Science’s COVID-19 reporting is supported by the Pulitzer Center.
This spring, as the coronavirus pandemic shuttered U.S. higher education, many college presidents began to warn of the dire financial impact of a frozen U.S. economy on their institutions.
Their mix of revenue sources largely determined how much they might be hurt. Universities that operate their own hospitals issued the shrillest warnings—with some forecasting losses of a half-billion dollars and more from the temporary suspension of elective surgeries and the added cost of treating COVID-19 patients. Public institutions that receive a significant amount of state funding said they were bracing for double-digit cuts from legislatures facing huge losses in tax revenue. Those with large endowments cited the stock market’s steep plunge in March as a major setback, although equities have since staged a strong recovery. In every case, those alarm bells were accompanied by a slew of cost-cutting measures designed to soften the financial blow from the pandemic.
Amidst the sea of red ink, however, one stream of revenue has remained healthy: the money universities receive from others—especially the federal government—to carry out research. That fact looms large in any effort to forecast the impact of COVID-19 on U.S. academic research.
The federal government is by far the largest supporter of what is called sponsored research, providing roughly 53%, or $42 billion, of the $79 billion worth of research done on U.S. campuses in 2018. That’s more than twice what institutions themselves put up, with the remainder coming from industry, foundations, and state and local governments.
Moreover, federal support for academic research seems likely to grow during the pandemic. This spring, Congress included an additional $3.6 billion for research related to COVID-19 in a string of economic relief packages, and some of that money will flow to university laboratories. There’s a good chance that future packages also will contain additional funding for research.
That prognosis has put university research administrators like Chris Cramer in an enviable position during ongoing budget meetings with other senior academic officers. “These days, I’m the only one who gets to say that, even with large error bars, none of my projected numbers are in the red,” says Cramer, who oversees the University of Minnesota’s $870 million portfolio of sponsored research.
“Getting the job done”
One reason Cramer can be upbeat is that the U.S. government, unlike most sectors of the economy, has remained open during the pandemic. And its machinery for awarding grants has been minimally affected, even as the number of COVID-19 cases in the United States has risen to 1.8 million and the death toll has topped 107,000.
“We went to 100% virtual peer review [of grant proposals] practically overnight, and it’s gone remarkably well,” says Michael Lauer, director of the Office of Extramural Research at the National Institutes of Health (NIH). NIH provides about two-thirds of all federal funding for academic research, so the state of its operations is vitally important to the community. And despite the fact that almost all NIH staff have been working from home since mid-March, Lauer says, “We are getting the job done without major problems.”
Cramer can testify to that. “I just got our third quarter numbers and they are holding up well,” he says about the university’s overall research portfolio, which nationally ranks in the top 20 by size and for which NIH is the single largest source. “In fact, we’re actually $2 million ahead of last year.”
Adding to the good news for academic researchers is the fact that, although some 40 million U.S. workers have filed for unemployment since the start of the pandemic, scientists supported by federal grants have continued to draw their pay, even as their campuses are shuttered. In March, the White House Office of Management and Budget (OMB) gave institutions permission to continue to charge salaries to their federal grants during the closures. (To be sure, the pandemic has still squeezed the personal finances of most faculty members, whose institutions have frozen salaries and, in some cases, suspended contributions to retirement accounts.)
University administrators hope the OMB policy, which now expires on 17 June, will be extended. And they applaud the government’s recognition of how research is actually conducted. A federal grant covers much more than the cost of just running experiments or collecting field data, they note. And many grantees can continue to draw pay for performing those many other activities—such as writing and reviewing papers, analyzing data, and supervising students and postdocs—even if they are at home.
COVID-19 hasn’t relieved him of any of those duties, says Dominique Durand, a professor of neural engineering at Case Western Reserve University. Like most professors, Durand functions as the de facto owner of a small business, with responsibility for hiring people, meeting payroll, and maintaining inventory. He must also satisfy the customer—in this case, the federal agency that is funding his research.
“To be honest, the impact [of the pandemic] on my research hasn’t been that significant,” says Durand, whose lab has received core support from NIH for decades. “There are things we haven’t been able to do, for sure, but as long as you’re still making progress on the grant, NIH says it’s OK.” (Full disclosure: Durand is married to this reporter’s sister.)
Behind the projections
Depending on the source of funding and the nature of the work, academic research can help subsidize other university activities—or require additional institutional funds. Annual financial reports don’t reveal those differences. But in baring his school’s financial soul in response to COVID-19, the president of Johns Hopkins University shed some light on how things operate at an institution that leads the nation in the amount it spends on sponsored research, some $2.5 billion annually.
