Approval of the Minutes: Minutes of the meeting of March 26, 2004 were approved as distributed.

Fiscal 2004 Third Quarter Operating Results

The Committee reviewed the University s FY 2004 third quarter financial results, which were slightly less favorable compared to budget but still positive. The University s surplus through March totaled $58 million compared to a budgeted level of $66.4 million. Gift receipts are down while expenditures are up due to increased spending on gifts received in prior years, start- up costs for HopkinsOne and clinical costs in the School of Medicine. When compared to last year, revenue grew at 7.3% versus expenditure growth of 10.9% due also to the factors above.

Tuition revenue was $7.7 million (2.0%) higher than budget through March and 15.2% higher than last year. Most divisions experienced higher than budgeted enrollment and attained additional tuition revenue. The Schools of Professional Studies and Nursing had decreased enrollment and thus reported lower tuition revenues. The School of Professional Studies had decreased enrollment in its business program and the School of Nursing was below budget in part due to a change in tuition reimbursement policy at Johns Hopkins Hospital.

Organized research was $5.6 million (1.9%) more than budgeted through March and has shown considerable growth, 12.2%, over last year. Most of the research divisions have significantly contributed to this growth.

Dr. Townsend asked why the School of Medicine is significantly over budget ($5.4 million). Mr. Puddester replied that the increase is across the board and cannot be attributed to one or a few departments; they all contribute to the increase. Dr. Knapp added that the School of Medicine has some new research buildings, which has increased the pace of research compared to budget. Divisions do not always know how to budget before new buildings come on-line.

Other sponsored activity was $8.7 million (8.2%) under budget and 3.1% less than last year, primarily driven by JHPIEGO s loss of a major award in West Africa. Additionally, the School of Medicine is under budget due to slower spending of fixed fee contracts.

Facilities & Administrative (F&A) cost recoveries were slightly more than budgeted, $2.9 million (1.7%). Year-to-year growth in F&A recoveries was strong, up 10.3% over last year. Both the Schools of Engineering and Medicine had double-digit growth from the prior year.

Clinical services revenue was 5.6% higher than budget and up 11.8% compared to last year.

Sources and Uses of Funds: The Committee also reviewed the sources and uses of funds through March and projections to year-end. The total operating surplus is $58.2 million compared to an anticipated surplus of $66.4 million. Overall, revenues exceed budget by $66.2 million (3.3%) primarily concentrated in sponsored activity and revenue from the Applied Physics Laboratory. Expenditures are $84.6 million (4.4%) over budget, driven by spending in clinical programs and at the Applied Physics Laboratory.

Spending in general services and administration also exceeds budget due to start up costs associated with the HopkinsOne project.

Five-Year Plan 2005 2009 & Operating and Capital Budgets for Fiscal 2005

Dr. McGill presented the Five-Year Plan for fiscal years 2005-2009, including operating and capital budget highlights and assumptions underlying the plan. Year one of the Plan is the detailed fiscal 2005 budget. All elements of the Plan were created bottoms up by the divisions, using certain common assumptions.

The extraordinary growth experienced in the late 1990s and early 2000s resulted in a significant build-up of reserves, or retained earnings. They grew from $304 million in FY 1998 to $653 million in FY 2003. A primary reason for this increase was the receipt of several large expendable gifts for research totaling $201 million during this period. These gifts are to be spent over subsequent years. Also contributing to the accumulation of retained earnings were operating margins that averaged about 2% annually.

Beginning in FY 2004 and continuing through FY 2008, the University will use a portion of these built-up reserves. The planned spending of large gifts received in recent years has begun. Through FY 2004, $56 million will be expended and another $82 million is projected to be spent from FY 2005 to FY 2009. During the five year planning horizon, retained earnings will also be used to fund capital projects (principally in the School of Medicine and the Applied Physics Laboratory) and administrative and student information systems. These investments will result in a phased drawdown of reserves from $653 million in FY 2003 to $559 million in FY 2008 at which point the level of reserves are projected to be stable.

The University s financial position is generally strong, although less robust than in the last several years. The global economic performance of the early 2000s is still affecting Hopkins. In particular, endowment returns were negative for three years; State Aid has been reduced by a third since FY 2003; and malpractice insurance, compliance and benefits costs have all risen rapidly during this period. In addition, Hopkins continues to invest significantly in facilities and information technology systems. Many divisions will draw modestly on reserves over the next several years to absorb the combined effects of decreasing revenue growth and added expenditures. Divisions that use reserves in the short term are projected to return to balanced operating budgets or surpluses within the five- year planning period.

The Five Year Capital Plan totals $1.01 billion, relatively unchanged from last year s Plan although some of the spending has been deferred to later years. However, the Plan relies significantly less on debt as a funding source compared to last year ($113 million vs. $300 million). This increase is due to the issuance of $92 million in debt in FY 2004, the plan to fund the HopkinsOne project with operating funds instead of debt, and the use of cash in lieu of debt at the School of Medicine and the Applied Physics Laboratory noted above. The projected levels of debt included in the plan are affordable within established trustee debt policy. The Capital Plan continues to rely on philanthropy ($225 million), but operating margins and retained earnings are the primary sources of capital funding ($624 million).

Dr. Townsend inquired about the Admissions/Visitor s Center, which is projected to cost $17.1 million. Dr. McGill explained that it is a three building complex, which will include parking, a visitor center and a computational sciences building. Additional expenses included in the $17.1 million consist of utilities and extension of the current campus landscaping design. Dr. Knapp added that the Center would serve as a campus focal point.

Dr. Townsend also asked about the Gilman Hall Renovation project, which is now projected to cost $29 million but was previously projected to cost $45 million. Dr. McGill explained that the original projection included wok on Dunning Hall, which was to house displaced Gilman activity. It has since been decided to only vacate Gilman Hall one half at a time.

Faculty Salary Presentations

Dr. Lebo gave an overview of the faculty salary presentations. She briefly discussed the issues, methodology and the process of putting together the presentations. Some of the issues include equity, compression, cost of living and pay practices. The methodology is based on both current and historic data. Some of the data sources include the Association of American Universities Data Exchange (AAUDE) and the College and University Personnel Association (CUPA). While discussing the methodology, Dr. Lebo stressed that all stages of preparing and presenting the data require strict confidentiality.

There was a brief discussion on how to expand the salary presentations next year. Dr. Lebo stated that the biggest challenge is when to present the presentations. During the May meeting, the budget and five-year plan are discussed, which leaves little time for all of the divisions to present their presentations. However, if the presentations are done at the March meeting some of the data is not yet available.

Each of the divisional representatives in attendance presented their faculty salary presentations. The presentations generated discussion among the group. Due to the confidential nature of the presentations, details of the presentations and discussions will not be reflected in the minutes.

Other Items and Future Committee Agenda Items

Dr. Knapp asked how many visitors there have been to the Committee s website. He wants the information that is presented and discussed to disseminate to the faculty. Dr. Falby asked if any of the committee members had suggestions on how to communicate the information to their colleagues. Dr. Steinwachs replied that the School of Public Health has a formalized approach to disseminating the information.

Faculty stretch will be addressed in the fall as an agenda item.

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Last updated 08Nov04 by dgips@jhu.edu