UNIVERSITY OF VIRGINIA

BUDGET SUMMARY

2003-2004

Cover photograph courtesy of Michael K. Higgins

University of Virginia 2003-04 Budget Summary

Table of Contents Operating Budget Summary - All Divisions 1 Academic Division Budget Development 5 Academic Division Revenues 9

Revenue Budget Summary (chart) 11 Revenue Budget Detail (chart) 17

Academic Division Expenditures 21

Expenditures by Functional Classification 21 Expenditure Budget Detail by Functional Classification (chart) 23 Expenditures by Programmatic Category 25 Expenditure Budget Summary (chart) 27 Expenditure Budget Detail (chart) 32 Auxiliary Enterprises Projected Reserve Expenditures (chart) 34

University of Virginia's College at Wise 37

Budget Summary (chart) 39 Medical Center 43

Budget Summary (chart) 45 Proposed Budget Resolutions 49 Appendix - Academic Division Major Budget Unit Detail

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UNIVERSITY OF VIRGINIA 2003-2004 OPERATING BUDGET SUMMARY

Operating Revenue � All Divisions

The projected revenues for the period July 1, 2003 through June 30, 2004 for all divisions of the University of Virginia total $1.62 billion. This amount represents an increase of $98.4 million or 6.5 percent as compared with the revised revenue projection for 2002-03 of $1.52 billion. Of the total revenue budget $895.5 million relates to the Academic Division, $703.2 million to the Medical Center, and $19.8 million to University of Virginia�s College at Wise (Wise). Revenues (in millions)

2003-04

Original 2002-03

Revised 2002-03

Change from

Revised

Percentage

Change Academic Division $895.5 $835.9 $857.7 $37.8 4.4%Medical Center $703.2 $619.0 $642.6 $60.6 9.4%Wise $19.8 $19.7 $19.8 $0.0 0.0%Total $1,618.5 $1,474.6 $1,520.1 $98.4 6.5%

The largest revenue source remains patient revenues (42.1 percent), followed by grants

and contracts (15.1 percent) and tuition and fees (15.0 percent). Revenues from the state general fund appropriation continue to decrease. Just two years ago total revenues from the state general fund appropriation were budgeted at $181.8 million or 13.8 percent of the total budget at that time. In 2003-04, total revenues from the state general fund appropriation are budgeted at $130.8 million or 8.1 percent of the total budget.

Operating Expenditures � All Divisions

The operating expenditure budgets for the period July 1, 2003 through June 30, 2004 for all divisions of the University of Virginia total $1.58 billion. This amount represents an increase of $102.2 million or 6.9 percent compared with the revised budgets for 2002-03. Of the total budget, $895.1 million relates to the Academic Division, $665.4 million to the Medical Center,

2003-04 Revenues by Source

Auxiliaries8.6%

O ther11.1%

State Appropriation

8.1% Patient Rev.42.1%

Grants & Contracts

15.1%

Tuition & Fees15.0%

2002-03 Revenues by Source

Auxiliaries8.7%

Other11.4%

State Appropriation

9.6% Patient Rev.40.8%

Grants & Contracts

15.3%

Tuition & Fees14.2%

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and $19.8 million to Wise.

Operating Expenditures (in millions)

2003-04

Original 2002-03

Revised 2002-03

Change from

Revised

Percentage

Change Academic Division $895.1 $835.8 $857.2 $37.9 4.4%Medical Center $665.4 $587.6 $601.1 $64.3 10.7%College at Wise $19.8 $19.7 $19.8 $0.0 0.0%Total $1,580.3 $1,443.1 $1,478.1 $102.2 6.9%

Nearly 57 percent of the operating budget is attributable to the Academic Division

(including the Schools of Medicine and Nursing), while about 42 percent is attributable to the Medical Center. The remaining 1 percent is contributed by Wise.

Employment Levels � All Divisions The University has planned for 13,068 full-time equivalent (FTE) positions for 2003-04,

an increase of 2.7 percent or 348 FTEs from the 2002-03 revised budget levels. The Academic Division is expecting 7,491 FTEs, an increase of 63 FTEs, the Medical Center is projecting 5,340 FTEs, an increase of 276 over current staffing levels, and the College at Wise employment will increase by 4 FTE to 237.

History of Employment Levels

5,000

7,500

10,000

12,500

15,000

1998 1999 2000 2001 2002 2003 2004

UVA Med Ctr Wise

2003-04 Operating Expenditures $1.58 billion

Medical Center42.1%

Academic Division56.6%

Wise1.3%

2002-03 Operating Expenditures $1.48 billion

Medical Center40.7%

Academic Division58.0%

Wise1.3%

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Key Issues For the Academic Division and the College at Wise, the most critical issue continues to be

the diminishing state support. As the state�s revenue shortfall for the 2002-04 biennium stands at $6 billion or 27 percent of the predicted state revenue, support for higher education continues to suffer. As the chart below outlines, the general fund reductions have had a significant negative impact on the tuition students are charged, the operating budgets departments are allocated, the equipment purchases departments can initiate, and the deferred maintenance backlog accumulating on buildings and infrastructure.

Academic Division College at Wise 2002-03 2003-04 2002-03 2003-04 (in thousands) General Fund Budget Reductions: Base GF Appropriation Before Reductions $167,795 $168,030 $10,926 $11,168 First Round: Institution Specific $25,383 $33,328 $440 $581 Research and Public Service Centers $449 $454 $30 $30 Total $25,832 $33,782 $470 $611 Percentage of Base Appropriation 15.4% 20.1% 4.3% 5.5% Second Round: Institution Specific $14,015 $17,827 $676 $967 Research and Public Service Centers $0 $593 $0 $0 Total $14,015 $18,420 $676 $967 Percentage of Base Appropriation 8.4% 11.0% 6.2% 8.7% Total of First and Second Round Reductions $39,847 $52,202 $1,146 $1,578Percentage of Base Appropriation 23.7% 31.1% 10.5% 14.1% How Budget Reductions Were Achieved: Tuition Applied to Appropriation Reduction $18,000 $28,000 $590 $726Percentage of Total Reduction 45.2% 53.6% 51.5% 46.0% Departmental Budget Reductions $21,847 $24,202 $556 $852Percentage of Total Reduction 54.8% 46.4% 48.5% 54.0% Reductions to Other General Fund Allocations: Eminent Scholar Match $735 $735 $1 $1 VGUAP Match (eliminated completely) $26 $26 $1 $1 Equipment Trust Fund Allocation $2,183 $2,183 $38 $38 Maintenance Reserve $5,146 $5,116 $203 $202

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Faculty and staff compensation and retention are another concern. The General Assembly has allocated a 2.25 percent base salary adjustment, effective November 25, 2003, that is applicable to the Academic Division and Wise. This is not a net increase in the annual compensation faculty and staff will receive in the upcoming fiscal year, since there was a 2.5 percent one-time bonus paid in August of 2002.

While defining and funding appropriate levels of graduate financial aid through remission,

fellowships, and stipends has been a concern of the University�s for several years, the significant undergraduate tuition increases cause the University to also focus on undergraduate financial aid in 2003-04.

For the Medical Center, providing quality patient care while continuing to manage an

appropriate operating margin is the top priority. The Corporate Integrity Agreement and the new Health Insurance Portability and Accountability Act legislation are external pressures that will result in additional expenses for the Medical Center. The cost associated with providing quality patient care will continue to have upward pressure due to labor shortages and increases in pharmaceutical and medical device expenses. The 2003-04 fiscal plan features the implementation, jointly with the School of Medicine, of early phases of the Decade Plan, the opening of two modular operating rooms and approximately nine new beds, enhanced personnel compensation packages, and facility expansion.

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Academic Division Budget Development

The first step in the budget development process was the projection of revenues available for expenditure in 2003-04. Actions by the Board of Visitors � approval of housing, dining, mandatory fee, and tuition rates � and the General Assembly � approval of amendments to the 2002-04 Appropriation Act � were integral to this effort. The second step of budget development was the determination of expenditure targets for each vice president. The targets were based on preliminary budget assumptions approved by the President and reported to the Board of Visitors in October 2002, as well as the impact of the general fund reductions assessed by the General Assembly. The 2003-04 targets reflect the 2002-03 departmental budget reductions allocated for the first and second round general fund appropriation reductions. The University was able to fund the incremental 2003-04 budget reductions from new tuition revenues, so no further across-the-board budget reductions were assessed to the 2003-04 targets. There were additional specific reductions applied to the research and public service centers in 2003-04 by the General Assembly. The target development process is designed to give maximum flexibility to vice presidents in the allocation of resources among their activities, although that is obviously limited during a period of budget reductions.

The General Assembly has made provision for a 2.25 percent salary increase for faculty and classified staff, effective November 25, 2003. As the split between general fund (tax revenues) and non-general fund (tuition revenues) changes, the University will be expected to fund more and more of its expenses from tuition. In the original 2001-02 budget (before that year�s $4.8 million budget reduction), 50 percent of the state revenues were provided from general funds and 50 percent were provided from tuition. In the proposed 2003-04 budget in the following pages, only 34 percent of state revenues are provided from general funds, while 66 percent are provided from tuition. These percentages will impact the amount of salary and benefit cost increases funded from the state, as well as any allocations related to the higher education funding model approved by the General Assembly, but not yet implemented.

The state has calculated its share of salary increases on the 2002-04 Appropriation Act

which shows that approximately 36 percent of University�s total educational and general appropriation comes from general fund revenues. The remaining 64 percent will be funded from incremental tuition revenues. [This funding split differs from the 34 percent /66 percent funding split mentioned in the previous paragraph because the 2002-04 Appropriation Act does not include the additional non-general funds that will be generated from the new 2003-04 tuition rates approved in April 2003.] An estimate of the state funds needed for the salary increase in 2003-04 is reflected in the University�s reserves, but has not been allocated to departments in the budget presented. Departments who hold positions funded from revenues other than general funds or tuition, including private support, grants and contracts, and auxiliary revenues, have planned for the 2.25 percent salary increase within their departmental budgets.

The University will incur significantly increased benefit costs, as the employer share of

employee health insurance premiums has increased by an average of 28.5 percent and the Commonwealth has increased the contribution to the Virginia Retirement System as calculated by the state�s actuaries. While the University will receive a portion of these increased costs from

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state general funds, the majority of the cost will be covered by tuition revenues. As with the salary increases, an estimate of the increased benefit costs for state positions is reflected in the University�s reserves, rather than being allocated to the departments. Departments who hold positions funded from revenues other than general funds or tuition have included the incremental benefit costs in their departmental budgets. As is consistent with the past few years, no incremental funding for increases in "other than personal services" budget categories has been included in the budgets or targets except as specifically identified in subsequent sections of this summary.

In the final step of budget development, vice presidents were given an opportunity to present prioritized lists of resource needs that cannot be addressed within the target budgets provided. All available funds, including those specifically earmarked by the General Assembly, are then allocated in an addenda process. Incremental tuition and fee revenue, indirect cost recoveries from grants and contracts, state general funds allocated for the UVa Health Plan, and private funds provided in excess of $10 million for the addenda process. The University was able to meet all mandatory commitments, re-establish a $1 million reserve for emergency needs, and meet some other critical needs. More information concerning the 2003-04 addenda allocation is included in the expenditure budget analysis later in this document. Planning Priorities

Schools and departments have been encouraged to use resources from all available sources to meet the priorities that have been identified in the University�s strategic planning efforts. While the general fund budget reduction has many units determining how to maintain current programs, rather than program expansion, increased resources from other revenue sources have allowed additional investments in University and school initiatives according to strategic plan priorities. Within the financial and staffing limitations established by the budget, vice presidents, deans, and directors of major units of the University have the flexibility to re-allocate available resources to their highest priority program requirements.

