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Year
in Review
Successfully navigating through turbulent conditions, the University
of Virginia concluded the 2000-2001 fiscal year in a strong financial
position. The pooled endowment generated a 2 percent positive
return despite a weak economy and volatile markets. All revenue
streams continued to grow and remained well balanced, providing
protection against uncertain times. The University's financial
strength was recognized once again by a credit rating agency when
Fitch, Inc., upgraded the University's General Pledge Revenue
Bond issues to AAA, its highest category. Last year, Moody's
upgraded the University to Aaa, their highest credit rating, and
one shared by only two other public universities. Both upgrades
demonstrate the high level of confidence the financial community
places in the University.
Financial Position
The University's balance sheet once again revealed the institution's
strong financial position. Total assets increased 11.3 percent
to almost $4.9 billion. From a liquidity perspective, total current
fund assets of $566 million are available to cover $204 million
of total current fund liabilities.
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Fund
Balances
The University's endowment comprises almost half of total
fund balances, providing stability and strength. |
Total fund balances increased 5.3 percent to $4 billion. All individual
fund balances increased again this year, with the exception of
endowment and similar funds. The University raised its endowment
distribution, providing increased support for critical school
needs, such as faculty recruitment and retention. The additional
funds also provided a significant increase in student financial
aid. While the endowment fund balance decreased slightly by 1.5
percent, the endowment still comprises almost half of the University's
fund balances, providing financial stability and flexibility.
Due to implementation of Statement No. 33 of the Governmental
Accounting Standards Board this year, the University recorded
pledge receivables of $43.4 million in its balance sheet for the
first time. Of this total, $30.9 million was recorded in current
funds, restricted, and $12.5 million was recorded in plant funds.
These pledge receivables were discounted and reported net of an
allowance for uncollectible pledges.
Investment in plant increased $136 million or 7.8 percent to a
total of $1.88 billion, reflecting the University's ongoing commitment
and financial ability to build prudently for its future needs.
The Scott Stadium expansion was concluded for a total of $90.2
million; new construction costs during the year were $16.5 million.
Other capital projects of note were the Darden School expansion
($14.4 million), the new Medical Research building ($22.3 million),
and the Medical Center's acquisition of the Jefferson Park Center
($6.4 million).
Examining two debt-related ratios provides another picture of
the University's financial health. The ratio of unrestricted
operating resources to debt is 212.1 percent, indicating there
are $2.12 of unrestricted funds available to pay each $1 of debt.
These funds afford the University enormous flexibility because
they are available for general use rather than specific purposes.
The ratio of total resources to debt is 677.6 percent. Thus, total
resources cover outstanding debt almost seven times over, illustrating
the strength of the University's financial position.
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Endowment
Growth (in Millions)
The University's endowment remained very stable at $1.74 billion
despite market volatility. |
Revenue Sources
The University's revenue streams create a solid funding base
for its operations. For the academic division, there were four
major sources of educational and general funds. Grants and contracts
provided 28 percent; state appropriations provided 25 percent;
tuition and fees provided 25 percent; and endowment income and
private gifts provided 17 percent. By maintaining this comparative
balance in revenues, the University avoids relying heavily on
any one stream of income. It should be noted that figures for revenue
sources and uses exclude the $51.4 million of federal Direct Lending
activity for the 2000–2001 fiscal year.
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Sources
of Educational and General Funds
The University retains good balance among its four major sources
of E & G revenue. Such diversification provides protection
against a decrease in any one revenue source. |
Last year this report noted that "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." After last year's slight decline
in revenue from tuition and fees, the University experienced an
increase of $10 million or 5.9 percent this year due to its continued
strong student demand as undergraduate and graduate enrollments
both increased.
Grants and contracts rose as a share of the revenue base from
27 percent to 28 percent, continuing a trend of increasing awards
for research, public service, and educational initiatives over
the past five years. 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 provides more than 60
percent of total grant and contract revenue received by the University.
In the face of pressing national security issues, federal funding
for biotechnology is likely to increase. The University and the
School of Medicine are well positioned to meet this anticipated
research demand.
Uses of Funds
The University's top-priority missions of instruction and
research continue to draw almost 60 percent of total educational
and general funds. Educational and general expenditures increased
$44 million or 6.5 percent, and of this amount, $29 million was
devoted to instruction and research. Funds spent on instruction
grew from $207.3 million to $226.5 million, an increase of more
than $19 million or 9.3 percent. Research expenditures rose $10
million or 6.9 percent to $154 million.
Smaller increases occurred in scholarships and fellowships, student
services, and academic support. Scholarships and fellowships increased
by $3.3 million to $120 million, while student services rose $1.2
million to $18.8 million, and academic support grew by $3.2 million
to a total of $83.3 million.
