Approval of the Minutes: Minutes of the meeting of May 18, 2004 were approved as distributed.

FISCAL 2004 FINANCIAL RESULTS as of JUNE 30, 2004

Mr. Puddester provided an overview of the FY 2004 operating results. He indicated that revenue growth was still healthy at 7.4%, but down from the 10% growth rate over the past few years. Steady increases in research were the primary reason for this level of revenue growth.

The Committee reviewed the University's FY2004 financial results which are characterized as much better than budgeted with an operating surplus of $92 million vs. a budget of $64 million. This is a contrast to our report as of the end of third quarter when the University was slightly below budget due to higher affiliated payments from the Health System, miscellaneous other revenue source revenues and lower overall spending. The financial picture compared to the same period last fiscal year is still less favorable due to divisions, principally the School of Medicine ($18 million) and the Applied Physics Laboratory ($44 million), utilizing a portion of operating surpluses to fund capital projects (non-operating activity). This is consistent with our five-year plan.

Key Revenue Indicators as of June 30, 2004:
All revenue categories were strongly up from last year and budget with the exception of other sponsored activity revenues which is down $4 million, a small amount on a revenue base of $2.8 billion. Future projections show a slowdown in the rate of increase in research revenues, but this was not the case in 2004 where grants and contracts increased 7.8%

Tuition revenue was $8.9 million (2.3%) higher than budget and 17.1% higher than last year. The Schools of Public Health, Advanced International Studies, Bologna Center and Office of Funded Programs realized the largest percentage positive variances.

Organized research revenues were $14.5 million (3.8%) more than budgeted, and have grown 10.6% over last year. The Schools of Medicine and Engineering experienced increases of 12.5% and 15.6% respectively. The primary driver for the growth in the School of Medicine is NIH growth. The School of Engineering is expanding its group of sponsors and has realized double-digit growth over the past couple of years.

Other sponsored activity revenues were $4.2 million (2.9%) below budget and less than last year by 1.6%. Most of this decline was due to lower revenues at JHPIEGO.

Facilities & administrative (F&A) cost recoveries were slightly more than budgeted, $3.9 million (1.8%). Year-to-year growth in F&A recoveries remained strong, up 9.4% over FY 2003. The largest increase over budget was reported in the School of Medicine ($6 million), and the greatest under-attainment was experienced by JHPIEGO.

Clinical services revenue was 8.4% higher than budget with total FY2004 clinical revenue totaling $277.1 million.

Sources and Uses of Funds:
The Committee also reviewed the sources and uses of funds. The FY 2004 total operating surplus was $92.1 million compared to a budgeted surplus of $64 million. A portion of this operating surplus was used to fund capital programs. As a result, the University added $21.7 million to net assets, a significant improvement over the budgeted draw-down of $2.9 million. Overall, revenues exceeded budget by $114.6 million (4.4%) primarily concentrated in clinical, APL and other sources revenues. Expenditures were $93.9 million (3.7%) over budget, driven by spending at the Applied Physics Laboratory and clinical expenditures at the School of Medicine. Spending in general services and administration also exceeded budget due to start up costs associated with the HopkinsOne project.

Revenues and expenditures have both increased significantly compared to last year; however, expenditure growth (9.0%) exceeded revenue growth (7.4%), for the second consecutive year. Lower gift revenue, a reduction in Maryland State Aid and start-up costs associated with HopkinsOne (reflected in general services and administration) were all contributing factors. As a result, additions to net assts were lower in FY 2004 ($21.7 million) compared to last year ($40.5 million).

ENDOWMENTS and OTHER BALANCES

The Committee reviewed the FY 2004 results for the endowment and other balances.

In FY 2004 the net increase of the endowment market value was $262.4 million rising from $1.646 billion to $1.909 billion. The increase is attributed to additions (gifts) of $94.8 million and $278.1 million in earnings, offset by the payout, including management fees, of $110.4 million. Other balances increased by $15.8 million, or 2.4%, compared to a budgeted decrease of $2.9 million. This increase continues a trend of growing net asset balances in the past several years and is due principally to the receipt of a large gift by the Bloomberg School of Public Health for malaria research.

