|The Financial Report,1993-94|
The information presented in Figure 1 represents solid
performance. Over the four-year period, June 30, 1990, to June 30, 1994, the
University's expendable fund balances have exceeded the University's growth in
expenditures. However, the current year's performance of 76 percent represents
a decrease from 1993's 81 percent. During fiscal year 1994, the University's
expendable fund balances essentially stayed at their 1993 levels, while
expenditures increased just under 7 percent. The major reason for the lack
of growth in expendable fund balances was that the quasi-endowment funds'
market value, which comprises over half of the University's expendable fund
balances, was unchanged from 1993.
Figure 2 shows the net revenues as a percentage of total revenues for the University's operating segments, measuring the degree to which revenues exceed expenditures. On a consolidated basis, the University's revenues exceeded expenditures during the year by 3.2 percent, a decrease from 1993's 4.6 percent. Each of the three operating units of the University, educational and general, auxiliary enterprises, and the medical center experienced decreases in their percentages for 1994 compared to 1993.
A major reason for the consolidated percentage decrease was that the medical center's net revenue as a percentage of total revenue decreased from 4.6 percent in 1993 to 2.2 percent in 1994. The decline was attributable, in part, to a continued slowing in the growth of revenue because of reduced inpatient activity. A more detailed discussion of the medical center's financial activity is presented later in this report.
Since 1991, the educational and general segment percentage has been decreasing and now stands at its 1990 level. The decreasing percentages correspond to the reduced state support the University has received since 1991. The 1994 result, although adequate, was not unexpected given that state appropriations increased by only 3.5 percent. Although other educational and general revenues increased 9 percent and exceeded the growth in expenditures of 8 percent, this activity did not fully compensate for the low growth in state appropriations for 1994.
The auxiliary enterprises experienced a slight decrease
from last year and the combined percentage of net revenues stands at just over
14 percent. When evaluating the results for the auxiliary enterprises, it must
be noted that the percentages do not reflect all expenditures related to the
replacement of equipment and renovation of facilities. Such expenditures,
which are a significant component of their operations, are generally recorded
in reserve accounts that are not included in the current funds. It is also
important to note that the auxiliaries are required to generate all revenues
through use charges and, therefore, do not receive state appropriations.
Despite the wide variance in debt service percentages, each
segment's measure is well within acceptable guidelines. The significant
improvement in the medical center's percentage for 1994 is a result of the
medical center's debt refinancing in 1993. The 1993 percentage was unusually
high due to the defeasance of the medical center bond issues.
In managing the endowment, the University must strike a balance between the dual and often competing objectives of providing income to the current University community and of providing growth in the underlying assets, so that a gift given today will provide the same level of real support to the future University community. In order to satisfy these dual objectives, the Consolidated Endowment, totaling $506 million, sets its annual distribution to the University at approximately 4 percent of the market value, leaving the excess return over spending to the appreciation of the underlying assets. The Eminent Scholar Endowment, totaling $97 million, is the investment fund for endowment assets which are eligible for income supplements by the Commonwealth. In order to maximize participation by the Commonwealth while allowing for limited appreciation, spending for the Eminent Scholar pool is set at approximately 6 percent. The remaining $45 million represents separately invested endowment assets. Not included in the endowment controlled by the University are assets held in trust for the benefit of the University and endowments held by the University's related foundations.
For 1994, the Consolidated Endowment distributed $23 million
and the Eminent Scholar Endowment distributed $5 million. The use of endowment
income may be restricted to a specific purpose by the donor or it may be
unrestricted and directed at the president's discretion. As of June 30, 1994,
68 percent of the total endowment was restricted and 32 percent was
In response to changes in the health care market-place, management has implemented its Value Improvement Plan to improve patient services and to reduce the costs of those services. By implementing a hiring freeze, the medical center was able to reduce the number of FTEs from 4,866 in August 1993 to 4,416 by June 1994. This allowed the medical center to limit the growth in operating expenses to 2.6 percent for 1994.
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