Meeting of the
Finance Committee
September 20, 2013
1
FINANCE COMMITTEE ACTION ITEMS
1. Operating Budget Requests for the 2014-2016
Biennial Budget for the Academic Division,
Medical Center and College at Wise
2. 2014-2020 State-Required Six-Year Plan
3. Capital Project Financing Plan: Rugby Road
Office Building
4. Intent to Issue Tax-Exempt Debt
2
Operating Budget Requests for the
2014-2016 Biennial Budget for the
Academic Division, Medical Center
and College at Wise
Colette Sheehy
Vice President for Management & Budget
3
General Fund Academic Division
Budget Submission
(in millions)
14-15
15-16
Total
Operating Amendments:
Enrollment Growth – Va UG
$ 0.43
STEM Faculty Start-Up Packages
7.00
Cancer Research
4.00
Economic Development Accelerator
4.00
O&M Costs for New Facilities
0.87
Health Insurance Premium Increases
0.23
$ 16.53
$ 2.08 $ 2.51
14.00
21.00
4.00
8.00
4.00
8.00
0.90
1.77
0.23
0.46
$ 25.21 $ 41.74
4
General Fund Academic Division Budget
Submission
Language Changes:
• Add language to administer salary increases for University
and Classified Staff based on merit
• Eliminate specific line item language related to the Center
for Politics and Virginia Center for Diabetes Professional
Education
• Add language to continue operation of Newport News
Center
5
General Fund Medical Center
Submission
(in millions)
14-15
15-16
Total
$10.38
$10.86
$21.24
Operating Amendment:
Restore Medicaid Reimbursement
to 100%
Language Change:
• Add language to clarify existing law related to compensation
of Medical Center employees
6
General Fund College at Wise Budget
Submission
(in millions)
14-15
15-16
Total
$ 0.26
0.69
0.30
$ 0.87
0.69
0.30
$ 1.13
1.38
0.60
$ 1.25
$ 1.86
$ 3.11
Operating Amendments:
STEM Early College Academy
High-Need Degrees
Appalachian Prosperity Project
7
8
2014-2020 State-Required Six-Year
Plan
Colette Sheehy
Vice President for Management & Budget
9
State Six-Year Plan
Key Actions in 2013
June
Reviewed six-year plan assumptions with chair of
Finance Committee
July 1
Submitted preliminary six-year plan to State
July 3
Shared plan with Board of Visitors members
August 28
Reviewed plan with State officials
September 2 Shared plan and set of high-level summary slides
with Board of Visitors members
September 6 Receive comments from State officials
September 20 Board of Visitors’ action
October 4
Submit final plan to State
10
State Six-Year Plan
State Feedback
• President Sullivan and others met with Director of SCHEV,
Secretaries of Education and Finance, Director of the
Department of Planning and Budget and Staff Directors of the
House Appropriation and Senate Finance Committees to
discuss the University’s plan
• Two comments specific to the University’s plan:
• Please update the section of your plan that addresses AccessUVA
with your most recent action on the program.
• While we understand that you may be unable to provide specifics
at this time, please provide the broad categories and estimates for
reallocations and savings.
11
12
Capital Project Financing Plan:
Rugby Road Office Building
Colette Sheehy
Vice President for Management & Budget
13
Capital Project Financing Plan: Rugby
Road Office Building
• Built in 1924, the former Rugby Faculty Apartments is
deemed a contributing structure according to the
University Historic Framework Plan.
• The building is listed in the National Register of Historic
Places as a contributing resource within the Rugby RoadUniversity Corner Historic District.
• Project approved in April 2013 as part of multi-year
capital plan will renovate 25,000 gross square feet as
generic office space.
14
Capital Project Financing Plan: Rugby
Road Office Building
• Renovation is part of a larger space management strategy
to address several important objectives:
• Relocates units from commercially leased space
• Enables highest and best use for key office space in
Fontaine Research Park (revenue-producing clinical
space)
• Converts a non-productive asset to usable space and
prevents further deterioration
• Provides opportunity to avoid cost of swing space
during other project renovations (e.g. Rotunda)
15
Capital Project Financing Plan: Rugby
Road Office Building
($ in millions)
Project cost
Maintenance funds
Debt
Low
$8.1
$1.0
$7.1
High
$10.0
$ 2.0
$ 8.0
Annual debt service
Annual O&M
Total
$ .5
$ .3
$ .8
$ .6
$ .3
$ .9
16
Capital Project Financing Plan: Rugby
Road Office Building Estimated
Renovation Cost
($ in millions)
Renovation cost
Abatement & Demolition
Elevator
Architectural & Structural
Mechanical, Electrical
& Plumbing
Renovation Cost $/GSF:
Low
$6.0
$ .3
$ .3
$2.4
High
$7.5
$ .4
$ .4
$3.2
$3.0
$3.5
$240
$300
NOTE: Cost excludes design, project management and contingency costs.
