UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
APRIL 3, 2013
FINANCE COMMITTEE
Wednesday, April 3, 2013
1:00 – 3:30 p.m.
Richmond Center of the School of Continuing
and Professional Studies, Room 333
Committee Members:
Victoria D. Harker, Chair
William H. Goodwin Jr., Vice Chair
Frank B. Atkinson
A. Macdonald Caputo
The Hon. Alan A. Diamonstein
Vincent J. Mastracco Jr.
Edward D. Miller, M.D.
John L. Nau III
Timothy B. Robertson
Helen E. Dragas, Ex-officio
Daniel M. Meyers, Consulting Member
Martin N. Davidson, Faculty
Consulting Member
AGENDA
PAGE
I.
II.
REPORT FROM THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Hogan)
REPORT ON FINANCING ACADEMIC EXCELLENCE
A.
Opening Remarks (Ms. Harker)
B.
Executive Summary
C.
White Papers:
 Strategic Investment Fund (Mr. Simon)
 Operational Excellence (Mr. Hogan)
 Funding the Costs of Development (Mr. Sweeney)
 Tuition and Fee Strategy (Ms. Sheehy)
D.
Closing Remarks
1
2
5
9
14
17
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
April 3, 2013
COMMITTEE:
Finance
AGENDA ITEM:
I. Report from the Executive Vice President
and Chief Operating Officer
ACTION REQUIRED:
None
BACKGROUND: The Executive Vice President and Chief Operating
Officer will inform the Board of recent events that do not
require formal action, but of which it should be made aware.
1
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
April 3, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.B. Financing Academic Excellence:
Executive Summary
ACTION REQUIRED:
None
Financing Academic Excellence (FAE), UVa’s four-year
financial plan, was reviewed with Board members in early 2013.
In the course of these meetings, several topics emerged as
requiring additional consideration and detail. Four white
papers have been developed to address the questions raised below
regarding the Strategic Investment Fund, Funding the Costs of
Development, Operational Excellence, and Tuition and Fee
Strategy.
Note: The AccessUVa financial aid program will be discussed at
the May 2013 meeting.
Changing economic circumstances and feedback from Board
members and others has led to some refinement of the FAE and to
the recommendations, which are listed below.
Strategic Investment Fund: Additional detail on source of
funds, governance, and accountability
1.
2.
3.
4.
5.
6.
What monies will be used to support the fund and why is it
needed?
Why haven’t we done this before?
What are our peers doing?
How will the fund be implemented and governed?
What accountability measures will be in place?
How will the fund be used?

Recommendation of the Administration: The University
should establish a Strategic Investment Fund, on or
before July 1, 2013, using cost savings and operating
surplus to support initiatives emerging from the
strategic plan and to seize new opportunities.
2
Funding the Costs of Development: Developed additional options
based on feedback from Board
1.
2.
3.
4.
What are our fundraising costs and how are they funded today?
How do peer institutions fund the costs of development?
What are the potential synergies and cost efficiencies that
could be achieved?
What are alternative models for UVa to consider regarding
funding of development costs?

Recommendation of Administration: The University of
Virginia Investment Management Company (UVIMCO) long-term
pool outlook has recently been decreased from 8% annual
investment earnings to 7.5% for the next ten years.
Based on this fact, the University should not increase
the endowment administrative fee above 50 bp.
Effective July 1, 2013, all gifts should be assessed a 5%
gift administrative fee. This is already being applied
by several foundations and would result in generating
sufficient funds to fully address fundraising costs being
incurred at Central Development and by the individual
schools (excluding their foundations).
Operational Excellence: More specifics developed on potential
areas for savings and basis for 1% targeted annual savings goal,
in response to feedback from Board
1.
2.
3.
4.
5.
6.
What accountability measures will be in place?
What are other institutions doing in this area?
What is UVa’s historical saving/reallocation performance?
What is the current state of administrative and academic
spend?
What are some potential areas for savings and the savings
projections for FY2014-17?
How does UVa compare with peers in academic and
administrative spending?

Recommendation of the Administration: Although UVa ranks
favorably in academic and administrative spending per FTE
student comparable to other institutions and does not
have the economies-of-scale opportunities afforded at
schools with large enrollments, the University aspires to
become even more efficient in both administrative and
academic areas. As such, the University seeks to
establish a formal operational excellence program with
3
the goal of generating $44 million in savings by FY17 and
redirecting these funds to support strategic priorities.
Tuition and Fee Strategy: Refined tuition and fee model to
better align school-specific and upper-level costs with price
1.
2.
3.
4.
5.
6.
7.
What is our current tuition and why does it keep rising?
Why do we need a new tuition and fee strategy?
What will the student receive for the additional investment?
What are our peers doing?
What is the recommendation for the 2013-14 academic year?
What will be the effective tuition rate increase?
How will the additional tuition revenue be used?