The Board-initiated Budget Defense Fund (BDF) has been critical in assisting in the

investment of resources to priority areas and in the retention of key faculty during this period of diminishing general fund support. In fact, the University has been able to continue with the implementation of several of the initiatives outlined in the Virginia 2020 planning process. From the BDF, seed funding of $100,000 has been allocated to each of four new institutes developed in response to the Virginia 2020 Science and Technology Commission. The institutes are the Institute for Nanoscale and Quantum Engineering directed by Robert Hull, Professor, Department of Materials Science and Engineering; the Morphogenesis and Regenerative Medicine Institute (related to the bio-differentiation initiative of the 2020 Science and Technology Commission) headed by Barry Gumbiner, Chair, Department of Cell Biology and Ray Keller, Chair, Department of Biology; the Information Initiative led by Anita Jones, University Professor, Department of Computer Science and Engineering; and the Institute on Aging directed by Mark Williams, MD, Geriatric Medicine.

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Additionally, $1.5 million (from the BDF and graduate tuition revenues) will be allocated in 2003-04 for Alderman Library to continue implementation of its Library of Tomorrow initiative and $500,000 will be applied from the BDF to finance the purchase of specialized instrumentation for the Institute for Nanoscale and Quantum Engineering. The Health System�s Decade Plan

The Decade Plan � the first joint planning effort of the School of Medicine, the Medical Center, and Health Services Foundation � charts the ways in which the University will create innovative "Models for all of U.S." in areas such as patient service, translational research from cell to bedside, professionalism in teaching and service to the community. These models will result in widespread benefit and visibility, taking the University to top status as a health care institution by 2012, as defined objectively by national rankings and through peer recognition of excellence.

The Faculty Development Council has identified areas of concentration, based on current strengths, including cancer, aging, cardiovascular disease, children's health, diabetes and obesity, digestive health, immunology, infectious diseases, global health, neurosciences, organogenesis, and women's health. Investment in programs will be based not only in these areas, but also in areas that demonstrate potential for future innovation, and areas that at present cannot be identified as the Health System moves into the next decade.

As the name implies, the Decade Plan is a multi-year funding plan that spans ten years. For 2003-04, the School of Medicine anticipates investing $6.8 million in new initiatives and current programs to support the Decade Plan. The School proposes to leverage a supplemental Pratt distribution of $4 million and on-going fundraising efforts to provide the financial resources necessary to carry out the objectives of the Decade Plan in 2003-04. Financial Self-Sufficiency for the Darden School and the Law School

General fund budget reductions have accelerated the speed at which tuition revenues generated by the Darden School and the Law School exceed the operating budgets allocated from University resources. Accordingly in April 2003, the University updated financial self-sufficiency understandings with the Darden School and the Law School recognizing that both schools will meet self-sufficiency in 2003-04. The agreements will put in place the concept endorsed in November 1995 by the Board of Visitors. The financial relationship between the University and the Darden and Law Schools is based on a tuition-driven model of Financial Self-Sufficiency designed to provide these professional schools with the financial capability to sustain long-term academic excellence. This means the Darden School and the Law School will collect 100 percent of tuition revenues, pay 100 percent of their direct costs � including all salary and benefit increases and all utilities, operations, and maintenance on their buildings � and contribute 10 percent of their revenues to central resources to offset the indirect costs of their operations. The schools will forfeit any claim on general fund operating revenues, except a subsidy of $2,500 per in-state student. This subsidy recognizes a commitment by each school and the University to in-state students by providing a $5,000 differential between in-state and out-of-state tuition.

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Integrated Systems Project The Integrated Systems Project began in 1999, charged with implementing an integrated

financial, human resources, and student information system for the University. In July 2001, the Oracle Finance applications were deployed, and in October 2002, the Oracle Human Resources and Payroll applications were deployed. The implementations were completed on budget and, with the exception of a 90 day delay for Human Resources and Payroll, on time. The permanent organization, re-named the Integrated System Deployment and Support, responsible for providing the on-going support and maintenance for the new applications now reports to the Vice President for Finance.

It was initially planned that the third phase of the project � student information � would

follow directly after the completion of the finance and human resource phases. However, the student systems on the market are not as fully developed as expected, so the University will carefully evaluate all options before selecting and implementing a student information system for this purpose. The Vice President and Provost has formed a work group to make a recommendation on a new student information system to be implemented in the near future.

At this time last year, it was expected that the University would initiate and complete the

upgrade to Version 11i of the Oracle software in 2002-03. The upgrade was delayed, and it is anticipated that a vendor will soon be selected to assist with the upgrade during the next fiscal year. Higher Education Equipment Trust

The 1986 General Assembly authorized the establishment of a statewide Higher Education Equipment Trust designed to meet the high priority equipment needs of institutions of higher education. Through June 30, 2003, the University has received $83.9 million. The next allocation is scheduled for July 2003, at which time the University expects to receive $5.5 million. While this is a decrease from the $7.6 million received in July 2001, the allocation was not impacted during the second round of general fund budget reductions in October 2002. This funding comes to the University as reimbursement of purchases, so neither the allocation nor the related purchases are included in the University's 2003-04 budget.

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Academic Division Revenues Academic Division revenues are projected to total $895.5 million in 2003-04, an increase

of 4.4 percent over the revised budget of $857.7 million for the current fiscal year. The Revenue Budget Summary appears on page 11, and the Revenue Budget Detail appears on page 17. Academic Division revenues are made up of the following sources:

State General Fund Appropriation

State general funds are tax revenues which are appropriated by the General Assembly for the use of the institution. The state general fund appropriation is made up of an appropriation for educational and general programs, a special appropriation for specific programs, and an appropriation for student financial aid.

The revised 2002-03 general fund appropriations for educational and general programs of

$130.3 million is a $5.7 million decrease over the original 2002-03 budget of $136.0 million. This reduction is due to the second round of general fund budget reductions occurring in October 2002 of $14.0 million, partially offset by an increase of $5.8 million due to the August 2002 bonus paid to faculty and classified employees. This bonus was funded 100 percent from general fund revenues. The remaining offset is related to the University reverting non-general fund revenues back to the Commonwealth related to savings from a group life insurance premium holiday and the reduction in the contribution to the Virginia Retirement System. In the original 2002-03 budget, the savings reverted back to the state was treated as a reduction of the general fund appropriation. The more appropriate treatment is to show this reversion to the state as an expenditure from the non-general fund revenues, which is how this non-general fund reversion is reflected in the revised 2002-03 and the 2003-04 budgets.

The 2003-04 budget for general fund appropriations for educational and general programs

has been developed using the approved 2002-04 Appropriations Act. There will be a $14.7 million decrease from the revised 2002-03 budget to $115.6 million. This decrease includes $12.4 million in incremental budget reductions, the $5.8 million related to one-time bonuses in 2002-03, with offsetting increases of $1.7 million for increased state retirement contributions, $1.3 million for the funding of the UVa Health Plan, and an estimated $1.0 million for planned faculty and classified salary increases.

2002-03 Revenues

Grants & Contracts

27.1%

Aux. Ent.14.9% Other

17.5%

Tuition & Fees 24.7%

State Appropriation

15.8%

2003-04 Revenues

Grants & Contracts

27.1%

Aux. Ent.15.0%

Other17.6%

Tuition & Fees 26.6%

State Appropriation

13.5%

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The carryforward of $850,000 in unspent Commonwealth Technology Research Fund (CTRF) balances from June 30, 2002 has increased the amount of funds available in 2002-03 compared to the original budget. The 2003 General Assembly eliminated the CTRF program in the future, as well as any uncommitted balances in 2003-04. The state will meet its previous commitments for 2003-04, as reflected in the $1.3 million budget for 2003-04.

There is an additional decrease to Eminent Scholar matching funds in both 2002-03 and

2003-04 to $2.9 million. This is an overall decrease in this matching program from a high of $3.7 million in 2000-01. It is projected that endowments eligible for Eminent Scholar matching will generate $13.9 million in 2003-04. The state will match about 21¢ on the dollar in 2003-04. The University adds over half a million dollars or another 4¢ per dollar of eligible income in matching funds from private resources.

The budget reductions can be expected to further diminish the University�s standing

relative to public peer institutions in the amount of general fund appropriations per in-state student. The following chart shows the University�s standing using the 2002-03 original state appropriation for each school:

School 2002-03 GF

per In-state Student University of North Carolina - Chapel Hill $22,484 University of California � Berkeley (01-02) $22,309 University of Michigan - Ann Arbor $19,213 University of Virginia $9,748

It is anticipated that the 2003-04 general fund appropriations per in-state student for the

University will decrease to around $8,800. The original 2002-03 general fund appropriation for financial aid included about $25,000

in matching funds for the Virginia Graduate and Undergraduate Assistance Program. This match was completely eliminated in the October 2002 budget reductions. The 2003-04 general fund appropriation for financial aid does not reflect the University�s share of the additional $4.5 million allocated by the 2003 General Assembly for system-wide financial aid. These funds are currently held in a central state reserve, to be allocated by the Department of Planning and Budget and the State Council of Higher Education in the near future.

Non-general Fund Revenue Non-general fund revenues are resources which are earned or generated by the University

such as tuition, indirect cost recoveries, grants and contracts, auxiliaries, or from private resources. With the exception of gifts and endowment income, non-general funds are also appropriated by the General Assembly. The different sources of non-general fund revenue are described in further detail in subsequent sections of this document.

