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Meeting Information

UNIVERSITY OF VIRGINIA BOARD OF VISITORS
MEETING OF THE FINANCE COMMITTEE

Friday, October 9, 1998
9:45 - 10:45 a.m.
East Oval Room, The Rotunda

Committee Members:

William H. Goodwin, Jr., Chair
Henry L. Valentine, II
Walter F. Walker
James C. Wheat, III
Elizabeth A. Twohy
Timothy B. Robertson
John P. Ackerly III, Ex Officio

AGENDA

I. CONSENT AGENDA

A. Intent to Issue Bonds
  1. Orange Medical Facility
  2. Clinch Valley College Student Residence Hall
B. Clinch Valley College Interest Subsidy

II. ACTION ITEMS (Mr. Sandridge)

A. Endowment Income Distribution
B. Acquisition of Zion Crossroads Dialysis Center Facility
C. General Revenue Pledge Bond Issuance Series 1998
  1. Scott Stadium Expansion
  2. Medical Office Building
  3. Parking Deck for 600 Vehicles and Infrastructure Improvements Project
  4. Student Residence Hall
  5. Refunding of Hospital Debt

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

A. Endowment Report (Mr. Sandridge to introduce Ms. Handy; Ms. Alice W. Handy to speak)
Market Value and Performance as of August 31, 1998
B. Report on Actions of the Investment Management Company, September 14, 1998 (Mr. Goodwin)
C. Vice President's Remarks (Mr. Sandridge)

  1. 1999 Legislative and Budget Amendments
  2. U.Va. Health Care Plan
  3. Pricing Policy for 1999-2000 Tuition and Required Fees

D. Miscellaneous Financial Reports

  1. Accounts and Loans Receivable
  2. Capital Campaign Gift Report
  3. Disinvestment of Unrestricted Quasi-Endowment to Fund Capital Campaign Expenses
  4. Expenditure of Funds from Pratt Estate
  5. Internal Loans to University Departments and Activities
  6. Medical Center Report on Write-Off of Bad Debts and Indigent Care
  7. Quarterly Budget Report
  8. Salary and Compensation for Full-Time Faculty
  9. Sponsored Program Restricted Grants and Contracts


UNIVERSITY OF VIRGINIA CONSENT AGENDA

A. INTENT TO ISSUE BONDS - Declares University's intent to issue bonds to reimburse expenditures for planning costs, issuance costs, reserve funds, and other financing expenses associated with the Orange Medical Facility and the Clinch Valley College Student Residence Hall.

If it is determined that issuing tax-exempt bonds is the best way to finance any of these 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 any of the projects.

The Orange Medical Facility is a 24,000-square-foot, regional, state-of-the-art dialysis and ambulatory care facility which will also house ancillary services radiology and clinical laboratory services. The facility will support the University of Virginia Health Sciences Center's mission of providing accessible primary care services throughout Central Virginia.

The Clinch Valley College Student Residence Hall will provide housing for approximately 120 students, in response to increased demand for housing and the closure of Crockett Hall. The new housing facility will be constructed in the vicinity of the student housing building completed in August 1992, easily accessible to both existing housing and academic and support facilities. The facility will house students in double rooms. The exact site location and floor plan arrangements will be determined during the programming and schematics design phases.

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:

  1. The University reasonably expects to reimburse expenditures incurred for the construction and/or purchase of the Orange Medical Facility and the construction of the Clinch Valley College Student Residence Hall with proceeds from the issuance of tax-exempt bonds (the "bonds") to be issued by the University through the Treasury board;

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

  3. The maximum principal amount of bonds expected to be issued for the purpose of reimbursing expenditures relating to the construction and/or purchase of the Orange Medical Facility is $4.5 million and the construction of the Clinch Valley College Student Residence Hall is $4.5 million.

B. CLINCH VALLEY COLLEGE INTEREST SUBSIDY - Delegates authority to the Executive Vice President and Chief Financial Officer to determine the exact amount of the interest subsidy the University will provide to Clinch Valley College to allow the College to keep its housing rates at or below the market rate.

Based upon a recommendation from the Special Committee on Clinch Valley College, the Finance Committee discussed at its January and May meetings options for providing financial support for student housing at Clinch Valley College. The Finance Committee concluded that the University should provide an interest subsidy to the Clinch Valley College housing operation, in order to hold rate increases for students living in residence halls to the level of the projected Consumer Price Index (2.8- percent).

We continue to work with the state Departments of Planning and Budget and Treasury to determine the exact amount of the subsidy, which varies according to assumptions about occupancy, operating expenditures, debt service schedules and reserve commitments. At this time, we estimate the amount of the subsidy to be approximately $670,000 over a six-year period beginning in Fiscal Year 2001.

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

RESOLVED that the Board of Visitors approves the University's providing to the Clinch Valley College housing operation a one-time subsidy not to exceed $700,000 to be paid over a period of approximately six years beginning in Fiscal Year 2001 from gifts or endowment income held by the Board of Visitors;

RESOLVED FURTHER that the Board of Visitors delegates authority to the Executive Vice President and Chief Financial Officer to establish the exact amount of the subsidy when adequate information is available.