Recommendation of the Administration: Adopt a tuition and
fee strategy that includes:
o Tuition differential for students in Engineering and
Commerce
o Upper level fees for students in the College, Nursing,
Architecture, Batten, and Curry
o New base tuition increase of 2.9% for in-state
students and 3.9% for out-of-state students.
4
STRATEGIC INVESTMENT FUND
The Financing Academic Excellence four-year financial plan proposes four main levers for funding
University priorities. These levers must be considered in total, rather than separately, to be effective.
This white paper focuses on the Strategic Investment Fund.
Goal: Create a revolving investment fund, using cost savings and operating surplus, to support
initiatives emerging from the fall 2013 strategic plan and provide the flexibility to seize new
opportunities that advance UVa’s academic mission and strategy.
Issues:
1. What monies will be used to support the fund and why is it needed?
Operating surpluses and operational savings achieved as a result of the Operational Excellence initiative
will be captured and directed to the Strategic Investment Fund. The fund will provide the University with
the ability to continuously and proactively invest in strategic initiatives. Absent such a fund the
University will fall behind peers. The level and pace of funding will depend on requirements defined by
the strategic plan. Initially, operating efficiencies of $7.4 million from FY13 will be directed to the fund.
2. Why haven’t we done this before?
UVa has always reallocated internal funding to support new priorities, but it was typically done on an ad
hoc basis. This Strategic Investment Fund will ensure that the funds are used for strategic purposes and
in a transparent manner.
UVa’s new Health System Strategic Plan includes provisions for a similar fund, which is considered
essential for operating in a rapidly changing healthcare environment and for supporting the Plan’s
strategic initiatives. The fund is targeted to grow to $193 million by June 30, 2017, which represents
approximately 14% of total operating revenues.
3. What are our peers doing?
Other universities with similar strategic funds include Duke, Penn State, University of WisconsinMadison, Michigan, and Michigan State. Information on Duke’s program, which could serve as a model,
is included at the end of this white paper.
4. How will the fund be implemented and governed?
The President and the Provost will make decisions for deploying resources from the Strategic Investment
Fund based on a number of factors, including, but not limited to: alignment with the strategic plan,
anticipated return on investment, input from the fund’s advisory council, and ability to distinguish the
University.
5
Fund commitments could be in the form of grants or loans with repayment provisions, which would
then be reinvested in new initiatives, thereby maintaining a reliable resource for strategic initiatives
over time. As appropriate, the University will track return on investment on fund investments and
loans.
The fund’s Advisory Council, which will include the Chief Operating Officer, academic leaders, and
faculty members, will advise the President and the Provost on the use of monies in the fund.
5. What accountability measures will be in place?
The University will prepare an annual report that will provide transparency on standardized processes,
fund sources and uses, and document the outcome of fund commitments.
6.
How will the fund be used?
The fund will be used for strategic investments only, and will not be used to fund regular operations.
Some examples of how the fund might be used to strengthen the University’s distinctive qualities and
support the strategic plan are listed here:
Initiative
Selective hiring of key faculty to
complete high potential research
teams
Start-up of new programs in highpotential areas
Collaborative projects that
maximize existing synergies
Sponsored program and research
opportunities created though
public-private partnerships
Investments in the 21st-century
curriculum
The seeding of innovative,
paradigm-changing ideas
Modernize environment to
attract the next generation of
faculty and students who are
“digital natives”
Example
Aggressively compete in the recruitment of star faculty from high
quality institutions and advance UVa’s faculty to unsurpassed levels of
excellence.
UVa’s Applied Research Institute, which will leverage the growing
Department of Defense presence in the region and attract additional
DOD funding.
Innovative projects like The Center for Contemplative Science, which
brings together religion, nursing, medicine, and education.
Industry alliances such as the nationally-recognized Rolls-Royce
Higher Education Partnership, in which UVa committed to hiring SEAS
and McIntire School faculty and aligning curriculum with company
focus areas in exchange for $20 million in endowed chairs, renovated
laboratories, student internships, and research.
Infuse curriculum with global content and provide faculty and
students new opportunities to be engaged internationally through
academics, research, and public service.
Novel use of online learning to increase capacity and revenue-especially via the creation of hybrid graduate/professional degrees
(note: each Massive Open Online Course (MOOC) costs approximately
$50,000 to implement). Harness Big Data in ways that will enhance
human decision making and attract the very best students and
faculty.
Promote a step-change in scholarship and research through greater
integration of technology, cloud computing for improved information
sharing, and knowledge management to support virtual collaboration.
6
Initiative
Development of pedagogical
knowledge, methods and
processes
Shared services initiatives
Example
Leverage UVa’s Center for Advanced Study of Teaching and Learning
in Higher Education and innovative pedagogical experiments to help
faculty assess student learning and develop best practices.
Seed money to explore opportunities for shared services (IT, Finance,
Human Resources, Procurement) with internal and external partners.
Recommendation of the Administration: The University should establish a Strategic Investment Fund
as described herein on or before July 1, 2013.
Duke University Strategic Investment Plan- A Potential Model
[from Duke University website]
Goal: Fund ongoing priorities and critical new investments in programs and facilities that are part of the
Strategic Plan. Specific investments where central support is critical to achieving the goals of the plan:
enhancing our faculty, strengthening our graduate programs, improving the undergraduate experience,
broadening the impact of the arts, and completing key facilities investments.
Process: Specific financial commitments for annual program expenses and individual capital projects will
be determined by the senior officers in the course of the regular operating and capital budget processes
and subject to normal Board of Trustees review and approval through those processes. We will monitor
the short and long-term effects of our strategies and investments, and the Board of Trustees will
participate regularly in the assessment of the overall effectiveness of the plan and its execution.
Resources: Duke operates through a resource allocation system of managed decentralization. While our
schools have considerable latitude in prioritizing expenditures and strong incentives to generate funds
and allocate them wisely, we have also developed strong central funding mechanisms to supplement
school resources to achieve critical priorities. These central strategic investment funds provide a critical
component of our overall resource allocation system and are allocated by the senior officers for both
programmatic (typically as seed money) and capital purposes with the approval of the Board of
Trustees.
Basis for Allocation: Allocations are typically based on: 1) strategic importance of the investment to the
advancement of the institution or a particular school; 2) the ability of the central commitment to
leverage additional resources, either provided by the school or from external resources such as
philanthropy or sponsored research; and 3) sustainability of the program once central funds are
