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
THE UNIVERSITY OF UTAH SVICE PRESIDENT FOR RESEARCH 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 tFY2012
,r 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,
--- /thiscosts 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 1research@utah.edu Iwww.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 __/__ day of 4 9LC-IL 1,2010, by Cynthia Furse.
JOANN COOK
~Notary201Salt Presidents Circle, Room 20' Lake City,.Public 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 Uihiversity Un of Florida
' -- '202Nuclear 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 IT N
1-11
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53B-2-101. 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.
53B-3-102. "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 Jenny Flckett 1-* [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 inbetter 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 inattendance. 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 Q002/002 recognized the high quality of the institution. Chair Karras also thanked the Regents for the time they spent inthis 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-. ellCPS, 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/M 3 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 $556.20 HV AV 20000 $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/M 3 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 $556.20 HV AV 20000 $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 University ranks as one of the nation's top univer-sities by various measures of quality, both in general The following discussion and analysis provides an over- academic terms and in terms of strength of offerings in view of the financial position and activities of the Uni- specific academic disciplines and professional subjects.
versity of Utah (University) for the year ended June 30, Excellence in research is another crucial element in the 2009, with selected comparative information for the University's high ranking among educational institutions.
year ended June 30, 2008. This discussion has been prepared by management and should be read in con- In addition to the academic schools, colleges, and de-junction with the financial statements and the notes partments, the University operates the University of thereto, which follow this section. Utah Research Foundation (UURF), a separately in-corporated entity that specializes in applied research, The University is a comprehensive public institution of the transfer of patented technology to business entities, higher learning with approximately 28,200 students, leasing and administration of Research Park (a research 2,350 full-time faculty members and more than 22,800 park located on land owned by the University), and the supporting staff. The University offers a diverse range leasing of certain buildings. Also, a wholly-owned, sep-of degree programs from baccalaureate to post-doctoral arately incorporated enterprise, the Associated Regional levels, through a framework of 19 schools, colleges and and University Pathologists, Inc. (ARUP) is a national divisions; 99 academic departments; 27 interdisciplinary clinical and anatomic pathology reference laboratory.
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). FINANCIAL HIGHHGHTS The UUHC consists of three hospitals and numerous specialty clinics. The UUHC is an integral part of the The University's financial position remained strong at University's health care system that also includes the June 30, 2009, with assets of $3.6 billion and total li-University's School of Medicine and the Colleges of abilities of $0.8 billion. Net assets, which represent the Health, Nursing, and Pharmacy. The University's health residual interest in the University's assets after liabilities care system has a tradition of excellence in teaching and are deducted, increased by $177.1 million to $2.8 bil-advancement of medical science and patient care - con- lion at June 30, 2009.
sistently ranking among the best health care systems in the western United States.
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Changes in net assets represent the total activity of the by GASB Statement No. 34, Basic FinancialStatements University, which results from all revenues, expenses, - and Managements Discussion and Analysis -for State gains and losses, and are summarized for the years end- and Local Governments. Nonoperating revenues totaled ed June 30, 2009 and 2008 in Figure 1. $321.1 million and $410.2 million for the years ended June 30, 2009 and 2008, respectively. Nonoperating Fiscal year 2009 revenues before change in fair value of expenses, which include interest expense, totaled $32.5 investments increased 8.8% or $222.2 million, while ex- million and $33.8 million for the years ended June 30, penses increased 7.6%, or $174.7 million. This resulted 2009 and 2008, respectively.
in a net gain before changes in fair value of investments of $259.2 million for fiscal year 2009, as compared to Also, as required by GASB Statement No. 34, scholar-
$211.7 million for fiscal year 2008. ships and fellowships applied to student accounts are shown as a reduction of auxiliary and tuition and fee The University invests its endowment funds to maximize revenues, while stipends and other payments made di-total return over the long term, within an appropriate rectly to students are presented as scholarship and fel-level of risk. The success of this long-term investment lowship expenses. For the years ended June 30, 2009 strategy is evidenced by returns averaging 3.1 % during and 2008, scholarship and fellowship expenses totaled the past five years. $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 USING THE FINANCIAL' of tuition and fees and auxiliary enterprises revenue.
STATEMENTS Other appropriate revenue items have also been reduced by the allowance for uncollectible amounts which is es-The University's financial report is prepared in accor-timated each fiscal year.
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. STATEMENT OF NET ASSETS Revenues and expenses are categorized as operating or The Statement of Net Assets presents the financial posi-nonoperating and other net asset additions as capital tion of the University at the end of the fiscal year and contributions or additions to permanent endowments. includes all assets and liabilities of the University. The Significant recurring sources of the University's rev- difference between total assets and total liabilities is net enues, including state appropriations, gifts and invest- assets and is one indicator of the current financial condi-ment income, are considered nonoperating, as defined tion of the University, while the change in net assets is an Figure1. 2009 2008 (in thousands)
Total revenues before change in fair value of investments $ 2,744,68c9 $2,522,491 Total expenses 2,485,49 1 2,310,805 Increase in net assets before change in fair value of investmcents 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 Figure2.
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- to $347.3 million at June 30, 2008. Current liabilities tion of debt and adherence to its long range capital plan also include deferred revenue and the current portion of for the maintenance and replacement of the physical plant.
bonds, notes and contracts payable. Total current liabil-ities increased $14.5 million during fiscal year 2009.
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, ENDOWMENT AND SIMILAR 2009 and $936.2 million at June 30, 2008. Net current INVESTMENTS receivables increased from $288.8 million at June 30, 2008 to $303.5 million at June 30, 2009. The University's endowment funds consist of true en-dowments, term endowments, and quasi-endowments.
Current liabilities consist primarily of trade accounts, True endowments (also known as permanent endow-accrued payroll, deposits, and other liabilities, which ments) are those funds received from donors with the totaled $361.7 million at June 30, 2009, as compared stipulation that the principal remain inviolate and be Figure2. 2009 2008 (in thousands)
Current assets $ 1,218,554 $ 1,279,049 Noncurrent assets Endowment and other investments 660,869 672,264 Receivables, net 103,931 82,689 Capital assets, net 1,578,878 1,348,040 Other 69,768 75,235 Total assets 3,632,000 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- fiscal year. Although the Endowment Pool declined in pended for the purposes specified by the donor. Term value, reports indicate that the University held up rela-endowment funds are similar to true endowments, ex- tively well in a very difficult year for the endowment cept that, upon the passage of a stated period of time or and foundation community. Significant upheavals in the occurrence of a particular event, all or part of the the financial markets during the year took their toll on principal may be expended. Substantially all the Uni- performance for all investors. The S&P 500 index de-versity's endowments are restricted by the donor for a clined 26.2% while the global equity market as mea-particular purpose. Quasi-endowments consist of insti- sured by the MSCI All Country World Index declined tutional funds that have been allocated by the Univer- 28.9%. Domestic fixed income markets returned 6.0%
sity for long-term investment purposes. Although such as measured by the Barclays Aggregate Bond Index. The funds are not subject to donor restrictions requiring the five-year annualized return for the Endowment Pool is University to preserve the principal in perpetuity, most 3.1% versus -2.2% for the S&P 500 and 5.0% for the carry restrictions as to how the funds may be spent. Pro- Barclays Aggregate Bond Index.
grams supported by endowment funds include scholar-ships, fellowships, professorships, research efforts and The unrealized net loss on the endowment pool for the other important programs and activities. year ended June 30, 2009 totaled $82.7 million com-pared to an unrealized loss of $15.4 million for the year The University has implemented investment guidelines ended June 30, 2008.
for the University's Endowment Pool that are designed to maximize long-term results. The assets are strategi- Payout from the endowment pool is subject to a spend-cally allocated to provide for broad diversification of ing policy which determines a distribution rate that will the investments with a long-term goal of maximizing be used to allocate funds to University departments returns within acceptable risk levels for investment of based on the total market value of the pool. The purpose endowment funds. Endowment funds that are invested of the spending policy is to establish a distribution rate in the University's endowment pool are invested on a that over time will generate returns adequate to contin-unit basis similar to mutual funds where new dollars ue support for future expenses in perpetuity assuming buy shares in the pool. moderate levels of inflation. During the year ended June 30, 2009, the spending policy was adjusted downward The Endowment Pool declined 14.3% during the 2009 to 3.0% of the twelve quarter moving average of unit 10
market values. Given the unprecedented challenges in Capital additions totaled $620.6 million in fiscal year the financial environment, the endowment spending 2009, as compared to $244.4 million in fiscal year policy was adjusted to maintain the University's histori- 2008. Capital additions include replacement, renova-cally prudent approach to endowment spending. tion, and new construction of academic, research, and health care facilities, as well as significant investments in The endowment pool is managed on a total return basis equipment. Capital asset additions are funded by capi-where funds available for distribution are derived from tal appropriations, bond proceeds, gifts which were des-dividends earned, interest and unrealized gains. While ignated for capital purposes, and unrestricted net assets.
the endowment pool earnings were $11.6 million in fis-cal year 2009, the University distributed $16.5 million Construction in progress at June 30, 2009, totaled to operations. The difference of $4.9 million was allo- $251.3 million that includes projects in numerous cated from unrealized gains. buildings across the campus. Significant projects include:
a new patient services wing and parking facility for the The University has a long-term view and manages the University Hospital; a new facility for the Museum of investment allocation and payout rate of endowment Natural History; and a high temperature water plant.
funds so that they can continue in perpetuity. While endowments are managed with a long-term view, the The University takes seriously its role of financial stew-University feels it is prudent, during times of severe ardship and works hard to manage its financial resources market stress, to lower the payout percentage to help effectively, including the prudent use of debt to finance preserve principal. Due to unprecedented levels of mar- capital projects. The debt rating of the University is an ket volatility during the past year the payout rate was important indicator of success in this area. The underly-lowered to 3%, which approximates earnings in interest ing bond ratings from Standard and Poor's and Moody's and dividends. The spending practice for endowments Investors Service for the Auxiliary and Campus Facili-takes into account the expectation that any underwater ties Bonds are AA/Aa2, the Hospital Revenue Bonds situation of individual endowments is only temporary are AA/Aa2, the Research Facilities Revenue Bonds are and not a permanent impairment. The market valua- AA-/Aa3, and the Certificates of Participation are AA-/
tions will improve, and the underwater situations will Aa3, respectively. These ratings are considered high in-resolve themselves over time with a return to an upward vestment grade quality and position the University, if direction in the markets. deemed necessary, to obtain future debt financing at lower interest rates.
Gifts to permanent endowments totaled $15.9 million and $17.5 million for the fiscal years 2009 and 2008, Bonds payable totaled $279.2 million and $289.5 mil-respectively. 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.
CAPITAL AND DEBT ACTIVITIES An institution's ratio of unrestricted operating revenues One of the critical factors in continuing the quality to bonds, notes and contract debt is a valuable indi-of the University's academic and research programs is cator of its ability to finance its outstanding debt. At the development and renewal of its capital assets. The June 30, 2009, the University has 6.2 times the unre-University continues to implement its long-range plan stricted operating revenue necessary to meet its debt to modernize its complement of older teaching and re- requirements.
search facilities, balanced with new construction.
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NET ASSETS Significant recurring sources of the University's revenues Net assets represent the residual interest in the Univer- are considered nonoperating, as defined by GASB State-sity's assets after liabilities are deducted. ment No. 34. Graph I (operating revenue) and Graph 2 (nonoperating revenue) are illustrations of revenues by Invested in capitalassets, net of relateddebt represents the source, which were used to fund the University's opera-University's capital assets net of accumulated deprecia- tions for the year ended June 30, 2009 (amounts are tion and outstanding principal balances of debt attrib- presented in thousands of dollars).
utable to the acquisition, construction or improvement of those assets. The University continues to face significant financial pressure, particularly in the areas of compensation and Restricted nonexpendable net assets are the University's benefits, which represent 53.9% of total expenses, as permanent endowment funds. well as in the areas of technology and utility costs. To manage this financial pressure, the University continues Restricted expendable net assets are subject to externally to seek diversified sources of revenue and to implement imposed restrictions governing their use. This category of cost containment measures.
net assets includes $95.8 million of quasi-endowments.
