Dear Commons Community,
It is May and generally it is the month when colleges look at the preceding academic year and start planning for the new one. This year has been unlike any other as the coronavirus pandemic took a toll on our entire way of life. The human and social upheaval has been and continues to be unprecedented in the United States which has recorded more 1.5 million coronavirus cases and almost 100,000 deaths. Our social institutions have all had to make incredible adjustments to deal with the crisis. In addition to the human tragedy, the virus has devasted the financial stability of these institutions. Colleges and university administrators are now in deep discussions on how to recover their fiscal health as they move to the 2020-2021 academic year. While it is likely that tuition-drive private colleges may have to make the most draconian decisions to survive, even those with substantial endowments and a stronger financial base will not be spared. The Chronicle of Higher Education has an article this morning providing insights on how Johns Hopkins University will be dealing with a $375 million shortfall. Essentially things are bad and likely to get worse next year. As reported:
The Johns Hopkins University forecast net losses for the next fiscal year to be as much as $375 million. The president, Ronald J. Daniels, also provided an unusually detailed picture of the scope of the challenges that the coronavirus has presented to his institution’s finances.
“The magnitude of the challenges we face is unlike any we have experienced in recent memory,” Daniels recently said in a statement. The university, he said, was experiencing “a dramatic and unprecedented contraction.”
Daniels also outlined a three-phase plan to mitigate losses, which includes cutting the salaries of top leaders, restricting new hires, and suspending contributions to employees’ retirement accounts. Here’s a closer look at phase one of his financial plan.
Suspension of retirement contributions
In fiscal 2021, the university will enact a one-year suspension of employer contributions to 403(b) and 457(f) retirement accounts—a step we take with great reluctance and appreciation for the sacrifice of our employees, but one that avoids across-the-board salary reductions and will help us to maintain employment for as much of our workforce as possible ahead. Note that university contributions to its defined-benefit pension plan will continue, and employees may make elective contributions to their own 403(b) and 457(b) accounts, subject to IRS maximums. The savings generated by this action will be reflected in a lower fringe benefit rate, which accrues to all divisions of the university, as well as sponsored research grants. This action is projected to save $100 million in FY 2021.
Salary reductions for university leaders
In recognition of the sacrifices that will be required across the university, Provost Kumar and I will reduce our salaries by 20% in the next fiscal year, and our deans and university officers will reduce their salaries by 10%.
Salary holds for faculty and staff
The university instituted a general prohibition and review of base salary increases effective April, and we will continue this hold for the next fiscal year (ending in June 2021). Again, this was a difficult but critical decision. This means that base salaries for FY21 will be the same as for FY20, with no annual merit increases. Any exceptions will require the written approval of the dean. Staff promotions will be considered on a case-by-case basis and will require the written approval of the dean or division director. Any exceptions, such as a reclassification, equity adjustment, or supplemental bonus, will also require the written approval of the dean. This action is projected to save approximately $20 million in FY 2021.
Restrictions on hiring
For staff positions—the university is restricting hiring through fiscal 2021. Employment offer letters issued through April 7 will be honored, but any new offers will require written approval of the dean or division director. We will allow flexibility for hiring to meet urgent or strategic needs, particularly roles essential to program or clinical activity related to the COVID pandemic.
For academic positions—the deans will review all approved or planned faculty searches with the provost (including those with donor support) to jointly determine which should continue and which should be paused. Hiring of postdoctoral trainees and part-time or casual faculty will also be restricted to those that are essential to instruction, research, and/or clinical operations. Hiring for those roles will require the approval of the dean. This action is projected to save $40 million in FY21.
Furloughs and layoffs
Furloughs and layoffs are regrettably expected to be necessary within some units of the university as an unavoidable consequence of the losses we are experiencing. Decisions regarding furloughs and layoffs will be made at the divisional and departmental level, including within university administration. Every effort will be made to provide transition assistance for affected employees during this extraordinarily difficult time.
Suspension of capital projects
The university has halted new capital projects over $100,000 through FY21, including information technology and equipment purchases, with exceptions granted for projects that address critical life safety or systems issues or meet an urgent strategic need. All active studies, design and construction projects are also subject to review. To-date, the divisions have reviewed their planned capital projects under $5 million in size and have decided to put 78 projects valued at $29 million on hold. Divisions are being asked similarly to review all ongoing and new projects under $100,000 to assess their operational necessity and to consider deferring or suspending them as appropriate. Recognizing both our commitments to funders and the importance of construction projects on the local economy, we also will continue with some capital projects that are largely supported by donor and/or sponsored funds.
Non-personnel expense reductions
The university procurement, technology, facilities and real estate teams will work with the divisions to revisit contracts for goods and services as well as construction and lease commitments to leverage the university’s purchasing power and long-standing relationships with vendors and set savings targets. Due in part to the response to COVID-19, recent reductions in non-personnel expenses are expected to continue into the next fiscal year. For example, the university is projecting to save nearly $10 million in non-sponsored research funded travel for the last three months of the current fiscal year. Given likely continued limitations on travel through the fall, further savings are expected. In undertaking these actions, it is important that we remain steadfast in our efforts to improve the university’s inclusionary and local building and buying efforts as committed through HopkinsLocal.
This fiscal scenario will be repeating itself throughout higher education in the coming months.