expended. In essence, we have created a renewing pool of strategic investment funds so that Duke can
continually invest in projects that promise a high academic or financial return and can become selfsustaining in the long run.
Funding: The Strategic Investment Plan calls for a total investment over the next six to eight years of
$1,300.7 million. Approximately $346.5 million will be funded from the central strategic resources
described above.
Implementation: Expenditure targets and resource commitments will evolve as specific projects are
approved. Expenditure plans will be managed to fit available resources. Our general expectation is that
7
programmatic support from central funds will not continue beyond five years; funding will shift either to
external grants and contracts, new endowment income, or the budgets of the schools. Programmatic
support is thus a form of bridge funding.
Allocation decisions will be incorporated into our ongoing operating and capital budget cycles, but
central strategic investment funds will be separately identified and managed.
Accountability: Our strategic investment plan is linked to a program of assessment and financial
checkpoints intended to keep us moving towards our strategic goals while guarding against overcommitments. Overall, we think we are likely to identify the needed resources to enable us to move
forward with this program. At the same time, we are prepared to make the necessary midcourse
corrections and tradeoffs (delaying, trimming, finding alternative revenue sources) that may be
necessary should the resource outlook prove less favorable. We will revisit these issues often as a part
of our ongoing strategic planning effort.
8
OPERATIONAL EXCELLENCE
The Financing Academic Excellence four-year financial plan proposes four main levers for funding
University priorities. These levers must be considered in total, rather than separately, to be effective.
This white paper focuses on Operational Excellence.
Goal: To establish a formal, continuous, and comprehensive operational excellence program, housed
within the EVP/COO portfolio, to enhance effectiveness and efficiency in administrative and academic
areas. The program will be governed by a pan-institutional Steering Committee including members of
senior management, academic leaders, and other stakeholders with executive sponsorship from the
EVP/COO and EVP/Provost. The Steering Committee will identify and assess opportunities, prioritize
projects for implementation, and assure successful execution for improved quality, streamlined
processes and functions, and enhanced synergies throughout the institution.
Issues:
1. What accountability measures will be in place?
Regular progress reports will be prepared and shared with the University community and stakeholders
including the Board of Visitors. Progress will be reported relative to the overall goals of the initiative as
well as individual project goals. Achieved savings will be captured and directed to the Strategic
Investment Fund.
2. What are other institutions doing in this area?
Several institutions have set cost-savings goals and established formal programs to realize these savings
(Table 1). These goals range from 1.4% to 2.6% as expressed as a percentage of total annual budget. It
is important to consider several points to contextualize these projections:
a. In each of these institutions, the projections were made after a diagnostic phase to assess key
opportunities. Cornell initiated their program in 2008, while the University of North Carolina
and the University of Michigan established their efforts in 2009. The University of Texas-Austin
just announced its projections in January 2013.
b. Three of the four institutions have a larger student body than UVa, which provides greater
opportunities for economies-of-scale savings.
Table 1: Peer Institutional Cost Savings Goals
School
Projection
U Michigan
U Texas-Austin
Cornell
UNC
$120 million between FY 13 - FY 17; annualized
$24 million
$490 million in 10 years; annualized $49 million
$75-85 million annually by 2015
$66 million per year by year 5
9
Approximate
Annual
Budget
Savings
1.4%
Student
Enrollment
2.0%
2.3%
2.6%
46,301
21,515
28,913
46,239
3. What is UVa’s historical saving/reallocation performance?
At the February 2013 Board meeting, the administration shared a report highlighting examples of
significant operational efficiency and improvements since August 2010. Table 2 summarizes the dollars
attributed to these efforts by type.
Table 2: Summary of Operational Efficiency (examples since August 2010)
Area
Annual Savings/Reallocations*
Annual Revenue*
Resource Optimization
$12,545,250
$8,316,000
Automation/Streamlining**
180,000
Reorganization/Partnerships
916,500
Organizational Effectiveness
1,650,000
Total
$15,291,750
$8,316,000
*For the purposes of this document, savings/revenues have been annualized. Dollar figures exclude
capital project savings and grant funding.
**Automation/Streamlining activities result in improvements beyond dollar savings such as elimination
of steps in a process, improvements in data management, and reduction of staff time on tasks.
The savings from many of the initiatives described in the report have ongoing, permanent benefit, such
as the reduction of employee headcount by 92 FTEs, the comprehensive employee wellness program,
procurement contract negotiations, and the renegotiated facilities and administrative rate.
Net savings in FY13 are expected to be at least $7.4 million as a result of similar efforts and will serve as
the initial funding for the Strategic Investment Fund. The savings projections are based on data
collected over the last 3 years related to actual savings and reallocations realized across the institution.
4. What is the current state of administrative and academic spend?
The following table summarizes the current level of UVa expenditures, as reported to the Department of
Education:
Table 3: Overview of U.Va. Academic Division Expenditures
Academic and Administrative Spend, FY12
Operating Expenditures
Instruction
317,187,632
Research
279,833,884
Student Services
36,046,044
Student Aid
49,259,132
Depreciation
103,975,147
Operation and Maintenance of Plant
89,156,252
*Public Service
31,128,404
*Academic Support
122,437,674
*Institutional Support
80,675,632
*Auxiliary Enterprises
132,407,603
Total Operating Expenditures
1,242,107,404
10
*Addressable Costs: Of the categories of expenditures identified above, the areas that are targeted for
cost-savings are identified with an asterisk and total $366.6 million or 30% in FY12. These are
considered the addressable costs at this time. As programmatic changes are shaped by the Strategic
Plan, there may be additional opportunities to create efficiencies in all areas.
5. What are some potential areas for savings and the savings projections for FY14-17?
While the Steering Committee will be charged to evaluate and prioritize cost-savings opportunities in
administrative and academic areas, potential focus areas include.
 Shared Services (e.g. Human Resources, Financial Administration, Information Technology –
cloud computing and storage)
 Outsourcing of Services
 Organizational Redesign (e.g. Central Development and Foundations, Senior Management,
Department Structure)
 Space Utilization
 Strategic Sourcing
 Collaborations with Other Universities
 Academic Curriculum Synergies
Table 4: Projected Productivity and Efficiency Savings (in millions)
FY13
FY14
FY15
FY16
FY17
TOTAL
Projected Savings
$7.4
$9.0
$9.0
$9.0
$10.0
$44.4
As an approximate % of FY12 non1%
1%
1%
1%
1%
5%
sponsored research operating
expenses
As an approximate % of FY12
2%
3%
3%
3%
3%
14%
addressable expenses from Table 3
Note: These projections exclude additional savings that may be realized in University-related Foundations.
6. How does UVa compare with peers in academic and administrative spending?
UVa currently ranks the 13th lowest of 26 peers in administrative spending per FTE student (Graph 1).
The majority of institutions with a lower per FTE spend have larger enrollments than UVa. For
illustrative purposes, if UVa decreased spending by 5%, it would rank the 10th lowest among the 26
schools.
11