In a 21 April letter to the Johns Hopkins community, Ronald Daniels wrote that income is projected to dip by $175 million for the fiscal year ending 30 June, and that next year’s shortfall could total $475 million. But the impact on research will be comparatively small, his analysis suggests.
More than half of the projected drop in income over the next 15 months comes from the loss of up to $300 million in revenue at its vast network of hospitals and clinics, Daniels wrote. But that blow will be felt mainly by the physicians who perform those procedures. In contrast, he explained, the university itself expects to be eventually reimbursed for the additional cost of caring for COVID-19 patients.
Individual faculty members will also feel the pinch. The university expects to save $100 million by suspending retirement contributions for 1 year, he writes, and another $20 million by freezing salaries.
A 1-year hiring freeze is expected to save an additional $40 million, he wrote. But the freeze doesn’t mean there won’t be fresh faces on campus; the unceasing competition among top research institutions to attract talent and funding all but guarantees that there will be exceptions.
“The university must emerge from this crisis stronger, and making strategically important faculty hires is crucial to that end,” a university spokesperson says. “We expect our schools will … make the investments necessary to excel even in a constrained budgetary environment.”
Those hires, often accompanied by multimillion-dollar startup packages, would normally be paid out of what Daniels said is an operating surplus of 1% to 2% in an annual budget that this year stands at $6.5 billion. COVID-19 has erased that surplus, he said, leaving administrators with the task of finding other sources for such investments in talent.
The role of endowments
One such source could be the institution’s endowment. But because of their sometimes immense size and the secrecy that surrounds how the money is managed and spent, endowments are one of the most contentious components of university funding.
As a rule, private institutions sit on much larger endowments than do public universities. Harvard University’s towers over the rest of U.S. higher education, at roughly $40 billion, although dozens of institutions have endowments that top $1 billion. Johns Hopkins’s falls in the top tier, at more than $6 billion.
Although Daniels called philanthropy “a cornerstone of our overall financial picture,” he said the endowment supplies only about 4% of the university’s annual operating budget, or about $200 million annually. (By comparison, Harvard’s Faculty of Arts and Sciences, which houses many of its natural science departments but not its medical and applied science programs, receives half of its annual $1.5 billion operating budget from the endowment.)
Originally, Johns Hopkins had projected receiving an additional $5 million from endowment income this year, Daniels noted. But the stock market’s plunge in March reduced the endowment’s value by $350 million as of mid-April, he said, resulting in a projected $5 million drop in this year’s payout.
Other institutions have been far less transparent in describing their financial situation, much less how research might be affected. For example, Harvard’s executive provost, Katie Lapp, projected last month that overall university revenues next year would be $750 million short of initial estimates. Those losses, she wrote in a letter to the Harvard community, “will require difficult cost saving measures.” But the university has provided no details.
One uncertainty facing research universities is COVID-19’s impact on what are called indirect costs. That category encompasses the supplies, facilities, and administrative staff needed to carry out research and comply with federal regulations.
Roughly one-third of every federal research grant going to a university is spent on reimbursing the institution for such costs.
At Johns Hopkins, Daniels said the university expects to lose $55 million this spring on indirect cost recovery. Its scientists working on non–COVID-19 related research have stopped buying lab animals and reagents, for example, so the university isn’t billing the government for them. At the same time, the university is still paying for such fixed costs as utility bills.
But those losses will be only temporary, Daniels acknowledged. As Johns Hopkins reopens its laboratories, he wrote, “Our reimbursements will recover.”
Sweating the details
Although most institutions are still figuring out what the fall semester will look like for undergraduates, many have already begun to reopen their labs, albeit under very strict protocols regulating access to and use of lab space. The nature of the academic research has helped, research administrators say. “Scientists are familiar with keeping things clean, following protocols, and operating safely,” says David Conover, senior vice president for research at the University of Oregon, which recently began a phased reopening of its campus.
On 21 May the University of Michigan (UM), which ranks second to Johns Hopkins in the size of its sponsored research portfolio, reopened eight buildings in the first of four phases. Its goal is to have all 50 of its research buildings, housing some 5000 labs, up and running by early July. Every component of the university has been involved in the planning, says Rebecca Cunningham, UM’s vice president for research. But that doesn’t mean every faculty member is on board.
“There’s a bimodal distribution,” she says. “Some are trampling down the doors, and others have serious concerns. They want to do research, and they want to be safe.”
