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November 10, 2005

FY05: A very good year for Pitt

“Overall, we had a very good year financially in fiscal year 2005,” said a senior Pitt administrator at a recent meeting of the Senate budget policies committee (BPC).

Arthur G. Ramicone, vice chancellor for Budget and Controller, reported to BPC on Oct. 28 following the Board of Trustees approval earlier that day of the FY05 financial statements and audits. (See related story.)

“We had solid revenue growth over FY 2004: Tuition revenue was up 6.6 percent with the 6 percent increase plus the differential [tuition rate] for incoming freshmen,” Ramicone said. “The commonwealth appropriation was up 3.3 percent, and research growth was up 7.8 percent. Despite the slowdown in NIH (National Institutes of Health) funding, we topped $600 million in sponsored research for the first time.”

Other healthy signs are an endowment that closed the fiscal year at $1.54 billion — more than triple what it was in 1995 — and Pitt’s net assets as of June 30 totaling nearly $3.5 billion (up from $3.1 billion in 2004).

“Our assets are dominated by property, plant and equipment ($1.18 billion), meaning the infrastructure of the institution, and by investment in cash in one form or another — endowment assets ($1.54 billion) or operating investments ($377 million) — and then we have our receivables either from our students, the capital campaign or research (a net of $155 million in FY05),” Ramicone told BPC members.

“I would say there were not any significant changes in any category from the previous year, just steady growth,” he added.

On the other side of the ledger, Pitt’s liabilities are concentrated in debt, Ramicone said. “If you add long-term debt ($566 million) and short-term debt ($60 million), it comes to 56 percent of our total liability,” he said. “However, Pitt, like other large high-quality institutions, issues debt not always because of need, but because of the ability to earn arbitrage income,” that is, income derived from the purchase of securities in one market for re-sale in another market in order to profit from a price discrepancy. “We borrow in a tax-exempt market and re-invest those proceeds in the taxable market, at about a 30 percent differential,” Ramicone said.

Pitt’s remaining liabilities are the standard ones: accounts payable for goods and services, refundable U.S. government student loans and deferred research and student revenue, among them.

Other than debt, Pitt’s single biggest liability is in accrued employee benefits, which in FY05 totaled $155 million, up from $121 million in FY04.

“I see no meaningful fluctuations [in liability categories] other than in March we did issue an additional $150 million of debt, about half of which was for support for the Biomedical Science Tower 3,” he said.

Ramicone also noted for BPC members some differences in how institutions report gifts and pledges.

“For example, if you hear us say we raised over $100 million toward the capital campaign in 2005, that’s true,” he said. “But here [in the financial statements] it’s listed as $77.7 million. Why the difference?”

According to Ramicone, financial accounting standards require institutions to report gifts and pledges one way, while national standards call for capital campaigns gifts and pledges to be reported in a different fashion.

“The predominant difference is that when an institution gets a grant, let’s say from a Parkinson’s foundation for research,” Ramicone said. “[Our Institutional Advancement staff] are allowed to count that in the capital campaign as a gift. We [in the Controller’s office], however, say, based on terms and conditions, that should be recorded as a grant because something is expected in return: those gifts/grants are given to the institution with the expectation that it will conduct research.”

Other highlights of the FY05 financial statements include:

• Employee compensation University-wide was up 3.27 percent over FY04 levels, totaling $630 million.

• Utility costs rose by 12.8 percent over FY04. (Ramicone added that current projections are for utility costs to go up by 32 percent this year over FY05.)

• Commonwealth funding for construction in FY05 totaled $37 million, up from $19 million in FY04. “Most of that funding went to the Biomedical Science Tower 3 and the Life Science Annex at the Clapp/Langley/Crawford halls complex. The total reflects the ebbs and flows as construction schedules vary,” Ramicone commented. “The average we receive from the commonwealth [for capital projects] is $20 million a year.”

• Pitt has been named as beneficiary in the wills of donors totaling $96 million, but these are classified as “intentions to give” and are not recorded as assets until the money is received, Ramicone said.

