University of Virginia's Board of Visitors Votes to Increase Endowment Payout

June 13, 2008 — The University of Virginia's Board of Visitors on Friday voted to alter the University's endowment payout formula, increasing this year's payout rate to 5 percent and making $16 million more available for the benefit of students and U.Va. Health System patients.

"We have enjoyed solid investment returns on the endowment and the University's capital campaign has been successful," said Leonard W. Sandridge, U.Va.'s executive vice president and chief operating officer. "It is appropriate that we increase the payout for the benefit of our students' educational experiences and for the care of our Health System's patients, as our donors intended."

In addition, the board voted to assess a 0.5 percent annual administrative fee on all endowment accounts, producing approximately $16 million in the 2008-09 fiscal year. The proceeds will be split between the central University administration and the various University units to defray the costs of administering endowments.

The proceeds of the new administrative fee should free other funds for University and departmental priorities, said Yoke San Reynolds, U.Va. vice president and chief financial officer.

Proposed changes in the payout distribution formula, last set in 2005, have been under review for several months, Sandridge said.

As of March 30, the value of the approximately 1,800 pooled endowments under the control of the rector and Board of Visitors was $3.2 billion.

Endowments are built through gifts and investment returns and managed by the University of Virginia Investment Management Company, or UVIMCO. Each year, a portion of the funds is withdrawn and used to supplement the University's budget, based upon a preset formula. The use of many endowment funds is restricted by the original donors' directions. Last year, just 28 percent of the payout was unrestricted.

During the 2007-08 fiscal year, the Board of Visitors mandated a payout of 4.5 percent of the market value from the University's various endowment funds, amounting to $134 million.

Under the new changes approved Friday, the amount withdrawn for the coming fiscal year will be 5 percent of the endowments' market value as of June 30, an amount currently estimated to produce an additional $16 million over last year's payout.

In each subsequent year, the distribution will be increased by the rate of inflation, as determined by the Higher Education Price Index, as long as the total distribution falls between 4 and 6 percent of the endowments' total market value. If it falls outside the range, the board's Finance Committee will adjust the payout amount upward or downward, Sandridge said.

Under the previous policy, the allowable range was between 3.5 and 5.5 percent of the endowments' total market value.

"The decision of the Board of Visitors to increase the payout on the endowment will not only strengthen the University's academic programs, but also will limit future increases in the cost of attending the University for our students and their families," Sandridge said.

The University's endowment has seen several years of double-digit returns under the management of UVIMCO.

"The strong performance of the endowment — and the need for increased resources to support the recommendations of the Commission on the Future of the University —suggest this to be a prudent time to increase the payout," Sandridge said.

The Board of Visitors will consider recommendations for funding the commission's priorities at its October meeting. 

The new administrative fee is consistent with the practice of many other institutions of higher education, Sandridge said. Though UVIMCO manages the endowment's investments — and collects its own administrative fee to fund its operations — the University incurs many endowment-related expenses, including accounting, legal and fundraising expenses.

Endowment income is taking on an increasingly important role in the University's budget. In the 2008-09 fiscal year, income from private sources — endowment and gifts — is expected to provide 9.1 percent of total revenues, compared to 8.2 from state support.

"It is important that we recognize that over the next 20, 30, 40 years, the endowment will be the lifeblood of this institution," said board member Thomas F. Farrell II.

$2.24 billion operating budget approved

The board approved a $2.24 billion operating budget for the 2008-09 fiscal year, representing a 5.4 percent increase over the previous year's spending.

Of the total, $1.22 billion was allocated to the University's academic division, $980 million to the Medical Center, and $34 million to U.Va.'s College at Wise.

The budget anticipates creating the equivalent of approximately 159 new full-time jobs, the smallest increase since the University's workforce shrunk by 30 jobs during the 2002-03 fiscal year.

Factors driving the budget increase included implementation of the new student data system, funding the priorities of the Commission on the Future of the University and the School of Medicine's Decade Plan, increases in student financial aid through the AccessUVA program, and funding the fourth year of the 10-year plan to eliminate the deferred maintenance backlog.

The budget will also cover several unavoidable new expenses, including the state-authorized 2 percent pay increase for faculty and staff, the cost of operating newly opening facilities and rising utility costs.

University construction continues into 190th year

The board's Buildings and Grounds Committee got a look at several planned construction and renovation projects, while a half-dozen building projects are scheduled for completion before the beginning of the fall semester.

David Neuman, architect for the University, gave an overview of the planned $80 million New Cabell Hall renovation. The project – to be funded from state sources – will modernize the interior of the 160,000-square-foot building, which has not been comprehensively updated since its completion in 1952.

The renovation will add air conditioning and computer technology to the classrooms and improve lighting. A new entrance lobby, with substantial natural lighting, will enhance its connection with the South Lawn Project across Jefferson Park Avenue.

The discussion of the renovations prompted a humorous moment. Board member L.F. Payne, a former congressman, recalled that he taught a politics course in New Cabell before joining the board. "It was dreadful," he said. After a pregnant pause, he added, "Not the class – the building."

The New Cabell Hall renovation is scheduled to begin after the completion of the South Lawn Project in 2012.

The committee also approved the schematic design of a new Lee Street entranceway to the Medical Center. Currently, there is no single, clear "arrival point" for the Medical Center, Neuman noted; three years from now, there will be one, he said.