II. A. ENDOWMENT INCOME DISTRIBUTION

BACKGROUND: The investment guidelines for the Pooled Endowment Fund call for spending to increase on a per-share basis by four percent annually. If, however, income per share as of the previous June 30 is less than 3.5 percent for the Class A shares and 5.5 percent for the Class B shares, then the Finance Committee will review the situation and consider increasing the per-share spending rate.

DISCUSSION: Completion of the plan to increase faculty salaries dependent upon increases of endowment income at a level above the standard four percent increase called for in the investment guidelines. The standard increase is near or below the 3.5 percent and 5.5 percent threshold described above. We therefore recommend increasing the pay out on each of the funds to a dollar value equal to 4.25 percent of June 30, 1998, market value for the Class A shares and 5.75 percent for the Class B shares. The distribution at these levels will equal $64.95 per share for the Class A shares and $87.87 per share for the Class B shares. ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors

AUTHORIZATION TO INCREASE THE FISCAL YEAR 1998-99 ENDOWMENT INCOME DISTRIBUTION

RESOLVED that the Executive Vice President and Chief Financial Officer be authorized to increase the Fiscal Year 1998-99 income distribution of Class A shares 20.4 percent from $53.94 per share to $64.95 per share, which equals 4.25 percent of the June 30, 1998, market value of the Pooled Endowment Fund;

RESOLVED FURTHER that the Executive Vice President and Chief Financial Officer be authorized to increase the Fiscal Year 1998-99 income distribution for Class B shares 18.8 percent from $73.99 per share to $87.87 per share, which equals 5.75- percent of the June 30, 1998, market value of the Pooled Endowment Fund.

II. B. Acquisition of Zion Crossroads Dialysis Center Facility

BACKGROUND: In 1997 the Health Services Foundation (HSF) completed construction of a Dialysis Center facility at Zion Crossroads in Louisa County. The Medical Center intended originally to lease the facility from the Foundation but since has determined that acquisition of the property is the most cost-effective method of operating the Dialysis Center.

The Vice President for Management and Budget reported to the Finance Committee at its January 1998 meeting that the Medical Center had submitted an amendment to the General Assembly for the acquisition of the Center. The 1998 General Assembly approved the Medical Center's request for authority to utilize $1.1 million of hospital operating revenues to acquire the facility.

DISCUSSION: The Dialysis Center is a 5,000-gross-square- foot, single-story structure housing twelve dialysis treatment stations and all support facilities necessary to provide a complete and functioning facility. On-site parking for 31 vehicles is included.

The facility can accommodate approximately 6,000 patient visits annually.

The facility sits on a 1.5-acre parcel leased by the HSF from the Virginia Oil Company for a twenty-year period, with four five-year renewals at the tenant's option. Acquisition of the Dialysis Center requires the Medical Center's acquiring the ground lease from the HSF. Increases in the ground lease rental rate can occur only every five years and are limited to 15 percent of the current rate or the percentage increase in Louisa County's real estate tax assessment for the property over the same five-year period, whichever is less.

A purchase price of $1,152,165 for the Dialysis Center facility and ground lease is predicated on a closing date of October 30, 1998.

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

APPROVAL OF ACQUISITION OF ZION CROSSROADS DIALYSIS CENTER FACILITY

WHEREAS, the Dialysis Center constructed in 1997 at Zion Crossroads by the Health Services Foundation ("HSF") fulfills the need for dialysis services among Louisa and Fluvanna County residents; and

WHEREAS, the Medical Center has determined that acquisition of the Center from the Health Services Foundation would be the most cost-effective method of operating the Center; and

WHEREAS, the 1998 General Assembly authorized the Medical Center to utilize up to $1.2 million of hospital operating revenues to acquire the Dialysis Center at Zion Crossroads in Louisa County; and

WHEREAS, acquisition of the facility must be accompanied by acquisition of the ground lease that the HSF holds with the Virginia Oil Company;

RESOLVED that the Finance Committee approve acquisition of the Dialysis Center facility and ground lease in the amount of $1,152,165; and

RESOLVED FURTHER that the Executive Vice President and Chief Financial Officer is authorized to execute any and all contracts and documents pertaining to the acquisition of the aforementioned property and ground lease.


II. C. General Revenue Pledge Bond Issuance - Series 1998

BACKGROUND: The University plans to issue bonds in late October and early November to finance the following projects: the Scott Stadium Renovation ($60 million), the Medical Office Building at Fontaine Research Park ($8 million), the East Precinct Parking Garage ($2.6 million), and the Student Residence Hall ($6 million). The University also plans to refinance the Series E Hospital bonds issued in 1989 ($59 million). These projects, when combined with capitalized interest during construction and issuance costs, will require a bond issue not to exceed $145 million.

The University has a five-year contract with Goldman Sachs to underwrite financings. Goldman Sachs will serve as the lead underwriter on this bond issue.

