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Meeting Information

FINANCE COMMITTEE
Friday, November 7, 1997
9:15 a.m. - 10:15 a.m.
East Oval Room, The Rotunda


Committee Members:

William H. Goodwin, Jr., Chair
Henry L. Valentine, II
Franklin K. Birckhead
Walter F. Walker
C. Wilson McNeely, III
James C. Wheat, III
Elizabeth A. Twohy
Hovey S. Dabney, Ex Officio

AGENDA

I. CONSENT AGENDA (Mr. Sandridge)

Endowment Income Distribution
Lillian Pratt Health Sciences Center Quasi-Endowment
Report on September 4, 1997 Investment in Blue Ridge Health Alliance, Inc.
Referral Items from Health Affairs Committee
1998 Gainsharing Plan
Health Care Professionals Salary Adjustments
Intent to Issue Bonds for the Scott Stadium
Expansion Project and the Construction of the Football Facility at Clinch Valley College

II. ACTION ITEMS (Mr. Sandridge)

Loan to Virginia Auxiliary Services Foundation (Birdwood)

III. REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (Mr. Sandridge)

Endowment Report (Ms. Handy)
Market Value and Performance as of September 30, 1997
Report on Actions of the Investment Subcommittee, July 9, 1997 and October 2, 1997 (Mr. Goodwin)
Vice President's Remarks (Mr. Sandridge) 1998-2000 Biennial Budget
Medical Center Budget Amendment
Miscellaneous Financial Reports
Accounts and Loans Receivable as of June 30, 1997
Capital Campaign Gift Report
Disinvestment of Unrestricted Quasi-Endowment to Fund Capital Campaign Expenses
Expenditure of Funds from Pratt Estate
Internal Loans to University Departments and Activities
Medical Center Report on Write-Off of Bad Debts and Indigent Care
Quarterly Budget Report
Quasi-Endowment Actions
Salary and Compensation for Full-Time Faculty
Sponsored Program Restricted Grants and Contracts

IV. EXECUTIVE SESSION

Discussion or consideration of the condition, acquisition or use of real property for public purpose, as provided for in Section 2.1-344 (A)(3) of the Code of Virginia.


A. ENDOWMENT INCOME DISTRIBUTION: Approves increase in per-share income distribution for fiscal year 1997-98 for Class A and Class B shares

In April 1996, the Finance Committee approved combining the two pooled endowment funds, the Growth & Income Fund and the Balanced Fund, into a single pool. The distinct spending policies for each fund have been maintained within the new pool, with the old Growth & Income shares identified as Class A and the old Balanced Fund shares identified as Class B. The standard spending formula calls for the per-share distribution for each class to be increased annually by four percent. If, however, that increase produces a distribution that is greater than 5.5 percent or less than 3.5 percent of the previous June 30 market value for Class A shares, or greater than 6.5 percent or less than 5.5 percent of the previous June 30 market value for Class B shares, then the Finance Committee may increase or decrease the contribution to fall within this range.

The standard four-percent increase in the dollar distribution for Class A shareholders results in a distribution per share of $53.94, totaling 3.9 percent of the June 30, 1997, market value. This distribution is recommended for fiscal year 1997-98.

The corresponding four-percent increase in the distribution for Class B shareholders results in a per-share distribution of $73.99, 5.4 percent of the June 30, 1997, market value. Because this distribution would fall slightly below the 5.5 percent floor, the spending rules call for the Finance Committee to consider increasing the spending rate. We recommend, however, against adjusting the distribution. A significant adjustment of 13 percent was approved in fiscal year 1996-97. For Class B shares, a distribution per share of $73.99 is recommended.

In addition to the distributions to shareholders, expenses related to endowment management are deducted from income and appreciation. For fiscal year 1996-97, these fees amounted to approximately 0.8 percent of the average endowment market value.

In fiscal year 1996-97, $39.0 million was distributed from the endowment, almost entirely to support faculty salaries, graduate and undergraduate student financial aid and other academic programs.

