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BUDGET PRESENTATIONTO UNIVERSITY COUNCIL

March 24, 2004

UNIVERSITY of PENNSYLVANIA

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l The Consolidated University budget has two major components –“Academic” and “Health Services”

l The Academic budget includes:

– Schools (including the School of Medicine)

– Resource Centers

– Auxiliaries

– Central Service Centers

l The Health Services budget includes all components of Penn Medicineexcept for the School of Medicine:

– Hospital of the University of Pennsylvania

– Presbyterian Medical Center

– Pennsylvania Hospital

– Phoenixville Hospital

– Clinical Practices of the University of Pennsylvania

– Clinical Care Associates

Components of the Consolidated University Budget

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FY 2004 Consolidated Expenditure Budget

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

FY 2000 FY 2001 FY 2002 FY 2003 FY 2004

$ M

illio

ns

Academic Health Services

51%

49%

50%

50%

52%53%

56%

48%47%

44%

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Penn’s Financial Planning Approach

l The University engages in strategic long-term financial planning.

l New programs, priorities, and initiatives are discussed andplanned long before they are included in the annual Universityoperating budget.

l Consultation occurs through the Academic Planning & BudgetCommittee and in other forums.

l New initiatives that will be implemented and budgeted in Penn'sFiscal Year 2005 budget have been identified and publicizedalready -- during the current year or prior years.

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Budgeting to Support Goals and Priorities

l Provost and Deans work together to develop School budgets thatmaximize level of resources available for investment in strategicgoals and priorities.

l President and Vice Presidents work together to develop CentralService Center budgets that maximize level of resources availablefor investment in strategic goals and priorities.

l Limited central resources -- e.g., Subvention, Research Facilitiesfunding, Facilities Renewal Program funding -- are directed wheneverpossible towards investments in the Schools that support their mostimportant goals and priorities.

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FY 2004 Academic BudgetExpenditures by Expense Type

Current Expense29%

Compensation52%

Capital Transactions9%

Student Aid10%

Total = $2.009 Billion

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FY 2004 Academic BudgetTotal Revenue by Source

Sponsored Programs -Direct Support

27%

Non-DiscretionaryService Revenue

19%

H/S Transfer forSch. of Medicine Ops.

1%

Total = $2.009 Billion

Gifts4%

Commonwealth Approp. 2%

Tuition & Fees30%

Investment Income7%

School Other Revenue1%

Sponsored Programs -Indirect Cost Recovery

9%

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FY 2004 Academic BudgetExpenditures by Responsibility Center Category

Other Admin.Service Centers

10%

Business Services5%

Resource Centers5%

VPUL2%

Facilities/O&M7%

Total = $2.009 Billion

Schools

71%

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Design - 1%

SEAS - 6%

Dental Med. - 4%

Wharton - 16%

Total = $1.427 Billion

SAS - 19%

Medicine - 37%

Law - 2%

Nursing - 3%

Vet Med. - 7%

Annenberg -2%

Social Work - 1%

Education - 3%

FY 2004 Academic BudgetExpenditures by School

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Academic Investment Priorities

Estimated 8-Year Investment Required

l Academic Excellence (examples)– Faculty Recruitment and Retention $ 170 M– Undergraduate and Graduate Financial Aid $ 500 M

l Continuum of Education $ 119 Ml Operational Capacity, including Technology Investments $ 93 Ml Capital Projects in support of Academic Priorities (examples)

– Skirkanich Hall $ 42 M– Life Sciences building (Phase I) $ 61 M– SVM teaching & research building $ 71 M– Bennett Hall renovation $ 16 M– Harnwell & Harrison College Houses $ 55 M– Additional Housing Renovations $ 25 M– Nursing Building renovation (Phase I) $ 8 M

Building on Excellence identifies a number of priorities including

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Growth in Penn’s Revenue Sources Is Constrainedl NIH has completed the planned doubling of funding. After years of double

digit increases, our growth in sponsored research awards is slowing down.

l The federal F&A rate (grant overhead) is likely to decline in the coming years,limiting the growth in Indirect Cost Recovery (ICR).– Rate has fallen from 65% in FY 1992 to 58.5% in the current fiscal year

– The rate for FY 2005 is still being negotiated and may be reduced

l For FY 2005, the Governor is recommending a 1.7% increase over FY 2004Commonwealth Appropriation. This would still be below the FY03 amount.

l Penn’s spending rule provides for a 2.2% decrease in spendable investmentincome for FY 2005, following a 5.0% decrease in FY 2004.

l Most University business services either break even or generate narrowmargins in sales and service income after meeting all operational andprogrammatic requirements.