Tuition and state appropriations are the primary sources Although unrestrictednet assets are not subject to exter- of funding for the University's academic programs. Stu-nally imposed stipulations, substantially all of the Uni- dent tuition and fees, net of allowances for scholarships versity's unrestricted net assets have been designated for and fellowships, increased $8.4 million, or 5.2% to various academic and research programs and initiatives, $169.4 million in fiscal year 2009. State appropriations as well as capital projects. 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-STATEMENT OF REVENUES, cant percentage of the University's academic and ad-EXPENSES, AND CHANGES IN ministrative costs, private support has been, and will continue to be, essential to the University's academic NET ASSETS success. Private support in the form of gift revenues for operations decreased 12.6%, or $9.4 million, to $65.0 The Statement of Revenues, Expenses, and Changes in million in fiscal year 2009. The University's continued Net Assets presents the University's results of operations.
emphasis on fund raising to support critical projects A summarized comparison of the University's revenues, and initiatives is demonstrated by an aggressive capital expenses, and changes in net assets for the years ended campaign that is showing positive results despite a weak June 30, 2009 and 2008 is shown in Figure3.
economic outlook.
One of the University's greatest strengths is the diverse Revenues for grants and contracts increased 9.5%, or streams of revenues which supplement its student tu-
$26.8 million, to $307.6 million in fiscal year 2009, ition and fees, including voluntary private support from primarily related to research programs. Grant and con-individuals, foundations, and corporations, along with tract revenues are generated by a broad base of schools, government and other grants and contracts, state ap-colleges, and research units across the University. The propriations, and investment income. The University University receives revenues for grants and contracts will continue to aggressively seek funding from all pos-from government and private sources, which provide sible sources consistent with its mission, to supplement for the recovery of direct costs and facilities and admin-student tuition, and to manage prudently the financial istrative (indirect) costs.
resources realized from these efforts to fund its operat-ing activities.
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Figure3.
2009 2008 Operating revenues 0n thousands)
Tuition and fees $ 169,351 $ 160,915 Patient services 1,067,747 937,047 Grants and contracts 307,574 280,815 Sales and services 526,323 472,607 Auxiliary enterprises 83,710 75,404 Other 46,223 70,320 Total operating revenues 2,200,928 1,997,108 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 expense (18,117) (20,240)
Other (14,364) (13,525)
Net nonoperating revenues 288,661 376,484 Capital appropriations 83,243 12,238 Capital and endowment grants and gifts 57,274 60,766 Total capital and endowment revenues 140,517 73,004 Increase in net assets 177,096 169,556 Net assets - beginning of year 2,687,041 2,517,485 Net assets - end of year $2,864,137 $2,687,041 Graph 1. Graph2.
OPERATING REVENUES NONOPERATING REVENUES OhrAuxilliary enterprises Other Tuition and fees -. &
Sales and services Patient services Grants and contracts I IJ U Tuition and fees $169,351
- State appropriations $266,761 U Patient services $1,067,747 U Government grants $34,497 Grants and contracts $307,574
- Gifts $65,037 U Sales and services $526,323
- Investnent loss ($45,153)
U Auxilliary enterprises $83,710 U Other $46,223 13
Patient care revenues increased 13.9% or $130.7 mil- decrease of $67.6 million. This decrease is a direct re-lion to $1.1 billion in fiscal year 2009. The majority of sult of the dramatic downturn in the financial markets these revenues relate to patient care services, which are over the course of the fiscal year. Market volatility and generated within UUHC under contractual arrange- overall instability were sustained throughout the fiscal ments with governmental payers and private insurers. year even as a more positive outlook emerged by the Revenues have sustained a relatively constant rate of end of the fiscal year. Recovery, while showing signs of growth over the last few years, primarily resulting from improvement, has yet to return to "normal".
a growth in patient volume, demand for specialty ser-vices provided by outpatient clinics and moderate price The University's endowment investment policies are increases for patient services. designed to maximize long-term total return while its income distribution policies are designed to preserve Net investment income for the years ended June 30, the value of the endowment portfolio and to generate 2009 and 2008, consisted of the following components: a predictable stream of spendable income. The income distribution from the University's endowment portfo-lio for the support of operating activities, in accordance 2009 2008 with the University's spending policy, totaled $15.1 mil-(in thousands) lion in fiscal year 2009, as compared to $16.6 million in Interest and dividends, net $ 36,949 $ 64,542 fiscal year 2008. In addition, in fiscal year 2009, $1.4 Net decrease in fair million was returned to endowment principal.
value of investments (82,102) (42,130)
Net investment income (loss) $(45,153) $ 22,412 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 The University experienced net investment losses total- include capital grants and gifts and additions to perma-ing $45.2 million in fiscal year 2009, as compared to nent endowments totaling $57.3 million for the fiscal income of $22.4 million in fiscal year 2008, which is a year ending June 30, 2009.
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A comparative summary of the University's expenses for or $85.0 million, as a result of annual increases and the the years ended June 30, 2009 and 2008 follows: hiring of additional employees in departments not fund-ed from state appropriations. The related employee ben-2009 2008 efits increased 10.6% or $28.4 million predominantly (in thousands) due to increased benefits for Hospital employees.
Operating Compensation In addition to their natural classification, it is also in-and benefits $ 1,339,703 $ 1,226,252 formative to review operating expenses by function. A Component units 328,196 287,603 comparative summary of the University's operating ex-Supplies 277,509 252,785 penses by functional classification for the years ended Purchased services 101,322 104,529 June 30, 2009 and 2008 follows:
Depreciation and amortization 118,475 110,618 Utilities 61,005 56,958 2009 2008 Cost of goods sold 34,270 32,857 (in thousands)
Repairs and Instruction $ 318,573 $ 282,156 maintenance 37,854 32,817 Research 237,800 212,235 Scholarships and fellowships 25,986 24,556 Public service 456,665 416,931 Other 128,690 148,065 Academic support 85,169 78,307 Total operating 2,453,010 2,277,040 Student services 21,640 20,252 Institutional support 33,367 63,929 Nonoperating Operations and Interest and other 32,481 33,765 maintenance of plant 60,560 56,004 Total expenses $ 2,485,491 $2,310,805 Student aid 17,884 38,588 Other 90,063 130,657 Hospital 787,593 666,246 Graph 3 is a graphic illustration of total expenses, in Component units 343,696 311,735 thousands of dollars, by natural classification. Total operating expenses $2,453,010 $ 2,277,040 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 Instruction, research, and public service expenses in-institutions and nonacademic employers. The resourc- creased 11.2%, or $101.7 million, to $1.0 billion in es expended for compensation and benefits increased fiscal year 2009. Academic and institutional support 9.3%, or $113.5 million, to $1.3 billion in fiscal year expenses decreased 16.7%, or $23.7 million, to $118.5 2009. Of this increase, compensation increased 8.9%, million in fiscal year 2009.
Graph3.
EXPENSES Otc nItetrest
- (Compensation and benefits $1,339,703 Scholarships and ftllowships Repa irs an(d liain lefalicc U Component units $328,196
( >,st of goods sold Supplies $277,509 Utilities 0 purchased services $101,322 Compensation Depreciation and armortization
- Depreciation and amortization $118,475 and benefits 0 Utilities $61,005 0 Cost of goods sold $34,270 purchased service. M Repairs and maintenance $37,854 Scholarships and fellowships $25,986 I Other $128,690 Supplie Interest $32,481 C*monen"tcrt units 15
STATEMENT OF CASH FLOWS This may have a negative short-term impact on tuition revenue but it is likely to have a positive long-term ef-The Statement of Cash Flows provides additional in- fect on recruiting and related tuition revenue. It will formation about the University's financial results, by have no impact on tuition revenue from international reporting the major sources and uses of cash. students, a growing focus of attention for the Univer-sity's recruitment efforts.
The University's cash and cash equivalents decreased
$306.6 million due primarily to increased use of funds During the 2009 legislative session, the University's re-for purchase of capital assets and investments and in- curring budget for 2009-10 was cut 17%. However, creased principle payments on capital debt. This nega- the State of Utah benefited from the American Recov-tive flow of funds was partially offset by funds received ery and Reinvestment Act (ARRA) and some of that for patient services and auxiliary and educational servic- stimulus funding was passed along to the University es. The University's significant sources of cash provided thus making the effective cut 9.5%. The University, as by noncapital financing activities, as defined by GASB a result of receiving these funds and an increase in tu-Statement No. 9, include state appropriations and pri- ition, was able to buffer the effects of what would have vate gifts used to fund operating activities. 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 CURRENT FACTORS HAVING to rebound over the course of the next year, additional PROBABLE FUTURE FINANCIAL reductions in personnel are likely.
SIGNIFICANCE Despite a more cautious economic outlook, the Univer-The University's undergraduate enrollment for 2008- sity continues to receive worldwide recognition for the 09 increased slightly for the first time in several years. accomplishments of its researchers, physicians, and stu-Graduate enrollment continued its long-term, gradual dents. The University of Utah collected a record $354.7 increase. Enrollment at the undergraduate level is de- million in research funding during the 2009 fiscal year, pendent on two factors, pool and participation, that are an impressive 16 percent annual increase despite eco-both heavily influenced by factors within the State of nomic recession and only a little help from federal Utah. The available pool of potential students, age 18 stimulus funds. For the 2009-2010 fiscal year, the Uni-through 29, is in the midst of a flat to modest decline, versity expects to see positive effects of the ARRA grant but that trend is expected to reverse within the next funding contribute to yet another excellent year. Awards five years as K-8 students move into and through high for sponsored programs, which include basic research, school in record numbers. The participation rate had continue to be strong - however, uncertainties within been under pressure in large part due to the State's ro- the federal budget for research could have a dramatic bust economy and remarkably low unemployment rates impact - either positively or negatively - on research in but both changed significantly in 2008-09. For at least the coming years.
the short term, as the State works its way out of the recession, participation rates are likely to be relatively UUHC and ARUP continue to be recognized as lead-high. Indeed, enrollment for Fall 2009 is up significant- ers in their respective fields. While the financial posi-ly over the prior year partly in response to the slowing tion for each remains strong, vigilant monitoring is dic-economy. The University is, in the meantime, adjusting rated by the current economic climate. Consequently, its recruiting strategy while at the same time evaluating UUHC continues to evaluate very closely the increase the need for additional infrastructure to support mod- in total uncompensated care provided to the uninsured est and sustainable growth in the future. Recently, the or underinsured patients. Over the two-year period State passed legislation that makes it easier for domes- ended June 30, 2009, the average collections foregone tic non-resident students to qualify for in-state tuition. due to charity increased significantly. Applications for 16
charity care have increased from an average of 382 re- steady stream of income to the academic departments, quests per month in the first quarter of fiscal year 2009 clinical and research centers, and community programs to an average of 574 per month in the final quarter of while preserving the purchasing power of these assets fiscal year 2009. If the trend continues, stricter financial for the benefit of future generations.
requirements for patients may be required.
This past year we have seen extraordinary levels of finan-In addition, the number of "Health Reform" proposals cial market volatility. The Endowment Pool declined before the Congress of the United States is significant 14.3% for the 2009 fiscal year. The S&P 500 index and, therefore, it may be some time before a consensus declined 26.2% while the global equity market as mea-is achieved on an overall health care bill. It is impossible sured by the MSCI All Country World Index declined to project the impact on UUHC until a.consensus bill 28.9%. Domestic fixed income markets returned 6.0%
is ultimately drafted. In 2009, the State of Utah passed as measured by the Barclays Aggregate Bond Index. The health reform legislation, however, it is not expected five year annualized return for the Endowment Pool is that UUHC will see any significant impact from the 3.1% versus -2.2% for the S&P 500 and 5.0% for the new legislation in the short-term. Barclays Aggregate Bond Index. The Endowment Pool ended the 2009 fiscal year with a market value of $409 A major capital campaign, themed Together We Reach, million.
was announced in Fall 2008. Despite the turmoil in the nation's economy, the University continues to ben- The University's approach to investment and spending efit from the generosity of its donors and supporters. reflects the understanding that endowment assets are Programmatic goals of the campaign include endowed perpetual funds established by donors. These funds are chairs and professorships; honors initiatives; imaging managed so as to be available to current and future stu-programs; nanotechnology; and scholarships. Capital dents, faculty, and visitors of the University of Utah.
construction projects are also part of the campaign and The University has invested in a portfolio of equity, include the expansion of teaching and research facilities fixed income and alternative assets whose valuations are such as the Beverley Taylor Sorenson Arts and Educa- impacted by market conditions, sometimes negatively tion Complex; Huntsman Cancer Hospital Phase IIB; in the short term - as was the case this past fiscal year.