DISCUSSION: The Board of Visitors will be asked to approve issuance of the bonds subject to certain constraints, including maximum amount to be borrowed, maximum interest rate, maximum maturity, call protection and maximum underwriting costs. In addition, the Board will authorize the Executive Committee to approve all terms and conditions of the bond issue subject to these constraints.

The new money projects of the East Precinct Parking Garage, the Student Residence Hall, and the Medical Office Building will be issued as fixed rate debt with equal payments each year for twenty years. The Scott Stadium project will consist of approximately one-half variable rate bonds (with interest rates reset daily) and one-half fixed rate with a final maturity in thirty years. The hospital refunding will also be one-half variable and one-half fixed rate with a final maturity of 2013, matching that of the refunded bonds. The variable rates are being used for the larger projects because of the attractive spread to fixed rates, both current and historic. All series will have a maximum of ten years of call protection and a maximum discount payable to the underwriters of $7 per $1000 bond.

The Scott Stadium project will expand the existing Scott Stadium to over 60,000 seats by enclosing the South end. The project also includes site development and construction of a new parking structure with 466 spaces to support overall University and stadium expansion parking needs. Bryant Hall will be demolished and replaced within the new stadium structure. The revenue available for debt service will come from a combination of gifts and grants, auxiliary revenue, student fees and Athletic Department operating funds, including receipts from ticket and concession sales, suite leases, advertising income and bowl game proceeds. No general funds will be used. The $60 million bond issuance amount will increase by the costs of issuance and capitalized interest.

The Medical Office Building in Fontaine Research Park includes the acquisition or lease of a 44,000-gross-square-foot building housing all musculoskeletal services and support for a new 50-bed, adjacent rehabilitation hospital. This consolidation will enhance the overall cost of operations, providing a more efficient patient treatment program. In April 1997, the Board of Visitors declared its intent to issue bonds for this project in the amount of $8.5 million. The bond issuance will be in the amount of $8 million; the revenue available for debt service will come from hospital revenue.

The East Precinct Parking Garage project involves three major components: 1) acquisition of several parcels of real estate, 2) upgrade of the circulation infrastructure and a major storm water retention system and 3) construction of a parking garage to accommodate 982 vehicles. The current appropriation of $17.0 million will be funded from mixed sources. Revenue bonds in the amount of $4.5 million already have been issued. An additional $2.6 million in bonds will be issued to expand the original scope of the garage from 600 to 982 vehicles. Approval to transfer bond authorization from two other projects is pending Department of Planning and Budget approval. The final project budget will total $19.6 million.

The Student Resident Hall project provides new housing for first- year students in the Alderman Road housing area. The facility will provide beds for 134 students and six resident advisors. The total cost of the project is $7 million of which $6 million will come from debt issuance. Auxiliary Enterprise funds will be the source of the remaining $1 million. Revenue available for debt service will come from student housing fees.

Funding of Hospital bonds involves refunding approximately $56 million of the Hospital Revenue Refunding Bonds issued in 1989.

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

AUTHORIZATION OF ISSUANCE OF UP TO $145,000,000 OF GENERAL REVENUE PLEDGE BONDS

WHEREAS, Chapter 9, Title 23 of the Code of Virginia of 1950, as amended (the "Virginia Code"), establishes a public corporation under the name and style of The Rector and Visitors of the University of Virginia (the "University") which is governed by a Board of Visitors (the "Board");

WHEREAS, Chapter 3, Title 23 of the Virginia Code (the "Act") classifies the University as an educational institution, declares it to be a public body and constitutes it a governmental instrumentality for the dissemination of education;

WHEREAS, the Act empowers the University, with the consent and approval of the General Assembly of the Commonwealth of Virginia (the "Commonwealth") and the Governor of the Commonwealth to build, construct, reconstruct, erect, extend, better, equip and improve any building, facility, addition, extension or improvement of a capital nature required by or convenient for the purposes of the University and to borrow money and make, issue and sell bonds of the University for any such purposes, including the refinancing of any such facilities, such bonds to be issued and sold through the Treasury Board of the Commonwealth (the "Treasury Board");

WHEREAS, the Act further authorizes the University to pledge to the payment of the principal of and the interest on such bonds any monies available for the use of the University including, but not limited to, and subject to guidelines promulgated by the Secretary of Finance of the Commonwealth (the "Secretary of Finance"), monies appropriated to the University from the general funds of the Commonwealth or from non-general funds, without regard to the source of such monies, and which are not required by law or by previous binding contract to be devoted to some other purpose;

WHEREAS, the Board has determined to finance or refinance several projects (the "Projects"), as more particularly described on Exhibit A, through the issuance of bonds in an aggregate principal amount not to exceed $145,000,000 (the "Bonds");

WHEREAS, the Board anticipates that the Bonds will be secured by a general revenue pledge of the University; and,

WHEREAS, the Board desires to authorize its Executive Committee (the "Executive Committee") to approve the final forms and details of the Bonds, as set forth below;

RESOLVED that the Executive Committee is hereby authorized to implement the plan of finance described in the Recitals and on Exhibit A by adopting a resolution or resolutions authorizing the issuance of one or more series of Bonds for the purpose of financing or refinancing any or all of the Projects and providing for the terms thereof as required by Section 23-19 of the Virginia Code;