ACTION REQUIRED: Approval by the Finance Committee

RESOLVED that the Executive Vice President and Chief Financial Officer be authorized to increase the income distribution for Class A shares for fiscal year 1997-98 by four percent over the amount distributed for fiscal year 1996-97, for a per-share income distribution of $53.94;

RESOLVED FURTHER that the Executive Vice President and Chief Financial Officer be authorized to increase the income distribution for Class B shares for fiscal year 1997-98 by four percent over the amount distributed for fiscal year 1996-97, for a per-share income distribution of $73.99.


ESTABLISHMENT OF LILLIAN PRATT HEALTH SCIENCES CENTER QUASI-ENDOWMENT: Approves the establishment of a quasi- endowment in an amount of $7,572,798.14

The funds result from the July 1997 transfer of the Lillian Pratt Trust, held by Wilmington Trust, to the University. Eighty percent of the income generated by the trust is to benefit the Childrens Medical Center for a period of ten years. (The quasi- endowment amount represents 80 percent of the value of the Lillian Pratt Trust transfer to the University.) Action by the Finance Committee is required because the dollar amount exceeds the authority delegated to the Executive Vice President and Chief Financial Officer to establish quasi-endowments.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors

RESOLVED by the Finance Committee of the Board of Visitors that the establishment of the Lillian Pratt Health Sciences Center Quasi-Endowment Fund in the amount of $7,572,798.14 be approved.


REPORT ON SEPTEMBER 4, 1997 INVESTMENT IN BLUE RIDGE HEALTH ALLIANCE, INC.: Reports an investment in Blue Ridge Health Alliance, Inc. on September 4, 1997, in the amount of $5 million

This investment was made under the authority delegated to the Executive Vice President and Chief Financial Officer to invest in joint business ventures in amounts not exceeding $5 million, with the concurrence of the chairs of the Finance and Health Affairs Committees. This investment is being reported as required by the Board of Visitors June 14, 1997, resolution.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors

WHEREAS, on June 14, 1997, the Board of Visitors delegated to the Executive Vice President and Chief Financial Officer authority to invest in joint business ventures in amounts not exceeding $5 million, with concurrence of the chairs of the Finance and Health Affairs Committees; and

WHEREAS, prior to making the investment in Blue Ridge Health Alliance, Inc., the Executive Vice President and Chief Financial Officer secured the approval of the chairs of the Finance and Health Affairs Committees, as well as the Rector of the Board of Visitors;

RESOLVED that the Finance Committee and the Board of Visitors accept this report of an investment in Blue Ridge Health Alliance, Inc. on September 4, 1997, in the amount of $5 million.


REFERRAL ITEMS FROM HEALTH AFFAIRS COMMITTEE:

1998 GAINSHARING PLAN: Approves the 1998 Gainsharing Plan, as recommended by the Health Affairs Committee

The codified autonomy legislation for the Medical Center, which went into effect July 1, 1996, allows the Medical Center to consider new approaches to compensate employees. The legislation requires that the Board of Visitors approve new compensation plans. Under the proposed plan, the gainsharing component is based on the Medical Center's financial performance and quality of service.

The 1998 Gainsharing Plan provides added compensation to employees if the Medical Center is able to meet predetermined targets for patient satisfaction (as measured by the quality index) and financial performance (as measured by operating margin). The quarterly patient satisfaction survey is used as the standard index of ability to deliver quality care. A private firm derives the index from quarterly adult and pediatrics inpatients, outpatient clinics and Emergency Department surveys, carrying a weight of 60 percent, 30 percent and ten percent, respectively, in the overall survey analysis.

The financial strategy for the Medical Center for fiscal year 1997-98 must take into consideration bond requirements for cash reserves, physician practice acquisition costs and technology improvements which are essential for our future. The target operating margin for the 1998 Gainsharing Plan is $24,360,000 prior to the gainsharing payout. Gainsharing will not be available unless the Medical Center has first achieved its established financial target.

