Introduction of committee members and approval of minutes

Chairman Young opened the meeting by welcoming everyone and introducing himself. An introduction of the other committee members was made and a listing of all members was distributed along with the committee s website address. Chairman Young stated that the two functions of the committee are to communicate financial issues back to other faculty and to provide input to senior university administrators in an advisory role. The Committee therefore serves as a conduit of information between the various divisions and the administration on budgetary matters.

The Committee meets four times each year.

The following are preliminary meeting dates for fiscal 2001: Wednesday, December 13, 2000 (2:00 4:00 @ Public Health); Wednesday, March 14, 2001 (10:00 12:00 @ Homewood); Wednesday, May 16, 2001 (10:00 12:00 @ Homewood.) The minutes of the meeting of May 18, 2000 were approved as distributed with the following change to the last paragraph of item five, managing debit balances in sponsored research accounts: There was an issue raised by Dr. Ellis that decisions on how to clean up accounts must be made cooperatively by all parties involved in the process. It was agreed that Dr. McGill, Dr. Ellis and Mr. Bridges will work together to draft a document describing a process for communicating account cleanup requirements among relevant faculty, departmental administrators, divisional business offices and central administration, and send it out for comment.

Fiscal 2000 operating results

The University closed fiscal 2000 with a surplus of $6.6 million based on the traditional way of reporting, modified slightly. This compared favorably to the budgeted surplus of $2.2 million, as shown on Attachment 1. The Applied Physics Laboratory (APL) and the School of Hygiene and Public Health account for almost the entire surplus. All other divisions ended the year in balance or with a small surplus.

CHANGES IN FUND BALANCES

The reported surplus of $6.6 million does not fully depict the improvement in the University s overall financial picture. In addition to the surplus, the divisions added funds to reserves for use in future years. These additional funds significantly improved the University s bottom line. Moreover, the reported surplus does not include improvements to the financial health of the University from growth in endowment and physical plant assets.

Increases to reserves result from a variety of transactions. If gift income, endowment payout, and other revenue are in excess of budget, those additional revenues are carried over to the next fiscal year in the form of reserves. General funds not needed to cover general fund expenses may also be transferred to designated accounts to fund anticipated expenditures that will take place in future years. The $6.6 million surplus represents the unspent general funds remaining at the end of the fiscal year. The operating surplus of the University in fiscal 2000, including general funds transferred to designated accounts, totaled $15.5 million. Finally, the total increase in the reserve fund balance for fiscal 2000, including transfers, was $45.5 million.

Attachment 2 displays the preliminary total change to reserve balances for fiscal 2000 of $45.5 million. With few exceptions, all the divisions added to their reserves. Of particular note are the School of Public Health ($17.2 million), Medicine ($9.8 million), Academic & Cultural Centers ($7.7 million), and Engineering ($3.4 million). Two major sources of additional funding for these transfers are facilities and administrative cost recoveries revenues in excess of budgeted rates ($9.0 million) and the InteliHealth settlement ($15.9 million). It should be noted that much of this increase in reserves is designated for various future uses, such as capital projects.

CHANGE IN REPORTING FORMAT

This financial report contains a modest change in format (Attachment 3) compared to reports in prior years. To more completely reflect revenue attainment and actual spending during the fiscal year, the financial documents provide sub- totals of revenues and expenditures before transfers, as well as after transfers. The pre-transfer revenues and expenditures are compared and shown on a line titled Operating Surplus/Deficit (line 29). This change is made in an attempt to capture the change in financial status of a division before transfers to or from reserves are made as a result of variances between budgeted revenues and expenditures and actual results. This new format shows that while the University had a $6.6 million surplus (see line 32), its operating surplus was actually $15.5 million (see line 29). (Transfers from general funds to designated accounts ($8.9 million) make up the differences between surplus and operating surplus.) In addition, the University also improved its net assets by another $30 million, resulting in the $45.5 million increase in fund balance reflected in Attachment 2.

REVENUES

Total revenue was $1.95 billion, 5.2% more than budget, as shown on Attachment 3. This was an increase of 10% over fiscal 1999. General fund revenue totaled $811 million, a 9% increase over fiscal 1999. This growth was driven by increases in tuition and fees (up $22 million, 9%), clinical services (up $14 million, 8%), endowment payout (up $12 million, 35%) and affiliated organizations (up $7 million, 45%). Much of this growth was anticipated in the fiscal 2000 budget, as actual general fund revenue attainment was only 3% over budget. Tuition and fees (driven by increases in Engineering, Academic and Cultural Centers, Arts and Sciences and the School of Professional Studies) and clinical services accounted for the majority of the over- attainment.

