Approval of minutes: Minutes of the meeting of March 14, 2002 were approved as distributed.

Fiscal 2002 Operating Results Through February 28, 2002

Key revenue indicators as of February 28, 2002 were presented to the Committee. The results are consistent with prior reports. The key points are:

Tuition revenue is currently $0.7 million (0.2%) higher than budget but projected to be at $2.7 million ahead by year-end. There is some variation among the divisions, with higher than anticipated tuition revenue at the School of Nursing and SAIS and lower than budgeted amounts at Peabody.

Facilities & administrative cost recoveries are 8.4% more than projected and 12.6% higher than this time last year. All research divisions experienced significantly better recoveries than budgeted. Recoveries are projected to be $9.8 million ahead of budget by year-end.

Organized research revenues are $9.9 million (4.8%) more than budgeted and 15.5% above FY2001. Revenues are projected to exceed budget by 11.5% by year-end. Chairman Steinwachs asked if it was good for the University to build its research base in the year of negotiations. Dr. McGill responded that growth in the research base, unaccompanied by similar growth in costs, would depress the facilities and administrative cost rate of the University.

Other sponsored activity revenues are consistent with budget and are 12.3% greater than FY 2001. They are projected to exceed budget by 7.2% by year-end.

Clinical services revenue is $133.4 million and is 3.5% higher than budgeted. This is $6.8 million (5.4%) higher than last year at this time. These figures do not include the Bayview Physicians, which merged with the School of Medicine in January.

The Committee also reviewed the sources and uses of funds through February. The University s financial posture is better than budgeted.

TABLE 1 reports that through February, the total operating surplus is $118.1 million compared to an anticipated surplus of $37.7 million. The general fund operating surplus is $44.2 million, an increase of $11.6 million over the projected surplus of $32.6 million. This increase is due primarily to more robust facilities and administrative cost recoveries and higher than expected clinical revenues. In the sponsored and designated funds, the University reports a $73.9 million operating surplus instead of the projected surplus of $5.1 million. The Kimmel gift to the School of Medicine explains most of the variance.

The University projects year-end revenues to be 3.4% over budget, while expenditures are projected to be only 2.6% over budget ( TABLE 2). The overall projected surplus, $7.2 million, anticipates transferring $1.6 million less from reserves to support general funds. The School of Public Health, APL and the Academic and Cultural Centers are projecting surpluses, while the remaining divisions are projecting balanced budgets at year-end.

Five-Year Plan 2003-2007 and Operating and Capital Budgets for Fiscal 2003

The Committee reviewed the Five-Year Plan for fiscal years 2003 through 2007, including the operating and capital budget highlights, assumptions underlying the plan, key drivers of the performance, risks and action plans to mitigate risk and reviews of each division. Year one of the Plan is the detailed fiscal 2003 budget. All elements of this plan were created bottoms up by the divisions, using certain common assumptions.

The Fiscal 2003 operating plan includes both general funds and sponsored and designated funds, as well as a detailed capital plan. The 2004-2007 period covers only the general funds which are what the divisions currently forecast. The Capital Plan covers all five years, although it is more specific about both costs and funding sources in the early years.

Throughout the Five-Year Plan, the University is projected to continue to be in a strong financial position: operating budgets are balanced and net assets and capital assets are growing. Annual revenues for Fiscal 2003 will approach $2.5 billion and are forecasted to grow in the range of 4% to 6% annually for most major revenue sources. Annual operating expenditures are forecasted to level off at a 2% or 3% growth after significant increases in Fiscal 2003 through 2005 related to several new buildings, increased compliance costs and new investments in information technology.

A critical issue facing the University is its ability to maintain, improve and expand its capital assets to meet the needs of faculty and students and to keep pace with the growth of research. The largest component of the capital plan is research related. New research facilities are underway or contemplated for the Krieger School of Arts & Sciences, Whiting School of Engineering, Bloomberg School of Public Health, School of Medicine and the Applied Physics Laboratory. Other components of the capital plan include replacement of information systems, renovations to student services facilities, and improvements to infrastructure.

Fundraising continues to play a significant role in the financing of new initiatives. Dr. McGill remarked how the University ranked fifth in the nation last year in philanthropic support. The Johns Hopkins Campaign: Knowledge for the World was recently announced with a $2 billion goal. Emerging needs, such as increasing the capacity and infrastructure necessary to address opportunities in research, education, patient care and public service, and continuing priorities, such as student aid, faculty professorships, and endowment growth, are the focus of this campaign.

The Fiscal 2003 budget (year one of the Five-Year Plan), described in TABLE 3, projects a $10.2 million total surplus for the University.

Total revenues, net of student aid, are budgeted at $2.426 billion, a 13.5% increase ($290 million) over fiscal 2002 budget. Significant increases over fiscal 2002 are budgeted in grants and contracts ($97.3 million), facilities and administrative cost recoveries ($27.9 million), affiliated institutions ($28.3 million), clinical services ($47.1 million) and the Applied Physics Laboratory ($47.7 million.) The significant increase in affiliated institutions and clinical services is primarily due to the merging of Bayview Physicians into the School of Medicine. Increases in both grants and contracts and facilities and administrative cost recoveries are primarily driven by increases in the School of Medicine, Bloomberg School of Public Health, and JHPIEGO. Dr. Berg asked if the School of Medicine s tuition rates were an issue with the Trustees, particularly as student indebtedness rises. Dr. McGill responded that indebtedness is an issue; however, most Trustee concern is on cohort tuition rates where Hopkins has relatively low tuition rates in comparison to their peers.