17
18
Intent to Issue Tax-Exempt Debt
Pat Hogan
Executive Vice President and Chief Operating Officer
19
Intent to Issue Tax-Exempt Debt
• Under federal tax regulations, prior to the University’s
issuance of tax-exempt debt to finance a capital project, the
Board must approve an intent-to-issue resolution, so that the
University may reimburse itself with debt for certain qualified
expenditures related to the project.
• This resolution also authorizes the University to finance a
capital project on a short-term basis through the University’s
commercial paper program, where appropriate.
• This resolution does not authorize the University to issue longterm debt. Prior to the issuance of long-term debt, the Board
will be asked to consider a separate issuance resolution.
20
Intent to Issue Tax-Exempt Debt
(In Millions)
Academic Division
North Grounds Mechanical Plant
Alderman Rd. Residence Area, Bldg. 6
Facilities Mgmt. Shop/Office
Rugby Administration Building
$ .33
$ 6.20
$ 5.00
$ 8.00
Medical Center
Ambulatory Practice Space
Education Resource Center
$ 6.91
$25.40
21
22
FINANCE COMMITTEE REPORTS
1. June 30, 2013 Academic Division Financial
Report
2. Endowment Report – Market Value and
Performance as of June 30, 2013
3. Annual Report on UVa Employee Health Plan
4. Darden Student Loan Program
5. Executive Vice President and Chief Operating
Officer’s Remarks
23
June 30, 2013 Academic Division
Financial Report
Melody Bianchetto
Associate Vice President for Finance
24
June 30, 2013 Academic Division
Financial Report
• Unaudited, modified GAAP-basis Financial
Statements, as compared to prior year
 Statement of Net Assets
 Statement of Revenues, Expenses, and Changes in
Net Assets
• Cash-basis Operating Sources and Uses, actual
results as compared to the budget plan.
25
Academic Division Financial Report
Modified GAAP-basis Financial Statements (unaudited)
Fiscal Year 2012 - 2013
Year ending 6/30/13
Balance Sheet Highlights:
Year ending 6/30/12
(in millions)
$ 5,615.8
$ 5,145.2
$ 423.5
$ 406.4
Grants & Contracts
304.2
317.4
State appropriations
140.2
131.6
Gifts
147.1
131.8
Other
131.4
138.0
Operating Revenues
1,146.4
1,125.2
Operating Expenses
1,249.9
1,230.8
Net Operating Margin
(103.5)
(105.6)
574.2
272.8
$ 470.6
$ 167.2
Net Assets
Income Statement Highlights:
Net tuition
Net Non-operating Contribution
Change in Net Assets
26
Academic Division Financial Report
Cash-basis Operating Sources and Uses, Budget vs. Actual
Fiscal Year 2012 - 2013
2012-13
Actual
Statement of Sources and Uses Highlights:
Net Tuition and Fees
2012-13
Budget
(in millions)
$
442.1
$
446.7
State Appropriations
140.2
140.1
Grants & Contracts
314.4
302.8
Endowment Distribution
154.6
155.0
Gifts
132.1
136.4
Other
182.3
274.9
Sources of Funds
1,365.7
1,455.9
Uses of Funds:
1,345.2
1,449.2
Net Sources in Excess of Uses
$
20.5
$
6.7
27
Academic Division Financial Report
Future Challenges
• Focus on sustainable financial model
• Financing the Strategic Plan
• Competitive compensation for faculty and staff
• Diversify the research base
• Continue to find operational efficiencies
• Develop new philanthropic relationships
28
29
Endowment Report – Market Value
and Performance as of June 30, 2013
Larry Kochard
Chief Executive Officer/Chief Investment Officer
UVIMCO
30
Outline
INVESTMENT MANAGEMENT COMPANY
• Growth of the Long Term Pool
• Governance and Staffing
• Investment Philosophy
• Performance Review
• Asset Allocation
• Short Term Pool
31
Growth of the Long Term Pool
6,000
INVESTMENT MANAGEMENT COMPANY
2005-2008
Foundation assets & UVA operating funds
consolidated to the Long Term Pool
5,000
Shareholder Composition: June 30, 2013
17%
$ in Millions
4,000
University
Operating
Reserves
3,000
