Finance Committee September 20, 2013 1 FINANCE COMMITTEE ACTION - - PowerPoint PPT Presentation

Meeting of the Finance Committee

September 20, 2013

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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

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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

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14-15 15-16 Total

Operating Amendments:

Enrollment Growth – Va UG $ 0.43 $ 2.08 $ 2.51 STEM Faculty Start-Up Packages 7.00 14.00 21.00 Cancer Research 4.00 4.00 8.00 Economic Development Accelerator 4.00 4.00 8.00 O&M Costs for New Facilities 0.87 0.90 1.77 Health Insurance Premium Increases 0.23 0.23 0.46 $ 16.53 $ 25.21 $ 41.74

General Fund Academic Division Budget Submission

(in millions)

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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

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14-15 15-16 Total

Operating Amendment:

Restore Medicaid Reimbursement $10.38 $10.86 $21.24 to 100%

Language Change:

• Add language to clarify existing law related to compensation
• f Medical Center employees

General Fund Medical Center Submission

(in millions)

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14-15 15-16 Total Operating Amendments:

STEM Early College Academy $ 0.26 $ 0.87 $ 1.13 High-Need Degrees 0.69 0.69 1.38 Appalachian Prosperity Project 0.30 0.30 0.60 $ 1.25 $ 1.86 $ 3.11

General Fund College at Wise Budget Submission

(in millions)

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2014-2020 State-Required Six-Year Plan

Colette Sheehy Vice President for Management & Budget

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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

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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.

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Capital Project Financing Plan: Rugby Road Office Building

Colette Sheehy Vice President for Management & Budget

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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 Road- University 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.

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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)

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Capital Project Financing Plan: Rugby Road Office Building

($ in millions)

Low High Project cost $8.1 $10.0 Maintenance funds $1.0 $ 2.0 Debt $7.1 $ 8.0 Annual debt service $ .5 $ .6 Annual O&M $ .3 $ .3 Total $ .8 $ .9

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Capital Project Financing Plan: Rugby Road Office Building Estimated Renovation Cost

($ in millions)

Low High Renovation cost $6.0 $7.5 Abatement & Demolition $ .3 $ .4 Elevator $ .3 $ .4 Architectural & Structural $2.4 $3.2 Mechanical, Electrical & Plumbing $3.0 $3.5 Renovation Cost $/GSF: $240 $300

NOTE: Cost excludes design, project management and contingency costs.

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Intent to Issue Tax-Exempt Debt

Pat Hogan Executive Vice President and Chief Operating Officer

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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 long-

term debt. Prior to the issuance of long-term debt, the Board will be asked to consider a separate issuance resolution.

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Intent to Issue Tax-Exempt Debt

(In Millions)

Academic Division North Grounds Mechanical Plant $ .33 Alderman Rd. Residence Area, Bldg. 6 $ 6.20 Facilities Mgmt. Shop/Office $ 5.00 Rugby Administration Building $ 8.00 Medical Center Ambulatory Practice Space $ 6.91 Education Resource Center $25.40

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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

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June 30, 2013 Academic Division Financial Report

Melody Bianchetto Associate Vice President for Finance

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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.

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Academic Division Financial Report Modified GAAP-basis Financial Statements (unaudited) Fiscal Year 2012 - 2013

Year ending 6/30/13 Year ending 6/30/12 Balance Sheet Highlights: (in millions) Net Assets

$ 5,615.8 $ 5,145.2

Income Statement Highlights:

Net tuition

$ 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)

Net Non-operating Contribution

574.2 272.8

Change in Net Assets

$ 470.6 $ 167.2

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2012-13 Actual 2012-13 Budget Statement of Sources and Uses Highlights:

(in millions)

Net Tuition and Fees

$ 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

Academic Division Financial Report Cash-basis Operating Sources and Uses, Budget vs. Actual Fiscal Year 2012 - 2013

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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

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Endowment Report – Market Value and Performance as of June 30, 2013

Larry Kochard Chief Executive Officer/Chief Investment Officer UVIMCO

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Outline

• Growth of the Long Term Pool
• Governance and Staffing
• Investment Philosophy
• Performance Review
• Asset Allocation
• Short Term Pool

INVESTMENT MANAGEMENT COMPANY

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Growth of the Long Term Pool

INVESTMENT MANAGEMENT COMPANY

1,000 2,000 3,000 4,000 5,000 6,000

1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

$ in Millions

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

2005-2008

Foundation assets & UVA operating funds consolidated to the Long Term Pool

2004

UVIMCO spun off from the University

1997

Established separate Board of Directors

61%

University of Virginia Endowment

22%

University- Related Foundations

17%

University Operating Reserves

Shareholder Composition: June 30, 2013

Long Term Pool: $5.96 Billion

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Governance and Staffing

Staff

• 31 members led by Larry Kochard as CEO/CIO
• Investment team comprised of CEO/CIO, three Managing Directors,
• ne Director, four Associates, and three Analysts
• Average of 20 years of investment experience among senior staff
• New senior staff members:
• Sargent McGowan, Managing Director of Public Equity
• Jason Love, Director of Real Assets
• John Winn, Manager of Investment Operations