The James L. Sorenson Molecular Biotechnology Build- However, we believe our portfolio will provide solid fi-ing (a USTAR Innovation Center); the Utah Museum nancial footing for the University's endowments over of Natural History at the Rio Tinto Center; and reno- the long term.
vations in the College of Nursing and the College of Science. Despite significant economic turmoil both nationally and at the State level, the University is fundamentally The University continues to exercise a conservative sound financially and should weather the current finan-approach to the issuance of debt. However, with the cial downturn. The institution has strong strategic lead-need for expanded research, patient care, and student ership and prudent financial management that should life facilities, comes the need to issue debt to support guide us through additional budgetary challenges that construction. Within the next 1-3 years, the University may arise.
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 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
[For Comparison Only]
2009 2008 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (252,082) $ (279,932)
Adjustments Depreciation expense 118,475 110,618 Change in assets and liabilities Receivables, net (20,300) (17,100)
Inventory (4,866) (2,779)
Donated property held for sale Other assets 6,006 (65,270)
Accounts payable 17,205 2,411 Accrued payroll 16,516 993 Compensated absences & early retirement benefits 3,659 2,435 Deferred revenue 35,044 5,339 Deposits and other liabilities (58,247) 20,418 Net cash used by operating activities $ (138,590) $ (222,867)
NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Capital leases $ 8,081 $ 20,389 Donated property and equipment 4,245 8,475 Completed construction projects transferred from State of Utah (Note 1) 58,941 1,292 Annuity and life income 87 163 Decrease in fair value of investments (82,102) (42,130)
Total noncash investing, capital, and financing activities $ (10,748) $ (11,811)
The accompanying notes are an integral part of rhese financial statemnents 23
- 1.
SUMMARY
OF SIGNIFICANT es to medical centers, hospitals, clinics and other clini-ACCOUNTING POLICIES cal laboratories throughout the United States, including UUHC. ARUP contracts with the Department of Pa-A. Reporting Entity thology of the University of Utah School of Medicine to provide pathology consulting services. The fiscal year The financial statements report the financial activity of end for ARUP is June 30. Other independent auditors the University of Utah (University), including the Uni- audited ARUP and their report, dated August 28, 2009, versity of Utah Hospitals and Clinics (UUHC). 'The has been issued under separate cover.
University is a component unit of the State of Utah (State). In addition, University administrators hold a All Governmental Accounting Standards Board (GASB) majority of seats on the boards of trustees of two other pronouncements and all applicable Financial Account-related entities representing component units of the ing Standards Board (FASB) pronouncements are ap-University. plied by the University, UURF and ARUP in the ac-counting and reporting of their operations. However, in Component units are entities that are legally separate accordance with GASB Statement No. 20, Accounting from the University, but are financially accountable to and FinancialReportingfor ProprietaryFunds and Other the University, or whose relationships with the Univer- Governmental Entities That Use Proprietary Fund Ac-sity are such that exclusion would cause the University's counting, the University has elected not to apply FASB financial statements to be misleading or incomplete. pronouncements issued after November 30, 1989.
'The relationship of the University with its component units requires the financial activity of the component The following standards, issued by the GASB, became units to be blended with that of the University. The applicable in fiscal year 2009:
component units of the University are the University of Utah Research Foundation (UURF) and Associated Re-
- GASB Statement No. 49, Accounting and Financial gional and University Pathologists, Inc. (ARUP). Cop- Reporting for Pollution Remediation Obligations. The ies of the financial report of each component unit can University early adopted this standard in the fiscal year be obtained from the respective entity. 2008. As of June 30, 2009, the University did not have any remediation obligations subject to the accounting 0 UURF is a not-for-profit corporation governed by a and financial reporting obligations of this standard.
board of directors who, with the exception of one, are affiliated with the University. The operations of UURF
- GASB Statement No. 52, Land and Other Real Estate include the leasing and administration of Research Park Held as Investments by Endowments. The University en-(a research park located on land owned by the Univer- dowment does not have land and other real estate held sity), the leasing of certain buildings, and the commer- for investment purposes. Implementation of this stan-cial development of patents and products developed by dard did not impact the financial statements for fiscal University personnel. As part of its mission to advance year 2009.
technology commercialization, UURF creates new cor-porate entities to facilitate the startup process. In gener-
- GASB Statement No. 55, The Hierarchyof GenerallyAc-al, these entities do not have assets. Expenses related to ceptedAccountingPrinciplesforState andLocal Governments.
the companies are expensed as incurred. The fiscal year Implementation of this standard had no effect on the Uni-end for UURF is June 30. UURF is audited by other versity's financial statements or accounting practices.
independent auditors and their report, dated October 30, 2009, has been issued under separate cover.
- GASB Statement No. 56, Codification of Account-ing and FinancialReporting Guidance Contained in the
- ARUP is a for-profit corporation that provides clini- AICPA Statements on Auditing Standards. Implementa-cal and anatomic pathology reference laboratory servic- tion of this standard had no effect on the University's financial statements or accounting practices.
25
B. Basis ofAccounting investment assets and investment income. The Univer-sity distributes earnings from pooled investments based All statements have been prepared using the economic on the average daily investment of each participating ac-resources measurement focus and the accrual basis of ac- count or for endowments, distributed according to the counting. Operating activities include all revenues and University's spending policy.
expenses, derived on an exchange basis, used to support the instructional, research and public service efforts, A portion of the University's endowment portfolio is and other University priorities. Significant recurring invested in "alternative investments". These invest-sources of the University's revenues are considered non- ments, unlike more traditional investments, generally operating as defined by GASB Statement No. 34, Basic do not have readily obtainable market values and typi-FinancialStatements - andManagements Discussion and cally take the form of limited partnerships. See Note Analysis -for State and Local Governments, and required 19 for more information regarding these investments by GASB Statement No. 35, Basic FinancialStatements and the University's outstanding commitments under
- andManagementsDiscussion andAnalysis -for Public the terms of the partnership agreements. The Univer-Colleges and Universities. Operating revenues include sity values these investments based on audited financial tuition and fees, grants and contracts, patient services, statements, generally asiof December 31, progressed to and revenue from various auxiliary and public service the University's financial statement date by taking into functions. Nonoperating revenues include state appro- account investment transactions subsequent to the au-priations, Pell grants and certain government grants, dited statements.
gifts, and investment income. Operating expenses in-clude compensation and benefits, student aid, supplies, D. Allowances repairs and maintenance, utilities, etc. Nonoperating expenses primarily include interest on debt obligations. In accordance with GASB Statement No. 34, certain expenses are netted against revenues as allowances. The When both restricted and unrestricted resources are following schedule presents revenue allowances for the available, such resources are spent and tracked at the years ended June 30, 2009 and 2008:
discretion of the department subject to donor restric-tions, where applicable. 2009 2008 Revenue Allowance Tuition and fees $ 23,547,807 $ 21,919,239 In accordance with GASB Statement No. 33, Accounting Patient services 59,983,662 48,537,228 and Financial Reporting for Nonexchange Transactions, Sales and services 23,774 23,769 the University recognizes gifts, grants, appropriations, Auxiliary enterprises 934,850 804,377 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 E Inventories medical practice plan is reported net of third-party ad-justments. The University Campus Store's inventories are valued using the retail inventory method. All other inventories C. Investments are stated at the lower of cost or market using the first-in, first-out method or on a basis which approximates Investments are recorded at fair value in accordance cost determined on the first-in, first-out method.
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 26
E Research and Development Costs cal year. The funding for these early retirement benefits is provided on a pay-as-you-go basis. For the year ended Research and development costs of ARUP are expensed June 30, 2009, these expenditures were approximately as incurred. These costs for the year ended June 30, $1,958,000.
2009, were approximately $9,688,000.
H. Construction G. CompensatedAbsences & Early Retirement Benefits The Utah State Division of Facilities Construction and Employees' vacation leave is accrued at a rate of eight Management (DFCM) administers most of the con-hours each month for the first five years and increases struction of facilities for state institutions, maintains 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 records, and furnishes cost information for recording of service. There is no requirement to use vacation plant assets on the books of the University. Interest leave, but a maximum of thirty days plus one-year ac- expense incurred for construction of capital facilities is crual may be carried forward at the beginning of each considered immaterial and is not capitalized. Construc-calendar year. Employees are reimbursed for unused tion projects administered by DFCM are not recorded vacation leave upon termination and vacation leave is on the books of the University until the facility is avail-expended when used or reimbursed. The liability for able for occupancy.
vacation leave at June 30, 2009, was approximately
$44,767,000. I Disclosures Employees earn sick leave at a rate of eight hours each Financial information for fiscal year ended June 30, 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 2008 is included for comparison only and is not com-University does not reimburse employees for unused plete. Certain reclassifications have been made to the sick leave. Each year, eligible, employees may convert prior year financial statements to conform to the current up to four days of unused sick leave to vacation leave year presentation. Complete information is available in based on their use of sick leave during the year. Sick the separately issued financial statements for that year.
leave is expended when used.
In addition, the University may provide early retirement 2. CASH, CASH EQUIVALENTS, benefits, if approved by the Administration and by the AND SHORT-TERM Board of Trustees, for certain employees who have at- INVESTMENTS tained the age of 60 with at least fifteen years of service and who have been approved for the University's early Cash and cash equivalents consists of cash and short-retirement program. Currently, 94 employees partici- term investments with an original maturity of three pate in the early retirement program. The University months or less. Cash, depending on source of receipts, pays each early retiree an annual amount equal to the is pooled, except for cash and cash equivalents held by lesser of 20% of the retiree's final salary or their estimat- ARUP and when legal requirements dictate the use of ed social security benefit, as well as health care and life separate accounts. The cash balances are invested prin-insurance premiums, which is approximately 50% of cipally in short-term investments that conform to the their early retirement salary, until the employee reaches provisions of the Utah Code. It is the practice of the full social security retirement age. In accordance with University that the investments ordinarily be held to GASB Statement No. 47, Accounting for Termination maturity at which time the par value of the investments Benefits, the amount recognized on the financial state- will be realized.
ments was calculated at the discounted present value of the projected future costs. A discount rate of 1.931% The Utah State Treasurer's Office operates the Utah was used and is based on the average rate earned by the Public Treasurer's Investment Fund (PTIF) which is University on cash management investments for the fis-27
managed in accordance with the State Money Manage- patents along with the right to receive future royalties ment Act. The State Money Management Council pro- based on product sales. Inasmuch as the stock is ordi-vides regulatory oversight for the PTIE The PTIF is narily not actively traded, the fair value is generally not available for investment of funds administered by any ascertainable and any realization from the future sale Utah public treasurer. of the stock is often uncertain. Therefore, such stock is recorded by UURF at a nominal value. Those stocks Short-term investments have original maturities longer that are publicly traded are recorded at their fair value than three months and remaining maturities of one year on June 30, 2009.
or less.
University personnel manage certain portfolios, while At June 30, 2009, cash and cash equivalents and short- other portfolios are managed by banks, investment ad-term investments consisted of: visors or through trust agreements.
Cash and Cash Equivalents According to the Uniform Prudent Management of In-stitutional Funds Act (UPMIFA), Section 51-8 of the Cash $ (14,634,653)
Utah Code, the institution may appropriate for expen-Money market funds 8,111,249 Time certificates of deposit 22,987,986 diture or accumulate so much of an endowment fund as Commercial paper 20,943,485 the University determines to be prudent for uses, ben-Utah Public Treasurer's efits, purposes, and duration for which the endowment Investment Fund 115,6140 22 was established.
U.S. Treasuries 5,316,809 U.S. Agencies 115,788,991 The endowment income spending practice at June 30, Total (fair value) $ 274,127,889 2009, is 3% of the twelve quarter moving average of the market value of the endowment pool. The spend-Short-term Investments ing practice is reviewed periodically and any necessary Time certificates of deposit $ 3,485,034 changes are made. In general, nearly all of the Univer-U.S. Treasuries 334,775,148 sity's endowment is subject to spending restrictions im-U.S. Agencies 292,054,957 Corporate notes 19,755,340 posed by donors.
Total (fair value) $ 650,070,479 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
- 3. INVESTMENTS restricted expendable net assets.
