I am pleased to report that fiscal year 2014-15 represented another year of strong performance for the University. Through the careful stewardship of our resources over many years, UVA is widely known for its unique combination of academic excellence and financial strength. Foundational to this leadership position, the talent and dedication of our faculty and staff continue to distinguish the University of Virginia and enable us to address with confidence the challenges facing public higher education.
UVA'S EXCEPTIONAL FINANCIAL STRENGTH
By leveraging our financial strengths and building upon them, we have created a consistent record of success over the past decade. In 2005, the University's total assets were $5.5 billion. At June 30, 2015, our assets have grown to $10.5 billion and, after liabilities, net position is $7.8 billion. We have a significant and thriving endowment with consistently strong performance. As of June 30, the University's endowment was valued at $4.4 billion; when coupled with investments from the University-related foundations, the total is just over $6 billion. Thanks to a history of excellent financial management and investment results, we were able to increase our endowment distribution by 40 basis points to fund important University-wide strategic initiatives while preserving the long-term spending power of our principal. At the end of 2014-15, we recorded an annual return on the long-term pool of 7.7 percent, and our returns over the past 20 years have consistently been in the top quartile of relevant industry benchmarks.
Of course, these stellar results reflect the commitment of our alumni, parents, and friends and their strong tradition of philanthropic support. On this foundation, the University has been able to establish more than 1,000 new endowments during the past decade, more than half of them for scholarship support, created the Frank Batten School for Leadership and Public Policy, and made significant investments in the physical plant across the Grounds. We achieved $243.9 million in philanthropic cash flow in 2014-15, of which a substantial portion was allocated to faculty support and student scholarships, as well as historic preservation and renovation. New philanthropic commitments totaled $339 million for the year, including future support designations. We will begin celebrating the University's bicentennial in 2017 and are planning a significant bicentennial campaign that will be among the most ambitious ever in higher education.
As has been the case historically, the University continues to thrive as a result of its diversified revenue base. Our patient services revenue is approximately $1.4 billion or 49% of total revenues and other sources of operational funding. The Medical Center produces consistently strong operating margins, approximately 4.9% last year. Endowment spending distribution accounts for about 6% and tuition and fees make up 17% of total revenues and other sources of operational funding. Following a period of decline related to the economic downturn of 2008 and its subsequent effects on federal research programs, research funding has begun to trend upward again. Grants and contracts now comprise approximately 10% of total revenues. State appropriations account for approximately 5% of our revenues. In a macroeconomic environment where state governments face many significant challenges, funding of higher education remains a high hurdle. Our diverse revenue base has enabled the University to thrive even when public funding remains uncertain.
This past year, the University initiated measures to capitalize on the strength of the balance sheet. We completed a complex restructuring of our debt portfolio and have developed a liquidity model that is designed to optimize investment opportunities while ensuring sufficient resources to address operational needs and strategic priorities.
These factors are among the many reasons that the University is one of just three public universities in the United States with a AAA bond rating from all three rating agencies — Standard & Poor's, Fitch Ratings, and Moody's Investors Service. We have earned this distinction for more than a decade. More importantly, we have been widely recognized for using our financial strength to deliver an outstanding education at an affordable price. We have been listed among the top three public universities in the U.S. News & World Report rankings since they were first published in 1988. Princeton Review ranked UVA the best value among public universities while Kiplinger magazine ranked the University No. 2 among “Best Values in Public Colleges.” U.S. News ranked the College at Wise second among top liberal arts colleges in the nation whose students graduate with a low debt load. U.S. News also recognized five UVA medical specialties in its “Best Hospitals” guide. These rankings, which highlight the University's strong brand relative to other universities and medical centers, are a reflection of our excellent financial position, our outstanding faculty, and our dedicated staff.
A SUSTAINED RECORD OF SUCCESSFULLY MEETING CHALLENGES AND FUNDING OUR ASPIRATIONS
American colleges and universities, especially public institutions and those with academic medical centers, have faced a daunting combination of pressures over the last decade including the changing landscape of federal and state funding, demands for greater affordability, and the generational turnover of faculty. The University of Virginia has faced these challenges head on.
Throughout the past year, University leaders worked closely with the Board of Visitors Finance Subcommittee to develop Affordable Excellence, a multi-dimensional model that ensures access and affordability to an increasingly diverse student body while sustaining excellence across the Grounds. By implementing this model, we are able to maintain our need-blind admissions policy and meet 100% of demonstrated need for in-state and out-of-state students. UVA is one of only two American public institutions to do so, a factor that helps us compete for talented students with the most elite universities across the country. Affordable Excellence lowers the net price of an undergraduate education for roughly 70% of Virginia families, reduces student indebtedness upon graduation for these families by $10,000, and creates a greater degree of predictability related to tuition and fees underscored by our new optional four-year, fixed-price base tuition contract.
At the foundation of our efforts to ensure both affordability and excellence is the multi-year financial plan, which we update annually. The plan ensures the sustainability and predictability of our financial model, improves our decision-making to keep the focus on our strategic priorities, and gives us a window into future needs. It brings renewed discipline to the University's financial and operational planning, addresses the challenges facing all of higher education, and helps us to maintain the position of strength that we have built over decades.
