Approval of the Minutes: Minutes of the meeting of May 2528, 2005 were approved as distributed.

Federal and State Issues

Linda Robertson presented a legislative update on federal and state issues affecting the University. She prefaced her report with some general comments about the country's failure to invest in education and research and the long-term impacts. Specifically, she spoke about Medicare and the pressure being put on providers to make cuts, the need for leadership on stem-cell research at the federal level, the impact of politics on research funds, and issues of visas and immigration post 9/11. Ms. Robertson also spoke about the budget issues affecting NIH and that flat NIH budgets produce a de facto cut in Johns Hopkins research funding.

At the State level, the University has requested $100 million in capital support and was given $50 million in the last budget. Efforts are underway to request the additional $50 million. Due to the efforts of the General Assembly, Sellinger funds have been restored to full funding and the increase should be the base for the next cycle.

Benefits Update

Heidi Conway spoke to the Committee about key benefits changes as driven by the new Benefits Administration philosophy of "choice, flexibility and cost management." She discussed the components of the 32% fringe benefit rate in FY 2005 and efforts to manage the controllable costs namely health benefits. The first phase of changes was implemented for 2006 and she stressed the importance on the communications strategy. Dr. Hough pointed out the importance of alerting the community to the fact that as the employee's costs go up, Hopkins costs also go up and to a greater extent. Ms. Conway confirmed that the communication strategy includes this message. Further discussion focused on disease management and the cost savings associated with keeping people well. Ms. Hayes indicated that there are also opportunities for savings on prescription drugs. Many members of the Committee were surprised to hear that the University is self-insured and believe this point needs to be communicated more effectively to the faculty and staff.

HopkinsOne Update

Dr. Steinwachs reported on the HopkinsOne Faculty Advisory Committee's role and efforts. The priority of the group is to get and keep the faculty involved. The group has pushed for faculty participation in testing and for faculty members to address their own concerns rather than have the issues presented by administrators. The committee has also asked that at least two academic departments be used in simulation testing in order to test for lateral transactions in SAP's hierarchical system. Dr. Hart asked about business continuity during this major transition and the group agreed to invite Stephanie Reel to a future meeting. Dr. Hemker asked about whether the new system will transfer workload to the faculty and was told that the system will allow the faculty greater ability to review and monitor information. Administrators will authorize transactions which may require that they be more highly skilled than they are today.

Fiscal 2005 Financial Results

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

Mr. Puddester presented the University's FY2005 financial results which are characterized as slightly better than budget for FY2005, with the total operating surplus at $49.9 million compared to a budgeted surplus of $47.9 million. The operating surplus and some prior year reserves were used to fund capital projects. As a result, the University decreased its net assets by $21.8 million, consistent with the budgeted draw-down of $23.4 million. Overall, revenues exceeded budget by $49.3 million (1.7%). Most revenue sources were at or over budget, particularly grants and contracts, affiliated revenue and other sources. Only F&A recoveries and gifts were below budget.

Tuition revenue was $7.5 million (1.7%) higher than budget and 8.5% higher than last year. The Schools of Public Health, Nursing, Advanced International Studies, Bologna Center and Continuing Medical Education realized the largest percentage positive variances. The School of Professional Studies received $3.7 million (10.3%) less than budgeted tuition revenue for the year due to lower enrollments primarily within the Business Division.

Organized research revenues were $4.7 million (1.1%) more than budgeted, and have grown 7.2% over last year. The Schools of Medicine and Public Health experienced increases compared to last year of 7.8% and 6.4% respectively. All others had growth from last year of under 4%.

Other sponsored activity revenues were $3.2 million (2.3%) higher than budget and 2.7% greater than last year. The Schools of Arts and Sciences (Center for the Social Organization of Schools) and Medicine exceeded budget and increases in the "All Other" category (up $5.7 million, 2.3%) were primarily driven by JHPIEGO and SAIS.

Facilities & Administrative (F&A) cost recoveries were $14.9 million (6.2%) lower than budget. This shortfall results from an $11.2 million settlement with the federal government completed after the FY2005 budget was approved. Adjusting for this payment, revenues were down $3.7 million (1.5%) compared to budget due to a lower negotiated rate in FY2005. Revenue growth, FY 2005 over FY 2004, was 4.1%.

Clinical services revenue was 4.8% higher than budget and 7.3% above last year with total FY2005 clinical revenue totaling $297 million.

Expenditures were $66.4 million (2.4%) over budget. All categories of spending except libraries and auxiliary services exceeded budget. The most significant expense variances include clinical services (up $17.8 million) due in part to higher than budgeted performance supplements and sponsored activity which was up $18.0 million and matched by research revenue. General administration spending was over budget due to timing of HopkinsOne expenses and costs in the School of Medicine to support shortfalls in Johns Hopkins Health Care.

Revenues and expenditures have both increased compared to last year; however, expenditure growth (6.4%) exceeded revenue growth (4.3%). Revenue attainment in FY 2004 was boosted by two large gifts for the School of Public Health. Conversely, the University made a one-time payout of $11.2 million in FY2005 for over-recovery of F&A in FY2004. Adjusting for these extraordinary events, revenue growth was equal to expenditure growth (6.4%).

Endowments and Other Balances

The Committee reviewed the FY 2005 results for the endowment and other balances.

In FY 2005, the endowment market value increased by $86.2 million rising from $1.909 billion to $1.995 billion. The increase is due to additions (gifts) of $87.5 million and $109.6 million in earnings offset by the payout, including management fees, of $110.9 million.

Other balances decreased by $21.5 million to $659 million. This decrease was anticipated, and the five-year plan projects that balance will decline over the next several years as large gifts are expended and the School of Medicine uses cash reserves in lieu of debt for capital improvements.

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 16Dec05 by dgips@jhu.edu