March 1, 2018

MEMORANDUM

TO: The Finance Committee:

James B. Murray Jr., Chair

Robert M. Blue

Thomas A. DePasquale

Maurice A. Jones

John G. Macfarlane III

Jeffrey C. Walker

Frank M. Conner III, Ex Officio

Daniel M. Meyers, Consulting Member

and

The Remaining Members of the Board:

Mark T. Bowles Robert D. Hardie

L.D. Britt, M.D. Babur B. Lateef, M.D.

Whittington W. Clement Tammy S. Murphy

Elizabeth M. Cranwell James V. Reyes

Barbara J. Fried Margaret F. Riley, Faculty Member

John A. Griffin Bryanna F. Miller, Student Member

FROM: Susan G. Harris

SUBJECT: Minutes of the Meeting of the Finance Committee on March 1, 2018

The Finance Committee of the Board of Visitors of the University of Virginia met, in Open Session, at 2:15 p.m. on Thursday, March 1, 2018, in the Board Room of the Rotunda. James B. Murray Jr., Chair, presided.

Present: Frank M. Conner III, Robert M. Blue, Thomas A. DePasquale, John G. Macfarlane III, Jeffrey C. Walker, and Daniel M. Meyers

Absent: Maurice A. Jones

Mark T. Bowles, Whittington W. Clement, Elizabeth M. Cranwell, Barbara J. Fried, Robert D. Hardie, Babur B. Lateef, M.D., Tammy S. Murphy, James V. Reyes, Margaret F. Riley, and Bryanna F. Miller also attended.

Present as well were Teresa A. Sullivan, Patrick D. Hogan, Thomas C. Katsouleas, Melody S. Bianchetto, Jonathan D. Bowen, Susan G. Harris, Donna P. Henry, Ronald R. Hutchins, Patricia M. Lampkin, W. Thomas Leback, Mark M. Luellen, David W. Martel, Melur K. Ramasubramanian. Debra D. Rinker, Roscoe C. Roberts, Pamela H. Sellers, Colette Sheehy, Kelley D. Stuck, and Carla G. Williams.

Kristina K. Alimard, Virginia H. Evans, Sargent McGowan, and Richard Skinner were the presenters.

Mr. Murray opened the meeting. After reviewing the agenda, he gave the floor to Mr. Hogan.

Action Item: 2018-2019 Faculty and Staff Housing Rates

Mr. Hogan asked Ms. Sheehy to review the proposed rates. Ms. Sheehy said the University had a variety of housing accommodations. State policy requires rental rates be market-based. To comply, the University conducts a survey every other year of the residential rental market in Charlottesville. The average proposed increase is less than 3%.

On motion, the committee approved the following resolution and recommended it for full Board approval:

Action Item: 2018-2019 Student Housing Rates for the Academic Division and Mountain Lake Biological Station

Ms. Sheehy said the University was proposing an average increase of 3.5%. A significant portion was for debt service obligations for new dorms and improvement projects. The rate increase was in line with the Housing Division’s 10-year plan. The original action included proposed rates for the College at Wise. The committee, concerned that the College’s average rate was already higher than the University’s, decided to defer action until April to give the University and the College time to see if there was a way to avoid rate increases.

On motion, the committee approved the following resolution and recommended it for full Board approval:

Action Item: 2018-2019 Contract Rates for Dining Services

Ms. Sheehy said the University and the College were proposing to increase dining rates by an average of 3%.

On motion, the committee approved the following resolution and recommended it for full Board approval:

Action Item: Disposition of Real Property: Barnes Estate

Mr. Hogan said the Barnes Estate includes property in Charlottesville that was to be divided equally between the University and the University of North Carolina at Chapel Hill (UNC). Its assessed tax value is $776,700. The sale of the property has been approved by the UNC board.