Total general, designated, and unspent endowment payout balances at the end of FY 2004 were $668.4 million. Most of these funds are restricted as to purpose. Only the general fund balance $99.5 million ($46.7 million of which is the working capital balance at the Applied Physics Laboratory) and a small portion of the other balances are available for unrestricted use. However, increases in net assets continue to improve the University's balance sheet and provide the divisions with additional flexibility from earnings on these balances.

BENFITS ADVISORY COMMITTEE UPDATE

Ms. Hayes distributed two handouts and reviewed them with the group. One handout was the Johns Hopkins University Benefits Philosophy and the other was a copy of a memo that was addressed to Drs. Knapp and McGill from Ms. Hayes summarizing the Benefits Advisory Committee report and recommendations.

The purpose of the benefits philosophy is to "emphasize the need to balance employee interests and the costs for the University and employees in the context of Johns Hopkins' overall mission." The philosophy incorporates feedback from focus groups, the Deans and the advisory committee.

Dr. Hemker asked if the purpose of the study and recommendations is to shrink the benefits cost or to slow the growth of the costs. Ms. Hayes replied that the University is trying to contain the rising benefit costs, not lessen the dollars that the University puts into the benefits.

HOPKINSONE UPDATE

Dr. Knapp gave a brief explanation of the HopkinsOne project. Lynne Lochte, Project Director of HopkinsOne, addressed the Committee about the project and the need for faculty input. The project team would like to form a faculty focus group to help garner faculty involvement and feedback. The project is currently in the Blueprint Phase where future processes are being outlined. The likely outcome of this is that many of the current University processes will change. The faculty focus group is needed to react to the proposed blueprints and to define what needs are not being met by the current systems.

Ms. Lochte gave an overview of the scope of the project. The system will be used by the University, the Health System and all of the affiliates; only the Applied Physics Laboratory and Howard County General Hospital will not be part of the system. It is an enterprise resource planning (ERP) system, which includes modules for HR/Payroll, Supply Chain, Finance and Sponsored Projects. The selected vendor is SAP. The team expects the core functions to go live in July 2006 and the self-service functions to go live in July 2007.

The presentation generated many questions and comments by the Committee. Dr. Townsend asked why the project is expected to cost so much money. Ms. Lochte responded that many systems are being replaced. It was determined that to minimize the impact both in terms of cost and time, it was more efficient to change all core systems through an ERP system. Dr. Knapp added that intensive studies were conducted and it was determined that the risks of not implementing a new system were greater than the risks of implementing a new system. The cost of replacing the individual systems over time would cost more than the new ERP system. The system is expected to have a useful life of 10-17 years.

Many committee members asserted the need for better communication about the project. Dr. Links advised that carefully timed messages need to be sent out to the faculty to inform them of the project and its progress. Dr. Steinwachs agreed with Dr. Links and also noted that faculty members need to be identified to help make decisions and provide feedback.

Dr. Knapp motioned to form a subcommittee that would respond to faculty issues on the HopkinsOne project. The motion was approved by the Committee. Additionally, it was agreed that HopkinsOne would have a standing place on each meeting's agenda.

OTHER ITMES and FUTURE COMMITTEE AGENDA ITEMS

The issue of "faculty stretch," a term coined by Dr. Young while asking if the student body is increasing at a faster rate than the faculty, is being researched by Dr. Lebo. She will present her findings at the March meeting. To begin with, she will use the Krieger School of Arts and Sciences and possibly the Whiting School of Engineering as her case studies. She will not undertake an institution-wide study at this time.

Future agenda items proposed by the Committee include: HopkinsOne updates, capital project updates, inviting Ms. Linda Robertson, Vice President of Government, Community and Public Affairs, to discuss our federal, state and city priorities and for Ms. Hayes to share with the committee comparative data on benefits. In addition to these items, faculty stretch will be addressed in March and faculty salary presentations will be on the agenda in May.

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Last updated 17Mar05 by dgips@jhu.edu