Level I Gainsharing, the highest level, will occur if the Quality Index is 4.49 percent or higher. Payments at this level will be between one and four percent of each employees base salary, depending on the amount of the year-end operating margin (see matrix below). If the Medical Center's Quality Index is between 4.36 and 4.49, gainsharing payments will be calculated as depicted in the matrix. If the Quality Index is below 4.36, there will be no gainsharing. These payments will not be included in the employees base salary for the next year. They will be paid in August 1998 as one-time, lump sum payments.

Those eligible for participation in the 1998 Gainsharing Plan include: all Medical Center employees, including housestaff and wage employees, who have worked at least 700 hours (gainsharing will be proportional for wage employees); and School of Medicine clinical faculty who are on the payroll as of June 30, 1998. Employees who join the Medical Center during the year will receive gainsharing on a prorated basis. Gainsharing will not be provided to any employee who is not performing at a satisfactory level.

KPMG Peat Marwick has been retained to assist the Medical Center in developing a comprehensive gainsharing plan for subsequent years.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors

WHEREAS, the Medical Centers approved budget projects a $22,200,000 operating margin for fiscal year 1997-98; and

WHEREAS, the proposed 1998 Gainsharing Plan consists of a one-time payment to eligible Medical Center employees and School of Medicine clinical faculty who are performing at a satisfactory level; and

WHEREAS, the Gainsharing payment will be made in August 1998 in accordance with the Gainsharing Plan and matrix;

RESOLVED by the Finance Committee of the Board of Visitors that the 1998 Gainsharing Plan be approved.

GAINSHARING PLAN MATRIX



HEALTH CARE PROFESSIONALS SALARY ADJUSTMENTS: Approves a four-percent salary increase, on average, as well as a 0.5 percent market equity adjustment for some Health Care Professionals.

In 1990, the Commonwealth of Virginia authorized the University of Virginia and the Medical College of Virginia to remove Health Care Professional Employees from the state classification system to address recruitment and retention difficulties experienced by the two teaching hospitals. This action of the General Assembly authorized the institutions' Board of Visitors to establish their own compensation plans. Subsequent codified autonomy legislation, which went into effect July 1, 1996, also authorized the Board of Visitors to establish competitive compensation plans for employees of the University of Virginia Medical Center.

Health Care Professionals (nurses, radiologists, pharmacists and other caregivers listed in the following table) are recruited primarily in the Southeast, Northeast and Midwest, with the remaining sections of the country serving as a secondary recruiting market for these individuals.

Compensation surveys are an essential management tool to ensure competitive salaries. The Virginia Society for Healthcare Human Resource Administration contracts for an annual survey of 52 Virginia healthcare organizations which cover 152 job classifications in the areas of management, direct patient care and support staff. Additionally, the U.Va. Department of Human Resources conducts an annual survey of health care compensation of hospitals in the Northeast, Southeast and Midwest. The Council of Teaching Hospitals (COTH) conducts a national survey of teaching hospitals, the results of which have served as the basis for establishing Housestaff stipends (salaries).

These compensation surveys, coupled with turnover data, information on difficult-to-recruit jobs and Bureau of Labor Statistics compensation trends, are used to adjust the Medical Center compensation structure. The Medical Center budget for fiscal year 1997-98 anticipated an overall average four-percent salary increase. The budget also assumed a 0.5-percent market equity adjustment for Health Care Professionals other than Housestaff.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors

WHEREAS, the codified autonomy legislation expanded the Board of Visitors' authority to establish compensation plans;

WHEREAS, compensation surveys of salaries paid by area, state and regional health care and other employers have been conducted and analyzed; and

WHEREAS, the results of these surveys support an average salary increase of four percent, plus a 0.5 percent of salary market equity adjustment for some Health Care Professionals, effective November 30, 1997; and

WHEREAS, the Medical Center has proposed that the salary increases reflected in the 1997 Salary Adjustments Implementing Guidelines for Health Care Professionals listed below be adopted;

RESOLVED that the 1997 Salary Adjustments Implementing Guidelines for Health Care Professionals listed below be approved.