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University of Virginia - Academic Division

Revenue Budget Summary

2003-04 Original 2002-03

Revised 2002-03

Dollar Change from Revised 2002-03 to

2003-04

Percent Change

from Revised

2002-03 to 2003-04

Revenues from Educational and General Activities State General Fund Appropriation $ 115,565,302 $ 136,015,517 $ 130,268,353 $ (14,703,051) (11.3%) Tuition and Fees 209,868,915 179,705,357 186,104,700 23,764,215 12.8% Grants, Contracts and Indirect Cost Recoveries 228,670,040 217,123,124 216,804,420 11,865,620 5.5% Endowment Income 52,811,127 56,119,146 49,979,440 2,831,687 5.7% Gifts 51,410,141 27,707,599 50,606,088 804,053 1.6% Sales, Services, Investment Income and Other 22,485,802 19,292,935 21,041,506 1,444,296 6.9%Total Revenues from Educational and General Activities 680,811,327 $ 635,963,678 $ 654,804,507 $ 26,006,820 4.0% Revenues from Student Financial Assistance State General Fund Appropriation $ 5,526,064 $ 5,550,128 $ 5,526,064 - 0.0% Transfer from Tuition and Fees 28,771,500 24,503,252 25,496,020 $ 3,275,480 12.8% Grants, Contracts and Indirect Cost Recoveries 15,489,200 14,475,400 14,728,800 760,400 5.2% Endowment Income 15,247,388 12,261,910 14,525,569 721,819 5.0% Gifts 14,500,000 13,950,347 13,949,987 550,013 3.9% Investment Income and Other 598,462 451,940 495,201 103,261 20.9%Total Revenues from Student Financial Assistance $ 80,132,614 $ 71,192,977 $ 74,721,641 $ 5,410,973 7.2% Revenues from Auxiliary Enterprises Athletics $ 26,832,167 $ 24,879,288 $ 23,719,607 $ 3,112,560 13.1% University Bookstore and Cavalier Computers 30,139,800 28,225,300 29,625,300 514,500 1.7% Housing and Conference Services 22,729,000 22,564,000 21,802,500 926,500 4.2% Parking and Transportation 12,033,200 11,217,000 11,242,000 791,200 7.0% Voice Communications 10,743,764 10,606,711 10,606,711 137,053 1.3% Student Health 6,457,197 6,318,428 6,250,100 207,097 3.3% Intramural/Recreation Sports 5,199,400 4,685,500 4,685,500 513,900 11.0% Printing Services 4,395,700 4,616,600 4,616,600 (220,900) (4.8%) Newcomb Hall and University Programming Council 4,334,967 4,140,573 4,135,609 199,358 4.8% Dining Services 3,225,700 3,087,600 3,087,600 138,100 4.5% Other Auxiliary Activities 8,475,707 8,385,070 8,405,853 69,854 0.8%Total Revenues from Auxiliary Enterprises $ 134,566,602 $ 128,726,070 $ 128,177,380 $ 6,389,222 5.0% Total Revenue Budget - Academic Division $ 895,510,543 $ 835,882,725 $ 857,703,528 $ 37,807,015 4.4%

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Tuition and Fees The revised 2002-03 tuition and fees budget is $6.4 million more than originally approved

last June. The $385 mid-year increase in tuition generated about $6.5 million, of which $700,000 was transferred to financial aid in order to meet the increased financial aid need of students because of the mid-year increase. Additionally there were higher summer session registrations and student activity fees, generating an additional $587,000 more than expected.

The 2002-04 Appropriation Act, as approved by the General Assembly and the Governor allowed tuition for in-state undergraduates to be annualized based upon the mid-year tuition increase, plus a 5 percent increase on the base, plus an additional amount to fund the required non-general fund portion of salary and healthcare benefit increased costs. Tuition and fee rates for out-of-state undergraduate, graduate, and professional school students are set at the discretion of the Board of Visitors. The 2003-04 budget reflects the expected revenue to be generated by the tuition increases shown in the following chart, consistent with the state�s policy and as approved by the Board:

In-State Out-of-State 2003-04

Tuition and Fees

$ Increase from Prior

Year

% Increase from Prior

Year

2003-04 Tuition

and Fees

$ Increase from Prior

Year

% Increase from Prior

Year Undergraduate $5,925 $984 19.9% $21,945 $1,794 8.9%Graduate $7,817 $2,794 55.6% $19,925 $828 4.3% Darden $28,126 $2,004 7.7% $33,126 $2,004 6.4% Law, 1st yr $23,725 $2,786 13.3% $29,128 $2,234 8.3%Law, Returning 2nd yr $22,525 $2,786 14.1% $29,128 $2,234 8.3%Law, Returning 3rd yr $21,325 $2,786 15.0% $29,128 $2,234 8.3% Medicine, 1st yr $22,341 $3,816 20.6% $34,391 $3,584 11.6%Medicine, Returning 2nd yr $20,491 $3,466 20.4% $34,391 $3,584 11.6%Medicine, Returning 3rd yr $18,991 $2,966 18.5% $34,391 $3,584 11.6%Medicine, Returning 4th yr $17,991 $1,966 12.3% $34,391 $3,584 11.6%

Tuition and fee revenues available for educational and general programs are projected to

increase $23.8 million or 12.8 percent over the revised 2002-03 budget to $209.9 million. The 2003-04 tuition and fees budget was developed using the enrollment projections approved by the Board of Visitors in April 2003, as well as recent enrollment trends. The budget assumes that the current in-state versus out-of-state ratios will remain unchanged. For 2003-04, that is 68 percent in-state in the undergraduate schools, 46 percent in-state in the graduate schools, and 45 percent in Law, Darden and Medicine.

The University�s approved enrollment growth plan shows that Fall 2003 on-grounds enrollment will total 19,275 students. Of the expected 12,775 undergraduate students, 68 percent will be Virginians. The off-grounds enrollment projection for the fall is 3,850 students, of which

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73 percent will be Virginians. It is projected that the first year class will include 3,040 students, an increase of 41 over Fall 2002 enrollment, while 530 students will transfer to the University.

Approximately $17.6 million of the $23.8 million total tuition increase is allocable to increases in undergraduate, graduate, Medical school, Summer Session and the School of Continuing and Professional Studies (SCPS) tuition rates. Incremental tuition revenue will be used to address undergraduate and graduate financial aid ($3.2 million), incremental state budget reductions ($11.7 million), and to fund salary and healthcare cost increases ($4.1 million).

Approximately $7.1 million of the incremental tuition revenue is allocable to self-supporting degree programs, including Law, Darden, McIntire Ernst & Young and Executive Programs, and Engineering Executive Programs. While the majority is related to tuition increases, Darden will also be adding a new section of sixty students in Fall 2003.

Approximately $2.5 million of the incremental tuition revenue is related to the non-degree

programs of SCPS, the addition of the new Debt Service Fee for out-of-state students required by the Commonwealth, the new International Student Fee, and the increase in the E&G Facilities Fee. Over $28.8 million or 13.1 percent of tuition revenue from degree programs is allocated to undergraduate and graduate financial aid. The University is committed to working with schools to improve the flexibility and attractiveness of the University�s graduate support packages in order to become more competitive in attracting top graduate students. The University funded financial aid to students through the following programs:

• $9.4 million is allocated to undergraduate aid, an increase of $1.7 million over original

2002-03. This contribution allows the University to offer 100 percent of demonstrated need to first, second and third year students. In 2004-05, the University plans to offer 100 percent of demonstrated need to all four classes.

• $6.6 million is allocated to the out-of-state graduate student tuition adjustment program.

To qualify for the program, an out-of-state graduate student must be employed in a significant academic capacity and earn a contract rate of at least $5,000 during the fiscal year. The maximum award is limited to the differential between in-state and out-of-state tuition rates as approved by the Board of Visitors. This is a decrease from the $7.7 million allocated in 2002-04, reflecting the University�s actions to reduce the per student differential by nearly $1,000 by increasing in-state graduate tuition significantly (22.3 percent over 2002-03 annualized base) while minimizing the increase to out-of-state graduate tuition (2.3 percent over 2002-03 annualized base).

• $6.7 million is allocated to enhance the support of graduate teaching assistants, as the

University continues to provide in-state tuition, required fees, and a healthcare voucher to eligible graduate teaching and research assistants. The increase of $1.6 million over original 2002-03 reflects the significant increase in graduate in-state tuition, as well as an 11.5 percent increase in the full healthcare premium of single coverage for qualifying

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graduate students. In 2001-02, the University added funding to subsidize the health insurance premiums of graduate teaching assistants and graduate research assistants who earn $5,000 or more annually. While the long-term commitment is to fund at least 70 percent of the cost, in 2003-04 the University is increasing funding to continue to subsidize 100 percent of the premium, scheduled to increase to $1,193 annually.

• $6.0 million is allocated to in-state and out-of-state graduate financial aid. The increase of

$1.8 million reflects the institution�s commitment to improving graduate financial support. The majority of the incremental tuition revenue resulting from the significant increase in graduate in-state tuition was re-allocated to the deans in the form of incremental fellowship funding.

Grants, Contracts, and Indirect Cost Recoveries

Based upon the expenditure trends and the value of new sponsored program awards during the period July 2002 through March 2003, revenues and expenditures from Grants, Contracts and Indirect Cost Recoveries are expected to increase by 5.5 percent over the 2002-03 revised budget. Through March 31, 2003, new sponsored program awards are up only 2 percent over the same period in 2001-02. However, new awards grew by 14 percent in 2001-02 and 14 percent in 2000-01, so it is expected that growth in expenditures will exceed the 2 percent in new award growth seen in the first nine months of 2002-03. Accordingly, it is estimated that grant and contract expenditures will increase by approximately 5 percent in 2003-04.

It is estimated that the expenditure base of indirect cost recoveries will increase by the

same 5 percent in 2003-04; however, an additional 2 percent growth is included related to the negotiation of an increased indirect cost recovery rate on federal grants and contracts. In April 2003, the University negotiated a new indirect cost recovery rate of 52 percent, an increase of 8 percent over the old rate of 48 percent. The impact on indirect cost recoveries will be gradual as the old rate applies to current contracts; the new rate will be applicable to new federal grants and contracts beginning July 1, 2003.

Total grants, contracts, and indirect cost recoveries are budgeted at $244.2 million in 2003-04. Indirect cost recoveries will comprise $55.4 million of that total, with 30 percent of that amount or $16.6 million allocated to educational and general programs and $2.3 million allocated to student financial aid. Direct revenues from grants and contracts will be budgeted at $188.9 million, with $13.2 million of that total to support student financial aid. Endowment Income

Approximately $78.5 million will be distributed from the pooled endowment fund in 2003-04 to Academic Division units. However, restricted endowment income is recognized as revenue as it is expended not as it is distributed. Based upon historical levels of expenditure and the changes in the per share distribution amounts, it is projected that an estimated $68.1 million will be recognized as revenue and expended in 2003-04. The entire amount distributed will not be expended due to donor restrictions on the endowments, unfilled professorships resulting from

15

limitations on hiring related to state budget reductions, or accumulations of reserves for future commitments.

Of the $68.1 million projected for expenditure in 2003-04, $52.8 million will expended for educational and general purposes, while the remaining $15.3 million will be expended for student financial aid. In addition to the endowed scholarships and fellowships, the 2003-04 student financial assistance budget includes $703,000 for the President's Fellowships and $1.2 million for continued funding of a merit scholarship program established in 1985-86. Gift Income

There is a significant change from the original 2002-03 budget for gift revenue of approximately $22.9 million to the revised budget of $64.6 million. This is primarily related to growth in gift expenditures related to the state budget reductions and higher than expected gift receipts in 2002-03.

Like restricted endowment revenue, restricted gift revenue is recognized as it is expended

rather than as it is received. Gift revenues expended are expected to grow slightly to $65.9 million from the 2002-03 revised budget of $64.6 million, as estimated by the departments receiving the gifts. Of the $65.9 million projected for expenditure in 2003-04, $51.4 million will be expended for educational and general purposes, while the remaining $14.5 million will be expended for student financial aid. Other Revenues

Revenues from other sources including current funds investments and sales and services of educational departments will increase $1.5 million or 7.2 percent in 2003-04. $598,000 of the $23.1 million generated from other sources will be allocated to financial aid. Auxiliary Enterprises

An auxiliary enterprise is an entity that exists to furnish goods or services to students, faculty or staff and charges a fee that is directly related, although not necessarily equal, to the cost of the service. Auxiliary enterprises are expected to be self-supporting, with revenues fully supporting the operating and capital expenditures of the enterprise. Additionally, the Commonwealth requires that auxiliaries be charged an overhead rate to support the general and administrative services provided by the E&G operations. In 2003-04, the auxiliaries are charged 6.97 percent of their operating expenditures � a total of $4.3 million will be recovered by E&G operations. In return for payment of general and administrative support, auxiliary enterprises are credited with interest earned on their cash balances.

