Anticipated COVID-19 Losses

Virtually every part of the university has suffered financial setbacks as a result of COVID-19. But there are several key activities that have been particularly impacted and, in order to understand the full financial picture, it is helpful to describe specifically the nature and magnitude of these challenges.

► Loss in tuition and student related revenues (assuming most in-person instruction resumes in the fall): as much as $25 million for FY20 and $150 million for FY21, before mitigation actions

Despite the current closure of our physical campuses, the university has fully transitioned the delivery of its educational instruction to virtual modalities. We did this, first and foremost, because of our obligation to our students, who have an obvious interest in completing the academic year and for many, graduating on time. The continuation of these activities also meant that we continued to earn tuition revenue during this time.

While our tuition revenue was not reduced this spring, we did rebate the remainder of the spring semester of housing, dining, and student service charges normally paid by our undergraduate students at a cost of $12 million. We also extended more than $5 million in unanticipated financial support to students and their families during this difficult period, including in the form of direct emergency grants for essential needs, continuity of wages for suspended on-campus employment, and relief from summer work requirements as a part of financial aid. We know we will see even greater demand for investment in student aid in the coming months, and it is essential that we continue to meet our promise to make a Hopkins education as accessible as possible.

At this point, the next academic year looks equally challenging on the tuition front. Several of our academic divisions will experience significant revenue shortfalls from the restrictions imposed on campus-based educational activities. For instance, our Center for Talented Youth runs more than 25 immersive summer programs for high school students across the world. At the present time, none of these campus-based programs will be offered, resulting in a revenue loss of $40 million and impacting both FY20 and FY21.

Other parts of the university—the Carey Business School, SAIS, the Bloomberg School of Public Health, and the Peabody Institute—typically recruit significant numbers of international students into their classes and may now face additional hurdles in helping students to matriculate as a result of travel restrictions and barriers in the issuance of visas. For instance, across the university, we enroll more than 3,200 students from the People’s Republic of China each year (58% of our total international student enrollment), and it is our understanding that a return to routine U.S. visa processing remains quite uncertain, as appointment dates are ever-changing and unreliable, with many consulates temporarily closed or open only for emergency appointments.

Each of our academic divisions is working creatively to safeguard the matriculation of new international students in the fall term, including virtual options, but we anticipate that our international student enrollment for fall will decline, with consequent revenue losses.

Another serious challenge we face is in relation to the resumption of the on-campus undergraduate program this fall. We, of course, hope and expect that the extreme restrictions now placed on our institution (and, indeed, across the state and nation) will be lifted by the end of the summer. But we also know that reopening will require widespread COVID-19 testing, and that we will have to be vigilant in preventing a resurgence of new infections while we await the development of clinical therapies and the availability of an effective vaccine. In the case of the undergraduate program, in particular, the holistic nature of the residential experience and the intense social interaction that students have in the classroom, residence halls, cafeterias, libraries, athletic spaces, and other social venues will require careful planning and discipline, assuming stringent social distancing remains in place to protect our students and the staff and faculty who interact with them.

Needless to say, we are examining these issues very carefully and considering every possible option for returning to campus and ensuring our students can continue their academic progress and maintain a sense of community. We will decide as soon as possible whether it will be prudent to resume our on-campus residential program in the fall. If not, this will impose (as of yet, unaccounted for) additional revenue losses on the university.

► Loss in direct and indirect cost recovery for sponsored research: as much as $25 million in FY20 and $30 million in FY21, before mitigation actions

Another significant pressure on the university’s finances derives from the dramatic curtailment of our lab-based research activities. To support the direct costs of research (including personnel, supplies and equipment) across our vast research enterprise—$1.5 billion in 2019 (excluding the Applied Physics Laboratory)—the university receives indirect cost recoveries from sponsored grants, which totaled $370 million in 2019. When, as in the case of the last six weeks, the university’s on-campus, non-COVID-19 research activities are suspended, there are lower non-personnel direct research expenditures and related lower indirect cost recovery, despite the fact that our research facilities and administrative costs are largely fixed and continue to be incurred.

As soon as the governor relaxes the state’s stay-at-home order, and we are able to safely “de-densify” the way in which we conduct our research activities (by, for instance, staggered shifts), we will re-start our activities, and our reimbursements will recover. Until that time, however, we continue to suffer losses relating to this suspended activity.

► Loss of physician clinical revenue: as much as $100 million for FY20 and $200 million for FY21, before mitigation actions

The decline in physician clinical revenue is the largest single category of financial loss that the university is facing. This loss emanates from the cancellation of a broad array of elective services that are performed by our faculty physicians, as the Johns Hopkins Health System shifted entirely toward the treatment of seriously ill COVID-19 patients and sought to reduce the risks to our workforce and preserve personal protective equipment.

While we are optimistic that the State of Maryland’s Global Budget Revenue (GBR) model will ultimately protect the budget of the Johns Hopkins Health System from the effects of COVID-19, the same is not true for our physicians who are employed by the university. As a result of the suspension of elective procedures and changes in the mix of payors who would typically reimburse our physicians, the university is projecting a revenue loss of as much as $100 million for the remainder of this fiscal year, and a further loss of as much as $200 million for next fiscal year.

It is particularly ironic that the financial arrangements under which we operate would subject our physicians, many of whom are working so tirelessly and courageously on the front lines of the pandemic, to severe reductions in clinical billing. But, as of yet, the various COVID-19 relief packages enacted by Congress have not adequately provided for these related losses.

► Loss in unrestricted contributions and gifts: as much as $25 million in FY20 and $60 million in FY21

The long tradition of philanthropic support by the university’s alumni and friends is a cornerstone of our overall financial picture. While the national projections around the virus’s impact on private giving are evolving, we know for certain that economic downturns and uncertainty depress philanthropy. We draw strength from the extraordinary support of major donors who have and, we believe, will continue to make major investments that are donor-directed to financial aid, research, capital projects, and professorships. However, we also know that the most flexible, unrestricted dollars that support our basic operating budgets will be challenged.

We are doing all we can to ensure that alumni and friends, many of whom are finding themselves in financially challenging situations, continue to be engaged in the university and Johns Hopkins Medicine and are aware of the role their gifts play in the life of the institution. Our projections, however, include an acknowledgement that this source of flexible funds—cash contributions to support annual operations, including payments from prior year pledges—will substantially decline in the near term.

► Loss in endowment market value and payout: as much as $350 million in market value to-date and $10 million in FY21 endowment payout

Over the last six weeks, as the pandemic spread throughout the country, financial markets declined significantly. At one point, the S&P 500 was down by 34% from its peak. Since that time, markets have staged a partial recovery, but they are still well below their pre-COVID levels. This has reduced the value of our endowment, which means we will need to lower the level of income we had planned for FY21. We had initially planned based on an expected 2% increase in the endowment payout for FY21, but we will now need to budget for a 2% reduction, which amounts to a reduction in operating support of approximately $10 million.

Although our generalized reliance on endowment is not as great as some of our peers (some of whom receive more than 30% of their budget from endowment, while we receive 4%), this loss in value will nevertheless inflict concentrated and consequential costs on certain of the university’s activities that are endowment dependent. One of these areas is undergraduate financial aid, where despite the loss in endowment value, our expenditures have increased and will continue to as the financial circumstances of our students’ families deteriorate as a result of the pandemic.