How is an American research university funded?

If you want some insight into why American academics are losing their mind, it helps to understand how American research is funded. The U.S. classifies universities into tiers by how much research the do (a “college” is like a university but doesn’t have graduate programs). The R1 universities are the research universities you’ve heard of like Stanford and Johns Hopkins and Columbia and University of Michigan. What you may not realize is that a huge chunk of their operating budget is derived from grants.

Here’s a link to the Johns Hopkins Annual Financial Report, 2023. I chose Hopkins because it’s been coming up with a lot of our job candidates. The breakdown of the budget is on pages 4 and 5. The bottom line is that the university, a non-profit organization, made a $414M “profit.” But let’s break down where the money is coming in and out.

Page 4: Operating Revenue and Operating Expenses

First note that the numbers are in thousands of U.S. dollars. The total income is $7.8B. Let’s break that down.

“Tuition” brings in only $830M. Universities don’t collect full tuition—they give out a lot of financial aid. And they just don’t have that many students.

“Grants, contracts, etc.” bring in $2.3B (excluding the APL).

“Applied Physics Laboratory” brings in another $2.3B (yes, same number). They mince words in the intro, but it’s basically a defense contractor if you read the bullet items, whose mission is, quite frankly, frightening (click through for details of their “warfighting” support). The U.S. sadly entangles its defense budget and university budgets.

“Contributions” from individuals, foundations and corporations make up another $210M. I wonder how the great whale Bloomberg’s $1B donation is accounted—I’m guessing this is lottery-style reporting of $1B, not net-present value of $1B.

“Net assets released from restrictions” of $110M, which means previously restricted donations become available to be spent.

“Clinical services,” i.e., the Hopkins hospital system, brought in $890M net!!! More than tuition, but less than grants.

“Reimbursements from affiliates” of $760M is basically things affiliated with Hopkins like a broader network of hospitals and research institutions for services rendered. Yikes. Add that to clinical services and you have a hospital network making way more money than tuition.

“Other revenues” of $190M. No clue as to what this is.

“Endowment payout” of $425M. U.S. non-profit law requires institutions to pay out a fraction of their endowment every year. My guess is that they’d pay out zero if they could, since university presidents are largely incentivized around two things: raising the endowment and raising U.S. News and World Report rankings.

“Auxiliary expense” income of $105M from things like bookstores, housing, and dining. They’re actually turning a huge “profit” on this stuff! Who knew?

“Maryland State aid” of $65M. Basically a drop in the bucket.

“Investment return” of $73M. I don’t know if this is the endowment or other investments.

Page 5: Other changes in net assets with and without donor restrictions

This is mostly investment stuff related to pensions, and investment return. There is one item of note, the contributions.

“Contributions” totalled $2.1B! This is what it sounds like, but the contributions are typically restricted (i.e., they come with strings attached, typically building a building with someone’s name on it or funding some tenure line). And yet I’m guessing they still pester their alumni with annual “donate to Hopkins” letters. I know both Michigan State and Edinburgh never seem to miss a move with their begging.

Overhead

The government is threatening or maybe already has (hard to keep up) reduced overhead rates from 60% to 15% (that means if you apply for $1 of direct costs, you also apply for $0.60 of overhead. The plan will remove 3/4 of the overhead revenue, which for Hopkins was $460M, which means a revenue reduction of $355M.

The much bigger effect will be what’s happening to Columbia with just cuts across the board in NIH and NSF funding. If that hits Hopkins, it’s going to hurt, because that’s a large part of their $2.3B research grant budget.

Was 2023 an outlier?

No. It’s just more of the same in 2024. If you follow the link it has 2023/2024 both. In 2024, the bottom-line “profit” was up to $2.6B!!!

Panic setting in?

Despite this recent success (I didn’t find 2024) they’re panicking and reportedly laying of 2000 employees. If you click through to the article, you’ll realize that’s 250 people “cut” in the U.S. and 1900 internationally, mostly working on international health aid, with another 200 locals “furloughed” (I don’t know exactly what that means in this context).

BOTTOM LINE: JOHNS HOPKINS 2023 BUDGET

---

• Research grants and overhead: $2.3B
• Defense contracting: $2.3B
• Health care and other services: $1.6B
• Tuition: $841M
• Endowment payout: $425M
• Bookstores, housing, dining: $105M
• State aid: $64M

Operating “profit”: $410M

Bottom-line “profit”: $2.3B

Which leaves us with the question of what one calls a “profit” at a non-profit? “Changes in Net Assets” is the term of art used in the reports.