Graph 1
SCHEV Peers Administrative Spending per FTE Student FY11
(in thousands)
(Institutions shaded in purple have a larger enrollment than UVa)
Duke
Cornell
Wash St. Lois
Southern Cal
Emory
Penn
Tulane
Texas
Pittsburgh
SUNY Buffalo
UCLA
Berkeley
Michigan
Virginia
Rutgers
Iowa
North Carolina
U Washington
Maryland
Florida
Arizona
Vanderbilt
Nebraska
Wisconsin
Colorado
Illinois
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$-
UVa currently ranks 11th lowest of 26 peers in academic spending per FTE student (Graph 2). All but
one institution with a lower per FTE spend has a larger enrollment than UVa. For illustrative purposes, if
UVa reduced spending by 5%, it would rank the 9th lowest among the 26 schools.
Graph 2
SCHEV Peers Academic Spending per FTE Student, FY11
(in thousands)
(Institutions shaded in purple have a larger enrollment than UVa)
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
Wash St. Lois
Vanderbilt
Penn
Duke
UCLA
Southern Cal
Emory
North Carolina
U Washington
Cornell
Michigan
Rutgers
Berkeley
Tulane
Pittsburgh
Virginia
Iowa
Florida
Wisconsin
Texas
SUNY Buffalo
Maryland
Illinois
Arizona
Colorado
Nebraska
$-
12
Recommendation of the Administration:
Although UVa ranks favorably in academic and administrative spending per FTE student comparable to
other institutions and does not have the economies-of-scale opportunities afforded at schools with large
enrollments, the University aspires to become even more efficient in both administrative and academic
areas. As such, the University seeks to establish a formal operational excellence program with the goal
of generating $44 million in savings by FY17 and redirecting these funds to support strategic priorities.
13
FUNDING THE COSTS OF DEVELOPMENT
The Financing Academic Excellence four-year financial plan proposes four main levers for funding
University priorities. These levers must be considered in total, rather than separately, to be effective.
This white paper focuses on Funding the Costs of Development.
Background: The University has a well-established fund raising operation that includes a central
development function, nine school-related 501(c)(3) foundations, and an Alumni Association foundation
as well as fund raising programs in several centers and institutes; it also has a robust fund raising
program supporting Virginia Athletics. There are over 2,400 separate Rector and Visitors endowments
and multiple endowments controlled by the foundations.
Goal: Establish a sustainable funding model to support the cost of maintaining a high quality, effective,
and efficient development organization.
“Fund raising efficiency should not be confused with fund-raising effectiveness. The objective of an institution’s
program should not be to spend as little as possible each year to raise money, but to maximize the net… This is not
1
to say that an institution should pay no attention to how much is spent on fund raising. ”
Issues:
1. What are our fund raising costs and how are they funded today?
 In total, Central Development and the various schools (excluding foundations) invest approximately
$25 million in fund raising costs. The direct costs normally associated with determining the cost of
raising a dollar (based on national university standards) generally include all direct solicitation costs
as well as “back office operations” (gift accounting and processing, prospect research, information
systems, development communications and direct marketing for solicitations and a portion of
human resources).
 Annually, the Central Development direct fund raising investment is approximately $14 million. In
addition, it invests another $2 million in engagement programs and, until the recent disaggregation
of the public affairs program, invested $3 million in that area. It also subsidizes the University’s
Alumni Association in excess of $2 million for a total overall budget of $20.9 Million.
 The staff to run this central operation (including engagement and communications) is the equivalent
of approximately 146 full-time positions. Of these, approximately 120 are part of the fund raising
operation.
 The various schools incur approximately $7 million in development costs (exclusive of foundation
costs).
 An endowment administrative fee of 50 basis points (bp) is charged to endowment accounts to
partially cover the above described fund raising costs. This fee currently equates to $15 million per
year. The balance of fund raising costs have in the past been covered by unrestricted funds and
operating revenues.
 The school-related foundations and the Alumni Association foundation collectively incur an
additional $34 million in costs for fund raising, communications and alumni relations. Foundation
costs are funded in several ways:
1
Benchmarking Investments in Advancement, Council for Advancement and Support of Education (2012)
14
o
o
a 5% gift administrative fee on new gifts (Curry, Engineering, Medical School);
unrestricted gifts generated from annual giving programs.
2. How do peer institutions fund the costs of development?
A recent survey of 184 public universities, completed for the Council for Advancement and Support of
Education (CASE) and the Association of Governing Boards (AGB), found the following funding methods
favored:
 management fees on endowed funds (fees generally ranged from 0.5% to 2.0%);
 unrestricted gifts;
 administrative fee on gifts (generally ranging from 3% to 7%, with some now as high as 10%);
 investment earning or cash float on non-endowed restricted gifts;
 direct support from host institution (budget allocation);
 gift funds restricted for foundation operations;
 revenue from real estate under management.
In addition, in 2010 AGB, in partnership with the Commonfund Institute, conducted a survey of
endowment spending and management. Eighty-seven percent of the respondents assessed a fee. The
average was 1.3%. For institutions in UVa’s cohort, with endowments greater than $500 million, the
average fee assessment was 1.2%. Responses from an informal study that the University conducted of
its peers revealed fees that ranged from 80 bp to 240 bp.
Survey Group
2
Association of Governing Boards of Universities & Colleges (AGB)
Higher Education and Affiliated Foundations
Schools with Endowments > $500 million
3
Peers
UVa
Fee
average: 1.3%
average: 1.2%
average: 1.04%
0.50%
Comments
87% assess a fee
Range: 0.90-1.5%
100% assess a fee
Range: 0.80-2.4%
3. What are the potential synergies and cost efficiencies that could be achieved?
Total university-wide fund raising, alumni relations and school/University communications costs are
approximately $59 million, including centers, institutes and athletics. Clearly, there are efficiencies that
can be achieved and costs to be saved by consolidating some back office operations and merging into a
single annual giving program that would serve all schools and units. Consideration will be given to
targeting significant saving and cuts coming from the overall areas of fund raising, alumni
relations/engagement and communication.
4. What are alternative models for UVa to consider regarding funding of development costs?
Some alternative models include:
2
3
Spending and Management of Endowments under UPMIFA, AGB and Commonfund Institute (2010)
UVa Phone Survey (2013)- ACC Schools, Berkeley, UCLA, Cornell, Emory, Iowa
15
a. Increase endowment administrative fee from 50 bp to 75 bp. This generates a total of $22-$23
million annually and could fully cover the costs of development for both central Development
and the various schools.
b. Keep current endowment administrative fee at 50 bp (approximately $15 million per year) and
begin assessing a 5% gift administrative fee on all gifts received. This fee would generate
approximately $10-$12 million of unrestricted resources to fund the gap that exists today
between the 50 bp charged to the endowment and the costs of development for both central
Development and the various schools.
c. Discontinue assessing the 50 bp endowment administrative fee and apply a 10% gift
administrative fee on all gifts received. This would generate approximately $25 million in funds
to address the costs of development.
Recommendation of Administration:


The University of Virginia Investment Management Company (UVIMCO) long-term pool outlook has
recently been decreased from 8% annual investment earnings to 7.5% for the next ten years. Based
on this fact, the University should keep the endowment administrative fee at 50 bp.
Effective July 1, 2013, all gifts should be assessed a 5% gift administrative fee, i.e., Option b above.
Gift agreements will be modified to reflect the gift administrative fee. This is already being applied
by several foundations and would result in generating sufficient funds to fully address the $25
million of fund raising costs being incurred at Central Development and by the individual schools
(excluding their foundations) as follows:
Assessment
50 bp endowment administrative fee
5% gift administrative fee
Total


Revenues (approximate)
$15 million
$10 million
$25 million
Achieve significant savings (largely in foundations) by centralizing back office operations (gift
accounting, mail campaigns, human resources, audit, tax, etc.), and through a better coordinated
pan-University fund raising approach.
Reconsider this funding approach annually based on annual endowment performance and
philanthropic cash flow results and gains through efficiencies.
16
TUITION AND FEE STRATEGY
The Financing Academic Excellence four-year financial plan proposes four main levers for funding
University priorities. These levers must be considered in total, rather than separately, to be effective.
This white paper focuses on the Tuition and Fee Strategy.
Goal: Adopt a comprehensive tuition and fee strategy that is transparent and better reflects cost to
educate students by discipline and instructional level.
Issues:
1. What is our current tuition and why does it keep rising?