The auxiliary enterprises include Athletics and Intramural Sports, University Bookstore

and Cavalier Computers, Housing and Conference Services, Parking and Transportation, Voice Communications, Student Health, Printing Services, Newcomb Hall and University Programming, Dining Services, Mail Services, Leased Facilities, University Press, and other activities operated to serve students, faculty, and staff. Emphasis is placed on providing safe, effective, and efficient

16

enterprises that are compatible with and facilitate the accomplishment of the University's primary mission. Revenue projections were developed using the enrollment projections approved by the Board of Visitors in April 2003, the housing rates approved by the Board of Visitors in February 2003, and the dining, and mandatory non-E&G fees approved by the Board of Visitors in April 2003. Increases in student fees support operating cost increases in University Transit, Escort Services, Recreational Facilities, Athletics, and Student Health. Revenues from all auxiliary enterprises are estimated to total $134.6 million in 2003-04, an increase of 5.0 percent over the 2002-03 revised budget.

Revenue changes which are not based on Board approved fees and rates are explained below:

The Athletics revenue budget is increasing by $3.1 million or 13.1 percent. This increase

reflects higher ticket and post-season revenues of $1.3 million or 16.9 percent; the athletic student fee increase generating an additional $1 million; larger corporate sponsorships projected to generate another $550,000 or a 34 percent increase; and greater Atlantic Coast Conference distributions of $211,000. The budgeted revenues have been reconciled to the Five-Year Plan as previously presented to the Board of Visitors.

Parking and transportation revenues are increasing by 7.0 percent to $12.0 million in

2003-04. In addition to the approved student fee increase, this reflects a $562,000 or 2.4 percent increase in revenues from the Health Sciences Center in support of the South Garage Addition debt service and a $120,000 or 10 percent increase from hourly parking rates.

Under the dining services contract with ARAMARK Corporation, net revenues received

by the University in 2003-04 are expected to total $3.2 million. Of this amount, approximately $11,000 represents vending and concession commissions, $240,000 represents interest income, and the remaining $3.0 million is from total board and retail sales. Rates for contract meal plans were approved by the Board of Visitors in April and were increased at an average of 3.44 percent.

Decreases in revenues for Printing Services and the University Press are based upon

expected lower demand for their services.

17

University of Virginia - Academic Division Revenue Budget Detail

2003-04 Revised 2002-03

State General Fund Appropriations Legislative Appropriations $ 111,279,538 $ 122,151,085 Anticipated State Adjustments (157,188) 2,990,447 Total State General Fund Appropriations 111,122,350 125,141,532 Special State General Fund Appropriations Eminent Scholars Matching Funds 2,933,485 2,933,485 Fishery Resource Grants 210,000 270,000 Commonwealth Technology Research Fund Awards 1,299,467 1,878,595 VIVA Library Materials - 44,741 Total Special State General Fund Appropriations 4,442,952 5,126,821 State Nongeneral Fund Appropriations for Educational and General Regular Degree Program Tuition Architecture 3,897,864 3,482,632 Graduate Architecture 1,874,861 1,689,552 College of Arts & Sciences 86,215,460 76,545,825 Graduate Arts & Sciences 14,586,777 13,475,389 Commerce 6,706,345 5,967,609 Graduate Commerce - 223,278 Education 1,185,027 1,034,721 Graduate Education 5,673,724 4,908,174 Engineering 18,764,868 16,598,208 Graduate Engineering 5,779,563 5,247,687 Nursing 2,285,455 1,930,827 Graduate Nursing 642,030 517,472 Medicine 12,289,566 10,868,972 School of Continuing and Professional Studies (SCPS) 2,618,673 2,804,451 Summer Session 4,968,000 4,630,000 Subtotal Regular Degree Program Tuition 167,488,213 149,924,797 Transfer to Financial Aid � Undergrad University Grants (9,435,499) (7,935,499) Transfer to Financial Aid � Graduate Adjustment (6,604,512) (7,675,003) Transfer to Financial Aid � GTA/GAA Remission (4,996,459) (3,932,748) Transfer to Financial Aid � GTA/GAA Healthcare (994,940) (900,077) Transfer to Financial Aid � Graduate University Grants (3,463,517) (1,863,081) Subtotal Tuition Transferred to Financial Aid (25,494,927) (22,306,408) Percentage of Regular Degree Program Tuition Transferred to Financial Aid 15.2% 14.9% Net Regular Degree Program Tuition 141,993,286 127,618,389

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University of Virginia - Academic Division Revenue Budget Detail (continued)

2003-04 Revised 2002-03

Self-Supporting Degree Program Tuition Law JD, Graduate and Appellate Judges� Programs $ 27,262,934 $ 24,429,262 Darden MBA and PhD Programs 19,278,600 15,693,052 McIntire Executive and E&G Degree Programs 4,884,763 4,529,163 Engineering Executive Degree Program 1,044,000 772,000 SCPS Bachelor of Interdisciplinary Studies Degree Program 460,926 357,607 Subtotal Self-Supporting Degree Program Tuition 52,931,223 45,781,084 Transfer to Financial Aid � University Grants (2,550,813) (2,537,832) Percentage of Self-Supporting Degree Program Tuition to Financial Aid 4.8% 5.5% Net Self-Supporting Degree Program Tuition 50,380,410 43,243,252 Other Tuition and Fees SCPS Non-Degree Tuition and Fees 9,140,792 7,452,958 McIntire Executive and E&Y Fees 1,572,423 1,502,220 Mandatory E&G Fees 2,529,854 1,986,000 Application Fees 1,828,000 1,776,700 Other Program Fees 1,414,910 1,241,225 Total Other Tuition and Fees 16,485,979 13,959,103 Total Tuition and Program Fees 208,859,675 184,820,744 Revenue from Fines, Rents, Sales and Services 2,026,721 2,112,253 Recovery of Indirect Costs (30%) 16,600,000 15,500,000 Transfer to Financial Aid - GRA Healthcare (725,760) (651,780) Work Study Revenue 585,000 585,000 Total State Nongeneral Fund Appropriations for Educational and General 227,345,636 202,366,217 Total State Funds for Educational and General 342,910,938 332,634,570 Total Grants, Contracts & Indirect Cost Recoveries for Educational and General 212,210,800 201,371,200 University Funds for Educational and General Student Activity Fees 1,009,240 1,283,956 Endowment Income 52,811,127 49,979,440 Private Gifts and Grants 51,410,141 50,606,088 Sales, Services, Investment and Other Income 20,459,081 18,929,253 Total University Funds for Educational and General 125,689,589 120,798,737 Total Revenues for Educational and General 680,811,327 654,804,507

19

University of Virginia - Academic Division Revenue Budget Detail (continued)

2003-04 Revised 2002-03

Revenues from Student Financial Assistance State General Fund Appropriations $ 5,526,064 $ 5,526,064 Transfer from Non-General Fund Revenues 28,771,480 25,496,020 Grants, Contracts and Indirect Cost Recoveries 15,489,200 14,728,800 Endowment Income 15,247,388 14,525,569 Private Gifts and Grants 14,500,000 13,949,987 Investment and Other Income 598,462 495,201

Total Revenues from Student Financial Assistance 80,132,614 74,721,641

Revenues from Auxiliary Enterprises Athletics TV, Radio, Licensing and Sponsorship 2,344,367 1,779,839 Conference Revenue 7,836,000 7,625,000 Gate Receipts 9,089,400 7,984,992 Student Fees and Other 6,611,300 5,761,300 Other 951,100 568,476 Total Athletics 26,832,167 23,719,607 University Bookstore and Cavalier Computers 30,139,800 29,625,300 Housing Student Housing Rents 20,255,000 19,323,000 Housing Conference Services 1,743,000 1,768,500 Faculty and Staff Housing 731,000 711,000 Total Housing Services 22,729,000 21,802,500 Parking and Transportation Services Student Fees 2,153,000 1,978,000 Parking Fees, Bus Passes, Charter Fees and Other Income 9,880,200 9,264,000 Total Parking and Transportation Services 12,033,200 11,242,000 Voice Communications 10,743,764 10,606,711 Student Health 6,457,197 6,250,100 Intramural/Recreation Sports 5,199,400 4,685,500 Printing Services 4,395,700 4,616,600 Newcomb Hall and University Programming Council 4,334,967 4,135,609 Dining Services 3,225,700 3,087,600 Leased Facilities 2,873,988 2,820,388 University Mail Services 1,985,000 1,955,010 University Press 1,717,397 1,618,210 Other Auxiliary Activities 1,899,322 2,012,245 Total Revenues from Auxiliary Enterprises 134,566,602 128,177,380

Total Revenue Budget � Academic Division $895,510,543 $857,703,528

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Academic Division Expenditures by Functional Classification

Academic Division expenditures are projected to total $895.1 million in 2003-04, an increase of 4.4 percent over the revised budget of $857.2 million for the current fiscal year. Academic Division expenditures are budgeted in the following functional categories, with detail on page 23:

As mentioned earlier, the General Assembly has allocated a 2.25 percent base salary

adjustment, effective November 25, 2003. This is not a net increase in the annual compensation faculty and staff will receive in the upcoming fiscal year, since there was a 2.5 percent one-time bonus in August of 2002. While the Commonwealth�s stated goal continues to be maintenance of the instructional faculty salary average at the 60th percentile of each institution�s peer group, the Academic Division average faculty salary average dropped to the 27th percentile in 2002-03. That ranking could fall further in 2003-04 if peer institutions manage to fund compensation increases larger than 2.25 percent despite their own budget woes. In fact, in the past 12 years, the state has met the 60th percentile benchmark for Academic Division faculty salaries only once.

The University will incur significantly increased benefit costs, as the employer share of

employee health insurance premiums has increased by an average of 28.5 percent and the Commonwealth has increased the contribution to the Virginia Retirement System as calculated by the state�s actuaries. While the University will receive a portion of these increased costs from state general funds, the majority of the cost will be covered by tuition revenues.

The Academic Division�s 2003-04 budget includes a reserve for the expected general fund

and nongeneral fund components of the salary ($2.8 million) and benefit ($3.95 million) increases for state funded positions. Salary and benefit increases for non-state funded positions have been budgeted by the individual departments.

2003-04 Operating Expenditures$895.1 million

Classified Sal. &

Benefits21.9%

Faculty Sal. & Benefits

38.0%

Non-Personal Services35.3%

Wages 2.7%

GTA/GRA2.1%

2002-03 Operating Expenditures$857.2 million

Classified Sal. &

Benefits22.0%

Faculty Sal. & Benefits

37.3%

Non-Personal Services36.3%

Wages 2.2%

GTA/GRA2.1%

22

Staffing

As shown in the following chart, the Academic Division has budgeted a slight increase of 63 FTE positions to a level of 7,491 in 2003-04.

State Grants and Contracts

Private Resources

Auxiliaries

Total

2002-03 Original 4,367.57 1,528.93 761.74 765.45 7,423.692002-03 Revised 4,305.99 1,551.52 803.60 767.20 7,428.31Change (61.58) 22.59 41.86 1.75 4.62% Change (1.4%) 1.5% 5.5% 0.2% > 0.1% 2003-04 4,256.26 1,678.92 795.46 760.45 7,491.09Change (49.73) 127.40 (8.14) (6.75) 62.78% Change (1.2%) 8.2% (1.0%) (0.9%) 0.8%

One cost reduction strategy employed throughout the University during the two rounds of

budget reductions was to eliminate vacant state positions. As shown above, the net decrease in state positions since the 2002-03 original budget is 111 positions. Excluding a 60 FTE increase in state positions at the Darden School, the decrease in state positions in all other departments of the Academic Division is 171 FTE or 3.9 percent. Darden has moved 43 FTEs from private resources due to a significant decline in enrollment in its executive education programs and added 17 new faculty to accommodate the 120 new students enrolled in the Fall of 2002 and the Fall 2003. Darden is funding this increased state salary requirement, including 2003-04 salary and benefit increases, through its own tuition revenues under self-sufficiency.

