University of Rochester

Board of Trustees OrientationFinancial Overview and Issues

October 15, 2008

The Stewardship Role

“In the context of this dynamic and challenging environment, a governing board’s responsibility is to chart an institution’s course and ensure it [the institution] has the resources it needs to fulfill its mission. ...the board must sustain the institution over the long term…”

Source: Association of Governing Boards of Universities and Colleges – Financial Matters.

The Stewardship Role

“For many reasons, colleges and universities have become subject to intensive scrutiny not only by the public, the press, governmental agencies, and financial institutions but also by alumni, donors, faculty and students.”

Source: Association of Governing Boards of Universities and Colleges – Effective Committees

How is the Stewardship Role Fulfilled?

Maintaining equity between generations Monitoring strategic and financial planning Monitoring risk management Preserving facilities Monitoring investments and endowment

Source: “Financial Responsibilities of Governing Boards”, by William S. Reed.

Key Financial Concepts in Higher Education

Intergenerational Equity - maintaining an appropriate balance between the present and the future

Key Financial Concepts in Higher Education Financial equilibrium

> Complementary short-term and long-term financial plans

> Quality of programs maintained> Physical assets preserved> Endowment purchasing power preserved> Human assets developed and maintained

Trustees’ Role and Board Involvement in Financial Matters

Review and approve strategic plans Annual approval of operating and

capital budgets Approval of major capital projects Tuition rate approval

Trustees’ Role and Board Involvement in Financial Matters

Establishment of endowment investment and spending policies

Review of major benefits program changes (intergenerational emphasis)

Approval of debt issues and overall debt policies

Review of reports on financial position and institutional performance

Trustees’ Role and Board Involvement in Financial Matters Approval of executive compensation Review of annual financial statements Assessment of institutional risk and

compliance Appointment of the external auditors Guidance and participation in the

institution’s development efforts

Board Participation Financial Planning Committee Committee on Audit and Risk Assessment Personnel Committee Facilities Committee Committee on Compliance and

Compensation Strategic Planning Advisory Committee

Operating Revenues

Hospital & Faculty Practice Patient

Care Activities 63%

Net Tuition & Fees7%

Gifts & Pledges 4%Other 1%

Grants &Contracts 15%

Long-TermInvestment

Income 3%

AuxiliaryEnterprises

3%

Educational Activities 1%Royalty Income 3%

Scale of the Enterprise and the Financial Overview – FY2008

$2.4 Billion

Operating Expenses

Total Compensation

62%

Business &Professional

9%

Maintenance &Facilities 4% Depreciation

Expense 5%

Other 3%

Interest Expense 2%

Supplies 13%

Utilities 2%

Scale of the Enterprise andFinancial Overview – FY2008

$2.3 Billion

Key UR Issues

Decentralization Exposure to Health Care Institutional Resources Aggregate Rate of Endowment Use College Financial Position and Endowment Use Eastman School of Music and Simon School

Financial Position and Revenue Trends Limited Debt Capacity Strategic and Campus Master Plan Prioritization Implication of the Current Economic Crisis

Endowment Market Values by Division ($ in millions)

Total value as of June 30, 2008 = $1,530.8

Nursing $21.7

Other $43.6

(includes University General & Memorial Art Gallery)

The College $405.4

Simon $86.0

Warner$26.7Eastman

$263.6

Medicine & Dentistry/Health Sciences $683.8

Strong MemorialHospital

43%

Eastman 1.7%

Warner0.4%

Simon 1.6%

The College15.1%

Medical Center 80.9%

Other 0.3%

Medicine & Dentistry/Health Affairs

20.7%

Nursing1.0%

FY2008 Total Budget – Composition by Divisions

Medical Center Faculty Practice/Eastman Dental Center

16.1%

The College School of Medicine& Dentistry

Gifts & Other 19%

Indirect Cost Recovery 32%

Endowment 18%

Net Tuition & Fees9%

Gifts/Transfers & All Other 8%

Indirect CostRecovery 15%

Endowment 19%

Net Tuition & Fees58%

FY2009 Divisional Budgets – Core Sources of Funds

Transfers 22%

Eastman School of Music School of Nursing

Gifts, Transfers & All Other 10%

Indirect Cost Recovery 8%

Endowment 7%

Net Tuition & Fees75%

Gifts & All Others 5%

Endowment 54%

Net Tuition & Fees41%

FY2009 Divisional Budgets – Core Sources of Funds

Simon School Warner School

Endowment 15%

Net Tuition & Fees85%

Gifts/Transfers & All Other 7%

Endowment 20%

Net Tuition & Fees73%

FY2009 Divisional Budgets – Core Sources of Funds

Financial Informational Resources

Audited Consolidated Financial Statements Operating Budget document (see page 3 for

budget entity chart) Capital Budget document

University Financial Administration

Ronald J. PaprockiSenior Vice President for Administration & Finance & Chief Financial OfficerSalim M. AlaniDirector, Office of University AuditHolly G. CrawfordAssociate Vice President for Budgets & Planning & Deputy to

the Sr. V.P. for Administration & Finance & CFOKathy A. King-GriswoldTreasury ManagerDouglas W. WylieUniversity Controller

Medical Center Financial Administration

Michael C. GoonanMedical Center Vice President & Chief Financial OfficerLeonard J. ShuteSenior Director of Finance & Chief Financial Officer,Strong Memorial Hospital