RESOLVED FURTHER that the Executive Committee is hereby authorized to approve the final terms of each series of Bonds including, without limitation, their original principal amounts, the specific Projects to be financed or refinanced, maturity dates and amounts, redemption provisions and prices, and interest rates (which may be either fixed or variable); provided, however, that (i) the maximum aggregate principal amount of all Bonds shall not exceed $145,000,000, (ii) the maximum true interest cost of any series bearing interest at a fixed rate shall not exceed six percent per annum, (iii) the maximum initial true interest cost of any series bearing interest at a variable rate shall not exceed five percent per annum, (iv) the final maturity of all Bonds shall not extend beyond June�1, 2029, (v) call protection on the Bonds shall not exceed ten (10) years, and no optional redemption premium shall exceed two percent, and (vi) the terms of the Bonds are otherwise consistent with the parameters for each of the Projects as described on Exhibit A;

RESOLVED FURTHER that the Executive Committee is hereby authorized to approve the discount payable to Goldman, Sachs & Co. (the "Underwriter") on account of the sale of the Bonds and to approve the terms of a contract for the sale of the Bonds to the Underwriter; provided, however, that the discount payable to the Underwriter shall not exceed 0.7 percent of the original aggregate principal amount of the Bonds;

RESOLVED FURTHER that the Executive Committee and all officers of the University are hereby authorized and directed to take all such further actions and to execute all such instruments, agreements, documents and certificates as they shall deem necessary or desirable to carry out the terms of the financing plans presented to this meeting;

RESOLVED FURTHER, pursuant to the Section 147(f) of the Internal Revenue Code of 1986, as amended, and applicable regulations thereunder, the University hereby designates Alice W. Handy, Treasurer of the University, as the public hearing officer to hold any public hearings required in order to ensure the tax-exempt status of interest on the Bonds; and,

RESOLVED FURTHER that all acts of all officers of the University which are in conformity with the purposes and intent of this Resolution and in carrying out the financing plans presented to this meeting are hereby ratified, approved and affirmed.


EXHIBIT A:
BOND ISSUANCE PARAMETERS FOR UP TO $145,000,000
GENERAL REVENUE PLEDGE BONDS

In addition to the general parameters described in the Resolution, the following specific parameters shall apply to the Projects described below:

Scott Stadium Expansion
Maximum Principal Amount: $67,000,000
Latest Final Maturity Date: June 1, 2029
East Precinct Parking Garage
Maximum Principal Amount: $ 3,000,000
Latest Final Maturity Date: June 1, 2019
Student Residence Hall
Maximum Principal Amount: $ 6,500,000
Latest Final Maturity Date: June 1, 2019
Medical Office Building
Maximum Principal Amount: $ 8,000,000
Latest Final Maturity Date: June 1, 2019
Hospital Refunding Bonds
Maximum Principal Amount: $ 60,500,000
Latest Final Maturity Date: June 1, 2013


III. A. Endowment Report

ACTION REQUIRED: None

Market Value and Performance as of August 31, 1998

BACKGROUND: The Rector and Visitors of the University, particularly the University of Virginia Investment Management Company (UVIMCO), 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 UVIMCO staff managing selected components. The UVIMCO board 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 August 31, 1998, the endowment under the control of the Rector and Visitors totaled $1.002 billion, compared with $1.087 million as of June 30, 1998. During the months of July and August, both the domestic and foreign stock markets experienced a major correction, with the S&P losing 15.6 percent and the broader Wilshire 5000 losing 17.8 percent. Hardest hit, however, were the emerging markets; the Emerging Markets Free Index was down 29 percent in August alone. Since August 31, the domestic equity markets have staged a modest rally and are up seven percent during the first two weeks of September. Market volatility remains high, and daily swings of one to two percent are quite common.

The pooled endowment fund performance fared somewhat better than that of the public markets. Our equity managers carried both bond and cash positions as well as a short position in the S&P 500. We also have a significant commitment of about 31 percent with satellite and real estate managers (some of those positions are revalued only quarterly or, in the case of real estate, annually). For the calendar year-to-date, however, we are under-performing our target benchmark, based on the target allocations to various asset classes (�1.3 percent versus a constructed benchmark of five percent) because of specific biases in the portfolio. Our equity portfolio is over-weighted in value stocks and has a smaller average capitalization than the S&P. Our growth manager's stocks did not perform on par with the growth universe, in part because of the smaller capitalization biases. Our heavier weighting in emerging markets also has hurt performance.

On the positive side, the real estate portfolio continues to outperform its benchmark (13.2 percent versus a benchmark of ten percent calendar year-to-date) and our in-house bond portfolio matched our benchmark. Our absolute return strategies proved to be correlated highly with the equity market in the severe decline in August.

We were aware that a major correction could affect us significantly, but we nevertheless are disappointed. We anticipate continued choppiness in the market. The UVIMCO Board will review policy and asset allocations at its meeting in early November.


