December 7, 2018
MEMORANDUM
TO: The Finance Committee:
James B. Murray Jr., Chair
Robert M. Blue, Vice Chair
Mark T. Bowles
Thomas A. DePasquale
Robert D. Hardie
Maurice A. Jones
Jeffrey C. Walker
Frank M. Conner III, Ex Officio
and
The Remaining Members of the Board:
L.D. Britt, M.D. Tammy S. Murphy
Whittington W. Clement C. Evans Poston Jr.
Elizabeth M. Cranwell James V. Reyes
Barbara J. Fried Margaret F. Riley, Faculty Member
John A. Griffin Brendan T. Nigro, Student Member
Babur B. Lateef, M.D.
FROM: Susan G. Harris
SUBJECT: Minutes of the Meeting of the Finance Committee on December 7, 2018
The Finance Committee of the Board of Visitors of the University of Virginia met, in Open Session, at 8:30 a.m. on Friday, December 7, 2018, in the Board Room of the Rotunda. James B. Murray Jr., chair, presided.
Present: Frank M. Conner III, Robert M. Blue, Mark T. Bowles, Thomas A. DePasquale, Robert D. Hardie, Maurice A. Jones, and Jeffrey C. Walker
L.D. Britt, M.D., Whittington W. Clement, Elizabeth M. Cranwell, Barbara J. Fried, John A. Griffin, Babur B. Lateef, M.D., Tammy S. Murphy, C. Evans Poston Jr., Margaret F. Riley, and Brendan T. Nigro also attended.
Present as well were James E. Ryan, Jennifer Wagner Davis, Thomas C. Katsouleas, Richard P. Shannon, M.D., Melody S. Bianchetto, Margaret S. Grundy, Susan G. Harris, Timothy J. Heaphy, Donna P. Henry, John C. Jeffries Jr., Patricia M. Lampkin, W. Thomas Leback, Mark M. Leullen, M. Elizabeth Magill, David W. Martel, Melur Ramasubramanian, Debra D. Rinker, Colette Sheehy, and Kelley D. Stuck.
Mr. Ian B. Baucom was the presenter.
Mr. Murray opened the meeting and asked Ms. Davis to present the consent agenda items.
Consent Agenda: Capital Investment for the New Rehabilitation Hospital
Ms. Davis said this item approves an investment of up to $20 million.
On motion, the committee approved the following resolution and recommended it for full Board approval:
WHEREAS, in order to proceed with the development and construction of a new 70-bed rehabilitation hospital to be located on land in the UVA Research Park, the Medical Center will be required to make an additional capital investment in an existing joint venture known as UVA Encompass Health Rehabilitation Hospital, LLC; and
WHEREAS, the Board of Visitors previously approved the Medical Center’s participation in this joint venture and agrees with the determination for the need for a new rehabilitation hospital to be located on the UVA Research Park campus;
RESOLVED, the Board of Visitors authorizes the Medical Center to invest additional capital into UVA Encompass Health Rehabilitation Hospital, LLC in an amount up to $20 million for the purposes set forth herein; and
RESOLVED FURTHER, the Board of Visitors authorizes the Executive Vice President for Health Affairs to execute one or more amendments to the Operating Agreement for UVA Encompass Health Rehabilitation Hospital, LLC and any and all other documents necessary, all on such terms as the Executive Vice President for Health Affairs deems appropriate, and to take all other actions necessary and appropriate to effectuate the foregoing.
Consent Agenda: Capitalization of Accumulated Endowment Distribution
Ms. Davis said the Board approves quasi-endowment transactions of $2.0 million or more.
On motion, the committee approved the following resolution and recommended it for full Board approval:
CAPITALIZATION OF ACCUMULATED ENDOWMENT DISTRIBUTION
WHEREAS, the University wishes to capitalize accumulated endowment distributions in the associated quasi-endowment to enhance the permanent income stream to support University strategic initiatives, as identified through the annual budget process;
RESOLVED, the Board of Visitors authorizes that $3.7 million in the Commonwealth Income Fund be capitalized in the Commonwealth Endowment Principal account; and
RESOLVED FURTHER, the Board of Visitors authorizes that $4.5 million in the Davenport Income Fund be capitalized in the Davenport Endowment Principal account; and
RESOLVED FURTHER, the Board of Visitors authorizes that $16.5 million in the Robert C. Taylor Income Fund be capitalized in the Robert C. Taylor Endowment Principal account; and
RESOLVED FURTHER, the Board of Visitors authorizes that $4.0 million in the Shannon Center Income Fund be capitalized in the Shannon Center Endowment Principal account.