Funds available for investment are pooled to maximize At June 30, 2009, the investment portfolio composition return and minimize administrative cost, except for was as follows:
funds that are authorized by the University administra-tion to be separately invested or which are separately Investments invested to meet legal or donor requirements. Invest-U.S. Treasuries $ 242,423,338 ments received as gifts are recorded at fair value on the U.S. Agencies 1,005,495 date of receipt. If fair value is not available, investments Corporate notes and bonds 2,316,180 received as gifts are recorded at a nominal value. Other Mutual funds 338,918,001 investments are also recorded at fair value. Common and preferred stocks 8,840,737 Total (fair value) $ 593,503,751 UURF receives, in exchange for patent rights, common stock of newly organized companies acquiring these 28
- 4. DEPOSITS AND $29,669,951 exposed to custodial credit risk. The Uni-INVESTMENTS versity's policy for reducing this risk of loss is to deposit all such balances in qualified depositories, as defined The State of Utah Money Management Council (Coun- and required by the Act.
cil) has the responsibility to advise the State Treasurer about investment policies, promote measures and rules Investments that will assist in strengthening the banking and credit structure of the State, and review the rules adopted un- The Act defines the types of securities authorized as ap-der the authority of the State of Utah Money Manage- propriate investments for the University's non-endow-ment Act (Act) that relate to the deposit and investment ment funds and the conditions for making investment of public funds. transactions. Investment transactions may be conducted only through qualified depositories, certified dealers, or Except for endowment funds, the University follows the directly with issuers of the investment securities.
requirements of the Act (Utah Code, Section 51, Chap-ter 7) in handling its depository and investment trans- These statutes authorize the University to invest in ne-actions. The Act requires the depositing of University gotiable or nonnegotiable deposits of qualified deposi-funds in a qualified depository. The Act defines a quali- tories and permitted negotiable agreements; commercial fied depository-as any financial institution whose depos- paper that is classified as "first tier" by two nationally its are insured by an agency of the federal government recognized statistical rating organizations, one of which and which has been certified by the State Commissioner must be Moody's Investors Service or Standard &
of Financial Institutions as meeting the requirements of Poor's; bankers' acceptances; obligations of the United the Act and adhering to the rules of the Council. States Treasury including bills, notes, and bonds; bonds, notes, and other evidence of indebtedness of political For endowment funds, the University follows the re- subdivisions of the State; fixed rate corporate obliga-quirements of the UPMIFA, State Board of Regents' tions and variable rate securities rated "A" or higher, or Rule 541, Management and Reporting of Institutional the equivalent of "A" or higher, by two nationally rec-Investments (Rule 541), and the University's investment ognized statistical rating organizations; shares or certifi-policy and endowment guidelines. cates in a money market mutual fund as defined in the Act; and the Utah State Public Treasurer's Investment Deposits Fund (PTIF).
Custodial Credit Risk: Custodial credit risk for deposits The UPMIFA, Rule 541, and the University's endow-is the risk that, in the event of a bank failure, the Uni- ment guidelines allow the University to invest endow-versity's deposits may not be returned. ment funds (including gifts, devises, or bequests of property of any kind from any source) in any of the At June 30, 2009, the carrying amounts of the Uni- above investments or any of the following subject to sat-versity's deposits and bank balances were $28,996,350 isfying certain criteria: professionally managed pooled and $30,169,951, respectively. On October 3, 2008, or commingled investment funds registered with the the Federal Deposit Insurance Corporation (FDIC) Securities and Exchange Commission or the Comptrol-temporarily increased the deposit insurance coverage ler of the Currency (e.g., mutual funds); professionally to $250,000 for each depositor at each banking in- managed pooled or commingled investment funds cre-stitution. On January 1, 2014, the amount of insur- ated under 501 (f) of the Internal Revenue Code which ance coverage will revert back to $100,000. As a result, satisfy the conditions for exemption from registration the bank balances of the University were insured for under Section 3(c) of the Investment Company Act
$500,000, by the FDIC. The bank balances in excess of of 1940; any investment made in accordance with the
$500,000 were uninsured and uncollateralized, leaving 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 Rule 541, as applicable. For non-endowment funds, non-hedged), private capital (including venture capital, Section 51-7-11 of the Act requires that the remain-private equity, both domestic and international), natu- ing term to maturity of investments may not exceed the ral resources, and private real estate assets or absolute period of availability of the funds to be invested. The return and long/short hedge funds. Act further limits the remaining term to maturity on all investments in commercial paper, bankers' acceptances, The PTIF is not registered with the SEC as an invest- fixed rate negotiable deposits and fixed rate corporate ment company. TIhe PTIF is authorized and regulated obligations to 270-365 days or less. In addition, vari-by the Act, Section 51-7, Utah Code Annotated, 1953, as able rate negotiable deposits and variable rate securities amended. The Act established the Council which over- may not have a remaining term to final maturity ex-sees the activities of the State Treasurer and the PTIF ceeding two years. For endowment funds, Rule 541 is and details the types of authorized investments. Depos- more general, requiring only that investments be made its in the PTIF are not insured or otherwise guaranteed as a prudent investor would, by considering the purpos-by the State, and participants share proportionally in es, terms, distribution requirements, and other circum-any realized gains or losses on investments. stances of the endowments and by exercising reasonable care, skill, and caution.
The PTIF operates and reports to participants on an amortized cost basis. The income, including gains and As of June 30, 2009, the University had investments losses, net of administration fees, of the PTIF are allo- with maturities as shown in Figure 1.
cated based upon the participant's average daily balance.
The fair value of the PTIF investment pool is approxi- CreditRisk: Credit risk is the risk that an issuer or other mately equal to the value of the pool shares. counterparty to an investment will not fulfill its obliga-tions. The University's policy for reducing its exposure The University's participation in mutual funds may in- to credit risk is to comply with the Act, the UPMIFA, directly expose it to risks associated with using or hold- and Rule 541, as previously discussed.
ing derivatives. However, specific information about any such transactions is not available to the University. At June 30, 2009, the University had investments with quality ratings as shown in Figure2.
InterestRate Risk: Interest rate risk is the risk that chang-es in interest rates will adversely affect the fair value of Custodial Credit Risk: Custodial credit risk for invest-an investment. The University's policy for managing its ments is the risk that, in the event of a failure of the exposure to fair value loss arising from increasing inter- counterparty, the University will not be able to recover est rates is to comply with the Act or the UPMIFA and 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 lines allocates endowment funds in the following asset its exposure to custodial credit risk is to comply with classes:
applicable provisions of the Act. As required by the Act, all applicable securities purchased were delivered versus Asset Class Target Allocation Allocation Range payment and held in safekeeping by a bank. Also, as Global Marketable required, the ownership of book-entry-only securities, Equities 45% 20% - 60%
Global Marketable such as U.S. Treasury or Agency securities, by the Uni-Fixed Income 30% 25% - 50%
versity's custodial bank was reflected in the book-entry Alternatives 25% 5% - 30%
records of the issuer and the University's ownership was represented by a receipt, confirmation, or statement is-sued by the custodial bank. The University diversifies assets among several invest-ment managers of varying investment strategies. Di-At June 30, 2009, the University's custodial bank was versification is an effective means of maximizing return both the custodian and the investment counterparty for while mitigating risk.
$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 5. RECEIVABLES trust department but not in the University's name.
Accounts, pledges, and interest receivable include hos-Concentration of Credit Risk: Concentration of credit pital patient accounts, medical services plan accounts, risk is the risk of loss attributed to the magnitude of a trade accounts, pledges, interest income on investments, government's investment in a single issuer. The Univer- and other receivables. Loans receivable predominantly sity's policy for reducing this risk of loss is to comply consist of student loans.
with the Rules of the Council or the UPMIFA and Rule 541, as applicable. Rule 17 of the Council limits non- Allowances for doubtful accounts are established by endowment fund investments in a single issuer of com- charges to operations to cover anticipated losses from ac-mercial paper and corporate obligations to 5-10% depend- counts receivable generated by sales and services and stu-ing upon the total dollar amount held in the portfolio. dent loans. Such accounts are charged to the allowance when collection appears doubtful. Any subsequent recov-For endowments, the University, under Rule 541, is eries are credited to the allowance accounts. Allowances permitted to establish its own investment policy which are not established for pledges or in those instances where adheres to the guidelines established by UPMIFA. Ac- receivables consist of amounts due from governmental cordingly, the University's Pool Asset Allocation Guide- units or where receivables are not material in amount.
Figure2. Quality Rating Investment Type Fair Value AAA/A-1 A Unrated No Risk Money market mutual funds $ 7,847,973 $ 75,017 $ 7,772,956 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 $ 582,515,295 U.S. Agencies 408,849,443 408,849,443 Corporate notes and bonds 22,071,520 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 $ 396,825,891 Grants and contracts 46,301,983 Notes 100,000 Loans 31,926,846 Pledges 80,684,701 Interest 4,677,988 560,517,409 Less allowances for doubtful accounts (153,076,399)
Receivables, net $ 407,441,010 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
- 6. DEFERRED CHARGES AND of acquisition.
OTHER ASSETS Capital assets of the University and its component units The costs associated with issuing long-term bonds pay- are depreciated on a straight-line basis over their esti-able are deferred and amortized over the life of the re- mated useful lives. The estimated useful lives of Uni-lated bonds using the straight-line method, which ap- versity assets extends to forty years on buildings, fifteen proximates the effective interest method. In addition, years on infrastructure and improvements, twenty years goodwill associated with the purchase of certain health on library books, and from five to fifteen years on equip-clinics and prepaid rent to the State of Utah for the ment. The estimated useful lives of component unit as-Huntsman Cancer Hospital are amortized using the sets extend to fifty years on buildings and improvements straight-line method. The June 30, 2009 balance of pre- and from three to eight years on equipment. Land, art paid rent to the State was $60,857,611. and special collections, and construction in progress are not depreciated.
- 7. CAPITAL ASSETS At June 30, 2009, the University had outstanding com-mitments for the construction and remodeling of Uni-Buildings; infrastructure and improvements, which in- versity buildings of approximately $27,376,000.
cludes roads, curbs and gutters, streets and sidewalks, and lighting systems; land; equipment; and library ma- Capital assets at June 30, 2009, are shown in Figure3.
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, 8. PENSION PLANS AND and additions to existing assets are capitalized when ac- RETIREMENT BENEFITS quisition cost equals or exceeds $50,000. Equipment is capitalized when acquisition costs exceed $5,000 for the As required by State law, eligible nonexempt employees University or $1,000 for UUHC. All costs incurred in (as defined by the U.S. Fair Labor Standards Act) of the acquisition of library materials are capitalized. All the University are covered by either the Utah State and campus land acquired through grants from the U.S. School Contributory or Noncontributory or the Public 32
Safety Noncontributory Retirement Systems and eligi- Plan members in the State and School Contributory ble exempt employees (as defined by the U.S. Fair Labor Retirement System are required to contribute 6.00% of Standards Act) are covered by the Teachers Insurance their annual covered salaries, all of which is paid by the and Annuity Association-College Retirement Equi- University, and the University is required to contrib-ties Fund (TIAA-CREF), Fidelity Investments (Fidel- ute 9.73% of their annual salaries. In the State and ity), or the Vanguard Group, Inc. (Vanguard). Eligible School Noncontributory Retirement System and the employees of ARUP are covered by a separate defined Public Safety Noncontributory Retirement System, the contribution pension plan and a profit sharing plan. University is required to contribute 14.22% (with an additional 1.50% to a 401(k) salary deferral program)
The University contributes to the Utah State and School and 29.55%, respectively, of plan members' annual sala-Contributory and Noncontributory and the Public ries. The contribution requirements of the Systems are Safety Noncontributory Retirement System (Systems) authorized by statute and specified by the Board and the that are multi-employer, cost sharing, defined benefit contribution rates are actuarially determined.
pension plans. The Systems provide refunds, retirement benefits, annual cost of living adjustments, and death TIAA-CREF, Fidelity, and Vanguard provide individual benefits to plan members and beneficiaries in accor- retirement fund contracts with each participating em-dance with retirement statutes. ployee. Employees may allocate contributions by the University to any or all of the providers and the con-The Systems are established and governed by the respec- tributions to the employee's contract(s) become vested tive sections of Chapter 49 of the Utah Code Annotated, at the time the contribution is made. Employees are 1953, as amended. The Utah State Retirement Office eligible to participate from the date of employment and Act provides for the administration of the Utah Retire- are not required to contribute to the fund. Benefits pro-ment Systems and Plans under the direction of the Utah vided to retired employees are based on the value of the State Retirement Board (Board) whose members are ap- individual contracts and the estimated life expectancy pointed by the Governor. The Systems issue a publicly of the employee at retirement. For the year ended June available financial report that includes financial state- 30, 2009, the University's contribution to these defined ments and required supplementary information for the contribution pension plans was 14.20% of the employees' Systems. A copy of the report may be obtained by writ- annual salaries. Additional contributions are made by the ing to the Utah Retirement Systems. University based on employee contracts. The University has no further liability once contributions are made. Certain Figure3. Beginning Balance Additions Retirements Ending Balance Buildings $ 1,359,853,827 $ 180,753,355 $ 1,540,607,182 Infrastructure and improvements 162,435,655 15,807,587 178,243,242 Land 18,878,435 $ 328,640 18,549,795 Equipment 563,787,945 89,153,430 22,053,090 630,888,285 Library materials 153,604,361 2,568,887 283,065 155,890,183 Art and special collections 47,636,161 2,739,783 46,857 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 1,148,807,951 117,722,082 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 and fees, advance payments on grants and contracts, ad-filly vested as of that date. Employees hired subsequent to vance ticket sales for various athletic and cultural events, January 1, 2001, are eligible to participate in the plan one and results of normal operations of auxiliary enterprises year after hire date and vest after six years. The University's and service units.
contribution for these health clinic employees was 6.00%
of the employees' annual salaries.
