ML100810149
| ML100810149 | |
| Person / Time | |
|---|---|
| Site: | University of Utah |
| Issue date: | 03/10/2010 |
| From: | Furse C Univ of Utah |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| TAC ME1599 | |
| Download: ML100810149 (86) | |
Text
SVICE PRESIDENT FOR RESEARCH THE UNIVERSITY OF UTAH 10 March 2010 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Mail stop: 12D03 Washington DC 20555-0001 Docket No. #50-407 In response to your request dated December 15, 2009, we are providing the updated and supplemental information to the March 2005 University of Utah application for a renewed license for the University of Utah TRIGA Reactor (UUTR) (TAC NO.
ME1599),
The University of Utah is an agency of the State of Utah. The University is not owned, controlled, or dominated by an alien, a foreign corporation, or foreign government. None of the provisions of 10 CFR 50.33 (d) are applicable.
As requested, we have enclosed the latest financial statements for the past four fiscal years (FY 2006 - FY 2009). The University of Utah financial statements may also be viewed on-line at http://.fbs.admin.utah.edu/index.php/controller/controller-report/.
The University is fully committed to the continued support and operation of our nuclear reactor, as shown in the attached documentation. We have estimated the operating costs
-o, r tFY2012 through FY2016. The State of Utah is committed to supporting the salary and benefits needed to operate the reactor. In addition, use rates have been established t"rough an approved recharge/service center to recover the remaining operating costs.
Erclosed is the supplemental information for the March 2005 application, as well as
. ' pdated current estimates (FY2010) required for decommissioning the reactor. Due to federal regulations set by the Nuclear Regulatory Commission (NRC), Title 10, Part 50,
--- /this costs estimate is provided to assure that the University of Utah, an agency of the State of Utah, will provide sufficient funds for ultimate decommissioning of the reactor when necessary.
201 Presidents Circle, Room 210, Salt Lake City, UT 84112-9011 1(801) 581-7236 1 Fax (801) 585-6212 1 research@utah.edu I www.research.utah.edu
With assurance, I have the authority to sign this statement of intent, binding the University of Utah; a component unit of the State of Utah to funding the decommissioning of the UUTR.
I declare and certify under penalty of perjury that the foregoing is true and correct.
CynthiFurse, Ph.D.
Associate Vice President for Research Professor, Electrical & Computer Engineering State of Utah
)
SS County of Salt Lake
)
Subscribed and sworn to (or affirmed) before me this by Cynthia Furse.
__/__ day of 4 9LC-IL 1, 2010,
~Notary
.Public JOANN COOK 201 Presidents Circle, Room 20' Salt Lake City, Utah 84112 0My Commission Expires September 14,2011 State of Utah Notar Pu~ilic
Cc:
Mayor of Salt Lake City 451 South State Room 306 Salt Lake City, UT 84111 Dr. Tatjana Jevremovic Reactor Administrator 122 S. Central Campus Drive University of Utah Salt Lake City, UT 84112 Dr. Doug-ok Choe Research Supervisor 122 S. Central Campus Drive University of Utah Salt Lake City, UT 84112 Ms. Karen Langley Director, University of Utah Radiological Health 100 OSH, University of Utah Salt Lake City, UT 84112 Dr. Cynthia Furse Associate Vice President for Research 210 Park, University of Utah Salt Lake City, UT 84112 T",>eest, Research, and Training Reactor Newsletter Un Uihiversity of Florida
' -- '202 Nuclear Sciences Center
\\Gaiesville, FL 32611
......*rec.tor, Division of Radiation Control Dept l
of Environmental Quality i : "
- 168 North 1959 West PO. Box 144850
~a*alt Lake City, UT 84114-4850 TM Richard B. Brown
- L, 2*Dean.
College of En~ineerin*
72 S. Central Campus Drive, 1650 WEB\\
Salt Lake City, Utah 84112-9200
Attachments Utah Code Ann. 53B-2-101 Institutions of higher education - Corporate bodies - Powers and Utah Code Ann. 53B-3-102 "State institution of higher education" defined.
October 17, 2007 Statement of Intent from President Michael K. Young to Mr. Dane Finerfrock, Director of Division of Radiation Control, regarding authorization to request funding for decommissioning activities.
2010 Cost Analysis for Decommissioning of TRIGA Reactor at the University of Utah 2005 Cost Analysis for Decommissioning of TRIGA Reactor at the University of Utah 2009 Annual Financial Report - The University of Utah 2008 Annual Financial Report - The University of Utah 2007 Annual Financial Report - The University of Utah 2006 Annual Financial Report - The University of Utah N
1-11 IT
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/
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M
Institutions of higher education -- Corporate bodies --
Powers.
(1) The following institutions of higher education are bodies politic and corporate with perpetual succession and with all rights, immunities, and franchises necessary to function as such:
(a) the University of Utah; (b) Utah State University; (c) Weber State University; (d) Southern Utah University; (e) Snow College; (f) Dixie State College of Utah; (g) the College of Eastern Utah; (h) Utah Valley University; (i) Salt Lake Community College; and (j) the Utah College of Applied Technology.
(2) (a) Each institution may have and use a corporate seal and may, subject to Section 53B-20-103, take, hold, lease, sell, and convey real and personal property as the interest of the institution requires.
(b) Each institution is vested with all the property, franchises, and endowments of, and is subject to, all the contracts, obligations, and liabilities of its respective predecessor.
(c) (i) Each institution may enter into business relationships or dealings with private seed or venture capital entities or partnerships consistent with Utah Constitution Article VI, Section 29, Subsection (2).
(ii) A business dealing or relationship entered into under Subsection (2)(c)(i) does not preclude the private entity or partnership from participating in or receiving benefits from a venture capital program authorized or sanctioned by the laws of this state, unless otherwise precluded by the specific law that authorizes or sanctions the program.
(iii) Subsections (2)(c)(i) and (ii) also apply to the Utah College of Applied Technology created in Title 53B, Chapter 2a, Utah College of Applied Technology.
"State institution of higher education" defined.
(1) As used in this chapter, "state institution of higher education" means the University of Utah, Utah State University, Southern Utah University, Weber State University, Snow College, Dixie State College of Utah, the College of Eastern Utah, Utah Valley University, Salt Lake Community College, and any other university or college which may be established and maintained by the state.
(2) It includes any branch or affiliated institution and any campus or facilities owned, operated, or controlled by the governing board of the university or college.
53B-1-102. State system of higher education.
(1) The state system of higher education consists of the following institutions:
(a) State Board of Regents; (b) the University of Utah; (c) Utah State University of Agricultural and Applied Science, hereafter referred to in this title as Utah State University; (d) Weber State University; (e) Southern Utah University; (f) Snow College; (g) Dixie State College of Utah; (h) the College of Eastern Utah; (i) Utah Valley University; (j) Salt Lake Community College; (k) the Utah College of Applied Technology; and (I) other public post-high school educational institutions as the Legislature may designate.
(2) A change in the name of an institution within the system of higher education shall not be considered a change in the role or mission of the institution, unless otherwise authorized by the State Board of Regents.
(3) It is not the intent of the Legislature to increase the number of research universities in the state beyond the University of Utah and Utah State University.
(4) These institutions are empowered to sue and be sued and to contract and be contracted with.
Michael K. Young President Mr. Dane Finerfrock, Director Division of Radiation Control 168 North 1950 West P.O. Box 144850 Salt Lake City, UT 84114-4850 STATEMENT OF INTENT I am the President of the University of Utah, a body politic and corporate of the State of Utah. As President of the University of Utah, I am authorized to request, through the University of Utah Board of Trustees and the Utah State Board of Regents, funding from the Utah State Legislature for decommissioning activities associated with operations authorized by the Utah Division of Radiation Control Broadscope License UT # 1800001 (the "License"). This authority is established by the laws of the State of Utah, including Utah Code Ann. Sections 53B-7-101 et seq. and 63A-5-103 et seq, and the Utah State Board of Regents Policy R710. Within this authority, I intend to request that funds be made available when necessary in the amount of $1,216,000, or other appropriate amount, as deemed necessary to decommission the University of Utah facilities, as defined in the License. I intend to request and obtain these funds sufficiently in advance of decommissioning to prevent delay of required activities.
A copy of',the Minutes of Special Meeting, Utah State Board of Regents, University of Utah, April 29, 2004, appointing me as President of the University of Utah is attached as evidence that I am authorized to represent the University of Utah in this transaction.
Michael K. Young President October 17, 2007 Attached: As stated above Office of the President 201 Presidents Circle, Room 203 Salt Lake City, Utah 84112-9008 (801) 581-5701 Fax (801) 581-6892 E-Mail: president@utah.edu
10/10/2007 08:27 IFAX 1-*
Jenny Flckett
[0001/002 MINUTES OF SPECIAL MEETING UTAH STATE BOARD OF REGENTS UNIVERSITY OF UTAH April 29, 2004 Regqents Present Regents Excused Nolan E. Karras, Chair Jerry C. Atkin E. George Mantes, Vice Chair Kim R. Burningham Linnea S. Barney Charles E. Johnson Daryl C. Barrett David L. Maher William Edwards David J. Grant James S. Jardine Michael R. Jensen David J. Jordan Jed H. Pitcher Sara V. Sinclair Marion 0. Snow Maria Sweeten Office of the Commissioner Richard E. Kendell, Commissioner of Higher Education David L. Buhler, Associate Commissioner for Public Affairs Joyce Cottrell, Executive Secretary Mark H. Spencer, Associate Commissioner for Finance and Facilities Representatives of the media and many members of the University of Utah community were also present, including members of the Board of Trustees, Presidential Search Committee, faculty, staff and community representatives.
Chair Nolan E. Karras called to order a special meeting of the Board of Regents at 4:25 p.m. He welcomed everyone and announced that the Board had spent the day interviewing candidates for the presidency of the University of Utah. Chair Karras acknowledged the presence of members of the University of Utah Board of Trustees, faculty, staff and the entire University community. He stated that the purpose of this meeting was to select the next President of the University of Utah, the state's flagship university. This is one of the state's most visible positions, and selecting presidents is the Regents' most important responsibility.
Chair Karras said the search process for this presidency had been modified somewhat from past searches. He thanked Commissioner Kendell and expressed the Board's appreciation for his assistance. He also thanked Regent Jardine and the Presidential Search Committee for their excellent work. Chair Karras expressed his appreciation to former President Bernie Machen for leaving the University in better condition than he found it. One reason the University of Utah is such a great institution is because of the people Bernie chose to fill key leadership positions. He acknowledged Senior Vice Presidents A. Lorris Betz and David W. Pershing and expressed the Regents' appreciation to them for their leadership. Drs. Betz and Pershing received a standing ovation from everyone in attendance. All of the candidates interviewed indicated that they recognized the high quality of the institution. Chair Karras also thanked the Regents for the time they spent in this important process.
10/10/2007 08:.28 IFAX Jenny Fickett Q 002/002 recognized the high quality of the institution. Chair Karras also thanked the Regents for the time they spent in this Important process.
Regent Jardine said this had been his third presidential search for the University of Utah and the sixth search committee on which he has served, He asked the members of the Presidential Search Committee to stand and be recognized. He commended them for their cooperative spirit and camaraderie, which surpassed that of any other committee on which he had served, Underthe leadership of Commissioner Kendell, the Regents experimented with some new procedures for this search, which worked well because of the good faith and the shared goals of the University community.
He praised the participation by members of the senior leadership and said the guidance they had given the committee on the candidates was invaluable. He also credited Commissioner Kendell for his excellent help in this process.
Regent Jardine said was very sad that all three great candidates could not be chosen, because he felt that he was losing two very good friends, The Regents realized that all three finalists were eminently qualified and able to lead the institution, and they deliberated carefully to best meet the needs of the University.
Regent Jardine moved that the Board of Regents name Michael K. Young as the next President of the University of Utah, The motion was seconded by Vice Chair Mantes, Voting was unanimous, Commissioner Kendell escorted President-designate Young and his wife, Suzan, into the room and introduced them to the University community. Chair Karras asked President Young tosay a few words and to introduce his wife.
PresidentYoung said he was happy to come back to Utah in this way. Since first meeting Regent Jim Jardine at the Harvard Law School, he has had great respect for this institution. He thanked the Regents for entrusting him with this responsibility, which is the opportunity of a lifetime. He commended the leadership team at the University for their knowledge, commitment and capacity for cooperation, In his entire career In higher education, he has never encountered this level of commitment to excellence.
Mrs, Young said she was excited to be here and thrilled to be part of the University of Utah team. She originally halls from Orem and still has family in the area. She thanked everyone for their support.
Chair Karras invited Dr. Lords Betz and Dr. Dave Pershing to join the Youngs and led the applause for the University's'great management team. He thanked President and Mrs. Young for their willingness to serve in this strenuous assignment.
The meeting was adjourned at 5:45 p.mn, Jo-.
ell CPS, Executive Secretary DAe AppOed
Cost Analysis for Decommissioning of TRIGA Reactor at the University of Utah 2010 The following analysis for decommissioning of the TRIGA reactor at the University of Utah is based on the analysis done by the Department of Defense (DOD)[1] for the AFRRI TRIGA reactor facility. The cost of decommissioning is divided into 3 major categories Waste disposal costs
> Labor costs
> Energy costs For each of the major categories of costs, a detailed data is provided based on the report by DOD [1] and the differences in design have been taken into account.
The main differences considered are the materials used for the pool and the supporting structure (Figure 1). The dollars are adjusted to 2010 based on Consumer Price Index (CPI). The method used for decommissioning of the reactor is DECON.
Waste Disposal Costs The amount of structural material that has been exposed to radiation in the reactor building and the cost for transportation are provided in Table 1. The cost of crates and transportations are obtained from [1] which is developed based on data provided in NUREG/CR-1756. For the purposes of this report, the worst case scenario of shipment to a destination in Washington DC has been considered. The cost per volume for disposing radioactive waste depository was obtained from [1] which is based on Barnwell charges to be $2825/M3 for 1989 dollars (which is equivalent to $4973/M 3 for 2010 dollars).
Plywood 3.5 m 3 crates are used for removing the waste which costs $400 for 1981 dollars (which is equivalent to $954 for 2010 dollars).
Table 1 Waste disposal costs for 2010 dollars Material Volume (m3) Crates (no.) Shipping Costs Contaminated concrete 10 3
$59,190
$111,782 Contaminated sand 60 18
$355,140 $656,382 Contaminated aluminum 5
2
$29,595
$57,322 Contaminated Stainless Steel 5
2
$29,595
$57,322 Total 1
1 J$882,808 The volumes are rounded up to stay on the conservative side for the estimation of the costs. The shipping costs are adjusted based on [1] for 2010 dollars and the highest value
(which is for Stainless Steel) is used for all the materials to again stay on the safe side for estimation of the costs.
Figure 1 Material and dimensions of the pool and supporting structure Labor Costs The labor costs are obtained from [1] which is based on NUREG/CR-1756. The TRIGA reactor at the University of Utah is smaller than the AFRRI TRIGA facility; however, the numbers are unchanged to have a conservative estimation of the costs of labor. The numbers are adjusted based on CPI from 1981 dollars to 2010 dollars.
Table 2 Decommissioning labor costs (for DECON) for 2010 dollars Workyears Rate Cost (no.)
($1000/hr)
(1000$)
Management and support-staff Decomm superintendent 2
$213
$425 Decomm engineer 2
$181
$363 Secretary 2
$58
$116 Clerk 0.5
$58
$29 Health physicist 2
$112
$224 Radioactive shipment specialist 0.5
$94
$47 Procurement specialist 0.5
$94
$47 Contract and accounting specialist 0.8
$112
$90 Security supervisor 0.625
$133
$83 Security patrol officer 3.6
$61
$218 QA engineer 0.7
$112
$78 Control room operator 1
$82
$82 Consultant 1
$239
$239 Deconmm workers.....
Shift engineer 1
$125
$125 Craftsman 2
$77
$153 Crew leader 0.5
$106
$53 Utility operator 0.342
$77
$26 Laborer 6
$74
$442 Health physics technician 3
$72
$215 Total
$3,055 Energy Costs The energy costs are obtained also from [1] which is based on NUREG/CR-1756 and the energy cost per kWh is obtained from Department of Energy report for Electric Power Monthly averages for Nov-09 report to be 6.18 cents per kWh for the state of Utah for all sectors.
Table 3 Energy costs Equipment Energy use (kWh)
Cost General system 9000
$1,236.00 Lighting 23000
$1,421.40 Control room 5200
$321.36 Fire protection 600
$37.08 Security 5600
$346.08 Communications 900
$55.62 Domestic water 36300
$2,243.34 Reactor water 23400
$1,446.12 Compressed air "15000
$927.00 Building heating 302600
$18,700.68 Decommissioning equipment 20000
$1,236.00 Total
$28,526.88 Total Decommissioning Cost and Inflation Adjusting Methodology The total cost for the reactor decommissioning based on cost break down shown above is provided in Table 4. In table 4, the cost of spent fuel removal, shipment, and building demolition costs are provided as well. 25% is added to inflated-adjusted total expenses for DECON as contingency fund.
Table 4 Total cost of decommissioning of TRIGA reactor the University of Utah using DECON for 2010 dollars Category Costs Waste Disposal
$882,808 Labor
$3,055,000 Energy
$28,527 Contigency fund
$991,584 Ancilla Spent fuel removal + Shipment
$374,851 Site demolition
$624,695 Total
$5,957,465 The estimated cost of decommissioning the TRIGA reactor at the University of Utah is based on 2010 dollars and it is intended to use CPI for adjusting the cost for future dollar values.
References
[1] M. Forsbacka, M. Moore. An Analysis of Decommissioning Costs for the AFRRI TRIGA Reactor Facility. Defense Nuclear Agency, Armed Forces Radiobiology Research Institute. Bethesda, Maryland 20814-5145, December 1989.
The University of Utah 100 kW TRIGA reactor operating budget Pursuant to 10 CFR 50.33(f)2 we are submitting the operating costs for the UUTR (University of Utah TRIGA Reactor) for FY2012 to FY2016. The current cost to operate the reactor is approximately $152,168.00 for the year 2012 and increases to $171,340.00 for the year 2016. The cost includes salary and benefits for the Reactor supervisor. The University of Utah covers this salary and associated fringe benefit. All activates other than those required for regulatory compliance are covered by the research or service contract for which the work is preformed. Additional expenses in the next four years are shown in Table 1. In this table we project a conservative increase in the cost of the same expenditures at a rate of 3% per year.
