June 12, 2009 — The University of Virginia's Academic Division will have at least $23 million less to spend in the 2009-10 fiscal year than it has in the current year.

The University's Board of Visitors, meeting Thursday and Friday, approved a $2.25 billion budget for the coming fiscal year, which begins July 1. That figure represents a 0.1 percent decrease in the budget for the Academic Division – a reduction that Leonard W. Sandridge, executive vice president and chief operating officer, said is the first since he arrived at the University in 1977.

Overall spending is slated to increase by 1.9 percent, driven mainly by the Health System, which plans to boost its spending by 4.4 percent. The budget also includes a 1 percent spending increase for U.Va.'s College at Wise, the third component of the overall budget.

The Academic Division's spending cut is driven largely by a reduction in state support, which has been slashed in the face of a recession that has decimated tax revenues.

State support will drop to no more than 6.9 percent of the University's incoming funds in the coming year, a percentage that University President John T. Casteen III told the board "may be the lowest of any institution controlled by a state."

Casteen warned that state support may go even lower. The state's revenues fell by 21.3 percent in April, and are lagging 8.8 percent behind the previous fiscal year to date. The state had forecast a 7.3 percent decline, and thus may require more end-of-year spending cuts.

"This is the largest drop in state tax collections in recorded history," said Casteen, who added that the University has been warned to expect additional reductions in mid-June. "We are conserving all of the cash possible."

Much of the reduction in Academic Division spending will be achieved through workforce reductions. The budget calls for eliminating the equivalent of 142 full-time employees – through attrition, not layoffs, Sandridge stressed.

University employees have not received pay raises for the past 18 months, and increases are not included in the new budget. Additionally, the University is under a "soft freeze" in hiring, with most open positions being left unfilled unless approved by a dean or vice president. When hiring is approved, positions are being filled from within whenever possible.

The pay freeze has reversed seven years of efforts to boost faculty salaries in relation to U.Va.'s peer schools, Sandridge said. The Board of Visitors committed in 2002-03 to boosting faculty pay to the top 20 of U.Va.'s Association of American Universities peers. Average faculty salaries had come within $600 of meeting the goal before the freeze was instituted; now, they lag the top 20 by $6,400.

"We lost almost five years of progress," said Sandridge, who added that faculty so far have been understanding.

Many peer schools that granted raises to their faculty last year are unlikely to do so this year, he added.

The University announced in April that it would increase tuition by 5 percent. About 36 percent of the additional tuition revenue will go to AccessUVA, the University's financial aid program.

The tuition increase was smaller than had earlier been anticipated. U.Va. received $10.7 million in federal stimulus funds to offset some of the state funding decreases, with the stipulation that it must be used to contain price increases for in-state students.

The new budget does not reflect any additional federal stimulus funding of University research. U.Va. researchers have sent 365 proposals for the stimulus funding earmarked for research, totaling some $180 million – mostly to the National Institutes of Health.

Some $10.5 million worth of requests have already been approved, and Thomas C. Skalak, U.Va.'s vice president for research, speculated that U.Va. researchers may eventually receive between $20 million and $50 million.

Health System Budget Outlook: Mostly Cloudy

It is not an easy year to be writing the 2009-10 budget for the U.Va. Health System.

The ongoing recession has put a dent in the current fiscal year's budget. The economy may be improving – or maybe not. In Washington, the health care reform debate is just beginning to take shape; the outcome is likely to have major implications for academic medical centers, but no one can say for certain what those implications will be.

"This has been a very challenging budget to prepare," said R. Edward Howell, vice president and chief executive officer of the Health System.

After some discussion, the Medical Center Operating Board endorsed and forwarded to the Board of Visitors a $989.9 million budget that anticipates a $48.9 million operating margin of income over expenditures.

That 4.7 percent margin is significantly higher than the 3.6 percent now anticipated for the current fiscal year, which originally had been budgeted at 4.4 percent.

The new budget includes a reduction in the workforce by the equivalent of 129 full-time employees – accomplished through attrition and reassignments, not layoffs – but provides a 2 percent pay increase to those who remain.

The numbers upon which the budget is built, however, anticipate an improvement in the current revenue picture. It forecasts a slight increase in patient volume over what is projected for the current fiscal year. It also anticipates an average length of stay of 5.9 days; currently, that average is 6.1 days. Generally, the longer the stay, the less money the hospital makes.

There was much discussion about contingency planning should the Health System not reach its financial targets. Larry Fitzgerald, chief financial officer for the Health System, assured the members of the Medical Center Operating Board that such planning is under way.

The general consensus seemed to be that any health care reform enacted by Congress will have little effect in the upcoming fiscal year.

"Those numbers could change a lot," said Dr. Arthur Garson Jr., executive vice president and provost. "Fortunately, it will not happen next year."

Board Fast-Tracks Some Building Projects

The next phase of the Alderman Road residence hall replacement project and a new data center for Information Technology and Communication received an unexpected boost from the Buildings and Grounds Committee.

The committee received its first look at schematic designs for the projects, and opted to approve the plans on the spot to keep them moving.

