MEMORANDUM. Minutes of the Finance Committee Meeting on September 11, 2006

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1 September 11, 2006 MEMORANDUM TO: The Finance Committee: W. Heywood Fralin, Chair A. Macdonald Caputo Alan A. Diamonstein Georgia Willis Fauber G. Slaughter Fitz-Hugh, Jr. Warren M. Thompson John O. Wynne Thomas F. Farrell, II, Ex Officio and The Remaining Members of the Board: Daniel R. Abramson Lewis F. Payne Susan Y. Dorsey Don R. Pippin Glynn D. Key Gordon F. Rainey, Jr. Vincent J. Mastracco, Jr. E. Darracott Vaughan, Jr., M.D. Anne Elizabeth Mullen FROM: SUBJECT: Alexander G. Gilliam, Jr. Minutes of the Finance Committee Meeting on September 11, 2006 The Finance Committee of the Board of Visitors of the University of Virginia met, in Open Session, at 1:55 p.m., Monday, September 11, 2006, in the Byrd Seminar Room at the Harrison Institute; W. Heywood Fralin, Vice Rector and Chair, presided. A. Macdonald Caputo, Alan A. Diamonstein, G. Slaughter Fitz-Hugh, Jr., Warren M. Thompson, John O. Wynne, and Thomas F. Farrell, II, Rector, were present. Present as well were Daniel R. Abramson, Ms. Susan Y. Dorsey, Ms. Glynn D. Key, Vincent J. Mastracco, Jr., Lewis F. Payne, and Ms. Anne Elizabeth Mullen. Also present were John T. Casteen, III, Leonard W. Sandridge, Alexander G. Gilliam, Jr., Paul J. Forch, R. Edward Howell, Ms. Patricia M. Lampkin, James L. Hilton, Ms. Yoke San L.

2 Finance Committee - September 11, Reynolds, Ms. Colette Sheehy, William B. Harvey, David J. Prior, Christopher Brightman, and Ms. Jeanne Flippo Bailes. The Chair asked Mr. Sandridge, Executive Vice President and Chief Operating Officer, to present the Agenda. ACTION ITEMS Mr. Sandridge told the Committee that there were six proposed resolutions on the Agenda. CHANCELLOR S RESIDENCE ADDITION AT THE COLLEGE AT WISE The first of these was the proposed addition to the Chancellor s Residence at The University of Virginia s College at Wise. Normally, Mr. Sandridge explained, capital outlay projects are approved by the Board every two years as part of the Six Year Major Capital Project program, or annually as part of the Budget Amendments proposed to the Governor or the General Assembly. Sometimes, however, projects fall outside these two cycles. The addition to the Chancellor s Residence is one of these. The project has been under consideration for some time and originally was to have cost less than $1million and thus would not have been classified as a major capital project. The revised plans, however, call for a budget of $1.28million, funded entirely from gifts; moreover, the donor wishes to see the project move forward as rapidly as possible. It is for these reasons that the project is being brought to the Committee for consideration. The proposed addition will enlarge the house and provide the space necessary for various College events. The Buildings and Grounds Committee approved the project at its meeting on July 27 th. On motion, the Committee approved the following resolution and recommended it to the full Board for approval: APPROVAL OF ADDITION TO THE CHANCELLOR S RESIDENCE AT THE UNIVERSITY OF VIRGINIA S COLLEGE AT WISE RESOLVED, the Board of Visitors approves the construction of an addition to the Chancellor s Residence of approximately 1600 square feet at The University of Virginia s College at Wise. The addition is budgeted at $1.28 million, to be funded entirely by private gifts