The University of Utah covers the cost of insurance for the UUTR. Coverage is provided by "American Nuclear Insurer's" for an annual premium of approximately $9,500.
Overhead costs such as utilities, confinement building maintenance and health physics monitoring are provided by the University of Utah and are excluded from this analysis of operating cost.
Table 1 The UUTR operating budget from 2012 to 2016. Equipment upgrades and lab supplies cost will be directly provided from the Utah Nuclear Engineering program (UNEP).
Year/Item 2012 2013 2014 2015 2016 Salary for Reactor Supervisor
$92,600.00
$95,378.00
$98,239.00
$101,186.00
$104,222.00 Benefits for RS
$33,336.00
$34,336.00
$35,366.00
$36,427.00
$37,520.00 Lab supplies
$5,000.00
$5,150.00
$5,305.00
$5,464.00
$5,628.00 Insurance
$9,500.00
$9,785
$10,079.00
$10,381.00
$10,692.00 Total
$140,436.00
$144,649.00
$148,989.00
$153,458.00
$158,062.00
Cost Analysis for Decommissioning of TRIGA Reactor at the University of Utah 2005 The following analysis for decommissioning of the TRIGA reactor at the University of Utah is based on the analysis done by the Department of Defense (DOD)[1] for the AFRRI TRIGA reactor facility. The cost of decommissioning is divided into 3 major categories Waste disposal costs Labor costs Energy costs For each of the major categories of costs, a detailed data is provided based on the -report by DOD [1] and the differences in design have been taken into account.
The main differences considered are the materials used for the pool and the supporting structure (Figure 1). The dollars are adjusted to 2010 based on Consumer Price Index (CPI). The method used for decommissioning of the reactor is DECON.
Waste Disposal Costs The amount of structural material that has been exposed to radiation in the reactor building and the cost for transportation are provided in Table 1. The cost of crates and transportations are obtained from [1] which is developed based on data provided in NUREG/CR-1756. For the purposes of this report, the worst case scenario of shipment to a destination in Washington DC has been considered. The cost per volume for disposing radioactive waste depository was obtained from [1] which is based on Barnwell charges to be $2825/M3 for 1989 dollars (which is equivalent to $4973/M 3 for 2010 dollars).
Plywood 3.5 mn3 crates are used for removing the waste which costs $400 for 1981 dollars (which is equivalent to $954 for 2010 dollars).
Table 1 Waste disposal costs for 2010 dollars Material Volume (m3) Crates (no.) Shipping Costs Contaminated concrete 10 3
$59,190
$111,782 Contaminated sand 60 18
$355,140 $656,382 Contaminated aluminum 5
2
$29,595
$57,322 Contaminated Stainless Steel 5
2
$29,595
$57,322 Total 1
$882,808 The volumes are rounded up to stay on the conservative side for the estimation of the costs. The shipping costs are adjusted based on [1] for 2010 dollars and the highest value
(which is for Stainless Steel) is used for all the materials to again stay on the safe side for estimation of the costs.
Figure 1 Material and dimensions of the pool and supporting structure Labor Costs The labor costs are obtained from [1] which is based on NUREG/CR-1756. The TRIGA reactor at the University of Utah is smaller than the AFRRI TRIGA facility; however, the numbers are unchanged to have a conservative estimation of the costs of labor. The numbers are adjusted based on CPI from 1981 dollars to 2010 dollars.
Table 2 Decommissioning labor costs (for DECON) for 2010 dollars Workyears Rate Cost (Flo.)
($1000/hr)
(1000$)
Managrment add support'sta-*ff Decomm superintendent 2
$213
$425 Decomm engineer 2
$181
$363 Secretary 2
$58
$116 Clerk 0.5
$58
$29 Health physicist 2
$112
$224 Radioactive shipment specialist 0.5
$94
$47 Procurement specialist 0.5
$94
$47 Contract and accounting specialist 0.8
$112
$90 Security supervisor 0.625
$133
$83 Security patrol officer 3.6
$61
$218 QA engineer 0.7
$112
$78 Control room operator 1
$82
$82 Consultant 1
$239
$239 Decomm
.work-e.rs Shift engineer 1
$125
$125 Craftsman 2
$77
$153 Crew leader 0.5
$106
$53 Utility operator 0.342
$77
$26 Laborer
ý6
$74
$442 Health physics technician 3
$72
$215 Total 1 $3,055 Energy Costs The energy costs are obtained also from [1] which is based on NUREG/CR-1756 and the energy cost per kWh is obtained from Department of Energy report for Electric Power Monthly averages for Nov-09 report to be 6.18 cents per kWh for the state of Utah for all
- sectors,
Table 3 Energy costs Equipment Energy use (kWh)
Cost General system 9000
$1,236.00 Lighting 23000
$1,421.40 Control room 5200
$321.36 Fire protection 600
$37.08 Security 5600
$346.08 Communications 900
$55.62 Domestic water 36300
$2,243.34 Reactor water 23400
$1,446.12 Compressed air 15000
$927.00 Building heating 302600
$18,700.68 Decommissioning equipment 20000
$1,236.00 Total
$28,526.88 Total Decommissioning Cost and Inflation Adjusting Methodology The total cost for the reactor decommissioning based on cost break down shown above is provided in Table 4. In table 4, the cost of spent fuel removal, shipment, and building demolition costs are provided as well. 25% is added to inflated-adjusted total expenses for DECON as contingency fund.
Table 4 Total cost of decommissioning of TRIGA reactor the University of Utah using DECON for 2010 dollars Category Costs DECON~
Waste Disposal
$882,808 Labor
$3,055,000 Energy
$28,527 Contigency fund
$991,584 Ancillary1q jV Spent fuel removal + Shipment
$374,851 Site demolition
$624,695 Total
$5,957,465 The estimated cost of decommissioning the TRIGA reactor at the University of Utah is based on 2010 dollars and it is intended to use CP'[ for adjusting the cost for future dollar values.
References
[1] M. Forsbacka, M. Moore. An Analysis of Decommissioning Costs for the AFRRI TRIGA Reactor Facility. Defense Nuclear Agency, Armed Forces Radiobiology Research Institute. Bethesda, Maryland 20814-5145, December 1989.
The University of Utah 100 kW TRIGA reactor operating budget Pursuant to 10 CFR 50.33(f)2 we are submitting the operating costs for the UUTR (University of Utah TRIGA Reactor) for FY2012 to FY2016. The current cost to operate the reactor is approximately $152,168.00 for the year 2012 and increases to $171,340.00 for the year 2016. The cost includes salary and benefits for the Reactor supervisor. The University of Utah covers this salary and associated fringe benefit. All activates other than those required for regulatory compliance are covered by the research or service contract for which the work is preformed. Additional expenses in the next four years are shown in Table 1. In this table we project a conservative increase in the cost of the same expenditures at a rate of 3% per year.
The University of Utah covers the cost of insurance for the UUTR. Coverage is provided by "American Nuclear Insurer's" for an annual premium of approximately $9,500.
Overhead costs such as utilities, confinement building maintenance and health physics monitoring are provided by the University of Utah and are excluded from this analysis of operating cost.
Table 1 The UUTR operating budget from 2012 to 2016. Equipment upgrades and lab supplies cost will be directly provided from the Utah Nuclear Engineering program (UNEP).
Year/Item 2012 2013 2014 2015 2016 Salary for Reactor Supervisor
$92,600.00
$95,378.00
$98,239.00
$101,186.00
$104,222.00 Benefits for RS
$33,336.00
$34,336.00
$35,366.00
$36,427.00
$37,520.00 Lab supplies
$5,000.00
$5,150.00
$5,305.00
$5,464.00
$5,628.00 Insurance
$9,500.00
$9,785
$10,079.00
$10,381.00
$10,692.00 Total
$140,436.00
$144,649.00
$148,989.00
$153,458.00
$158,062.00
II Ip 2009 Annual Financial Report THE UNIVERSITY OF UTAH A Component Unit of the State of Utah
THE fl, UNIVERSITY OF UTAH
Message fro th Presnident This extraordinary University has a proud history of battling through difficult times and succeeding against unbelievable odds. Call it what you will-our innate organizational culture or just plain stubbornness-but that historical heritage is helping us once again to wrestle success from the midst of crisis.
Consider:
- Despite the economy, our fundraising this year is markedly better than that of last year. Generous friends and alumni understand that extraordinary things are happening at the U and have stepped forward in record numbers to support those noteworthy activities. In fact, more that 9,500 new donors joined the ranks of U of U supporters in the last 12 months, and almost 40,000 over the past three years.
- Funds secured for the University's scientific, engineering, and medical research activities increased a remark-able 16 percent during the 2009 fiscal year. That almost $50 million increase boosted the U to $354.7 million in research funding, a record for the University and the State.
- Extraordinary researchers and faculty from Harvard, UCLA, Brown, the University of Chicago, the Univer-sity of North Carolina, and other prestigious institutions are coming to the University of Utah-and bringing with them additional research funding and the promise of new business spin-offs. The USTAR initiative, so wisely funded by the State Legislature, is quickly turning Utah into a strategic world center for nanomaterials and nanomedicine, genetics, bioimage analysis, and the neurobiology of developmental disorders.
- Applications to the University of Utah from high-performing students throughout the U.S. and the world are increasing. While higher education opportunities are disappearing elsewhere, the U has strategically channeled resources into programs and curricula that foster an extraordinary educational experience. The result is a cam-pus population in which fully 10 percent of the students now qualify for honors status.
I could cite dozens of other examples that illustrate how the University is stepping up to the budget challenge with unflinching commitment to fulfill its mission. Certainly this has been a difficult and painful time for higher education, but we have chosen to light a candle rather than curse the darkness. I am extraordinarily honored to be a part of such a versatile, innovative, resolute, and yes, stubborn, organization.
2
SSTATE OF lJTAH DEPUTY STATE AUDITOR:
Office of the State Auditor Joe Christensen, CPA UTAH STATE CAPITOL COMPLEX EAST OFFICE BUILDING, SUITE E310 FINANCIAL AUDIT DIRECTORS:
P.O. BOX 142310 H. Dean Eborn, CPA SALT LAKE CITY, UTAH 84114-2310 Deborah A. Empey, CPA (801) 538-1025 Stan Godfrey, CPA Auston G. Johnson, CPA FAX (80!) 538-1383 Jon T. Johnson, CPA UTAH STATE AUDITOR Independent State Auditor's Report To the Board of Trustees, Audit Committee, and Michael K. Young, President University of Utah We have audited the accompanying basic financial statements of the University of Utah (the University), a component unit of the State of Utah, as of and for the year ended June 30, 2009, as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the University of Utah Hospitals and Clinics or the University's blended component units, which represent approximately 25% ($895,993,000) of total assets and 47% ($1,243,723,000) of total revenues of the University. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Utah Hospitals and Clinics and the blended component units, is based on the reports of the other auditors. The prior year partial comparative information has been derived from the University's 2008 financial statements and, in our report dated November 14, 2008, we expressed an unqualified opinion, based on our audit and the reports of other auditors, on the financial statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the blended component units were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2009, and the changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
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In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2009 on our consideration of the University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the 'results of our audit.
The accompanying management's discussion and analysis, as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Auston G. Johns
, CPA Utah State Auditor November 12, 2009 5
INTRODUCTION The following discussion and analysis provides an over-view of the financial position and activities of the Uni-versity of Utah (University) for the year ended June 30, 2009, with selected comparative information for the year ended June 30, 2008. This discussion has been prepared by management and should be read in con-junction with the financial statements and the notes thereto, which follow this section.
The University is a comprehensive public institution of higher learning with approximately 28,200 students, 2,350 full-time faculty members and more than 22,800 supporting staff. The University offers a diverse range of degree programs from baccalaureate to post-doctoral levels, through a framework of 19 schools, colleges and divisions; 99 academic departments; 27 interdisciplinary programs; and 52 centers and institutes. The University contributes to the state and nation through related re-search and public service programs. The University also maintains a prestigious health care complex through its University of Utah Hospitals and Clinics (UUHC).
The UUHC consists of three hospitals and numerous specialty clinics. The UUHC is an integral part of the University's health care system that also includes the University's School of Medicine and the Colleges of Health, Nursing, and Pharmacy. The University's health care system has a tradition of excellence in teaching and advancement of medical science and patient care - con-sistently ranking among the best health care systems in the western United States.
The University ranks as one of the nation's top univer-sities by various measures of quality, both in general academic terms and in terms of strength of offerings in specific academic disciplines and professional subjects.
Excellence in research is another crucial element in the University's high ranking among educational institutions.
In addition to the academic schools, colleges, and de-partments, the University operates the University of Utah Research Foundation (UURF), a separately in-corporated entity that specializes in applied research, the transfer of patented technology to business entities, leasing and administration of Research Park (a research park located on land owned by the University), and the leasing of certain buildings. Also, a wholly-owned, sep-arately incorporated enterprise, the Associated Regional and University Pathologists, Inc. (ARUP) is a national clinical and anatomic pathology reference laboratory.
FINANCIAL HIGHHGHTS The University's financial position remained strong at June 30, 2009, with assets of $3.6 billion and total li-abilities of $0.8 billion. Net assets, which represent the residual interest in the University's assets after liabilities are deducted, increased by $177.1 million to $2.8 bil-lion at June 30, 2009.
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Changes in net assets represent the total activity of the University, which results from all revenues, expenses, gains and losses, and are summarized for the years end-ed June 30, 2009 and 2008 in Figure 1.
Fiscal year 2009 revenues before change in fair value of investments increased 8.8% or $222.2 million, while ex-penses increased 7.6%, or $174.7 million. This resulted in a net gain before changes in fair value of investments of $259.2 million for fiscal year 2009, as compared to
$211.7 million for fiscal year 2008.
The University invests its endowment funds to maximize total return over the long term, within an appropriate level of risk. The success of this long-term investment strategy is evidenced by returns averaging 3.1 % during the past five years.
USING THE FINANCIAL' STATEMENTS The University's financial report is prepared in accor-dance with Governmental Accounting Standards Board (GASB) principles and includes three financial state-ments: the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and the Statement of Cash Flows.
Revenues and expenses are categorized as operating or nonoperating and other net asset additions as capital contributions or additions to permanent endowments.
Significant recurring sources of the University's rev-enues, including state appropriations, gifts and invest-ment income, are considered nonoperating, as defined Figure 1.
Total revenues before change in fair value of investments Total expenses Increase in net assets before change in fair value of investmc by GASB Statement No. 34, Basic Financial Statements
- and Managements Discussion and Analysis -for State and Local Governments. Nonoperating revenues totaled
$321.1 million and $410.2 million for the years ended June 30, 2009 and 2008, respectively. Nonoperating expenses, which include interest expense, totaled $32.5 million and $33.8 million for the years ended June 30, 2009 and 2008, respectively.
Also, as required by GASB Statement No. 34, scholar-ships and fellowships applied to student accounts are shown as a reduction of auxiliary and tuition and fee revenues, while stipends and other payments made di-rectly to students are presented as scholarship and fel-lowship expenses. For the years ended June 30, 2009 and 2008, scholarship and fellowship expenses totaled
$26.0 million and $24.6 million, respectively. In addition, scholarships and fellowships in the amount of $24.5 million and $22.7 million for the years ended June 30, 2009 and 2008, respectively, are reported as a reduction of tuition and fees and auxiliary enterprises revenue.
Other appropriate revenue items have also been reduced by the allowance for uncollectible amounts which is es-timated each fiscal year.
STATEMENT OF NET ASSETS The Statement of Net Assets presents the financial posi-tion of the University at the end of the fiscal year and includes all assets and liabilities of the University. The difference between total assets and total liabilities is net assets and is one indicator of the current financial condi-tion of the University, while the change in net assets is an 2009 2008 (in thousands) 9
$2,522,491 1
2,310,805
$ 2,744,68c 2,485,49 ents 259,198 211,686 Decrease in fair value of investments (82,102)
(42,130)
Increase in net assets 177,096 169,556 8
indicator of whether the overall financial condition has improved or worsened during the year. Assets and liabili-ties are generally measured using current values except for capital assets, which are stated at historical cost less an allowance for depreciation. A summarized comparison of the University's assets, liabilities and net assets at June 30, 2009 and 2008 is shown in Figure 2.
A review of the University's Statement of Net Assets at June 30, 2009 and 2008, shows that the University continues to build upon its strong financial foundation.
This strong financial position reflects the prudent utili-zation of its financial resources, including careful cost controls, management of its endowment funds, utiliza-tion of debt and adherence to its long range capital plan for the maintenance and replacement of the physical plant.
Current assets consist primarily of cash, operating in-vestments, trade receivables and inventories. Current assets represent approximately 6.3 months of total operating expenses (excluding depreciation).
Current cash and investments totaled $856.8 million at June 30, 2009 and $936.2 million at June 30, 2008. Net current receivables increased from $288.8 million at June 30, 2008 to $303.5 million at June 30, 2009.
Current liabilities consist primarily of trade accounts, accrued payroll, deposits, and other liabilities, which totaled $361.7 million at June 30, 2009, as compared Figure 2.
Current assets Noncurrent assets Endowment and other investments Receivables, net Capital assets, net Other Total assets to $347.3 million at June 30, 2008. Current liabilities also include deferred revenue and the current portion of bonds, notes and contracts payable. Total current liabil-ities increased $14.5 million during fiscal year 2009.
ENDOWMENT AND SIMILAR INVESTMENTS The University's endowment funds consist of true en-dowments, term endowments, and quasi-endowments.
True endowments (also known as permanent endow-ments) are those funds received from donors with the stipulation that the principal remain inviolate and be 2009 2008 (in thousands)
$ 1,218,554
$ 1,279,049 660,869 103,931 1,578,878 69,768 3,632,000 672,264 82,689 1,348,040 75,235 3,457,277 Current liabilities 361,738 347,254 Noncurrent liabilities 406,125 422,982 Total liabilities 767,863 770,236 Net assets
$2,864,137
$2,687,041 9
held in perpetuity to produce income that is to be ex-pended for the purposes specified by the donor. Term endowment funds are similar to true endowments, ex-cept that, upon the passage of a stated period of time or the occurrence of a particular event, all or part of the principal may be expended. Substantially all the Uni-versity's endowments are restricted by the donor for a particular purpose. Quasi-endowments consist of insti-tutional funds that have been allocated by the Univer-sity for long-term investment purposes. Although such funds are not subject to donor restrictions requiring the University to preserve the principal in perpetuity, most carry restrictions as to how the funds may be spent. Pro-grams supported by endowment funds include scholar-ships, fellowships, professorships, research efforts and other important programs and activities.