Sponsored program positions, projected to increase 9.8 percent over the 2002-03 original

budget to 1,679, are supported by growth in sponsored program expenditures. If sponsored program awards do not support the projected number of FTEs, the positions will not be created. Positions funded from private resources are expected to increase by 4.4 percent over the 2002-03 original budget to 795, reflecting some departments ability to move some of their salary commitments to private sources during the reduction in available state resources. The 2003-04 budget reflects a net decrease of 5 FTE positions in auxiliary enterprises over the 2002-03 original budget.

Of the 7,491 positions budgeted for 2003-04, 2,335 positions are involved directly in the

primary programs of instruction, research, and public service. Another 1,679 positions are funded from grants, contracts, and related indirect cost recoveries.

23

University of Virginia � Academic Division Expenditure Budget Detail - by Functional Classification

2003-04 Revised 2002-2003 FTE Amount FTE Amount Expenditures for Educational & General Activities Faculty Salaries and Fringe Benefits 3,150.30 $327,960,912 3,113.91 $307,927,721 Classified Salaries and Fringe Benefits 3,262.57 175,698,857 3,237.33 167,901,656 Wages and Fringe Benefits 17,527,393 13,977,428 GTA/GRA Wages 317.77 18,647,552 309.87 18,252,234 Subtotal Personal Services 6,730.64 539,834,714 6,661.11 508,059,039 Percent of Total Educational & General Budget 79.3% 77.6% Other Than Personal Services 390,913,582 408,457,460 Recoveries (250,355,285) (262,085,233) Transfers 415,316 373,241 Total Expenditures for Educational & General Activities 6,730.64 680,811,327 6,661.11 654,804,507 Total Expenditures for Student Financial Assistance 80,132,614 74,721,641 Expenditures for Auxiliary Enterprises Faculty Salaries and Fringe Benefits 146.79 11,824,878 147.04 11,868,156 Classified Salaries and Fringe Benefits 613.41 20,671,700 620.16 21,004,689 Wages and Fringe Benefits 6,443,272 5,161,632 GTA/GRA Wages 0.25 22,000 0.00 10,000 Subtotal Personal Services 760.45 38,961,850 767.20 38,044,477 Percent of Total Auxiliary Enterprises Budget 29.1% 29.8% Other Than Personal Services 79,021,587 76,326,499 Recoveries (9,087,727) (9,302,334) Transfers 25,213,887 22,580,317 Total Expenditures for Auxiliary Enterprises 760.45 134,109,597 767.20 127,648,958 Total Expenditure Budget - Academic Division 7,491.09 $ 895,053,538 7,428.31 $ 857,175,106

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Academic Division Expenditures by Programmatic Category

The Expenditure Budget Summary appears on page 27, and the Expenditure Budget Detail can be found on page 32. Academic Division expenditures are budgeted in the following programmatic categories.

Educational and General

Educational and general (E&G) is a term used to describe operations that are related directly to the University's educational objectives. E&G expenditures include primary and support programs of instruction, research, public service, academic support, student services, institutional support, and maintenance and operation of physical plant. Student financial assistance, auxiliary enterprises, and hospital programs are excluded. Instruction The program of instruction includes the teaching faculty, support staff, instructional equipment, and operating costs directly related to instruction, as well as departmental research. The revised 2002-03 budget decreased by $3.3 million from the original 2002-03 budget. Second round budget reductions of $10.4 million were allocable to the schools, with $4.75 million offset from the mid-year tuition increase and $195,000 offset by the Budget Defense Fund allocations to Architecture and Nursing, for a net impact of $5.5 million to the revised 2002-03 budget. This permanent impact was offset by the one-time funding of $1.7 million for the August 2002 bonuses and carryforward balances.

The increase in the 2003-04 instructional budget is $13.2 million or 6.0 percent over the revised 2002-03 budget. Approximately $4.4 million is tuition to be generated and retained by self-supporting degree programs in Darden, Law, McIntire, Engineering, and SCPS. There is $2.7 million related to salary and benefit cost increases in the area of instruction to be allocated

2003-04 Operating Expenditures$895.1 million Research &

Public Service5.9%

Auxiliaries15.0%

Academic Support11.2%

Instruction26.1%

Grants & Contracts

19.6%

Financial Aid 9.0%

Other13.2%

2002-03 Operating Expenditures$857.7 million Research &

Public Service6.0%

Auxiliaries14.9%

Academic Support11.4%

Instruction25.9%

Grants & Contracts

19.5%

Financial Aid 8.7%

Other13.6%

26

from the reserve in 2003-04. Other instructional increases are related to the University�s addenda process: $225,000 to hire three new Arts and Science�s faculty in the American Studies Program; $186,000 for funding the new Graduate Studies function to be served by the Office of the Vice President for Research and Graduate Studies; $160,000 for faculty hiring in Architecture $157,000 in excess tuition to be re-allocated to the School of Medicine; and $150,000 to be allocated to expand Summer Session offerings. Approximately $3.2 million of the increase is the result of additional private resources allocated to instruction; $2.2 million of which is the expected commitments on the Budget Defense Fund in 2003-04.

Additional instructional initiatives included within the 2003-04 budget includes the

offering of a Masters of Public Health degree, the continued expansion of the Darden School with the addition of 60 new students, the Curry School�s Children at Risk Initiative, expanded opportunities for non-business majors to take business courses, and the renewal of the College�s Department of Economics.

Research The 2003-2004 educational and general research program includes the Center for Public

Service, Center for Advanced Studies, Center for Politics, Fishery Resource grants, the State Climatologist, the Institute of Nuclear and Particle Physics, and the Diabetes Research and Training Center. In addition to these specific activities, the program includes support for research faculty but does not include sponsored research or departmental research.

The revised 2002-03 budget increased by $8.9 million from the original 2002-03 budget.

Nearly all of this increase is due to increases in sponsored programs and private expenditures towards research support. A portion of the private increase is related to the one-time carryforward of nearly $900,000 in the chair research accounts, plus an overall increase in expenditures from gift funds. There was an increase in the revised state budget of $42,000 related to the one-time funding of the August 2002 bonus and the carryforward of Commonwealth Technology Research Fund awards from June 30, 2002, offset by second round budget reductions.

The $2.8 million increase in the 2003-04 budget includes a $3.5 million increase in funding

from indirect cost recovery and private sources, offset by a decrease in state support of $725,000. The 2002-04 Appropriation Act includes an additional $460,000 in specific reductions to research centers (in addition to the $384,000 specific reduction in 2002-03). Approximately $125,000 is included in the reserve for allocation to salary and benefit increases in 2003-04.

Three awards from the Commonwealth Technology Research Fund are included in this

category, for a total of $1.9 million in the revised 2002-03 budget and $1.3 million in 2003-04: • S. Ray Taylor, Associate Professor in the Materials Science Department in the School of Engineering, was awarded a three-year grant to research the development of an

27

University of Virginia - Academic Division Expenditure Budget Summary

2003-2004 Original

2002-2003 Revised 2002-03

Dollar Change from Revised 2002-2003 to 2003-2004

Percent Change

from Revised

2002-2003 to 2003-

2004 Expenditures for Educational & General Activities Instruction $ 234,500,759 $ 224,643,538 $ 221,310,346 $ 13,190,413 6.0% Research 39,044,450 27,341,626 36,261,505 2,782,945 7.7% Public Service 13,462,280 11,285,592 15,714,185 (2,251,905) (14.3%) Academic Support 99,851,006 92,724,591 97,611,683 2,239,323 2.3% Student Services 19,188,978 15,968,923 18,013,136 1,175,842 6.5% Institutional Support 48,424,421 45,999,867 50,706,816 (2,282,395) (4.5%) Operation and Maintenance of Physical Plant 50,639,433 50,692,541 47,879,836 2,759,597 5.8% Grants and Contracts 175,700,000 167,307,000 167,307,000 8,393,000 5.0%Total Expenditures for Educational & General Activities $ 680,811,327 $ 635,963,678 $ 654,804,507 $ 26,006,820 4.0% Total Expenditures for Student Financial Assistance $ 80,132,614 $ 71,192,977 $ 74,721,641 $ 5,410,973 7.2% Expenditures for Auxiliary Enterprises Athletics $ 26,832,167 $ 24,825,573 $ 23,043,917 $ 3,788,250 16.4% University Bookstore and Cavalier Computers 30,009,100 28,123,000 29,539,900 469,200 1.6% Housing and Conference Services 22,631,400 22,422,440 21,621,200 1,010,200 4.7% Parking and Transportation Services 12,033,200 11,182,000 11,182,000 851,200 7.6% Voice Communications 10,743,764 10,606,711 10,606,711 137,053 1.3% Student Health 6,457,197 6,318,428 6,308,305 148,892 2.4% Intramural/Recreation Sports 5,175,400 4,685,500 4,685,500 489,900 10.5% Printing Services 4,395,700 4,616,600 4,616,600 (220,900) (4.8%) Newcomb Hall and University Programming Council 4,411,400 4,349,099 4,518,635 (107,235) (2.4%) Dining Services 3,178,135 3,073,900 3,073,900 104,235 3.4% Other Auxiliary Enterprises 8,242,134 8,461,726 8,452,290 (210,156) (2.5%)Total Expenditures for Auxiliary Enterprises $ 134,109,597 $ 128,664,977 $ 127,648,958 $ 6,460,639 5.1% Total Expenditure Budget - Academic Division $ 895,053,538 $ 835,821,632 $857,175,106 $ 37,878,432 4.4%

28

environmentally compliant, multi-functional coating for aerospace application using molecular and nano-engineering methods. • James R. Brookeman, Professor of Radiology and Bio-Engineering in the School of Medicine and John P. Mugler, Professor of Radiology in the School of Engineering were awarded a three-year grant to research in-vivo hyperpolarized gas magnetic resonance imaging. • William A. Petri, Jr., Professor of Internal Medicine in the School of Medicine was awarded a three-year grant to study mucosal therapy for infectious and autoimmune diseases.

Public Service The major activities in the public service category include the Virginia Foundation for the Humanities, the Institute of Government, the Women�s Center, the Virginia Film Festival, and non-credit course offerings. The revised 2002-03 budget increased by $4.4 million from the original 2002-03 budget. The $1.3 million increase in state support reflects an appropriate reclassification of the Virginia Foundation for the Humanities from the academic support program. The remaining $2.4 million increase is related to an overall increase in expenditures from gift funds. The 2003-04 public service budget reflects a $2.3 million decrease or 14 percent decrease over the revised budget for 2002-03. The 2002-04 Appropriation Act includes an additional $138,000 in specific reductions to public service centers (in addition to the $65,000 specific reduction in 2002-03). A reduction in private support of $1.7 million accounts for the remainder of the decrease. Academic Support

The academic support program encompasses the libraries, the portion of Information Technology and Communications that supports academic computing, and the activities of the deans of the schools.

The revised 2002-03 budget increased by $4.9 million from the original 2002-03 budget.