On motion, the committee approved the following resolution and recommended it for full Board approval:

DISPOSITION OF REAL PROPERTY – BARNES ESTATE LOCATED ON KEITH VALLEY ROAD, CHARLOTTESVILLE, VIRGINIA

WHEREAS, by Last Will and Testament dated, September 1, 2016, Eleanor Barnes devised to The Rector and Visitors of the University of Virginia and to the University of North Carolina the residue of her estate; and

WHEREAS, Eleanor Barnes is now deceased such that title to the Property is vested in the name of The Rector and Visitors of the University of Virginia and the University of North Carolina; and

WHEREAS, the Board of Visitors finds it to be in the best interest of the University of Virginia to sell the Property, and use the proceeds as specified in Ms. Barnes’s Will to support undergraduate and graduate students traveling and studying abroad;

RESOLVED, the Board of Visitors approves the conveyance of the Property subject to (i) such terms as are approved by the Executive Vice President and Chief Operating Officer and the Chair of the Finance Committee, and (ii) the net proceeds shall be administered in accordance with the instructions contained in the Last Will and Testament of Eleanor Barnes; and

RESOLVED FURTHER, the Executive Vice President and Chief Operating Officer is authorized, on behalf of the University, to approve and execute agreements and related documents, to incur reasonable and customary expenses, and to take such other actions as deemed necessary and appropriate to consummate such property conveyance and to facilitate the maintenance, sale, and marketing activities associated with the Property; and

RESOLVED FURTHER, all prior acts performed by the Executive Vice President and Chief Operating Officer, and other officers and agents of the University, in connection with such property conveyance, are in all respects approved, ratified, and confirmed.

Action Item: Capital Project Financial Plans: Thornton Hall Clean Room (Revised Scope) and Comprehensive Breast Center

Mr. Hogan said the University was proposing a scope increase for the Thornton Hall Clean Room to include a nano-bio clean room. The budget would increase from $9.1 million to $15.2 million. The increase would be funded by debt with the School of Engineering and Applied Science responsible for the debt service. The University needed approval to execute a lease for a 20,000 square foot Comprehensive Breast Center at Pantops. The center would be near the existing oncology practice and would enhance the patient experience and provide operational efficiencies.

On motion, the committee approved the following resolution and recommended it for full Board approval:

CAPITAL PROJECT FINANCIAL PLANS: THORNTON HALL CLEAN ROOM AND COMPREHENSIVE BREAST CENTER

WHEREAS, the revised financing plan for the Thornton Hall Clean Room calls for the use of operating cash in the amount of $9.1 million and debt in the amount of $6.1 million; and

WHEREAS, the financing plan for the Comprehensive Breast Center calls for the use of operating cash in the amount of $12.0 million;

RESOLVED, the Board of Visitors approves the financial plans for the Thornton Hall Clean Room and the Comprehensive Breast Center.

Endowment Report: Market Value and Performance as of December 31, 2017

Mr. Hogan introduced Ms. Kristina Alimard, Chief Operating Office and Interim Chief Investment Officer of the University of Virginia Investment Management Company (UVIMCO), and Mr. Sargent McGowan, Managing Director and Interim Chief Investment Officer. Ms. Alimard said the University’s portfolio at the end of 2017 was $9.16 billion. This was an increase of $1.1 billion for the year with $1 billion from the net investment return and $100 million from net cash inflow. For January 2018, there was $200 million in net income and $85 million of net distributions. While the February returns were not available, the passive benchmark returns were down 3.3%. Approximately 90% of the portfolio was invested and 10% was in cash.

Mr. McGowan reviewed the portfolio’s performance. For the one year term, the Long Term Pool was up 12.5%, well in excess of the University’s spending rate and inflation, but lagging the policy benchmark’s return of 16.9%. Over the 5, 10, and 20 year time periods, the portfolio has had good returns relative to the policy benchmark and has been in the top quartile in terms of returns among the University’s peer group, which consists of more than 40 schools. For the past 10 years, UVIMCO’s performance was second behind MIT. The policy portfolio has an asset allocation of 60% global/public equities, 10% real assets, and 30% fixed income. Current research initiatives included emerging markets and health care. There has been no change in risk management strategies. The UVIMCO Board of Directors reviews their assumptions and models every year.