Innovative financial and operational management has enabled the University to make significant progress this year toward a number of goals called for in our academic and medical center strategic plans. Chief among our strategic priorities is planning for and identifying significant internal funding sources to address the generational turnover of faculty. Additionally, we awarded an average 4.75 percent salary increase to faculty for each of the last two years and in 2015-16, the average faculty salary increase is 4.5 percent. These are necessary investments that allow us to recruit and retain the best faculty in a highly competitive environment.
In the Cornerstone Plan, we have identified strategic priorities that will enrich and strengthen the University's distinctive residential culture, deliver new levels of student engagement through educational experiences, advance knowledge, and serve the public. At the College at Wise, faculty and staff remain focused on their dual mission of serving the region and promoting student success. We continue to make targeted investments to meet the evolving needs of students and faculty across the Grounds and the College at Wise as we build upon a foundation of excellence and prepare for the beginning of the University's third century.
OUR COMMITMENT TO QUALITY PATIENT CARE
Our obligation to our patients is straightforward: to deliver the highest-quality care at the right time and in the most appropriate setting. To successfully meet this obligation in the face of new reimbursement models and an aging population, institutions must differentiate themselves by the superior quality of care they offer and take a collaborative approach to building partnerships with neighboring hospitals and health systems. This year, the UVA Medical Center launched the Be Safe initiative, applying Lean organizational principles to improve the safety of patients and employees. Patients seek out medical centers with a proven record of safety, and skilled staff members choose to work in places where safety and outcomes are valued. We endeavor to be the top choice for patients and dedicated staff, and our Be Safe initiative is one way we are working toward this goal.
Equally important, community and regional providers are motivated to seek partnerships with medical centers that are known for the quality of their care. We have been intentional in the partnerships we form with such providers as Bon Secours Health System and Culpeper Regional Hospital to deliver high-quality specialty care to patients throughout the state. We aim to share our expertise and reinforce our partners' capacity to deliver more sophisticated care locally while providing greater access to the Medical Center for patients with complex and difficult-to-treat conditions. Having this critical mass is equally essential to our ability to conduct clinical trials and develop the next generation of physicians and nurses.
CONTINUED PROGRESS ON ORGANIZATIONAL EXCELLENCE
The University is constantly pursuing new, more effective and efficient ways to deliver services so that more resources can be devoted to educating and mentoring students, advancing research, and incorporating the latest innovations in health care. This is the essence of our Organizational Excellence philosophy. Our goal is to increase quality, eliminate duplication, enhance effectiveness, and promote efficiency, entrepreneurialism, and innovation.
With a focus on implementing best-in-class service models and processes to optimize resource alignment, we are targeting $150 million in savings to be reinvested in the University's core mission over the next seven years. This year, we made significant progress on our managerial reporting initiative designed to provide accurate, consistent, and accessible data and reporting to inform decision-making. We took the first steps in a major effort to reconceptualize and strengthen human resources service delivery across the entire University and we are delivering better information to research faculty through the ResearchUVa portal, as well as streamlining research administration. In addition, we have launched initiatives to realize efficiencies and produce greater effectiveness in strategic sourcing in key procurement areas including information technology and travel and expense management.
SETTING GOALS FOR 2015-16
The current fiscal year is already shaping up to be as busy and productive as 2014-15. Along with pursuing our Organizational Excellence initiatives, improving the use of liquidity, and investing in technology that will allow us to optimize our performance, we are devoting our attention to issues of enterprise risk management and compliance. Working with the Board of Visitors, we have identified nine top institutional risk categories and laid out a framework for mitigating risk in each area.
We recruited a nationally-recognized leader to serve in the newly created post of chief audit executive, and she is focused on transforming our audit mission to align with the enterprise risk management framework. We are developing a comprehensive information technology security enhancement plan and will make critical investments over the next two years to ensure state-of-the-art cybersecurity.
Fiscal year 2015-16 marks the first full deployment of the new University Financial Model. This model promotes transparent decision-making, incentive-based allocations, and prudent stewardship of the University's resources. It empowers individual academic units to be innovative and cost-efficient, and built-in incentives encourage entrepreneurship and collaboration among deans, administrative leaders, faculty and staff.
Finally, nothing is more important than the safety and security of the University community. We made a number of important investments in safety in 2014-15 and continue to focus on these issues in the new fiscal year.
A STRONG FOUNDATION FOR FUTURE SUCCESS
Most important to our success are the dedicated staff and faculty who work together to provide the highest quality academic experience and clinical care. We continue to invest in developing leadership competency among our managers. Central to retaining a high-performing workforce, we offer our employees opportunities to develop new skills and progress along a career path at the University.
In interactions with our people at all levels, I see a widespread and heartfelt commitment to the University's mission and a determination to do whatever is necessary to meet the needs of our students, patients, and stakeholders throughout the Commonwealth and the world. The University of Virginia is positioned well to face future challenges and capitalize on opportunities, both those we know now and those that will emerge in the future. By remaining focused on innovation and continuous improvement, we will be an even stronger and better University in the coming years.
On behalf of the entire University, I am grateful to our staff, faculty, students, alumni and friends for their continued commitment to the University today and in the future.
Patrick D. Hogan
Executive Vice President and Chief Operating Officer