1. Approval of the Minutes: Minutes from the meeting of March 15, 2007 were approved as amended.

2. Five-year Plan 2008-2012 & Operating and Capital Budgets for Fiscal 2008

Dr. McGill presented an overview and the Committee reviewed the Five-Year Plan for fiscal years 2008 through 2012, including the operating and capital budget highlights, assumptions underlying the plan, key drivers of the performance, and reviews of each division

The overall results in Plan 2008 are projected to be more positive than Plan 2007 although the operating environment continues to be challenging for all the Schools. Also, the operating surplus for FY 2007 is projected to be slightly higher than budgeted last year ($66.2 million vs. $57.6 million), and budgeted results for FY 2008 are also better than projected in last year's plan ($84.3 million vs. $77.5 million). Operating surpluses are projected to grow over time, in excess of those in last year's Plan. Overall, cumulative surpluses for FY 2008 2012 are higher than estimated last year. Most of these surpluses are generated at the Applied Physics Laboratory (APL) and are used to fund capital projects. Excluding the APL, the total budgeted FY 2008 surplus is $19 million.

Net operating assets are expected to decline from $649 million in FY 2007 to $610 million in FY 2011 then increase to $643 million in FY 2012 primarily because of the School of Medicine's planned use of accumulated reserves to finance capital improvements. This projection is improved over Plan 2007, which reflected a decline to $572 million in FY 2010 and increasing to $599 million in FY 2011. This performance is in spite of anticipated draw downs on large expendable gifts received several years ago.

Net tuition will increase in FY 2008 (9.2%) driven in part by planned increases in enrollment at the Homewood Schools. Growth in the out years of the Plan is expected to range between 6% and 7% annually, consistent with Plan 2007. Most Schools are anticipating tuition rate increases in the 5% range with modest increases in enrollment after FY 2009 comprising the rest of the growth.

Continued strong profitability of the clinical practice at the School of Medicine is reflected throughout the Plan. Physician fee reimbursements from federal and state governments are higher than anticipated in last year's Plan. Moderating malpractice premiums and increased productivity also contribute to improved margins. These positive trends are partially offset by the slowing of growth in research funding. The decline, about 12% in real dollars over four years, of the National Institutes of Health (NIH) funding is a main contributor to the reduction in research growth at Hopkins. Projected total growth for FY 2008 is only 2.8%, the lowest level in at least a decade. Growth in the out-years is also below recent experience, projected at 3.7% in FY 2009 increasing to a 4.8% rate in FY 2012. Dr. McGill noted that this slowdown is a major risk in the plan. While the divisions are adapting financially, there is concern about nurturing new faculty who find it harder to get research awards in this environment

Growth in research activity is expected to spike in FY 2007 with a 5.9% projected increase over FY 2006 levels. However, a large portion of this increase is attributed to subcontracts and awards from non-governmental sources which have little or no overhead or facilities and administrative (F&A) recoveries. As a result, F&A recoveries are expected to increase only 3.7% in FY 2007. This trend of a smaller overall F&A recovery as a percentage of research spending is expected to continue.

This decline in the rate of research growth impacts F&A recoveries throughout the Plan. Recoveries are down more than $14 million in FY 2007 compared to budget. This shortfall will carry through the Plan with total F&A recoveries projected consistently below those expected in Plan 2007.

The other major component of the University's research portfolio, sponsored research at the APL, is projected to grow significantly in FY 2008 and FY 2009 (10% and 6.9%, respectively), consistent with Plan 2007. Growth in the latter years is more conservatively projected in the 3% to 5% range.

Plan 2008 reflects a continued slowing of the rate of total revenue growth since the early 2000s. Revenues are projected to increase 5.4% in FY 2008 on the strength of higher tuition revenue and the growth at the APL. As enrollment growth moderates and increases at the APL return to historic levels, revenue increases are projected between 3.7% and 4.3% annually through FY 2012.

Reducing the rate of expenditure growth commensurate with slowing revenue growth is a challenge which Hopkins management is addressing by controlling costs. The Plan projects expenditure growth of 4.9% in FY 2008 and between 3.7% and 4.0% thereafter. Importantly, revenue growth is projected to exceed growth in expenditures each year of the Plan, and Dr. McGill indicated that maintaining this relationship will be a challenge for the University over the next several years.

Similar to Plan 2007, the Capital Plan for FY 2008 2012 includes no new major academic, research, or clinical projects. The divisions are focusing on existing plans and not proposing major new initiatives in the capital program although there are increased costs for previously planned projects because of construction inflation, better defined program needs or increased scope. The Plan's projected capital improvements through FY 2012 will cost $1.09 billion, compared to last year's number of $1.03 billion. 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 (85%) and debt is expected to contribute to the balance.

In short, Plan 2008 projects 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. There are risks associated with this Plan including availability of research dollars, compliance costs, changes in clinical reimbursements, increased cost of facilities and the implementation of new systems. However, the Plan assumptions are conservative in most regards and provide reasonable confidence that projected results will be achieved.

3. Investment Update

Kathryn Crecelius, Director, Office of Investment Management, presented a report on the University's investment status. Dr. Crecelius is aware of the role the endowment plays in a University and sees her mission as preserving the corpus of the endowment, growing by at least the rate of inflation and providing a payout. She inherited an endowment ably managed by former Treasurer, Bill Snow, and has worked to diversify the investments. The portfolio was very liquid, so the new strategy is to invest more for the long-term with an eye on a long-term risk versus return goal. Dr. Crecelius and her staff are looking for the right opportunities and managers. A component of the strategy is to deploy more assets outside the United States, and the University now how managers in London and Hong Kong. Dr. Crecelius is also looking for opportunities in Latin America.

Dr. Crecelius spoke briefly about the traditional investments such as stocks and bonds and alternatives including private equity, venture capital, hedge funds and real estate. Alternative investments do carry higher fees with no downward pressure on fees. The investment staff will deploy alternative investments when convinced that the investment will outperform the market net of fees and that the funds can be locked up for the long-term.

More computing power and access to information will drive down excess investment returns and Dr. Crecelius thinks that 20% returns may no longer be achievable. The current fiscal year University return stands around 16%. Higher returns are driving a discussion to increase endowment payout.

4. HopkinsOne Update

Dr. McGill enumerated some HopkinsOne issues impacting the faculty. Of primary concern is ensuring that principal investigators are able to get accurate information on their accounts. Efforts are being made to increase access to information and the validity of the data. Anecdotal response is that the information is getting out to the divisions and that progress is being made.

Dr. Hart shared the two primary concerns he is hearing that the system is not user- friendly and that people are questioning the cost of the system. He suggested that a letter be sent from senior leadership explaining the reasons for implementing this system in order to get faculty buy-in. Several members of the Committee requested more information on what improvements such as cost savings and efficiencies will come from the new system.

The discussion concluded with a plan to reconstitute the HopkinsOne Faculty Advisory Committee in order to test communications and set policy.

Respectfully submitted,
Linda R. Nathan

© 2007 The Johns Hopkins University. Baltimore, Maryland. All rights reserved.
Last updated 11Dec07 by dgips@jhu.edu