for the fiscal year were excellent once again. The University's
financial strength was augmented by an increasing stream of revenues,
superior performance of the endowment, and the continued success
of the Capital Campaign. Moody's Investors Service confirmed the
University's financial position by upgrading its General Pledge
Revenue Bond Issues from an Aa1 to its Aaa rating. The Aaa rating
is Moody's highest, denoting the smallest degree of investment
risk. Only two other public universities with medical centers
have been assigned this superior rating.
University's strong financial position is evidenced in its balance
sheet. Total fund balances increased from $3.1 billion to $3.8
billion, a 20 percent increase. Total assets increased 19 percent
to $4.4 billion. From a liquidity perspective, total current fund
assets of $473 million are available to cover $187 million of
total current fund liabilities.
The University's endowment comprises almost half of total
fund balances, providing stability and strength.
The endowment comprises almost half of the University's fund balances.
It provides the margin of excellence in recruitment and retention
of our faculty, and it provides financial stability to the University's
diverse operations. While private giving continues to bolster
the endowment, the University's investment returns have also contributed
to its strong growth. The endowment fund balance increased from
$1.3 billion last year to approximately $1.8 billion this year:
almost a 38 percent increase.
two debt-related ratios provides another picture of the University's
financial strength. The ratio of unrestricted operating resources
to debt comes to 224.6 percent. Thus, there are $2.25 of unrestricted
resources available to pay each $1 of debt. Unrestricted resources
are particularly important since they are available for general
use and not restricted to any one type of activity. These are
the most flexible funds the University possesses. Examining total
resources to debt provides a ratio of 709.6 percent. Thus, total
resources cover outstanding debt 7 times over. This is a significant
increase from our five-year average of 5.8 times coverage, and
illustrates the financial reserve strength of the institution.
Growth (in Millions)
This fiscal year the University's endowment reached nearly
$1.8 billion and represents the strength of the University's
conservative fiscal policies and responsible investment
University's balanced revenue streams create a stable funding
base for its operations. For the academic division, there were
four major sources of Educational and General (E&G) funds.
Both grants and contracts and state appropriations provided 27
percent; tuition and fees provided 25 percent; and endowment income
and private gifts provided 16 percent. (Please note that the numbers
for sources and uses exclude the $52.1 million of federal Direct
Lending activity for the 1999--00 fiscal year.)
of Educational and General Funds
The University retains good balance among its four major
sources of E&G revenue.Such diversification provides
flexibility against a decrease in any one revenue source.
tuition and fees declined from the prior fiscal year while state
appropriations increased. Why? The Commonwealth chose to reduce
in-state tuition for the benefit of its citizens, and then provided
additional state appropriations to cover the reduction in tuition
revenue. This strategy caused the slight dip in tuition revenue.
reduction of the in-state tuition rate actually places the University
in a stronger competitive position. The University's in-state
rate for fiscal year 1999 was $4,866 compared to its national
peers' average of $3,844. That was a difference of $1,022 per
in-state student. Now the University's rate is $4,130 as compared
to its national peers' average of $3,966: only a $164 difference
per student. The result? Not only is U.Va. priced more competitively
against its national peers, but it has more flexibility in increasing
tuition should future increases become necessary.
out-of-state tuition, the picture is similarly positive. The University's
out-of-state rate is $16,603 compared to its private national
peers' average of $23,151. The difference of $6,548 per student
provides a buffer against future cost increases.
and contracts provided 27 percent of the revenue base. This also
reflects a trend of increasing awards over the past five years.
For this fiscal year, grant and contract awards increased by another
12 percent. The largest contributor to this growth remains the
School of Medicine through its awards from the U.S. Department
of Health and Human Services. The School of Medicine provides
over 50 percent of total grant and contract revenue.
examination of several categories of Educational and General funds
reveals how the University spent its funds and supported its primary
programs. In total, expenditures for instruction, research, academic
support, and student services increased $30.4 million or 7.2 percent
this fiscal year.
of Educational and General Funds
Expenditures were heavily weighted toward the University's
primary missions of instruction and research. These two
uses accounted for 58% of total expenditures.
spent on instruction increased from $194.5 million to $209.9 million,
a $15.4 million or 7.9 percent increase. Research expenditures
increased by $9.0 million to a total of $145.9 million, up 6.6
percent. Thus, the University devoted an additional $24.4 million
to two of its primary missions of instruction and research.
but still significant increases were reflected in academic support
and student services. Academic support grew $4.0 million to a
total of $78.6 million, while student services increased $2.0
million or 12.7 percent to $18.1 million.
service expenditures dropped slightly, by 0.6 percent. The University
plans to make substantive improvements in this area. One of the
four 2020 Planning Commissions convened by President Casteen has
as its focus Public Service and Outreach activities.