III. B. Report on Actions of the Investment Management Company (September 14, 1998)

ACTION REQUIRED: None

BACKGROUND: The University of Virginia Investment Management Company (UVIMCO) meets quarterly and reports all of its activities at the following meeting of the Finance Committee.

DISCUSSION: The first meeting of the Board of UVIMCO was held in New York City on September 14, 1998. Because this was an organizational meeting, the staff and the Board spent much time reviewing the history of the endowment and the current asset allocation and managers. Over the next several meetings, the Board plans to discuss asset allocation, benchmarks and the individual managers in each asset class.

The Board also authorized the Executive Vice President and Chief Financial Officer to commit up to $50 million of the endowment to Oaktree Capital Management for investment in a high-yield bond portfolio. The endowment currently has investments of up to $30 million in two Oaktree distressed debt and real estate partnerships. The new Oaktree commitment will be part of the bond fund.


III. C. Vice President's Remarks

ACTION REQUIRED: None

1999 Legislative and Budget Amendments

BACKGROUND: Beginning in the spring and summer, the vice presidential areas developed a list of possible legislative and budget amendments for consideration by the Governor and 1999 General Assembly. With the concurrence of the Secretary of Education, the University submitted to the Governor two legislative amendments and operating and capital amendments totaling $10,056,740 in general funds and $110,037,503 in nongeneral funds for the University's three divisions. If the Board concludes that it does not want to submit one or more of the following amendments, the University will withdraw them.

DISCUSSION: The two legislative proposals would make changes to the benefits we offer to our employees. The first amendment would authorize the University of Virginia Medical Center to enroll all employees hired on or after July 1, 1999, in a retirement plan sponsored by the Medical Center and would authorize the Board of Visitors to approve changes to the contribution level of the new plan. The legislation also would allow the Medical Center to provide life, disability and accidental death and dismemberment benefits to all eligible employees. These changes would align the Medical Center's employee benefit offerings more closely with those of the health care industry.

The second legislative amendment would permit higher education institutions to extend eligibility in optional retirement plans to employees who are currently limited to participation in the Virginia Retirement System retirement benefit. This change would enhance the ability of higher education institutions to recruit and retain classified employees. The University currently offers an alternative benefit plan to 70 percent of its work force.


Descriptions of the University's budget amendments follow:

AGENCY 207 - Academic Division

Operating:

  1. Uncollectible Tuition Revenue ($2,115,540) - During budget preparation for the 1998-2000 biennium, the Department of Planning and Budget (DPB) estimated tuition revenues by multiplying the expected enrollment by the tuition rates. This methodology fails to account for programs that reduce gross tuition revenues, such as unfunded scholarships. By overestimating the amount of revenue the University can generate from tuition, DPB underestimated by $2.1 million the general fund appropriation required from the state to meet the budget priorities in the 1998- 2000 Appropriations Act.

  2. Routine and Preventive Maintenance ($2,400,000) � In order to address the increasing deferred maintenance backlog of educational and general facilities and to protect the Commonwealth's investment in facilities from further deterioration, a significant incremental investment is needed to increase the major and routine maintenance budgets of the University.

  3. Health Care Plan Funding ($357,600 in year one, $357,600 in year two) - In 1998-2000, the Department of Planning and Budget (DPB) increased the funding for health insurance in agencies using the state's health insurance plans. DPB has agreed that the funding increase should not be restricted to the state's insurance plan and that the University also should receive the increased funding for its QualChoice health plan premiums.

  4. Technical Amendment: Correct Reduction for Southwest Virginia Residency Program ($10,000) - This proposal will restore funding that was eliminated mistakenly from the base budget during 1998 budget development. During the 1996-98 biennium, the University received one-time funding for 1996-97 of $150,000 related to the implementation of the Southwest Virginia Generalist Residency Program to be administered by the Virginia Statewide Center for the Advancement of Generalist Medicine. The 1997 General Assembly reduced the one-time appropriation to $10,000 for the 1996-97 Fiscal Year. The one-time appropriation appropriately was not included in the 1997-98 budget, which serves as the base budget for the 1998-2000 biennial budget. However, the line item for the program mistakenly remained in the Governor's introduced budget for 1998-2000. The conference committee reduced the University's appropriation by $10,000 when it corrected the line item, but the amount actually had not been included in the base budget.

Capital:

  1. East Precinct Chiller Plant ($3,316,000 in General Funds, $(626,000) in Nongeneral Funds) - This project will construct a new Chiller Plant and thermal storage system to provide additional chilled water capacity for buildings in the east precinct of the Health Sciences Center. This request amends an existing project.

  2. Campbell Hall Chiller Plant ($1,500,000 in General Funds) - This project is included in the University's Six-Year Plan for the 2000- 2002 Biennium. It is no longer dependable or economical to maintain and repair the Campbell Hall chiller, and its replacement must be accelerated. We are presenting this project to the state for the first time.

  3. Biomedical Engineering & Medical Sciences Building ($8,000,000 in Nongeneral Funds) - This building will support research for the School of Medicine and the School of Engineering and Applied Science. The University requests an authorization increase from $33,424,000 to $41,424,000 to conform with original cost estimates. This request increases an existing authorization.

