February 14, 2009
Johns Hopkins University announces cost-cutting actions
School says it will freeze hiring and salaries, make some layoffs
By Stephen Kiehl
The Johns Hopkins University, the state's largest private employer, said yesterday that it will freeze hiring and salaries, eliminate overtime and lay off some workers in response to a revenue shortfall estimated at $100 million by the summer of 2011.
Top Hopkins administrators will also take a 5 percent salary cut, with the savings going into financial aid as the university tries to protect its students from the recession that is taking a steep toll in higher education. The carnage in the financial markets has reduced Hopkins' endowment by 20 percent. It now stands at $2.4 billion.
The cost-cutting measures will have a ripple effect on the region's economy, affecting not just Hopkins employees but vendors and others who rely on the university to make a living. In total, the Johns Hopkins Institutions employ 38,200. The cuts affect only the university, which employs about 20,000.
"This is unambiguously bad news," said Richard Clinch, an economist at the University of Baltimore who studies local economies. "It will impact everybody from low-wage workers in support jobs to high-wage workers who spend their money in the city going out to dinner."
He said a $100 million revenue loss equates to a $200 million hit to the local economy because of multiplier effects - how a single dollar is passed down the line and spent numerous times.
The measures were announced yesterday in a university-wide e-mail from Hopkins President William R. Brody. They apply to the entire university, including the medical school, but not to the hospital nor to the Applied Physics Laboratory in Laurel.
"There are no two ways about it: The years ahead are likely to be difficult," wrote Brody, who is stepping down as president in two weeks. "We believe that the measures we have chosen to take will, in fact, help us preserve jobs and keep valuable employees on the payroll."
Hopkins officials said they are sensitive to their impact on the local economy but that cuts had to be made to protect academic quality as well as preserve financial aid for students, whose families are also being hit.
"Our payroll is going to shrink, there's no question," said James McGill, the university's senior vice president for finance and administration. He said Hopkins will cut back on nonpayroll costs, as well, including travel, computers and supplies. Vendors will be asked to trim their prices, and the university will review its charitable contributions.
McGill said there will be layoffs on the administrative support side of the university, but not in academic areas. He did not know the number.
"We don't expect a large number, but there will be a few," he said. He said the layoffs will begin "relatively soon" and continue over the next year.
The hiring freeze is effective through June 30, 2010. There will be no salary increases in the fiscal year that begins this July 1, except for those that are contractually obligated.
Hopkins employees said yesterday they could not fault the university for the cuts, given the dire economic situation.
"It seems they are trying to control costs at the margins without affecting the core academic programs too much, and that seems like the right thing to do," said Professor Todd Hufnagel of the material science and engineering department, immediate past chairman of the Homewood campus faculty assembly.
"I think the core of the programs are going to be pretty well protected," he said. "That's basically the seed corn: That's what the university's reputation is based on."
Hopkins is far from alone in taking steps to reduce costs. Harvard University is offering buyouts to 1,600 employees after losing $8 billion from its endowment. The University System of Maryland imposed furloughs on employees last month, lasting up to five days.
Over the past five months, the average university endowment has lost 23 percent of its value, according to the National Association of Independent Colleges and Universities. A survey of 372 university presidents in December found that half had frozen hiring or planned to. Sixteen percent had laid off employees.
"Most cuts begin in administrative support," said Tony Pals, a spokesman for the organization. "There is a growing number of institutions, though, that have had to make faculty cuts."
At the same time, more students need financial help. Colleges saw a 10 percent increase last year in students applying for aid, Pals said. An even bigger increase is expected this year.
Hopkins intends to increase aid even as revenues fall, officials said. For fiscal years 2010 and 2011, total revenue is expected to be $100 million below projections. Total university revenue for this fiscal year is $3.7 billion.
The shortfall comes from many sources. Hopkins expects philanthropy to be down. The endowment, which contributes about 4 percent of operating revenue, could fall further. And Hopkins has been shifting its grants away from the federal government and toward foundations, which do not provide as much overhead reimbursement.
At the medical school, Hopkins anticipates cuts in physicians' fees from Medicare and Medicaid. And support from the state of Maryland is down 15 percent this year, about $3 million. Hopkins is also having to increase contributions to fixed retirement benefit plans.
Last month, Hopkins announced that it had raised $3.7 billion during an eight-year capital campaign. That has strengthened its ability to withstand the economic storm. Many building projects will continue. But much of the campaign money goes into construction or endowed chairs or scholarships, not the operating budget.
"There will be an impact on the local economy," Hopkins' McGill said of the cuts. "It's not something we'd like to have happen, either to us or to the community."