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

INVESTMENT MANAGEMENT COMPANY

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Investment Philosophy

• Long-term focus
• Long time horizon
• Belief in reversion to fundamental values
• Disciplined process
• Asset allocation
• Portfolio tilts and themes
• External manager selection
• Diversification across asset classes, themes, and managers
• Quality of people
• Internal team
• External managers

INVESTMENT MANAGEMENT COMPANY

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Performance Review

As of June 30, 2013 $ Millions % 1 YR 3 YR 5 YR 10 YR 20 YR Long Term Pool 5,960 100.0 13.4 14.0 6.2 10.2 11.8 Policy Benchmark 100.0 11.3 10.7 4.4 7.7 7.2 Equity Public 1,457 24.4 22.8 20.1 8.8 14.6 12.0 Long / Short 1,404 23.6 17.3 13.3 4.3 9.6 9.4 Buyout 861 14.4 11.3 17.0 4.4 13.2

• Venture Capital

217 3.6 13.5 24.6 8.2 6.7 18.9 Total Equity 3,939 66.1 17.3 17.0 6.6 11.6 13.9 MSCI All Country World Equity 60.0 17.2 13.0 2.9 8.1 7.1 Real Assets Real Estate 510 8.6 8.7 8.4 (12.9) 0.1 2.8 Resources 329 5.5 4.5 21.1 13.9 23.2

• Total Real Assets

839 14.1 7.2 16.4 2.3 12.6 10.6 MSCI Real Estate 10.0 10.0 16.8 5.0 10.4 8.3 Fixed Income, Cash & MAC Marketable Alternatives and Credit 595 10.0 15.7 9.3 9.6 7.1 7.8 Government Bonds 443 7.4 0.2 0.4 4.9 4.8 6.5 Cash & Currency 141 2.4 (0.0) 0.0 5.0

• Total Fixed Income, Cash & MAC

1,179 19.8 6.6 4.7 7.8 5.8 7.0 Barclays Aggregate Bond 30.0 0.5 3.5 5.1 4.4 5.9 Portfolio Overlays 2 0.0

• Market Value

Annualized

INVESTMENT MANAGEMENT COMPANY

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Performance Review

INVESTMENT MANAGEMENT COMPANY

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) 13.3 12.0 6.0 7.6 8.6 TUCS All Master Trusts Median 11.3 10.6 5.1 6.9 7.8 TUCS All Master Trusts Bottom Quartile 8.0 8.4 4.0 6.1 7.3

(1)

Trust Universe Comparison Service (TUCS) reports performance of over 600 institutions representing $3.5 trillion in asset under management

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Asset Allocation

INVESTMENT MANAGEMENT COMPANY

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

As of June 30, 2013

Public Equity Long/Short Equity Private Equity Real Estate Resources Marketable Alternatives & Credit Bonds & Cash

24.4% 23.6% 18.1% 8.6% 5.5% 10.0% 9.8% 30% Fixed

Income

10% Real Assets 60% Equity Policy Portfolio

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Short Term Pool

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.

INVESTMENT MANAGEMENT COMPANY

• 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

CYTD Since-Inception

Short Term Pool 0.04 0.08 3-Month Treasury Bills 0.04 0.08

Time-Weighted Returns (%)

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Annual Report on UVa Employee Health Plan

Susan Carkeek Vice President and Chief Human Resources Officer

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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.

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UVa Health Plan Cost

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UVa Health Plan Premium Per Employee

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* Based on data from a 2012 Aon Hewitt study of large U.S. employers (public and private)

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Drivers of UVa’s Lower Cost per Employee: 1. Demographics 2. Geographic Concentration

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.

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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

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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

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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

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Darden’s Student Loan Program

Robert F . Bruner Dean

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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.

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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.

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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.

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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.

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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
• n 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.

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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.

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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.

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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

• ver seven years.

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Executive Vice President and Chief Operating Officer’s Remarks

Pat Hogan Executive Vice President and Chief Operating Officer

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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
• f service

Faculty and Staff Salary Increases

• Total investment $19.5 million
• $3.8 million state appropriation
• $15.7 million BOV-authorized funds

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Results of Recent Merit-Based Compensation Adjustments

August 2013

Employee Type Total # Eligible # Rec’d Increase % Rec’d Increase Total Amount Average Amount Average Percent T+R Faculty

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

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