1997 SALARY ADJUSTMENTS IMPLEMENTING GUIDELINES FOR HEALTH CARE PROFESSIONALS - Health Care Professionals will be eligible for an average four-percent increase allocated on the basis of merit. Some Health Care Professionals may also receive an equity adjustment to address external market factors or internal alignment concerns. All market equity adjustments must be recommended by the manager and be approved by the divisional executive and the Executive Director of the Medical Center. Individual salary adjustments, including both merit and equity, that exceed ten percent will require the approval of the Executive Director of the Medical Center. The minimum and maximum of all salary ranges will be adjusted by four percent, with the exception of operating room technicians and pharmacists. Operating room technicians salaries will be adjusted by eight percent and pharmacists', by six percent.


INTENT TO ISSUE BONDS FOR THE SCOTT STADIUM EXPANSION PROJECT AND THE CONSTRUCTION OF THE FOOTBALL FACILITY AT CLINCH VALLEY COLLEGE: Declares the Universitys intent to issue bonds to reimburse expenditures for planning costs, issuance costs, reserve funds and other financing expenses associated with: 1) the construction of the expansion of Scott Stadium at the University of Virginia and 2) the construction of the football facility at Clinch Valley College

The University currently is evaluating several alternatives to finance the expansion of Scott Stadium and the construction of the football facility at Clinch Valley College, one of which is to issue tax- exempt bonds. If it is determined that issuing tax-exempt bonds is the best way to finance either or both of the projects, federal regulations require the University to declare its formal intent to issue bonds to reimburse expenditures associated with the projects. This resolution does not authorize the issuance of bonds for either project.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors

WHEREAS, the United States Department of the Treasury has promulgated final regulations in Section l.l50-2 of the Treasury Regulations (the "Regulations") governing when the allocation of bond proceeds to reimburse expenditures previously made by a borrower shall be treated as an expenditure of the bond proceeds; and

WHEREAS, the Regulations require a declaration of official intent by a borrower to provide evidence that the borrower intended to reimburse such expenditures with proceeds of its bonds; and

WHEREAS, the Board of Visitors of the University of Virginia (the "University") desires to make such a declaration of official intent as required by the Regulations;

RESOLVED that, pursuant to the Regulations, the University hereby declares its intent to reimburse expenditures in accordance with the following:

The University reasonably expects to reimburse expenditures incurred for the construction of the expansion of Scott Stadium and the construction of the football facility at Clinch Valley College with proceeds from the issuance of tax-exempt bonds (the bonds) to be issued by the University through the Treasury board;

This resolution is a declaration of official intent under Section l.l50-2 of the Regulations;

The maximum principal amount of bonds expected to be issued for the purpose of reimbursing expenditures relating to the Scott Stadium expansion project is $50 million, and relating to the construction of the football facility at Clinch Valley College is $6 million.


II. Loan to Virginia Auxiliary Services Foundation (Birdwood)

BACKGROUND: On May 14, 1984, the Virginia Auxiliary Services Foundation (VASF) signed a non-interest bearing demand note to the Rector and Visitors in the amount of $400,067.79. Between 1984 and 1987, the amount of the loan was reduced to $393,069.00. On January 29, 1987, the Board of Visitors increased the amount of the loan to $500,000.00.

DISCUSSION: The VASF has used these funds to support the Birdwood Golf Course and facilities. In recognition of the discounts to faculty, staff and students over the past thirteen years, as well as other services provided to the University, we recommend conversion of the loan to a contribution to the operating costs of the Birdwood facilities.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors


APPROVAL OF CONVERSION OF CAPITAL ADVANCE TO CONTRIBUTION FOR VIRGINIA AUXILIARY SERVICES FOUNDATION:

WHEREAS, the Rector and the Visitors of the University of Virginia authorized a $500,000.00 non-interest bearing capital advance to the Virginia Auxiliary Services Foundation on January 29, 1987; and

WHEREAS, the VASF has used these funds to support the Birdwood Golf Course and facilities, providing discounts and services to faculty, staff and students of the University of Virginia;

RESOLVED that the non-interest bearing capital advance from the general funds of the University to the Virginia Auxiliary Services Foundation in the amount of $500,000.00 be converted from an operating loan to a contribution to the operating costs of the Birdwood Golf Course and facilities.