Consent Agenda: Deposit of Currie Farm Proceeds into the Kent D. Currie Unrestricted Quasi-Endowment Fund
Ms. Davis said this was a walk on item. Because of the amount involved, Board approval was required.
On motion, the committee approved the following resolution and recommended it for full Board approval:
Deposit of Currie Farm Proceeds into the Kent D. Currie UnrestrIcted Quasi-Endowment
WHEREAS, the Executive Vice President and Chief Operating Officer wishes to deposit the $8,769,298.22 in proceeds from the sale of the Curry Farm Property into the existing Kent D. Currie Unrestricted Quasi-Endowment, which is a component of the University’s consolidated unrestricted endowment.
RESOLVED, the Board of Visitors authorizes the deposit of the Curry Farm Property proceeds into the existing Kent D. Currie Unrestricted Quasi-Endowment.
Action Item: 2019-2020 Tuition and Required Fees for Undergraduate, Graduate, Professional, and Special Programs in the Academic Division and the College at Wise
The Chair said there were two undergraduate tuition proposals under consideration. The first was the University’s base tuition proposal. The second was a differential tuition proposal for third and fourth year students in the College and Graduate School of Arts & Sciences. At this meeting, the University was only seeking approval of the base tuition proposal. The differential tuition proposal, which would be discussed later in the meeting, was on the agenda as an information item. It would be presented for approval at the Board’s March meeting.
He reminded the committee of the University’s approach to tuition. Two years ago in the context of access and affordability, the University stated it would endeavor to limit tuition increases to not more than 1% above the inflation rate. The University also had an unwritten policy for development of its budget. Tuition was to be considered last after first looking to state appropriations, philanthropy, research income, auxiliary enterprise income, etc.
The Chair said the Board had traditionally set tuition in spring after the amount of the state appropriation was known. In 2017, the Rector suggested it be set in December. Given that state appropriations only accounted for 5% of the University’s budget, waiting for the state was less important and by setting tuition in December, parents and applicants would have an earlier notice of the cost of attendance. If state appropriations were greater than anticipated, the University could reduce the amount of the tuition increase. The Chair gave the floor to the Rector.
The Rector said approving tuition in December allows the financial aid staff to distribute the financial aid packages earlier. By waiting until February or March for tuition approval, the University was at a competitive disadvantage for first year and low income students since other institutions were able to get their aid packages out earlier. He said the Board has to consider both affordability and quality during its tuition deliberations to maintain the University’s attractiveness.
The Rector said the University’s leadership team was not hired to run a low cost university, but a great university based on relevancy. He referenced the recent U.S. News & World Report ranking, which lists the University as the 25th best institution in the country and 55th in terms of financial resources. He ended by saying the Board adopted a resolution in 2013 setting the goal of having an average faculty salary within the top 20 AAU institutions. At the time, the ranking was 26. In spite of the investments that have been made in faculty salaries since 2013, the University’s position has slipped to 28th.
Ms. Davis said the University’s tuition philosophy was to balance affordability, accessibility, and quality. The University meets 100% of the financial needs of its undergraduates. For low income Virginians, loans are capped at $4,000; for all other Virginians, they are capped at $18,000. For out-of-state students, loans are capped at $28,000. The University covers the cost of tuition and fees for Virginians with incomes under $80,000 and the cost of tuition, fees, room and board for those with incomes under $30,000. Ms. Davis gave the floor to President Ryan.
Mr. Ryan reviewed tuition and state funding over the last 30 years. On an inflation-adjusted basis, the combined investment in education from students and the state is now less than it was in 1989-1990. In-state tuition increases have not kept pace with the decline in general funds. Differential tuition, increases in out-of-state tuition, endowment returns, and philanthropy have partially closed the funding gap. Mr. Ryan then compared the University’s per student funding to the top 25 private institutions in the 2018 U.S. News & World Report ranking. This comparison shows that the University has the lowest funding per student. Private institutions were used for the comparison because reliable or consistent data for public institutions did not exist. The average listed tuition and fees for these schools is $20,960 higher than the University’s. Mr. Ryan said the tuition conversation had to address the kind of institution the University wants to be. Some say the best public university, others say it should compete with both publics and privates. He ended by saying that if the University continues its policy of increasing tuition by no more than inflation plus 1%, it will take 48 years to reach the current funding level of its peers.
