university as a consequence of the financial losses due to COVID-19. Those decisions were made at the divisional and departmental level, including within university administration. Although we face considerable uncertainty related to the ongoing pandemic, we do not anticipate additional widespread employment actions at this time.

Last updated: Oct 15, 2020 9:08pm

What reserves did the university have to cope with a fiscal crisis like this one?

In 2011 the university engaged in an analysis of its ability to withstand an economic downturn or other major fiscal event or pressures, and in the intervening years it markedly strengthened its balance sheet to weather revenue and/or liquidity disruptions. Since 2011, JHU’s net assets have grown at an annual average of 8%, its cash has grown at an annual average of 10%, while its debt has been held essentially level (prior to the pandemic).

Johns Hopkins’ improved cash reserves will certainly reduce the severity of the mitigation efforts the university will be required to undertake due to COVID-19. Nonetheless, given the pandemic’s uncertain nature and duration as well as increased costs to safely maintain continuity in university operations, we must also make substantial, multi-year reductions in our expenditures.

Last updated: Oct 15, 2020 9:11pm

Will the university keep undergraduate tuition at the reduced rate for the spring semester?

Undergraduate tuition for the spring remains at the originally published rate.

As announced in August, the reduction in undergraduate tuition for the fall semester was a one-time action taken as part of a package of supports in recognition of the university’s decision to pivot to remote-only education in the fall semester.

This spring, the university is offering an in-person experience for undergraduates who want one. In order to deliver this successfully and safely it has incurred substantial additional expenses related to COVID mitigation measures, including facilities for testing, contact tracing, and isolation and quarantine.

Last updated: March 12, 2021 1:12pm

University officials have said Johns Hopkins operates on “thin margins.” Why is that?

As a non-profit, Johns Hopkins reinvests its funds in faculty, student aid, facilities, and our community as we pursue excellence in our teaching, research, clinical, and service missions. The university typically achieves an operating surplus (which means more revenue than expense) that ranges between 1% and 2% of our total budget. Those surpluses, though small as a percentage of our total budget, fuel the strategic growth of the university.

Johns Hopkins’ surpluses are typically smaller than those of its peer universities. The main reason for this is the fact that funded research, which requires significant institutional subsidies, represents the largest share of university revenues.

Last updated: Oct 15, 2020 9:18pm

Are other divisions essentially being asked to bail out the School of Medicine and its loss of clinical revenue?

No, other divisions are not being asked to bail out the School of Medicine (SOM) and have not provided subsidies.

Per the Responsibility-Centered Management model of budgetary accountability (RCM), SOM has taken a number of very significant and difficult actions to address its financial challenges before and after the start of the pandemic. SOM has also benefitted from mission support from JHHS.

Last updated: Oct 15, 2020 9:19pm

Why can’t JHU deans determine the salaries and benefits of their employees?

In the response to this crisis, it is true that the deans did not (as they normally do) act individually to determine the salary increases for the employees of their respective divisions. Rather, university leadership, which includes the deans, decided for a number of reasons, to move on a uniform basis to freeze salaries for all university employees for fiscal year 2021.

Employee benefits have always been managed centrally and, for a number of legal and administrative reasons, cannot vary across divisions. The deans, as well as the Faculty Budget Advisory Committee (FBAC), play an important role in advising on any major changes in benefits, and the deans were particularly involved in the decision to suspend retirement contributions for FY21.

All of the deans supported the decisions to freeze salaries, to freeze staff hiring, and to suspend retirement contributions for FY21 in order to minimize the need for massive employee furloughs and/or layoffs and reductions in employees’ salaries. They also supported those steps in order to provide budgetary breathing room for the schools to make additional carefully considered decisions in response to the COVID-related fiscal effects.

Last updated: Oct 15, 2020 9:24pm

Why haven’t benefits been changed for employees of the Applied Physics Laboratory (APL)?

The APL’s corporate structure is different from that of the schools and its employee benefits have been administered separately from the university since its inception. APL employees receive benefits under retirement and health and welfare plans and programs that are completely separate from university employee benefit plans and programs. The APL also has a different approved fringe benefits rate with its federal sponsors than the university rate.

There have been other times in the past when the APL has experienced reductions in its benefit programs when the university has not.

Last updated: Oct 15, 2020 9:29pm

Why doesn’t JHU borrow money to get through this crisis?

The university has borrowed money to support operations through this crisis.

The university raised $300M (in a transaction that was originally planned for capital investment needs) in early March 2020. JHU also subsequently borrowed another $214M in short-term debt to ensure sufficient cash levels through this crisis.

The university anticipates that the combination of its debt, the cash reserves that divisions and the university as a whole have carefully accumulated over the past decade, as well as the actions taken to reduce expenses will position the university to not only meet cash obligations (i.e., payroll, vendor payments, debt payments, etc.) through this crisis but also position the university to make critical investments in its missions into the future. Given the uncertain nature and duration of the pandemic, the university continues to manage cash reserves conservatively.

Last updated: Oct 15, 2020 9:30pm

Why doesn’t JHU tap the endowment to get through this crisis? How much of the endowment has no restrictions on it? Why not increase payout on the unrestricted endowment?

The endowment cannot ethically or prudently (or with the majority of its funds, legally) be used as a rainy-day account to carry the university through this crisis.

JHU’s endowment is a collection of more than 4,000 individual funds, most of which have been given over time by donors. About 84 percent are restricted legally via gift agreements and Maryland state law as to how much may be expended in a given year and for what purpose(s). The other roughly 16% of the endowment, nearly $1 billion, represents “quasi endowments,” which are funds (in most cases from donors) invested in the endowment based on the university’s decision rather than required by donor terms.

A significant portion of these quasi endowment funds are designated for specific purposes, such as faculty support, financial aid or research. In addition, divisions and departments rely on them for annual expenses and if they were to be used for cash in the short term, they would have to be repaid.

Last updated: Oct 15, 2020 9:34pm

Why is the university continuing to spend money on construction projects?

We will continue to limit capital projects, moving forward only with those that are mission critical or impact health and safety and/or for which dedicated funding has been secured, such as the donor-supported 555 Pennsylvania Ave., SNF Agora Institute, and Homewood Student Center projects. In many cases, we are continuing planning and feasibility work during this period, not undertaking construction spending.

Last updated: Oct 15, 2020 9:36pm

How is the university helping people who are hurt financially by the pandemic?

Even as we made every effort to address the fiscal challenges presented by COVID, we took steps to mitigate the impact of the pandemic on our community, both across our campuses and in the city of Baltimore. The broad sharing of financial sacrifice across the institution has meant that we have sought to pay particular attention to the least advantaged members of the communities of which we are a part.

These critical COVID-related supports have included: $12 million in emergency funding and additional financial aid to help students whose family situations have changed as a result of the pandemic; more than $1 million to launch two COVID-19 workforce relief funds; the creation of a fund to cover new, unanticipated caregiving expenses for our faculty, staff, and students that is anticipated to cost as much as $18 million; the construction of 127 state-of-the art studios and enhanced instructional spaces for faculty to conduct remote instruction; and more than $2 million in direct funding to assistance programs in Baltimore.

Last updated: Oct 15, 2020 9:40pm

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