III. A. Endowment Report

ACTION REQUIRED: None

Market Value and Performance as of September 30, 1997

BACKGROUND: The Rector and Visitors of the University, particularly the Investment Subcommittee of the Finance Committee, oversees the major component of the endowment that benefits the University. A large portion of the University's endowment is managed by external managers, with the University Treasurer managing selected components. The Investment Subcommittee meets quarterly to review performance and to make asset allocation decisions. The Finance Committee hears reports on market value, asset allocation and endowment performance at each regular meeting of the Board.

DISCUSSION: As of September 30, 1997, the endowment under the control of the Rector and Visitors totaled approximately $1.038 billion, compared with $961.6 million in June 1997. The $76.5 million increase is attributable to approximately $55.8 million in market appreciation and $20.7 million in gifts and transfers. Approximately $9 million of the gifts and transfers figure represents assets from the liquidation of the Pratt Memorial Trust, which, prior to the liquidation, was considered part of the University's Trustee-held assets.


Since June 30, 1997, the Pooled Endowment Fund has returned 6.7 percent, outperforming the 4.0-percent return on the benchmark constructed of the current targets, as well as the 6.5-percent return on the long-term benchmark of 75 percent domestic stocks and 25 percent domestic bonds. Within the domestic equity market, the dominance of large capitalization stocks ended this quarter, with smaller capitalization stocks outperforming their larger capitalization counterparts by a wide margin, up 14.9 percent as measured by the Russell 2000, versus 7.5 percent on the S&P 500. As a group, the domestic core equity managers returned 7.0 percent for the quarter. Grantham, Mayo, Van Otterloo had the best return of the group, up 8.9 percent, with an equity portfolio that was positioned to take advantage of the move in small capitalization stocks. International equities, as measured by the MSCI World ex-US Index, are down 0.4 percent for the quarter and continue to underperform their domestic counterparts. Grantham, Mayo, Van Otterloo has added significant value within international equities, with its funds up 3.1 percent for the quarter.

The Satellite Equity Fund returned 6.1 percent for the quarter. Growth in this fund continues, and we made several commitments to new managers during the quarter. The Real Estate Fund returned 19.3 percent for the quarter, influenced heavily by the 40.4-percent return on the Security Capital Group, which went public during the quarter. The returns on the Shorenstein partnerships reflect the recognition of appreciation on the properties in addition to income.

Returns for each endowment manager and fund are reported for various time periods on the following exhibit, "Preliminary Endowment Fund Highlights for Periods Ending September 30, 1997."

PRELIMINARY ENDOWMENT FUND HIGHLIGHTS FOR PERIODS ENDING SEPTEMBER 30, 1997


III. B. Report on Actions of the Investment Subcommittee (July 9, 1997 and October 2, 1997)

ACTION REQUIRED: None

BACKGROUND: The Investment Subcommittee meets quarterly and reports all of its activities at the following meeting of the Finance Committee.

DISCUSSION: At its July 9, 1997, meeting, the Investment Subcommittee approved the following:

a commitment of up to $30 million in the GMO Forestry Fund I, L.P., a fund investing globally in timber;

a commitment of up to $20 million in Everest Capital Frontier Ltd., subject to additional due diligence; and

a commitment of up to $15 million for each of the following limited partnerships, with the amount in the first contingent upon receiving a matching amount in the second: OCM Real Estate Opportunities Fund, L.P., which invests in distressed real estate, and OCM Opportunities Fund II, a distressed securities fund.

In addition, the Subcommittee approved the investment guidelines governing the Universitys general faculty retirement plan and the health care providers retirement plan.

On October 2, 1997, the Executive Committee approved a $20 million investment in the Rothschild Recovery Fund, a partnership investing in distressed securities.


III. C. Vice President's Remarks

ACTION REQUIRED: None

1998-2000 Biennial Budget Submission

BACKGROUND: Every two years, the University submits its biennial budget request to the Department of Planning and Budget for inclusion in the Governors budget proposal, which is presented to the General Assembly in December.