Ms. Davis asked Ms. Bianchetto to present the tuition proposal. Ms. Bianchetto began with a review of comparative tuition data. The University’s tuition increases for in-state undergraduates for the past three years were 1.5%, 2.2%, and 2.4%. For 2018-2019, the tuition for an entering in-state undergraduate student in the College of Arts & Sciences was the third highest among Virginia public universities. A national comparison of tuition and fees for first year undergraduates at the top 25 universities in the 2018 U.S. News & World Report ratings show the University’s out-of-state tuition at the lower end of the tuition range for the private schools. A chart of data from fall 2017 showed the leading schools students attended when they declined admission offers from the University. The chart compared in-state and out-of-state tuition and fees.
Ms. Bianchetto then reviewed the University’s 2019-2020 tuition proposal, which calls for an undergraduate tuition increase of 2.9% for current and entering in-state students and a 3.5% increase for current and entering out-of-state students. There will be step increases for entering students in Nursing, Engineering, Batten and McIntire. Increases for the graduate and professional programs varies by school and by program.
The increase for in-state undergraduates would generate $3.5 million. The increase for out-of-state undergraduates would generate $6.3 million. The proposed increases in graduate tuition would generate $3.5 million. Anticipated costs for the year include merit increases for faculty and staff, inflationary increases for non-personnel services, increasing costs for library materials, an increase in student financial aid staff, first generation programming, student support in the women’s and multi-cultural centers, and safety and security enhancements. These costs would be partially offset by $22 million in savings from Organizational Excellence.
During the fall, the University presented the tuition proposal to students on six occasions. Student feedback focused on affordability, maintaining the value of a University degree, expanding course offerings, and having a diverse faculty. The University issued a public notice of its tuition and fee proposal on November 7.
The auxiliary fee proposal calls for an increase of $120 (5.2%) with $100 for operating and program costs for the new student health center and $20 for staff and operating increases for auxiliaries. Ms. Bianchetto said there was no increase in the athletics fee, which has been flat for 10 years. Within the state, only VCU and Virginia Tech have lower auxiliary fees.
The tuition proposal for the College at Wise calls for a 2.9% increase in tuition and fees and a 3.0% increase in auxiliary fees for both in-state and out-of-state students. The increases are needed to enhance the quality and stability of the faculty; address affordability and base budget instability; and fund state authorized pay increases. They also support continued investment in Title IX, regional economic development, and accreditation initiatives. Within the state, only Norfolk State and Virginia State have lower tuition and fees for first year in-state undergraduates.
Committee discussion covered a range of topics. Mr. Griffin said the University has to consider the type of public university it aspires to be: a great national university or a great state university. Mr. DePasquale said the University was a state university, but wants to be the highest quality institution it can be. Mr. Walker said the University was a high quality national university. When compared to many other institutions with similar structures, the University’s costs for in-state students is significantly less.
Mr. Griffin said tuition increases are always upsetting, but pointed out that the University’s recent tuition increases have been significantly lower than the increases in the higher education price index. He said consideration of tuition increases needs to take into account return on investment and affordability. The University needs to make sure its net price is affordable.
The Chair said another consideration is efficiency. When Mr. Hogan arrived, he initiated a study to identify waste and inefficiencies. This led to the operational excellence campaign. The University will undertake a follow-up study, which will be completed within the next 18 months.
Mr. Walker was concerned about costs for in-state students from families making more than $80,000 since students from families who make less were covered by AccessUVA. The Rector said the University was concerned about families with incomes between $80,000 and $125,000. Students with family incomes in this range and with normal assets are eligible to apply for aid. Ms. Bianchetto said the University is meeting the financial aid needs of families at the $125,000 income level after taking into account family size, how many children were in college, etc. Even families making $200,000 are eligible for need based financial aid if they have a number of children in college and few assets. At the $125,000 income level, most families are getting $2,000 in grants. Dr. Lateef asked if the University could revisit expansion of the financial aid program for families making more than $125,000. Mr. Ryan said the University had begun a review of the program starting with a focus on the $80,000 to $120,000 income range.
Ms. Murphy asked how the proposed increases impact the University’s standing in relation to the other state schools. Ms. Bianchetto said for the last three years the University’s increases were among the lowest in the state; the University didn’t have the figures for this year, but anticipated the trend would continue.
Mr. Jones wanted to understand the tuition proposal for the College at Wise in the context of its declining enrollment and its request to reduce out-of-state tuition for students from the federally designated Appalachian Region. Ms. Henry said the College was facing a declining budget and had lost the ability to support its operations. It was working to grow its enrollment. If some of its legislative funding requests are approved, the College will have the ability to reduce tuition.
