This discussion and analysis provide an overview of the financial position and results of activities of the University of Virginia (the University) for the year ended June 30, 2015. Comparative information for the year ended June 30, 2014, has been provided where applicable. Management has prepared this discussion, which should be read in conjunction with the financial statements and the notes that follow this section.

The University is an agency of the Commonwealth of Virginia (the Commonwealth) and is governed by the University’s Board of Visitors. The Commonwealth prepares a separate financial report that incorporates all agencies, boards, commissions, and authorities over which the Commonwealth exercises or has the ability to exercise oversight authority. The University, consisting of three major divisions, is a component unit of the Commonwealth and is included in the basic financial statements of the Commonwealth. The University’s three divisions are its Academic Division, the University of Virginia Medical Center (the Medical Center), and the University of Virginia’s College at Wise (College at Wise or Wise).

Academic Division

A public institution of higher learning with approximately 22,800 on-Grounds students and 2,300 full-time instructional and research faculty members in eleven schools in 2014-15, the University offers a diverse range of degree programs, from baccalaureate to postdoctoral levels, including doctorates in fifty-five disciplines. The University is recognized internationally for the quality of its faculty and its commitment to the primary academic missions of instruction, research, public service, and medical care. The University consistently ranks among the nation’s top public colleges and universities, both for its general academic programs and for its strengths in specific academic disciplines. Its emphasis on the student experience is extraordinary among major public institutions, and its dedication to new advances in research permeates all of its schools and colleges.

Medical Center

The Medical Center is an integrated network of primary and specialty care services ranging from wellness programs and routine checkups to the most technologically advanced care. The hub of the Medical Center is a licensed hospital with 612 beds in a state-designated Level 1 trauma center located in Charlottesville. The Medical Center also has a transitional care hospital with 40 beds that is located west of the Charlottesville campus. In addition, primary and specialty care are provided at convenient clinic locations throughout Central Virginia communities. The University’s Medical Center has a tradition of excellence in teaching, advancement of medical science, and patient care, consistently ranking among the best health care systems in the nation.

College at Wise

Located in southwestern Virginia, the College at Wise is a public liberal arts college with nearly 2,037 students and 104 full-time instructional and research faculty. It offers baccalaureate degrees in thirty majors and eight preprofessional programs, including dentistry, pharmacy, engineering, forestry, law, medicine, physical therapy, and veterinary medicine.


The University’s financial report includes five financial statements and related notes:

  1. The Statement of Net Position for the University of Virginia
  2. The Combined Statement of Financial Position for the Component Units of the University of Virginia
  3. The Statement of Revenues, Expenses, and Changes in Net Position for the University of Virginia
  4. The Combined Statement of Activities for the Component Units of the University of Virginia
  5. The Statement of Cash Flows for the University of Virginia

These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles, which establish standards for external financial reporting for public colleges and universities. These principles require that financial statements be presented on a consolidated basis to focus on the University as a whole, with resources classified for accounting and reporting purposes into four net asset categories. Although some of the University’s foundations are reported in the component unit financial statements, this Management’s Discussion and Analysis excludes them except where specifically noted.

For the year ended June 30, 2015, the University implemented GASB 68, Accounting and Financial Reporting for Pensions. The standard requires that a liability for pension obligations be recognized on the statement of net position of the employer (the University). Similarly, a pension expense will be recognized on the statement of revenues, expenses and changes in net position. The net pension liability as of June 30, 2015, was $459.9 million.


The Statement of Net Position presents the financial position of the University at the end of the fiscal year and includes all assets, deferred outflows of resources, liabilities and deferred inflows of resources of the University. The net position is an indicator of the overall health of the University, while the change in net position reflects the current year’s activities. Assets and liabilities are generally measured using current values. One notable exception is capital assets, which are stated at historical cost, less an allowance for depreciation. Depreciation is a method of allocating the cost of a tangible asset over its useful life to indicate how much of an asset’s value has been consumed.

