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Johns Hopkins’ stark economic outlook and planned cutbacks signal what’s to come for Maryland higher education

As the coronavirus began shutting down universities and colleges in March, the financial hit for higher education began piling up. First came refunds of room, board and fees for students. Then universities needed to spend to enable students and faculty to move to online education.

And all the while endowments, which often provide significant revenues for private colleges, were suffering heavy investment losses as the stock market tumbled amid the economic paralysis, and leaders worried they would see dramatic enrollment declines as students opted for less expensive options or no college at all.

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Johns Hopkins University announced a series of austerity measures Wednesday after estimating the university and its medical system will have to cut costs by $475 million through June 2021. Separately, the University System of Maryland chancellor has warned of a $230 to $240 million shortfall for the current semester.

But the ramifications of the shutdowns of those two large university systems, with their sprawling medical campuses, extensive research programs and their nearly 100,000 employees, stretch far beyond the boundaries of their campuses and affect the region’s and state’s economies.

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“On the regional economy the near term effects are devastating,” said Richard Clinch, an economist and the director of the Jacob France Institute at the University of Baltimore.

Higher education has been a bright spot in the city’s economy, Clinch said, providing not just jobs but students who spend in local stores and acting as incubators for technology companies, Clinch said.

“While Baltimore City was in decline, higher education and medicine was what kept Baltimore afloat," he said. "So depending how bad this is, this has potentially devastating effects for the city’s economy long term.”

Hopkins announced it will make short-term cutbacks, including stopping contributions to employee retirement plans, pay cuts for top leaders and severe restrictions on hiring to lay the groundwork for a three-year plan to make up the expected deficit. University leaders also expect to lay off and furlough some workers, although the decisions are likely to be made by individual departments and divisions within the university. Hopkins President Ronald J. Daniels said the financial implications of the pandemic exceed the last recession.

“At no point during the Great Recession did we suffer the revenue losses that we have suffered this year," he said. “This is a shock to the state and the country that is unprecedented.”

Daniels said the deficits are driven by a number of factors, including a significant loss of revenue — about $100 million this fiscal year and $200 million next year — that would have come from elective surgeries and procedures in the Hopkins medical system. Medical facilities suspended those services after the pandemic began to reduce the spread of the disease and conserve protective equipment for fighting the COVID-19 illness. Those revenues pay the salaries of Hopkins physicians.

“At precisely that time you are looking for physicians to be on the front lines of the pandemic and act with courage and conviction, we are suffering a loss of revenue that compensates them,” Daniels said.

Universities with medical centers are facing similar budget problems across the country. Daniels said he is hoping that Congress may provide financial relief for hospitals in the next stimulus package.

With 40,000 employees, the University System of Maryland is one of the state’s largest employers. Chancellor Jay Perman is acutely aware of the role that the 12 colleges and universities in the system play in the state’s economy, but the university system has not yet projected what the long-term financial implications of the shutdown may be. He said the university has restricted hiring significantly.

“Most of what we spend out of the budget is to pay people," Perman said. “We are going to have to try our best to keep people working. We are public institutions. We are mindful of the stress that the state will be under financially.”

Perman said he expects state budget experts to give the system some guidance in the coming weeks on what the reductions for higher education will be so that the institutions can begin planning.

“I hope that a balance can be struck,” he said.

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The university system’s $1.5 billion in research also generates economic activity for the state. Much of the research has been halted by the virus and restrictions designed to limit its spread.

In the meantime, the university system is trying to plan for some kind of return in the fall.

Perman said school officials soon will set a projected date for the opening of school — maybe sometime in September or October — and then try to work through all the possible implications for how to reopen and what it might look like, particularly for the residential campuses.

Like employers everywhere, Perman said universities are trying to navigate an uncertain future where students and professors continue some form of social distancing even as they start to return to campuses. They imagine some classes with 200 students being held online and seminars meeting in large lecture halls with a dozen students.

Morgan State University President David Wilson said he, too, is hoping for some relief from the federal stimulus packages.

“The financial impact of COVID-19 on Morgan is traumatic. It places the university in a place where we have never been. And it is coming so quickly," he said.

Wilson is projecting a $22 million hole in his budget and is hoping to make up about $14 million from the federal government. About two-thirds of the school’s 7,800 students will receive grants from Congress-approved relief funds that they can use to support themselves during the crisis.

But Wilson said Morgan State is not seeing a feared decline in admissions or enrollment, which would exacerbate a long-term downward trend in enrollment. Wilson said deposits are up by 150 students this year over last.

“I am optimistic. I think we have an opportunity to demonstrate you don’t have to go outside the state to get a great education,” he said.

Wilson believes many parents will want to see their children stay closer to home rather than go universities in the northeast.

“I understand the threat to higher education, but I think this is a good time to be in public education in Maryland," Wilson said.

But there are likely to be drops in international students at all universities. Both College Park and Hopkins have large numbers of international students who often pay full tuition to attend. Chinese students, in particular, represent a significant portion of those international students.

“The impact in terms of the loss of international student enrollment turns on what happens to the travel restrictions and the duration of them,” Daniels said.

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There’s also uncertainty in how quickly embassies and consulates abroad will be able to process visa applications for international students even if those restrictions are lifted.

Daniels said he expects a reduction in enrollment to be particularly difficult for the Bloomberg School of Public Health and the School of Advanced International Studies, which want a variety of international students in their classes.

Despite the somewhat gloomy short-term predictions, Clinch, the economist, said if the coronavirus-related shutdown continues and there’s a recession, more students might see it as a time to stay in college, begin a graduate program or get some additional training. During the last recession enrollments grew, he said, and he would predict a similar reaction, which could turn around recent enrollment declines.

But he thinks the near term could be tough, particularly for institutions that already are struggling. Higher education institutions, he said, will have to fight for dollars in Annapolis at a time when new money for the kindergarten through 12th grade has been a priority.

The actions that Hopkins takes to reduce its budget deficit will have an outsized effect on the local economy.

“We are increasingly of the view that this crisis is not going to be short lived and the recovery of health and the economy will be slow,” Daniels said. “We are resolute in our determination to make sure these actions are taken with thought, care and compassion.”

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