Tuition and mandatory fees in 2013 were $12,006 for in-state students and $38,018 for out-ofstate students (excluding the $210 orientation fee paid only by first year students). The
Commerce School charges a differential of $4,000 on this base tuition rate for both in-state and
out-of-state students. Fees were introduced in Academic Year 2012-13 to help address the
higher cost of lab and simulation courses offered in certain schools. Students enrolled in
Engineering courses pay a fee of $32 per credit hour. On average an undergraduate Engineering
major pays additional fees of $750 per year. The School of Nursing charges an additional $60
per credit hour to students enrolled in advanced undergraduate or graduate courses with a
clinical laboratory or practicum. On average, undergraduate Nursing students pay the following
additional fees:
2nd year
$ 600
rd
3 year
$ 1,260
4th year
$ 1,440

There are several reasons why tuition continues to increase each year, often in excess of the
rate of inflation.
o First, the state has a cost share funding policy for public institutions of higher
education. Under the policy the state commits to fund 67% of the cost of an in-state
student’s education with the remainder to be covered from tuition. Out-of-state
students must pay 100% of their cost. Most budget actions, including salary increases,
health and retirement benefits, support for new facilities, taken by the Governor or
General Assembly require that tuition be used to match state funds in some proportion.
At the University, based on our overall in-state:out-of-state mix, that proportion is
approximately 65% tuition and 35% state funds. For example, the 3% average faculty
salary increase approved by the General Assembly for 2013-14 is estimated to cost the
University $3.8 million, yet the state has appropriated only $1.3 million of that
amount, while the University is expected to raise the remaining $2.5 million from
tuition increases.
o Second, as state appropriations for higher education declined over the last 20 years,
institutions turned to tuition revenues, among other sources, to meet education funding
needs. Overall the state’s funding policy is unbalanced with a funding shortfall from
state dollars of over $843 million for the system, as calculated by the State Council in
Higher Education in Virginia (SCHEV). The University’s general fund shortfall is $57
17
o

million per SCHEV’s September 2012 budget recommendations. In other words, the
state has not met its share of the funding policy for higher education.
Third, the state does not fund its share of general inflation in the operating budget.
Certain costs for such things as library materials and technology, including new systems
development, have historically increased at a rate greater than inflation. These cost
increases among others must be met either by reducing expenditures or by increasing
other revenue sources. The University has done both.
At a public institution the base operating budget is supported from state funds and from tuition.
Since 1995 the state support for an in-state student at the University has declined by 37% in
inflation adjusted dollars. When combined with tuition, total operating support for an in-state
student is slightly less today at $18,412 compared with $18,941 in 1995.
2. Why do we need a new tuition and fee strategy?
The University needs a multi-part strategy to maintain and enhance its academic quality that includes
improving efficiency, reducing costs, collaborating across schools and departments within the
University, and generating additional revenue. While the current Governor and General Assembly have
made reinvestment in higher education a priority, it cannot make up for the reductions in state support
that have occurred over the last 20 years as evidenced by the $57 million shortfall in state support for
the University mentioned above. Better alignment between the price of a UVa education, its value in
the marketplace, and its cost is required.
Many public institutions charge fees for special programs or courses that carry higher costs whether
from lab supplies or high tech equipment or individualized instruction. It is commonly accepted that an
engineering degree is more costly than a degree in the humanities. As previously outlined in the
University’s proposal for differential pricing for the McIntire School, there is considerable additional cost
associated with upper division (third and fourth year) instruction and support as students take smaller
18
classes, demand more individual attention from faculty, engage in capstone and other experiential
learning, and access career and other student services more frequently. An approach to better align the
cost of the upper division with the price is to assess a required fee that would be transparent and does
not “surprise” families with various fees charged by course of enrollment. The goal is to encourage
students to experiment with a variety of courses and not be deterred by those that carry additional
fees.
3. What will the student receive for the additional investment?
A new tuition and fee strategy will allow students to continue to receive a high quality education with
preeminent faculty. It reflects the higher cost of educating students in Engineering as well as upperdivision students who benefit from smaller class sizes, rigorous capstone courses, greater faculty
engagement, global learning opportunities, internships, career placement, and increased research
opportunities. Specifically,
 An institution’s faculty is its most important asset. UVa like many higher education institutions
in the country faces a dramatic generational turnover in its faculty over the next decade. We
expect 178 of our 855 teaching and research faculty in the undergraduate schools to retire in
the next four years. The University must aggressively pursue the opportunity to remake the
faculty for the next generation of students. To do so requires competing with the best
institutions in the country not simply to replace the faculty who retire, but to attract those
who have a commitment to innovation in education and can set the future direction of
research in their fields. To be successful in this aspiration the University must improve its
average faculty salary. At its February 2013 meeting the Board of Visitors endorsed the goal to
move the average faculty salary from 26th among AAU institutions to 20th over four years. This
will close the $24,266 salary gap that exists today for a full professor in the College and
Graduate School of Arts & Sciences.

One third of UVa undergraduates have as their primary major a STEM discipline, with that figure
increasing to 40% if one considers second majors. Hiring new STEM faculty to replace retiring
faculty and keep pace with planned enrollment growth will require funding start-up packages.
The University estimates the investment in start-up packages over the next four years will be
$100 million, $72 million of which will be covered by reallocating existing resources. However,
the remaining $28 million must come from new sources of funds.

The University will encourage and expand opportunities for experiential learning through
internships, study abroad, undergraduate research, and service learning projects.

Plans will be developed in each school to provide opportunities for every student to complete a
capstone experience.

Improve advising services throughout an undergraduate student’s career. Advising has been
identified in the strategic planning process as one of the three most important initiatives coming
from the Student Life Work Group. According to their report the challenges are two-fold. First,
academic advising is uneven with some advisors who are excellent and others who view their
assignment as a chore. Second, students seem to learn about the many co-curricular and
extracurricular opportunities by chance. Opportunities exist to improve advising across the
spectrum and as a result provide every student with the chance to mature into the type of
19
individual that graduate schools and employers will want to accept. President Sullivan has
challenged the institution to develop the best student advising program in the country.

