Approval of minutes: Minutes of the meeting of October 11, 2000 were approved as distributed with two changes. In section one, paragraph two (page one) the last preliminary meeting date for fiscal 2001 should be Wednesday, May 16, 2001 (10:00 - 12:00 @ Homewood) instead of Wednesday, December 16, 2001. The second change is in section three, paragraph five (top of page seven): Dr. Knapp responded that this should be a result of the change in faculty salary guidelines from 3.0% to 3.5%. This sentence should be deleted.

Fiscal 2001 operating results as of October 31, 2000

Mr. Puddester presented the University's key revenue indicators through October 31, 2000. General funds tuition revenue was $4.8 million (3.0%) higher than projected principally due to higher enrollments in the School of Engineering, the School of Advanced International Studies (SAIS) and the School of Public Health. Engineering experienced growth in the part-time programs and Public Health had higher than expected enrollment in the MHS program. SAIS exceeded its estimate of 430 students by 40 for the fall semester. Due to earlier recognition of tuition revenue Bologna Center reports $1.8 million above projection through October. The School of Professional Studies experienced lower enrollment in the MBA program resulting in a $2.0 million shortfall compared to estimate.

Chairman Young asked why the increase in part-time programs was not budgeted for in the School of Engineering. Mr. Puddester responded that divisions generally budget part- time programs conservatively as enrollment in these programs tend to fluctuate with the economy.

F&A recoveries (net of the internal interdivisional transfer and settlement) were $4.2 million (8.2%) more than projected for October. All research divisions experienced significantly better recoveries than were projected earlier except the School of Engineering. It is anticipated that Engineering's recoveries will accelerate during the second half of the fiscal year and will therefore, exceed budget. Net recoveries were $10.4 million (23.3%) higher than this time last year while sponsored grants and contracts revenue increased by $22.5 million (15.5%).

The organized research MTDC base was slightly more than projected through October and grew significantly over last year. Both the School of Arts & Sciences and the School of Engineering exceeded projections by 10% or more. The increase represents unbudgeted grants and contracts received by new faculty (Arts & Sciences), as well as significant growth in the Centers for Medical Robotics and Speech Processing and the Department of Chemical Engineering (Engineering). Both Public Health and Medicine were above estimates by $212 thousand and $3.8 million, respectively. All four major research divisions show double-digit growth in the research base over last year; the total increase for the university was 14.1% ($11.7 million).

The other sponsored activity MTDC base was also greater than projected through October with 18.4% ($5.0 million) growth over last year. Both Public Health and JHPIEGO, two of the largest components of this MTDC base, showed growth over 20% from last year through October.

Clinical services revenue for the School of Medicine was 4.1% higher than projected through October. To date, clinical revenue is $64.2 million. This is $2.1 million (3.4%) higher than last year at this time.

Mr. Puddester presented the sources and uses of funds through October 31, 2000. Through October, the University's financial posture is significantly better than anticipated and improved over the same period in the last fiscal year. The total operating surplus before transfers is $55.8 million compared to an anticipated surplus of approximately $22.1 million, as shown in Table 1, line 27.

In Table 1, line 27, the general funds operating surplus was $34.7 million higher than the anticipated surplus of $26.8 million. This increase is due primarily to better than expected tuition revenue, more robust facilities and administrative cost recoveries and lower than projected expenditures. This surplus is understated due to a timing issue related to the receipt of Maryland State Aid, which was budgeted to have been received by October 31, 2000, but was not received in fact until November 2000. On the sponsored and designated side, the University experienced a $21.1 million operating surplus instead of the projected $4.7 million shortfall. This difference was due almost exclusively to a large gift in the School of Medicine.

A large surplus at this period in the fiscal year is expected principally because first semester tuition has been received and the related spending will take place over the course of that semester. As expected, most of the projected and actual surpluses are concentrated in the tuition dependent divisions including Arts and Sciences, Engineering and Professional Studies. The School of Medicine experienced the only significant general fund deficit through October. This anticipated shortfall results from the payment of clinical supplements for fiscal year 2000 in the first quarter of fiscal year 2001. It is expected this shortfall will be resolved over the course of the year.

The current year's results through October represent an improvement over the same period last year. The total operating surplus last year at this time was only $32.4 million, considerably less than this year's results, $55.8 million (Table 2, line 27). The surplus for both general funds and non-general funds are significantly above levels achieved last year for this time period.