The University’s Statement of Net Position at June 30, 2015, and June 30, 2014, is summarized as follows:

  2015 2014 AMOUNT PERCENT
Current assets $1,149,299 $1,119,865 $29,434 2.6%
Noncurrent assets        
Endowment investments 4,374,764 4,216,644 158,120 3.7%
Other long-term investments 1,580,356 1,316,835 263,521 20.0%
Capital assets, net 3,273,882 3,189,972 83,910 2.6%
Other 73,313 74,945 (1,632) (2.2%)
Total assets 10,451,614 9,918,261 533,353 5.4%
Deferred outflows of resources 88,173 35,108 53,065 151.1%
Total assets and deferred outflows of resources 10,539,787 9,953,369 586,418 5.9%
Current liabilities 565,072 715,801 (150,729) (21.1%)
Noncurrent liabilities 2,018,142 1,311,028 707,114 53.9%
Total liabilities 2,583,214 2,026,829 556,385 27.5%
Deferred inflows of resources 160,635 - 160,635 100.0%
Total liabilities and deferred inflows of resources 2,743,849 2,026,829 717,020 35.4%
NET POSITION $7,795,938 $7,926,540 $(130,602) (1.6%)


The Statement of Net Position shows that working capital, which is current assets less current liabilities, was $584 million on June 30, 2015. Current assets consist of cash and cash equivalents, short-term investments, and accounts receivable. Current liabilities consist of accounts payable, unearned revenue, and the current portion of long-term liabilities. Decreases in accounts payable, unearned revenue, and outstanding commercial paper account for most of the decrease in current liabilities.

Current assets cover current liabilities two times, an indicator of good liquidity and the ability to weather short-term demands on working capital. This rate of coverage increased from 1.6 last year, primarily due to a significant reduction in outstanding commercial paper. Current assets cover 5.8 months of total operating expenses, excluding depreciation. For 2014–15, one month of operating expenses equaled approximately $214 million.


Performance. The major portion of the University’s endowment continues to be maintained in a long-term investment pool managed by the University of Virginia Investment Management Company (UVIMCO). The return for the long-term investment pool was 7.7 percent in the fiscal year 2014-15. This performance figure includes realized and unrealized gains and losses, along with cash income. Total investment income for all funds was $428 million.

Distribution. The University distributes endowment earnings with the objective of balancing the annual funding needed to support the endowed programs against the preservation of the future purchasing power. The endowment spending-rate policy is approved by the Board of Visitors and is based on total return, not just cash earnings. The total distribution for the University’s endowment was $169 million, or 4.68 percent of the June 30, 2013 market value of the endowment, the measurement date.

Endowment investments. The total of endowment investments is $4.4 billion, a $158 million increase over the prior year. In addition to new gifts, the increase results from investment returns earned during the year, reduced by the spending distribution.

From a net position perspective, earnings from the endowment are expendable; however, about two-thirds of the earnings are restricted as to use by the donors. A significant portion of the unrestricted earnings, the remaining one-third of the endowment, is internally designated by the University for scholarships, fellowships, professorships, and research activities.

Including endowment investments held by the nine related foundations reported as component units, the combined University system endowment was just over $6 billion as of June 30, 2015.


A critical factor in sustaining the quality of the University’s academic and research programs and residential life is the development and maintenance of its capital assets. The University continues to implement its long-range plan to modernize its older teaching and research facilities, construct new facilities, and fund major maintenance obligations.

Capital projects consist of replacement, renovation, and new construction of academic, research, and health care facilities, as well as significant investments in equipment and information systems.

Some of the largest new or ongoing projects expensed for construction during the year are listed below:

Alderman Road Residences - Building 6 $19,314
Rotunda renovations 16,159
UVA College at Wise Library 10,865
McCormick Road Utility Tunnel 5,073
Gilmer Hall and Chemistry Building 4,976
VOIP Phone Syatem 4,536
TOTAL $60,923

As infrastructure and building projects were completed or otherwise acquired during the year, the University’s capital asset balances grew significantly. More than $387 million of completed projects were added to depreciable capital assets during the fiscal year. The largest building projects completed and placed into service are listed below:

Medical Center Battle Building $146,236
New Cabell Hall renovation 61,032
Ruffner Hall renovation 19,538
North Grounds Mechanical Plant 13,589
O'Neil Hall 10,205
Gooch Dillard Residence Hall renovation 3,490
TOTAL $254,090

