We budgeted for reductions of $25 million or 16 percent of our General
Fund appropriations in 2002-2003, and $33 million or nearly 21 percent
of our state funding for 2003-2004. And as the state's financial picture
grew dimmer, we prepared for more. On October 18, 2002, Governor Warner
released plans that called for an additional 12 percent ($16 million)
in budget reductions for the current year and 14 percent ($17.8 million)
for 2003-2004. When added to the first round of cuts, the total reduction
in our tax appropriation for the current year equals $42 million,
a
25 percent reduction, and nearly $52 million for 2003-2004. Since
making the most recent reductions, the governor has warned state agencies
that more cuts may be necessary, particularly for 2003-2004.
I am often asked whether conditions today are worse than when we last
faced severe cuts in the early 1990s. The answer is no. We are better
organized to deal with adversity, we have instituted administrative
efficiencies, and we have increased and sustained the support we receive
from non-state sources, including generous alumni and friends.
If we continue to manage ourselves wisely and reduce our expenditures
in ways that do not endanger the quality of our academic and patient-care
programs, we will come out of this crisis stronger still.
Protecting Our
People
Previous downturns have taught us that, in times like these, we must
act quickly and firmly to cut costs. As we entered this fiscal year,
we reduced the base budgets of academic departments by 4.35 percent and administrative departments by
4.6 percent. At mid-summer, as the magnitude of the revenue shortfalls
in Richmond loomed larger than expected, we imposed a hiring freeze
and put discretionary spending on hold.
The reductions in state funding do not affect all parts of the University
equally. While the University as a whole now will receive less than
9 percent of its support from the Commonwealth, areas such as the
University Library, the School of Architecture, and the College of
Arts and Sciences rely on state general funds for a major share of
their revenues. We must take this into account as we decide where
to marshal our resources. We must also recognize that the University
is an enterprise that depends on people for its success. As we reduce
our budgets, we remain committed to protecting our investment in our
faculty and staff. This is a key step in ensuring that all qualified
students have access to a University education that is second to none.
Protecting the Quality of
Care
In the University Health System, we must contend with state and federal
cuts at a time when the costs of providing medical care are rising
sharply, the number of uninsured patients continues to grow, and the
need to train competent physicians and nurses is increasing. We have
a strong team in place to deal with these difficulties, thanks in
large part to steps taken by the Board of Visitors to reshape the
Health System's governance and management structure. With Ed Howell
as the new vice president and chief executive officer of the Medical
Center and Dr. Tim Garson as vice president and dean of the School
of Medicine, we have two seasoned administrators who are working in
partnership to meet our educational and patient-care goals.
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Promising Sources of Support
It
means a great deal to us that the voters of Virginia approved the
general obligation bond issue that went before them in November.
Providing $846 million for higher education, including $68 million
for the University, this measure will take advantage of current
interest rates and the state's substantial debt capacity to meet
the facilities needs of public colleges and universities. For our
part, these funds will allow us to move forward on building and
infrastructure projects that are critical to our academic programs
and that will enhance our ability to work collaboratively across
disciplines.
To help its public institutions offset the loss of state tax dollars,
the Commonwealth has rescinded the in-state tuition freeze imposed
in the mid-1990s. Accordingly, one way we are addressing the shortfalls
is to make use of our newly regained ability to manage our pricing
structure. Increases in tuition replaced about half the money lost
to the initial state funding cuts, but even at these new levels,
our tuition rates remain substantially below prices charged by universities
with which we traditionally compete for students. In
fact, our in-state tuition rates remain below what they were in
1993-94. We will use a portion of the tuition increase to help maintain
our commitment to meeting 100 percent of our students' demonstrated
need for financial aid-a commitment we can live up to thanks in
part to scholarships created by our donors. In recent days, the
Board of Visitors has authorized a mid-year tuition surcharge to
help offset a portion of the additional cuts that have been imposed
on the University this year.
One reason we are better able to weather the state's current financial
setbacks is increased philanthropic support from alumni, friends,
corporations, and foundations. Through the generosity of our donors,
we can continue to expand and renovate our facilities, attract and
retain distinguished faculty, meet the financial needs of our students,
and build world-class programs across the Grounds. In 1999, we determined
that we would have to raise $250 million in philanthropic support
annually by fiscal year 2005 to secure our place among the nation's
finest institutions, public or private. In 2001-2002, we reached
this benchmark, receiving $255 million in gifts. We will work diligently
to secure the continued loyalty of our donors and to assure them
that we remain worthy of this extraordinary level of generosity.
Stewarding Our Resources
Our donors can look with confidence at how we manage the resources
they invest in the academic enterprise. Excluding funds held by
University-related foundations, our endowment stands at $1.7 billion,
a three-fold increase in the last ten years. Over the past three
years, a time of broad market declines, we have achieved an annualized
return on our endowment of 13.6 percent. This strong performance
is the result of extraordinary management by the University of Virginia
Investment Management Company (UVIMCO) board. The board and the
UVIMCO management team limited our exposure to equities just as
the stock market began to give ground in spring 2000.
Through continued innovation, disciplined management, dedicated
employees, and diversification of our sources of support, we will
come through this tough economic climate as a stronger and more
confident institution. As we focus on near-term priorities, we will
stay true to our long-term vision and our determination to leave
our successors in 2020 a University that stands among the finest
and best managed in the world.
Sincerely,
Leonard W. Sandridge
Executive Vice President
and Chief Operating Officer
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