The New Reporting Format

The new format includes an operating surplus/deficit line (Line 27) that reflects the financial position of each division prior to transfers. Also, in the "sponsored and designated" category, designated fund revenues are reported as received. In prior reports, revenues were recognized only to offset expenditures. This change may result in large fluctuations in operating surpluses throughout the year as divisions receive large gifts that are expended over time or transferred to other categories. As in prior years, sponsored program revenue is recognized to offset expenditures consistent with accounting principles.

Another change in the designated fund reporting is the recognition of revenue by actual revenue source. Previously, revenue was reported by account category, not the actual revenue source. For example, on Table 1 in the middle columns titled "Sponsored Programs and Designated Funds", the YTD Budget column includes $5.4 million in discretionary funds on line 10. Since the University does not actually receive "discretionary funds," those receipts are now recorded as gifts or endowment payout or other appropriate sources of revenues.

Revenues

Total University revenues received through October were $713.1 million, 4.7% greater than anticipated for this period (Table 1, line 17). There was improvement, relative to budget, both in general funds revenues as well as sponsored programs and designated funds.

General funds totaled $296.7 million, $2.8 million more than expected. Tuition revenue is $4.8 million more than projected as explained earlier. Endowment payout was higher than expected ($2.3 million) due to the recognition of second quarter revenues that were not included in the monthly projection. F&A recoveries were $4.2 million (8.2%) more than projected for October. Total sponsored and designated funds were $416.4 million through October. This total was $29.2 million more than projected for this period. Greater than expected sponsored grants and contracts accounted for $3.2 million of that variance. The most significant difference between projected and actual attainment was gifts, which were $23.1 million higher than projected.

When compared to last year at this time, nearly all revenue sources are up. Total revenues through October increased 14.5% over the same period last year (Table 2, line 17). Tuition revenue is $9.7 million (6.2%) more than last year. Revenues from grants and contracts (up 15.5%) and F&A recoveries (up 19.6%) also contributed to this improvement. Finally, recognized gifts receipts were $33.5 more than the same period last year.

Expenditures

Expenditures through October are consistent with estimates for the period. Total expenditures for the four-month period are $657.3 million compared to a budget of $659.0 million (Table 1, line 26). General fund expenditures are $5.1 million lower than projected for the period. Spending on instruction and research is $3.0 million higher than projected, consistent with the higher enrollments in several divisions. However, most other categories of expenditures were below anticipated levels, resulting in lower overall spending.

Spending for sponsored programs and designated funds was slightly higher ($3.4 million) than expected. Expenditures for instruction and research were $8.4 million than projected, reflecting the increase in grant and contract activity. Applied Physics Laboratory expenditures were less than expected through October ($4.8 million) and all other expenditures did not vary significantly from estimates.

Compared to fiscal year 2000, expenditures increased by $66.8 million through October (Table 2, line 26). Most of this increase is due to additional spending in instruction and research, as well as smaller increases in expenditures in clinical services and at the Applied Physics Laboratory. These expenditures were more than offset by increases in revenues.

Divisional Results

The financial results for most divisions, through October, were better than projected for the period. The exceptions were the School of Professional Studies and the Peabody Institute which both experienced lower enrollment and as a result had slightly lower than anticipated general fund surpluses through October. General fund surpluses for all other divisions exceeded expectations.

Total funds surpluses through October were also better than projected for most divisions. Homewood Student Affairs and Health Divisions Administration did not meet expectations, but that was due principally to timing issues in the designated funds.

School of Medicine

The School of Medicine ended October with an operating surplus of $8.5 million, compared to a projected deficit of $13.9 million. This variance is due to the recognition of a $28 million gift for the Cell Engineering Program. These revenues are committed to the Broadway Research Facility and will be transferred later in the year. Absent that gift, actual performance was consistent with projections. A general fund-operating deficit of $5.3 million was reported. This was consistent with projections and reflects the payment of fiscal year 2000 performance bonuses in the first quarter.

Revenues from sponsored grants and contracts and facilities and administrative cost recoveries exceeded expectations. The departments recording large increases both on a dollar amount and percentage basis include Oncology, Psychiatry, Genetic Medicine and Pathology. These additional revenues were offset by corresponding expenditures in instruction and research.

Krieger School of Arts & Sciences

The School of Arts and Sciences reported a $14.6 million surplus for October, which was consistent with the projection for this period. Most of this surplus is in general funds, which is expected at this point in the fiscal year. This is primarily due to the receipt of first semester tuition and will decline over the course of the fall semester. The remainder of the surplus is generated from gift and endowment income that exceeds estimates through October. All other revenues and expenditures are in line with projections.