Financial stewardship requires the effective management of resources, including the prudent use of debt to finance capital projects. As evidence of the University’s effective stewardship, the University has received the highest long-term and short-term debt ratings from all three major rating agencies, including Moody’s Investors Service (Aaa/P-1), Standard & Poor’s (AAA/A-1+), and Fitch Ratings, Inc. (AAA/F1+). The University of Virginia is one of only three public institutions with the highest long-term debt ratings from all three agencies. Besides being an official acknowledgment of the University’s financial strength, these ratings enable the University to obtain future debt financing at optimum pricing. In addition to issuing its own bonds, the University utilizes its commercial paper program for short-term bridge financing.

The University’s debt portfolio contains a strategic mix of maturity structures and both variable- and fixed-rate obligations. The University achieves this mix through issuing a combination of fixed- and variable-rate debt, including commercial paper. It also adjusts its debt mix through the use of interest rate swaps executed according to its Board-approved interest rate risk management policy. The University had just over $1.4 billion of debt outstanding as of June 30, 2015, which included $51 million of short-term commercial paper.


The four net position categories represent the net interest in the University’s assets and deferred outflows of resources after liabilities and deferred inflows of resources are deducted. The University’s net position on June 30, 2015, and June 30, 2014, is summarized below:

NET POSITION (in thousands)
  2015 2014 AMOUNT PERCENT
Net investment in capital assets $1,837,901 $1,782,053 $55,848 3.1%
Nonexpendable 608,894 588,627 20,267 3.4%
Expendable 2,997,184 3,062,089 (64,905) (2.1%)
Unrestricted 2,351,959 2,493,771 (141,812) (5.7%)
TOTAL NET POSITION $7,795,938 $7,926,540 $(130,602) (1.6%)

Net investment in capital assets represents the University’s capital assets net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. Capitalized assets increased by $84 million and were offset by a $26 million increase in debt used to finance those capital assets, for a net change of $58 million.

Restricted nonexpendable net position consists of the University’s permanent endowments, which cannot be expended due to donor restrictions. The increase in nonexpendable net position included new gifts of $18 million.

Restricted expendable net position includes spendable earnings on permanent and quasi-endowments, gifts, grants and contracts, and loan funds that are subject to externally imposed restrictions governing their use. An increase in the restricted expendable net position is usually related to investment returns. As a result of the University’s implementation of GASB Statement No. 68, restricted expendable net position decreased by $65 million. The new accounting pronouncement required a beginning balance adjustment to restricted expendable net position of $111 million. Without this adjustment, restricted expendable net position would have increased $46 million.

Unrestricted net position includes all other activities that are both spendable and not subject to externally imposed restrictions. The majority of the University’s unrestricted net position has been internally designated for the core mission activities of instruction, research, and health services programs and initiatives, and capital projects that align with the University’s highest priorities. As a result of the University’s implementation of GASB Statement No. 68, unrestricted net position decreased by $142 million. The new accounting pronouncement required a beginning balance adjustment to unrestricted net position of $408 million. Without this adjustment, unrestricted net position would have increased $266 million from investment performance and the Medical Center’s positive operating margin.


The Statement of Revenues, Expenses, and Changes in Net Position presents the University’s results of activities for the year. Presented below is a summarized statement for the years ended June 30, 2015 and 2014:

  2015 2014 AMOUNT PERCENT
Operating revenues        
Student tuition and fees, net $491,027 $459,166 $31,861 6.9%
Patient services, net 1,428,736 1,237,157 191,579 15.5%
Sponsored programs 278,433 267,962 10,471 3.9%
Other 215,140 197,544 17,596 8.9%
Total operating revenues 2,413,336 2,161,829 251,507 11.6%
Operating expenses 2,778,405 2,521,306 257,099 10.2%
Operating loss (365,069) (359,477) (5,592) 1.6%
Nonoperating revenues (expenses)        
State appropriations 152,841 161,641 (8,800) (5.4%)
Gifts 171,705 153,561 18,144 11.8%
Investment income 428,406 869,910 (441,504) (50.8%)
Pell grants 12,957 12,619 338 2.7%
Interest on capital asset-related debt (59,440) (49,449) (9,991) 20.2%
Build America Bonds (BAB) rebate 8,116 7,200 916 12.7%
Other net nonoperating expenses (36,825) (22,593) (14,232) 63.0%
Net nonoperating revenues 677,760 1,132,889 (455,129) (40.2%)
Income before other revenues, expenses, gains, or losses 312,691 773,412 (460,721) (59.6%)
Capital appropriations, gifts, and grants 57,583 65,065 (7,482) (11.5%)
Additions to permanent endowments 17,907 11,738 6,169 52.6%
Total other revenues 75,490 76,803 (1,313) (1.7%)
INCREASE IN NET POSITION 388,181 850,215 (462,034) (54.3%)
NET POSITION — BEGINNING OF YEAR 7,926,540 7,076,325 850,215 12.0%
Net effect of change in accounting principle and reporting entity (518,783) - (518,783) (100%)
NET POSITION — END OF YEAR $7,795,938 $7,926,540 $(130,602) (1.6%)

GASB accounting principles determine the categorization of revenues and expenses as either operating or nonoperating activities. Because GASB Statement No. 34 requires that revenues from state appropriations, Pell grants, and gifts be considered nonoperating while the expenses funded from these revenues are categorized as operating, the University will nearly always demonstrate an operating loss on its Statement of Revenues, Expenses, and Changes in Net Position.


The University maintains a diverse stream of revenues, which decreases its dependence on specific revenue sources and allows it to adapt during difficult economic times. The University’s revenues, for the years ended June 30, 2015, and June 30, 2014, are summarized below:

SUMMARY OF REVENUES (in thousands)
Operating revenues                
Student tuition and fees, net $491,027 $- $491,027 $459,166 $- $459,166 $31,861 6.9%
Patient services - 1,428,736 1,428,736 - 1,237,157 1,237,157 191,579 15.5%
Federal, state, and local grants and contracts 230,019 - 230,019 223,144 - 223,144 6,875 3.1%
Nongovernmental grants and contracts 48,414 - 48,414 44,818 - 44,818 3,596 8.0%
Sales and services of educational departments 26,309 - 26,309 21,434 - 21,434 4,875 22.7%
Auxiliary enterprises revenue, net 129,855 - 129,855 124,922 - 124,922 4,933 3.9%
Other operating revenues 12,517 46,459 58,976 2,015 49,173 51,188 7,788 15.2%
Total operating revenues 938,141 1,475,195 2,413,336 875,499 1,286,330 2,161,829 251,507 11.6%
Nonoperating revenues                
State appropriations 152,841 - 152,841 161,641 - 161,641 (8,800) (5.4%)
Private gifts 147,131 24,574 171,705 147,328 6,233 153,561 18,144 11.8%
Investment income 381,569 46,837 428,406 782,887 87,023 869,910 (441,504) (50.8%)
Other nonoperating revenues 88,447 - 88,447 89,422 - 89,422 (975) (1.1%)
Total nonoperating revenues 769,988 71,411 841,399 1,181,278 93,256 1,274,534 (433,135) (34.0%)
TOTAL REVENUES $1,708,129 $1,546,606 $3,254,735 $2,056,777 $1,379,586 $3,436,363 $(181,628) (5.3%)

Net student tuition and fees revenue increased due to new programs, enrollment growth and changes in tuition and fee rates. Tuition and fees revenue is reported net of scholarships and allowances provided from University sources. Net patient revenues are higher due to increased patient collections after write-offs. Grant and contract activity, including direct research and the recovery of indirect facilities and administrative costs, increased slightly in an environment of ongoing pressure and uncertainty at the federal level. The decrease in nonoperating revenues is attributable to the decrease in the market return on the University’s long-term investments which declined by $442 million.