The $23.9 million project is designed to improve access for pedestrians, with new ground-level and second-floor entrances and a connection across the railroad tracks to the new 11th Street parking garage. The project includes changes to the road system and landscape design, and will alter patterns for transit and emergency vehicles.

The Health System will soon embark on construction of a new long-term acute care hospital, to be located along U.S. 250 west adjacent to the Northridge building.

The facility will free up 40 beds in the main hospital for shorter-term use, explained R. Edward Howell, vice president and chief executive officer of the health system. "In essence, the biggest challenge the Medical Center faces right now is capacity," he said, adding that the facility is stretched to capacity "two or three days a week."

The new 60,000-square-foot, three-story facility is intended for those patients who require hospital stays of 25 days or more. Construction will begin this summer.

At the other end of the process, a half-dozen construction projects are scheduled to be completed this summer: additions to Campbell Hall, home of the School of Architecture; Ruffin Hall, home of the studio art department; Kellogg House, a new first-year dormitory in the Observatory Hill housing area; the Nursing School's Claude Moore Nursing Education Building; the upgrade to the heating plant near the intersection of Jefferson Park and University avenues; and the addition to the South Chiller Plant.

Minority procurement efforts progressing

The total percentage of the University's outside spending that goes to small, women- or minority-owned businesses has increased from 23.9 percent in the 2005-06 fiscal year to 38.1 percent in the current year — equivalent to $120 million in outlays — according to figures presented to the board's Special Committee on Diversity by William Cooper, U.Va.'s director of supplier diversity.

The puts the University just below the state's 40 percent target, but Cooper was optimistic that U.Va. will soon surpass that mark. Many firms have let their "SWaM" status lapse in the state registry, Cooper said. Once they re-register, he estimates that the University's Swam spending figure would increase to $150 million through the first 11 months of the current fiscal year.

The majority of the SWaM spending goes to small firms, defined as entities with fewer than 200 employees or less than $100 million in revenues. Such firms receive about 32 percent of University spending. Women-owned businesses receive 3.3 percent, and minority-owned businesses receive 2.8 percent.

Cooper credited some of the increased support of SWaM businesses to improved outreach efforts, including "SWaMFest 3," hosted at U.Va.'s John Paul Jones Arena by the Virginia Association of State College and University Purchasing Professionals. The event, which focused on the construction industry, drew some 350 vendors, majority contractors and purchasing officers, he said.

The University's procurement diversity efforts have drawn positive notice. U.Va. was the only state institution to earn two governor's awards, he said.

Board approves outline of new HR system

The proposed new human resources system got another boost on the fast track to its scheduled Jan. 1 implementation date when the board approved the proposed system's general outlines.

Susan Carkeek, U.Va.'s vice president and chief human resources officer, described the new system, which could potentially cover 5,000 staff members and 800 administrative and professional faculty. The system will automatically cover some 1,000 people hired since July 1, 2006, who are designated "University staff." The rest may opt into the new system or retain their current status as either classified staff or administrative and professional faculty; the first open enrollment opportunity is scheduled to begin Oct. 1.

Many of the plan's details remain to be ironed out. Human Resources rolled out a proposal in May, and this month unveiled the 15 "career paths" that form the basis of the plan. Employees are being given until June 30 to comment on the plan before it receives further refinement.

The board's resolution delegates final approval of the new human resources system to University President John T. Casteen III and Sandridge, with the promise that further board approval will be sought if there is any major change in scope.

Campaign update

Sweeney reported that the current capital campaign has reached 56 percent of its $3 billion goal, 54 percent of the way through its planned schedule.

The cash flow for the current fiscal year was $241.3 million through the end of April. That lagged slightly behind last year's record effort — which included a few large gifts —  but represented a 25.7 percent increase over the previous fiscal year. Cash flow has increased by 54 percent over the past three years, Sweeney reported.

Parents to gain access to educational records

A new law passed this year by the General Assembly gives parents access to the educational records of their tax-dependent children, should they request it.

The legislation, which takes effect July 1, requires the University to set up procedures to handle such requests.

This fall, all students will be asked to complete a form disclosing whether their parents claim them as dependents on their income tax returns. Failure to complete the form may result in denial of NetBadge access to the University's computer systems, said Patricia M. Lampkin, vice president and chief student affairs officer.

Previous federal privacy law allowed schools to disclose educational records — including grades and disciplinary action, but not health or law-enforcement records — to parents, but did not mandate such disclosures. The new state law makes disclosures mandatory, Lampkin said.

Board briefs

• The Educational Policy Committee heard from three of the University's newest hires. Meredith Woo, dean of the College and graduate School of Arts & Sciences; Steven T. DeKosky, dean of the School of Medicine; and Thomas Skalak, vice president for research and graduate studies, each shared a few thoughts with the board.

• In his regular remarks, Casteen paid tribute to two recently deceased members of the University community: former board member William C. Battle and former creative writing professor George Garrett.

• Alumni Association officials reported that this year's Reunions Weekend, held June 6-8, drew a record 3,850 participants. Attendance has increased 42 percent since the association took over the administration of the weekend in 2005. One new phenomenon: "reunion groupies," who choose to attend even if their class is not among the "official" reunion classes, reported Thomas Faulders, president and chief executive officer of the Alumni Association.

• Scott Stadium will be getting a new video board in time for the 2009 football season. CBS Collegiate Sports Properties will pay $2.4 million for the new screen, which will more than triple the size from the current 21 by 28 feet to 32 by 57 feet, while providing higher resolution images.