G.W.C. Whiting School of Engineering

The operating surplus for the School of Engineering was considerably higher than projected through the month of October. The posted $10.4 million surplus was $3.4 million more than projected. This performance was due principally to higher enrollment in the part-time programs, which drove tuition $3.1 million over estimate. Sponsored grants and contracts also exceeded estimates, $6.1 million versus an estimated $3.3 million. This increase includes significant growth in the Centers for Medical Robotics and Speech Processing and the Department of Chemical Engineering. Total expenditures were over estimate primarily because of expenditures in sponsored research.

The School of Hygiene and Public Health

The School of Public Health experienced a modest operating surplus ($1.6 million) compared to a projected surplus of $198 thousand through October. Much of the improvement is on the revenue side and is related to higher than expected enrollment in the MHS program, which helped drive tuition revenue $1.6 million over the estimate. Both sponsored grants and contracts revenue and related facilities and administrative cost recoveries were appreciably higher than last year at this time and exceeded rather robust projections. Epidemiology, H.P.M. and Biochemistry generate the majority of the increase through October. Overall expenditures were in line with estimates for the period.

Other Divisions

Most of the other divisions experienced activity in line with estimates for the period. There were a few exceptions where estimates were exceeded or were not met. The School of Professional Studies experienced lower enrollment in the MBA program resulting in a $2.0 million shortfall in tuition compared to estimate. This shortfall was partially offset by a corresponding decrease in instructional expenses ($515 thousand). Overall, the division still showed a $6.0 million surplus through October.

The School of Advanced International Studies exceeded its estimated enrollment of 430 students by 40 for the fall semester and received $780 thousand in additional tuition revenue compared to the estimate. The division reported a $671 thousand total operating surplus through October. The Eisenhower Library was boosted by the recognition of $2.0 million in gifts through October. The division reports that this amount will be transferred to endowment later in the year keeping them in line with projections. Finally, in the Academic and Cultural Centers, expenditures for the Center for Talented Youth (CTY) are $1.8 million less than projected. This results from a timing issue that should be corrected by the next reporting period. Revenues for the Press are $543 thousand below expectations, but are offset by lower than estimated expenditures. Therefore, through October the Press is experiencing a $702 thousand shortfall, which is consistent with expectations for the period.

Chairman Young remarked that the University continues to do very well in generating federal research grants and contracts, and asked what factors, if any, limit this growth. Provost Knapp responded that the projected growth in federal funding for the University is not limited so much by competition with peer institutions as by our ability to identify new space and buildings for this growth. A suggestion was made to further analyze the rate of growth in federal grants and contracts to the University and present these results at a future Committee meeting.

Endowment and other balances as of June 30, 2000

The market value of the University endowment at the end of fiscal year 2000 totaled nearly $1.8 billion. This represents a $267 million, or 17.6%, increase over the prior year's market value. Table 3 displays the endowment balances, by division, for Fiscal Years 1999 and 2000. Activity in fiscal year 2000 is identified, by category, in the three middle columns of the chart. Additions represent funds added to endowment principal during the fiscal year. Total earnings include all earnings on the endowment balance, including earnings that were used for payout purposes. Finally, payout represents distributions of earnings to the divisions and investment management fees and a portion of the Development Office budget.

As shown on Table 4, fund balances for the University at the close of fiscal year 2000 totaled $347.8 million. This represents a $44.5 million, or 14.7%, increase over fiscal year 1999. Table 5 details the change in fund balances during fiscal year 2000, by category and by division. Overall, the general fund balance declined slightly (3.7%), while designated funds and unspent endowment payouts both posted 19% gains.

In Tables 4 and 5, balances are divided into three categories. The categories attempt to distinguish those balances that are committed from those that are uncommitted. While these categories do not strictly conform to the technical accounting definitions of restricted and unrestricted, they represent a practical judgment about the extent to which funds have been committed within divisions or by intent of the donors. The first category, general funds, is formally uncommitted, but may include some balances that are committed by deans to a program or department. Unspent gifts and designated funds, the second category, represent balances that are generally committed to a specific activity within a division. Likewise, the third category, unspent endowment payout has been placed in the committed grouping although the payout may not be formally restricted.

Beginning in fiscal year 2000, the four major research divisions and Nursing began setting aside a portion of F&A recoveries in reserve for capital and other one-time expenses. The School of Medicine does include these revenues in its budget for the purposes noted. The other divisions do not budget these funds. Table 6 details the actual reserves for fiscal years 2000 and 2001, as well as the proposed uses for the reserves. University-wide the reserve totaled $9 million in fiscal year 2000. This compares to a budget estimate of $8.5 million. In fiscal year 2001, the budget for additions to this reserve totals $11.7 million.