DISCUSSION: The vice presidential areas helped to develop the list of budget initiatives for the 1998-2000 biennium. The budget submission emphasizes medical education, technology, instruction, facilities maintenance and indigent care. Initiatives for the Academic Division (Agency 207) total $24,281,413 (general funds [GF]) and $10,090,000 (nongeneral funds [NGF]) in year one, and $25,577,882 (GF) and $10,210,000 (NGF) in year two. Initiatives for the Medical Center (Agency 209) total $12,000,000 (GF) and $59,521,728 (NGF) in year one, and $14,300,000 (GF) and $65,573,928 (NGF) in year two. Initiatives for Clinch Valley College (Agency 246) total $1,804,592 (GF) in year one and $1,427,592 (GF) in year two. Not included in the items below are initiatives being developed in conjunction with the other Virginia public colleges and universities for faculty salary increases, student aid and enrollment growth.

AGENCY 207 - Academic Division

Undergraduate Medical Education ($3,413,212 in year one, $3,967,461 in year two) - The three Virginia medical schools have collaborated on a project to determine the costs of educating undergraduate medical students. The study shows that the medical student training program is supported by clinical income generated by faculty physicians. In addition, a significant amount of care is provided by the faculty physicians at the School of Medicine to the indigent citizens of the Commonwealth without full compensation for the time involved. This request is for replacement funding to support the School of Medicines instructional mission.

Administrative Technology ($2,721,000 in year one, $3,473,000 in year two) - The University proposes to begin a major overhaul of its mission-critical financial, human resources and student applications. The result will be an integrated, highly flexible set of applications with consistently designed, input/output user interfaces that are conducive to the reallocation/redefinition of business functions.

Nonpersonal Services ($3,909,291 in year one and $5,872,042 in year two) - There have been no inflationary increases in this area for over 15 years. The resulting decrease in purchasing power has reached a critical state in all program areas. In addition, inadequate funding in this area relative to our peers has decreased the Universitys competitiveness in attracting new faculty, especially in the hard sciences where start-up funds are required.

Routine & Preventative Maintenance ($2,178,588 in year one, $2,424,819 in year two) - In order to address wear-out at the rate at which it occurs (the condition of maintenance equilibrium), we are requesting an increase in the available funding in the major maintenance and routine maintenance categories of the E&G operating budget. This initiative represents the first phase of a four- year effort to bring the Universitys facilities condition index down from its current 9.6 percent to a target of five percent by the end of fiscal year 2003-2004.

Reactor Decommissioning/Recertification ($250,000 per year) - During the next two years, the Universitys nuclear reactor will undergo an evaluation to determine whether we should recertify the facility or decommission it and close it down. This request covers the costs associated with evaluation, planning and consultant charges.

Virginia Micro-Electronics Consortium ($220,670 per year, $430,000 one-time and 2 FTE) - The Virginia Microelectronics Consortium (VMEC) seeks to utilize the complimentary expertise and facilities of the state's universities, community colleges, major laboratories and growing microelectronics industries to deliver seamless instructional, training and research programs in microelectronics and semiconductor technology, with a strong fabrication emphasis. This initiative is a direct response to the expressed needs of Motorola, IBM-Toshiba and Motorola-Siemens.

Auxiliary Enterprises ($190,000 NGF and 8 FTE in year one, $310,000 NGF and 14 FTE in year two) - The Universitys auxiliary enterprises provide essential services to its students, faculty, staff and special interest groups. The University's auxiliary enterprise operations include the housing systems, the parking and bus system, athletics, student health, the student union, the satellite uplink, the telephone system, the child care center, dining services, the bookstores and printing services. These operations facilitate the accomplishment of the University's primary mission. We are requesting an additional nongeneral fund appropriation of $190,000 and 8.00 FTE positions in 1998-99 and $310,000 and 14.00 FTE positions in 1999-2000 in order to meet the needs resulting from enrollment growth and other prior commitments.