- 10. FUNDS HELD IN TRUST The ARUP defined contribution pension and profit shar- BY OTHERS ing plans provide retirement benefits for all employees.
Effective August 4, 2007, ARUP implemented a change Funds held in trust by others are neither in the posses-in the defined contribution pension plan which allows sion of nor under the management of the University.
employees to choose whether to continue to pay into These funds, which are not recorded on the University's the federal social security tax system or to participate financial records and which arose from contributions, in an enhanced ARUP retirement program. For those are held and administered by external fiscal agents, se-who choose to continue to pay social security taxes, lected by the donors, who distribute net income earned ARUP makes contributions each pay period amount- by such funds to the University, where it is recorded ing to 5.00% of their compensation and ARUP contin- when received. The fair value of funds held in trust at ues to make matching social security tax contributions. June 30, 2009, was $71,903,843.
For those who discontinue paying social security taxes, ARUP makes contributions each pay period amount- In addition, certain funds held in trust by others are com-ing to 8.10% of their compensation and do not have prised ofstock, which is reported at a value of$10,933,321 any social security tax contributions made by ARUP on as of June 30, 2009, based on a predetermined formula.
their behalf. There are no minimum service and vesting The fair value of this stock as of June 30, 2009 cannot be requirements relating to pension contributions. determined because the stock is not actively traded.
Contributions to the profit sharing plan are at the dis-cretion ofARUP and are made subject to certain tenure- 11. RISK MANAGEMENT based and hours-worked thresholds. Employees are fully vested in the profit sharing plan after five years of service. The University maintains insurance coverage for com-For the years ended June 30, 2009, 2008, and 2007, the mercial general liability, automobile, errors and omis-University's contributions to the Systems were equal to sions, and property (building and equipment) through the required amounts, as shown in Figure 4. policies administered by the Utah State Risk Manage-ment Fund. Employees of the University and autho-rized volunteers are covered by workers' compensation
- 9. DEFERRED REVENUE and employees' liability through the Workers' Compen-sation Fund of Utah.
Deferred revenue consists of summer session tuition Figure4. 2009 2008 2007 State and School Contributory Retirement System $ 1,527,460 $ 1,555,310 $ 1,581,565 State and School Noncontributory Retirement System 26,010,222 25,209,056 24,259,347 Public Safety Noncontributory Retirement System 403,770 316,579 328,163 TIAA-CREF 66,282,674 63,247,520 70,903,307 Fidelity 18,564,335 7,457,205 Vanguard 2,706,528 1,808,724 Pension plan 8,758,713 7,280,524 3,498,662 Profit sharing plan 8,079,552 7,036,696 6,050,982 Total contributions $132,333,254 $ 113,911,614 $ 106,622,026 34
In addition, the University maintains self-insurance 12. INCOME TAXES funds for health care, dental, and auto/physical dam-age, as well as hospital and physicians malpractice liabil- The University, as a political subdivision of the State, ity self-insurance funds. The malpractice liability self- has a dual status for federal income tax purposes. The insurance funds are held in trust with an independent University is both an Internal Revenue Code (IRC) financial institution in compliance with Medicare reim- Section 115 organization and an IRC Section 501(c) bursement regulations. Based on an analysis prepared (3) charitable organization. This status exempts the by an independent actuary, the administration believes University from paying federal income tax on revenue that the balance in the trust funds as of June 30, 2009, generated by activities which are directly related to the is adequate to cover any claims incurred through that University's mission. This exemption does not apply to date. The University and UUHC have a "claims made" unrelated business activities. On these activities, the umbrella malpractice insurance policy in an amount University is required to report and pay federal and state considered adequate by its respective administrations income tax.
for catastrophic malpractice liabilities in excess of the trusts' fund balances. UURF is not subject to income taxes under Section 501 (c)(3) of the Internal Revenue Code.
The estimated self-insurance claims liability is based on the requirements of GASB Statement No. 10, Account- ARUP is also not subject to income taxes based on a ing and FinancialReportingfor Risk Financingand Re- private letter ruling from the Internal Revenue Service lated Insurance Issues, as amended by GASB Statement stating that certain income providing an essential gov-No. 30, Risk FinancingOmnibus, which requires that a ernmental function is exempt from federal income taxes liability for claims be reported if information prior to under Internal Revenue Code Section 115.
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 13. HOSPITAL REVENUE can be reasonably estimated.
A. Net PatientService Revenue Changes in the University's estimated self-insurance claims liability for the years ended June 30 are shown in Figure5. UUHC reports net patient service revenue at the esti-mated net realizable amounts from patients, third-party The University has recorded the investments of the mal- payors, and others for services rendered, including es-practice liability trust funds at June 30, 2009, and the timated retroactive adjustments under reimbursement estimated liability for self-insurance claims at that date agreements with third-party payors. Retroactive adjust-in the Statement of Net Assets. The income on fund in- ments are accrued on an estimated basis in the period vestments, the expenses related to the administration of the related services are rendered and adjusted-in future the self-insurance and malpractice liability trust funds, periods as final settlements are determined. Charity and the estimated provision for the claims liability for care is excluded from net patient service revenue.
the year then ended are recorded in the Statement of Revenues, Expenses, and Changes in Net Assets. UUHC has third-party payor agreements with Medi-care and Medicaid that provide for payments to UUHC Figure5.
2009 2008 Estimated claims liability - beginning of year $ 70,529,051 $ 66,157,336 Current year claims and changes in estimates 144,002,554 147,574,679 Claim payments, including related legal and administrative expenses (164,276,648) (143,202,964)
Estimated claims liability - end of year $ 50,254,957 $ 70,529,051 35
at amounts different from established rates. Inpatient B. Commitments acute care services rendered to Medicare and Medicaid program beneficiaries are paid at prospectively deter- The University leases buildings and office and comput-mined rates per discharge. These rates vary according er equipment. Capital leases are valued at the present to a patient classification system that is based on clini- value of future minimum lease payments. Assets associ-cal, diagnostic, and other factors. Outpatient services ated with the capital leases are recorded as buildings and rendered to Medicaid program beneficiaries and certain equipment together with the related long-term obliga-outpatient services and defined capital costs related to tions. Assets currently financed as capital leases amount Medicare beneficiaries are paid on a cost reimbursement to $7,420,000 and $76,731,164 for buildings and basis. Medicare reimbursements are based on a tentative equipment, respectively. Accumulated depreciation for rate with final settlement determined after submission these buildings and equipment amounts to $742,000 of annual cost reports by UUHC and audits thereof by and $46,029,637, respectively. Operating leases and re-the Medicare fiscal intermediary. lated assets are not recorded in the Statement of Net Assets. Payments are recorded as expenses when in-The estimated final settlements for open years are based curred and amount to approximately $19,807,230 for on preliminary cost findings after giving consideration the University and $5,934,203 for component units for to interim payments that have been received on behalf the year ended June 30, 2009. Total operating lease of patients covered under these programs. commitments for the University include approximately
$9,477,784 of commitments to component units.
B. Charity Care Included in the above component unit lease expenses UUHC maintains records to identify and monitor the are leases by ARUP for its principal laboratory and of-level of charity care it provides. Based on established fice buildings, under long-term agreements, from a real rates, the charges foregone as a result of charity care dur- estate investment trust in which one of its directors is a ing the year ended June 30, 2009, were approximately shareholder. The agreements have initial terms of fifteen
$34,075,000. 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-
- 14. LEASES mencement of the lease. ARUP also leases space from another company in which one of its directors is an A. Revenue owner. Total lease payments for the year ended June 30, 2009 were $5,499,981.
UURF receives lease revenues from noncancellable sub-lease agreements with tenants of the Research Park and Future minimum lease commitments for operating and from tenants occupying six buildings owned by UURF. capital leases as of June 30, 2009 are shown in Figure 6 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 15. BONDS PAYABLE & OTHER annual amounts. Most lease revenue is subject to escala- LONG-TERM LIABILITIES tion based on changes in the Consumer Price Index (CPI).
Since such escalations are dependent upon future changes The long-term debt of the University consists of bonds in the CPI, these escalations, if any, are not reflected in the payable, certificates of participation, capital lease obli-minimum noncancellable lease revenues listed above. gations, compensated absences, and other minor obli-gations.
At June 30, 2009, the historical cost of land and build-ings held for lease and the related accumulated deprecia- The State Board of Regents issues revenue bonds to pro-tion were $39,191,696 and $13,238,338, respectively. vide funds for the construction and renovation of major 36
capital facilities and the acquisition of capital equip- accordance with the bond provisions. When a weekly ment for the University. In addition, revenue bonds rate is in effect, the Series 1997A Bonds are subject to have been issued to refund other revenue bonds and purchase on the demand of the holder at a price equal capitalized leases. to principal plus accrued interest on seven days notice and delivery to the University's tender agent. The Uni-The revenue bonds are special limited obligations of the versity's remarketing agent is authorized to use its best University. The obligation for repayment is solely that efforts to sell the repurchased bonds at a price equal to of the University and payable from the net revenues of 100 percent of the principal amount by adjusting the auxiliary enterprises and UUHC, student building fees, interest rate. If any Series 1997A Bonds cannot be re-land grant income, and recovered indirect costs. Nei- marketed to new holders, the tender agent is required ther the full faith and credit nor the taxing power of the to draw on an irrevocable standby bond purchase agree-State or any other political subdivision of the State is ment to pay the purchase price of the bonds delivered pledged to the payment of the bonds, the distributions to it. The standby bond purchase agreement is with JP-or other costs associated with the bonds. Morgan Chase Bank and is valid through July 30, 2010.
As a result of the Lehman Brothers bankruptcy, several In 1985, the State Board of Regents authorized the Uni- remarketing attempts failed during September 2008.
versity to issue Variable Rate Demand Industrial Devel- While funds were drawn during this period, eventually opment Bonds (University Inn Project - 1985 Series) all bonds were successfully remarketed and the issue was for the Salt Lake City Marriott - University Park Hotel, resolved by the end of October. The interest require-separate from the University. The bonds are payable ment for the Series 1997A Bonds is calculated using an from the revenues of the hotel and the University has annualized interest rate of 0.40%, which is the rate in no responsibility or commitment for repayment of the effect at June 30, 2009.
bonds. The outstanding balance of the bonds at June 30, 2009, is $5,115,000. The Hospital Revenue Bond Series 2006B also experi-enced failed attempts to remarket bonds during Sep-The Series 1997A Auxiliary and Campus Facilities Rev- tember 2008. Funds were drawn on a standby bond enue Bonds currently bear interest at a weekly rate in purchase agreement with DEPFA Bank and eventually Figure6. Fiscal Year Operating Capital 2010 $ 27,568,794 $ 13,713,110 2011 26,199,048 11,535,022 2012 23,382,171 9,482,506 2013 21,034,002 7,050,942 2014 19,819,357 3,114,091 2015 - 2019 73,666,877 3,813,776 2020 - 2024 41,131,376 2,450,808 2025 - 2029 14,114,540 2030 -2034 3,078,325 2035 - 2039 875,000 2040 - 2044 875,000 2029 -2029 875,000 Total future minimum lease payments $ 252,619,490 51,160,255 Amount representing interest (5,394,453)
Present value of future minimum lease payments $ 45,765,802 37
the bonds were successfully remarketed by the end of gages will be paid off on April 1, 2020 and September October. In December, this bond series was refunded 1, 2021, respectively. In addition, UURF agreed to bear with the Hospital Revenue Refunding Bonds Series 2008. 42.04% of the cost to renovate the building at 417 Wa-kara Way for the Health Science Center. The remaining The Hospital Revenue Refunding Bonds Series 2008 balance of debt related to those costs is $2,936,494 at currently bear interest at a weekly rate in accordance interest rates ranging from 3.00% to 4.70%.
with the bond provisions. When a daily rate is in effect, the Series 2008 Bonds are subject to purchase on the The schedule in Figure 8 summarizes the changes in demand of the holder at a price equal to principal plus long-term liabilities for the year ended June 30, 2009.
accrued interest. The University's remarketing agent is authorized to use its best efforts to sell the repurchased Maturities of principal and interest requirements for bonds at a price equal to 100 percent of the principal long-term debt payable are as follows:
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 Payments pay the purchase price of the bonds delivered to it. The Fiscal Year Principal Interest letter of credit is with Wells Fargo Bank, N.A. and is 2010 $ 26,365,643 $ 16,077,901 scheduled to expire on December 1, 2010 or earlier 2011 27,159,019 15,053,468 on the occurrence of certain events. Through June 30, 2012 23,937,680 14,023,974 2009, no funds have been drawn against the letter of 2013 22,296,919 13,135,168 credit agreement. The interest requirement for the Se- 2014 19,289,844 12,339,271 ries 2008 Bonds is calculated using an annualized inter-2015-2019 81,631,883 49,831,104 est rate of 0.25%, which is the rate in effect at June 30, 2009.