3 Finance Committee - September 11, CAPITAL LEASE FOR THE LONG-TERM ACUTE CARE HOSPITAL The Medical Center wishes to establish a long term acute care hospital with 40 beds. This is a specialty care hospital designed for extended stay patients with chronic conditions, and it would receive patients from the Medical Center or from other hospitals. It would make available beds in the University Hospital for patients requiring shorter hospital stays. The University has been approached about the possibility of leasing on a long-term basis, with an eventual purchase, a 3.5 acre parcel of land at 2985 Ivy Road. The property is adjacent to several University properties, including the Northridge Office Building which is leased by the Medical Center from the Health Services Foundation. It is intended that this land be used for necessary parking if, as is currently considered, the Medical Center builds a long term acute care hospital at Northridge. On motion, the Committee approved the following resolution and recommended it to the full Board for approval: APPROVAL OF CAPITAL LEASE FOR THE MEDICAL CENTER LONG-TERM ACUTE CARE HOSPITAL PARKING WHEREAS, the Medical Center has determined that it is costeffective to add 40 long-term acute care beds to a facility offsite from the University Hospital; and WHEREAS, the Kirtley Family Holdings desires to lease 3.5 acres and improvements to the University of Virginia on a longterm basis with an eventual purchase; RESOLVED, the Board of Visitors approves a 40-year capital lease for the property located at 2985 Ivy Road, with an initial annual cost of $240,000, to be increased at three percent annually, and a purchase price of $6 million at the end of the term contingent on successful conclusion of a due diligence period; and RESOLVED FURTHER that the Executive Vice President and Chief Operating Officer is authorized to execute any and all contracts and documents pertaining to the capital lease of the aforementioned property

4 Finance Committee - September 11, INTENT TO ISSUE TAX-EXEMPT DEBT Under federal tax regulations, the Board of Visitors must pass an intent-to-issue resolution prior to issuing tax-exempt debt, in order to reimburse itself for expenditures associated with specific, enumerated projects. Mr. Sandridge introduced Ms. Reynolds, Vice President and Chief Financial Officer, who presented her annual resolution for the Committee s consideration. She mentioned six possible projects, two each in the Academic Division, the Medical Center and The University of Virginia s College at Wise. She and Mr. Sandridge emphasized that the resolution by no means calls for approval of the projects, but merely requests possible authorization of the debt that would be issued if the projects were to come to past. On motion, the Committee approved the following resolution and recommended it to the full Board for approval: APPROVAL OF INTENT TO ISSUE TAX EXEMPT DEBT WHEREAS, the University intends to undertake the following capital projects utilizing tax-exempt debt as a funding source: ACADEMIC DIVISION Main Heat Plant Environmental Upgrade (supplement) Rouss Hall Renovation (supplement) MEDICAL CENTER Children s Medical Center (supplement) Hospital Expansion Project (supplement) COLLEGE AT WISE Student Residence III New Dining Facility WHEREAS, the United States Department of the Treasury has promulgated final regulations in Section l.l50-2 of the Treasury Regulations governing when the allocation of bond proceeds to reimburse expenditures previously made by a borrower shall be treated as an expenditure of the bond proceeds; and WHEREAS, the Regulations require a declaration of official intent by a borrower to provide evidence that the borrower intended to reimburse such expenditures with proceeds of its debt; and WHEREAS, the Board of Visitors of the University of Virginia desires to make such a declaration of official intent as required by the Regulations; and

5 Finance Committee - September 11, WHEREAS, the University may be required to provide shortterm financing to each project prior to issuing long-term debt in order to implement an efficient and timely construction schedule; and WHEREAS, the University has funding mechanisms to accommodate short-term financing needs, defined as a period of less than sixty months; and WHEREAS, the authority for the University to enter into financing arrangements exceeding sixty months in maturity for each project listed is not included in this resolution; and WHEREAS, if the University arranges short-term financing for a particular project, and if the project is not ultimately completed, or if the project utilizes funding sources other than debt, then the appropriate school or unit remains responsible for refunding the short-term obligation; RESOLVED that, pursuant to the terms of the Treasury Regulations, the University of Virginia declares its intent to reimburse expenditures in accordance with the following: 1. The University reasonably expects to reimburse expenditures from the issuance of tax-exempt debt to be issued by the University incurred for each project; 2. This resolution is a declaration of official intent under Section of the Regulations; 3. The maximum principal amount of debt expected to be issued for the purpose of reimbursing expenditures relating to each project is as follows: ACADEMIC DIVISION Main Heat Plant Environmental Upgrade (supplement): $9,164,000 (cumulative authorization = $ million) Rouss Hall Renovation (supplement): $6,900,000 (cumulative authorization = $39.9 million) MEDICAL CENTER Children s Medical Center (supplement): $4 million (cumulative authorization = $15 million) Hospital Expansion Project (supplement): $9.6 million (cumulative authorization = $95.2 million)

