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Random Thoughts From April Part 2

On April 21st, Johns Hopkins University President Ronald Daniels sent an email and published online a document detailing the financial implications stemming from the COVID-19 pandemic. There’s a lot to digest here. It’s an intimate introduction to serious topics. The role of university endowments, spending allocations at large organizations, voices of reason in crisis, and layoffs.

Here we go.

First, we will address the easy target. Why doesn’t the University use endowment money to cover costs? Surely, this is a once in a lifetime crisis that permits a one time breach in endowment contracts?

We should be mindful that endowments are made up primarily of gifts of good will. In 2019, Michael Bloomberg famously donated $1.8 billion to the university (a 44% increase), but the funds were explicitly reserved for student financial aid. From the JHU Krieger School website: At a donor’s direction, gifts can either be spent immediately or endowed. Endowed gifts are held in perpetuity and invested by the university with an emphasis on long-term growth. The Board of Trustees meets annually to determine what percentage of endowment income may be spent, generally between 4 and 5%. Every department has the responsibility to spend the funds in accordance with donor intent.

The short answer is that it’s tricky to mobilize endowment funds. A divestment from coal and oil request took 3 tries and 3 years to get done when the try was successful, for example. A great white paper was published here. TLDR: endowments seem invincible, but for most schools, they truly do need to be rationed, not only for financial stability, but because of moral obligation to past donors, who intended for their principal to be reserved for long term growth and use by the university.

Still, for a system like JHU that has activated itself in response to the pandemic it’s a shame that the money isn’t able to be used.


Next, let’s dive into the financial release document.

First, some general details and framing. The JHU ecosystem runs on a $6.5 billion annual budget, of which 1-2% is surplus in a normal year. For fiscal year 2020, JHU had a projected $72 million surplus, roughly 1.1% midway through the fiscal year (The JHU fiscal year runs from July 1st to June 30th, the next year). JHU is now projecting a net loss of 100millionforFY2020,andanetlossof$375millionforFY2021insteadofanexpectedmarginof$80million.Inagivenyear,2/3ofthisbudget($4.3billion)iscomprisedofsalary,wages,andbenefits.4100 million for FY 2020, and a net loss of \$375 million for FY 2021 instead of an expected margin of \$80 million. In a given year, 2/3 of this budget (\$4.3 billion) is comprised of salary, wages, and benefits. 4% of this budget (\$260 million) comes from a \$6.3 billion endowment, which checks out, since only between 4-5% of the endowment can be spent each year. For this reason, the decline in stock market prices does not affect JHU as much as it's peers. For comparison, Harvard has a \$5 billion annual budget, and a \$40 billion endowment. If we assume they also spend 4% each year, that is \1.6 billion, roughly 32% of Harvard’s annual budget.

JHU makes up for this via donations, tuition, clinical revenues, and sponsored research. Johns Hopkins doesn’t publish donation data (somewhat difficult to project, given that more than half of the endowment is from Michael Bloomberg ($3.35 billion)), but current projections are a $25 million loss in FY 2020 and a $60 million loss in FY 2021. $25 million in FY 2020 and $150 million in FY 2021 will be lost to tuition related income. To the university’s credit, $12 million was returned to students for housing, dining, and student service charges, and an additional $5 million was extended for unanticipated financial aid packages. Still, Summer courses on campus including the worldwide CTY programs have been virtualized, resulting in $40 million in losses, and restrictions for travel prevents international students from studying at professional schools, another unnamed but large source of revenue.

Johns Hopkins spends $1.5 billion on research (excluding the Applied Physics Lab) and takes in $370 million in sponsored grants. The costs are largely fixed, yet the grants function as recoverable income. Stay at home orders do not reduce fixed costs, but do prevent recovery of costs from the use of grant funds. In other words, it takes longer to do the same amount of research, which loses money because of the fixed costs and also because researchers are less productive and receive less funding when research does not get done.

Physician clinical revenue losses will reach $100 million in FY 2020 and $200 million in FY 2021 due to decreases in elective procedures and refocusing of efforts towards fighting the COVID-19 pandemic.


So to take stock, we have losses of $475 million over 2 years. How does Daniels want to approach addressing this?

  1. Since 2/3 of the annual budget goes to salary, wages, and benefits, it might be prudent to start there. The first thing to go was retirement contributions for 1 year, saving $100 million
  2. Salary reductions for university leaders and holds for faculty and staff was next. ~$20 million.
  3. Restrictions on hiring ~40 million.
  4. Suspensions on capital projects have put 78 projects worth $29 million on hold.
  5. Expense restrictions such as travel will save an additional $10 million.
  6. Finally, there will be furloughs and layoffs, though he doesn’t give any numbers.

Including everything except furloughs and layoffs, we reach almost $200 million. We still have a $275 million problem. Assuming economic dampening continues, we shouldn’t expect FY 2022 or FY 2023 surpluses to be back to normal levels.

It seems impossible to sustain previous levels of spending while ensuring the overall growth of the university. Administrators will need to be leaner, and more effective. We will all need to be cognizant of whether our activities are useful and productive, and worth the sacrifice that employees have made during this time. For school clubs, now is not the time to be milking money from the university. For students, we should have some empathy. This is a tough problem with no easy answers.

Enough of this:

Endowment