Total expenditures are budgeted at $2.430 billion, a 14.6% increase ($310.4 million) over the fiscal 2002 budget. Significant increases over fiscal 2002 are budgeted in instruction and research ($162.9 million), general services & administration ($26.8 million), clinical services ($44.9 million) and the Applied Physics Laboratory ($80 million.) Increases in general services and administration relate to new compliance costs, increases in malpractice insurance and a shift of Real Estate from Dome Corporation. Clinical Services expense increases are attributable to the Bayview Physicians merger.

The Committee discussed the financial risks that the University could be subject to. Dr. McGill cited planned actions to mitigate these financial risks: conservative forecasts, strong oversight policies and procedures, revenue diversification, actions to address research risks, crisis response and improving information technology.

For only the second year, the University has completed a five year Capital Plan, which includes more detail this year. It calls for $826 million of capital expenditures over the five-year period, with $250 million in fiscal 2003. Most of this is to support research as well as instruction as depicted on page 76 of the Capital Budget and is concentrated in the Krieger School of Arts and Sciences, the Whiting School of Engineering, the Bloomberg School of Public Health, the School of Medicine and the Applied Physics Laboratory. Other components of the capital plan include replacement of the information systems and improvements to infrastructure. The largest financing sources for these capital expenditures include the operating budget ($344 million) and debt ($288 million, of which $146 million has already been issued), but still includes a significant amount of gifts to be raised ($112 million).

Administrative Costs

In response to the Committee s request, Dr. McGill made a presentation on the University s administrative costs. TABLE 4 depicts how Hopkins compares with other peer institutions based on a survey completed by the Council on Governmental Relations. Administrative costs are capped at 26% for F&A rate purposes. The University s 26% rate is a calculated rate, however. General administrative costs are much lower for those highly decentralized schools while departmental administrative costs are higher.

Chairman Steinwachs asked if there was a management strategy on how to keep administrative costs at or near the cap. Dr. McGill stated that one strategy is an improvement in business practices. Over the past few years some business processes have been evaluated and changes subsequently made. Dr. McGill remarked, however, that the University is pursuing other cost reductions, but there will be an increase in compliance costs.

Dr. McGill also discussed TABLE 5, an analysis of administrative costs for fiscal 1996 through 2001. Overall, total administrative costs across the University have grown on average 7.3%, with central administrative costs increasing on average by 2.6%. Dr. McGill commented that the $2.8 million increase in development costs between fiscal 1998 and 1999 pertained to a decision by the Trustees to ramp up the development office for the new campaign. The $3.1 million increase in investment management fees between fiscal 1999 and 2000 is a result of increasing alternative investments in venture capital, with their larger investment fees.

Divisional Faculty Salaries

Four Committee members presented their divisional faculty salary analysis. Dr. Hemker, Whiting School of Engineering, cited that the general trend for the School is 5% below median in faculty salaries across the board except for the assistant level in biomedical, environmental and computer science departments. Carnegie-Mellon, Georgia Tech, Case Western, UCLA, Maryland and NC State are some of the other schools in the survey. Dr. Hemker commented that many of the schools listed in this salary survey were not peer schools and he expects that this 5% below median would be higher when compared to other schools. Dr. Hemker also stated that there were no real departmental trends and as for gender equity, both the assistant and associate levels were comparable (male versus female), however, the full professor level was not. Dr. Hemker attributed this to the fact that there are relatively few females at this level that have as many years in their chosen discipline as their male colleagues.

Ms. Bogdanski, Associate Dean for the School of Nursing, discussed the current leadership transition at the School and the initiative underway to review individual salaries within ranks and across ranks. Ms. Bogdanski stated that new recruits are being brought in at higher salaries, which causes equity issues with faculty who have longer tenure. The School s faculty analysis shows significant differences in the AAUP salaries, AACN salaries and Hopkins. Ms. Bogdanski considers the AAUP salaries as more of a high-end target while the AACN salaries include several two-year colleges who may not be considered a peer of Hopkins. Additional analysis is underway and will include comparisons to peer institutions, including University of Illinois, University of Pennsylvania, University of North Carolina, Oregon Health & Science University, and UCLA.

Dr. Young presented the Krieger School of Arts & Sciences data. The data compares Hopkins to the COFHE schools, which Dr. Young is interested in narrowing down for a better comparison. Dr. Young summarized the following trends: Humanities full professors are paid much higher at Hopkins than at other schools while the assistant professors trend has varied; Natural Sciences full professors and assistant professors are paid lower at Hopkins than at other schools but the assistant level gap has narrowed over the past several years; and Social Sciences, while below other schools, has shown improvement in both full professor and assistant professor levels. Dr. Young commented that the associate professor data is less meaningful as disparities typically arise at this level.

Dr. Greenberg discussed the School of Professional Studies in Business and Education data. Peer schools would include those institutions that serve part-time learners, such as Cornell, Wharton, Yale and University of Chicago. Currently there are 15 full-time business faculty and 40 full-time education faculty. Dr. Greenberg remarked that overall Hopkins fares well in comparison to its peers.

All represented divisions of the Committee have made presentations with the exception of School of Medicine and School of Public Health. It is planned that these two divisions will present their faculty salary data at the next Committee meeting.

Future Agenda Items

Chairman Steinwachs asked the Committee for ideas on future agenda items. He commented that the faculty salary analysis would be ongoing, along with the regular financial updates. Additionally, administrative costs would be good to review again in the future, but maybe not annually. Dr. Greenberg suggested a discussion on the new campaign and how it relates to endowed chairs. Dr. Young furthered this suggestion by adding how the new campaign goals were determined, for example bricks and mortar versus faculty salaries.

The next committee meeting will be scheduled for fall 2002.

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Last updated 31Dec02 by dgips@jhu.edu