2020 - 2024 76,214,639 32,336,237 2025 -2029 77,094,727 15,880,814 Figure 7 lists the outstanding bonds payable and 2030 -2034 26,220,121 1,660,376 certificates of participation of the University at June 30, 2009. Total $ 380,210,475 $170,338,313 UURF has purchased three buildings with two mort-gages that are guaranteed by the University. The remain- Interest related to bonds systems with pledged revenues ing amounts of the mortgages are $5,467,388 at 8.87% amounts to $141,731,377 and is included in the inter-interest and $2,695,955 at 7.15% interest. The mort- est amounts in the above schedule.
38
Figure7.
Date Maturity Interest Original Current Balance Issue Issued Date Rate Issue Liability 6/30/2009(a)
Auxiliary and Campus Facilities Series 1987A - Refunding 3/1/87 2014 3.750% - 6.750% $ 11,140,000 $ 250,000 $ 815,000 Series 1997A - Revenue 7/30/97 2027 Variable 52,590,000 1,265,000 8,810,000 Series 1998A - Revenue Re funding 7/1/98 2016 4.100% - 5.250% 120,240,000 24,177 53,664,302 Series 1999A - Revenue 5/1/99 2014 4.000% - 4.800% 5,975,000 462,145 2,539,968 Series 2001 - Revenue 7/18/01 2021 3.500% - 5.125% 2,755,000 123,632 1,973,475 Series 2005A - Refunding 8/2/05 2021 3.000% - 5.000% 42,955,000 2,984,633 40,258,043 Hospital Series 2005A - Revenue Re funding 7/14/05 2018 4.500% - 5.000% 30,480,000 3,294,715 32,254,759 Series 2006A - Revenue Refunding 10/26/06 2032 4.000% - 5.250% 77,145,000 114,418 82,016,717 Series 2008 - Revenue Refunding 12/1/08 2031 Variable 20,640,000 520,000 20,640,000 Research Facilities Series 2004A - Revenue 6/30/04 2019 3.000% - 4.700% 9,685,000 577,381 7,013,623 Series 2005A - Revenue 2/15/05 2025 3.000% - 5.000% 5,515,000 220,089 4,846,011 Series 2005B - Refunding 6/07/05 2020 3.000% - 5.000% 20,130,000 1,542,733 15,266,710 Series 2008A - Revenue Refunding 10/7/08 2022 3.250% - 5.000% 9,360,000 551,894 9,054,032 Certificates of Participation Series 2007 4/3/07 2027 4.000% - 5.500% 42,450,000 790,563 40,868,048 Total $ 12,721,380 $ 320,020,688 (a) Includes unamortized premiums and losses on refunding.
Figure8. Beginning Ending Current Balance Additions Reductions Balance Portion Bonds payable $ 289,485,72,4 $ 30,201,709 $ 40,534,793 $ 279,152,640 $ 11,930,817 Certificates of participation 41,589,77 7 721,729 40,868,048 790,563 Capital leases payable 50,470,75 5 8,080,684 12,785,637 45,765,802 12,223,980 Notes and contracts payable 15,214,04 1 494,885 1,284,941 14,423,985 1,420,283 Total long-term debt 396,760,297 38,777,278 55,327,100 380,210,475 26,365,643 Compensated absences 44,067,584 35,292,298 31,632,827 47,727,055 4,938,707 Deposits & other liabilities 135,791,823 83,610,131 141,857,446 77,544,508 68,052,364 Total long-term liabilities $ 576.619.704 $ 157.679.707 $ 228.817.373 $ 505.482.038 $ 99.356.714 39
- 16. RETIREMENT OF DEBT 17. FUNCTIONAL CLASSIFICATION OF EXPENSES In prior years, the University defeased certain revenue bonds by placing the proceeds of new bonds and various Figure 9 presents, in thousands of dollars, operating ex-bond reserves in irrevocable trusts to provide for all future penses by functional classification and natural classifica-debt service payments on the old bonds. Accordingly, the tion for the year ended June 30, 2009:
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- 18. PLEDGED BOND REVENUE revocable trusts at June 30, 2009, is $39,115,000.
The University issues revenue bonds to provide funds In addition, the University issued two refunding bond for the construction and renovation of major capital fa-series during the fiscal year. The first series was the Re- cilities and the acquisition of capital equipment for the search Facilities Revenue Refunding Bonds Series 2008A University. Investors in these bonds rely solely on the issued on October 7, 2008, in the amount of $9,360,000 net revenue pledged by the following activities for the for the purpose of refunding all of the Research Facili- retirement of outstanding bonds payable.
ties' Revenue Bonds Series 2007A. This refunding re-sulted in a reduction of the University's aggregate debt Auxiliary Enterprises- is comprised of specific auxiliary service payments of approximately $425,000 over the enterprises, namely: University Campus Store, Housing next thirteen years and a present value economic gain and Residential Education, University Student Apart-of approximately $396,000. The second series was the ments, Commuter Services, Jon M. Huntsman Center, Hospital Revenue Refunding Bonds Series 2008 issued Rice-Eccles Stadium, and the A. Ray Olpin University on December 1, 2008, in the amount of $20,640,000 Union Building. These auxiliaries provide on-campus for the purpose of refunding all of the Hospital Revenue services for the benefit of students, faculty, staff and visi-Refunding Bonds Series 2006B. This refunding resulted tors. In addition to the net revenues of these auxilia-in a reduction of the University's aggregate debt service ries, student building fees, state land grant income and payments of approximately $18,567,000 over the next a subsidy from the federal department of Housing and twenty-three years and a present value economic gain of Urban Development are pledged to the retirement of all approximately $14,975,000. Auxiliary Campus and Facility bonds.
Figure9.
Compensation Supplies and Scholarships Depreciation & Component Function and Benefits Services Utilities & Fellowships Amortization Units Total Instruction $ 256,562 $ 31,751 $ 1,904 $28,356 $ 318,573 Research 155,829 77,663 1,585 2,723 237,800 Public service 361,313 75,460 18,140 1,752 456,665 Academic support 59,201 25,146 682 140 85,169 Student services 15,354 5,731 239 316 21,640 Institutional support 35,572 (6,751) 4,053 493 33,367 O & M of plant 21,872 19,817 18,868 3 60,560 Student aid 2,769 25,160 13 (10,058) 17,884 Other 30,075 (53,443) 5,507 2,261 $105,663 90,063 Hospital 398,468 379,111 10,014 787,593 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 nually commencing April 1, 2010 through April 1, 2019 the University Hospitals, the University Neuropsychiat- and principal on the Series 2009B bonds is due annu-ric Institute, and other clinics that provide health and ally commencing April 1, 2020 through April 1, 2029.
psychiatric services to the community. Bond interest is due semiannually commencing April 1, 2010 at rates ranging from 4.00% to 6.279%. Each in-Reimbursed Overhead - is the revenue generated by terest payment on the Series 2009B bonds will receive a charging approved facilities and administration rates to subsidy from the Federal Government with funds pro-grants and contracts. vided by the American Recovery and Reinvestment Act totaling $9,051,083 over the life of the bonds. Proceeds Figure 10 presents the net revenue pledged to the ap- from these bonds will be used to finance certain infra-plicable bond system and the principal paid and interest structure improvements including a central chilled water expense for the year ended June 30, 2009. plant. The infrastructure improvements are necessary for planned construction for interdisciplinary research, clin-ical operations and improving inefficient cooling systems
- 19. COMMITMENTS AND in some existing buildings.
CONTINGENCIES On September 1, 2009, the University entered into a Under the terms of various limited partnership agree- sublease agreement with the State of Utah for Phase I-B ments approved by the Board of Trustees or by Univer- of the Huntsman Cancer Hospital which requires semi-sity officers, the University is obligated to make periodic annual lease payments beginning May 2010 through payments for advance commitments to venture capital May 2030. Fiscal year payments range from $2.6 million and private equity investments. As of June 30, 2009, in fiscal year 2010 to $12.4 million in fiscal year 2030.
the University had committed, but not paid, a total of Total lease payments over the life of the lease amount to
$19,323,652 in funding for these alternative investments. $158.9 million.
- 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-Bond Systems Figure10.
Auxiliary & Campus Facilities Hospital Research Facilities Revenue Operating revenue $ 69,771,817 $ 854,364,793 $ 66,889,483 Nonoperating revenue 6,202,323 11,089,601 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 Michael K. Young Chair President Bonnie Jean Beesley A. Lorris Betz Vice Chair Senior Vice Presidentfor Health Sciences David W Pershing Jerry C. Atkin Senior Vice Presidentfor Academic Affairs Brent L. Brown Jack W. Brittain Rosanita Cespedes Vice Presidentfor Tech Venture Development France A. Davis Arnold B. Combe Katharine B. Garff Vice Presidentfor Administrative Services Greg W. Haws Fred C. Esplin Meghan Holbrook Vice Presidentfor InstitutionalAdvancement David J. Jordan Joan E. Gines Nolan E. Karras Interim Vice Presidentfor Human Resources Robert S. Marquardt Stephen H. Hess Anthony W. Morgan ChiefInformation Officer Carol Murphy John K. Morris William H. Prows Vice President/GeneralCounsel Marlon 0. Snow Thomas N. Parks Teresa L. Theurer Vice Presidentfor Research John H. Zenger. Barbara H. Snyder Vice Presidentfor Student Affairs William A. Sederburg Kim Wirthlin Commissioner of Higher Education Vice Presidentfor Government Relations Board of Trustees Financial and Business Services Randy L. Dryer Jeffrey J. West Chair Associate Vice Presidentfor Financialand Business Services Michele Mattsson Theresa L. Ashman Vice Chair Controller/DirectorFinancialManagement Stephen P Allen A. Scott Anderson Associate Directorfor FinancialAccounting Timothy B. Anderson and Reporting H. Roger Boyer Barbara K. Nielsen Taylor Clough Associate Directorfor ComplianceAccounting Lisa Eccles and Reporting Clark D. Ivory Joyce P. Valdez James M. Wall 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
ýý-,, I
INTRODUCTION The University ranks as one of the nation's top uni-versities by various measures of quality, both in The following discu'ssion and analysis provides an general academic terms and in terms of strength of overview of the financial position and activities of offerings in specific academic disciplines and pro-the University of Utah (University) for the year ended fessional subjects. Excellence in research is anoth-June 30, 2008, with selected comparative informa- er crucial element in the University's high ranking tion for the year ended June 30, 2007. This discus- among educational institutions.
sion has been prepared by management and should be read in conjunction with the financial statements In addition to the academic schools, colleges, and and the notes thereto, which follow this section. departments, the University operates the University of Utah Research Foundation (UURF), a separately The University is a comprehensive public institu- incorporated entity that specializes in applied re-tion of higher learning with approximately 28,ooo search, the transfer of patented technology to busi-students, 2,300 full-time faculty members and more ness entities, leasing and administration of Re-than 20,000 supporting staff. The University offers search Park (a research park located on land owned a diverse range of degree programs from baccalaure- by the University), and the leasing of certain build-ate to post-doctoral levels, through a framework of ings. Also, a wholly-owned, separately incorporated 15 schools, colleges and divisions, and contributes enterprise, the Associated Regional and University to the state and nation through related research and Pathologists, Inc. (ARUP) is a national clinical and public service programs. The University also main- anatomic pathology reference laboratory.