The University has implemented investment guidelines for the University's Endowment Pool that are designed to maximize long-term results. The assets are strategi-cally allocated to provide for broad diversification of the investments with a long-term goal of maximizing returns within acceptable risk levels for investment of endowment funds. Endowment funds that are invested in the University's endowment pool are invested on a unit basis similar to mutual funds where new dollars buy shares in the pool.
The Endowment Pool declined 14.3% during the 2009 fiscal year. Although the Endowment Pool declined in value, reports indicate that the University held up rela-tively well in a very difficult year for the endowment and foundation community. Significant upheavals in the financial markets during the year took their toll on performance for all investors. The S&P 500 index de-clined 26.2% while the global equity market as mea-sured by the MSCI All Country World Index declined 28.9%. Domestic fixed income markets returned 6.0%
as measured by the Barclays Aggregate Bond Index. The five-year annualized return for the Endowment Pool is 3.1% versus -2.2% for the S&P 500 and 5.0% for the Barclays Aggregate Bond Index.
The unrealized net loss on the endowment pool for the year ended June 30, 2009 totaled $82.7 million com-pared to an unrealized loss of $15.4 million for the year ended June 30, 2008.
Payout from the endowment pool is subject to a spend-ing policy which determines a distribution rate that will be used to allocate funds to University departments based on the total market value of the pool. The purpose of the spending policy is to establish a distribution rate that over time will generate returns adequate to contin-ue support for future expenses in perpetuity assuming moderate levels of inflation. During the year ended June 30, 2009, the spending policy was adjusted downward to 3.0% of the twelve quarter moving average of unit 10
market values. Given the unprecedented challenges in the financial environment, the endowment spending policy was adjusted to maintain the University's histori-cally prudent approach to endowment spending.
The endowment pool is managed on a total return basis where funds available for distribution are derived from dividends earned, interest and unrealized gains. While the endowment pool earnings were $11.6 million in fis-cal year 2009, the University distributed $16.5 million to operations. The difference of $4.9 million was allo-cated from unrealized gains.
The University has a long-term view and manages the investment allocation and payout rate of endowment funds so that they can continue in perpetuity. While endowments are managed with a long-term view, the University feels it is prudent, during times of severe market stress, to lower the payout percentage to help preserve principal. Due to unprecedented levels of mar-ket volatility during the past year the payout rate was lowered to 3%, which approximates earnings in interest and dividends. The spending practice for endowments takes into account the expectation that any underwater situation of individual endowments is only temporary and not a permanent impairment. The market valua-tions will improve, and the underwater situations will resolve themselves over time with a return to an upward direction in the markets.
Gifts to permanent endowments totaled $15.9 million and $17.5 million for the fiscal years 2009 and 2008, respectively.
CAPITAL AND DEBT ACTIVITIES One of the critical factors in continuing the quality of the University's academic and research programs is the development and renewal of its capital assets. The University continues to implement its long-range plan to modernize its complement of older teaching and re-search facilities, balanced with new construction.
Capital additions totaled $620.6 million in fiscal year 2009, as compared to $244.4 million in fiscal year 2008. Capital additions include replacement, renova-tion, and new construction of academic, research, and health care facilities, as well as significant investments in equipment. Capital asset additions are funded by capi-tal appropriations, bond proceeds, gifts which were des-ignated for capital purposes, and unrestricted net assets.
Construction in progress at June 30, 2009, totaled
$251.3 million that includes projects in numerous buildings across the campus. Significant projects include:
a new patient services wing and parking facility for the University Hospital; a new facility for the Museum of Natural History; and a high temperature water plant.
The University takes seriously its role of financial stew-ardship and works hard to manage its financial resources effectively, including the prudent use of debt to finance capital projects. The debt rating of the University is an important indicator of success in this area. The underly-ing bond ratings from Standard and Poor's and Moody's Investors Service for the Auxiliary and Campus Facili-ties Bonds are AA/Aa2, the Hospital Revenue Bonds are AA/Aa2, the Research Facilities Revenue Bonds are AA-/Aa3, and the Certificates of Participation are AA-/
Aa3, respectively. These ratings are considered high in-vestment grade quality and position the University, if deemed necessary, to obtain future debt financing at lower interest rates.
Bonds payable totaled $279.2 million and $289.5 mil-lion at June 30, 2009 and 2008, respectively. The origi-nal purpose of all bond debt is to provide funds for the construction and renovation of major capital facilities and the acquisition of capital equipment for the University.
An institution's ratio of unrestricted operating revenues to bonds, notes and contract debt is a valuable indi-cator of its ability to finance its outstanding debt. At June 30, 2009, the University has 6.2 times the unre-stricted operating revenue necessary to meet its debt requirements.
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NET ASSETS Net assets represent the residual interest in the Univer-sity's assets after liabilities are deducted.
Invested in capital assets, net of related debt represents the University's capital assets net of accumulated deprecia-tion and outstanding principal balances of debt attrib-utable to the acquisition, construction or improvement of those assets.
Restricted nonexpendable net assets are the University's permanent endowment funds.
Restricted expendable net assets are subject to externally imposed restrictions governing their use. This category of net assets includes $95.8 million of quasi-endowments.
Although unrestricted net assets are not subject to exter-nally imposed stipulations, substantially all of the Uni-versity's unrestricted net assets have been designated for various academic and research programs and initiatives, as well as capital projects.
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The Statement of Revenues, Expenses, and Changes in Net Assets presents the University's results of operations.
A summarized comparison of the University's revenues, expenses, and changes in net assets for the years ended June 30, 2009 and 2008 is shown in Figure 3.
One of the University's greatest strengths is the diverse streams of revenues which supplement its student tu-ition and fees, including voluntary private support from individuals, foundations, and corporations, along with government and other grants and contracts, state ap-propriations, and investment income. The University will continue to aggressively seek funding from all pos-sible sources consistent with its mission, to supplement student tuition, and to manage prudently the financial resources realized from these efforts to fund its operat-ing activities.
Significant recurring sources of the University's revenues are considered nonoperating, as defined by GASB State-ment No. 34. Graph I (operating revenue) and Graph 2 (nonoperating revenue) are illustrations of revenues by source, which were used to fund the University's opera-tions for the year ended June 30, 2009 (amounts are presented in thousands of dollars).
The University continues to face significant financial pressure, particularly in the areas of compensation and benefits, which represent 53.9% of total expenses, as well as in the areas of technology and utility costs. To manage this financial pressure, the University continues to seek diversified sources of revenue and to implement cost containment measures.
Tuition and state appropriations are the primary sources of funding for the University's academic programs. Stu-dent tuition and fees, net of allowances for scholarships and fellowships, increased $8.4 million, or 5.2% to
$169.4 million in fiscal year 2009. State appropriations decreased 9.5% or $28.1 million to $266.8 million in fis-cal year 2009 as a result of budget cuts at the state level.
While tuition and state appropriations fund a signifi-cant percentage of the University's academic and ad-ministrative costs, private support has been, and will continue to be, essential to the University's academic success. Private support in the form of gift revenues for operations decreased 12.6%, or $9.4 million, to $65.0 million in fiscal year 2009. The University's continued emphasis on fund raising to support critical projects and initiatives is demonstrated by an aggressive capital campaign that is showing positive results despite a weak economic outlook.
Revenues for grants and contracts increased 9.5%, or
$26.8 million, to $307.6 million in fiscal year 2009, primarily related to research programs. Grant and con-tract revenues are generated by a broad base of schools, colleges, and research units across the University. The University receives revenues for grants and contracts from government and private sources, which provide for the recovery of direct costs and facilities and admin-istrative (indirect) costs.
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Figure 3.
Operating revenues Tuition and fees Patient services Grants and contracts Sales and services Auxiliary enterprises Other Total operating revenues Operating expenses Operating loss Nonoperating revenues (expenses)
State appropriations Government grants Gifts Investment income (loss)
Interest expense Other Net nonoperating revenues Capital appropriations Capital and endowment grants and gifts Total capital and endowment revenues Increase in net assets Net assets - beginning of year Net assets - end of year 2009 0
169,351 1,067,747 307,574 526,323 83,710 46,223 2,200,928 2,453,010 (252,082) n thousands) 2008 160,915 937,047 280,815 472,607 75,404 70,320 1,997,108 2,277,040 (279,932) 266,761 34,497 65,037 (45,153)
(18,117)
(14,364) 288,661 83,243 57,274 140,517 177,096 294,907 18,481 74,449 22,412 (20,240)
(13,525) 376,484 12,238 60,766 73,004 169,556 2,517,485
$2,687,041 2,687,041
$2,864,137 Graph 1.
Graph 2.
OPERATING REVENUES NONOPERATING REVENUES OhrAuxilliary enterprises Other Tuition and fees Patient services Sales and services Grants and contracts I
IJ U
U U
U U
Tuition and fees Patient services Grants and contracts Sales and services Auxilliary enterprises Other
$169,351
$1,067,747
$307,574
$526,323
$83,710
$46,223 State appropriations U
Government grants Gifts Investnent loss
$266,761
$34,497
$65,037
($45,153) 13
Patient care revenues increased 13.9% or $130.7 mil-lion to $1.1 billion in fiscal year 2009. The majority of these revenues relate to patient care services, which are generated within UUHC under contractual arrange-ments with governmental payers and private insurers.
Revenues have sustained a relatively constant rate of growth over the last few years, primarily resulting from a growth in patient volume, demand for specialty ser-vices provided by outpatient clinics and moderate price increases for patient services.
Net investment income for the years ended June 30, 2009 and 2008, consisted of the following components:
decrease of $67.6 million. This decrease is a direct re-sult of the dramatic downturn in the financial markets over the course of the fiscal year. Market volatility and overall instability were sustained throughout the fiscal year even as a more positive outlook emerged by the end of the fiscal year. Recovery, while showing signs of improvement, has yet to return to "normal".
The University's endowment investment policies are designed to maximize long-term total return while its income distribution policies are designed to preserve the value of the endowment portfolio and to generate a predictable stream of spendable income. The income distribution from the University's endowment portfo-lio for the support of operating activities, in accordance with the University's spending policy, totaled $15.1 mil-lion in fiscal year 2009, as compared to $16.6 million in fiscal year 2008. In addition, in fiscal year 2009, $1.4 million was returned to endowment principal.
Capital appropriations received from the State in fis-cal year 2009, which totaled $83.2 million, funded a portion of building renovation projects. Other revenues include capital grants and gifts and additions to perma-nent endowments totaling $57.3 million for the fiscal year ending June 30, 2009.
2009 2008 (in thousands)
$ 36,949
$ 64,542 Interest and dividends, net Net decrease in fair value of investments Net investment income (loss)
(82,102)
$(45,153)
(42,130)
$ 22,412 The University experienced net investment losses total-ing $45.2 million in fiscal year 2009, as compared to income of $22.4 million in fiscal year 2008, which is a 14
A comparative summary of the University's expenses for the years ended June 30, 2009 and 2008 follows:
2009 2008 (in thousands)
Operating Compensation and benefits Component units Supplies Purchased services Depreciation and amortization Utilities Cost of goods sold Repairs and maintenance Scholarships and fellowships Other Total operating or $85.0 million, as a result of annual increases and the hiring of additional employees in departments not fund-ed from state appropriations. The related employee ben-efits increased 10.6% or $28.4 million predominantly due to increased benefits for Hospital employees.
In addition to their natural classification, it is also in-formative to review operating expenses by function. A comparative summary of the University's operating ex-penses by functional classification for the years ended June 30, 2009 and 2008 follows:
$ 1,339,703 328,196 277,509 101,322 118,475 61,005 34,270 37,854 25,986 128,690 2,453,010
$ 1,226,252 287,603 252,785 104,529 110,618 56,958 32,857 32,817 24,556 148,065 2,277,040 33,765
$2,310,805 Instruction Research Public service Academic support Student services Institutional support Operations and maintenance of plant Student aid Other Hospital Component units Total operating expenses 2009
$ 318,573 237,800 456,665 85,169 21,640 33,367 60,560 17,884 90,063 787,593 343,696 2008 (in thousands)
$ 282,156 212,235 416,931 78,307 20,252 63,929 56,004 38,588 130,657 666,246 311,735 Nonoperating Interest and other 32,481 Total expenses $ 2,485,491 Graph 3 is a graphic illustration of total expenses, in thousands of dollars, by natural classification.
The University is committed to recruiting and retaining an outstanding faculty and staff and the compensation package is one way to successfully compete with peer institutions and nonacademic employers. The resourc-es expended for compensation and benefits increased 9.3%, or $113.5 million, to $1.3 billion in fiscal year 2009. Of this increase, compensation increased 8.9%,
$2,453,010
$ 2,277,040 Instruction, research, and public service expenses in-creased 11.2%, or $101.7 million, to $1.0 billion in fiscal year 2009. Academic and institutional support expenses decreased 16.7%, or $23.7 million, to $118.5 million in fiscal year 2009.
Graph 3.
EXPENSES Otc nI tetrest Scholarships and ftllowships Repa irs an(d liain lefalicc
( >,st of goods sold Utilities Depreciation and armortization purchased service.
Compensation and benefits (Compensation and benefits U
C omponent units Supplies 0
purchased services Depreciation and amortization 0
Utilities 0
Cost of goods sold M
Repairs and maintenance Scholarships and fellowships I
Other Interest
$1,339,703
$328,196
$277,509
$101,322
$118,475
$61,005
$34,270
$37,854
$25,986
$128,690
$32,481 Supplie C*monen"tcrt units 15
STATEMENT OF CASH FLOWS The Statement of Cash Flows provides additional in-formation about the University's financial results, by reporting the major sources and uses of cash.
The University's cash and cash equivalents decreased
$306.6 million due primarily to increased use of funds for purchase of capital assets and investments and in-creased principle payments on capital debt. This nega-tive flow of funds was partially offset by funds received for patient services and auxiliary and educational servic-es. The University's significant sources of cash provided by noncapital financing activities, as defined by GASB Statement No. 9, include state appropriations and pri-vate gifts used to fund operating activities.
CURRENT FACTORS HAVING PROBABLE FUTURE FINANCIAL SIGNIFICANCE The University's undergraduate enrollment for 2008-09 increased slightly for the first time in several years.
Graduate enrollment continued its long-term, gradual increase. Enrollment at the undergraduate level is de-pendent on two factors, pool and participation, that are both heavily influenced by factors within the State of Utah. The available pool of potential students, age 18 through 29, is in the midst of a flat to modest decline, but that trend is expected to reverse within the next five years as K-8 students move into and through high school in record numbers. The participation rate had been under pressure in large part due to the State's ro-bust economy and remarkably low unemployment rates but both changed significantly in 2008-09. For at least the short term, as the State works its way out of the recession, participation rates are likely to be relatively high. Indeed, enrollment for Fall 2009 is up significant-ly over the prior year partly in response to the slowing economy. The University is, in the meantime, adjusting its recruiting strategy while at the same time evaluating the need for additional infrastructure to support mod-est and sustainable growth in the future. Recently, the State passed legislation that makes it easier for domes-tic non-resident students to qualify for in-state tuition.
This may have a negative short-term impact on tuition revenue but it is likely to have a positive long-term ef-fect on recruiting and related tuition revenue. It will have no impact on tuition revenue from international students, a growing focus of attention for the Univer-sity's recruitment efforts.
During the 2009 legislative session, the University's re-curring budget for 2009-10 was cut 17%.
- However, the State of Utah benefited from the American Recov-ery and Reinvestment Act (ARRA) and some of that stimulus funding was passed along to the University thus making the effective cut 9.5%. The University, as a result of receiving these funds and an increase in tu-ition, was able to buffer the effects of what would have been significantly deeper cuts. While some positions were eliminated as part of the cuts, many positions were retained as a result of the stimulus. Those funds are not recurring, however, so even if Utah's economy begins to rebound over the course of the next year, additional reductions in personnel are likely.
Despite a more cautious economic outlook, the Univer-sity continues to receive worldwide recognition for the accomplishments of its researchers, physicians, and stu-dents. The University of Utah collected a record $354.7 million in research funding during the 2009 fiscal year, an impressive 16 percent annual increase despite eco-nomic recession and only a little help from federal stimulus funds. For the 2009-2010 fiscal year, the Uni-versity expects to see positive effects of the ARRA grant funding contribute to yet another excellent year. Awards for sponsored programs, which include basic research, continue to be strong - however, uncertainties within the federal budget for research could have a dramatic impact - either positively or negatively - on research in the coming years.
UUHC and ARUP continue to be recognized as lead-ers in their respective fields. While the financial posi-tion for each remains strong, vigilant monitoring is dic-rated by the current economic climate. Consequently, UUHC continues to evaluate very closely the increase in total uncompensated care provided to the uninsured or underinsured patients. Over the two-year period ended June 30, 2009, the average collections foregone due to charity increased significantly. Applications for 16
charity care have increased from an average of 382 re-quests per month in the first quarter of fiscal year 2009 to an average of 574 per month in the final quarter of fiscal year 2009. If the trend continues, stricter financial requirements for patients may be required.
In addition, the number of "Health Reform" proposals before the Congress of the United States is significant and, therefore, it may be some time before a consensus is achieved on an overall health care bill. It is impossible to project the impact on UUHC until a.consensus bill is ultimately drafted. In 2009, the State of Utah passed health reform legislation, however, it is not expected that UUHC will see any significant impact from the new legislation in the short-term.
A major capital campaign, themed Together We Reach, was announced in Fall 2008. Despite the turmoil in the nation's economy, the University continues to ben-efit from the generosity of its donors and supporters.
Programmatic goals of the campaign include endowed chairs and professorships; honors initiatives; imaging programs; nanotechnology; and scholarships. Capital construction projects are also part of the campaign and include the expansion of teaching and research facilities such as the Beverley Taylor Sorenson Arts and Educa-tion Complex; Huntsman Cancer Hospital Phase IIB; The James L. Sorenson Molecular Biotechnology Build-ing (a USTAR Innovation Center); the Utah Museum of Natural History at the Rio Tinto Center; and reno-vations in the College of Nursing and the College of Science.
The University continues to exercise a conservative approach to the issuance of debt. However, with the need for expanded research, patient care, and student life facilities, comes the need to issue debt to support construction. Within the next 1-3 years, the University intends to undertake various construction projects, in most cases partially gift-funded, to support these criti-cal areas. In addition, the University evaluates existing debt versus current interest rates to identify opportuni-ties to refinance at better rates.
