Approval of the Minutes: Minutes of the meeting of March 28, 2005 were approved as distributed.

Five-year Plan 2006 - 2010 & Operating and Capital Budgets for Fiscal 2006

Dr. McGill presented the Five-Year Plan for fiscal years 2006-2010, including operating and capital budget highlights and assumptions underlying the plan. Year one of the Plan is the detailed fiscal 2006 budget. All elements of the Plan were created "bottoms up" by the divisions, using certain common assumptions.

Most general trends identified in last year's Five-Year Plan have continued, resulting in a FY 2006 budget and projections for subsequent years that reflect slower growth than prior years in some key revenue sources. As was noted in last year's Plan, there is a reduction in the rate of growth in research activity as well as continued declines in expendable gifts before leveling off. Key expenditure pressures are the rising cost of health insurance, energy costs, and the cost of new information systems. Additionally there is an increased need for financial aid; continued investments to recruit and retain faculty; and increased space occupancy costs associated with a building plan necessary to accommodate growth in employment and research. Endowment payouts are projected to begin increasing the third year of the Plan and insurance costs, including medical malpractice, appear to have topped out for the near future.

There are, however, a few notable differences in this year's plan compared to Plan 2005. Most significant is the increase in the use of reserves by the School of Medicine to support the capital program on the East Baltimore campus. Using cash in lieu of debt for these costs has been a past strategy for the School. However, the School is now planning to use even more cash ($100 million) for these purposes over five years, as compared to a plan using approximately $40 million last year. Funds are available, but the School's cash reserves are projected to decline from $212 million in FY 2005 to $66 million by FY 2010, reducing its flexibility to deal with financial exigencies.

Other changes for Plan 2006 include higher enrollment projections, generating more tuition revenue in the out- years; increases in State aid to levels approaching FY 2002 peak amounts; and a negotiated facilities and administrative cost reimbursement plan rising through FY 2008.

In the capital budget, there are fewer new research facilities than in prior plans. The only new research facilities are the construction of a Computational Sciences Building for the School of Engineering and the lease of 100,000 square feet of research space in the Life Sciences and Technology Park in East Baltimore for the basic science departments of the School of Medicine.

Revenue growth in FY 2006 is projected to be up (6.4%) driven by tuition revenue, F&A recoveries, and APL revenue and diminish over the planning horizon to about 4.6% annually. Reducing the rate of expenditure growth commensurate with slowing revenue growth is a challenge in any large organization. The Plan 2006 shows the effects of Hopkins management addressing this task with attention to controlling costs. As a result, in each year of the plan revenue growth is projected to exceed expenditure growth.

Despite the declining growth rate of revenues and the cost pressures noted above, Hopkins will continue to invest in facilities, albeit with a tilt more toward renovations than in the past, and in its supporting infrastructure, particularly replacement of its student, financial, human resources, supply chain, and student information systems.

The net result is a financial plan which is roughly comparable to last year's and judged to be prudent. Operating surpluses are projected for each year of the Plan, increasing steadily from $34 million in FY 2006 to $93 million by FY 2010.

After several years of building reserves (up from $415 million in FY 2000 to a projected $668 million in FY 2004, they will be drawn down to a projected level of $486 million by FY 2010. This reduction is driven by two major components: the use of cash reserves at the School of Medicine to fund a portion of its capital program and the spending of prior year gifts for cancer, malaria and cell engineering research at the Schools of Public Health and Medicine.

Even with this projected reduction of reserves, most of which had been anticipated for several planning cycles, the University remains in a strong financial position as demand for its academic, research and clinical programs continues to produce steady revenue growth. Many of the divisions will draw modestly on reserves for a few years to absorb the cost of strategic investments in infrastructure which was also the case in last year's Five-Year Plan. Divisions that use reserves in the short term are projected to return to balanced operating budgets or surpluses within the five year period.

The Plan's projected capital improvements through FY 2010 will cost $1.1 billion, virtually unchanged from last year's number. Sources of funding are also consistent with those presented in last year's Plan. Operating budget and gifts fund the bulk of the Plan (90%) and debt and capital grants are expected to contribute the balance.