6 Finance Committee - September 11, COLLEGE AT WISE Student Residence III: $8,000,000 New Dining Facility: $7,000,000 RESOLVED FURTHER, that each project is a separate enterprise independent of other projects, and that the authorization for funding relates to each individual project; and RESOLVED FURTHER, funds may be borrowed for each project on a short-term basis, but only if the following conditions are met: 1. The Board of Visitors approves the current resolution; 2. A comprehensive and detailed financial plan for the school/unit project is submitted; 3. Short-term financing shall not exceed sixty months in maturity; and 4. The school or unit remains responsible for any debt obligation incurred regardless of the status of the capital project or whether or not a debt issuance actually occurs APPROVAL FOR THE DIVESTMENT FROM THE ATHLETICS GENERAL OPERATIONS QUASI-ENDOWMENT TO FUND THE ACADEMIC CENTER AND THE CLUB/MEDIA ROOM IN THE JOHN PAUL JONES MULTIPURPOSE ARENA Mr. Sandridge explained to the Committee that in May, 2003, the Athletics General Operations Quasi-Endowment was created with money from the Harrison estate, designated for athletics. Some $2.9million was invested with UVIMCO; it is now worth $4.4million. It is proposed that $2,233,000 be divested from this sum to pay for the Academic Center and the Club/Media Room in the John Paul Jones Arena. On motion, the Committee approved the following resolution and recommended it to the full Board for approval: APPROVAL TO DIVEST $2,233,000 FROM THE ATHLETICS GENERAL OPERATIONS QUASI-ENDOWMENT TO FUND COSTS OF THE ACADEMIC CENTER AND THE CLUB/MEDIA ROOM IN THE JOHN PAUL JONES MULTIPURPOSE ARENA WHEREAS, the Athletics department requests the divestment of $2,233,000 from the Athletics General Operations Quasi-Endowment to fund the costs of the academic center and the club/media room in the John Paul Jones Multipurpose Arena;

7 Finance Committee - September 11, RESOLVED, that the Board authorizes the divestment of $2,233,000 of the Athletics General Operations Quasi-Endowment to fund the cost to fit-out the academic center and the club/media room in the John Paul Jones Multipurpose Arena PROCUREMENT OF BLOOD PRODUCTS FOR THE MEDICAL CENTER The Medical Center, in accordance with its established procurement policies, is issuing a request for proposal for blood products. Procurement is estimated to be completed late this year or early in The term of the contract is expected to be five years, and the total estimated value to be in excess of $30million, with the value in any single year exceeding $5million. This exceeds the signatory authority of the Executive Vice President and Chief Operating Officer and thus must be approved by the Board. On motion, the Committee approved the following resolution and recommended it to the full Board for approval: APPROVAL OF SIGNATORY AUTHORITY FOR MEDICAL CENTER PROCUREMENT OF BLOOD PRODUCTS RESOLVED, the Executive Vice President and Chief Operating Officer is authorized to execute a contract for the procurement of blood products, based on the recommendation of the Vice President and Chief Executive Officer of the Medical Center and in accordance with Medical Center procurement policy REVISIONS TO THE CHARTER AND BY-LAWS OF THE REGIONAL CRIMINAL JUSTICE TRAINING ACADEMY The University, by approval of the Executive Committee of the Board, is a member of the Central Shenandoah Criminal Justice Academy, a regional school where the University s law enforcement personnel as well as those of other jurisdictions receive training. The Academy s Executive Committee in July approved changes to the Charter and By-Laws of the school, changes which must be ratified by the member organizations. The Board of Visitors must approve these for the University. On motion, the Committee approved the following resolution and recommended it to the full Board for approval:

8 Finance Committee - September 11, APPROVAL OF THE REVISIONS TO THE CHARTER AND BY-LAWS OF THE REGIONAL CRIMINAL JUSTICE TRAINING ACADEMY WHEREAS, the University is a member of the Central Shenandoah Criminal Justice Training Academy, which provides training and education in criminal justice to the University s law enforcement personnel; and WHEREAS, the Central Shenandoah Criminal Justice Training Academy s Charter and By-Laws, adopted in 1998, became out of date and required revision to comply with current law and operating procedures; and WHEREAS, each member organization must approve revisions to the Charter and By-Laws of the Central Shenandoah Criminal Justice Training Academy; RESOLVED, pursuant to Va. Code , the revised Charter and By-Laws of the Central Shenandoah Criminal Justice Training Academy, a copy of which is attached to this resolution and incorporated herein by reference, is adopted; and RESOLVED FURTHER that this resolution shall become effective upon adoption; and RESOLVED FURTHER by its adoption of this revised Charter and By-Laws, the University evidences its commitment to the training needs of its law enforcement personnel. Notwithstanding the foregoing, it is understood that the University will assume no expense or financial obligation of the Central Shenandoah Criminal Justice Training Academy except as may be duly authorized by University officials. VICE PRESIDENT S REPORT Mr. Sandridge told the Committee that there will be amendments to the Biennial Budget that the University will want to propose in Richmond. Precise instructions on how to submit these have not yet been received. When this information is in hand, he will outline the proposed amendments to the Committee by mail in time for consideration before the meeting of the full Board on September 29 th, at which time a vote will be taken. Mr. Sandridge outlined briefly for the Committee the Finance Committee Goals and Work Plan, agreed to at the Board Retreat in July.

9 Finance Committee - September 11, VICE PRESIDENT S REPORT: DEFINED CONTRIBUTION RETIREMENT PLAN Mr. Sandridge explained that because of the revised status of UVIMCO, the University must consider new ways to evaluate and manage investments to support the Defined Contribution Retirement Plan. He suggested that the Chair appoint a committee of two Members to work with the Administration on these questions. The Rector emphasized the importance of a sound Retirement Plan and the Chair agreed to make the appointments. REPORT ON THE ENDOWMENT Mr. Sandridge introduced Mr. Christopher Brightman, Chief Executive Officer of the University of Virginia Investment Management Company (UVIMCO), and asked him to give his semiannual report on the Endowment. Mr. Brightman did so, using figures current at the end of June, which was the end of the last fiscal year. He noted that the Endowment stood at $2,594,000,000 at the beginning of that year, and at $3,457,000,000 on June 30 th. Contributions to the Endowment during the year came to $571,000,000. By way of summarizing Mr. Brightman s report, copies of the tables he used in his presentation are appended as an attachment. (Attachment) ANNUAL REPORT ON THE UVA HEALTH CARE PLAN Mr. Sandridge asked Ms. Reynolds, Vice President and Chief Financial Officer, to give her annual report on the UVa Health Care Plan. In doing so, he remarked that the Committee reviews the rates charged, but generally leaves their setting to the Administration. Ms. Reynolds gave her report. She said the proposed changes to the Plan for 2007 include increasing the annual maximum for covered dental services from $1,000 to $1,500, expanding the period to receive physical therapy services, and to increase in some instances the prescription co-payments. VICE PRESIDENT S REPORT: SALARY AND COMPENSATION FOR FULL-TIME FACULTY Mr. Sandridge called the Committee s attention to the report on faculty compensation, provided in the materials distributed to them before the meeting.

10 Finance Committee - September 11, EXECUTIVE SESSION After adopting the following motion, the Committee went into Executive Session at 3:15 p.m.: That the Finance Committee of the Board of Visitors go into Closed Session to discuss the acquisition of specific real estate for the University s use and benefit; and to discuss investing the managed endowment of the University in companies doing business overseas where disclosure at this time may impair present value or bargaining position, as permitted by Section (A)(3), (6), and (21) of the Code of Virginia The Committee resumed in Open Session at 4:00 p.m. after approving the following resolution certifying that its discussions in Executive Session had been conducted in accord with the exemptions permitted by the Virginia Freedom of Information Act: That we vote on and record our certification that, to the best of each Board member s knowledge, only public business matters lawfully exempted from open meeting requirements and which were identified in the motion(s) authorizing the closed session, were heard, discussed or considered in closed session On further motion, the Committee adjourned at 4:05 p.m. AGG:lah These minutes have been posted to the University of Virginia s Board of Visitors website.

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