Below is a chart of revenues by source (both operating and nonoperating). These revenues were used to fund the University’s operating activities for the fiscal year ended June 30, 2015. As noted earlier, GASB requires state appropriations, current gifts, and Pell grants to be treated as nonoperating revenues. Endowment spending is not current year revenue, but a distribution of previously recognized investment income revenue. However, it is an important funding source for current operations and is included in the chart below to present a more accurate picture of the University’s funding of current operations.

total university revenues and
other sources of operational funding

Patient services revenues accounted for nearly one-half of the University’s revenues and operational funding sources. Net student tuition and fees, and grants and contracts are the next largest revenues. Private support from endowment spending and gifts combined provides about 12 percent of the University’s funding. State appropriations accounted for just five percent of funding for operations. With ongoing economic pressure on state revenues and increasing consideration of affordability, funding from private sources continues to be vitally important to the University’s operations.


A clearer picture of the academic and research mission revenue stream emerges when the Medical Center’s data is excluded, as it is in the chart below. Net tuition and fees make up more than one-third of the operating revenues for the Academic Division and Wise. Contributing a combined 21 percent, private support in the form of endowment spending distribution and gifts has been, and will continue to be, essential to maintaining the University’s academic excellence. External research support from grants and contracts makes up another 20 percent of operational funding.

academic and wise revenues and
other sources of operational funding


The University’s expenses for the years ended June 30, 2015, and June 30, 2014, are summarized as follows:

SUMMARY OF EXPENSES (in thousands)
Operating expenses                
Compensation $913,887 $620,369 $1,534,256 $852,095 $537,177 $1,389,272 $144,984 10.4%
Supplies and other services 301,690 648,216 949,906 280,513 574,680 855,193 94,713 11.1%
Student aid 74,527 - 74,527 73,802 - 73,802 725 1.0%
Depreciation 120,356 95,816 216,172 115,928 83,260 199,188 16,984 8.5%
Other operating expenses 3,544 - 3,544 3,851 - 3,851 (307) (8.0%)
Total operating expenses 1,414,004 1,364,401 2,778,405 1,326,189 1,195,117 2,521,306 257,099 10.2%
Nonoperating expenses and other                
Interest expense (net of BAB rebate) 30,875 20,449 51,324 27,597 14,652 42,249 9,075 21.5%
Loss on capital assets 1,722 (150) 1,572 1,136 3,343 4,479 (2,907) (64.9%)
Other nonoperating expenses 9,461 25,792 35,253 18,114 - 18,114 17,139 94.6%
Total nonoperating expenses 42,058 46,091 88,149 46,847 17,995 64,842 23,307 35.9%
TOTAL EXPENSES $1,456,062 $1,410,492 $2,866,554 $1,373,036 $1,213,112 $2,586,148 $280,406 10.8%

Increases in operating expenses are primarily driven by the Medical Center’s $85 million increase and the Academic Division and Wise’s $62 million increase in compensation and benefits and the $94 million increase in supplies and other services. These increases are primarily related to the Medical Center’s strategic initiatives, ongoing relationships with other health systems, contractual increases with pharmaceutical suppliers, the opening of new clinics and the continuing collaborative effort to increase staffing levels to meet patient demand and to adjust employee compensation to remain market competitive.

The following are graphic illustrations of expenses (both operating and nonoperating) for the fiscal year ended June 30, 2015.

Total University Expenses 54.2% Compensation, 33.6% Supplies and Other Services, 7.6% Depreciation, 3.6% Student Aid, 1.8% Interest Expense (Net), 0.2% Other
Academic and Wise Expenses 62.8% Compensation, 20.7% Supplies and Other Services, 8.3% Depreciation, 5.1% Student Aid, 2.1% Interest Expense (Net), 1.0% Other

The first chart presents information for the total University, including the Medical Center, while the second chart presents information for just the Academic and Wise divisions. In addition to their natural (object) classification, it is also informative to review operating expenses by function.

A complete matrix of expenses, natural versus functional, is contained in Note 9 of the Notes to the Financial Statements. Expenses for core mission functions of patient services, instruction, and research account for 72 percent of total operating expenses. The remainder is for support costs of these core mission functions and includes academic support, libraries, student services, institutional support services, and operation and maintenance of facilities.


Overall, the University remains financially strong with a diverse revenue base, a strong endowment, a tradition of broad and generous philanthropic support, and a commitment to organizational excellence. With a changing health care environment, the Commonwealth of Virginia’s budgetary pressures and increasing scrutiny on the federal budget, the University has responded well and continues to hold a unique position among public higher education institutions. The value delivered to our students is strong with graduation rates among the highest in the country while student indebtedness levels are among the lowest.