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.
7
FINANCIAL HIGHLIGHTS Revenues and expenses are categorized as operat-ing or nonoperating and other net asset additions as The University's financial position remained strong capital contributions or additions to permanent en-at June 30, 2008, with assets of $3.5 billion and total dowments. Significant recurring sources of the Uni-liabilities of $o.8 billion. Net assets, which repre- versity's revenues, including state appropriations, sent the residual interest in the University's assets gifts and investment income, are considered nonop-after liabilities are deducted, increased by $169.6 erating, as defined by GASB Statement No. 34, Baic million to $2.7 billion at June 30, 2008. FinancialStatementA - and Managements DLcu--
,Aion andAnalyziA -for State and Local GovernmentM.
Changes in net assets represent the total activity of Nonoperating revenues totaled $410.2 million and the University, which results from all revenues, ex- $494.2 million for the years ended June 30, 2008 and penses, gains and losses, and are summarized for 2007, respectively. Nonoperating expenses, which the years ended June 30, 2008 and 2007 in Figure 1. include interest expense, totaled $33.8 million and
$31.5 million for the years ended June 30, 2008 and Fiscal year 2008 revenues before change in fair value 2007, respectively.
of investments remained essentially the same, while expenses increased 8.8%, or $186.4 million. This re- Also, as required by GASB Statement No. 34, schol-sulted in a net gain before changes in fair value of arships and fellowships applied to student accounts investments of $211.7 million for fiscal year 2008, as are shown as a reduction of auxiliary and tuition compared to $397.5 million for fiscal year 2007. and fee revenues, while stipends and other payments made directly to students are presented as scholar-The University invests its endowment funds to maxi- ship and fellowship expenses. For the years ended mize total return over the long term, within an ap- June 30, 2008 and 2007, scholarship and fellowship propriate level of risk. The success of this long-term expenses totaled $24.6 million and $23.8 million, re-investment strategy is evidenced by returns averag- spectively. In addition, scholarships and fellowships ing 9.7% during the past five years. 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 USING THE FINANCIAL auxiliary enterprises revenue.
STATEMENTS Other appropriate revenue items have also been re-The University's financial report is prepared in ac- duced by the allowance for uncollectible amounts cordance with Governmental Accounting Standards which is estimated each fiscal year.
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.
Figure i. 2008 2007 (in thou.6andA)
Total revenues before change in fair value of investments $ 2,522,4' 91 $2,521,918 Total expenses 2,310,8(05 2,124,446 Increase in net assets before change in fair value of investments 211,6*86 397,472 Increase (decrease) in fair value of investments (42,130) 65,146 Increase in net assets $ 169,556 $ 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 rent assets represent approximately 7.1 months of the University's assets, liabilities and net assets at total operating expenses (excluding depreciation).
June 30, 2o08 and 2007 is shown in Figure2. Current cash and investments totaled $936.2 mil-lion at June 30, 2008 and $937.5 million at June 30, A review of the University's Statement of Net Assets 2007. Net receivables increased from $273.4 million at June 30, 2oo8 and 2007, shows that the University at June 30, 2007 to $288.8 million at June 30, 2008.
continues to build upon its strong financial founda-tion. This strong financial position reflects the pru- Current liabilities consist primarily of trade accounts, dent utilization of its financial resources, including accrued payroll, deposits, and other liabilities, which careful cost controls, management of its endowment totaled $347.3 million at June 30, 2008, as compared funds, utilization of debt and adherence to its long to $301.5 million at June 30, 2007. Current liabilities range capital plan for the maintenance and replace- also include deferred revenue and the current portion ment of the physical plant. of bonds payable. Total current liabilities increased
$45.7 million during fiscal year 2008.
Current assets consist primarily of cash, operating investments, trade receivables and inventories. Cur-Figure2. 2008 2007 (in thoutAand6)
Current assets $1,279,049 $ 1,254,949 Noncurrent assets Endowment and other investments 672,264 684,983 Receivables, net 82,689 69,522 Capital assets, net 1,348,040 1,248,432 Other 75,235 17,406 Total assets 3,457,277 3,275,292 Current liabilities 347,254 301,528 Noncurrent liabilities 422,982 456,279 Total liabilities 770,236 757,807 Net assets $2,687,041 $2,517,485 9
iigu7a Dr. Mario Capecchi, Nobel Prize in PhyAiology or Medicine.
ENDOWMENT AND SIMILAR designed to maximize long-term results. The assets are strategically allocated to provide for broad diver-INVESTMENTS sification of the investments with a long-term goal of maximizing returns within acceptable risk levels for The University's endowment funds consist of true investment of endowment funds. Endowment funds endowments, term endowments, and quasi-endow-that are invested in the University's endowment pool ments. True endowments (also known as permanent are invested on a unit basis similar to mutual funds endowments) are those funds received from donors where new dollars buy shares in the pool.
with the stipulation that the principal remain invio-late and be held in perpetuity to produce income that Fiscal year 2oo8 represented the end of a very good is to be expended for the purposes specified by the five year period with respect to investment perfor-donor. Term endowment funds are similar to true mance for the University's endowment funds. How-endowments, except that, upon the passage of a stat-ever, at the end of the fiscal year significant upheav-ed period of time or the occurrence of a particular als in the financial markets were beginning to take event, all or part of the principal may be expended.
their toll on performance for all investors. The five Substantially all the University's endowments are re-year average annualized return was 9.7% through stricted by the donor for a particular purpose. Quasi-the end of the fiscal year. For the year ended June endowments consist of institutional funds that have 30, 2008, the University of Utah endowment pool re-been allocated by the University for long-term invest-turned -4.3% compared to 17.0% for the year ended ment purposes. Although such funds are not subject June 30, 2007. These results reflect the investment to donor restrictions requiring the University to pre-in equities and bonds in the asset allocation of the serve the principal in perpetuity, most carry restric-pool and compare favorably to broad indexes such as tions as to how the funds may be spent. Programs the S&P 5oo and Lehman Brothers Aggregate Bond supported by endowment funds include scholar-(-13.1% decline and 7.1% gain, respectively, for fiscal ships, fellowships, professorships, research efforts year 20o8). The unrealized net loss on the endow-and other important programs and activities.
ment pool for the year ended June 30, 20o8 totaled
$15.4 million compared to an unrealized gain of The University has implemented investment guide-
$72.8 million for the year ended June 30, 2007.
lines for the University's Endowment Pool that are 10
Payout from the endowment pool is subject to a The University continues to implement its long-spending policy which determines a distribution rate range plan to modernize its complement of older that will be used to allocate funds to University de- teaching and research facilities, balanced with new partments based on the total market value of the pool. construction.
The purpose of the spending policy is to establish a distribution rate that over time will generate returns Capital additions totaled $244.4 million in fiscal year adequate to continue support for future expenses in 2oo8, as compared to $426.o million in fiscal year perpetuity assuming moderate levels of inflation. 2007. Capital additions include replacement, reno-During the year ended June 30, 2008, the spending vation, and new construction of academic, research, policy was 4.0% of the twelve quarter moving average and health care facilities, as well as significant in-of unit market values. Given the unprecedented chal- vestments in equipment. Capital asset additions are lenges in the current financial environment, the en- funded by capital appropriations, bond proceeds, dowment spending policy may be adjusted as neces- gifts which were designated for capital purposes, sary to maintain the University's historically prudent and unrestricted net assets.
approach to endowment spending.
Construction in progress at June 30, 2oo8, totaled The endowment pool is managed on a total return $190o.7 million that includes projects in numerous basis where funds available for distribution are de- buildings across the campus. Significant projects in-rived from dividends earned, interest and unreal- clude: a new patient services wing of the University ized gains. While the endowment pool earnings were Hospital; continued renovation of the Marriott Li-
$14.7 million in fiscal year 2oo8, the University dis- brary; geology and geophysics office, lab, and class-tributed $18.3 million to operations. The difference room facilities; equipment for a new cogeneration of $3.6 million was allocated from unrealized gains. power plant; and new office and classroom facilities for the College of Humanities.
Since endowment funds are invested for long-term results rather than short-term annual returns, it is The University takes seriously its role of financial important to reflect on the longer investment hori- stewardship and works hard to manage its financial zon. The University's endowment pool has paid out resources effectively, including the prudent use of an average of 4.o% and reinvested the balance repre- debt to finance capital projects. The debt rating of senting an average of 1.5%. The reinvested funds en- the University is an important indicator of success abled higher balances, thus yielding greater returns in this area. The underlying bond ratings from Stan-to keep pace with inflation of program expenses. dard and Poor's and Moody's Investors Service for Endowments provide crucial support for the Univer- the Auxiliary and Campus Facilities Bonds are AA/
sity's quality academic programs and accessibility Aa2, the Hospital Revenue Bonds are AA/Aa2, the to these programs for students at both the graduate Research Facilities Revenue Bonds are AA-/Aa3, and and undergraduate level. the Certificates of Participation are AA/Aa 3 , respec-tively. These ratings are considered high investment Gifts to permanent endowments totaled $17.5 mil- grade quality and position the University, if deemed lion and $17.2 million for the fiscal years 2oo8 and necessary, to obtain future debt financing at lower 2007, respectively. interest rates.
CAPITAL AND DEBT ACTIVITIES Bonds payable totaled $289.5 million and $302.4 million at June 30, 2oo8 and 2007, respectively. The One of the critical factors in continuing the quality original purpose of all bond debt is to provide funds of the University's academic and research programs for the construction and renovation of major capital is the development and renewal of its capital assets. facilities and the acquisition of capital equipment for the University.
11
An institution's ratio of unrestricted operating rev- dent tuition and fees, including voluntary private enues to bonds, notes and contract debt is a valuable support from individuals, foundations, and corpora-indicator of its ability to finance its outstanding tions, along with government and other grants and debt. At June 30, 2008, the University has 4.3 times contracts, state appropriations, and investment in-the unrestricted operating revenue necessary to come. The University will continue to aggressively meet its debt requirements. seek funding from all possible sources consistent with its mission, to supplement student tuition, and NET ASSETS to manage prudently the financial resources realized from these efforts to fund its operating activities.
Net assets represent the residual interest in the Uni-versity's assets after liabilities are deducted. Significant recurring sources of the University's revenues are considered nonoperating, as defined Inve.ted in capital ac&Aet, net of related debt rep- by GASB Statement No. 34. Graph 1 (operating rev-resents the University's capital assets net of accu- enue) and Graph 2 (nonoperating revenue) are illus-mulated depreciation and outstanding principal trations of revenues by source, which were used to balances of debt attributable to the acquisition, con- fund the University's operations for the year ended struction or improvement of those assets. June 30, 2oo8 (amounts are presented in thousands of dollars).
Restricted nonexpendable net aA.Aet, are the Univer-sity's permanent endowment funds. The University continues to face significant financial pressure, particularly in the areas of compensation Restricted expendable net aAetA are subject to ex- and benefits, which represent 53.1% of total expenses, ternally imposed restrictions governing their use. as well as in the areas of technology and utility costs.
This category of net assets includes $11o.6 million To manage this financial pressure, the University con-of quasi-endowments. tinues to seek diversified sources of revenue and to implement cost containment measures.
Although unretrictednet oaAet6 are not subject to externally imposed stipulations, substantially all of Tuition and state appropriations are the primary the University's unrestricted net assets have been sources of funding for the University's academic pro-designated for various academic and research pro- grams. Student tuition and fees, net of allowances grams and initiatives, as well as capital projects. 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-STATEMENT OF REVENUES, lion to $294.9 million in fiscal year 2008.
EXPENSES, AND CHANGES IN NET ASSETS While tuition and state appropriations fund a signifi-cant percentage of the University's academic and ad-The Statement of Revenues, Expenses, and Changes ministrative costs, private support has been, and will in Net Assets presents the University's results of op- continue to be, essential to the University's academic erations. A summarized comparison of the Univer- success. Private support in the form of gift revenues sity's revenues, expenses, and changes in net assets for operations decreased 9.3%, or $7.6 million, to $74.4 for the years ended June 30, 2oo8 and 2007 is shown million in fiscal year 2oo8. The University's continued in Figure 3. emphasis on fund raising to support critical projects and initiatives is demonstrated by an aggressive capi-One of the University's greatest strengths is the di- tal campaign that is just getting underway.
verse streams of revenues which supplement its stu-12
Figure3.