The second phase of the residence hall replacements is already under way, with demolition of three 1960s-era buildings – Dobie, Watson and Balz houses – imminent. They will make way for two larger residence halls and a commons building.

The third phase, which will see Maupin and Webb houses removed in favor of two new, larger dorms, was not scheduled to begin until 2012. But with construction prices more favorable during the recession, University officials opted to speed up the process by a year.

Maupin and Webb are now scheduled for demolition in 2011. The 1,272-bed project is expected to cost between $65 million and $78 million.

The committee also expedited approval of ITC's $14.8 million data center, to be located behind the printing facility on Old Ivy Road.

James Hilton, U.Va.'s chief technology officer, described the building as "a big building to hold a bunch of power." The electricity will be needed to run servers that will be consolidated from around the University; putting them all in one place will increase efficiency and be more cost-effective, he said.

The building is designed to be the University's first to receive LEED Silver certification, representing the second-highest designation of sustainability.

Committee members also saw preliminary plans for a $12.7 million band rehearsal hall, to be located across Culbreth Lane from Ruffin Hall on land that is now a parking lot. Longtime U.Va. benefactor Hunter Smith provided the lead gift for the project.

In addition to a largely glass-enclosed rehearsal space, the building is intended to house the band directors' offices and instrument storage space. Approval was held over until the next meeting at the behest of board members who questioned some design elements.

A New Model for Technology Transfer

The University and the University of Virginia Patent Foundation are finalizing an agreement that will put U.Va.'s technology transfer program on a par with those of other research-intensive institutions, Skalak told the board Friday afternoon.

The change, he said, will align the foundation more closely with U.Va.'s strategic priorities and directions, while increasing "deal flow" – licensing and marketing agreements with private companies.

A national search will start this summer for an executive director of technology transfer, who will coordinate efforts between University researchers and the patent foundation. A Tech Transfer and Ventures Advisory Group, comprising venture capitalists, technology licensing officials from Stanford University and the University of Florida, and corporate leaders, will help guide the direction of the program.

Another major change is in how the patent foundation is funded. Currently, the foundation relies on licensing fees and royalties to fund its annual budget, but, Skalak said, those revenues tend to be erratic. Under their new relationship, U.Va. will provide the foundation's annual budget, and fees and royalties that come from tech-transfer deals will flow back to the University.

"The proceeds could be used to fund more research, or to hire an entrepreneurial researcher," he said afterward.

Modest Gains in Diversifying Administration

George Stovall, director of U.Va.'s Office of Institutional Assessment and Studies, reported to the board's Special Committee on Diversity that the University had made "modest" gains in diversifying its upper-level administration over the past two years.

Stovall studied the top 187 positions at the University, going as far down the organizational chart as assistant or associate deans, vice presidents and provosts.

Of those positions, 39 had turned over in the past two years. Twenty-four positions were filled from within and 15 as the result of searches.

Five of the 15 people hired from outside and 11 of the 24 promoted from within were either women or members of minorities. There was a net gain of one female administrator and three minority administrators.

Vice Rector John O. "Dubby" Wynne said that while the numbers were interesting, he would like to see a longer timeline to understand how the numbers fit into the long-term trend.

Committee chairman Warren Thompson agreed, adding, "I want to look at the key decision-makers who influence the culture."

Dr. Sharon Hostler, interim vice provost for faculty advancement, concluded her year-long series of reports on efforts to diversify faculty, recruit dual-career couples and make sure young faculty receive the support they need to advance.

"There are lots of examples of best practices," she said, "but they are not happening across the board."

Her focus at this meeting was on American Indians. Among its 61 AAU peer institutions, U.Va. ranks 51st in American Indian faculty, but only because there's a 10-way tie for last place. The University counts no American Indians among its faculty, she said.

The Virginia Indian Summit on Higher Education brings American Indian scholars to the University twice a year, she said, expressing hope that a faculty member will be recruited before long.

Board Briefs

• Casteen reported that the $3 billion capital campaign, which had slipped about two months behind schedule after the recession hit, was beginning to regain ground. Senior Vice President for Development Robert D. Sweeney estimated that the campaign will be close to making its benchmark of $2 billion raised by June 30. "We anticipated that the second billion would be the toughest," Sweeney said.

• Christopher Brightman, CEO of the University of Virginia Investment Management Company, told the Finance Committee that the endowment is beginning to rebound. He said investment markets are beginning to rise in anticipation of an economic recovery, but urged board members to be wary of short-term gains or losses. The University's investment strategy has been based on long time horizons and will remain so, he said.

• Ed Howell, vice president and CEO of the Health System, told the Medical Center Operating Board that the Health System will offer employment to all U.Va. School of Nursing graduates who apply.

• The Student Affairs and Athletics Committee heard from four special guests Friday. U.Va. baseball coach Brian O'Connor phoned in from Omaha, Neb., the site of the NCAA College World Series, where his team is making the school's first appearance. The committee also received a visit from men's tennis coach Brian Boland and U.Va.'s NCAA champion doubles team of Dominic Inglot and Michael Shabazz. All four guests received extended applause, and committee chairwoman Susan Y. Dorsey asked Inglot and Shabazz to autograph a giant tennis ball.