Approval of the Minutes: Minutes of the meeting of March 16, 2006 were approved.

Fiscal 2006 Third Quarter Operating Results

The overall financial results for the University are favorable compared to budget through March and are consistent with those reported at mid-year. Higher than expected revenue attainment is the primary cause of this improvement compared to budget. In particular, expendable gift revenue is significantly above budget ($140 million versus a budget of $67 million). Total spending is only slightly above budgeted levels (1.1%) through March. These results are higher than the operating surplus in the GAAP statements. The variance is due to the inclusion of spring tuition revenue (deferred under GAAP) and the inclusion on the GAAP statements of non-cash items, principally depreciation and pledges.

Additionally, the divisions expect to maintain a more favorable financial position than budget throughout FY 2006. Revenues are expected to exceed budget $89.6 million, 3.0%, while expenses are projected to be only $21.0 million, 0.7%, over budget. The resulting operating surplus is projected to be $103.9 million compared to a budgeted surplus of $34.8 million. The divisions still project to spend this operating surplus and some reserves to fund capital projects and thereby drawdown on net assets. The projected improvement to the operating surplus results in a significant reduction to that draw on net assets, from $72.2 million down to $795 thousand. Most sources of revenue are projected to be at budget. Notable exceptions are expendable gifts, affiliated, other sources, and clinical revenues which are all projected to end the year higher than budgeted.

Five-Year Plan 2007-2011 & Operating and Capital Budgets for Fiscal 2007

Dr. McGill presented an overview and the Committee reviewed the Five- Year Plan for fiscal years 2007 through 2011, including the operating and capital budget highlights, assumptions underlying the plan, key drivers of the performance, and reviews of each division. Year one of the Plan is the detailed fiscal 2007 budget. All elements of this plan were created "bottom up" by the divisions, using certain common assumptions.

A significant attribute of Plan 2007 — compared to Plan 2006 — is improvement in operating margins and less drawdown of net assets. Last year, the operating surplus for FY 2005 was projected at $27 million and the actual surplus was $50 million. Similar improvement is expected for FY 2006 (budgeted surplus of $35 million verses projected $104 million surplus). There are variances in the out years, but the cumulative operating surplus for FY 2007-2011 is better than projected last year.

Projected operating surpluses are used to fund capital projects; in the School of Medicine, accumulated reserves are also used to finance these improvements. As a result, there is a small draw on net assets in most years. However, balances are expected to remain in the $600 million range throughout the planning horizon instead of declining to under $500 million as projected in Plan 2006.

Most of the financial trends identified last year continue in Plan 2007. In particular, the Plan reflects slower growth in research activity, higher levels of state aid and increasing F&A rates in the short term. As to expenses, the University will continue to experience increased financial aid, investments to recruit and retain faculty, higher utility and security costs as well as higher space occupancy costs.

There are, however, a few notable differences in this year's plan. Tuition revenue is higher due primarily to a greater than normal increase in Homewood undergraduate rates in FY 2007. In FY 2008 tuition revenue is boosted again as the Homewood Schools graduate a small senior class and increase freshman enrollments.

There are also notable increases in the profitability of the School of Medicine's clinical practice. Higher reimbursements, increased productivity, and nearly flat malpractice insurance premiums in FY 2006 contribute to increases in net revenue, up from $6.4 million in FY 2005 to almost $24 million in FY 2006.

Growth in sponsored revenue at the Applied Physics Laboratory (APL) is also significantly higher from FY 2007 to 2009. While funding from NASA is expected to decline in the short term, work for the Navy and other sponsors accelerates.

Finally, the Capital Plan for FY 2007-2011 includes no new major projects. There are increased costs for several previously planned projects because of construction inflation, more defined program needs or increased scope. The Plan's projected capital improvements through FY 2011 will cost $1.03 billion, virtually unchanged from last year's number. Sources of funding are also consistent with those presented in last year's Plan. Operating budget, gifts and capital grants fund the bulk of the Plan (88%) and debt is expected to contribute the balance.

The Five-Year Plan reflects a continued slowing of the rate of revenue growth which averaged about 10% annually from 1998 to 2003. Revenue growth is projected to exceed growth in expenditures each year of the plan except FY 2010 when growth in expenses at APL exceeds revenue growth for that year only.

The net result is a financial plan which is somewhat healthier than last year's and is judged to be prudent. Operating surpluses are projected for each year of the Plan, increasing from $58 million in FY 2007 to $95 million by FY 2011. While these operating surpluses are robust, in the early years of the plan virtually all the surplus is generated by the Bloomberg School of Public Health and APL; all other divisions project operating shortfalls or small operating surpluses. Long-term all divisions expect to generate small surpluses, but APL and Public Health will still represent more than three-fourths of the total operating surplus.

Each division faces fiscal challenges that are reflected in this Plan. Some divisions — in particular, the Krieger and Whiting Schools — will experience a drawdown of net assets in FY 2007 and FY 2008, due to a number of factors including higher plant expenses and spending on financial and student systems. All units plan to have annual surpluses and add to reserves by FY 2010 and FY 2011. Many Schools project annual operating surpluses every year of the plan, an improvement over last year's plan when only Public Health and Nursing budgeted surpluses each year.

Plan 2007 projects continued pursuit of the Hopkins missions; continued focus on recruitment and retention of quality faculty; expansion in areas of particular strength; the ability to manage in a slower growth environment; and affordable additions to capital assets. Risks associated with this plan include F&A rates beyond FY 2008, compliance costs, increases in construction costs, a significant drop in philanthropy, a market drop, a spike in inflation, a greater than expected increase in utility costs, and the implementation of HopkinsOne. However, the Plan assumptions are conservative in most regards and provide reasonable confidence that projected results will be achieved.

Technology Transfer Report

Jill Sorensen presented a report to the Committee on the Johns Hopkins Technology Transfer office. The office manages the portfolio for the entire University except the Applied Physics Laboratory. Of that portfolio, 87% belongs to the School of Medicine. Ms. Sorensen summarized a shift in priority from being intellectual property centric to a greater emphasis on knowledge access. In order to achieve this goal, the JHTT office is focusing on balancing monetary and non-monetary benefits, building alliances and improving infrastructure.

HopkinsOne The HopkinsOne Faculty Advisory Committee (HOFAC) continues to meet regularly. to provide a voice for the faculty during the development of the enterprise-wide system. Dr. McGill shared that the decision to go-live will be made by the end of May. While critical decisions have been made, user community readiness is still an issue.

Respectfully submitted,
Frederick W. Puddester

© 2007 The Johns Hopkins University. Baltimore, Maryland. All rights reserved.
Last updated 16Mar07 by dgips@jhu.edu