Approval of the Minutes: Minutes of the meeting of November 4, 2003 were approved as distributed.

FISCAL 2004 FIRST QUARTER KEY REVENUE INDICATORS and OPERATING RESULTS

Key Revenue Indicators:

Tuition revenue was $1.4 million (0.7%) higher than budget through September and 5.6% higher than last year. Most divisions experienced higher than budgeted enrollment and attained additional tuition revenue.

Organized research was $2.3 million (2.5%) more than budgeted through September, and has grown 10.6% over last year. Growth was concentrated at the Schools of Medicine and Public Health.

Other sponsored activity was $2.8 million (8.1%) under budget and 2.1% less than last year, primarily driven by JHPIEGO's loss of a major award in West Africa.

Facilities & Administrative (F&A) cost recoveries were slightly more than budgeted, $878 thousand (1.7%). Year-to-year growth in F&A recoveries was strong, up 10.1% over last year.

Clinical services revenue was 1.6% higher than budget and up 10.4% compared to last year.

First Quarter Operating Results:

The Committee reviewed the University's FY 2004 first quarter financial results, which are characterized as slightly less favorable than budgeted. The financial situation was also less favorable than the same period last year, due to higher expendable gift revenues first quarter of FY 2003. The University's operating surplus through September was $34.3 million compared to a budgeted amount of $39.5 million.

The divisions, principally Medicine and the Applied Physics Laboratory, used some of their operating surplus for capital projects. The remainder of the operating surplus, $18.5 million, was added to net assets. This is compared to a budgeted $27.3 million addition to net assets.

Sources and Uses of Funds:

The Committee reviewed the sources and uses of funds. Overall, revenues were $2.5 million (0.4%) less than budget as gift revenue and research activity were both slightly under budgeted levels. Expenditures were $5.5 million (0.9%) more than budget, driven by clinical services expenditures.

Compared to FY 2003, revenues are growing at a lower rate than expenditures in the first quarter (2.7%) vs. 6.2%). This is due to the receipt of a large gift in the first quarter of FY 2003. All other major revenue sources are growing at rates similar to or higher than related expenditures growth.

FISCAL YEAR 2005 TUITION RECOMMENDATIONS

Dr. Knapp presented the tuition recommendations for FY 2005 for all the academic divisions. The recommended increase in the full-time, undergraduate tuition at the Homewood school is 4.9%, consistent with the Trustee policy. Recommended tuition growth at other divisions is generally below 5%. Dr. Knapp noted that Hopkins tuition remained below the median of peer schools and, as a result of relatively low room and board increases, the University was below the median of peer schools in total cost of attendance.

Dr. Young raised the issue of accessibility for middle to upper-middle income students and if this changed the composition of the student body. Dr. Lebo replied that accessibility is an issue and that the University looks at all sources of assistance that students receive to determine a net tuition composition.

The recommended tuition rates for FY 2005 were approved at the December 7, 2003 Trustee Finance Committee meeting.

FY 2005 BUDGET AND PLANNING ASSUMPTIONS

Mr. Puddester presented the budget and planning assumptions for FY 2005. The University will budget conservatively for FY 2005 and in the five-year Plan, including:

Divisions will reduce the amount of Maryland State Aid used for operating expenses by 25% per year from FY 2005 to FY 2008. These funds will be budgeted for one-time expenses.

F&A recoveries rates will be budgeted at current negotiated levels (see notes in section 6).

Endowment payout will be reduced by 5% per year from FY 2005 to FY 2007. Annual returns on the endowments are projected at 6.5% (see notes in section 5).

Salary budgets are projected to increase 2.5% in FY 2005 and benefit rates are set at negotiated rates of 32% in FY 2005 and 33% for FY 2006 and beyond.

Dr. Hemker asked how the salary guidelines were developed. Dr. Knapp replied that the staff guidelines were a result of market surveys. The guidelines are more conservative than the survey results, but the University offers a strong benefits package, which results in a lower annual salary increase than the market survey report. Dr. Steinwachs commented that the benefit costs are continuing to rise. Dr. Knapp noted that there is a newly appointed Budget Advisory Committee that will be reviewing the benefits costs. Dr. Knapp also noted that the faculty salary guidelines are determined by the Deans and based on divisional budget constraints.