2004
UVIMCO spun off from the University
2,000
61%
22%
1997
University of
Virginia
Endowment
UniversityRelated
Foundations
Established separate Board of Directors
1,000
Long Term Pool: $5.96 Billion
0
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
1974 Endowment*
Post-1974 Gifts and Transfers*
Long Term Pool Performance (Net of Distributions)
Actual Long Term Pool Value
* Adjusted for inflation using the Higher Education Price Index
32
Governance and Staffing
INVESTMENT MANAGEMENT COMPANY
Board of Directors
 12 members led by John Macfarlane as Chair; three appointed by the BOV,
and one by the President
 David Burke was appointed on July 1, 2013
 Meets four times a year
Staff
 31 members led by Larry Kochard as CEO/CIO
 Investment team comprised of CEO/CIO, three Managing Directors,
one Director, four Associates, and three Analysts
 Average of 20 years of investment experience among senior staff
 New senior staff members:
o Sargent McGowan, Managing Director of Public Equity
o Jason Love, Director of Real Assets
o John Winn, Manager of Investment Operations
33
Investment Philosophy
INVESTMENT MANAGEMENT COMPANY
 Long-term focus
o Long time horizon
o Belief in reversion to fundamental values
 Disciplined process
o
o
o
o
Asset allocation
Portfolio tilts and themes
External manager selection
Diversification across asset classes, themes, and managers
 Quality of people
o Internal team
o External managers
34
INVESTMENT MANAGEMENT COMPANY
Performance Review
As of June 30, 2013
Long Term Pool
Policy Benchmark
Equity
Public
Long / Short
Buyout
Venture Capital
Total Equity
MSCI All Country World Equity
Real Assets
Real Estate
Resources
Total Real Assets
MSCI Real Estate
Fixed Income, Cash & MAC
Marketable Alternatives and Credit
Government Bonds
Cash & Currency
Total Fixed Income, Cash & MAC
Barclays Aggregate Bond
Portfolio Overlays
Market Value
$ Millions
%
1 YR
3 YR
Annualized
5 YR
10 YR
20 YR
5,960
100.0
100.0
13.4
11.3
14.0
10.7
6.2
4.4
10.2
7.7
11.8
7.2
1,457
1,404
861
217
3,939
24.4
23.6
14.4
3.6
66.1
60.0
22.8
17.3
11.3
13.5
17.3
17.2
20.1
13.3
17.0
24.6
17.0
13.0
8.8
4.3
4.4
8.2
6.6
2.9
14.6
9.6
13.2
6.7
11.6
8.1
12.0
9.4
-18.9
13.9
7.1
510
329
839
8.6
5.5
14.1
10.0
8.7
4.5
7.2
10.0
8.4
21.1
16.4
16.8
(12.9)
13.9
2.3
5.0
0.1
23.2
12.6
10.4
2.8
-10.6
8.3
595
443
141
1,179
10.0
7.4
2.4
19.8
30.0
15.7
0.2
(0.0)
6.6
0.5
9.3
0.4
0.0
4.7
3.5
9.6
4.9
5.0
7.8
5.1
7.1
4.8
-5.8
4.4
7.8
6.5
-7.0
5.9
2
0.0
--
--
--
--
--
35
INVESTMENT MANAGEMENT COMPANY
Performance Review
Annualized Returns of the Long Term Pool Versus Benchmarks and Peers
Periods Ending June 30, 2013
1 YR
3 YR
5 YR
10 YR
20 YR
Long Term Pool
13.4
14.0
6.2
10.2
11.8
Policy Portfolio Benchmark
11.3
10.7
4.4
7.7
7.2
Comparative Industry Data
TUCS All Master Trusts Top Quartile (1)
TUCS All Master Trusts Median
TUCS All Master Trusts Bottom Quartile
13.3
11.3
8.0
12.0
10.6
8.4
6.0
5.1
4.0
7.6
6.9
6.1
8.6
7.8
7.3
(1)
Trust Universe Comparison Service (TUCS) reports performance of over 600 institutions representing $3.5 trillion in asset under management
36
INVESTMENT MANAGEMENT COMPANY
Asset Allocation
100%
90%
24.4%
80%
70%
23.6%
60%
Equity
60%
50%
18.1%
40%
30%
8.6%
10%
Real
Assets
5.5%
20%
10.0%
30%
Fixed
Income
10%
9.8%
0%
2001
2002
2003
Public Equity
Real Estate
Bonds & Cash
2004
2005
2006
2007
2008
Long/Short Equity
Resources
As of June 30, 2013
2009
2010
2011
2012
2013
Policy Portfolio
Private Equity
Marketable Alternatives & Credit
37
Short Term Pool
INVESTMENT MANAGEMENT COMPANY
The addition of the Short Term Pool enables the University and Foundations to tailor
individualized portfolios of UVIMCO-managed investments to each organization’s
desired level of risk and liquidity.