Higher education remains a focus of attention at the state and national levels, particularly in terms of access, affordability, and student outcomes. Preserving the University’s excellent academic reputation and rigor is equally crucial among students and alumni. To address these issues, the Board of Visitors of the University endorsed the Cornerstone Plan in November 2013, which sets out five pillars to serve as areas of strategic emphasis over the next five years. For 2015-16, the Cornerstone Plan contains specific strategic priorities that include student diversity-related activities, Data Science faculty fellowships, short courses, and graduate degree programs, a Total Advising Center in Clemons Library, competitive faculty salaries, and ongoing organizational excellence initiatives.

To support strategic priorities, the University developed a multi-year financial plan, which will serve as a framework for achieving new levels of excellence and bring a renewed discipline to the University’s financial and operational planning. Creation of the multi-year financial plan puts the University on a sustainable path to achieving its goals and realizing its vision for the twenty-first century. The guiding principles for this plan include:

  • Keeping the University affordable and accessible
  • Investing in our students, faculty, and staff
  • Pursuing targeted savings opportunities to ensure the highest and best use of resources
  • Seeking solutions to provide the highest level of operational effectiveness
  • Remaining good stewards of resources and maintaining our AAA bond rating

The plan effectively utilizes endowment spending, the strength of the balance sheet, an efficient debt structure, a commitment to philanthropy, targeted operational efficiencies, and a tuition and financial aid model to improve affordability and predictability.

With the majority of the University’s research funding coming from federal grants, as well as its impact on federally funded student grants and loans, the federal budget remains a key consideration of our financial outlook. On November 2nd, President Obama signed the Bipartisan Budget Act of 2015 into law, which stabilizes federal spending for the near future by alleviating sequestration for fiscal years 2016 and 2017 and extending the nation’s debt limit until March 2017. The budget agreement includes an $8 billion increase in discretionary spending over two years, which will enable the House and Senate to increase funding for federal science agencies and education programs, including student aid. At the University, federal research awards increased over 6% in 2015. It remains a top priority of the University to continue to increase proposals and awards with the strategic recruitment of highly productive faculty aligned with research priorities. The University will continue to pursue partnerships with industrial sponsors to diversify its institutional research portfolio and directly support key research and scholarship elements of the Cornerstone Plan, creating new external sources of funding for research and opportunities for our faculty and students, such as new domestic and global internships, access to real-world problem sets, and the expansion of our global footprint.

The Commonwealth’s current budget reflects that state revenue collections will remain fairly flat in fiscal year 2016, but recent trends suggest that the economy continues to strengthen in Virginia and nationwide. The state’s general fund revenue collections increased 8.1% in fiscal year 2015 (well above the forecasted 4.7% growth), and forecasts for fiscal year 2016 and the next biennium are being reevaluated in preparation for the next biennial budget. The Commonwealth remains committed to diversifying the state economy and building a new Virginia economy with increased focus on job creation and business investments and less dependence on federal spending.

The University’s health system has continued to produce positive financial results. Looking forward, the health system’s top strategic planning goal remains becoming a top decile provider of clinical care among academic medical centers. Leadership has developed a long-range financial plan to achieve this goal within the context of an increasingly changing health care industry. Within the industry, there will be continued downward pressure on inpatient utilization and growth in demand for outpatient service; increasing costs associated with medical supply, pharmaceutical, and medical device expenses; a growing compliance burden; a shortage of health care workers; and continued responsibility to care for the medically underserved in Virginia. The Patient Protection and Affordable Care Act, signed into law in March 2010, continues to affect the health care industry as new substantive provisions were implemented this year. The impact will be decreased reimbursements from government payors despite increasing costs of medical delivery and an industry-wide erosion of pricing power with private payors. Medical Center volume growth is focused on high acuity patients and the clinical areas of cancer, the neurosciences, heart and vascular, and orthopedics.

Effective and attentive leadership, historical commitment to financial excellence, and a diversified approach will all help the University continue to succeed and excel in the future. While it is impossible to predict the ultimate results, management continues to believe that the University’s financial condition will remain strong.