Actual fiscal year 2000 amounts in Table 6 represent revenue earned and not expended in fiscal year 2000. Some divisions (Medicine, Public Health and Nursing) intend to draw down reserves in fiscal year 2001 to fund specific projects. Other divisions (Arts and Sciences and Engineering) plan to accumulate these reserves for future use. Dr. Paulaitis asked for clarification on Engineering's plan to use these reserves. Mr. Puddester responded that the school had not committed these reserves to any one project as of this date.

As a part of the just completed capital campaign, the University received approximately 130 new endowed chairs. Chairman Young asked how these new chairs were allocated amongst the divisions and whether any attempt had been made to keep the divisions in balance relative to their size prior to the campaign. Provost Knapp responded that during the campaign there was no university-wide plan for allocating new chairs among divisions. Each of the divisions has different priorities that were reflected in the campaign. In some divisions financial aid was a key priority, while capital expenditures was a priority for others. Dr. Knapp stated that he is encouraging the Deans to begin articulating their goals in preparation for the next campaign and to discuss their strategic approaches amongst the faculty.

Endowment payout policy

Dr. Snow, Treasurer of the University, made a presentation on the University's endowment payout policy and how the University sets the payout rate. Preserving the purchasing power of the endowment and providing a substantial flow of resources to support the operating budget are two goals of endowment management. Ideally, the endowment payout should grow at least at the rate of inflation and must be insulated from volatility of market swings. The University's "spending rule" is a smoothing mechanism that insulates the endowment payout. The spending rule allows greater investment risk without passing volatility to the payout and is 5% of the three-year trailing average market value.

To maintain the purchasing power of the endowment a portion of the returns equal to the inflation rate must be reinvested. This leaves the net real return available to be spent. How does the University determine the spendable net real return? This is based primarily on long-term return assumptions. Goldman Sachs completed a study of spending policies approximately one year ago and concluded that the endowments should not spend an amount greater than 5% of its average market value per year.

Dr. Snow concluded that high allocations to equities have higher probability of maintaining purchasing power over time (high equity allocations have higher expected returns) and a 5% spending rule will balance the competing objectives of the two goals of endowment but does carry some risk.

Attached are the following tables. Table 7 is a graphical representation of the University's EIP payout as a percentage of the three- year average market value. Table 8 is a graphical representation of an endowment survey of 365 institutions' fiscal 1999 endowment payout rates. 124 of these institutions had a payout rate of 4 - 4.9%, including Johns Hopkins University. Table 9 is a five-year history of EIP market value, returns, payout and additions. The fiscal 2000 data was an estimate before year-end closing and therefore, due to new additions to the endowment may differ slightly from other reports published later. Table 10 is a five-year history of the EIP payout components. Chairman Young asked if other institutions funded development from the EIP as shown on this table (total of $6.1 million for fiscal 2000.) Dr. McGill responded that there are a few institutions that fund development as Hopkins does. Dr. McGill further stated that approximately 30% of development's total spending is funded through the EIP and replaced the unpopular method of allocating the first year's income on new endowments. Provost Knapp stated that development spends $0.11 per dollar raised and that is more in line with other institutions.

Comparability of basic sciences faculty salary rates

Provost Knapp provided a follow up to the October 2000 committee meeting's discussion of faculty science salaries in the Krieger School of Arts & Sciences (KSAS) and the School of Medicine. In comparison to the earlier analysis, more closely comparable groups of faculty in each of the two units were identified. In KSAS these included 43 faculty members from three departments; the School of Medicine group included 58 faculty members from seven departments.

Under the revised comparison, the KSAS revised basic sciences professorial average was estimated to be 7% higher than the revised School of Medicine's professorial average. (KSAS' faculty salaries were converted to a twelve-month equivalency.) When compared to their peer groups, KSAS' revised professorial average was 92% of the COFHE mean while the School of Medicine's revised professorial average was 93% of the AAMC mean.

Provost Knapp led a discussion on the possibility of having the committee members and appropriate divisional personnel prepare a presentation of faculty salaries, by division, to the committee each year. This would take account of differences that exist among divisions in compensation practices as well as levels of compensation. The committee decided to discuss this matter further at the March 2001 meeting.

The meeting adjourned at 4:05 p.m.

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Last updated 21Mar01 by dgips@jhu.edu