On motion, the committee approved the following resolutions and recommended them for full Board approval:
2019-2020 INCREASES IN ACADEMIC DIVISION TUITION AND REQUIRED FEES
WHEREAS, the Board of Visitors wishes to approve tuition and fees for 2019-2020 in a timely manner so that families of returning students and Fall 2019 applicants can better plan and receive financial aid notification earlier; and
WHEREAS, the Board seeks to keep increases for all continuing undergraduates and all students in the College of Arts & Sciences at an affordable level while continuing to meet 100% of financial need and to invest in recruiting and retaining excellent faculty and instructional delivery;
RESOLVED, increases in the Academic Division tuition and fees are approved as shown below, effective July 1, 2019; and
RESOLVED FURTHER, this proposal was developed assuming a 2019-2020 unrestricted state appropriation as included in the 2018-2020 Appropriation Act. If this unrestricted state appropriation is substantially different from the level assumed, adjustments to these tuition rates may be proposed in Spring 2019.
2019-2020 INCREASES IN COLLEGE AT WISE TUITION AND REQUIRED FEES
WHEREAS, the Board of Visitors wishes to approve tuition and fees for 2019-2020 in a timely manner so that families of returning students and Fall 2019 applicants can better plan and receive financial aid notification earlier; and
WHEREAS, the Board seeks to keep increases for all students at the College of Wise at an affordable level while continuing to meet 100% of financial need and to invest in recruiting and retaining excellent faculty and instructional delivery;
RESOLVED, increases in the College at Wise tuition and fees are approved as shown below, effective July 1, 2019; and
RESOLVED, this proposal was developed assuming a 2019-2020 unrestricted state appropriation as included in the 2018-2020 Appropriation Act. If this unrestricted state appropriation is substantially different from the level assumed, adjustments to these tuition rates may be proposed in Spring 2019.
FURTHER RESOLVED, the Executive Vice President and Chief Operating Officer is authorized to approve reduced tuition rates for non-residents in accordance with Section 23-7.4:2.F of the Code of Virginia.
Action Item: 2019-2020 Faculty and Staff Housing Rates
Ms. Sheehy said the proposed average increase for faculty and staff housing is 3.1%. As required by the state, the rents for these units are based on the market.
On motion, the committee approved the following resolution and recommended it for full Board approval:
Action Item: 2019-2020 Student Housing Rates
Ms. Sheehy said the average student housing increase at the University is 3.5%. It is needed to address debt service costs for new residence halls and ongoing renovations and for increases in operating costs. Compared to its public and private peers, the University’s double room rate is well below average. For public institutions in Virginia, the rate is average. The proposed average increase for student housing at the College at Wise is 3.0%. Compared to its public and private peers, the College’s double room rate is slightly above average. For public institutions in Virginia, the rate is average.
On motion, the committee approved the following resolution and recommended it for full Board approval:
Action Item: 2019-2020 Contract Rates for Dining Services
Ms. Sheehy said the proposed average increase for the University’s contract dining rates is 2.4%. Compared to its public and private peers, the University’s full meal plan rate is below average. For public institutions in Virginia, the rate is at the higher end. At the College at Wise, the proposed average increase is 3.0%. Compared to its public and private peers, the College’s full meal plan rate is just below average. For public institutions in Virginia, the rate is below average.
On motion, the committee approved the following resolution and recommended it for full Board approval:
College of Arts & Sciences Differential Tuition Proposal for Third and Fourth Year Students
Mr. Baucom, Dean of the College and Graduate School of Arts & Sciences, reviewed the proposal. He said the College was at an inflection point. Over the next 5 to 10 years, it will face a gap between its needs and resources. The College had a five-year financial plan to fund its vision. It was built on significant increases in philanthropy, research, and new revenue generating master’s programs. The College is the most efficient of the University’s undergraduate schools and has the fewest staff per faculty and the fewest tenure track faculty per student. Since 2009, the undergraduate enrollment has increased by 10% while tenure-track faculty has only increased by 2.5%. Of its classes with more than 30 students, 30% have wait lists; the average wait list has 32 students.
The College identified cost savings and operating efficiencies. It uses general faculty where appropriate, reduced Ph.D. enrollments, eliminated programs, concentrated on time-to-degrees, and streamlined graduate admissions. The College also reduced utility costs, withheld inflationary cost increases on non-personnel costs, and eliminated staff positions.