Institutional support rose 16.2 percent to $54 million, due largely
to the University's replacement of outdated administrative
systems with an integrated suite of systems from Oracle Corporation.
In July 2001 the University successfully launched the Oracle financial
accounting modules; the Oracle human resources and student information
modules remain to be implemented in the next two phases.
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Uses
of Educational and General Funds
Expenditures are heavily weighted toward the University's
primary missions of instruction and research, which account
for 57 percent of total E & G expenditures. |
Meeting Future Challenges
The University faces many challenges as it strives to maintain
its status as one of the top-ranked public institutions in the
country. Numerous capital projects lie ahead, including a new
basketball arena, additional parking facilities, and critical
research space. Meeting these needs will require the sound financial
practices and discipline the University has employed over time.
The University's Debt Advisory Committee will examine each
project to ensure that the 4 percent debt service to revenue ratio
is maintained. Additional capacity is available as we head into
the new year. Our AAA rating by Fitch, Inc., and our Aaa designation
by Moody's will ensure that we obtain financing at the best
possible rates.
The University's financial condition will be presented and analyzed
in a new format next year. As discussed in Notes
to Financial Statements, the University of Virginia will adopt
the provisions of Statement No. 35 of the Governmental Accounting
Standards Board: Basic Financial Statements--and Management's
Discussion and Analysis--for Public Colleges and Universities
(GASB 35), effective for fiscal year 2002. This statement will
require the replacement of the three audited financial statements
presented herein with three new financial statements: (1) Statement
of Net Assets; (2) Statement of Revenues, Expenses, and Changes
in Net Assets; and (3) Statement of Cash Flows. The most visible
alteration will be the elimination of traditional fund group classifications.
In addition, GASB 35 will require significant changes to the footnote
presentation and will change the Financial Highlights section
to a Management Discussion and Analysis. These extensive changes
are designed to simplify financial reporting and to provide information
in a format more easily understood by readers of the financial
statements.
Medical Center
Note: This review of the Medical Center's financial
results is based on the reporting standards prescribed by the
AICPA's audit and accounting guide, Health Care Organizations.
Certain reporting standards are different from 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.
The Medical Center's operating income was $14.7 million in
2001. Net revenue after non-operating gains and losses was $21.5
million. The Medical Center remains financially competitive relative
to other academic medical centers in the United States. To sustain
its financial strength in a competitive health care market, Medical
Center management continues to strive to improve patient services
while controlling costs. Outpatient services have increased over
the last several years, reflecting an ongoing shift in patient
needs.
In August 2000, the Medical Center assumed management of the outpatient
clinic operations. This new arrangement, in addition to changes
in third-party payor contracts and rate increases, resulted in
a rise in both gross and net patient revenue. The strong economy
in fiscal year 2001 brought about an increase in the level of third-party
coverage for patients and a decline in the number of patients
eligible for indigent care or who received care on a self-pay
basis. Although revenue increased overall, the Medical Center
continues to see a decline in Medicare reimbursement as a result
of the Balanced Budget Act of 1996.
Operating costs grew this year largely as a result of salary increases
and implementation of other special programs to help the Medical
Center attract and retain health care personnel. The labor shortage,
which will likely continue for nurses and various technical positions
in the foreseeable future, has and will continue to drive up labor
costs for these employees. The rapid growth in the number of new
drugs and the continued rise in drug prices also have contributed
to the increase in operating costs and make pharmaceutical cost
management a particular challenge. We have used new techniques
and procedures, including new robotic technologies in the pharmacy
to fill prescriptions in a more cost-effective manner.
As a result of operations, the Medical Center had a 2.4 percent
operating margin. The principal source of non-operating gains
was income derived from the Medical Center's investment of
its depreciation reserve fund with the Treasurer of Virginia.
The non-operating loss from investments in affiliated companies
of $2.3 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 HealthSouth,
which operates an acute rehabilitation hospital.
Hospital admissions decreased by 2.1 percent in fiscal year 2001.
During this same period, length of stay was up from 5.3 days to
5.5 days, due largely to an increase in patient acuity. These
factors resulted in a slight increase in patient days. During
this same period, outpatient visits, including visits to the emergency
room, grew by 4.5 percent to 567,525.
Treasurer Wins Top Honor
Alice W. Handy, the treasurer of the University, received
the National Association of College and University Business
Officers' Rodney H. Adams Award for her leadership role
in the growth of the University's endowment. During her
tenure, the pooled endowment fund has grown from $60 million
in 1974 to approximately $1.7 billion in 2001. |
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