Graduate Financial Aid ($9,900,000 NGF per year) - In order to compete with peer institutions that typically affix tuition waivers to the fellowship awards granted to their most competitive applicants, the University must increase its flexibility to offer financial aid packages to its top graduate students. Such flexibility could be achieved not only by awarding competitive fellowships, but also by granting allowances for tuition charges. To achieve this flexibility, the University requests authority from the state to transfer cash collected as part of tuition to program 108, Student Financial Assistance, to cover the tuition charge for students receiving academic year fellowship support of at least $8,000. This does not represent new revenue, but rather a transfer of tuition already being collected from the E&G program to the Student Financial Assistance Program.

Reorganization of Human Resources (31 FTE per year) - As part of a reorganization of the Universitys (Agency 207) human resources relationship with the Medical Center (Agency 209), the University requests the addition of 31 FTE to the current E&G appropriation. This request does not involve an increase in funding, as the University will continue to recover related costs from the Medical Center. The reorganization does not represent an increase in employment at the University, but rather shifts 31 employees from Agency 209 to Agency 207.

Virginia Foundation for the Humanities (VFH) (increase of $610,000 in year one, $620,000 in year two and 3 FTE) - Building on its mission and core activities, the VFH proposes to increase and extend public education in history, literature, ethics, civics and religious studies. VFH will work with teachers, parents and children; through museums and libraries; and with local communities to promote reading and literacy, to foster understanding of history and its relevance to contemporary life and to strengthen communities and democratic values.


AGENCY 209 - Medical Center

Indigent Care Costs ($12,000,000 in year one, $14,300,000 in year two) - The University of Virginia Medical Center (UVAMC) will continue to experience a shortfall between the cost of providing indigent care services and the amount funded through Medicaid. In addition, the 1997 Federal Balanced Budget Act includes reductions in Medicare funding to teaching hospitals and Medicaid Disproportionate Share funding for indigent care. This request represents 100 percent of anticipated costs for indigent care.

Nongeneral Fund Appropriation Adjustment ($59,521,728 in year one, $65,573,928 in year two) - This request is to 1) make an adjustment to bring the nongeneral fund appropriation up to current activity levels and 2) adjust for the human resources reorganization described under the Agency 207 initiatives.


AGENCY 246 - Clinch Valley College

Instructional & Academic Support Technology ($539,869 in year one, $387,869 in year two and 3 FTE) - Additional funding is required to support personal computers and networks in instruction and administration, faculty education in how to use new technology effectively in the classroom, the implementation of new distance learning technologies and expanded electronic library services and resources. Funds will also allow Clinch Valley College to participate in statewide networks, including the ATM network, which provides high-speed video, telephone and data transmission. The ATM costs $152,000 to install and $60,000 annually to operate.

Nonpersonal Services ($458,723 annually) - This amount represents an increase of $360 per student FTE, based on the 60th percentile of state-supported institutions in the Colleges peer group. The additional funding will allow for inflationary increases in nonpersonal services and will support the non-salary costs associated with recruiting faculty.

Routine & Preventative Maintenance ($234,000 in year one, $334,000 in year two and 2 FTE) - The College proposes to catch up on its backlog of deferred maintenance and put all buildings on a schedule of regular and routine maintenance. In order to address wear-out at the rate at which it occurs (the condition of maintenance equilibrium), we are requesting an increase in the available funding in the major maintenance and routine maintenance categories of the E&G operating budget. This amount is based on a four-year plan to bring the Facilities Conditions Index (FCI) down to the state- recommended level of five percent. At 12.93 percent, the Colleges current FCI is considered poor.

Complete New Educational Classroom Building ($250,000 in year one) - Because of cost overruns, one elevator was eliminated from CVCs new classroom building, although the shaft was constructed. These funds will be used to install the elevator and increase access for those with restricted mobility, allowing the College to remove transformers from the major student exterior walkway.

Multi-Media Classrooms ($100,000 in year one) - These funds will be used to install fixed multi-media equipment in four classrooms in Zehmer Hall, which will be renovated in 1998.