The investment management of endowment assets re-quires balancing portfolio risks and expected returns over long periods of time. Our goal is to provide a steady stream of income to the academic departments, clinical and research centers, and community programs while preserving the purchasing power of these assets for the benefit of future generations.
This past year we have seen extraordinary levels of finan-cial market volatility. The Endowment Pool declined 14.3% for the 2009 fiscal year. The S&P 500 index declined 26.2% while the global equity market as mea-sured by the MSCI All Country World Index declined 28.9%. Domestic fixed income markets returned 6.0%
as measured by the Barclays Aggregate Bond Index. The five year annualized return for the Endowment Pool is 3.1% versus -2.2% for the S&P 500 and 5.0% for the Barclays Aggregate Bond Index. The Endowment Pool ended the 2009 fiscal year with a market value of $409 million.
The University's approach to investment and spending reflects the understanding that endowment assets are perpetual funds established by donors. These funds are managed so as to be available to current and future stu-dents, faculty, and visitors of the University of Utah.
The University has invested in a portfolio of equity, fixed income and alternative assets whose valuations are impacted by market conditions, sometimes negatively in the short term - as was the case this past fiscal year.
However, we believe our portfolio will provide solid fi-nancial footing for the University's endowments over the long term.
Despite significant economic turmoil both nationally and at the State level, the University is fundamentally sound financially and should weather the current finan-cial downturn. The institution has strong strategic lead-ership and prudent financial management that should guide us through additional budgetary challenges that may arise.
17
a r
-K
I I
[For Comparison Only]
2009 2008 ASSETS Current Assets Cash and cash equivalents (Notes 2 & 4) 255,979 516,750 Short-term investments (Notes 2 & 4) 600,854 419,479 Receivables, net (Note 5) 303,510 288,776 Inventory (Note I) 40,019 35,153 Other assets (Note 6) 18,192 18,891 Total current assets 1,218,554 1,279,049 Noncurrent Assets Restricted cash and cash equivalents (Notes 2 & 4) 18,149 63,995 Restricted short-term investments (Notes 2 & 4) 49,216 25,343 Investments (Notes 3 & 4) 343,965 268,650 Restricted investments (Notes 3 & 4) 249,539 314,276 Restricted receivables, net (Note 5) 103,931 82,689 Donated property held for sale 1,809 1,969 Other assets (Note 6) 67,959 73,266 Capital assets, net (Note 7) 1,578,878 1,348,040 Total noncurrent assets 2,413,446 2.178,228 Total assets 3,632,000 3,457,277 LIABILITIES Current Liabilities Accounts payable to the State of Utah 18,555 5,397 to Others 85,567 81,520 Accrued payroll 91,268 74,752 Compensated absences & early deferred revenue (Note 1) 4,939 4,966 Deferred revenue (Note 9) 66,991 31,947 Deposits & other liabilities (Notes 11 & 15) 68,052 123,175 Bonds, notes and contracts payable (Notes 14, 15, & 16) 26,366 25,497 Total current liabilities 361,738 347,254 Noncurrent Liabilities Compensated absences & early retirement benefits (Note 1) 42,788 39,101 Deposits & other liabilities (Notes II & 15) 9,492 12,617.
Bonds, notes and contracts payable (Notes 14, 15, & 16) 353,845 371,264 Total noncurrent liabilities 406,125 422,982 Total liabilities 767,863 770,236 NET ASSETS Invested in capital assets, net of related debt 1,202,270 993,443 Restricted for Nonexpendable Ihstruction 95,540 109,208 Research 30,121 36,132 Public service 46,017 53,804 Academic support 29,015 33,956 Scholarships 102,468 112,064 Other 5,352 6,455 Expendable Research 123,784 133,498 Public service 85,756 84,935 Academic support 29,611 48,127 Institutional support 49,774 49,663 Loans 34,888 34,978 Debt service 868 Capital additions 170,838 148,029.
Other 18,050 28,395 Unrestricted 840,653 813,486 Total net assets
$ 2,864,137
$ 2,687,041 The accompanying notes are an integral part of these Financial statements 20
=1[I MMUHIT~
©IT UU& 0&@W@
MVfl@§ M&?
0E~wfnuM
[For Comparison Only]
2009 2008 OPERATING REVENUES AND EXPENSES Revenues Tuition and fees, net (Note I) 169,351 160,915 Patient services, net (Notes I & 13) 1,067,747 937,047 Federal grants and contracts 211,260 187,436 State and local grants and contracts 16,506 14,813 Nongovernmental grants and contracts 79,808 78,566 Sales and services, net (Note 1) 526,323 472,607 Auxiliary enterprises, net (Note 1) 83,710 75,404 Other operating revenues 46,223 70,320 Total operating revenues 2,200,928 1,997,108 Expenses Compensation and benefits 1,339,703 1,226,252 Component units 328,196 287,603 Supplies 277,509 252,785 Purchased services 101,322 104,529 Depreciation and amortization 118,475 110,618 Utilities 61,005 56,958 Cost of goods sold 34,270 32,857 Repairs and maintenance 37,854 32,817 Scholarships and fellowships 25,986 24,556 Other operating expenses 128,690 148,065 Total operating expenses 2,453,010 2,277,040 Operating loss (252,082)
(279,932)
NONOPERATING REVENUES (EXPENSES)
State appropriations 266,761 294,907 Government grants 34,497 18,481 Gifts 65,037 74,449 Investment income (loss)
(45,153) 22,412 Interest (18,117)
(20,240)
Other nonoperating expenses (14,364)
(13,525)
Total nonoperating revenues 288,661 376,484 Income before capital and permanent endowment additions 36,579 96,552 CAPITAL AND PERMANENT ENDOWMENT ADDITIONS Capital appropriations 83,243 12,238 Capital grants and, gifts 41,419 43,274 Additions to permanent endowments 15,855 17,492 Total capital and permanent endowment additions 140,517 73,004 Increase in net assets 177,096 169,556 NET ASSETS Net assets - beginning of year 2,687,041 2,517,485 Net assets - end of year
$ 2,864,137
$ 2,687,041 The accompanying notes are an integral part of these financial statements 21
Ulm~~l UHM1 al UUT t h&ll 0a~
(& C"If Now@
[For Comparison Only]
2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from tuition and fees 173,048
$ 159,000 Receipts from patient services 1,071,092 938,762 Receipts from grants and contracts 297,995 273,833 Receipts from auxiliary and educational services 611,036 550,095 Collection of loans to students 4,765 4,724 Payments to suppliers (950,502)
(981,253)
Payments for compensation and benefits (1,338,303)
(1,222,823)
Payments for scholarships and fellowships (25,986)
(24,556)
Loans issued to students (4,500)
(4,687)
Other 22,765 84,038 Net cash used by operating activities (138,590)
(222,867)
CASH FLOWS FROM NONCAPITAL FINANCING' ACTIVITIES State appropriations 266,761 294,907 Government grants 34,497 18,481 Gifts Endowment 15,905 18,527 Nonendowment 72,768 76,879 Other (14,508)
(13,125)
Net cash provided by noncapital financing activities 375,423 395,669 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt 30,202 Capital appropriations 24,302 10,945 Gifts 13,099 17,747 Purchase of capital assets (277,646)
(180,069)
Principal paid on capital debt (55,145)
(40,186)
Interest paid on capital debt (18,061)
(20,011)
Net cash used by capital and related financing activities (283,249)
(211,574)
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 1,218,182 549,863 Receipt of interest and dividends on investments 36,657 62,666 Purchase of investments (1,515,040)
(680,191)
Net cash used by investing activities (260,201)
(67,662)
Net decrease in cash (306,617)
(106,434)
Cash - beginning of year 580,745 687,179 Cash - ending of year
$ 274,128
$ 580,745 Continued on nextpage...
The accompanying notes are an integral part of these financial statements 22
UU&
ý 05 w ffcggi nw m~
Dim 2009 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss Adjustments Depreciation expense Change in assets and liabilities Receivables, net Inventory Donated property held for sale Other assets Accounts payable
$ (252,082) 118,475 (20,300)
(4,866)
[For Comparison Only]
2008
$ (279,932) 110,618 (17,100)
(2,779)
(65,270) 2,411 993 2,435 5,339 20,418
$ (222,867)
Accrued payroll Compensated absences & early retirement benefits Deferred revenue Deposits and other liabilities Net cash used by operating activities 6,006 17,205 16,516 3,659 35,044 (58,247)
$ (138,590)
NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Capital leases Donated property and equipment Completed construction projects transferred from State of Utah (Note 1)
Annuity and life income Decrease in fair value of investments Total noncash investing, capital, and financing activities 8,081 4,245 58,941 87 (82,102)
(10,748) 20,389 8,475 1,292 163 (42,130)
$ (11,811)
The accompanying notes are an integral part of rhese financial statemnents 23
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A.
Reporting Entity The financial statements report the financial activity of the University of Utah (University), including the Uni-versity of Utah Hospitals and Clinics (UUHC). 'The University is a component unit of the State of Utah (State). In addition, University administrators hold a majority of seats on the boards of trustees of two other related entities representing component units of the University.
Component units are entities that are legally separate from the University, but are financially accountable to the University, or whose relationships with the Univer-sity are such that exclusion would cause the University's financial statements to be misleading or incomplete.
'The relationship of the University with its component units requires the financial activity of the component units to be blended with that of the University. The component units of the University are the University of Utah Research Foundation (UURF) and Associated Re-gional and University Pathologists, Inc. (ARUP). Cop-ies of the financial report of each component unit can be obtained from the respective entity.
0 UURF is a not-for-profit corporation governed by a board of directors who, with the exception of one, are affiliated with the University. The operations of UURF include the leasing and administration of Research Park (a research park located on land owned by the Univer-sity), the leasing of certain buildings, and the commer-cial development of patents and products developed by University personnel. As part of its mission to advance technology commercialization, UURF creates new cor-porate entities to facilitate the startup process. In gener-al, these entities do not have assets. Expenses related to the companies are expensed as incurred. The fiscal year end for UURF is June 30. UURF is audited by other independent auditors and their report, dated October 30, 2009, has been issued under separate cover.
- ARUP is a for-profit corporation that provides clini-cal and anatomic pathology reference laboratory servic-es to medical centers, hospitals, clinics and other clini-cal laboratories throughout the United States, including UUHC. ARUP contracts with the Department of Pa-thology of the University of Utah School of Medicine to provide pathology consulting services. The fiscal year end for ARUP is June 30. Other independent auditors audited ARUP and their report, dated August 28, 2009, has been issued under separate cover.
All Governmental Accounting Standards Board (GASB) pronouncements and all applicable Financial Account-ing Standards Board (FASB) pronouncements are ap-plied by the University, UURF and ARUP in the ac-counting and reporting of their operations. However, in accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Ac-counting, the University has elected not to apply FASB pronouncements issued after November 30, 1989.
The following standards, issued by the GASB, became applicable in fiscal year 2009:
- GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations. The University early adopted this standard in the fiscal year 2008. As of June 30, 2009, the University did not have any remediation obligations subject to the accounting and financial reporting obligations of this standard.
- GASB Statement No. 52, Land and Other Real Estate Held as Investments by Endowments. The University en-dowment does not have land and other real estate held for investment purposes. Implementation of this stan-dard did not impact the financial statements for fiscal year 2009.
- GASB Statement No. 55, The Hierarchy of Generally Ac-ceptedAccountingPrinciplesfor State and Local Governments.
Implementation of this standard had no effect on the Uni-versity's financial statements or accounting practices.
- GASB Statement No. 56, Codification of Account-ing and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. Implementa-tion of this standard had no effect on the University's financial statements or accounting practices.
25
B.
Basis ofAccounting All statements have been prepared using the economic resources measurement focus and the accrual basis of ac-counting. Operating activities include all revenues and expenses, derived on an exchange basis, used to support the instructional, research and public service efforts, and other University priorities.
Significant recurring sources of the University's revenues are considered non-operating as defined by GASB Statement No. 34, Basic Financial Statements - and Managements Discussion and Analysis -for State and Local Governments, and required by GASB Statement No. 35, Basic Financial Statements
- andManagements Discussion andAnalysis -for Public Colleges and Universities. Operating revenues include tuition and fees, grants and contracts, patient services, and revenue from various auxiliary and public service functions. Nonoperating revenues include state appro-priations, Pell grants and certain government grants, gifts, and investment income. Operating expenses in-clude compensation and benefits, student aid, supplies, repairs and maintenance, utilities, etc. Nonoperating expenses primarily include interest on debt obligations.
When both restricted and unrestricted resources are available, such resources are spent and tracked at the discretion of the department subject to donor restric-tions, where applicable.
In accordance with GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the University recognizes gifts, grants, appropriations, and the estimated net realizable value of pledges as rev-enue as soon as all eligibility requirements imposed by the provider have been met.
Patient revenue of UUHC and the School of Medicine medical practice plan is reported net of third-party ad-justments.
C.
Investments Investments are recorded at fair value in accordance with GASB Statement No. 31, Accounting and Finan-cial Reporting for Certain Investments and for External Investment Pools. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. The Univer-sity distributes earnings from pooled investments based on the average daily investment of each participating ac-count or for endowments, distributed according to the University's spending policy.
A portion of the University's endowment portfolio is invested in "alternative investments".
These invest-ments, unlike more traditional investments, generally do not have readily obtainable market values and typi-cally take the form of limited partnerships. See Note 19 for more information regarding these investments and the University's outstanding commitments under the terms of the partnership agreements. The Univer-sity values these investments based on audited financial statements, generally asiof December 31, progressed to the University's financial statement date by taking into account investment transactions subsequent to the au-dited statements.
D.
Allowances In accordance with GASB Statement No. 34, certain expenses are netted against revenues as allowances. The following schedule presents revenue allowances for the years ended June 30, 2009 and 2008:
Revenue Allowance 2009 2008 Tuition and fees Patient services Sales and services Auxiliary enterprises
$ 23,547,807 59,983,662 23,774 934,850
$ 21,919,239 48,537,228 23,769 804,377 E
Inventories The University Campus Store's inventories are valued using the retail inventory method. All other inventories are stated at the lower of cost or market using the first-in, first-out method or on a basis which approximates cost determined on the first-in, first-out method.
26
E Research and Development Costs Research and development costs of ARUP are expensed as incurred. These costs for the year ended June 30, 2009, were approximately $9,688,000.
G.
Compensated Absences & Early Retirement Benefits Employees' vacation leave is accrued at a rate of eight hours each month for the first five years and increases to a rate of 16.67 hours7.75463e-4 days <br />0.0186 hours <br />1.107804e-4 weeks <br />2.54935e-5 months <br /> each month after fifteen years of service.
There is no requirement to use vacation leave, but a maximum of thirty days plus one-year ac-crual may be carried forward at the beginning of each calendar year. Employees are reimbursed for unused vacation leave upon termination and vacation leave is expended when used or reimbursed. The liability for vacation leave at June 30, 2009, was approximately
$44,767,000.
Employees earn sick leave at a rate of eight hours each month, with an accumulation limit of 1,040 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br />. The University does not reimburse employees for unused sick leave. Each year, eligible, employees may convert up to four days of unused sick leave to vacation leave based on their use of sick leave during the year. Sick leave is expended when used.
In addition, the University may provide early retirement benefits, if approved by the Administration and by the Board of Trustees, for certain employees who have at-tained the age of 60 with at least fifteen years of service and who have been approved for the University's early retirement program. Currently, 94 employees partici-pate in the early retirement program. The University pays each early retiree an annual amount equal to the lesser of 20% of the retiree's final salary or their estimat-ed social security benefit, as well as health care and life insurance premiums, which is approximately 50% of their early retirement salary, until the employee reaches full social security retirement age. In accordance with GASB Statement No. 47, Accounting for Termination Benefits, the amount recognized on the financial state-ments was calculated at the discounted present value of the projected future costs. A discount rate of 1.931%
was used and is based on the average rate earned by the University on cash management investments for the fis-cal year. The funding for these early retirement benefits is provided on a pay-as-you-go basis. For the year ended June 30, 2009, these expenditures were approximately
$1,958,000.
H.
Construction The Utah State Division of Facilities Construction and Management (DFCM) administers most of the con-struction of facilities for state institutions, maintains records, and furnishes cost information for recording plant assets on the books of the University. Interest expense incurred for construction of capital facilities is considered immaterial and is not capitalized. Construc-tion projects administered by DFCM are not recorded on the books of the University until the facility is avail-able for occupancy.
I Disclosures Financial information for fiscal year ended June 30, 2008 is included for comparison only and is not com-plete. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Complete information is available in the separately issued financial statements for that year.
- 2. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS Cash and cash equivalents consists of cash and short-term investments with an original maturity of three months or less. Cash, depending on source of receipts, is pooled, except for cash and cash equivalents held by ARUP and when legal requirements dictate the use of separate accounts. The cash balances are invested prin-cipally in short-term investments that conform to the provisions of the Utah Code. It is the practice of the University that the investments ordinarily be held to maturity at which time the par value of the investments will be realized.
The Utah State Treasurer's Office operates the Utah Public Treasurer's Investment Fund (PTIF) which is 27
managed in accordance with the State Money Manage-ment Act. The State Money Management Council pro-vides regulatory oversight for the PTIE The PTIF is available for investment of funds administered by any Utah public treasurer.
Short-term investments have original maturities longer than three months and remaining maturities of one year or less.
At June 30, 2009, cash and cash equivalents and short-term investments consisted of:
Cash and Cash Equivalents Cash Money market funds Time certificates of deposit Commercial paper Utah Public Treasurer's Investment Fund U.S. Treasuries U.S. Agencies Total (fair value)
$ (14,634,653) 8,111,249 22,987,986 20,943,485 115,6140 22 5,316,809 115,788,991
$ 274,127,889 patents along with the right to receive future royalties based on product sales. Inasmuch as the stock is ordi-narily not actively traded, the fair value is generally not ascertainable and any realization from the future sale of the stock is often uncertain. Therefore, such stock is recorded by UURF at a nominal value. Those stocks that are publicly traded are recorded at their fair value on June 30, 2009.
University personnel manage certain portfolios, while other portfolios are managed by banks, investment ad-visors or through trust agreements.
According to the Uniform Prudent Management of In-stitutional Funds Act (UPMIFA), Section 51-8 of the Utah Code, the institution may appropriate for expen-diture or accumulate so much of an endowment fund as the University determines to be prudent for uses, ben-efits, purposes, and duration for which the endowment was established.