  4. Central Grounds Electrical Upgrade ($900,000 in Nongeneral Funds) - This project will provide additional and more reliable power for the Central Grounds areas and will accommodate the increase in student population and the construction of new facilities. A recently completed engineering study indicates that the project budget should be increased from $800,000 to $1,700,000.

  5. Renovation of Academic and Research Facilities ($6,000,000 in Nongeneral Funds) - This blanket authorization is for small capital outlay projects that are needed to support the University's academic and research programs. A recent projection indicates that the University will need $6 million more than the current $8 million authorization.

  6. Lambeth Area Housing Renovations ($5,000,000 in Nongeneral Funds) - The Lambeth Student Housing area accommodates students in an apartment setting. It was completed in the mid-1970s and is in need of external and internal renovations. A recent study indicated we should undertake this project as soon as possible. We are bringing this as a new project to the state at this time.

  7. Renovations of School of Medicine Offices ($2,173,000 in Nongeneral Funds) - This new project will support renovations for three departments in the School of Medicine.


AGENCY 209 - Medical Center

Operating:

  1. Nongeneral Fund Appropriation Increase ($41,232,384 in Nongeneral Funds in year one, $34,738,119 in Nongeneral Funds in year two) - This amendment corrects the appropriation in each year of the 1998- 2000 biennium to conform to actual operating levels.

Capital:

  1. Orange Medical Office Building ($4,500,000 in Nongeneral Funds) - The Medical Center received a $4,500,000 authorization, funded by hospital revenues, from the 1998 General Assembly to construct or acquire a medical office building in Orange, Virginia, to provide primary care services. This request will change the fund source from hospital revenues to bonds.

  2. Kluge Children's Rehabilitation Center Renovations (planning) ($4,000,000 in Nongeneral Funds) - This project will combine all pediatric clinics at the University's Kluge Children's Rehabilitation Center. This is a request for a planning authorization. A construction authorization request will be submitted to the 2000 General Assembly.

  3. Ambulatory Care Clinics ($4,120,000 in Nongeneral Funds) - This new project will support the renovation of clinic space for the Departments of Neurosurgery, Surgery and Family Medicine.


AGENCY 246 - Clinch Valley College

Operating:

  1. Faculty Salary Technical Adjustment ($178,350 in General Funds in year one; $179,800 in General Funds in year two) � The 1998 Appropriations Act includes a 12.5 percent salary increase in each year of the biennium to bring the College's faculty salaries to the 60th percentile of its peer group. Based on the funding formula developed by the Department of Planning and Budget which does not account for the high rate (93 percent) of Virginia residents served by the College, the College is experiencing a deficit in the funding available for faculty salaries. This proposal will correct the funding shortfall for faculty salary increases.

  2. Math Faculty ($106,200 in General Funds in year two) � There is a critical regional, statewide and College need for significant improvement in math education. To support state and regional economic development, greater math and computer skills are required to support growing technology-based industries. Good mathematical skills are a critical determinant of student retention. Currently, the student-faculty ratio of mathematics classes offered at the College is 30 to 1. This proposal includes the costs of hiring two new positions in the Mathematics Department.

  3. Revision of Base Other than Personnel Services (OTPS) ($80,438 in General Funds in year one; $82,582 in General Funds in year two) � Enrollment growth has eroded the College's basic OTPS support. This erosion has been exaggerated by the faculty salary miscalculation, forcing the College to divert growth funds to meet faculty salary increases. The OTPS base budget is further complicated by the College's remote geographic location, which necessitates higher expenses for travel and other services within the Commonwealth. To maintain a level in line with inflation, this proposal increases the current OTPS budget by three percent,


UVA HEALTH CARE PLAN

BACKGROUND: The Board has asked that the Executive Vice President and Chief Financial Officer report regularly on the status of the University's self-insured health care plan. DISCUSSION: The University, with the help of fringe benefit consultants, regularly monitors its health insurance claims and premiums, the adequacy of its reserves and the outlook for future health care costs. We anticipate that health care costs will rise in the year ahead by as much as nine- percent. At present we are experiencing higher utilization and claims than we projected a year ago. Employees generally are very pleased with their health care plan. We continue to build our reserve for claims incurred but not yet reported or paid.

The University will revise its insurance plan premium structure effective January 1999. Rates will be set to cover our projected claims costs, to hold employee premiums equal to or less than the state-sponsored employee benefits plan and to continue to build a prudent reserve. At the October meeting, we will provide information to the Board that compares our premiums and administrative fees with the state plan and national averages. We will present detailed information about the proposed monthly premiums for the 1999 calendar year and changes that are intended to manage medical costs. In addition, we will provide information about employee satisfaction with the plan and the status of our reserve balances.

The report will show that the University's health insurance plan a) provides very good coverage, b) is more expensive for the employer than the state plan, c) is less expensive for the employee than the state plan, and d) is making good progress to build required reserves.