Facilities and Administrative (F&A) cost recoveries revenue was lower than budgeted by $1.3 million. This decrease is due to lower than budgeted effective recovery rates and the write-off of some inactive sponsored accounts. Even with these under-attainments, total receipts (including unbudgeted recoveries set aside for one-time projects) grew by $10.2 million, or 7.2%, when compared to fiscal 1999. This growth rate is in line with the growth in the research base for organized research and other sponsored activity, which grew by 8.6% and 6.5%, respectively.

Sponsored and designated revenue grew by a robust 11% ($118 million) over fiscal 1999, totaling $1.1 billion. This compares favorably to the 3.5 % growth rate experienced last year. Compared to budget, there were significant increases in designated revenue. Gifts revenue exceeded budget by $44 million (63%) and discretionary funds were $36 million more than budget. Chairman Young asked why these items were so large compared to budget. Mr. Puddester, Executive Director of University Budgets, responded that under the current reporting scheme revenues are recognized only when they are incurred as expenditures. In particular, the significant expenditures in operation and maintenance of plant and student services (for the Homewood campus improvements, student arts center, and recreation center) were offset by gift and discretionary revenues. Beginning in fiscal 2001 designated revenue will only be reported when received and not when expended.

EXPENDITURES

Total spending was $1.94 billion, exceeding the original budget by $82 million, or 4.4%, as shown on Attachment 3. Most of the difference compared to budget was in sponsored and designated funds, which came in almost 7% in excess of budget, reflecting that increase in revenues. Compared to fiscal 1999, total spending increased by $171 million, or 10%.

General fund expenditures totaled $795 million, which represents an 8% increase over fiscal 1999. All expenditure categories increased over fiscal 1999 levels, except auxiliary enterprises, which were essentially flat. Actual expenditures were generally consistent with budget across the board.

Expenditures for sponsored and designated programs grew by 12% compared with fiscal 1999. This year s spending also exceeded budgeted amounts, especially in instruction and research, operation and maintenance of plant and student services. Expenditure of gift revenue exceeded budget by $43 million. These expenditures related principally to improvements at the Homewood Campus and include the Inter- faith Center, Student Arts Center, Student Athletic Center and the open space project. Discretionary spending was also over budget as funds were allocated to faculty start-ups and a holding account for the Oncology Research Building was transferred (expended) to a capital project account. These amounts were partially offset by APL spending, which was $4 million under budget.

DIVISIONAL RESULTS

Almost all of the divisions met or exceeded budget for fiscal 2000. Most of the variances from the original budget were less than 2%. In all instances, the additional spending was covered by over-attainment of revenue. Thus all divisions ended fiscal 2000 in balance or with a surplus. The following notes address the major variances from budgets in particular divisions.

Krieger School of Arts and Sciences

The Krieger School of Arts and Sciences ended the year on budget. Tuition and fees and F&A revenues both came in over budget, $1.3 million and $1.8 million respectively. This allowed the division to reserve $1.4 million of budgeted gifts for future use. In addition, the anticipated $726 thousand transfer from reserves was not needed and remained in reserve. The division transferred $2.2 million to designated accounts for future expenditures at the 1717 Massachusetts Avenue facility.

G.W.C Whiting School of Engineering

The Whiting School of Engineering ended fiscal 2000 in balance. Revenues from tuition and fees came in $1.9 million over budget due to an increase in full-time undergraduate enrollment. F&A revenues were also in excess of budget by $483 thousand. Expenditures were slightly under budget in almost every category, totaling $667 thousand, or 1.6% less than budgeted.

These positive results allowed the division to reserve $600 thousand in gifts. Dr. Ellis asked for clarification on whether these gifts were actually received and not used or were not received at all. Mr. Puddester responded that the $600 thousand budgeted in gifts were received. (The division utilized an additional $381 thousand over budget in restricted endowment, however.) Further, the division transferred $2.1 million to reserves for capital projects and costs associated with new faculty and reduced the amount of transfers needed to balance fiscal 2000.

Academic and Cultural Centers

Academic and Cultural Centers ended the year with a $497 thousand surplus. This compares to a break-even budget for fiscal 2000. The Press, despite early dire projections, experienced higher than projected book sales and increased activity in the journals division and generated a surplus of $338 thousand. The Institute for Policy Studies also ended the year with a modest surplus ($108 thousand).

In addition to the divisional surplus of $497 thousand, the Center for Talented Youth (CTY) transferred $1 million to reserves. This additional revenue was generated by tuition from 700 unanticipated students. CTY also reserved for future use $400 thousand in gifts and endowment that were not needed for fiscal 2000 operations.