Strengthen career services to improve placement rates for graduating students. A subgroup of
the Student Life Work Group will examine the essential elements of career services for
undergraduate students, research best practices, and make recommendations for improvement
that address the needs of undergraduate students. In October 2012 the Career Services Task
Force of the Council of Foundations delivered a report that found “… the University of Virginia
would benefit from a more intentional and coordinated approach to career services for
students.” The report identifies seven areas of opportunity and asserts that the University
needs to match resources with aspirations. One conclusion it draws is “…that for the long‐term
reputation of the University and for the immediate success of our students, investing more—
considerably more—in career efforts is vital.”
4. What are our peers doing?
Private peers charge a higher tuition rate across the board to all students, without differential pricing
based on residency, academic level, or academic program. This strategy is most often coupled with
strategic tuition discounting, some solely based on need and others using both need- and merit-based
discounting.
Public institutions set pricing at a lower level for in-state residents (recognizing the state’s contribution
from tax collections) and a higher level for out-of-state residents, although not to the level of private
institutions. As outlined on the chart beginning on page 23, a number of our public peer institutions
charge a higher price for upper division students recognizing that the cost of education in these years
is greater. Many more of our public peers charge a higher tuition in specific schools or programs like
engineering, architecture, nursing or business. Several specific examples include:




5.
University of Michigan – upper division tuition is between $1,500 and $3,700 more than lower
division depending on program.
Michigan State charges about $1,200 more for upper division.
Penn State University upper division tuition ranges from about $1,300 to $4,500 more than
lower division.
11 out of 27 public institutions in USNWR’s 2012 Best Undergraduate Engineering Programs
rankings charge an engineering differential tuition and/or program/lab fee.
What is the recommendation for the 2013-14 academic year?
For 2013-14, the University has developed a proposal that minimizes the base tuition increase,
addresses differing cost structures in Commerce and Engineering, phases-in a proposed fee related to
upper division education in the other undergraduate schools, and provides adequate funds to meet the
state authorized salary increase as well as other required cost increases.
The University proposes the following approach:
20