Pricing Policy for 1999-2000 Tuition and Required Fees

BACKGROUND: The Board normally approves tuition and required fees at its March/April meeting. Members of the Board have emphasized that it is important to review pricing policy and outlook prior to the meeting at which action is taken.

The Governor's budget and General Assembly actions set the criteria and framework for the establishment of tuition and fees. Board policy and Board response to institutional requirements determine the specific tuition structure within the state-proscribed framework.

DISCUSSION: The discussion at the Board meeting will address undergraduate, graduate and professional school charges and the outlook for 1999-2000 and will emphasize the self-sufficiency model for the professional schools. Our recent pricing policy has been designed to enable the professional schools to generate the funds necessary to support their operations, therefore allowing us to target institutional funds for other schools that do not have the same market opportunities. We also will discuss preliminary information on special programs being considered by the McIntire School and will review the related tuition and fee structure.

We will seek Board reaction to various strategies, alternatives and projections. The outcome of the discussions will determine the direction taken in the development of the tuition and fee structure for 1999-2000. No action will be taken at this meeting.


D. MISCELLANEOUS FINANCIAL REPORTS

I. ACADEMIC DIVISION's 1. ACCOUNTS AND LOANS RECEIVABLE (AS OF JUNE 30, 1998)

Summary of Accounts Receivable:

The Academic Division's accounts receivable as of June 30, 1998, were $8,878,000, compared with $12,457,000 as of March 31, 1998. The major source of receivables as of June 30, 1998, is sponsored programs of $6,966,000.

The past due receivables over 120 days old are $788,000 as of June 30, 1998, or 9.22 percent of total receivables, below the Commonwealth's management standard of ten percent.


Summary of Loans Receivable:

The default rate for the Perkins Student Loan Program increased by .16 percent to 6.40 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 decreased by .13 percent to .08- percent. The Nursing Undergraduate Student Loan Program default rate increased by .14 percent to 1.29 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 .22- percent to 2.69 percent.


2. CAPITAL CAMPAIGN GIFT REPORT

Cash and Pledges as of 8/31/98 -- In Millions All Units


3. DISINVESTMENT OF UNRESTRICTED QUASI-ENDOWMENT TO FUND CAPITAL CAMPAIGN EXPENSES
(June 1, 1994 - August 31, 1998)

(Per June 4, 1993, Board of Visitors resolution granting the Executive Vice President and Chief Financial Officer approval to disinvest the principal of the unrestricted quasi-endowment to fund pre-Capital Campaign expenses)


4. EXPENDITURE OF FUNDS FROM THE PRATT ESTATE (As of June 30, 1998)


5. INTERNAL LOANS TO UNIVERSITY DEPARTMENTS AND ACTIVITIES
(As of August 31, 1998)

(Per January 1990 Board of Visitors resolution changing Current Funds Guidelines to include investments in internal loans and the June 1994 Board of Visitors resolution authorizing internal loans to be made in the discretionary collateral account lending program [security lending program], both subject to approval by the Executive Vice President and Chief Financial Officer)


6. MEDICAL CENTER'S REPORT ON WRITE-OFF OF BAD DEBTS AND INDIGENT CARE

(Per February 6, 1993, Board of Visitors resolution granting the Executive Vice President and Chief Financial Officer authorization to approve the write-off of bad debts and free service for the Medical Center)

INDIGENT CARE:

Indigent care charges totaling $26.1 million for the period April 1, 1998, through August 31, 1998, have been written off. For the two months of the current Fiscal Year, $9.7 million has been written off. Recoveries during this period amounted to $1.4 million, or 15 percent of the amount written off, and occurred primarily through Medicaid payments.

The cost of indigent care in Fiscal Year 1997-98 amounted to $43.8 million. The cost of indigent care for Fiscal Year 1998-99 is estimated to be $52.9 million, of which $35.1 million, or 66 percent, will be funded through the Medicaid special disproportionate share payments.

BAD DEBT:

Bad debt charges totaling $10.8 million (including $937,000 because of noncompliance with insurance information requirements) for the period April 1, 1998, through August 31, 1998, have been written off. Total write-offs for the first two months of Fiscal Year 1997-98 amounted to $4.5 million. During this same period, $1.2 million was recovered through suits, collection agencies and Virginia refund set-off.


7. QUARTERLY BUDGET REPORT

As of June 30, 1998

This report compares, on a quarterly basis, the approved budget with actual revenues and expenditures for the Academic Division. Enclosed is the quarterly report for the fourth quarter of 1997-98.

For the fourth quarter of the 1997-98 Fiscal Year, 105.7- percent of budgeted revenue had been collected, while actual expenditures were at 101.4 percent of budget.

A definition of terms is included to explain the sources of revenues and the purposes of expenditures.


DEFINITION OF TERMS

Educational and General - those activities which embrace the three programs directly related to the higher education mission: (1) instruction, (2) research, and (3) public service. These activities also encompass the support programs: academic support, institutional support, and maintenance and operation of physical plant; and sponsored programs associated with instruction, research, and public service.

Student Financial Assistance - those activities which promote student accessibility to the University through scholarships and fellowships. Student loans, student wages, and aid from third parties is not included.