There was a $1.8 million decrease in state support related to the reclassification of the Virginia Foundation for the Humanities to public service and the second round of state budget cuts, offset by the one-time funding of $860,000 for the August 2002 bonuses and the June 30, 2002 carryforward of unspent balances into 2002-03. The offsetting increase is related to private support, due to an overall increase in expenditures from gift funds.

The budget for 2003-04 is projected to increase by $2.2 million or 2.3 percent to $99.9

million. State support will increase by $712,000 over the revised budget. There is $1.4 million

29

related to salary and benefit cost increases in the area of academic support to be allocated from the reserve in 2003-04. Other academic support increases are related to the University�s addenda allocations: $500,000 for the Library of Tomorrow initiative, $150,000 to the International Studies Office for the processing and maintenance of international student records, and $123,000 to the School of Architecture for technology support. Approximately $1.5 million of the increase is from additional indirect cost recovery and private resources allocated to academic support.

Student Services The student services program includes those activities whose primary purpose is to contribute to the students' emotional and physical well-being and to their intellectual, cultural, and social development outside of the classroom. The revised 2002-03 budget increased by $2 million from the original 2002-03 budget. Approximately $900,000 is related to the one-time funding of $170,000 for August 2002 bonuses and carryforward funds from June 30, 2002. Private resources accounted for the remaining $1 million increase in the revised budget. The student services budget for 2003-04 is projected to increase by $1.2 million to $19.2 million, almost entirely in the state area. There is $250,000 related to salary and benefit cost increases in the area of student services to be allocated from the reserve in 2003-04. Other increases are related to the University�s addenda process, in particular to fund an increased emphasis on diversity initiatives: $322,000 for undergraduate and graduate admissions process, including an increased emphasis on minority recruiting; $108,000 for the Office of Career Services to replace a loss in external revenue resource; $71,000 for the support of residence staff; $19,000 to the Office of African-American Affairs for increased office support, and $7,000 for the funding of a new multi-cultural class. Institutional Support Included in the institutional support program are the financial, administrative, logistical, and development activities of the University. The revised 2002-03 budget increased by $4.7 million from the original 2002-03 budget. There was an increase in state support of $1.5 million, primarily related to carryforward and the one-time increase of $500,000 for the funding of the August 2002 bonus. $3.2 million of the increase was related to support from indirect cost recoveries and private support, primarily due to the carryforward of local balances in the Integrated Systems Project, Development and other institutional support areas.

The institutional support budget is projected to decrease by $2.3 million or 4.5 percent in 2003-04. While there is $800,000 held in the reserve for increases in salary and benefit costs, this increase is offset by the reduced need for funding of the Integrated Systems Project. As mentioned earlier, the financial and human resource phases of the Integrated Systems Project have been completed, while a vendor has not yet been selected for the student information system. Only $200,000 and 2 FTEs to begin the planning for the student system acquisition and implementation

30

have been allocated in the 2003-04 budget. The 2002-03 budget approved by the Board last June included an allocation for the upgrade to Version 11i of the Oracle software which has been delayed to 2003-04. Consequently $3.6 million of the original 2002-03 Integrated Systems Project budget has been deferred until 2003-04.

In 2001-02, the Board approved an internal loan of up to $20 million to be paid back by 2009-10 to finance the project. In 2002-03, the funds drawn down from the internal loan were repaid in full from the earnings on the unrestricted endowment. There is an addenda allocation of $1.2 million from the local general fund to support the increase needed in University Development and University Relations related to the new Capital Campaign planned to raise approximately $3 billion. Operation and Maintenance of Plant The operation and maintenance program category includes all expenditures for operating and maintaining facilities, leasing space, and police and security, net of amounts charged to auxiliary enterprises and the Medical Center. The revised 2002-03 budget decreased by $2.8 million from the original 2002-03 budget. The decreases are the result of the carryforward of a deficit of $1.3 million from June 30, 2002 (at the request of central administration) and the allocation of the second round of budget reduction of $685,000, offset by one-time bonus funding of $1 million. The O&M budget is projected to increase $2.8 million or 5.8 percent in 2003-04 compared to the 2002-03 revised budget. There is $1.6 million related to salary and benefit cost increases to be allocated from the reserve in 2003-04. Other increases are related to the allocations from the University�s addenda process: $609,000 for the operations and maintenance of new facilities, $416,000 for increased utility costs, and $381,000 for increased rent costs. Sponsored Programs

The proposed expenditure plan for 2003-04 anticipates a 5 percent increase in expenditures from sponsored programs and indirect cost recoveries. As stated in the revenue comments, historical trends and new sponsored program awards for the period July 2002-March 2003 were used to estimate 2003-04 expenditures. Award data are good predictors of expenditures in subsequent periods for federally sponsored programs. Sponsored program expenditures are related primarily to research projects, but also may be restricted to institutional and service programs. Student Financial Aid

Student financial aid includes student scholarships, fellowships and other forms of student assistance exclusive of student loans, student employment, and service scholarships where service is required of the students receiving the scholarships. The student financial assistance budget also

31

does not include aid provided directly to students or their families by third parties. The student financial aid budget promotes student accessibility through scholarships and fellowships.

Financial aid awards to undergraduate students are based on standard calculations of the student's financial need. In 2002-03, 24 percent of the student body demonstrated need. For the same year, the University has met an estimated 93 percent of the demonstrated need of undergraduate students when Direct Student Loans are included. In 2003-04, the University will offer 100 percent of demonstrated need to undergraduate 1st, 2nd and 3rd year students. As mentioned in the revenue sections earlier, student financial assistance programs are supported from state general funds, tuition, endowment income, gifts, and federal sources. Growth is expected from all sources, particularly given the significant increases in tuition approved for 2003-04. The 2003-04 budget for student financial assistance is $80.1 million, an increase of approximately 7.2 percent over the 2002-03 revised budget of $74.7 million. Auxiliary Enterprise Expenditures Auxiliary enterprise expenditures are projected to increase by 5.1 percent in 2003-04 from $127.6 million to approximately $134.1 million. In the development of the auxiliary enterprise budgets for 2003-04, the University has continued to place emphasis on the maintenance of prudent reserves for the rational and systematic renewal and replacement of equipment and facilities. The budget includes proposed expenditures for 2003-04 from each auxiliary enterprise reserve beginning on page 34.

The 2003-04 Athletics budget is $26.8 million, exclusive of student athlete scholarships. This is an increase of $3.8 million or 16.4 percent over the 2002-03 revised budget. The increased revenues are being directed toward the program improvements included in the Five Year Plan including women�s Olympic sports, football, men�s and women�s basketball, capital projects and academic advising. The Athletics operating budget has been reconciled to the Five Year Plan � the primary difference is that expenditures related to Debt Service Fees collected by Athletics for facilities were not included in the Five Year Plan.

Housing expenditures are increasing by 4.7 percent to $22.6 million in 2003-04, related to

increased operating costs, including salary and benefit costs and increasing contractual costs for voice-data services and preventive maintenance.

Parking and transportation expenditures are increasing by 7.6 percent to $12.0 million in

2003-04, related to increased operating costs, including salary and benefit costs as well as the purchase of six buses over the next three years at a cost in excess of $1.4 million.

Intramural/recreation sport expenditures are increasing by 10.5 percent to $5.2 million in

2003-04, related to increasing operational and debt service costs for the Aquatics and Fitness Center Addition and salary and benefit costs.

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University of Virginia - Academic Division Expenditure Budget Detail

2003-2004 Revised

2002-2003 Expenditures for Educational & General Activities State Funds for Educational & General Activities Instruction $ 182,928,849 $ 172,904,438 Research 7,419,749 8,144,690 Public Service 2,293,158 2,821,721 Academic Support 61,339,007 60,627,175 Student Services 15,751,579 14,383,799 Institutional Support 26,474,990 28,196,519 Operation and Maintenance of Physical Plant 46,703,606 45,556,228 Total State Funds for Educational & General Activities $ 342,910,938 $ 332,634,570 Grants, Contracts and Indirect Cost Recoveries for Educational & General Activities Instruction $ 1,225,547 $ 1,026,031 Research 14,378,666 13,482,867 Public Service 2,967 12,758 Academic Support 16,442,400 15,299,688 Student Services 271,600 253,400 Institutional Support 3,724,020 3,500,032 Operation and Maintenance of Physical Plant 465,600 489,424 Direct Cost of Grants and Contracts 175,700,000 167,307,000

Total Grants, Contracts & Indirect Cost Recoveries for Educational & General Activities $ 212,210,800 $ 201,371,200

University Funds for Educational & General Activities Instruction $ 50,346,363 $ 47,379,877 Research 17,246,035 14,633,948 Public Service 11,166,155 12,879,706 Academic Support 22,069,599 21,684,820 Student Services 3,165,799 3,375,937 Institutional Support 18,225,411 19,010,265 Operation and Maintenance of Physical Plant 3,470,227 1,834,184 Total University Funds for Educational & General Activities $ 125,689,589 $120,798,737 Total Expenditures for Educational & General Activities $ 680,811,327 $ 654,804,507 Expenditures for Student Financial Assistance State Scholarships and Fellowships $ 34,297,564 $ 31,022,084 Sponsored Program Scholarships and Fellowships 15,489,200 14,728,800 University Scholarships and Fellowships 30,345,850 28,970,757 Total Expenditures for Student Financial Assistance $80,132,614 $74,721,641

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University of Virginia - Academic Division Expenditure Budget Detail (continued)

2003-2004 Revised

2002-2003 Expenditures for Auxiliary Enterprises Athletics $ 26,832,167 $ 23,043,917 University Bookstore and Cavalier Computers 30,009,100 29,539,900 Housing and Conference Services 22,631,400 21,621,200 Parking and Transportation Services 12,033,200 11,182,000 Voice Communications 10,743,764 10,606,711 Student Health 6,457,197 6,308,305 Intramural/Recreation Sports 5,175,400 4,685,500 Printing Services 4,395,700 4,616,600 Newcomb Hall and University Programming Council 4,411,400 4,518,635 Dining Services 3,178,135 3,073,900 Leased Facilities 2,873,988 2,820,388 Mail Services 1,949,500 1,909,210 University Press 1,717,397 1,871,137 Other Auxiliary Activities 1,701,249 1,851,555 Total Expenditures for Auxiliary Enterprises $134,109,597 $127,648,958 Total Expenditure Budget - Academic Division $895,053,538 $857,175,106

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University of Virginia - Academic Division Auxiliary Enterprises

2003-04 Projected Reserve Expenditures Athletics Preventive Maintenance and Improvements $ 1,000,000 Women's Crew Shells/Equipment 25,000 University Hall Repairs and Replacements 200,000 Total Athletics $ 1,225,000

Intramurals AFC Equipment and Systems Purchases $ 106,400 AFC Re-carpet 80,000 Recreation Facility Repairs and Improvements 135,000 Equipment - The Park 15,000 Total Intramurals $ 336,400

Telephone System Wireless Services $ 1,150,000 Dorm Network 515,896 Telemanagement System 150,000 Outside Plant Cable 300,000 Infrastructure 800 MGhz System 1,500,000 Network Infrastructure 2,144,860 Growth Costs 200,000 Switchroom Generators and Air Conditioning 100,000 Phone Mail 100,000 Total Telephone System $ 6,160,756

Dining Services Observatory Hill Dining Hall Renovation $ 5,912,800 Facility Repairs and Improvements 524,000 Total Dining Services $ 6,436,800

