University of Rochester Board of Trustees Orientation Financial Overview and Issues October 15, 2008

The Stewardship Role “In the context of this dynamic and challenging environment, a governing board’s responsibility is to chart an institution’s course and ensure it [the institution] has the resources it needs to fulfill its mission....the board must sustain the institution over the long term…” Source: Association of Governing Boards of Universities and Colleges – Financial Matters.

The Stewardship Role “For many reasons, colleges and universities have become subject to intensive scrutiny not only by the public, the press, governmental agencies, and financial institutions but also by alumni, donors, faculty and students.” Source: Association of Governing Boards of Universities and Colleges – Effective Committees

How is the Stewardship Role Fulfilled? Maintaining equity between generations Monitoring strategic and financial planning Monitoring risk management Preserving facilities Monitoring investments and endowment Source: “Financial Responsibilities of Governing Boards”, by William S. Reed.

Key Financial Concepts in Higher Education Intergenerational Equity - maintaining an appropriate balance between the present and the future

Key Financial Concepts in Higher Education Financial equilibrium  Complementary short-term and long-term financial plans  Quality of programs maintained  Physical assets preserved  Endowment purchasing power preserved  Human assets developed and maintained

Trustees’ Role and Board Involvement in Financial Matters Review and approve strategic plans Annual approval of operating and capital budgets Approval of major capital projects Tuition rate approval

Trustees’ Role and Board Involvement in Financial Matters Establishment of endowment investment and spending policies Review of major benefits program changes (intergenerational emphasis) Approval of debt issues and overall debt policies Review of reports on financial position and institutional performance

Trustees’ Role and Board Involvement in Financial Matters Approval of executive compensation Review of annual financial statements Assessment of institutional risk and compliance Appointment of the external auditors Guidance and participation in the institution’s development efforts

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

Operating Revenues Hospital & Faculty Practice Patient Care Activities 63% Net Tuition & Fees 7% Gifts & Pledges 4% Other 1% Grants & Contracts 15% Long-Term Investment Income 3% Auxiliary Enterprises 3% Educational Activities 1% Royalty Income 3% Scale of the Enterprise and the Financial Overview – FY2008 $2.4 Billion

Operating Expenses Total Compensation 62% Business & Professional 9% Maintenance & Facilities 4% Depreciation Expense 5% Other 3% Interest Expense 2% Supplies 13% Utilities 2% Scale of the Enterprise and Financial Overview – FY2008 $2.3 Billion

Key UR Issues Decentralization Exposure to Health Care Institutional Resources Aggregate Rate of Endowment Use College Financial Position and Endowment Use Eastman School of Music and Simon School Financial Position and Revenue Trends Limited Debt Capacity Strategic and Campus Master Plan Prioritization Implication of the Current Economic Crisis

Endowment Market Values by Division ($ in millions) Total value as of June 30, 2008 = $1,530.8 Nursing $21.7 Other $43.6 (includes University General & Memorial Art Gallery ) The College $405.4 Simon $86.0 Warner $26.7 Eastman $263.6 Medicine & Dentistry/ Health Sciences $683.8

Strong Memorial Hospital 43% Eastman 1.7% Warner 0.4% Simon 1.6% The College 15.1% Medical Center 80.9% Other 0.3% Medicine & Dentistry/ Health Affairs 20.7% Nursing 1.0% FY2008 Total Budget – Composition by Divisions Medical Center Faculty Practice/ Eastman Dental Center 16.1%

The CollegeSchool of Medicine & Dentistry Gifts & Other 19% Indirect Cost Recovery 32% Endowment 18% Net Tuition & Fees 9% Gifts/Transfers & All Other 8% Indirect Cost Recovery 15% Endowment 19% Net Tuition & Fees 58% FY2009 Divisional Budgets – Core Sources of Funds Transfers 22%

Eastman School of MusicSchool of Nursing Gifts, Transfers & All Other 10% Indirect Cost Recovery 8% Endowment 7% Net Tuition & Fees 75% Gifts & All Others 5% Endowment 54% Net Tuition & Fees 41% FY2009 Divisional Budgets – Core Sources of Funds

Simon SchoolWarner School Endowment 15% Net Tuition & Fees 85% Gifts/Transfers & All Other 7% Endowment 20% Net Tuition & Fees 73% FY2009 Divisional Budgets – Core Sources of Funds

Financial Informational Resources Audited Consolidated Financial Statements Operating Budget document (see page 3 for budget entity chart) Capital Budget document

University Financial Administration Ronald J. Paprocki Senior Vice President for Administration & Finance & Chief Financial Officer Salim M. Alani Director, Office of University Audit Holly G. Crawford Associate Vice President for Budgets & Planning & Deputy to the Sr. V.P. for Administration & Finance & CFO Kathy A. King-Griswold Treasury Manager Douglas W. Wylie University Controller

Medical Center Financial Administration Michael C. Goonan Medical Center Vice President & Chief Financial Officer Leonard J. Shute Senior Director of Finance & Chief Financial Officer, Strong Memorial Hospital