 Objective:
Principal preservation
 Investment Vehicles:
U.S. Treasury Notes and Bills not to exceed one year
to maturity
U.S. Treasury-Guaranteed Repurchase Agreements
 Liquidity:
Weekly
 Expenses:
No UVIMCO management fee; Administrative
expenses from custodian and repos
 Inception Date:
October 4, 2012
Performance
As of June 30, 2013
Time-Weighted Returns (%)
CYTD
Short Term Pool
3-Month Treasury Bills
0.04
0.04
Since-Inception
0.08
0.08
38
39
Annual Report on UVa Employee
Health Plan
Susan Carkeek
Vice President and Chief Human Resources Officer
40
UVa Health Plan Goals
 Provide a health benefit that is attractive to current and
prospective faculty, staff, and medical center employees;
 Ensure competitive costs that encourage a culture of health
and accountability for employees and their families;
 Support integration among internal UVa providers; and
 Comply with regulations while being fiscally responsible.
41
UVa Health Plan Cost
42
UVa Health Plan Premium Per Employee
Drivers of UVa’s Lower
Cost per Employee:
1. Demographics
2. Geographic
Concentration
* Based on data from a 2012 Aon Hewitt study of large U.S. employers (public and private)
43
UVa Health Dependent Audit
 In 2012, a sample audit of 10% of dependents on the Health
Plan required approximately 1,500 dependents to provide
documentation of eligibility.
Results: 6% of these dependents (90) were deemed to be
ineligible and removed from the plan, representing an
annual savings to the plan of $200,000/year.
 In 2013, a full audit of the remaining 14,209 dependents was
conducted.
Results: 5.1% of these dependents (725) were deemed to
be ineligible and removed from the plan, representing an
annual savings to the plan of $1.6 million/year.
44
Affordable Care Act
Mandate to Cover “Part-Time” Employees
Employer Penalties for Use of “Exchange”
Excise Tax for High Cost Plans
Patient Centered Outcomes Research Fee
Transitional Reinsurance Program Fee
45
45
2014 UVa Health Plan
 Add New Third Health Plan Option, “Basic” Health
 Rename Existing Programs “Value” (Low) and
“Choice” (High)
 Working Spouse Coverage
 Increased Focus on Wellness
 Enhanced Dental Coverage
46
Next Steps




Changes Effective January 1, 2014
Over 8,000 biometric screenings available thru October 11
Open enrollment October 7 to 25
Comprehensive communications strategy with web, print,
email, interactive technology, on-line resources, and
checklists
 Benefit and Wellness Fairs October 7 (Newcomb) and
October 8 (Medical Center)
 Chard Snyder (Health Savings Account administrator)
information sessions on Basic Plan and HSA October 16,
17 and 18
47
48
Darden’s Student Loan Program
Robert F. Bruner
Dean
49
Why have a student loan program?
• Having a loan program strengthens Darden’s ability to
fulfill its “Top Ten” strategy.
• International students are vital to the success of the Darden
MBA experience.
• Application volume: domestic is declining; international is
rising.
• Among the Top 20 US B-schools, Darden ties for 18th in
ratio of international students to total (30%).
• Employers are seeking international talent.
• Nearly all top peer schools have similar loan programs.