Designing the Future of Human Resources

Mr. Hogan asked Ms. Kelley Stuck, Vice President and Chief Human Resource Officer, to report on long-term trends and the Ufirst Workday implementation. Ms. Stuck said technological changes were impacting the workforce, and employee engagement decreases when organizations don’t adapt. Five trends are changing work: new behaviors shaped by social media and the web; technologies, such as the cloud, collaborative technologies, and big data; the millennial workforce and its new attitudes, expectations, and ways of working; mobility created by devices allowing employees to work any time and from anywhere; and globalization.

Ms. Stuck said the Ufirst initiative moves some 70 systems and three major human resource systems to Workday, redesigns 300 processes, expands the number of services and changes the way they will be delivered. Eighty-five different human resource units have been combined into a single organization to align services with customer expectations, be more proactive and strategic, and increase the availability and usefulness of data. Ms. Stuck reviewed the Workday testing timeline and said the goal was to go live in early July.

Information Technology Strategic Plan

Mr. Hogan asked Ms. Virginia Evans, Chief Information Officer, Mr. Rick Skinner, Chief Technology & Health Information Officer, and Mr. Ronald Hutchins, Vice President for Information Technology, to report on the plan for the University’s IT platforms and infrastructure. Ms. Evans said the status report, which was distributed to the committee, outlined goals and principles.

Mr. Hutchins reviewed the research infrastructure initiative. Computing infrastructure is needed to support administrative, data, and compliance requirements, as well as the move towards modelling, simulation, and analytics. The University built a robust computing infrastructure to meet these needs and was focusing on data storage, consolidation, and protection.

Ms. Evans reviewed the data enablement and collaboration initiatives. While the Medical Center was strong in data enablement, the Academic Division was just beginning to focus on data quality and access for decision making and predictive analytics. Both units were collaborating to standardize and provide an efficient, effective technical infrastructure. The Chief Information Security Officer was now responsible for the Academic Division and the Medical Center.

Mr. Skinner addressed the Patient Care initiative. There are two key enablers for the delivery of health care – telehealth and analytics. Telehealth, which the University initiated in 1998, was on track to see approximately 20,000 patients in 180 locations across 28 different clinical service lines. For the last four years, there has been a double digit growth in telehealth. Changes in reimbursement polices will drive the delivery of more healthcare into the virtual space. The Medical Center built a robust, comprehensive infrastructure for the delivery of information for decision making, and was using predictive analytics for patient care and operations.

Ms. Evans said the implementation timeline for the 2025 vision called for prioritizing, planning, and executing priorities in one to three year increments. An iterative process will be used to respond to changing University priorities and technological advancements.

Executive Vice President’s Remarks

Mr. Hogan discussed the impact of increasing on-Grounds housing for upper-class students. The current housing capacity was 6,300 beds with 3,800 for first-year students and 2,500 for upper-class students. The University met the on-Grounds housing demand from second-year students – 38% live on Grounds. The 2015 housing master plan showed an unmet demand from third- and fourth-year students. The University was adding more housing. A 313 bed building was under construction. Two upper-class residence halls have been added to the capital plan. Each will accommodate 300 students. To accommodate all second-year students, an additional 1,496 beds would be required at an estimated cost of $250 million, which is not in the 10-year housing model. Mr. Hogan asked for guidance from the committee.

The chair said the projected cost might be low depending on the construction style. Mr. Macfarlane said the residence halls will have a revenue stream to help offset the cost. The rector said a decision can’t be made until the new president is on board. He said there is support for housing students on Grounds for two years to create a better experience, and would like to see a comparison with universities housing 70 or 80% of students and what it has done for culture and safety. Ms. Fried suggested consideration of a model with a slight expansion of second-year housing in a residential setting. Mr. Hogan said he would contact several board members for input.

The chair adjourned the meeting at 4:00 p.m.

SGH:wtl

These minutes have been posted to the University of Virginia’s Board of Visitors website: http://bov.virginia.edu/committees/205.