A base tuition and fee increase of 2.9% for all in-state undergraduate students and a 3.9%
increase for all out-of-state undergraduate students.
Rising third and fourth year students in the College of Arts and Sciences, the School of Nursing,
the Architecture School, the Batten School, and the Curry School will pay a $500 required Upper
Division fee. We propose to increase the fee to $1,000 in FY15, $1,500 in FY16, and $2,000 in
FY17.
Entering engineering students would pay an additional $2,000 in tuition and no program specific
fees while continuing engineering students would pay the engineering course fee approved in
2012-13. Each new entering class would pay $2,000 more than the base tuition in that year until
all four years of students are paying the same rate. Program/course fees will be phased out over
this period.
The Commerce School will implement its final phase of increased tuition and charge students
enrolled in the school $5,000 more than the base tuition.
Institution
UVa 2013-14 Proposed
Base Tuition and Fees
IS:
$ 12,381
OOS:
$ 39,303
Upper Division Fee
Differential by Program
(annual)
(annual)
CLAS, SON, SARC, Batten, Curry - Business - $5,000
$500 fee in 2014 increasing to Engineering - $2,000 (beg. fall 2013 1st
$1,000 in 2015, $1,500 in 2016, yrs)
and $2,000 in 2017
(Engineering fees phase out)
6. What will be the effective tuition rate increase?
Combined with projected base tuition increases of 2.9% for in-state and 3.9% for out-of-state, and
taking into account current engineering fees that will be phased out with the implementation of the
higher tuition charge, the effective increase a student will pay over their four years (compared to
today’s rates) is:
School
In-state
Out-of-state
School of Engineering and Applied Science
4.6%
3.3%
School of Nursing
1.8%
2.5%
College, Architecture, Batten, Curry
4.0%
3.1%
7. How will the additional tuition revenue be used?
The net tuition revenue will be used for institutional priorities emerging from the strategic planning
process, expanded opportunities for upper division students, career services, IT costs, and deferred
maintenance among other things. Additional detail can be found in the following table.
21
PROJECTED INCREMENTAL SOURCES AND USES OF TUITION AND E&G FEES (in thousands)
2013-14
2014-15
2015-16
Projected
Projected
Projected
INCREMENTAL SOURCES
Undergraduate tuition and upper division fee $
Less: AccessUVa costs
Net undergraduate tuition and upper division
fee
2016-17
Projected
20,333 $
(1,555)
31,894 $
(5,080)
18,778
26,814
39,744
52,813
2,207
8,024
12,097
16,285
Graduate, medical, professional, and special
programs tuition (net of financial aid)
50,074 $
(10,330)
68,443
(15,630)
Other E&G fees
Total Incremental Tuition and E&G Fees
INCREMENTAL USES
$
0
20,985 $
908
35,745 $
1,368
53,210 $
1,834
70,932
Expenditures by self-sufficient programs
$
2,827 $
4,947 $
7,529 $
10,186
11,070
21,482
31,616
42,198
(2,503)
(3,959)
(5,415)
(6,870)
8,567
17,524
26,202
35,328
3,942
6,796
$
1,083
16,419 $
$
4,566 $
Faculty and staff salaries and fringe benefits
Less: Reprogrammed existing resources
Net faculty and staff salaries and fringe
benefits
Enrollment growth support costs, including a
portion of faculty start-ups (1)
Unavoidable costs (e.g utilities, lease
escalations, new facility O&M)
Total Incremental Uses
Available funds to be allocated to other
institutional priorities (e.g., expanded
3rd/4th year opportunities, career services,
advising, IT costs, deferred maintenance) (2)
10,859
14,987
2,667
31,934 $
3,844
48,433 $
5,055
65,557
3,811 $
4,777 $
5,375
(1)
remaining need for faculty start-ups will come from ETF, internal bank loans, operational efficiencies, etc.
(2)
to be matched by savings from operational efficiencies
Recommendation of the Administration: The University should implement a comprehensive tuition
and fee strategy as described herein, beginning with the 2013-14 academic year.
22
Benchmark Data:
Peer Tuition/Fee Charges by Division and Program
Institution
UVa 2013-14 Proposed
UVa Current
Arizona, Univ of
Clemson Univ
Iowa State Univ
Iowa, Univ of
Kentucky, Univ of
Base Tuition and
Fees
IS:
$ 12,381
OOS:
$ 39,303
IS:
$ 11,962
OOS:
$ 37,974
IS:
$ 10,035
OOS:
$ 26,231
IS:
OOS:
IS:
$ 12,674
$ 29,600
$ 7,726
OOS:
$ 19,838
IS:
$ 8,057
OOS:
$ 26,279
IS:
Additional Price by Upper Division
(annual)
CLAS, SON, SARC, Batten, Curry $500 fee in 2014 increasing to $1,000
in 2015, $1,500 in 2016, and $2,000
in 2017
None
Additional Price by Program
(annual)
Business - $5,000
Engineering - $2,000 (beg. fall 2013
1st yrs)
(Engineering fees phase out)
Business - $4,000
Engineering - ~750
Nursing - $0 - $1,620
Engineering, Management - $1,200
Public Health - $800
Architecture - $730
Fine Arts - $600
Journalism - $500
Family Studies/Geography - $100
Engineering - $600
Business - $2,000
No additional
Engineering - $2,166
Business - $1,642
Architecture - $400
Engineering - $216
Business - $40
Nursing - $2,310
Engineering - $2,146
Business - $1,303
Engineering - $211
Business - $156
$280
Engineering - ~$1,248
Business, Economics - ~$810
~$1,178
Engineering - $1,090
Business - $400
Health Sciences - $200
Science/Technology - $200
IS: ranges from $1,506 - $3,698
OOS: ranges from $2,528 - $4,432
Engineering - $908
Exists for all academic programs
Nursing - $4,528
Business, Science, Engineering $2,262
All other - $1,264
None
No additional
None
Business, Chemistry, Life Sciences $4,920
Ag/Consumer/ Envi Sciences - $2,544
Fine & Applied Arts - $1,604
OOS:
Michigan State Univ
Michigan, Univ of
Pennsylvania State Univ
Colorado, Univ of
Illinois-Urbana, Univ of
(rates guaranteed for 4
yrs for each entering
cohort)
IS:
$ 13,713
OOS:
$ 33,670
IS:
$ 12,994
OOS:
$ 39,122
IS:
$ 16,444
OOS:
$ 28,746
IS:
OOS:
IS:
$ 9,482
$ 31,378
$ 14,960
OOS:
$ 29,102
23
Business - ~$4,500Engineering ~$3,000
Institution
Kansas, Univ of
Missouri, Univ of
Nebraska, Univ of
Ohio State Univ
Pittsburgh, University of
Purdue University
Rutgers Univ
Tennessee, Univ
Texas-Austin, Univ of
Texas A&M Univ
Virginia Tech
Wisconsin, Univ
Base Tuition and
Fees
IS:
$ 9,678
OOS:
$ 23,748
IS:
$ 9,257
OOS:
$ 23,366
IS:
$ 7,897
OOS:
$ 20,647
IS:
$ 10,037
OOS:
$ 25,445
IS:
OOS:
IS:
OOS:
IS:
OOS:
IS:
$
$
$
$
$
$
$
OOS:
$ 27,582
IS:
$ 9,794
OOS:
$ 32,506
IS:
OOS:
IS:
OOS:
IS:
OOS:
$
$
$
$
$
$
16,590
26,280
9,900
28,702
13,073
26,393
9,092
8,506
25,036
10,923
25,915
10,384
26,634
Additional Price by Upper Division
(annual)
None
Additional Price by Program
(annual)
Business - ~$3,390
Engineering - ~$1,356
Architecture - ~$1,260
Education, Arts, Music - ~$677
None
Engineering - $1,332
Also for business, education, health
professions
Engineering - $3,090 IS; $6,412 OOS
Architecture - $2,280 IS; $5,355 OOS
Business - $1,560 IS; $4,575 OOS
None
None
Business - $1,526
Engineering - $1,080
Arts - $552
Nursing - $458 + course fees of $390$750 course
Also, Communications, Psychology,
Education
Engineering - $1,050 IS; $2,356 OOS
Also Business
None
None
Engineering - $1,550
Management - $1,384
None
Engineering, Envi Sciences - $1,118
None
Engineering - $1,620
Business - $1,800
Also, specific Nursing courses
None
Business - ~$1,000
Nursing - ~$568
Engineering - ~$420
None
Engineering - $800
Also, Architecture, Business
None
Engineering - $900
None
Engineering - $1,400
Business - $1,000
24