The endowment income spending practice at June 30, 2009, is 3% of the twelve quarter moving average of the market value of the endowment pool. The spend-ing practice is reviewed periodically and any necessary changes are made. In general, nearly all of the Univer-sity's endowment is subject to spending restrictions im-posed by donors.
The amount of net appreciation on investments of do-nor-restricted endowments available for authorization for expenditure at June 30, 2009, was approximately
$7,438,000. The net appreciation is a component of restricted expendable net assets.
At June 30, 2009, the investment portfolio composition was as follows:
Investments Short-term Investments Time certificates of deposit 3,485,034 U.S. Treasuries 334,775,148 U.S. Agencies 292,054,957 Corporate notes 19,755,340 Total (fair value)
$ 650,070,479
- 3. INVESTMENTS Funds available for investment are pooled to maximize return and minimize administrative cost, except for funds that are authorized by the University administra-tion to be separately invested or which are separately invested to meet legal or donor requirements. Invest-ments received as gifts are recorded at fair value on the date of receipt. If fair value is not available, investments received as gifts are recorded at a nominal value. Other investments are also recorded at fair value.
UURF receives, in exchange for patent rights, common stock of newly organized companies acquiring these U.S. Treasuries U.S. Agencies Corporate notes and bonds Mutual funds Common and preferred stocks Total (fair value)
$ 242,423,338 1,005,495 2,316,180 338,918,001 8,840,737
$ 593,503,751 28
- 4. DEPOSITS AND INVESTMENTS The State of Utah Money Management Council (Coun-cil) has the responsibility to advise the State Treasurer about investment policies, promote measures and rules that will assist in strengthening the banking and credit structure of the State, and review the rules adopted un-der the authority of the State of Utah Money Manage-ment Act (Act) that relate to the deposit and investment of public funds.
Except for endowment funds, the University follows the requirements of the Act (Utah Code, Section 51, Chap-ter 7) in handling its depository and investment trans-actions. The Act requires the depositing of University funds in a qualified depository. The Act defines a quali-fied depository-as any financial institution whose depos-its are insured by an agency of the federal government and which has been certified by the State Commissioner of Financial Institutions as meeting the requirements of the Act and adhering to the rules of the Council.
For endowment funds, the University follows the re-quirements of the UPMIFA, State Board of Regents' Rule 541, Management and Reporting of Institutional Investments (Rule 541), and the University's investment policy and endowment guidelines.
Deposits Custodial Credit Risk: Custodial credit risk for deposits is the risk that, in the event of a bank failure, the Uni-versity's deposits may not be returned.
At June 30, 2009, the carrying amounts of the Uni-versity's deposits and bank balances were $28,996,350 and $30,169,951, respectively. On October 3, 2008, the Federal Deposit Insurance Corporation (FDIC) temporarily increased the deposit insurance coverage to $250,000 for each depositor at each banking in-stitution. On January 1, 2014, the amount of insur-ance coverage will revert back to $100,000. As a result, the bank balances of the University were insured for
$500,000, by the FDIC. The bank balances in excess of
$500,000 were uninsured and uncollateralized, leaving
$29,669,951 exposed to custodial credit risk. The Uni-versity's policy for reducing this risk of loss is to deposit all such balances in qualified depositories, as defined and required by the Act.
Investments The Act defines the types of securities authorized as ap-propriate investments for the University's non-endow-ment funds and the conditions for making investment transactions. Investment transactions may be conducted only through qualified depositories, certified dealers, or directly with issuers of the investment securities.
These statutes authorize the University to invest in ne-gotiable or nonnegotiable deposits of qualified deposi-tories and permitted negotiable agreements; commercial paper that is classified as "first tier" by two nationally recognized statistical rating organizations, one of which must be Moody's Investors Service or Standard &
Poor's; bankers' acceptances; obligations of the United States Treasury including bills, notes, and bonds; bonds, notes, and other evidence of indebtedness of political subdivisions of the State; fixed rate corporate obliga-tions and variable rate securities rated "A" or higher, or the equivalent of "A" or higher, by two nationally rec-ognized statistical rating organizations; shares or certifi-cates in a money market mutual fund as defined in the Act; and the Utah State Public Treasurer's Investment Fund (PTIF).
The UPMIFA, Rule 541, and the University's endow-ment guidelines allow the University to invest endow-ment funds (including gifts, devises, or bequests of property of any kind from any source) in any of the above investments or any of the following subject to sat-isfying certain criteria: professionally managed pooled or commingled investment funds registered with the Securities and Exchange Commission or the Comptrol-ler of the Currency (e.g., mutual funds); professionally managed pooled or commingled investment funds cre-ated under 501 (f) of the Internal Revenue Code which satisfy the conditions for exemption from registration under Section 3(c) of the Investment Company Act of 1940; any investment made in accordance with the donor's directions in a written instrument; and any alternative investment funds that derive returns pri-29
marily from high yield and distressed debt (hedged or non-hedged), private capital (including venture capital, private equity, both domestic and international), natu-ral resources, and private real estate assets or absolute return and long/short hedge funds.
The PTIF is not registered with the SEC as an invest-ment company. TIhe PTIF is authorized and regulated by the Act, Section 51-7, Utah Code Annotated, 1953, as amended. The Act established the Council which over-sees the activities of the State Treasurer and the PTIF and details the types of authorized investments. Depos-its in the PTIF are not insured or otherwise guaranteed by the State, and participants share proportionally in any realized gains or losses on investments.
The PTIF operates and reports to participants on an amortized cost basis. The income, including gains and losses, net of administration fees, of the PTIF are allo-cated based upon the participant's average daily balance.
The fair value of the PTIF investment pool is approxi-mately equal to the value of the pool shares.
The University's participation in mutual funds may in-directly expose it to risks associated with using or hold-ing derivatives.
However, specific information about any such transactions is not available to the University.
Interest Rate Risk: Interest rate risk is the risk that chang-es in interest rates will adversely affect the fair value of an investment. The University's policy for managing its exposure to fair value loss arising from increasing inter-est rates is to comply with the Act or the UPMIFA and Rule 541, as applicable. For non-endowment funds, Section 51-7-11 of the Act requires that the remain-ing term to maturity of investments may not exceed the period of availability of the funds to be invested. The Act further limits the remaining term to maturity on all investments in commercial paper, bankers' acceptances, fixed rate negotiable deposits and fixed rate corporate obligations to 270-365 days or less. In addition, vari-able rate negotiable deposits and variable rate securities may not have a remaining term to final maturity ex-ceeding two years. For endowment funds, Rule 541 is more general, requiring only that investments be made as a prudent investor would, by considering the purpos-es, terms, distribution requirements, and other circum-stances of the endowments and by exercising reasonable care, skill, and caution.
As of June 30, 2009, the University had investments with maturities as shown in Figure 1.
Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obliga-tions. The University's policy for reducing its exposure to credit risk is to comply with the Act, the UPMIFA, and Rule 541, as previously discussed.
At June 30, 2009, the University had investments with quality ratings as shown in Figure 2.
Custodial Credit Risk: Custodial credit risk for invest-ments is the risk that, in the event of a failure of the counterparty, the University will not be able to recover the value of its investments that are in the possession of Figure 1.
Investment Maturities (in years)
Investment Type Fair Value Less than 1 1 -5 6-10 More than 10 Money market mutual funds 7,847,973 7,847,973 Time cerificates of deposit 3,485,034 3,485,034 Commercial paper 20,943,485 20,943,485 Utah Public Treasurer's Investment Fund 115,614,022 115,614,022 U.S. Treasuries 582,515,295 340,091,957
$ 242,423,338 U.S. Agencies 408,849,443 407,843,948 1,005,495 Corporate notes and bonds 22,071,520 19,755,340 2,316,180 Mutual bond funds 91,093,631 2,120,058
$ 88,973,573
$0 Totals
$ 1,252,420,403
$ 915,581,759
$ 247,865,071
$ 88,973,573
$0 30
an outside party. The University's policy for reducing its exposure to custodial credit risk is to comply with applicable provisions of the Act. As required by the Act, all applicable securities purchased were delivered versus payment and held in safekeeping by a bank. Also, as required, the ownership of book-entry-only securities, such as U.S. Treasury or Agency securities, by the Uni-versity's custodial bank was reflected in the book-entry records of the issuer and the University's ownership was represented by a receipt, confirmation, or statement is-sued by the custodial bank.
At June 30, 2009, the University's custodial bank was both the custodian and the investment counterparty for
$953,539,987 of U.S. Treasury and Agency securities purchased by the University and $37,824,751 of U.S.
Treasury securities were held by the custodial bank's trust department but not in the University's name.
Concentration of Credit Risk: Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The Univer-sity's policy for reducing this risk of loss is to comply with the Rules of the Council or the UPMIFA and Rule 541, as applicable. Rule 17 of the Council limits non-endowment fund investments in a single issuer of com-mercial paper and corporate obligations to 5-10% depend-ing upon the total dollar amount held in the portfolio.
For endowments, the University, under Rule 541, is permitted to establish its own investment policy which adheres to the guidelines established by UPMIFA. Ac-cordingly, the University's Pool Asset Allocation Guide-lines allocates endowment funds in the following asset classes:
Asset Class Global Marketable Equities Global Marketable Fixed Income Alternatives Target Allocation Allocation Range 45%
30%
25%
20% - 60%
25% - 50%
5% - 30%
The University diversifies assets among several invest-ment managers of varying investment strategies. Di-versification is an effective means of maximizing return while mitigating risk.
- 5. RECEIVABLES Accounts, pledges, and interest receivable include hos-pital patient accounts, medical services plan accounts, trade accounts, pledges, interest income on investments, and other receivables. Loans receivable predominantly consist of student loans.
Allowances for doubtful accounts are established by charges to operations to cover anticipated losses from ac-counts receivable generated by sales and services and stu-dent loans. Such accounts are charged to the allowance when collection appears doubtful. Any subsequent recov-eries are credited to the allowance accounts. Allowances are not established for pledges or in those instances where receivables consist of amounts due from governmental units or where receivables are not material in amount.
Figure 2.
Investment Type Money market mutual funds Time cerificates of deposit Commercial paper Utah Public Treasurer's Investment Fund U.S. Treasuries U.S. Agencies Corporate notes and bonds Fair Value 7,847,973 3,485,034 20,943,485 AAA/A-1 75,017 Quality Rating A
Unrated 7,772,956 No Risk
$ 3,485,034 20,943,485 115,614,022 582,515,295 408,849,443 408,849,443 22,071,520 115,614,022
$ 582,515,295 22,071,520 Mutual bond funds 91,093,631 91,093,631 Totals
$ 1,252,420,403
$ 429,867,945
$ 25,556,554
$ 214,480,609
$ 582,515,295 31
The following schedule presents receivables at June 30, 2009, including approximately $26,038,000 and
$77,893,000 of noncurrent loans and pledges receiv-able, respectively:
Accounts Grants and contracts Notes Loans Pledges Interest Less allowances for doubtful accounts Receivables, net
$ 396,825,891 46,301,983 100,000 31,926,846 80,684,701 4,677,988 560,517,409 (153,076,399)
$ 407,441,010
- 6. DEFERRED CHARGES AND OTHER ASSETS The costs associated with issuing long-term bonds pay-able are deferred and amortized over the life of the re-lated bonds using the straight-line method, which ap-proximates the effective interest method. In addition, goodwill associated with the purchase of certain health clinics and prepaid rent to the State of Utah for the Huntsman Cancer Hospital are amortized using the straight-line method. The June 30, 2009 balance of pre-paid rent to the State was $60,857,611.
- 7. CAPITAL ASSETS Buildings; infrastructure and improvements, which in-cludes roads, curbs and gutters, streets and sidewalks, and lighting systems; land; equipment; and library ma-terials are valued at cost at the date of acquisition or at fair market value at the date of donation in the case of gifts. Buildings, infrastructure and improvements, and additions to existing assets are capitalized when ac-quisition cost equals or exceeds $50,000. Equipment is capitalized when acquisition costs exceed $5,000 for the University or $1,000 for UUHC. All costs incurred in the acquisition of library materials are capitalized. All campus land acquired through grants from the U.S.
Government has been valued at $3,000 per acre. Other land acquisitions have been valued at original cost or fair market value at the date of donation in the case of gifts. Buildings, improvements, land, and equipment of component units have been valued at cost at the date of acquisition.
Capital assets of the University and its component units are depreciated on a straight-line basis over their esti-mated useful lives. The estimated useful lives of Uni-versity assets extends to forty years on buildings, fifteen years on infrastructure and improvements, twenty years on library books, and from five to fifteen years on equip-ment. The estimated useful lives of component unit as-sets extend to fifty years on buildings and improvements and from three to eight years on equipment. Land, art and special collections, and construction in progress are not depreciated.
At June 30, 2009, the University had outstanding com-mitments for the construction and remodeling of Uni-versity buildings of approximately $27,376,000.
Capital assets at June 30, 2009, are shown in Figure 3.
- 8. PENSION PLANS AND RETIREMENT BENEFITS As required by State law, eligible nonexempt employees (as defined by the U.S. Fair Labor Standards Act) of the University are covered by either the Utah State and School Contributory or Noncontributory or the Public 32
Safety Noncontributory Retirement Systems and eligi-ble exempt employees (as defined by the U.S. Fair Labor Standards Act) are covered by the Teachers Insurance and Annuity Association-College Retirement Equi-ties Fund (TIAA-CREF), Fidelity Investments (Fidel-ity), or the Vanguard Group, Inc. (Vanguard). Eligible employees of ARUP are covered by a separate defined contribution pension plan and a profit sharing plan.
The University contributes to the Utah State and School Contributory and Noncontributory and the Public Safety Noncontributory Retirement System (Systems) that are multi-employer, cost sharing, defined benefit pension plans. The Systems provide refunds, retirement benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries in accor-dance with retirement statutes.
The Systems are established and governed by the respec-tive sections of Chapter 49 of the Utah Code Annotated, 1953, as amended. The Utah State Retirement Office Act provides for the administration of the Utah Retire-ment Systems and Plans under the direction of the Utah State Retirement Board (Board) whose members are ap-pointed by the Governor. The Systems issue a publicly available financial report that includes financial state-ments and required supplementary information for the Systems. A copy of the report may be obtained by writ-ing to the Utah Retirement Systems.
Plan members in the State and School Contributory Retirement System are required to contribute 6.00% of their annual covered salaries, all of which is paid by the University, and the University is required to contrib-ute 9.73% of their annual salaries. In the State and School Noncontributory Retirement System and the Public Safety Noncontributory Retirement System, the University is required to contribute 14.22% (with an additional 1.50% to a 401(k) salary deferral program) and 29.55%, respectively, of plan members' annual sala-ries. The contribution requirements of the Systems are authorized by statute and specified by the Board and the contribution rates are actuarially determined.
TIAA-CREF, Fidelity, and Vanguard provide individual retirement fund contracts with each participating em-ployee. Employees may allocate contributions by the University to any or all of the providers and the con-tributions to the employee's contract(s) become vested at the time the contribution is made. Employees are eligible to participate from the date of employment and are not required to contribute to the fund. Benefits pro-vided to retired employees are based on the value of the individual contracts and the estimated life expectancy of the employee at retirement. For the year ended June 30, 2009, the University's contribution to these defined contribution pension plans was 14.20% of the employees' annual salaries. Additional contributions are made by the University based on employee contracts. The University has no further liability once contributions are made. Certain Figure 3.
Buildings Infrastructure and improvements Land Equipment Library materials Art and special collections Beginning Balance
$ 1,359,853,827 162,435,655 18,878,435 563,787,945 153,604,361 47,636,161 Additions
$ 180,753,355 15,807,587 89,153,430 2,568,887 2,739,783 Retirements 328,640 22,053,090 283,065 46,857 Ending Balance
$ 1,540,607,182 178,243,242 18,549,795 630,888,285 155,890,183 50,329,087 Construction in progress 190,651,795 269,512,364 208,824,754 251,339,405 Total cost 2.496,848,179 560,535,406 231,536,406 2,825,847,179 Less accumulated depreciation Buildings 570,821,131 49,030,580 619,851,711 Infrastructure and improvements 94,304,569 9,576,500 103,881,069 Equipment 389,080,338 53,633,422 19,561,208 423,152,552 Library materials 94,601,913 5,481,580 100,083,493 Total accumulated depreciation 1,148,807,951 1 17,722,082 19,561,208 1,246,968,825 Capital assets, net
$ 1,348,040,228
$ 4421813,324
$ 211,975,198
$ 1,578,878,354 33
UUHC employees hired prior to January 1, 2001, were filly vested as of that date. Employees hired subsequent to January 1, 2001, are eligible to participate in the plan one year after hire date and vest after six years. The University's contribution for these health clinic employees was 6.00%
of the employees' annual salaries.
The ARUP defined contribution pension and profit shar-ing plans provide retirement benefits for all employees.
Effective August 4, 2007, ARUP implemented a change in the defined contribution pension plan which allows employees to choose whether to continue to pay into the federal social security tax system or to participate in an enhanced ARUP retirement program. For those who choose to continue to pay social security taxes, ARUP makes contributions each pay period amount-ing to 5.00% of their compensation and ARUP contin-ues to make matching social security tax contributions.
For those who discontinue paying social security taxes, ARUP makes contributions each pay period amount-ing to 8.10% of their compensation and do not have any social security tax contributions made by ARUP on their behalf. There are no minimum service and vesting requirements relating to pension contributions.
Contributions to the profit sharing plan are at the dis-cretion ofARUP and are made subject to certain tenure-based and hours-worked thresholds. Employees are fully vested in the profit sharing plan after five years of service.
For the years ended June 30, 2009, 2008, and 2007, the University's contributions to the Systems were equal to the required amounts, as shown in Figure 4.
- 9. DEFERRED REVENUE Deferred revenue consists of summer session tuition and fees, advance payments on grants and contracts, ad-vance ticket sales for various athletic and cultural events, and results of normal operations of auxiliary enterprises and service units.
- 10. FUNDS HELD IN TRUST BY OTHERS Funds held in trust by others are neither in the posses-sion of nor under the management of the University.
These funds, which are not recorded on the University's financial records and which arose from contributions, are held and administered by external fiscal agents, se-lected by the donors, who distribute net income earned by such funds to the University, where it is recorded when received. The fair value of funds held in trust at June 30, 2009, was $71,903,843.
In addition, certain funds held in trust by others are com-prised of stock, which is reported at a value of$10,933,321 as of June 30, 2009, based on a predetermined formula.
The fair value of this stock as of June 30, 2009 cannot be determined because the stock is not actively traded.