“All companies look forward to the opinion of outside auditors, which in our case happens to be Deloitte & Touche,” Ramicone said. As opposed to a “qualified opinion” that could signal trouble, Pitt received a “clean opinion,” that is, “the auditors have no disagreements with anything, there are no unrecorded errors or mistakes, there was full cooperation of the management and there were no significant or material weaknesses in the internal controls of the institution,” he said.

The auditor’s report was issued Aug. 19, which makes Pitt second fastest among Association of American Universities institutions to close its financial books this year, Ramicone added.

“Two years ago, we went to the last two days of September, and last year the date was Aug. 26, so we’re getting faster,” Ramicone said. “It does not have a big impact on us to finish sooner, other than it allows my people and people in the units who feed us this information to move on to other things. It’s useful to have this finished before it overlaps with the current fiscal year as units load their budget statements and process their salary raises.”

In other reports at the Oct. 28 BPC meeting:

• Provost’s liaison to BPC Robert Pack, who is vice provost for academic planning and resources management, reported on early progress in the preparation of a new 10-year master facilities plan.

“The plan is in draft form,” Pack said. “We hope to finish it up within the committee this term. Right now, we’re waiting for some numbers. There appears to be broad agreement within the committee about the strategy, the projects, the phasing and the balance between the funding sources, E&G (education and general) versus auxiliaries, and so forth. As with the last plan, this is a broad institutional plan that gives as much attention to medicine as to athletics as to E&G and residence halls.”

Pack added that he would be presenting the draft for comment during the spring term to relevant groups, including some of the Senate standing committees.

A BPC member asked about the relationship between the facilities plan and the ongoing capital campaign.

“They are connected only to the extent that some projects in the facilities plan are dependent upon fundraising,” Pack replied. “There are some number of projects that wouldn’t be built without private support. Other projects that are really needed, such as a required facility, where we hope there would be private support for them, but if not, it falls on the E&G budget.”

BPC chair Stephen Carr, who is a member of the facilities planning committee, said, “I can’t talk about specifics. But I can say this is a smart plan that broadly follows goals of the other plan, and it appears to be a sane use of resources.”

• Pack also reported to BPC on discretionary allocations of the employee salary pool. In FY 2006, the salary pool was increased by 3 percent, including 0.5 percent that is centrally allocated to address market and equity imbalances.

“Each year, the provost has become broader in bringing in units that participate in it,” Pack said.

“Before, it was narrowly held to engineering, the sciences, business and law. But over the last two years, even in units where there might not be an issue of overall salary — education or social work, for example — nevertheless there have been some appointments made and staffing directions that have put them under some salary pressure, not in terms of the whole but in terms of certain individuals. The provost has recognized that.”

• Pack also commented on the academic initiatives program, where internal funding is targeted to certain programs at the discretion of the provost.

“Nanoscience is a good example,” Pack said. “It has been marked within the University as a major priority, but it involves a number of units: chemistry, physics, biology in Arts and Sciences, a number of departments in engineering and in the School of Medicine.”

Pitt has built infrastructure to support the program, such as the nanofabrication facility in Benedum Hall that will bring together a number of faculty from across the University, Pack said. “Where those faculty end up going, what unit they’re in, is secondary to what they’re being recruited to do,” he said.

In its annual budget request to the commonwealth and in related hearings with the legislators, Pitt always touts the academic initiatives program as a sign of its commitment to academic improvement even in money-strapped times.

According to Pitt’s FY07 budget request to the commonwealth filed earlier this fall, “The University has aggressively identified funds at the institutional level for investments in academic initiatives, $2.9 million in the current fiscal year.”

“In a $600 million budget, $2-$3 million doesn’t seem like a lot of money, but we’ve been doing this about a dozen years,” Pack said. “I think we’ve made a good case to the commonwealth about our own re-allocation, both negatively and positively.

“Even this last year, there was a realization within the [University planning and budgeting] committee, and also with the trustees and also with the people who give us money within the legislature that the University’s willingness and desire to maintain an academic initiatives program — even if it required budget reductions — was a very positive step because it demonstrates that the University is committed to investment and not simply to business as usual.”

—Peter Hart

Filed under: Feature,Volume 38 Issue 6

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