To address such concerns, Cunningham and five other senior administrators at research universities last week offered guidance for institutions on reopening safely. Their suggested checklist includes conducting health checks at entrances, controlling access, reducing density, revising work schedules, and requiring personal protective equipment and deep cleaning, as well as contact tracing and quarantining when someone tests positive for the coronavirus.
At UM, Cunningham and her team believe paying close attention to the details is essential for success. Results from its first wave of lab openings, for example, included collecting data on wait times for entering the buildings (an average of 3 minutes) and the number of scientists who tested positive (zero, from the first cohort of 667).
“It’s a new way of working,” she says, “like with grocery shopping. But people understand that it’s necessary.”
A plea for federal help
Even as some universities reopen labs, administrators and research agency officials say billions more in federal dollars will be needed to keep academic science healthy once the pandemic subsides. One problem, they say, is that the money now being used to sustain the scientific workforce isn’t producing the full output envisioned when the grant was awarded.
Testifying last month before a Senate health panel, NIH Director Francis Collins said he views the lost productivity—an estimated $10 billion—as money that has simply “disappeared” from the agency’s budget. Asked how NIH arrived at that figure, Lauer said that he assumed grantees had worked at just 25% of their expected efficiency for the first 3 months of the pandemic (March to May), and that their productivity will rise to 50% productivity over the next 2 months (June and July) as their labs reopen.
Lobbyists for science and university groups have arrived at a similar number using a different formula. They argue that any savings by grantees during the first 4 months of the pandemic—from canceling supply orders and travel, for example—will be erased by the additional costs of shutting down and restarting research.
To make up for such losses—and much more—a 330-member coalition called the Ad Hoc Group for Medical Research asked Congress on 27 April to add $31 billion in supplemental emergency funding to NIH’s budget for the fiscal year ending on 30 September. Analysts say some of that money could be used to supplement existing grants so that researchers will have the additional time—and resources—they will need to complete their projects. Many of the same organizations are also asking legislators to approve $46 billion in direct payments to universities to recoup lost tuition and other costs created by COVID-19.
University officials hope the prominent role their scientists are playing in fighting the pandemic will help persuade lawmakers to provide aid. “When have research universities ever been more in the news?” Cramer asks. “We’re on the front pages every day.”
It may be weeks before Congress settles on the next pandemic recovery package. In the meantime, some institutions have already begun to lower their initial projections of staggering losses.
On 24 April, for example, UM President Mark Schlissel warned of a shortfall running anywhere from $400 million to $1 billion; as at Johns Hopkins, much of it was from the disruption to its vast medical system. But 1 month later, Schlissel told the UM community the belt-tightening moves he implemented this spring, including salary and hiring freezes and a suspension of new construction, would likely cover the “lower range of projected shortfalls” under the latest scenario.
The $370 million that the school’s $12 billion endowment contributes to operating expenses “is helping us a lot,” he acknowledged, even if the stock market is still below its February highs. That rosier outlook comes despite what Schlissel warned was likely to be a significant drop in state aid as a result of a $3 billion hole in the state’s budget.
The sheer size of many top U.S. research universities may help insulate them from the worst economic effects of the pandemic, according to a trio of public school leaders who participated in a 27 May town hall on higher education and the pandemic that was hosted by the National Academies of Sciences, Engineering, and Medicine.
“We’ll be absolutely fine because we have banked reserves,” said Purdue University’s Mitch Daniels, who has invited all 45,000 Purdue students to spend their fall semester on campus. Its size also makes Purdue an essential part of the region’s economy, Daniels says, as well as the biggest employer in town.
But there are thousands of institutions that don’t have such reserves—or such economic clout, he warned. “Many smaller schools are facing huge challenges,” he said, “and I’m afraid that we’re going to see a serious shakeout.”
Michael Crow, president of Arizona State University, recently described his 65,000-student institution as a “battleship” that was plowing ahead despite “40-foot waves” and even stormier seas on the horizon. Crow thinks the key to success will lie in partnerships—between institutions that share departments, for example, as well as teaming up with companies that can help universities operate more efficiently.
But even the biggest universities with the largest research budgets can’t take their continued success for granted, said Ana-Mari Cauce, president of the University of Washington, another top five performer of academic research. They also need to remember why they exist.
“If we are asking for a larger public investment, we have to put our public mission front and center,” Cauce said. “A lot of us are already doing that. And those who don’t, won’t do well.”
Source: Science Mag