2008 2007 Operating revenues (in thouAand4)
Tuition and fees $ 160,915 $ 152,820 Patient services 937,047 883,032 Grants and contracts 280,815 286,117 Sales and services 472,607 420,813 Auxiliary enterprises 75,404 73,751 Other 70,320 67,136 Total operating revenues 1,997,108 ,883,669 Operating expenses 2,277,040 2 ,092,904 Operating loss (279,932) (209,235)
Nonoperating revenues (expenses)
State appropriations 294,907 265,924 Government grants 18,481 17,307 Gifts 74,449 82,094 Investment income 22,412 128,871 Interest expense (20,240) (18,229)
Other (13,525) (13,313)
Net nonoperating revenues 376,484 462,654 Capital appropriations 12,238 58,397 Capital and endowment grants and gifts 60,766 150,802 Total capital and endowment revenues 73,004 209,199 Increase in net assets 169-556 462,618 Net assets - beginning of year, as adjusted (Note 21) 2,517,485 2 ,054,867 Net assets - end of year $ 2,687,041 $2 ,517,485 Graph i. Graph 2.
OPERATING REVENUES NONOPERATING REVENUES Auxiliary Enierpries Other Tuition and Fees kký
- 1uition and Fees $160,915 0 State Appropriations $294.907 0 Patient Services $937,047 R Government Grants $18,481 a Grants & 'ontvacts $280,815 W Gifts S74.449
- Sales and Sers ices S472,607 J.1 Investment Income $22,412 J Asiliarv Enterprises $75,404 M Other $70.320) 13
Revenues for grants and contracts remained stable Net investment income totaled $22.4 million in fis-with a slight decrease of 1.9%, or $5.3 million, to cal year 2008, as compared to $128.9 million in fis-
$280.8 million in fiscal year 2008, primarily related cal year 2007, which is a decrease of $1o6.5 million.
to research programs. Grant and contract revenues This decrease is a direct result of the dramatic down-are generated by a broad base of schools, colleges, turn in the financial markets at the end of the fiscal and research units across the University. The Uni- year. The University is not immune to the volatility versity receives revenues for grants and contracts in the financial markets.
from government and private sources, which provide for the recovery of direct costs and facilities and ad- The University's endowment investment policies are ministrative (indirect) costs. designed to maximize long-term total return while its income distribution policies are designed to pre-Patient care revenues increased 6.i% or $54.0 mil- serve the value of the endowment portfolio and to lion to $937.0 million in fiscal year 2008. The major- generate a predictable stream of spendable income.
ity of these revenues relate to patient care services, The income distribution from the University's en-which are generated within UUHC under contractual dowment portfolio for the support of operating ac-arrangements with governmental payers and private tivities, in accordance with the University's spending insurers. Revenues have sustained a relatively con- policy, totaled $16.6 million in fiscal year 2008, as stant rate of growth over the last few years, primarily compared to $13.6 million in fiscal year 2007. In ad-resulting from a growth in patient volume, demand dition, in fiscal year 2008, $1.7 million was returned for specialty services provided by outpatient clinics to endowment principal.
and moderate price increases for patient services.
Capital appropriations received from the State in Net investment income for the years ended June 30, fiscal year 2008, which totaled $12.2 million, funded 2008 and 2007, consisted of the following components: a portion of building renovation projects. Other rev-enues include capital grants and gifts and additions to permanent endowments totaling $6o.8 million 2008 2007 for the fiscal year ending June 30, 2008.
(in thouAandA)
Interest and dividends, net $55,807 $ 63,725 A comparative summary of the University's expenses Net increase (decrease) in for the years ended June 30, 2oo8 and 2007 follows:
fair value of investments (33,395) 65,146 Net investment income $ 22,412 $ 128,871 14
increases and the hiring of additional employees.
2008 2007 The related employee benefits increased 6.2% or (in thouAandA) $15.7 million.
Operating Compensation In addition to their natural classification, it is also and benefits $1,226,252 $1,133,059 informative to review operating expenses by func-Component units 287,603 250,279 tion. A comparative summary of the University's op-Supplies 252,785 242,070 Purchased services erating expenses by functional classification for the 104,529 116,729 Depreciation and years ended June 30, 2008 and 2007 follows:
amortization 110,618 104,982 Utilities 56,958 51,131 Cost of goods sold 32,857 31,A27 2008 2007 Repairs and (in thousand4) maintenance 32,817 24,103 Instruction $ 282,156 $ 264,901 Scholarships and Research 212235 217,805 fellowships 24,556 23,766 Public service 416,931 381,863 Other 148,065 115,358 Academic support 78,307 71,286 Total operating 2,277,040 2,092,904 Student services 20,252 18,743 Nonoperating Institutional support 63,929 43,983 Interest and other 33,765 31,542 Operations and Total expenses $ 2,310,805 $ 2,124,446 maintenance of plant 56,004 49,934 Student aid 38,588 33,945 Other 442,392 392,223 Graph3 is a graphic illustration of total expenses, in Hospital 666,246 618,221 thousands of dollars, by natural classification. Total operating expenses $ 2,277,040 $ 2,092,904 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 Instruction, research, and public service expenses with peer institutions and nonacademic employers. increased 8.o%, or $69.4 million, to $933.9 million The resources expended for compensation and ben- in fiscal year 2008. Academic and institutional sup-efits increased 8.2%, or $93.2 million, to $1.2 billion port expenses increased 23.4%, or $27.0 million, to in fiscal year 2008. Of this increase, compensation $142.2 million in fiscal year 2008.
increased 8.8%, or $77.5 million, as a result of annual Graph3.
Cot f Goodnc,Sold EXPENSES IDepieiatmnn &Amntizathdioin U"treitIs Repaii 0& Moo-intenau
& Fe llow ship , M Compensation and Benefits S1,226,252 1 Inv Sc h ola rs h ip 0Other P u r h aJ i r I nterest M Compo7nent Units $287,603 M Supplies $252.785
-I Purchased Services $104.529 0 Depreciation and Amortization $110.618 M Utilitities $56,958 M Caso of (6.oodsSold $32,857 M Repairs and Maintenance $32.817 M Scholarships and Fellowships $24.556 M Other S 148.005
/ Interest $33,765 15
STATEMENT OF CASH FLOWS may have a negative short-term impact on tuition revenue, but it is likely to have a positive long-term The Statement of Cash Flows provides additional in- effect on recruiting and related tuition revenue.
formation about the University's financial results, by reporting the major sources and uses of cash. While the State's economy is amongthe healthiest in the nation, it is not immune to the recent turmoil in The University's cash and cash equivalents de- the financial markets and the economy. With reve-creased $1o6.4 million due primarily to increased nue projections falling below original estimates, the use of funds for personal services and payments to Governor convened a special session of the Legisla-suppliers. This negative flow of funds was partially ture to address the project shortfall. All state agen-offset by funds received for patient services, auxil- cies received varying degrees of budget cuts for the iary and educational services, and a reduction of 2009 fiscal year and higher education was no excep-principal payments on capital debt. The University's tion. The University of Utah's budget was cut 4% per-significant sources of cash provided by noncapital manently and additional long term cuts may result financing activities, as defined by GASB Statement when the Legislature convenes in January to craft No. 9, include state appropriations and private gifts the budget for the 2010 fiscal year. The University used to fund operating activities. 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 CURRENT FACTORS HAVING strengths. Expenditure containment, however, will PROBABLE FUTURE FINANCIAL not fully address the problem and other measures SIGNIFICANCE will be required to address this on a long term basis.
The University's undergraduate enrollment for fis- Despite a more cautious economic outlook, the Uni-cal year 2oo8 declined for the third year in a row. versity continues to receive worldwide recognition Graduate enrollment continued to increase. Enroll- for the accomplishments of its researchers, physi-ment at the undergraduate level is dependent on two cians, and students. The University will continue factors, pool and participation, that are both heavily to benefit from the Utah Science Technology and influenced by factors within the State of Utah. The Research (USTAR) initiative which provides funding available pool of potential students, age 18 through for "strategic investments at the University of Utah 29, is in the midst of a modest decline, but that trend and Utah State University to recruit world-class re-is expected to reverse within the next five years as searchers, build state-of-the-art interdisciplinary K-8 students move into and through high school in research and development facilities, and to form record numbers. The participation rate likewise has first-rate science, innovation, and commercializa-been under pressure in large part due to the State's tion teams across the State. This initiative focuses robust economy and remarkably low unemployment on leveraging the proven success of Utah's research rates. While both factors continue to have an im- universities in creating and commercializing inno-pact on enrollment numbers, both are likely to ease vative technologies which will generate more tech-within the next five years. Indeed, enrollment for nology-based start-up firms, higher paying jobs, and Fall 2008 is up slightly over the prior year perhaps additional business activity leading to a state-wide in response to the slowing economy. The University expansion of Utah's tax base".' As part of this ini-is, in the meantime, adjusting its recruiting strategy tiative, the University was successful in fiscal year while at the same time evaluating the need for addi- 2oo8 in attracting a number of world-class research-tional infrastructure to support modest and sustain- ers with a proven track record of developing intel-able growth in the future. In the prior fiscal year, the lectual property, and there is good reason to believe State passed legislation that makes it easier for non- that this success will continue in the coming year resident students to qualify for in-state tuition. This and beyond.
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UUHC and ARUP continue tobe recognized as leaders The University continues to exercise a conservative in their respective fields. Financial position for each approach to the issuance of debt. However, with the remains strong and is expected to remain so. Despite need for expanded research, patient care, and student a strong outlook though, UUHC anticipates a nega- life facilities, comes the need to issue debt to support tive impact from recent Medicare/Medicaid chang- construction. Within the next 1-3 years, the Universi-es. The Centers for Medicare and Medicaid Services ty intends to undertake various construction projects, (CMS) (a division of the Department of Health and in most cases partially gift-funded, to support these Human Services (DHHS)) issued a proposed rule in critical areas. In addition, the University evaluates January 2007 to change the way Medicaid funds flow existing debt versus current interest rates to identify to state-owned facilities effective October J, 2007. opportunities to refinance at better rates.
Congress subsequently passed legislation which im-posed a moratorium on the new funds flow mecha- Fiscal year 2008 was a difficult year in the finan-nism. This moratorium was scheduled to expire May cial markets. The U.S. equity market as measured 2008, but new legislation was passed extending the by the S&P 500 index declined 13.1%. Domestic fixed moratorium until April 1, 2009. Unless new legisla- income markets, particularly U.S. Treasuries, per-tion is enacted, the CMS rule will become effective formed better as the Lehman Brothers Government/
at that time. If the new rule becomes effective next Credit index returned 7.1%. Within this challenging April, it is estimated that UUHC will experience a sig- environment, the University's endowment declined nificant reduction in Medicaid revenues. The UUHC 4.3% for the 2008 fiscal year. The five-year average budget for the current fiscal year, however, was con- annualized return was 9.7% through the end of thei.
servatively developed assuming the rule would take fiscal year. Subsequent to the end of the 2008 fis-effect on April 1, 2009. UUHC is working with other cal year, the financial markets have been rocked by medical centers to educate legislators on the impact a number of institutional failures, acquisitions, and to the patient population and to medical education if federal takeovers. It is still uncertain what impact these funds are no longer available. Related to this, the $7oo billion plus buyout will have in restoring the University received notice of a $32.8 million dis- stability to these markets. The University's invest-allowance from CMS that resulted in a liability being ments are not immune to these unprecedented mar-recorded in the 2008 financial statements. ket swings. Endowment spending policy will be carefully monitored and adjusted as necessary to Awards for sponsored programs, which include basic maintain the University's historically prudent ap-research, continue to be strong - however, uncertain- proach to endowment spending.
ties within the federal budget for research coupled with the uncertainty of the Presidential election Despite significant events both nationally and at the could have a dramatic impact - either positively or State level, the University's outlook for the foreseeable negatively - on research in the coming years. The future is positive not only as a result of its strategic initiatives resulting from the USTAR project, though, leadership and prudent fiscal management, but also will certainly have a positive impact on funding as as a beneficiary of a generally strong state economy.
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. http://uAtar.utah.9ov/about/index.html 17
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