Printing Services Equipment and Systems Purchases $ 463,000 Miscellaneous Facility Repairs and Improvements 35,000 Total Printing Services $ 498,000

Bookstores & Cavalier Computers Bookstore Capital Equipment $ 50,000 Bookstore Computer System Replacement/Upgrade 50,000 Central Grounds Bookstore 100,000 Miscellaneous Facility Repairs and Improvements 100,000 Contingency 80,000 Total Bookstore & Cavalier Computers $ 380,000

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University of Virginia - Academic Division Auxiliary Enterprises 2003-04 Projected Reserve Expenditures (continued)

Newcomb Hall O-Hill Basement Fit-out $ 250,000 Miscellaneous Facility Repairs 110,000 Total Newcomb Hall $ 360,000

Parking & Transportation Bus Purchases $ 717,000 Lot Repair 100,000 Emmet/Ivy Garage 500,000 Facility Renovation and Maintenance 86,000 Lighting Upgrade 25,000 Capital Equipment Purchases 15,000 Storm Water Management 240,000 South Lawn Parking 393,000 Replacement Signage 20,000 Total Parking and Transportation $ 2,096,000

Child Development Center Equipment Replacement $ 2,000

Faculty/Staff Housing 115/117 Piedmont Properties Renovations $ 72,000 2504 Townhouses - Siding 53,000 2505 Townhouses - Replace Washers & Dryers 5,000 Piedmont Houses - Outside Emergency Phones 40,000 Piedmont Houses - Upgrade Playground Equipment 50,000 Piedmont Houses - Refinish Hardwood Floors 6,000 Piedmont Houses - Replace Outside Water Lines 38,000 Orchard House - Install Carpet/Vinyl 5,000 Carriage House - Exterior Painting 6,000 Total Faculty/Staff Housing $ 275,000

Student Housing Bice Refurbishment $ 2,954,700 Alderman Road Repairs 132,400 McCormick Road Fire Alarm System 1,000,000 Alderman Shower Refurbishments 60,000 Total Student Housing $ 4,147,100

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University of Virginia - Academic Division Auxiliary Enterprises 2003-04 Projected Reserve Expenditures (continued)

JAG School Replace Drain Stack Pipe $ 206,720 Replace A/C Return Fan 19,500 Carpet Replacement - BOQ Rooms 14,100 Replace Toilets in BOQ Rooms 16,810

Total JAG School $ 257,130

Satellite Uplink Thornton Hall Remodeling and Renovation $ 100,000 Equipment Replacement and Repair 25,000 Satellite Maintenance and Repair 25,000

Total Satellite Uplink $ 150,000

Student Health Equipment and Systems Purchases $ 79,200 Facility Maintenance $ 5,000

Total Student Health $ 84,200

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The University of Virginia�s College at Wise 2003-2004 Budget Summary

The 2003-04 operating budget for the University of Virginia�s College at Wise (Wise) will

total $19.8 million, an increase of $15,000 or 0.1 percent as compared to the 2002-03 revised budget.

The operating budget is based on the Appropriations Act approved during the 2003 General

Assembly session. Institution-specific general fund reductions to Wise will total $1.6 million in 2003-04, an increase of $432,000 over 2002-03. Tuition and educational and general fee increases authorized by the General Assembly and approved by the Board of Visitors will generate additional revenue of $515,000, an increase of 14.2 percent over the revised 2002-03 tuition revenue projection. The Higher Education Equipment Trust Fund reimbursement, which is not reflected in the operating budget, will remain the same for 2003-04.

The 2003 General Assembly Session approved a 2.25 percent salary increase for all full-

time classified and faculty employees for the 2003-04 year. Wise has included a reserve for the incremental cost in the 2003-04 proposed budget.

For 2003-04, full-time equivalent (FTE) positions are budgeted at 237. Educational and

general (E&G) programs hold 89 percent of these positions, of which 45 percent are involved directly in the primary program of instruction. Full-time positions in Auxiliary Enterprises total 22. A summary of all positions is presented below:

Education and General 211 Sponsored Programs 4 Auxiliary Enterprises 22 Total 237

The projected full-time equivalent enrollment for 2003-04 is 1,306, an increase of 30 FTE or

2.4 percent. This projection is based on the 2000-01 to 2005-06 Enrollment Projection Summary approved by the State Council of Higher Education in the spring of 2002. Freshmen enrollment for 2003-04 is projected to increase by 5 percent and transfer enrollment is projected to increase 7 percent. It is anticipated that out-of-state enrollment in 2003-04 will remain constant with the current year. The Kentucky Tuition Assistance Grant will continue to support enrollment growth, as well as enhance recruitment efforts in targeted, out-of-state markets.

Educational and General Revenues The 2003-04 operating budget for educational and general programs will total $14.0

million. In comparison with the revised 2002-03 budget, this is a decrease of $229,000 or 1.6 percent. The general fund revenue appropriation for 2003-04 will decrease by $745,000 to $9.8 million, 7.1 percent over the revised 2002-03 budget.

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Non-general E&G revenue for 2003-04 is projected to total $4.4 million, an increase of $540,000 or 14 percent. This amount includes restricted E&G revenue projections for Application for Admission fees and Late Registration fees in 2003-04. Non-resident students are required to pay the full cost of instruction. To be in compliance with this state mandated policy, the non-resident tuition rate will increase by 13.2 percent in 2003-04. Legislative appropriation also authorizes the College at Wise to charge students a technology service fee. The approved fee rate will increase from $49 to $50.50 in 2003-04.

Federal sponsored programs continue to be funded at $800,000.

Educational and General Expenditures Instruction Expenditures

This program includes teaching faculty, support staff, instructional equipment and operating costs associated directly with instruction. The 2003-04 instructional budget will increase by $35,000, primarily related to expected salary increases in November 2003.

Public Service Expenditures The public service budget will decrease by $163,000 or 43.1 percent in 2003-04. The

Southwest Virginia Public Service Education Consortium appropriation received a 44.7 percent reduction as compared to the 2002-03 original appropriation as part of the state-wide budget reduction plan proposed by the Governor and approved by the General Assembly. The College serves as the fiscal agent and site of the Consortium offices. The objective of the Consortium is to promote and coordinate with institutions of higher education to develop joint educational initiatives within the public school systems throughout the region.

The remaining public service budget includes the Cultural Arts program, which provides

support to the Pro-Art Association of Wise County and the City of Norton. The Pro-Art Association promotes and sponsors various cultural events during the year within the area. Admission to these programs is free to the College students.

Academic Support Expenditures The academic support program includes library services, technological and computer

services and academic services to both students and instructional faculty. Faculty development and recruitment are also included within this program. The 2003-04 budget for academic support will decrease by $24,000. Student Services Expenditures

Social and cultural development, counseling and career guidance and general student affairs are included within the student services program. Recruiting, financial aid and registration services and general college publications are included as well. The student services program provides various support outlets to students with varying needs, promoting and nurturing their overall well-being. The 2003-04 budget will decrease by $23,000.

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University of Virginia's College at Wise Budget Summary

2003-2004 Original

2002-2003 Revised

2002-2003

Dollar Change from Revised 2002-03 to 2003-04

Percent Change

from Revised 2002-03 to 03-04

Revenues from General Funds State General Fund Appropriation $ 9,563,043 $ 10,586,637 $ 10,102,258 ($539,215) (5.3%) SW Va Public Education Consortium 200,000 362,000 405,450 (205,450) (50.7%) Total Revenues from General Funds 9,763,043 10,948,637 10,507,708 (744,665) (7.1%) Revenues from Nongeneral Funds Tuition and Fees - Regular Session 3,826,981 3,059,050 3,369,050 457,931 13.6% Tuition and Fees - Summer Session 310,487 245,250 245,250 65,237 26.6% Tuition and Fees - Off Campus 293,750 268,750 276,578 17,172 6.2% Tuition and Fees - Tuition Remission (275,000) (250,000) (250,000) (25,000) 10.0% Grants and Contracts 800,000 800,000 800,000 - 0.0% Local Sales, Services and Other - 108,789 - - N/A Auxiliary Enterprises - Student Housing 1,520,000 1,380,533 1,320,533 199,467 15.1% Auxiliary Enterprises - Parking and Transportation 82,000 82,000 82,000 - 0.0% Auxiliary Enterprises - Cafeteria 1,000,000 941,848 941,848 58,152 6.2% Auxiliary Enterprises - Bookstore 815,000 815,000 815,000 - 0.0% Auxiliary Enterprises - Athletics 862,872 862,941 870,372 (7,500) (0.9%) Auxiliary Enterprises - Other 791,410 457,497 797,656 (6,246) (0.8%) Total Revenues from Nongeneral Funds 10,027,500 8,771,658 9,268,287 759,213 8.2% Total Revenue Budget $19,790,543 $19,720,295 $19,775,995 $14,548 0.1% Expenditures for Educational & General Activities Instruction $ 5,831,877 $ 5,865,784 $ 5,797,020 $ 34,857 0.6% Public Service 215,000 381,500 377,950 (162,950) (43.1%) Academic Support 2,427,214 2,440,303 2,451,666 (24,452) (1.0%) Student Services 1,308,723 1,411,087 1,332,035 (23,312) (1.8%) Institutional Support 2,031,662 2,228,837 2,124,883 (93,221) (4.4%) Operations and Maintenance of Physical Plant 1,403,257 1,351,437 1,363,504 39,753 2.9% Grants and Contracts 800,000 800,000 800,000 - 0.0% Total Expenditures for Educational & General Activities $14,017,733 $14,478,945 $14,247,058 ($229,325) (1.6%) Total Expenditures for Student Financial Assistance $701,528 $701,528 $701,528 - 0.0% Total Expenditures for Auxiliary Enterprises $5,071,282 $4,539,819 $4,827,409 $243,873 5.1% Total Expenditure Budget $19,790,543 $19,720,295 $19,775,995 $14,548 0.1%

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Institutional Support Expenditures Included within the institutional support program are the executive management, fiscal

operations, logistical services, public relations and development, and staff development areas. The institutional support budget for 2003-04 will decrease by $93,000.

Operations and Maintenance of Plant This program includes maintenance and housekeeping operations, utility expenditures,

facilities management and landscaping. The budget will increase by $40,000 or 2.9 percent for 2003-04 in order to support expected higher utility costs and November 2003 salary increases.

Auxiliary Enterprises The auxiliary enterprises at The University of Virginia�s College at Wise include student

housing operations, campus store and cafeteria operations, parking and transportation, student health services, athletics and the student union. Auxiliary enterprises are self-supporting, funded solely by revenue collected for services provided to students, faculty, staff and the general public. The auxiliary budget for 2003-04 will total $5.1 million, an increase of $244,000 or 5.1 percent over the revised 2002-03 budget.

Student Fees The student services fee provides operating revenue for many of the College�s student life

functions, enhancing the campus environment. Activities receiving revenue from student fees include the student government association, student publications, intramural and outdoor recreation activities, student health services, Cantrell Hall debt and the new student center, athletics and student life positions. The 2003-04 full-time fee rate will total $1,850 per academic year, an increase of $110 or 6.3 percent. This proposed fee increase will supplement athletic program private gift revenues and provide funding for the 2.25 percent full-time faculty and classified salary increases proposed for 2003-04.