The School of Hygiene and Public Health

The School of Hygiene and Public Health ended fiscal 2000 with a $2.3 million surplus, compared to an anticipated break-even budget. The surplus will be used to help fund the construction of the School s new teaching and research facilities. A capital reserve of $2.6 million, generated from unbudgeted F&A recoveries, was also set aside for future construction expenditures. The primary source of the division s surplus was reduced expenditures on instruction and research and student aid, due to reduced enrollment. These savings were partially offset by a corresponding decrease in tuition and fees.

School of Nursing

The School of Nursing closed the year with a modest $19 thousand surplus. The most significant variance from budget was an increase in revenue of $2.5 million from the InteliHealth settlement. These funds were used to prepay a portion of the debt ($1.7 million) on the division s new building in order to reduce future debt service costs. The balance was transferred to a designated account for future use. Revenues from tuition and fees and gifts were higher than anticipated and were used to offset increases in instructional costs associated with the doctoral program. Clinical revenues and expenditures, both, were about one- half of the budgeted amounts.

School of Medicine

The School of Medicine ended the year in balance. General fund revenues were enhanced by an additional $11 million in clinical revenues, offset, in part, by increased clinical expenses of $6 million. Gift income exceeded the budgeted amount, as did revenues from affiliated organizations and technology licensing agreements. F&A revenues were $3.2 million below budget, due to lower than budgeted effective recovery rates and the write-off of some inactive sponsored accounts. Another $5.1 million in F&A revenues was transferred to capital reserve for future one-time expenditures.

Sponsored and designated fund spending exceeded the budget by $26 million. The main sources of these funds are an additional $18 million in discretionary funds and $7 million in additional gifts.

Applied Physics Laboratory

APL s fiscal 2000 surplus of $3.6 million is $1.4 million more than anticipated and was attributed to reduced overhead costs and lower R & D expenditures. Capital costs exceed budget by $3 million, due primarily to the purchase of six modular buildings that were previously being leased.

Other Divisions

All other divisions improved their financial position in fiscal 2000. While not reflected in surpluses, most divisions were able to add to reserves by transferring operating funds or retaining designated funds for future use.

The School of Professional Studies in Business and Education reserved $340 thousand in gift and discretionary funds, as increased tuition revenues from additional enrollment more than covered increased spending. The division also transferred $552 thousand to reserves for minor capital projects and other uses. The M.S.E. Library covered a budgeted $91 thousand shortfall and transferred $386 thousand less from reserves as a result of savings in plant expenditures. Peabody used $288 thousand less in gifts and endowment, as did Bologna ($467 thousand) and Nanjing ($200 thousand).

A question about the significant variances between budgeted gifts and discretionary was raised by Dr. Steinwachs asked for an explanation of the interdivisional transfer process. Mr. Puddester explained that there are transfers of many sorts within the University. In general, the interdivisional transfers amongst divisions should net to zero as they reflect a payment to one division and a receipt to another division. This is true as long as the transfer is within the same fund category for both divisions. If the fund category is different between divisions then this type of transfer is reflected as an other transfer (line 31 of Attachment 3.)

Faculty salary comparisons with peer schools

Mr. Puddester discussed the handout on faculty salaries, which compares JHU with other universities for 1999-2000. (The faculty salaries comparison for 1998-1999 was distributed as an appendix.) The comparison group consists of schools that Hopkins views as peer institutions. These vary from one division to another division and are determined by the Dean of each school. The faculty salary data is reported for each of the following: full professors, associate professors, assistant professors, and instructors.

Dr. Steinwachs asked whether there has been discussion among the Deans about what the targets should be. Dr. Knapp responded that this is typically at each Dean s discretion. Among other things the Deans must consider what their divisions can afford because revenue restraints differ by division. Dr. Knapp stated that typically these discussions take place between the Deans and departmental chairs.

Dr. Berg noted a substantial difference between the median salary at the full professors level in Arts & Sciences, and the median salary in doctoral basic science at the School of Medicine. There was discussion as to whether the data for the two units were consistent in representing 9-month salary data. It was agreed by the Committee to have this issue further analyzed and presented as a follow-up item at the December Committee meeting.

Dr. Rose asked if there was a way to derive a standard for all divisional salaries in order to better compare units within the University. Dr. Knapp responded that it would be difficult to make these comparisons. The purpose of the faculty salary comparisons is to gauge how the various University divisions compete with their own peers, not within the University system.