Auxiliary Enterprises - those activities which are supported entirely though fees charged to users; such as housing, athletics, dining services, the telephone system, and the bookstore.

Sponsored Programs and Indirect Cost Recoveries - primarily research projects, but also includes activities restricted to institutional and service programs.

Instruction - expenditures for the primary mission of the University which includes teaching faculty, support staff, instructional equipment, and related routine operating costs.

Research - includes expenditures for activities such as support for research faculty, but does not include sponsored research. Activities include the Center for Public Service, the State Climatologist, and the Center for Liberal Arts.

Public Service - includes activities such as the Miller Center of Public Affairs, the Virginia Foundation for the Humanities and Public Policy, and that portion of the medical school's clinical physicians salaries and fringe benefits related to patient care.

Academic Support - the program which encompasses the libraries, the activities of the deans of the schools, and other related expenditures.

Student Services - activities whose primary purpose is to contribute to the students' emotional and physical well-being and to their intellectual, cultural, and social development outside the classroom.

Institutional Support - primarily includes the financial, administrative, logistical, and development activities of the University.

Operation and Maintenance of Plant - includes expenditures for activities related to the operation and maintenance of the physical plant, net of amounts charged to auxiliary enterprises and the Medical Center.


8. SALARY AND COMPENSATION FOR FULL-TIME FACULTY AT AAU AND SCHEV PEER GROUP INSTITUTIONS


These reports provide average compensation and salary figures for institutions included in the American Association of Universities, and average salary figures for the University's peer institutions, as established by the State Council of Higher Education in Virginia. These figures include instructional faculty paid on a full-time basis; all medical faculty have been excluded. Salary figures for faculty with eleven- or twelve-month duties have been converted to nine- month figures. The source for these figures is "The Annual Report on the Economic Status of the Profession, 1997-98," as printed in the March-April 1998 issue of Academe, the bulletin of the American Association of University Professors.


SOURCE: Institutional Assessment and Studies
DATE: September 18, 1998


UNIVERSITY OF VIRGINIA FACULTY SALARY AVERAGES

Salary at AAU Institutions:

AAU salary data includes all sources of funds.

Only U.S. institutions included in the rankings of the 60 institutions. Two Canadian institutions, the University of Toronto and McGill University, have been excluded.

The U.Va. averages in all six years displayed represent the salary averages as of December 1 of those years and reflect the merit increases of those dates. The 1996-97 average does not include the increases from endowment funds that were made in early 1997. That retroactive increase from the endowment is represented in the 1997-98 figures with the December 1997 installment from the endowment and a five percent increase from the state.

The percent increase shown for U.Va. between 1996-97 and 1997-98 was 7.11 percent. This represented the third highest increase in the AAU for that year and resulted in a jump of five positions in the rankings (from 32nd to 27th).

In 1989-90, before the first round of the Wilder budget cuts, the University ranked 18th (68th percentile) in the AAU. Since then our ranking has varied, never rising above 18th, and now stands at 27th (56th percentile) in 1997-98. During that eight year period, our average salary increased from $54,100 in 1989-90 to $70,800 in 1997-98 (an increase of 31 percent).

Compensation at AAU Institutions:

As in the case of the average salary, average compensation was reported as of December 1 of those years.

In 1989-90, U.Va. ranked 20th (65th percentile) in compensation. Since then our ranking has varied, never rising above 20th, dropping as low as 32nd in 1992-93, and now stands at 30th (51st percentile) in 1997-98. During that eight-year period, our average compensation increased from $66,800 in 1989-90 to $86,500 in 1997-98 (an increase of 29 percent).

State Salary at SCHEV Peer Institutions:

In spring 1997, SCHEV approved a new sample of peer institutions for the University. Again, the U.Va. state salary represents the salary average as of December 1 each year. The state salary average excludes all endowment funds.

In 1989-90, U.Va. ranked 10th in our state peer group of 25. Since then, our ranking has varied, rising as high as 9th in 1990-91 and dropping as low as 15th in 1991-92, and again in 1995-96. In the newly constituted group, the University's 1997-98 salary ranks 15th, at the 32nd percentile.

SOURCE: Institutional Assessment and Studies
DATE: September 18, 1998


SCHEV APPROVED 1998-2000 INSTITUTIONAL PEER GROUP

SALARY FOR FULL-TIME FACULTY AT AAU INSTITUTIONS 1989 - 1998

9. SUMMARY OF SPONSORED PROGRAMS RESTRICTED GRANTS & CONTRACTS

June 1, 1997 - June 30, 1998

For the year ended June 30, 1998, the University received sponsored program awards totaling $164 million, representing a two percent increase from June 30, 1997. The Department of Health and Human Services continued as the University's major source of awards, accounting for 46 percent of the total. The Medical School received approximately 54 percent of Fiscal Year awards, followed by Arts & Sciences at 22 percent and Engineering at 16 percent. Awards received included $33 million for indirect costs, a three percent increase from 1997.

MORE MEETING INFORMATION PAST MEETINGS PUBLIC MINUTES

 

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