- 11. RISK MANAGEMENT The University maintains insurance coverage for com-mercial general liability, automobile, errors and omis-sions, and property (building and equipment) through policies administered by the Utah State Risk Manage-ment Fund. Employees of the University and autho-rized volunteers are covered by workers' compensation and employees' liability through the Workers' Compen-sation Fund of Utah.
Figure 4.
State and School Contributory Retirement System State and School Noncontributory Retirement System Public Safety Noncontributory Retirement System TIAA-CREF Fidelity Vanguard Pension plan Profit sharing plan Total contributions 2009 1,527,460 26,010,222 403,770 66,282,674 18,564,335 2,706,528 8,758,713 8,079,552
$132,333,254 2008 1,555,310 25,209,056 316,579 63,247,520 7,457,205 1,808,724 7,280,524 7,036,696
$ 113,911,614 2007 1,581,565 24,259,347 328,163 70,903,307 3,498,662 6,050,982
$ 106,622,026 34
In addition, the University maintains self-insurance funds for health care, dental, and auto/physical dam-age, as well as hospital and physicians malpractice liabil-ity self-insurance funds. The malpractice liability self-insurance funds are held in trust with an independent financial institution in compliance with Medicare reim-bursement regulations. Based on an analysis prepared by an independent actuary, the administration believes that the balance in the trust funds as of June 30, 2009, is adequate to cover any claims incurred through that date. The University and UUHC have a "claims made" umbrella malpractice insurance policy in an amount considered adequate by its respective administrations for catastrophic malpractice liabilities in excess of the trusts' fund balances.
The estimated self-insurance claims liability is based on the requirements of GASB Statement No. 10, Account-ing and Financial Reporting for Risk Financing and Re-lated Insurance Issues, as amended by GASB Statement No. 30, Risk Financing Omnibus, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.
Changes in the University's estimated self-insurance claims liability for the years ended June 30 are shown in Figure 5.
The University has recorded the investments of the mal-practice liability trust funds at June 30, 2009, and the estimated liability for self-insurance claims at that date in the Statement of Net Assets. The income on fund in-vestments, the expenses related to the administration of the self-insurance and malpractice liability trust funds, and the estimated provision for the claims liability for the year then ended are recorded in the Statement of Revenues, Expenses, and Changes in Net Assets.
- 12. INCOME TAXES The University, as a political subdivision of the State, has a dual status for federal income tax purposes. The University is both an Internal Revenue Code (IRC)
Section 115 organization and an IRC Section 501(c)
(3) charitable organization. This status exempts the University from paying federal income tax on revenue generated by activities which are directly related to the University's mission. This exemption does not apply to unrelated business activities. On these activities, the University is required to report and pay federal and state income tax.
UURF is not subject to income taxes under Section 501 (c)(3) of the Internal Revenue Code.
ARUP is also not subject to income taxes based on a private letter ruling from the Internal Revenue Service stating that certain income providing an essential gov-ernmental function is exempt from federal income taxes under Internal Revenue Code Section 115.
- 13. HOSPITAL REVENUE A. Net Patient Service Revenue UUHC reports net patient service revenue at the esti-mated net realizable amounts from patients, third-party payors, and others for services rendered, including es-timated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjust-ments are accrued on an estimated basis in the period the related services are rendered and adjusted-in future periods as final settlements are determined.
Charity care is excluded from net patient service revenue.
UUHC has third-party payor agreements with Medi-care and Medicaid that provide for payments to UUHC Figure 5.
Estimated claims liability - beginning of year Current year claims and changes in estimates Claim payments, including related legal and administrative expenses Estimated claims liability - end of year 2009
$ 70,529,051 144,002,554 (164,276,648)
$ 50,254,957 2008
$ 66,157,336 147,574,679 (143,202,964)
$ 70,529,051 35
at amounts different from established rates. Inpatient acute care services rendered to Medicare and Medicaid program beneficiaries are paid at prospectively deter-mined rates per discharge. These rates vary according to a patient classification system that is based on clini-cal, diagnostic, and other factors. Outpatient services rendered to Medicaid program beneficiaries and certain outpatient services and defined capital costs related to Medicare beneficiaries are paid on a cost reimbursement basis. Medicare reimbursements are based on a tentative rate with final settlement determined after submission of annual cost reports by UUHC and audits thereof by the Medicare fiscal intermediary.
The estimated final settlements for open years are based on preliminary cost findings after giving consideration to interim payments that have been received on behalf of patients covered under these programs.
B. Charity Care UUHC maintains records to identify and monitor the level of charity care it provides. Based on established rates, the charges foregone as a result of charity care dur-ing the year ended June 30, 2009, were approximately
$34,075,000.
- 14. LEASES A. Revenue UURF receives lease revenues from noncancellable sub-lease agreements with tenants of the Research Park and from tenants occupying six buildings owned by UURF.
The lease revenue to be received from these noncan-cellable leases for each of the subsequent five years is
$6,500,000, and for eighteen years thereafter, comparable annual amounts. Most lease revenue is subject to escala-tion based on changes in the Consumer Price Index (CPI).
Since such escalations are dependent upon future changes in the CPI, these escalations, if any, are not reflected in the minimum noncancellable lease revenues listed above.
At June 30, 2009, the historical cost of land and build-ings held for lease and the related accumulated deprecia-tion were $39,191,696 and $13,238,338, respectively.
B. Commitments The University leases buildings and office and comput-er equipment. Capital leases are valued at the present value of future minimum lease payments. Assets associ-ated with the capital leases are recorded as buildings and equipment together with the related long-term obliga-tions. Assets currently financed as capital leases amount to $7,420,000 and $76,731,164 for buildings and equipment, respectively. Accumulated depreciation for these buildings and equipment amounts to $742,000 and $46,029,637, respectively. Operating leases and re-lated assets are not recorded in the Statement of Net Assets.
Payments are recorded as expenses when in-curred and amount to approximately $19,807,230 for the University and $5,934,203 for component units for the year ended June 30, 2009. Total operating lease commitments for the University include approximately
$9,477,784 of commitments to component units.
Included in the above component unit lease expenses are leases by ARUP for its principal laboratory and of-fice buildings, under long-term agreements, from a real estate investment trust in which one of its directors is a shareholder. The agreements have initial terms of fifteen years with renewal options ranging from ten to twenty years and include rent increases of two to three percent annually in the sixth and eleventh years from the com-mencement of the lease. ARUP also leases space from another company in which one of its directors is an owner. Total lease payments for the year ended June 30, 2009 were $5,499,981.
Future minimum lease commitments for operating and capital leases as of June 30, 2009 are shown in Figure 6
- 15. BONDS PAYABLE & OTHER LONG-TERM LIABILITIES The long-term debt of the University consists of bonds payable, certificates of participation, capital lease obli-gations, compensated absences, and other minor obli-gations.
The State Board of Regents issues revenue bonds to pro-vide funds for the construction and renovation of major 36
capital facilities and the acquisition of capital equip-ment for the University. In addition, revenue bonds have been issued to refund other revenue bonds and capitalized leases.
The revenue bonds are special limited obligations of the University. The obligation for repayment is solely that of the University and payable from the net revenues of auxiliary enterprises and UUHC, student building fees, land grant income, and recovered indirect costs. Nei-ther the full faith and credit nor the taxing power of the State or any other political subdivision of the State is pledged to the payment of the bonds, the distributions or other costs associated with the bonds.
In 1985, the State Board of Regents authorized the Uni-versity to issue Variable Rate Demand Industrial Devel-opment Bonds (University Inn Project - 1985 Series) for the Salt Lake City Marriott - University Park Hotel, separate from the University. The bonds are payable from the revenues of the hotel and the University has no responsibility or commitment for repayment of the bonds. The outstanding balance of the bonds at June 30, 2009, is $5,115,000.
The Series 1997A Auxiliary and Campus Facilities Rev-enue Bonds currently bear interest at a weekly rate in accordance with the bond provisions. When a weekly rate is in effect, the Series 1997A Bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days notice and delivery to the University's tender agent. The Uni-versity's remarketing agent is authorized to use its best efforts to sell the repurchased bonds at a price equal to 100 percent of the principal amount by adjusting the interest rate. If any Series 1997A Bonds cannot be re-marketed to new holders, the tender agent is required to draw on an irrevocable standby bond purchase agree-ment to pay the purchase price of the bonds delivered to it. The standby bond purchase agreement is with JP-Morgan Chase Bank and is valid through July 30, 2010.
As a result of the Lehman Brothers bankruptcy, several remarketing attempts failed during September 2008.
While funds were drawn during this period, eventually all bonds were successfully remarketed and the issue was resolved by the end of October. The interest require-ment for the Series 1997A Bonds is calculated using an annualized interest rate of 0.40%, which is the rate in effect at June 30, 2009.
The Hospital Revenue Bond Series 2006B also experi-enced failed attempts to remarket bonds during Sep-tember 2008. Funds were drawn on a standby bond purchase agreement with DEPFA Bank and eventually Figure 6.
Fiscal Year Operating 2010 2011 2012 2013 2014 2015 - 2019 2020 - 2024 2025 - 2029 2030 -2034 2035 - 2039 2040 - 2044 2029 -2029
$ 27,568,794 26,199,048 23,382,171 21,034,002 19,819,357 73,666,877 41,131,376 14,114,540 3,078,325 875,000 875,000 875,000
$ 252,619,490 Capital
$ 13,713,110 11,535,022 9,482,506 7,050,942 3,114,091 3,813,776 2,450,808 Total future minimum lease payments Amount representing interest Present value of future minimum lease payments 51,160,255 (5,394,453)
$ 45,765,802 37
the bonds were successfully remarketed by the end of October. In December, this bond series was refunded with the Hospital Revenue Refunding Bonds Series 2008.
The Hospital Revenue Refunding Bonds Series 2008 currently bear interest at a weekly rate in accordance with the bond provisions. When a daily rate is in effect, the Series 2008 Bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest. The University's remarketing agent is authorized to use its best efforts to sell the repurchased bonds at a price equal to 100 percent of the principal amount plus accrued interest. If any Series 2008 bonds cannot be remarketed to new holders, the tender agent is required to draw on an irrevocable letter of credit to pay the purchase price of the bonds delivered to it. The letter of credit is with Wells Fargo Bank, N.A. and is scheduled to expire on December 1, 2010 or earlier on the occurrence of certain events. Through June 30, 2009, no funds have been drawn against the letter of credit agreement. The interest requirement for the Se-ries 2008 Bonds is calculated using an annualized inter-est rate of 0.25%, which is the rate in effect at June 30, 2009.
Figure 7 lists the outstanding bonds payable and certificates of participation of the University at June 30, 2009.
UURF has purchased three buildings with two mort-gages that are guaranteed by the University. The remain-ing amounts of the mortgages are $5,467,388 at 8.87%
interest and $2,695,955 at 7.15% interest. The mort-gages will be paid off on April 1, 2020 and September 1, 2021, respectively. In addition, UURF agreed to bear 42.04% of the cost to renovate the building at 417 Wa-kara Way for the Health Science Center. The remaining balance of debt related to those costs is $2,936,494 at interest rates ranging from 3.00% to 4.70%.
The schedule in Figure 8 summarizes the changes in long-term liabilities for the year ended June 30, 2009.
Maturities of principal and interest requirements for long-term debt payable are as follows:
Fiscal Year 2010 2011 2012 2013 2014 2015-2019 2020 - 2024 2025 -2029 2030 -2034 Total Payments Principal Interest
$ 26,365,643
$ 16,077,901 27,159,019 15,053,468 23,937,680 14,023,974 22,296,919 13,135,168 19,289,844 12,339,271 81,631,883 49,831,104 76,214,639 32,336,237 77,094,727 15,880,814 26,220,121 1,660,376
$ 380,210,475
$170,338,313 Interest related to bonds systems with pledged revenues amounts to $141,731,377 and is included in the inter-est amounts in the above schedule.
38
Figure 7.
Date Maturity Issued Date Issue Auxiliary and Campus Facilities Series 1987A - Refunding Series 1997A - Revenue Series 1998A - Revenue Re Series 1999A - Revenue Series 2001
- Revenue Series 2005A - Refunding Hospital Series 2005A - Revenue Re funding funding 3/1/87 7/30/97 7/1/98 5/1/99 7/18/01 8/2/05 7/14/05 10/26/06 12/1/08 6/30/04 2/15/05 6/07/05 10/7/08 2014 2027 2016 2014 2021 2021 2018 2032 2031 2019 2025 2020 2022 Interest Rate 3.750% - 6.750%
Variable 4.100% - 5.250%
4.000% - 4.800%
3.500% - 5.125%
3.000% - 5.000%
4.500% - 5.000%
4.000% - 5.250%
Variable 3.000% - 4.700%
3.000% - 5.000%
3.000% - 5.000%
3.250% - 5.000%
Original Issue
$ 11,140,000 52,590,000 120,240,000 5,975,000 2,755,000 42,955,000 30,480,000 77,145,000 20,640,000 9,685,000 5,515,000 20,130,000 9,360,000 42,450,000 Current Balance Liability 6/30/2009(a) 250,000 1,265,000 24,177 462,145 123,632 2,984,633 Series 2006A - Revenue Refunding Series 2008
- Revenue Refunding Research Facilities Series 2004A - Revenue Series 2005A - Revenue Series 2005B - Refunding Series 2008A - Revenue Refunding Certificates of Participation Series 2007 Total 3,294,715 114,418 520,000 577,381 220,089 1,542,733 551,894 815,000 8,810,000 53,664,302 2,539,968 1,973,475 40,258,043 32,254,759 82,016,717 20,640,000 7,013,623 4,846,011 15,266,710 9,054,032 4/3/07 2027 4.000% - 5.500%
790,563 40,868,048
$ 12,721,380
$ 320,020,688 (a) Includes unamortized premiums and losses on refunding.
Figure 8.
Beginning Balance Bonds payable
$ 289,485,72, Certificates of participation 41,589,77 Capital leases payable 50,470,75 Notes and contracts payable 15,214,04 4
7 5
1 Additions
$ 30,201,709 8,080,684 494,885 38,777,278 35,292,298 83,610,131
$ 157.679.707 Reductions
$ 40,534,793 721,729 12,785,637 1,284,941 55,327,100 31,632,827 141,857,446
$ 228.817.373 Ending Balance
$ 279,152,640 40,868,048 45,765,802 14,423,985 380,210,475 47,727,055 77,544,508
$ 505.482.038 Current Portion
$ 11,930,817 790,563 12,223,980 1,420,283 26,365,643 4,938,707 68,052,364
$ 99.356.714 Total long-term debt Compensated absences Deposits & other liabilities Total long-term liabilities 396,760,297 44,067,584 135,791,823
$ 576.619.704 39
- 16. RETIREMENT OF DEBT In prior years, the University defeased certain revenue bonds by placing the proceeds of new bonds and various bond reserves in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the University's financial statements.
The total principal amount of defeased bonds held in ir-revocable trusts at June 30, 2009, is $39,115,000.
In addition, the University issued two refunding bond series during the fiscal year. The first series was the Re-search Facilities Revenue Refunding Bonds Series 2008A issued on October 7, 2008, in the amount of $9,360,000 for the purpose of refunding all of the Research Facili-ties' Revenue Bonds Series 2007A. This refunding re-sulted in a reduction of the University's aggregate debt service payments of approximately $425,000 over the next thirteen years and a present value economic gain of approximately $396,000. The second series was the Hospital Revenue Refunding Bonds Series 2008 issued on December 1, 2008, in the amount of $20,640,000 for the purpose of refunding all of the Hospital Revenue Refunding Bonds Series 2006B. This refunding resulted in a reduction of the University's aggregate debt service payments of approximately $18,567,000 over the next twenty-three years and a present value economic gain of approximately $14,975,000.
Figure 9.
- 17. FUNCTIONAL CLASSIFICATION OF EXPENSES Figure 9 presents, in thousands of dollars, operating ex-penses by functional classification and natural classifica-tion for the year ended June 30, 2009:
- 18. PLEDGED BOND REVENUE The University issues revenue bonds to provide funds for the construction and renovation of major capital fa-cilities and the acquisition of capital equipment for the University. Investors in these bonds rely solely on the net revenue pledged by the following activities for the retirement of outstanding bonds payable.
Auxiliary Enterprises - is comprised of specific auxiliary enterprises, namely: University Campus Store, Housing and Residential Education, University Student Apart-ments, Commuter Services, Jon M. Huntsman Center, Rice-Eccles Stadium, and the A. Ray Olpin University Union Building. These auxiliaries provide on-campus services for the benefit of students, faculty, staff and visi-tors. In addition to the net revenues of these auxilia-ries, student building fees, state land grant income and a subsidy from the federal department of Housing and Urban Development are pledged to the retirement of all Auxiliary Campus and Facility bonds.
Function Instruction Research Public service Academic support Student services Institutional support O & M of plant Student aid Other Hospital Compensation and Benefits
$ 256,562 155,829 361,313 59,201 15,354 35,572 21,872 2,769 30,075 398,468 Supplies and Services
$ 31,751 77,663 75,460 25,146 5,731 (6,751) 19,817 25,160 (53,443) 379,111 Utilities
$ 1,904 1,585 18,140 682 239 4,053 18,868 13 5,507 10,014 Scholarships
& Fellowships
$28,356 2,723 1,752 140 316 493 3
(10,058) 2,261 Depreciation &
Component Amortization Units Total
$ 318,573 237,800 456,665 85,169 21,640 33,367 60,560 17,884 90,063 787,593
$105,663 Component Units 2,688 12,812
$328,196 343,696 Total
$1,339,703
$579,645
$61,005
$25,986
$118,475
$328,196
$2,453,010 40
University of Utah Hospitals & Clinics - is comprised of the University Hospitals, the University Neuropsychiat-ric Institute, and other clinics that provide health and psychiatric services to the community.
Reimbursed Overhead -
is the revenue generated by charging approved facilities and administration rates to grants and contracts.
Figure 10 presents the net revenue pledged to the ap-plicable bond system and the principal paid and interest expense for the year ended June 30, 2009.
- 19. COMMITMENTS AND CONTINGENCIES Under the terms of various limited partnership agree-ments approved by the Board of Trustees or by Univer-sity officers, the University is obligated to make periodic payments for advance commitments to venture capital and private equity investments. As of June 30, 2009, the University had committed, but not paid, a total of
$19,323,652 in funding for these alternative investments.