Chairman Young, in reviewing the Appendix, noted that in both the Sciences and in the Humanities the gap between the University and its peers is decreasing. Overall, the Sciences at Hopkins have increased their salaries relative to peer institutions (though they still remain below), while the Humanities have decreased salaries relative to peer institutions (though they still remain above.) Dr. Townsend noted that the difference in salary between the assistant and associate professor levels in the Humanities is very small. He was concerned that this might cause strife within these departments and could affect their competitiveness.

Dr. Steinwachs requested that in next year s presentation, Public Health present salary data for physicians and non- physicians, as the School of Medicine does.

The Committee discussed the restricted use of the distributed data. Dr. Knapp noted that he would need to review the confidentiality agreement of the peer group data as well as receive divisional feedback on this from the Deans. This issue is which attachments to the Committee minutes can be posted on the Committee website. It was agreed by the Committee to hold off on distributing any information until Dr. Knapp is able to follow-up with the divisions and provide a recommendation at the December Committee meeting.

Facilities and administrative costs

Mr. Hoffmeyer, Associate Controller, presented facilities and administrative (F&A) costs to the Committee. He began his presentation by defining the two types of costs (direct and indirect, or F&A) and giving examples of each. Mr. Hoffmeyer then discussed the various allocations of F&A costs, for example building depreciation, equipment depreciation, and plant operations. The fiscal 2001 negotiated rate for on-campus organized research is 64% and off-campus is 25%. Attachment 4 identifies the various cost pools and percentages that make up these rates.

Attachment 5 is a pictorial example of the current F&A cost interdivisional transfer. The transfer is a redistribution of F&A cost recoveries to the four largest research divisions in an effort to match recoveries with where the actual costs are incurred. In this example, School A has a divisional rate of 40% compared to the University-wide rate of 50%. Assuming an award with a modified total direct cost of $100,000, School A recovers $50,000 at the University wide rate. Under the current transfer scheme, School A would keep $40,000 (40% of $100,000) plus an additional $1500 for a total of $41,500 in recoveries. (The $1500 is the Hume factor whereby the first 15% of any award is kept within the School and is not subject to the transfer mechanism.) The difference between the $50,000 in total recoveries earned at the University-wide rate and the $41,500 recoveries kept within School A is transferred to School B ($8500). This is because School B, in the example, has a divisional rate of 60% but only earns $50,000 on that same $100,000 award (50% University-wide rate). Therefore, total recoveries for School B are $58,500, including the transfer from School A.

At this point in the discussion it was mentioned by Dr. McGill that, due to the complexity of the internal allocation, along with other internal allocations made by the University, the transfer model was being reviewed. Suggestions on how to improve these processes will be discussed with the Deans.

Chairman Young suggested establishing a potential buffering or reserve within central administration to offset significant transfers amongst divisions. He commented that if School A undertook a new capital project that raised their divisional rate, this would decrease the transfer to other schools who were not building or raising their divisional rates as quickly.

Dr. Steinwachs commented that the chairs within Public Health have agreed to control growth and will fill the gap in revenues from tuition, endowment payout or other sources. Dr. Steinwachs asked whether research space includes common areas. Mr. Hoffmeyer stated that it did not. Another question was asked as to why the divisional rates would vary so much from school to school. Mr. Hoffmeyer cited two potential factors: the nature of the research in each school as well as the age of the facilities. (Building depreciation is generally one of the larger components of the F&A rate.)

Attachment 6 is a summary of the F&A cost rates from 1986 through projected 2003. The University has negotiated rates through fiscal 2003. The University, as of fiscal 1998, was ranked number one in F&A cost recoveries (not including the Applied Physics Laboratory) earned. Hopkins earned $26.2 million more than the second ranked MIT.

Mr. Hoffmeyer concluded with a chart comparing the fiscal 1998 F&A cost rates by cost groupings. Hopkins was compared to both private and public schools. Finally, Mr. Hoffmeyer stated that the University would more than likely be audited since its rates are so high. The next proposal to the government will be based on fiscal 2002.

Mr. Bossle raised a final question. He asked if the University s high rates ever hurt us in getting grants. Dr. Steinwachs commented that he believed it does from Public Health s perspective.

Future committee agenda

Due to the length of the meeting, Chairman Young asked the Committee to call or email him with suggestions on what topics the Committee should focus on at the December meeting. The Committee routinely discusses financial projections to year-end as well as budget and planning issues.

The meeting adjourned at 5:15 p.m.

© 2001 The Johns Hopkins University. Baltimore, Maryland. All rights reserved.
Last updated 30Jan01 by dgips@jhu.edu