Math, Science and Technology ($105,000 in year one, $115,000 in year two and 1 FTE) - Clinch Valley College has established an Appalachian Rural Systemic Initiative (ARSI) Resource Center, which is funded by the National Science Foundation, to show K-12 teachers how to use technology to improve students math and science abilities and to assist local school divisions in preparing students for college-level study and entry-level employment. The addition of one FTE will allow the ARSI Resource Center to expand its service area in the Coalfields region.

Economic & Community Development ($117,000 in year one, $132,000 in year two and 2 FTE) - The Small Business Institute (SBI) and the Center for Economic Education (CEE) work with local businesses, economic development agencies and K-12 educators to address critical business concerns, to provide economic education to all sectors of the region and to develop new partnerships with business. This funding also will permit the SBI and the CEE to work more effectively with local agencies.


Medical Center Budget Amendment

BACKGROUND: When the Medical Centers 1997-98 budget was presented to the Finance Committee in June for approval, management noted that the budget contained a number of uncertainties that would warrant quarterly review and potential updates during the year. Some of the more significant uncertainties include the impact of changes in federal Medicare revenues, Medicaid reimbursement rates, vacancies affecting the average number of full-time equivalent employees (FTEs) and control of pharmaceutical costs.

DISCUSSION: The Medical Centers first quarter of operations, as will be reported to the Health Affairs Committee, yielded several positive financial results. Medical Center revenues for the first quarter exceeded the budget estimate by $1.1 million. Of this amount, $0.5 million of the improvement was attributable to patient revenues. The remainder of the increase over budget resulted from miscellaneous revenues. Operating expenses were held somewhat below budget for the quarter, yielding an operating margin of $11.5 million, compared with the $9.2 million projected for the first quarter. Non-operating losses exceeded budget because of the accrual of estimated losses in Blue Ridge Health Alliance, Inc. of $3.5 million for the first quarter.

With the approval of the Finance Committee, the Medical Center will be authorized to increase some Health Care Professionals salaries by an average of 4.0 percent, plus an average equity adjustment of 0.5 percent in December 1997. The dollar impact of the salary increase is within the amount reserved in the 1997-98 budget. Medical Center management believes that savings from vacancies may not be sufficient to fund a portion of gainsharing for eligible Medical Center employees and clinical faculty. The budgeted $4.0 million expenditure contingency reserve will likely be required to fund unanticipated operating expenses, such as pharmaceutical cost increases. Therefore, the 1998 Gainsharing Plan will be funded from improved operating performance. The 1997-98 expenditure budget also included a $2.0 million contingency that was dependent upon achieving budgeted revenues. This contingency will be eliminated, given the reductions in Medicare revenues. These changes will be incorporated in a more formal budget amendment for consideration at the January 1998 Board of Visitors meeting.


U.Va. Medical Center 1997-98 Budget Revision


ACADEMIC DIVISION

FINANCIAL REPORT

ACCOUNTS AND LOANS RECEIVABLE AS OF JUNE 30, 1997

Summary of Accounts Receivable:

The Academic Division's total accounts receivable as of June 30, 1997 were $9,271,000, compared with $11,355,000 as of March 31, 1997. The major source of receivables as of June 30, 1997, was sponsored programs with $7,005,000.

Summary of Loans Receivable: The default rate for the Perkins Student Loan Program decreased by .31 percent to 6.93 percent. This is based on the cohort default rate calculation and is well below the 15-percent threshold set by federal regulations. The Health Professions Loan Program default rate remained constant at .71 percent. The Nursing Undergraduate Student Loan Program default rate decreased by .03 percent to 1.52 percent, while the Graduate Nursing Loan Program remained at zero. All medical loan programs are well below the five- percent federal threshold. The University Loan Program default rate decreased by .53 percent to 1.82 percent.

Accounts and Loans Receivable


CAPITAL CAMPAIGN GIFT REPORT


EXPENDITURE OF FUNDS FROM THE PRATT ESTATE (under development)


INTERNAL LOANS TO UNIVERSITY DEPARTMENTS AND ACTIVITIES
As of September 30, 1997


ACADEMIC DIVISION 1997-98 REVENUE BUDGET SUMMARY


QUASI-ENDOWMENT ACTIONS


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