support showed an increase of 8.8 percent to $50.8 million. This
increase was due in large part to the University's goal of replacing
its outdated administrative systems with an integrated suite of
systems from Oracle Corporation. Absent these new integrated systems
expenditures, institutional support would have decreased by $3.0
million this year, a 6.4 percent decline.
figures demonstrate the University's continued commitment to holding
down administrative costs and increasing support of its primary
missions. The investment in the new integrated systems, while
significant, is consistent with the University's pursuit of and
commitment to using new technologies.
here we are not afraid to follow the truth wherever it may lead,
nor to tolerate any error so long as reason is left free to
combat it." -- Thomas
words of the University's founder still ring true into the new
millennium. We must continue our commitment to the same sound
financial practices the University has employed over time, and
that commitment must be combined with an open-minded willingness
to examine new tools and employ new technology in order to meet
the University's future challenges. A simple list of future capital
projects is illustrative of the challenges before us: renovations
to academic buildings and dormitories; additions to a professional
school complex and intramural facilities; and new construction
of vivarium facilities and parking garages. Then there are the
recommendations emanating from the 2020 Planning Commissions,
such as fulfilling the critical demand for additional research
space and creating a new arts precinct. The growing list is daunting.
meet these future needs the University will require ongoing state
support, the continued generosity of donors and alumni, and close
attention to its bottom line. As stated in the beginning, Moody's
Investors Service upgraded the University's bond rating to Aaa
status. This upgrade was based on sound financial management over
an extended period of time, not just the result of one or two
year's growth. For example, our required debt service payments
represent only 3 percent of annual operating expenditures. And
expendable funds are more than five times the level of outstanding
level of additional bond financing will be required to meet the
University's capital needs. But for each capital project, the
University will require a significant initial gift and a dedicated
revenue stream to meet the cost of the debt. This prudent strategy
will ensure that the required debt service payments remain low
and that expendable funds are sufficient to cover outstanding
balances. For example, the University's Debt Advisory Committee
adopted a 4 percent debt service to revenue ratio. Of particular
note is that this ratio is more conservative than the 5 percent
limit adopted by the Commonwealth of Virginia Debt Capacity Advisory
that this review of the Medical Center's financial results is
based on the reporting standards as prescribed by the AICPA's
audit and accounting guide entitled Health Care Organizations.
Certain reporting standards are different than the reporting standards
upon which the University's consolidated financial statements
are based. The University's consolidated financial statements
are based on the audit guide, Audits of Colleges and Universities.
maintain its financial strength in a competitive health care market,
Medical Center management continues to improve patient services
while controlling costs. As a result of these efforts, the Medical
Center increased its operating income from $10.1 million net income
in 1999 to $21.9 million in 2000. Net revenue after non-operating
gains and losses increased from $5.7 million in 1999 to $24.9
million in 2000. This increase resulted from the Medical Center's
ability to increase its total revenue by 3 percent while holding
growth in expenses to less than 1 percent. Although there was
modest growth in revenue from inpatient services, the Medical
Center's shift in services to the outpatient area is evidenced
by a 15 percent growth in outpatient revenue.
The portion of gross revenue actually collected increased as a
result of improved payments from third parties; however, these
gains were partially offset by continued decreases in Medicare
reimbursement. The Balanced Budget act reduced Medicare reimbursement
by $3.6 million during 2000 and is expected to further reduce
Medicare revenue by $4.2 million in 2001. An increased level of
third-party coverage for our patients, and therefore a decline
in the number of patients eligible for indigent care or on a "self-pay"
status, can be attributed to the current strong economy.
negligible growth in operating costs resulted from two factors:
a continuing labor shortage and associated staff vacancies, and
effective resource management. The labor shortage will likely
continue for nurses and various technical positions until at least
2004. This shortage has and will continue to drive up labor costs
for these employees. Resource management has been particularly
important in the area of pharmaceutical costs. With the rapid
growth in the number of new drugs and the continued rise in drug
costs, new techniques have been implemented to control drug costs.
A greater emphasis on medical management is designed to ensure
that the proper drug is prescribed for each patient, while new
robotic technologies are being employed in the pharmacy to fill
prescriptions in a more cost-effective manner.
a result of the increase in revenues and leveling of expenses,
the Medical Center had a 4.4 percent operating margin, which compares
favorably with that of other academic medical centers around the
country. The principal source of non-operating gains was investment
income derived from the Medical Center's investment of its depreciation
reserve fund with the State Treasurer. The non-operating loss
from investments in affiliated companies of $1.5 million includes
operating losses incurred by the Blue Ridge Health Alliance, which
provides health plans to employers in Virginia under the name
of QualChoice of Virginia, and Health South, which operates an
acute rehabilitation hospital.
admissions decreased by 2.5 percent during 2000. During this same
period, length of stay decreased from 5.4 days to 5.3 days. As
a result of these decreases, patient days declined by 3.0 percent
to 149,861. During this same period, outpatient visits, including
visits to the emergency room, grew by 2.1 percent to 543,047 visits.