Student Housing The 2002-03 occupancy level in student housing remains at 101.4 percent. Occupancy for

the fall of 2003 is again projected to exceed 100 percent. Revenues will increase due to an average 3 percent increase in room rates. In order to meet additional housing demand, four faculty houses have been permanently converted to student housing units and the incremental revenues further explain the total 15.1 percent increase in student housing.

Parking and Transportation Revenue from parking and transportation will be generated from permit fees and fines.

Revenue projections will remain at $82,000 in 2003-04.

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Cafeteria The 2003-04 revenue projection for the cafeteria will total $1,000,000, an increase of

$58,000 or 6.2 percent. Student meal plan rates will increase by 4 percent for the 2003-04 academic year. Students residing in student housing are required to participate in the meal plan, so, just as there is an increase in student housing revenues due to increased students living in campus housing, there will be a corresponding increase in the number of students on a meal plan.

Campus Store There will be no change in the campus store revenue projection of $815,000 in 2003-04.

Maintaining fair and competitive prices and providing excellent customer service to students justify the level funding from 2002-03 to 2003-04.

Athletics Athletic revenues will decrease by 0.9 percent for 2003-04. The revised 2002-03 budget

totaled $870,372, whereas the 2003-04 budget will total $862,872. This reduction is primarily from ticket sale revenue.

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University of Virginia Medical Center 2003-2004 Budget Summary

The Medical Center�s 2003-2004 fiscal plan projects an operating margin of $29.6 million

and net income of $37.7 million. The plan has been developed to include aspects of the joint Decade Plan, developed by the Medical Center, the School of Medicine and the Health Services Foundation, while considering the challenge of providing patient care, teaching, and research services in an increasingly changing health care industry. Payment pressures from third party payers continue to have a negative impact on revenue on a per-case and per-visit basis. The cost associated with providing quality patient care will continue to have upward pressure due to increases in medical supply and pharmaceutical expenses and a shortage of healthcare workers. In addition, in 2003-04, the Medical Center expects to continue to care for patients with high acuity illnesses. The acuity level of 1.89, as measured by a Case Mix Index, is experienced by only a handful of hospitals in the United States.

The 2002-03 operating margin is projected to be $31.6 million and the net income is

projected to be $41.5 million before any payments are made to the School of Medicine based on the Master Financial Memorandum of Understanding. The non-recurring contractual adjustments included in the 2002-03 projection are composed of $6.8 million in one-time revenue settlements from Medicaid, Medicare, Trigon, and the Commonwealth of Virginia. As shown on the chart below, for 2003-04, there are no projected one-time settlements for 2003-04. With prior year events such as the purchase of QualChoice by Southern Health Services, Inc. and Medicaid�s managed care program, the Medical Center continues to experience additional requirements and pressures on denial write-offs and increases in labor requirements to administer contracts.

Non-recurring Revenue (in millions)

Projected 2002-03

Budgeted 2003-04

Medicare Cost Report Settlements $6.8 0.0Reserve for Trigon Endoscopy/Observation 0.5 0.0Medicaid State Budget Reduction (0.5) 0.0Total 6.8 0.0

The Corporate Integrity Agreement and the Health Insurance Portability and Accountability

Act are external pressures that continue to result in additional expenses for the Medical Center. The Medical Center continues to modernize and integrate information technology services through the Board approved Integrated Health Information Management System (IHIMS) project. In addition, increases in capital investment for the hospital expansion and all other capital activity will result in additional depreciation expense of $5.4 million for 2003-04. The budget includes the opening of two Modular Operating Rooms to increase Medical Center capacity from 19 to 21 operating rooms. The Medical Center�s 2003-04 fiscal plan accounts for these additional expenses while preserving its goal of providing high quality and cost effective health care, education, and research services to patients and their families, students, employers, state and federal governments, referring physicians, referring agencies, and affiliated networks.

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The Decade Plan, which is a product of a joint planning process between the Medical

Center, the School of Medicine, and the Health Services Foundation, was also considered in the budget. Some of the items in the budget directly related to the Decade Plan include $200,000 for an enhanced telephone service, $400,000 for 10 additional access employees, $125,000 for Cancer outreach, and $275,000 for other unspecified initiatives.

The Medical Center budget development process continues to be highly participatory and clinically focused. Patient care service management, support function management, and physicians have significant roles in the budget development cycle. The budget process begins with a budget retreat and ends with each operating unit providing a monthly and cumulative operating and capital budget that contains service demand forecasts, required full-time equivalent personnel, fringe benefits, and a full complement of non-labor expenses. Budget Development Assumptions Market Conditions For 2003-04, total discharges are projected to grow 3.3 percent from 2002-03 projected levels primarily as a result of new operating capacity, from the two modular operating rooms and up to nine additional beds brought into service, and expanded physician capacity. Patient days are expected to increase overall by 2.4 percent and outpatient service demand is expected to grow by 7.7 percent. The growth in outpatient services reflects a continuing trend of health care services moving from the inpatient to the outpatient setting. The following table includes historical and projected patient volumes: Actual

2001-02 Forecasted

2002-03 Budgeted 2003-04

Discharges 26,803 26,926 27,809Adjusted Discharges 44,353 44,957 47,705 Average length of stay 5.58 5.65 5.60Patient days 149,489 152,107 155,814Clinic & ER visits 585,480 594,307 640,110Home Health visits 52,815 48,504 49,850 Revenues

The Medical Center�s 2003-04 budgeted payer mix remains consistent with that of 2002-03. One of the Medical Center�s largest challenges is the continued unwillingness of payers, especially government programs, to increase their payments to be commensurate with the increases in educational and medical delivery costs. The $62 million growth in revenues is attributable to bed expansion and expansions for other patient services facilities including the Fontaine Medical Office Building, the McCue Sports Medicine Center and the Modular operating rooms.

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University of Virginia - Medical Center

Budget Summary 2003-04 2001-02 2002-03 Budget Actual Forecast Revenues Total Gross Charges $1,103,771,252 $817,028,035 $941,856,273 Less Deductions: Indigent Care Deduction (net of DSH payment) 46,575,125 25,561,079 32,230,380 Contractual Deduction 377,215,878 203,240,274 289,953,103 Total Deductions 423,791,003 228,801,353 322,183,483 Net Patient Revenue 679,980,249 588,226,682 619,672,790 Miscellaneous Revenue 15,052,439 11,838,092 13,058,353 Total Revenue 695,032,688 600,064,774 632,731,143 Expenses Expenses from Operations Operating Expenses 594,300,433 532,388,282 538,431,766 Depreciation and Amortization 39,948,483 34,468,124 34,557,494 Interest Expense 4,605,545 4,613,866 4,509,573 Bad Debt 26,569,000 22,513,844 23,627,181 Total Expenses from Operations 665,423,461 593,984,116 601,126,014 Operating Income 29,609,227 6,080,658 31,605,129Operating Income Percent 4.3% 1.0% 5.0% Non-operating Gains and Losses Investment Income 10,400,000 11,637,033 10,504,047 Net Loss from Affiliates 738,000 (7,530,421) 954,444 Loss on Fixed Assets (1,000,000) (214,913) (1,554,825) Other (2,000,000) (4,894,857) 0 Total Non-operating Gains and Losses 8,138,000 (1,003,158) 9,903,667 Revenues and Gains in Excess of Expenses $37,747,227 $5,077,500 $41,508,796

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Rate Changes The Medical Center proposes a rate increase commensurate with inflationary impacts on

expenses. Expenses

Expenses from operations are projected to increase by $64.3 million. Expenses per adjusted discharge decrease 4.3 percent from $13,371 to $13,949. It is anticipated that expense per adjusted discharge included in the budget will be close to the academic Medical Center median expense. The cause of decrease is to recognize efficiencies in operations in response to declining revenues from non-recurring sources. The Medical Center 2003-04 budget plans for 4 percent inflation for medical supplies, a 5 percent for pharmaceutical expenses, and 12 percent for employee health benefit expenses. Staffing

The Medical Center�s 2003-04 budget includes 5,340 FTEs, an increase of 276 FTEs from staffing at the 2002-03 projections of 5,064 FTEs. On an adjusted discharge basis, FTEs growth is virtually unchanged going from 41.1 FTEs per adjusted discharge in 2002-03 to 41.0 FTEs per adjusted discharge in 2003-04.

Operating Plan The operating plan is presented on page 45 and includes actual results from 2001-02, the

2002-03 projection, and the 2003-04 budget. The rapidly changing health care environment will require continuous examination of budget assumptions. Management will monitor budget versus actual performance on a monthly basis and, where appropriate, recommend amendments to the Medical Center Operating Board. Also, management will continue to identify and implement process improvement strategies that will allow for operational streamlining and cost efficiencies.

Revenues are impacted by the Balanced Budget Act of 1997 (BBA), the Balanced Budget Refinement Act of 1999, and the Benefits Improvement and Protection Act of 2000. The final reduction to Indirect Medical Education (IME) that was mandated by the BBA took effect October 1, 2002. The 12 month impact of the IME reduction is $6.0 million.

The major strategic initiatives that impact next year�s fiscal plan include:

• Enhanced personnel compensation packages and annual salary and equity adjustments ($4.3 million resulting from 2002-03 actions and $4.7 million of new adjustments for 2003-04). Adjustments to resident pay scales resulted in a $700,000 adjustment.

• Introduction of two modular operating rooms. • Facility expansions such as the Fontaine Medical Office Building II and McCue Sports

Medicine Center.

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• Required expenses related to the Decade Plan and IHIMS. • Radiology imaging joint venture which will be fully operational for the entire 2003-04. • Implementation of early phases of the Decade Plan.

The major risk factors that impact the ability to accomplish the desired results of next year�s fiscal plan include:

• The continuation and improvement of existing operating conditions including the management of the healthcare worker shortages and a Medicare Case Mix Index above 1.89.

• The Commonwealth of Virginia budget crisis. • The ability to adapt to a shifting patient population where admissions are being replaced

with one-day stays. • New Center for Medicare and Medicaid Services and other regulatory reimbursement

changes. • Advancements in medical technology which could alter expenses and/or revenues very

quickly. • Inflation for medical devices and pharmaceuticals could exceed the budget assumptions. • Enhanced scrutiny by federal regulators in areas such as medical records, billing, coding

and contractual agreements. Capital Plan

Funds available to meet capital requirements are derived from operating cash flows and funded depreciation reserve. The Medical Center faces many challenges regarding capital funding as continued pressures on the operating margin affect cash flow, while demand for capital has increased significantly from space requirements, technological advances and aging of existing equipment. Subject to funds availability, the Medical Center management recommends $58 million be authorized for capital requirements. The $58 million capital plan excludes approved investments in the Medical Center expansion previously approved by the Board.

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APPROVAL OF THE 2003-2004 OPERATING BUDGET FOR THE ACADEMIC DIVISION

RESOLVED that the 2003-2004 Operating Budget for the Academic Division is approved, as recommended by the President and the Chief Financial Officer.

APPROVAL OF THE 2003-2004 OPERATING BUDGET FOR THE UNIVERSITY OF VIRGINIA'S COLLEGE AT WISE

RESOLVED that the 2003-2004 Operating Budget for the College at Wise is approved, as recommended by the President and the Chief Financial Officer. APPROVAL OF THE 2003-2004 OPERATING AND BUDGET FOR THE UNIVERSITY OF VIRGINIA MEDICAL CENTER

RESOLVED that the 2003-2004 Operating Budget for the University of Virginia Medical Center is approved, as recommended by the Medical Center Operating Board, the President, and Chief Financial Officer.