• Domestic students continue to have many loan options
from both the federal government and private institutions.
50
History
• In the spring of 2009, banks stopped lending to
international MBA students without recourse.
• Since then, Darden and UVa have entered into four
loan program agreements to assist international
students:
- VNB Class of 2010;
- UVACCU Classes of 2011-12;
- UVACCU Class of 2013;
- Discover Classes of 2014-2019.
51
Experience so far (Classes of 2010-2013)
• 173 students borrowed a total of $22.1 million.
• $3.7M or 20.9% of original loan balances have been
repaid ahead of loan repayment schedule. To date,
nine students have defaulted totaling $0.89 million.
This leaves $17.5M outstanding.
• For illustration, assume $22.1M outstanding and a
projected default rate of 25%, less $4.6 million in
default insurance (partial, Class of 2013 only),
Darden’s exposure equals $4.4 million.
• All indications are that the defaults occur because
graduates do not have a job.
52
Darden is adequately reserved today
(Classes of 2010-2013)
Projected exposure
• $22.1 million total loans
• ($4.6 million) insurance
• $17.5 million loans after insurance
• $4.4 million projected exposure @ 25% default rate
Reserves
• $1.5 million bank-held reserves
• $5.3 million Darden-held reserves
Reserves exceed exposure by $2.4 million.
53
Outlook (Classes of 2014-2019)
• 56 projected borrowers/class x 6 classes = 336.
• Average loan: $121,000.
• Estimated total this loan program: $42.8 million, based
on current borrowing trends.
Terms:
• Loans are priced at Prime plus 4.25% (versus current
loans of 5%-7% for domestic students).
• Borrowing capped at $65,000 per academic year vs.
$90,000 per year in total cost of attendance.
• Lender has guaranteed the first 20% of gross credit
losses based on loan originations.
54
Outlook for Reserves (2014 -2019)
Exposure for classes of 2014-2019
• $42.8 million total loans.
• $10.7 million projected defaults @ 25%.
• ($8.5 million) bank “first loss” coverage @ 20%.
• ($2.2 million) projected exposure to Darden.
Reserves
• $2.4 million excess reserves beyond requirements for
prior programs.
• $0.2 million excess coverage at Darden for all four
loan programs.
55
Darden’s exposure from both programs
• Maximum (assuming 100% default) $89.5 million.
• Expected (assuming 25% default):
• $0.2 million excess reserve coverage if loans =
$60.3 million;
• $1.2 million deficit reserve coverage if loans =
$89.5 million.
56
Summary
• This loan program is a critical part of Darden’s strategy.
• To date, default rate is < 20%; an industry expert believes we
should expect 20-25%.
• Based on a range of total potential loans of $60.3 million to
$89.5 million, and a 25% default rate, the estimated range of
risk exposure is between $0 and $1.2 million.
• Action plan in the event of defaults:
1. Exercise lender “first loss” commitments.
2. Exercise credit insurance.
3. Draw on Darden reserves.
4. Draw on Darden operating cash flow.
5. Borrow temporarily from UVa with repayment by Darden
over seven years.
57
58
Executive Vice President and Chief
Operating Officer’s Remarks
Pat Hogan
Executive Vice President and Chief Operating Officer
59
Results of Recent Merit-Based
Compensation Adjustments
August 2013
• Faculty – Board-approved 4.75% merit pool
• University Staff – Board-approved 3% merit pool
• Classified Staff – legislatively mandated 2% plus $65/year
of service
Faculty and Staff Salary Increases
• Total investment $19.5 million
• $3.8 million state appropriation
• $15.7 million BOV-authorized funds
60
Results of Recent Merit-Based
Compensation Adjustments
August 2013
Total #
Eligible
# Rec’d
Increase
2,502
1,293
52%
$ 8,142,590
$6,297
5.6%
Professional
Research Staff
458
204
45%
440,655
$2,160
3.9%
A+P Faculty
603
489
81%
2,090,679
$4,276
4.1%
University Staff
3,217
2,614
81%
4,494,670
$1,719
3.4%
Classified Staff
2,067
2,031
98%
4,287,080
$2,111
4.7%
TOTAL
8,847
6,631
75%
$19,455,674
$2,934
Employee
Type
T+R Faculty
% Rec’d Total
Increase Amount
Average Average
Amount Percent
61
62