- 20. SUBSEQUENT EVENTS On August 26, 2009, the University issued $19,080,000 of Research Facilities Revenue Bonds, Series 2009A and $27,730,000 Taxable Research Facilities Revenue Bonds, Series 2009B (Issuer Subsidy - Build America Bonds). Principal on the Series 2009A bonds is due an-nually commencing April 1, 2010 through April 1, 2019 and principal on the Series 2009B bonds is due annu-ally commencing April 1, 2020 through April 1, 2029.
Bond interest is due semiannually commencing April 1, 2010 at rates ranging from 4.00% to 6.279%. Each in-terest payment on the Series 2009B bonds will receive a subsidy from the Federal Government with funds pro-vided by the American Recovery and Reinvestment Act totaling $9,051,083 over the life of the bonds. Proceeds from these bonds will be used to finance certain infra-structure improvements including a central chilled water plant. The infrastructure improvements are necessary for planned construction for interdisciplinary research, clin-ical operations and improving inefficient cooling systems in some existing buildings.
On September 1, 2009, the University entered into a sublease agreement with the State of Utah for Phase I-B of the Huntsman Cancer Hospital which requires semi-annual lease payments beginning May 2010 through May 2030. Fiscal year payments range from $2.6 million in fiscal year 2010 to $12.4 million in fiscal year 2030.
Total lease payments over the life of the lease amount to
$158.9 million.
Figure 10.
Auxiliary & Campus Facilities Revenue Operating revenue Nonoperating revenue Bond Systems Hospital
$ 854,364,793 11,089,601 Research Facilities
$ 69,771,817 6,202,323
$ 66,889,483 Total revenue 75,974,140 865,454,394 66,889,483 Expenses Operating expenses 57,845,557 787.592,877 53,829,824 Total expenses 57,845,557 787,592,877 53,829,824 Net pledged revenue
$18,128,583
$ 77,861,517
$ 13,059,659 Principal paid and interest expense
$ 11,443,867
$ 29,407,541
$ 13,997,265 41
=11 UKEIT)IMMIrIff 01F UYU&S
ý 009,9gýpvadvo(ff mooqoý& ov&6ý afflosgo(g Utah State Board of Regents University Administration Jed H. Pitcher Chair Michael K. Young President Bonnie Jean Beesley Vice Chair Jerry C. Atkin Brent L. Brown Rosanita Cespedes France A. Davis Katharine B. Garff Greg W. Haws Meghan Holbrook David J. Jordan Nolan E. Karras Robert S. Marquardt Anthony W. Morgan Carol Murphy William H. Prows Marlon 0. Snow Teresa L. Theurer John H. Zenger.
William A. Sederburg Commissioner of Higher Education Board of Trustees Randy L. Dryer Chair Michele Mattsson Vice Chair A. Scott Anderson Timothy B. Anderson H. Roger Boyer Taylor Clough Lisa Eccles Clark D. Ivory Joyce P. Valdez James M. Wall A. Lorris Betz Senior Vice President for Health Sciences David W Pershing Senior Vice President for Academic Affairs Jack W. Brittain Vice President for Tech Venture Development Arnold B. Combe Vice President for Administrative Services Fred C. Esplin Vice President for Institutional Advancement Joan E. Gines Interim Vice President for Human Resources Stephen H. Hess Chief Information Officer John K. Morris Vice President/General Counsel Thomas N. Parks Vice President for Research Barbara H. Snyder Vice President for Student Affairs Kim Wirthlin Vice President for Government Relations Financial and Business Services Jeffrey J. West Associate Vice President for Financial and Business Services Theresa L. Ashman Controller/Director Financial Management Stephen P Allen Associate Director for Financial Accounting and Reporting Barbara K. Nielsen Associate Director for Compliance Accounting and Reporting Spencer E Eccles Treasurer Laura Snow Secretary 42
i THEK7 UNIVERSITY OF UTAH ANNUAL FINANCIAL REPORT PREPARED BY:
The University of Utah I Controller's Office 201 South Presidents Circle, Room 408 Salt Lake City, Utah 84112-9023 (8oi) 581-5077 I Fax (80) 585-5257
- ýme APmimensO
©@n m Repoart
THE W
UNIVERSITY OF UTAH
Table of Contents Ilk
Message from the President I am pleased to present this financial report for the University's 2oo8 fiscal year.
Publication of this report has always presented an opportunity to celebrate the efforts and generosity of a broad community of students, faculty, administrators, staff, alumni, and friends. While this year is no different, recent events threaten to overshadow such thoughts. A financial crisis has taken center stage across the United States and the world. Its full dimensions are currently unclear, but its immediate impact is quite clear. It has brought new uncertainties into our lives, with volatile financial markets reflecting and perhaps magnifying widespread feelings of instability.
Times such as this bring into focus the immense value of a top-notch University such as ours. The University is a remarkable stabilizing force in our state; a counterbalance to uncertainty and trouble. Its true value flows from its basic missions:
Teaching - Education is an effective antidote to economic turmoil and the fear it produces. At the University, our students gain the tools they need to embrace their futures. They also develop precious perspective-not only from a knowledge of past generations and the difficulties they faced, but also from an expanded view of our place in today's global society. Within the past year, we've instituted important academic requirements to help broaden our students' base of knowledge about global issues and global perspectives.
Research - The U's research enterprise has proven to be a powerful economic force, in Utah and across the nation. Within the past year, the U was ranked second best in the nation at starting technology companies based on its research. Accomplishments in this area have increased dramatically in recent years.
70 60 50 40 30 20 10 1970-74 1975-79 19RO-84 1985-89 1990-94 1991-99 2000-04 2003-08 During the past year Dr. Mario Capecchi, distinguished professor of human genetics and biology at the University of Utah's Eccles Institute of Human Genetics, won the Nobel Prize in Physiology or Medicine.
Shortly thereafter he recalled how he felt coming to the United States as a child who had experienced some of the horrors of World War II. "I expected the streets to be paved with gold. But what I found instead was opportunity."
Our researchers have a tremendous record of finding golden opportunities, as illustrated by some recent announcements:
- Dr. Marc Porter, a Utah Science, Technology and Research (USTAR) professor of chemistry, chemical engineering and bioengineering and Michael Granger, USTAR research scientist, recently published 2
the results of research demonstrating a new method for rapid disease testing. In collaboration with others, they successfully'created a sensitive prototype device that could test for dozens or even hundreds of diseases simultaneously by acting like a credit card-swipe machine to scan a card loaded with microscopic blood, saliva or urine samples.
- The University has established the Nano Institute of Utah, representing a significant and decisive step in the quest to bring together nano science experts in diverse areas of chemistry, physics, biology, engineering, medicine and pharmacy. As USTAR nanotechnology consultant Darwin Cheney, PhD. has stated, "the institute should prove to be a magnet for industry-sponsored research and other collaborative efforts with leading life science business. It will be in a unique position to capitalize on state-of-the-art nanofabrication facilities the University is adding as part of the USTAR building project."
- University biologists Simon Titen and Kent Golic have conducted a study showing that the loss of a single telomere-the end of a chromosome-within a cell may be the main event that starts a cell on the road to becoming cancerous.
We have every expectation exciting opportunities will continue to sprout from the U's research enterprise, even in today's troubled economy.
Public Service - To society's most vulnerable, the U provides direct help. On the most personal level, our doctors, nurses, and other healthcare workers relieve suffering and offer hope for the future. We devote substantial resources to caring for those who cannot pay.
We provide numerous service-learning opportunities for students. One example is our Service-Learning Scholars Program-an academically challenging program that supports and recognizes University students in addressingcommunity needs. Students apply their academic knowledge to community issues and develop leadership and organizational skills while devoting over 40o hours to community service.
Our public service efforts are also international. For more than a decade, faculty and students have traveled each year to Ghana during summer break to work in community health centers, provide volunteer neurological care, work in operating rooms, teach anesthesia to nurse anesthetists and students, and help villages develop agricultural resources.
I could cite hundreds of other examples. The University does all this with modest resources. We are responsible and frugal, and are belt-tightening in strategic ways that will allow our core mission to continue growing.
The University of Utah is fully dedicated to the greater good through teaching, research, and public service.
As we encounter current economic uncertainties one thing is certain-this is an extraordinary community of faculty scholars, students, and friends who can be relied on. The U is important, now more than ever. I look to the future with optimism and express appreciation for my association with this community of talented and dedicated people.
3
or STATE OF UTAH AHDEPUTY STATE AUDITOR:
Office of the State Auditor Joe Christensen, CPA UTAH STATE CAPITOL COMPLEX EAST OFFICE BUILDING, SUITE E310 FINANCIAL AUDIT DIRECTORS:
P.O. BOX 142310 H. Dean Eborn, CPA SALT LAKE CITY, UTAH 84114-2310 Deborah A. Empey, CPA (801) 538-1025 Stan Godfrey, CPA Auston G. Johnson, CPA Jon T. Johnson, CPA UTAH STATE AUDITOR Independent State Auditor's Report To the Board of Trustees, Audit Committee, and Michael K. Young, President University of Utah We have audited the accompanying basic financial statements of the University of Utah (hereinafter referred to as the "University") as of and for the year ended June 30, 2008, as listed in the table of contents. The University is a component unit of the State of Utah. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the University of Utah Hospitals and Clinics or the University's blended component units, which represent approximately 23% ($797,297,000) of total assets and 45% ($113,567,000) of total revenues of the University. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Utah Hospitals and Clinics and the blended component units, is based on the reports of the other auditors. The prior year partial comparative information has been derived from the University's 2007 financial statements and, in our report dated October 26, 2007, we expressed an unqualified opinion, based on our audit and the reports of other auditors, on the financial statements.
We'conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the blended component units were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2008, and the changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
4
In accordance with Government Auditing Standards, we have also issued our report dated November 14, 2008 on our consideration of the University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The accompanying management's discussion and analysis, as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Auston G. Johns
, CPA Utah State Auditor November 14, 2008 5
Management's Discussion and Analysis
ý ý-,, I
INTRODUCTION The following discu'ssion and analysis provides an overview of the financial position and activities of the University of Utah (University) for the year ended June 30, 2008, with selected comparative informa-tion for the year ended June 30, 2007. This discus-sion has been prepared by management and should be read in conjunction with the financial statements and the notes thereto, which follow this section.
The University is a comprehensive public institu-tion of higher learning with approximately 28,ooo students, 2,300 full-time faculty members and more than 20,000 supporting staff. The University offers a diverse range of degree programs from baccalaure-ate to post-doctoral levels, through a framework of 15 schools, colleges and divisions, and contributes to the state and nation through related research and public service programs. The University also main-tains a prestigious health care complex through its University of Utah Hospitals and Clinics (UUHC).
The UUHC consists of three hospitals and numerous specialty clinics. The UUHC is an integral part of the University's health care system that also includes the University's School of Medicine and the Colleges of Health, Nursing, and Pharmacy. The University's health care system has a tradition of excellence in teaching and advancement of medical science and patient care - consistently ranking among the best health care systems in the western United States.
The University ranks as one of the nation's top uni-versities by various measures of quality, both in general academic terms and in terms of strength of offerings in specific academic disciplines and pro-fessional subjects. Excellence in research is anoth-er crucial element in the University's high ranking among educational institutions.
In addition to the academic schools, colleges, and departments, the University operates the University of Utah Research Foundation (UURF), a separately incorporated entity that specializes in applied re-search, the transfer of patented technology to busi-ness entities, leasing and administration of Re-search Park (a research park located on land owned by the University), and the leasing of certain build-ings. Also, a wholly-owned, separately incorporated enterprise, the Associated Regional and University Pathologists, Inc. (ARUP) is a national clinical and anatomic pathology reference laboratory.
7
FINANCIAL HIGHLIGHTS The University's financial position remained strong at June 30, 2008, with assets of $3.5 billion and total liabilities of $o.8 billion. Net assets, which repre-sent the residual interest in the University's assets after liabilities are deducted, increased by $169.6 million to $2.7 billion at June 30, 2008.
Changes in net assets represent the total activity of the University, which results from all revenues, ex-penses, gains and losses, and are summarized for the years ended June 30, 2008 and 2007 in Figure 1.
Fiscal year 2008 revenues before change in fair value of investments remained essentially the same, while expenses increased 8.8%, or $186.4 million. This re-sulted in a net gain before changes in fair value of investments of $211.7 million for fiscal year 2008, as compared to $397.5 million for fiscal year 2007.
The University invests its endowment funds to maxi-mize total return over the long term, within an ap-propriate level of risk. The success of this long-term investment strategy is evidenced by returns averag-ing 9.7% during the past five years.
USING THE FINANCIAL STATEMENTS The University's financial report is prepared in ac-cordance with Governmental Accounting Standards Board (GASB) principles and includes three finan-cial statements: the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and the Statement of Cash Flows.
Revenues and expenses are categorized as operat-ing or nonoperating and other net asset additions as capital contributions or additions to permanent en-dowments. Significant recurring sources of the Uni-versity's revenues, including state appropriations, gifts and investment income, are considered nonop-erating, as defined by GASB Statement No. 34, Baic Financial StatementA - and Managements DLcu--
,Aion and AnalyziA -for State and Local GovernmentM.
Nonoperating revenues totaled $410.2 million and
$494.2 million for the years ended June 30, 2008 and 2007, respectively. Nonoperating expenses, which include interest expense, totaled $33.8 million and
$31.5 million for the years ended June 30, 2008 and 2007, respectively.
Also, as required by GASB Statement No. 34, schol-arships and fellowships applied to student accounts are shown as a reduction of auxiliary and tuition and fee revenues, while stipends and other payments made directly to students are presented as scholar-ship and fellowship expenses. For the years ended June 30, 2008 and 2007, scholarship and fellowship expenses totaled $24.6 million and $23.8 million, re-spectively. In addition, scholarships and fellowships in the amount of $22.6 million and $18.8 million for the years ended June 30, 2008 and 2007, respective-ly, are reported as a reduction of tuition and fees and auxiliary enterprises revenue.
Other appropriate revenue items have also been re-duced by the allowance for uncollectible amounts which is estimated each fiscal year.
Figure i.
2008 Total revenues before change in fair value of investments Total expenses Increase in net assets before change in fair value of investments
$ 2,522,4' 2,310,8(
211,6*
2007 (in thou.6andA) 91
$2,521,918 05 2,124,446 86 397,472 Increase (decrease) in fair value of investments Increase in net assets (42,130) 169,556 65,146
$ 462,618 8
STATEMENT OF NET ASSETS The Statement of Net Assets presents the financial position of the University at the end of the fiscal year and includes all assets and liabilities of the Univer-sity. The difference between total assets and total li-abilities is net assets and is one indicator of the cur-rent financial condition of the University, while the change in net assets is an indicator of whether the overall financial condition has improved orworsened during the year. Assets and liabilities are generally measured using current values except for capital as-sets, which are stated at historical cost less an allow-ance for depreciation. A summarized comparison of the University's assets, liabilities and net assets at June 30, 2o08 and 2007 is shown in Figure 2.
A review of the University's Statement of Net Assets at June 30, 2oo8 and 2007, shows that the University continues to build upon its strong financial founda-tion. This strong financial position reflects the pru-dent utilization of its financial resources, including careful cost controls, management of its endowment funds, utilization of debt and adherence to its long range capital plan for the maintenance and replace-ment of the physical plant.
Current assets consist primarily of cash, operating investments, trade receivables and inventories. Cur-Figure 2.
Current assets Noncurrent assets Endowment and other investments Receivables, net Capital assets, net Other rent assets represent approximately 7.1 months of total operating expenses (excluding depreciation).
Current cash and investments totaled $936.2 mil-lion at June 30, 2008 and $937.5 million at June 30, 2007. Net receivables increased from $273.4 million at June 30, 2007 to $288.8 million at June 30, 2008.
Current liabilities consist primarily of trade accounts, accrued payroll, deposits, and other liabilities, which totaled $347.3 million at June 30, 2008, as compared to $301.5 million at June 30, 2007. Current liabilities also include deferred revenue and the current portion of bonds payable. Total current liabilities increased
$45.7 million during fiscal year 2008.
2008 2007 (in thoutAand6)
$1,279,049
$ 1,254,949 672,264 82,689 1,348,040 75,235 3,457,277 684,983 69,522 1,248,432 17,406 3,275,292 Total assets Current liabilities Noncurrent liabilities Total liabilities 347,254 422,982 770,236 301,528 456,279 757,807 Net assets
$2,687,041
$2,517,485 9
iigu7a Dr. Mario Capecchi, Nobel Prize in PhyAiology or Medicine.
ENDOWMENT AND SIMILAR INVESTMENTS The University's endowment funds consist of true endowments, term endowments, and quasi-endow-ments. True endowments (also known as permanent endowments) are those funds received from donors with the stipulation that the principal remain invio-late and be held in perpetuity to produce income that is to be expended for the purposes specified by the donor. Term endowment funds are similar to true endowments, except that, upon the passage of a stat-ed period of time or the occurrence of a particular event, all or part of the principal may be expended.
Substantially all the University's endowments are re-stricted by the donor for a particular purpose. Quasi-endowments consist of institutional funds that have been allocated by the University for long-term invest-ment purposes. Although such funds are not subject to donor restrictions requiring the University to pre-serve the principal in perpetuity, most carry restric-tions as to how the funds may be spent. Programs supported by endowment funds include scholar-ships, fellowships, professorships, research efforts and other important programs and activities.
The University has implemented investment guide-lines for the University's Endowment Pool that are designed to maximize long-term results. The assets are strategically allocated to provide for broad diver-sification of the investments with a long-term goal of maximizing returns within acceptable risk levels for investment of endowment funds. Endowment funds that are invested in the University's endowment pool are invested on a unit basis similar to mutual funds where new dollars buy shares in the pool.
Fiscal year 2oo8 represented the end of a very good five year period with respect to investment perfor-mance for the University's endowment funds. How-ever, at the end of the fiscal year significant upheav-als in the financial markets were beginning to take their toll on performance for all investors. The five year average annualized return was 9.7% through the end of the fiscal year. For the year ended June 30, 2008, the University of Utah endowment pool re-turned -4.3% compared to 17.0% for the year ended June 30, 2007. These results reflect the investment in equities and bonds in the asset allocation of the pool and compare favorably to broad indexes such as the S&P 5oo and Lehman Brothers Aggregate Bond
(-13.1% decline and 7.1% gain, respectively, for fiscal year 20o8). The unrealized net loss on the endow-ment pool for the year ended June 30, 20o8 totaled
$15.4 million compared to an unrealized gain of
$72.8 million for the year ended June 30, 2007.