ENDOWMENT PAYOUT

Dr. Snow gave a presentation on endowment payout. The spending rule determined by the Trustee Investment Committee is that the payout cannot exceed 5% of the trailing three-year average. 6.5% has been informally adopted by the Trustee Investment Committee as the normal rate of return on investments.

Based on these assumptions, the Investment Committee reviewed several scenarios to determine the payout policy for the Fiscal 2005-Fiscal 2009 Budget and Plan. The policy adopted by the Trustee Investment Committee in December 2003, reduces the payout 5% annually, until fiscal 2008 and assumes an annual rate of return of 6.5%. In fiscal year 2008, it tapers off to 3% reduction. By fiscal year 2009, it increases over fiscal year 2008 by just less than 1%.

Dr. Steinwachs raised the question of how the divisions plan to handle all of the decreases in revenues sources (Maryland State Aid, Endowment Payout, to name a few). Mr. Puddester replied that each division would respond accordingly by implementing various strategies such as cost cutting, additional fund-raising and increasing other revenue streams.

Dr. McGill added that fiscal years 2005 and 2006 would be difficult years with the effects of compliance costs, malpractice insurance, benefits rates and salaries. It typically takes one to two years for expenditures to slow enough to match the decline in revenues.

Dr. Young pondered if this affects faculty morale and if the negative outlook will cause faculty members to look for other jobs. Dr. Steinwachs responded that he believes that communicating an honest but positive message is important. Dr. Knapp pointed out that while endowment payout revenue is important, it is only 4% of the University's total revenue budget.

FACILITIES AND ADMINISTRATIVE (F&A) RATE and FRINGE BENEFIT RATE NEGOTIATIONS

Mr. Bridges presented information on the F&A rate and fringe benefit rate negotiations. The fringe benefit rate negotiations are complete. There is a new agreement where actual costs will be calculated and any over or under spending will be spread over the next three years (fiscal years 2007-2010), which will in effect, turn the rates into the actual negotiated rates. The negotiated benefit rates for fiscal years 2005 and 2006 are 32% and 33%, respectively.

Mr. Bridges also presented information on the F&A rate negotiations, which are still in progress. The University is working on finalizing rates for fiscal years 2004-2006. The projected rate for fiscal year 2004, 63.4%, is close to the provisional rate of 63.5%. The projected rates for fiscal years 2005 and 2006 are 67.4% and 68.8%, respectively. The University is hoping to finalize rate negotiations by the end of this fiscal year.

Conversation turned to discuss the administrative cap. Dr. Steinwachs asked what we could do to come in at or below the 26% administrative cap. Mr. Bridges stated that currently, administrative costs are running around 27%-28%. Because of the increase in compliance costs it is difficult to stay below the cap. Many schools are above the cap and the Council on Governmental Relations (COGR) believes that the cap should be higher than the current 26%. There is talk of direct funding compliance costs, but experts are not optimistic that it will happen. The goal of the federal auditors is to negotiate the lowest rate possible. Dr. Young asked how the University's rates compared to peer institutions. Mr. Bridges replied that they are high, but some institutions that have Department of Defense research have even higher rates.

Dr. Hemker wondered what is expected for the five-year outlook for the rates since there is so much research building on the University's campuses. Mr. Bridges estimates that we can expect rates around 70%. If the University can make the argument that it is building for compression, the rate will continue to increase from the current rate. However, if the federal government determines that the buildings are for new growth, then the rate will stabilize.

OTHER ITEMS and FUTURE COMMITTEE AGENDA ITEMS

Dr. Hemker led the discussion on the executive summaries, which generated feedback on the message that the summaries should convey and the frequency that the summaries should be published. Summaries will be generated on a semi-annual basis. The next summary will be published after the May 2004 meeting and will focus on the Fiscal 2005-2009 Budget and Five-Year Plan.

Agenda items for future meetings were discussed. Topics for future agenda items were faculty salary presentations, a report from the Benefits Advisory Committee, a report on infrastructure spending and a report on the development campaign.

© 2004 The Johns Hopkins University. Baltimore, Maryland. All rights reserved.
Last updated 03Apr04 by dgips@jhu.edu