Faculty Salary Studies Update

Dr. Lebo updated the committee on the status of the faculty salary studies. She is not yet able to submit 2004/2005 data and is currently working with AAU representatives to resolve some issues with data collection and distribution. Dr. Lebo will be submitting JHU data after July 1 and will analyze the 2003/2004 data during the summer. She has met individually with some committee members to establish the appropriate list of peer institutions for comparison by discipline under guidance from legal counsel who wishes to see at least 10 schools on each list. Dr. Hemker expanded on the discussion by noting that the key point of selecting peers is the diversity of the schools on the list and that having Dr. Lebo conduct this selection in an organized manner is advantageous to the group.

At Dr. Hemker's suggestion, the evaluation and presentation of faculty salary data was postponed and will be rescheduled in coming years to better align with the availability of data from Dr. Lebo's office. In the coming years the data will be discussed within the schools in the months of January and February and presented to FBAC at the March meeting.

Key Indices for Peer Institutions

Dr. Lebo presented a confidential document on enrollment and tuition at peer institutions. Dr. Lebo alerted members to the fact that the mix of undergraduate and graduate students differs based on headcount versus FTE due to the part-time graduate programs. Dr. Lebo was asked what our peer institutions do regarding collection of tuition from graduate students and she will research this and report back to the committee.

Enrollment Trends

Dr. Lebo presented a notebook of her findings on enrollment trends in selected department of the Schools of Arts and Sciences and Engineering. Her research had a starting point of Fall 1996 and looked at the teaching load of ranked faculty only. She collected data from both the faculty and student perspective. The committee engaged in a discussion of the findings focusing significant attention to the impact of enrollment and the teaching of undergraduate service courses. Several members expressed concern over using non-ladder faculty to teach these service courses, and Dr. Knapp indicated that these are important issues for the deans to explore.

Fiscal 2005 Third Quarter Operating Results

The Committee reviewed the University's FY 2005 third quarter financial results, which were slightly better than budget through March.

Tuition revenue was $2.1 million (0.5%) higher than budget through March and 7.3% higher than last year. The School of Public Health had increased enrollments in the full-time Masters program and Doctoral program. Graduate student enrollment was higher than budget at the School of Medicine. The School of Nursing has experienced higher than expected enrollment in both its undergraduate and graduate programs, and tuition revenue for Arts and Sciences is above budget due to higher full-time undergraduate enrollment. The School of Professional Studies received $3.0 million less than budgeted tuition revenue through March due to enrollments lower than budgeted primarily within the Business Division. All other Schools are at or near budgeted levels.

Organized research was $4.7 million (1.5%) less than budgeted through March. All divisions are below budget; however, growth from last year stands at 6.3% led by increases at the Schools of Medicine and Engineering.

Other sponsored activity was slightly under budget by $1.1 million (1.1%) but 4.9% greater than last year. Increases were driven by The School of Arts and Sciences (Center for the Social Organization of Schools) as well as JHPIEGO and SAIS.

Facilities & Administrative (F&A) cost recoveries are $13.4 million (7.6%) below budgeted levels through March. Much of this shortfall was anticipated due to the FY 2005 impact of the settlement with the federal government. Gross recoveries before repayment for the Schools of Engineering and Arts & Sciences are below budget and below last year's levels, while the Schools of Medicine and Public Health are at budget.

Clinical services revenue was $6.2 million (3.0%) higher than budget and at $214.1 million is up 6.1% 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 $60.1 million compared to an anticipated surplus of $55.9 million. Overall, revenues exceed budget by $24.8 million (1.2%) Most revenue categories were over budget with only F&A recoveries and gifts being below budget. Expenditures are slightly over budget (1.9%) driven by spending in clinical programs and at the Applied Physics Laboratory.

Dr. Hemker asked whether APL is worried about a negative impact from NASA. Dr.

Knapp replied that APL has diversified its funding sources but still most of its money comes from the Navy. In addition, he believes it is a good development that the new NASA director came from APL.

Respectfully submitted,
Frederick W. Puddester

© 2005 The Johns Hopkins University. Baltimore, Maryland. All rights reserved.
Last updated 16Nov05 by dgips@jhu.edu