Mr. Baucom said the College understands it cannot cut its way to excellence. Its financial plan calls for investments to fund $30 million per year to sustain its faculty and address the generational turnover in the faculty, $6 million per year for debt service for STEM research facilities, and $28 million per year for central services. These costs will be funded by efficiency savings, philanthropy, and sponsored research.
Revenue generated by the proposed fee would improve the undergraduate experience by supporting curricular innovation and small learning environments, redesigned courses and new programs particularly in the STEM fields, increasing the faculty, and creating state-of-the-art teaching labs.
Ms. Bianchetto reviewed data comparing the projected four year cost at the College after the proposed fee had been implemented to the costs at the University’s other undergraduate schools and at William & Mary and its business school. The College is at the lower end of the scale.
During the committee discussion, several members said they were uncomfortable with the proposal. It was easier to understand the use of differential tuition at McIntire and Batten. They wondered if the costs should be spread over all four years. They asked how the state would react.
Mr. Walker asked how the College planned to address improvements to the first and second year experience since there would be costs for smaller classes, more classes, and classroom redesign. Mr. Baucom said they will be funded from philanthropy and the reallocation of other resources. Mr. Hardie asked for a comparison of the current student-faculty ratio with the ratio in 2009. Mr. Katsouleas said the 2009 student-faculty ratio was six tenure track faculty per 100 students; it was now five per 100. Funding from the differential fee would move the ratio closer to six.
Mr. Nigro said students buy into the value proposition, but he doesn’t think their concerns are limited to the third and fourth year experiences. He was concerned third and fourth year students would be discouraged by the extra fee. He felt the cost should be distributed over four years. Mr. Baucom said the fee would support the hiring of more tenure track faculty. While these faculty would primarily teach third and fourth year students, they would also teach first and second years. He said the financial aid structure would not be changed by the proposal.
President Ryan said he supported the proposal and said comparative data on tuition costs at the College and the University’s other schools would be helpful.
Action Item: Distinguished Professorships in Biocomplexity Quasi-Endowments
On motion, the committee approved the following resolution and recommended it for full Board approval:
ESTABLISHMENT OF Distinguished ProfessorshipS in Biocomplexity QUASI-ENDOWMENTS
WHEREAS, the University wishes to establish three quasi-endowments to support three endowed professorships for the Biocomplexity Institute;
RESOLVED, the Board of Visitors authorizes the liquidation of the HOPE Physician Incentive Quasi-Endowment as the original purpose of the quasi-endowment is no longer valid; and
RESOLVED FURTHER, the Board of Visitors authorizes the establishment of the Distinguished Professorship in Biocomplexity #1 Quasi-Endowment, with the transfer of $5 million in unrestricted funds from the Executive Vice President for Health Affairs’ start-up funding package; and
RESOLVED FURTHER, the Board of Visitors authorizes the establishment of the Distinguished Professorship in Biocomplexity #2 Quasi-Endowment, with the transfer of $3 million from the liquidated HOPE Physician Incentive Quasi-Endowment; and
RESOLVED FURTHER, the Board of Visitors authorizes the establishment of the Distinguished Professorship in Biocomplexity #3 Quasi-Endowment, with the transfer of the remaining balance, estimated at $1.4 million, from the liquidated HOPE Physician Incentive Quasi-Endowment.
Action Item: Major Capital Project Financing Plan for the Ivy Mountain Central Utility Plant
Ms. Sheehy said a budget increase was needed to relocate the plant from the Musculoskeletal Center to a stand alone facility that would be able to serve the development of the precinct. This would result in long term savings and create more program space in the Musculoskeletal Center.
MAJOR CAPITAL PROJECT FINANCING PLAN FOR THE IVY MOUNTAIN CENTRAL UTILITY PLANT
WHEREAS, the revised financing plan for the Ivy Mountain Central Utility Plant calls for the use of operating cash in the amount of $9.4 million and debt in the amount of $10.6 million;
RESOLVED, the Board of Visitors approves the financing plan for the Ivy Mountain Central Utility Plant.
Report by the Executive Vice President and Chief Operating Officer
Ms. Stuck reviewed the status of the Ufirst project, which is the strategic redesign of human resources at the University. The project involved the testing of thousands of unique test cases, massive stakeholder engagement, extensive training, review of the command center structure, dry
runs, increases to the solutions center staff, launching of an online chat service, development of screen share capability, and a new website. January 7 is the go-live date.
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On motion, the chair adjourned the meeting at 10:50 a.m.
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These minutes have been posted to the University of Virginia’s Board of Visitors website: http://bov.virginia.edu/committees/205