10
Payout from the endowment pool is subject to a spending policy which determines a distribution rate that will be used to allocate funds to University de-partments based on the total market value of the pool.
The purpose of the spending policy is to establish a distribution rate that over time will generate returns adequate to continue support for future expenses in perpetuity assuming moderate levels of inflation.
During the year ended June 30, 2008, the spending policy was 4.0% of the twelve quarter moving average of unit market values. Given the unprecedented chal-lenges in the current financial environment, the en-dowment spending policy may be adjusted as neces-sary to maintain the University's historically prudent approach to endowment spending.
The endowment pool is managed on a total return basis where funds available for distribution are de-rived from dividends earned, interest and unreal-ized gains. While the endowment pool earnings were
$14.7 million in fiscal year 2oo8, the University dis-tributed $18.3 million to operations. The difference of $3.6 million was allocated from unrealized gains.
Since endowment funds are invested for long-term results rather than short-term annual returns, it is important to reflect on the longer investment hori-zon. The University's endowment pool has paid out an average of 4.o% and reinvested the balance repre-senting an average of 1.5%. The reinvested funds en-abled higher balances, thus yielding greater returns to keep pace with inflation of program expenses.
Endowments provide crucial support for the Univer-sity's quality academic programs and accessibility to these programs for students at both the graduate and undergraduate level.
Gifts to permanent endowments totaled $17.5 mil-lion and $17.2 million for the fiscal years 2oo8 and 2007, respectively.
CAPITAL AND DEBT ACTIVITIES One of the critical factors in continuing the quality of the University's academic and research programs is the development and renewal of its capital assets.
The University continues to implement its long-range plan to modernize its complement of older teaching and research facilities, balanced with new construction.
Capital additions totaled $244.4 million in fiscal year 2oo8, as compared to $426.o million in fiscal year 2007. Capital additions include replacement, reno-vation, and new construction of academic, research, and health care facilities, as well as significant in-vestments in equipment. Capital asset additions are funded by capital appropriations, bond proceeds, gifts which were designated for capital purposes, and unrestricted net assets.
Construction in progress at June 30, 2oo8, totaled
$190o.7 million that includes projects in numerous buildings across the campus. Significant projects in-clude: a new patient services wing of the University Hospital; continued renovation of the Marriott Li-brary; geology and geophysics office, lab, and class-room facilities; equipment for a new cogeneration power plant; and new office and classroom facilities for the College of Humanities.
The University takes seriously its role of financial stewardship and works hard to manage its financial resources effectively, including the prudent use of debt to finance capital projects. The debt rating of the University is an important indicator of success in this area. The underlying bond ratings from Stan-dard and Poor's and Moody's Investors Service for the Auxiliary and Campus Facilities Bonds are AA/
Aa2, the Hospital Revenue Bonds are AA/Aa2, the Research Facilities Revenue Bonds are AA-/Aa3, and the Certificates of Participation are AA/Aa 3, respec-tively. These ratings are considered high investment grade quality and position the University, if deemed necessary, to obtain future debt financing at lower interest rates.
Bonds payable totaled $289.5 million and $302.4 million at June 30, 2oo8 and 2007, respectively. The original purpose of all bond debt is to provide funds for the construction and renovation of major capital facilities and the acquisition of capital equipment for the University.
11
An institution's ratio of unrestricted operating rev-enues to bonds, notes and contract debt is a valuable indicator of its ability to finance its outstanding debt. At June 30, 2008, the University has 4.3 times the unrestricted operating revenue necessary to meet its debt requirements.
NET ASSETS Net assets represent the residual interest in the Uni-versity's assets after liabilities are deducted.
Inve.ted in capital ac&Aet, net of related debt rep-resents the University's capital assets net of accu-mulated depreciation and outstanding principal balances of debt attributable to the acquisition, con-struction or improvement of those assets.
Restricted nonexpendable net aA.Aet, are the Univer-sity's permanent endowment funds.
Restricted expendable net aAetA are subject to ex-ternally imposed restrictions governing their use.
This category of net assets includes $11o.6 million of quasi-endowments.
Although unretricted net oaAet6 are not subject to externally imposed stipulations, substantially all of the University's unrestricted net assets have been designated for various academic and research pro-grams and initiatives, as well as capital projects.
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The Statement of Revenues, Expenses, and Changes in Net Assets presents the University's results of op-erations. A summarized comparison of the Univer-sity's revenues, expenses, and changes in net assets for the years ended June 30, 2oo8 and 2007 is shown in Figure 3.
One of the University's greatest strengths is the di-verse streams of revenues which supplement its stu-dent tuition and fees, including voluntary private support from individuals, foundations, and corpora-tions, along with government and other grants and contracts, state appropriations, and investment in-come. The University will continue to aggressively seek funding from all possible sources consistent with its mission, to supplement student tuition, and to manage prudently the financial resources realized from these efforts to fund its operating activities.
Significant recurring sources of the University's revenues are considered nonoperating, as defined by GASB Statement No. 34. Graph 1 (operating rev-enue) and Graph 2 (nonoperating revenue) are illus-trations of revenues by source, which were used to fund the University's operations for the year ended June 30, 2oo8 (amounts are presented in thousands of dollars).
The University continues to face significant financial pressure, particularly in the areas of compensation and benefits, which represent 53.1% of total expenses, as well as in the areas of technology and utility costs.
To manage this financial pressure, the University con-tinues to seek diversified sources of revenue and to implement cost containment measures.
Tuition and state appropriations are the primary sources of funding for the University's academic pro-grams. Student tuition and fees, net of allowances for scholarships and fellowships, increased $8.1 mil-lion, or 5.3% to $16o.9 million in fiscal year 2008.
State appropriations increased lO.9% or $29.0 mil-lion to $294.9 million in fiscal year 2008.
While tuition and state appropriations fund a signifi-cant percentage of the University's academic and ad-ministrative costs, private support has been, and will continue to be, essential to the University's academic success. Private support in the form of gift revenues for operations decreased 9.3%, or $7.6 million, to $74.4 million in fiscal year 2oo8. The University's continued emphasis on fund raising to support critical projects and initiatives is demonstrated by an aggressive capi-tal campaign that is just getting underway.
12
Figure 3.
2008 Operating revenues Tuition and fees Patient services Grants and contracts Sales and services Auxiliary enterprises Other Total operating revenues Operating expenses Operating loss Nonoperating revenues (expenses)
State appropriations Government grants Gifts Investment income Interest expense Other Net nonoperating revenues Capital appropriations Capital and endowment grants and gifts Total capital and endowment revenues Increase in net assets Net assets - beginning of year, as adjusted (Note 21)
Net assets - end of year (in thouAand4) 160,915 937,047 280,815 472,607 75,404 70,320 1,997,108 2,277,040 2
(279,932) 294,907 18,481 74,449 22,412 (20,240)
(13,525) 376,484 2007 152,820 883,032 286,117 420,813 73,751 67,136
,883,669
,092,904 (209,235) 265,924 17,307 82,094 128,871 (18,229)
(13,313) 462,654 58,397 150,802 209,199 462,618
,054,867
,517,485 12,238 60,766 73,004 169-556 2
$2 2,517,485
$ 2,687,041 Graph i.
Graph 2.
OPERATING REVENUES NONOPERATING REVENUES Auxiliary Enierpries Other Tuition and Fees kký
- 1 uition and Fees 0 Patient Services a Grants & 'ontvacts Sales and Sers ices J Asiliarv Enterprises M Other
$160,915
$937,047
$280,815 S472,607
$75,404
$70.320) 0 State Appropriations R Government Grants W Gifts J.1 Investment Income
$294.907
$18,481 S74.449
$22,412 13
Revenues for grants and contracts remained stable with a slight decrease of 1.9%, or $5.3 million, to
$280.8 million in fiscal year 2008, primarily related to research programs. Grant and contract revenues are generated by a broad base of schools, colleges, and research units across the University. The Uni-versity receives revenues for grants and contracts from government and private sources, which provide for the recovery of direct costs and facilities and ad-ministrative (indirect) costs.
Patient care revenues increased 6.i% or $54.0 mil-lion to $937.0 million in fiscal year 2008. The major-ity of these revenues relate to patient care services, which are generated within UUHC under contractual arrangements with governmental payers and private insurers. Revenues have sustained a relatively con-stant rate of growth over the last few years, primarily resulting from a growth in patient volume, demand for specialty services provided by outpatient clinics and moderate price increases for patient services.
Net investment income for the years ended June 30, 2008 and 2007, consisted of the following components:
Net investment income totaled $22.4 million in fis-cal year 2008, as compared to $128.9 million in fis-cal year 2007, which is a decrease of $1o6.5 million.
This decrease is a direct result of the dramatic down-turn in the financial markets at the end of the fiscal year. The University is not immune to the volatility in the financial markets.
The University's endowment investment policies are designed to maximize long-term total return while its income distribution policies are designed to pre-serve the value of the endowment portfolio and to generate a predictable stream of spendable income.
The income distribution from the University's en-dowment portfolio for the support of operating ac-tivities, in accordance with the University's spending policy, totaled $16.6 million in fiscal year 2008, as compared to $13.6 million in fiscal year 2007. In ad-dition, in fiscal year 2008, $1.7 million was returned to endowment principal.
Capital appropriations received from the State in fiscal year 2008, which totaled $12.2 million, funded a portion of building renovation projects. Other rev-enues include capital grants and gifts and additions to permanent endowments totaling $6o.8 million for the fiscal year ending June 30, 2008.
A comparative summary of the University's expenses for the years ended June 30, 2oo8 and 2007 follows:
2008 2007 (in thouAandA)
$55,807
$ 63,725 Interest and dividends, net Net increase (decrease) in fair value of investments (33,395) 65,146 Net investment income
$ 22,412
$ 128,871 14
2008 2007 (in thouAandA)
Operating Compensation and benefits Component units Supplies Purchased services Depreciation and amortization Utilities Cost of goods sold Repairs and maintenance Scholarships and fellowships Other Total operating increases and the hiring of additional employees.
The related employee benefits increased 6.2% or
$15.7 million.
In addition to their natural classification, it is also informative to review operating expenses by func-tion. A comparative summary of the University's op-erating expenses by functional classification for the years ended June 30, 2008 and 2007 follows:
$1,226,252 287,603 252,785 104,529 110,618 56,958 32,857 32,817 24,556 148,065 2,277,040
$1,133,059 250,279 242,070 116,729 104,982 51,131 31,A27 24,103 23,766 115,358 2,092,904 31,542
$ 2,124,446 Nonoperating Interest and other 33,765 Total expenses $ 2,310,805 Instruction Research Public service Academic support Student services Institutional support Operations and maintenance of plant Student aid Other Hospital Total operating 2008 2007 (in thousand4)
$ 282,156
$ 264,901 212235 217,805 416,931 381,863 78,307 71,286 20,252 18,743 63,929 43,983 Graph 3 is a graphic illustration of total expenses, in thousands of dollars, by natural classification.
The University is committed to recruiting and retain-ing an outstanding faculty and staff and the compen-sation package is one way to successfully compete with peer institutions and nonacademic employers.
The resources expended for compensation and ben-efits increased 8.2%, or $93.2 million, to $1.2 billion in fiscal year 2008. Of this increase, compensation increased 8.8%, or $77.5 million, as a result of annual 56,004 38,588 442,392 666,246 49,934 33,945 392,223 618,221 expenses
$ 2,277,040
$ 2,092,904 Instruction, research, and public service expenses increased 8.o%, or $69.4 million, to $933.9 million in fiscal year 2008. Academic and institutional sup-port expenses increased 23.4%, or $27.0 million, to
$142.2 million in fiscal year 2008.
Graph 3.
Cot f Goodnc, Sold IDepieiatmnn &Amntizathdioin U"treitIs Repaii 0& Moo-intenau P u r h aJ 1
Inv i r S c h o la rs h ip & F e llo w sh ip,
0Other I nterest EXPENSES M Compensation and Benefits M Compo7nent U nits M Supplies
-I Purchased Services 0 Depreciation and Amortization M Utilitities M Caso of (6.oods Sold M Repairs and Maintenance M Scholarships and Fellowships M Other
/
Interest S1,226,252
$287,603
$252.785
$104.529
$110.618
$56,958
$32,857
$32.817
$24.556 S 148.005
$33,765 15
STATEMENT OF CASH FLOWS The Statement of Cash Flows provides additional in-formation about the University's financial results, by reporting the major sources and uses of cash.
The University's cash and cash equivalents de-creased $1o6.4 million due primarily to increased use of funds for personal services and payments to suppliers. This negative flow of funds was partially offset by funds received for patient services, auxil-iary and educational services, and a reduction of principal payments on capital debt. The University's significant sources of cash provided by noncapital financing activities, as defined by GASB Statement No. 9, include state appropriations and private gifts used to fund operating activities.
CURRENT FACTORS HAVING PROBABLE FUTURE FINANCIAL SIGNIFICANCE The University's undergraduate enrollment for fis-cal year 2oo8 declined for the third year in a row.
Graduate enrollment continued to increase. Enroll-ment at the undergraduate level is dependent on two factors, pool and participation, that are both heavily influenced by factors within the State of Utah. The available pool of potential students, age 18 through 29, is in the midst of a modest decline, but that trend is expected to reverse within the next five years as K-8 students move into and through high school in record numbers. The participation rate likewise has been under pressure in large part due to the State's robust economy and remarkably low unemployment rates. While both factors continue to have an im-pact on enrollment numbers, both are likely to ease within the next five years. Indeed, enrollment for Fall 2008 is up slightly over the prior year perhaps in response to the slowing economy. The University is, in the meantime, adjusting its recruiting strategy while at the same time evaluating the need for addi-tional infrastructure to support modest and sustain-able growth in the future. In the prior fiscal year, the State passed legislation that makes it easier for non-resident students to qualify for in-state tuition. This may have a negative short-term impact on tuition revenue, but it is likely to have a positive long-term effect on recruiting and related tuition revenue.
While the State's economy is amongthe healthiest in the nation, it is not immune to the recent turmoil in the financial markets and the economy. With reve-nue projections falling below original estimates, the Governor convened a special session of the Legisla-ture to address the project shortfall. All state agen-cies received varying degrees of budget cuts for the 2009 fiscal year and higher education was no excep-tion. The University of Utah's budget was cut 4% per-manently and additional long term cuts may result when the Legislature convenes in January to craft the budget for the 2010 fiscal year. The University of Utah is using this opportunity to make strategic decisions about various program offerings with ev-ery effort being made to preserve and enhance core strengths. Expenditure containment, however, will not fully address the problem and other measures will be required to address this on a long term basis.
Despite a more cautious economic outlook, the Uni-versity continues to receive worldwide recognition for the accomplishments of its researchers, physi-cians, and students. The University will continue to benefit from the Utah Science Technology and Research (USTAR) initiative which provides funding for "strategic investments at the University of Utah and Utah State University to recruit world-class re-searchers, build state-of-the-art interdisciplinary research and development facilities, and to form first-rate science, innovation, and commercializa-tion teams across the State. This initiative focuses on leveraging the proven success of Utah's research universities in creating and commercializing inno-vative technologies which will generate more tech-nology-based start-up firms, higher paying jobs, and additional business activity leading to a state-wide expansion of Utah's tax base".' As part of this ini-tiative, the University was successful in fiscal year 2oo8 in attracting a number of world-class research-ers with a proven track record of developing intel-lectual property, and there is good reason to believe that this success will continue in the coming year and beyond.
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UUHC and ARUP continue tobe recognized as leaders in their respective fields. Financial position for each remains strong and is expected to remain so. Despite a strong outlook though, UUHC anticipates a nega-tive impact from recent Medicare/Medicaid chang-es. The Centers for Medicare and Medicaid Services (CMS) (a division of the Department of Health and Human Services (DHHS)) issued a proposed rule in January 2007 to change the way Medicaid funds flow to state-owned facilities effective October J, 2007.
Congress subsequently passed legislation which im-posed a moratorium on the new funds flow mecha-nism. This moratorium was scheduled to expire May 2008, but new legislation was passed extending the moratorium until April 1, 2009. Unless new legisla-tion is enacted, the CMS rule will become effective at that time. If the new rule becomes effective next April, it is estimated that UUHC will experience a sig-nificant reduction in Medicaid revenues. The UUHC budget for the current fiscal year, however, was con-servatively developed assuming the rule would take effect on April 1, 2009. UUHC is working with other medical centers to educate legislators on the impact to the patient population and to medical education if these funds are no longer available. Related to this, the University received notice of a $32.8 million dis-allowance from CMS that resulted in a liability being recorded in the 2008 financial statements.
Awards for sponsored programs, which include basic research, continue to be strong - however, uncertain-ties within the federal budget for research coupled with the uncertainty of the Presidential election could have a dramatic impact - either positively or negatively - on research in the coming years. The initiatives resulting from the USTAR project, though, will certainly have a positive impact on funding as the number of research faculty increases. In addi-tion, a new rate for reimbursed overhead on federally sponsored research projects took effect July 2008, increasing to 50.5% from 49.5%.
A major capital campaign, targeted at $1.2 billion, was announced in Fall 2008 and is expected to add significantly to our endowment base as well as pro-viding critical support to University students, re-searchers, and facilities.
The University continues to exercise a conservative approach to the issuance of debt. However, with the need for expanded research, patient care, and student life facilities, comes the need to issue debt to support construction. Within the next 1-3 years, the Universi-ty intends to undertake various construction projects, in most cases partially gift-funded, to support these critical areas. In addition, the University evaluates existing debt versus current interest rates to identify opportunities to refinance at better rates.
Fiscal year 2008 was a difficult year in the finan-cial markets. The U.S. equity market as measured by the S&P 500 index declined 13.1%. Domestic fixed income markets, particularly U.S. Treasuries, per-formed better as the Lehman Brothers Government/
Credit index returned 7.1%. Within this challenging environment, the University's endowment declined 4.3% for the 2008 fiscal year. The five-year average annualized return was 9.7% through the end of thei.
fiscal year. Subsequent to the end of the 2008 fis-cal year, the financial markets have been rocked by a number of institutional failures, acquisitions, and federal takeovers. It is still uncertain what impact the $7oo billion plus buyout will have in restoring stability to these markets. The University's invest-ments are not immune to these unprecedented mar-ket swings.
Endowment spending policy will be carefully monitored and adjusted as necessary to maintain the University's historically prudent ap-proach to endowment spending.
Despite significant events both nationally and at the State level, the University's outlook for the foreseeable future is positive not only as a result of its strategic leadership and prudent fiscal management, but also as a beneficiary of a generally strong state economy.
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