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FY 2004 Academic BudgetSponsored Program Indirect Cost Recovery

FY 2002 FY 2003 FY 2004 FY 2004 Actual Actual Budget Projected

Income ($000) 143,815 161,586 170,001 174,545Annual % Change 14.2% 12.4% 5.4% 8.0%Federal ICR Rate 58.5% 58.5% 58.5% 58.5%

l Total direct and indirect Sponsored Program revenue represents approximately36% of the FY 2004 Academic Revenue Budget

l The School of Medicine accounts for about 68% of Sponsored Program dollarsawarded to the University

l According to an analysis prepared by the Office of the Provost, Penn’s totalICR is nearly $40 million less than the actual overhead required to support ourannual research effort

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Federal Indirect Cost Recovery Rateby Fiscal Year

56.0%

57.0%

58.0%

59.0%

60.0%

61.0%

62.0%

63.0%

64.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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Commonwealth Non-Preferred Appropriation ($000)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

2000 2001 2002 2003 2004PennReq.

2004Final

2005PennReq.

2005Gov.

Recmd.

Annual Change: 7.3% 3.2% 5.0% 10.7% -3.1% 13.6% 1.7%

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Top Twenty Endowments as of June 30, 2003

Rank Institution Assets ($B)1 Harvard 18.852 Yale 11.033 Princeton 8.734 Texas System, University of 8.715 Stanford 8.616 M.I.T. 5.137 California, University of 4.378 Columbia 4.359 Emory 4.02

10 The Texas A&M University System and Foundations 3.80

11 Penn 3.5512 Michigan 3.4613 Washington U. 3.4514 Chicago 3.2215 Northwestern 3.0516 Duke 3.0217 Rice 2.9418 Cornell 2.8519 Notre Dame 2.5720 Dartmouth 2.12

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Peer Institution Endowment/Student

Rank Institution Assets ($B) ($/Student)2 Princeton 8.73 1,306,7064 Harvard 18.85 996,4315 Yale 11.03 988,941

15 Stanford 8.61 600,73919 M.I.T. 5.13 511,41824 Dartmouth 2.12 391,07429 Washington U. 3.45 317,84936 Chicago 3.22 262,36452 Columbia 4.35 217,19653 Northwestern 3.05 216,93362 Brown 3.02 190,67466 Penn 3.55 177,391

78 Cornell 2.85 145,838

Note: Source is the FY 2003 NACUBO Endowment Study

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Annual Growth in Spendable Endowment Incomeunder the Spending Rule

(Excluding Earnings on New Gifts to Endowment)

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1998 1999 2000 2001 2002 2003 2004 2005P

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$0

$20,000

$40,000

$60,000

$80,000

$100,000

1999 2000 2001 2002 2003 2004YTD

Operating Gift Receipts by Fiscal Year($000)

Note: Does not include Endowments or Capital Gifts

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Academic Year 2003-2004 Peer InstitutionUndergraduate Charges Comparison

2002-03 2003-04Total Total

NYU $37,076 $39,405Washington U. 36,869 38,909Columbia 36,752 38,406Chicago 36,698 38,355M.I.T. 36,060 38,310Cornell 36,767 38,283Georgetown 36,545 38,242Penn 36,212 37,960Brown 36,356 37,942Harvard 35,950 37,928Johns Hopkins 36,220 37,888Stanford 36,123 37,875Dartmouth 35,988 37,770Duke 35,765 37,555Northwestern 35,505 37,491Yale 35,370 37,000Princeton 35,132 36,709

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Academic Year 2004-2005 Peer InstitutionUndergraduate Total Charges Comparison

2003-04 2004-05 % ChangeTotal Total vs. 2003-04

NYU $39,406 $41,258* 4.7%Washington U. 38,909 40,838 5.0%Columbia 38,590 40,404* 4.7%Chicago 38,403 40,353 5.1%Georgetown 38,242 40,317 5.4%Cornell 38,283 40,099 4.7%M.I.T. 38,310 39,900 4.2%Harvard 37,928 39,880 5.1%Brown 37,942 39,808 4.9%Johns Hopkins 37,888 39,656 4.7%Penn 37,960 39,634 4.4%Stanford 37,905 39,616 4.5%Dartmouth 37,770 39,465 4.5%Northwestern 37,491 39,478 5.3%Duke 37,555 39,240 4.5%Yale 37,000 38,850 5.0%Princeton 36,709 38,357 4.5%

* Not yet announced. 2004-05 Total is based on 4.7% projected increase.

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Undergraduate Total ChargesAnnual % Change

00-01/ 01-02/ 02-03/ 03-04/ 04-05/ Av. Ann. Chg.99-00 00-01 01-02 02-03 03-04 2000-2005

Washington 3.5% 6.5% 6.6% 5.5% 5.0% 5.4%Northwestern 5.0% 5.0% 5.8% 5.6% 5.3% 5.3%

NYU* 4.4% 4.9% 5.3% 6.3% 4.7% 5.1%Stanford 5.0% 5.4% 4.9% 4.9% 4.5% 4.9%Cornell 4.6% 4.9% 5.6% 4.1% 4.7% 4.8%Georgetown 4.0% 4.7% 4.9% 4.6% 5.4% 4.7%Chicago 4.3% 4.4% 5.1% 4.6% 5.1% 4.7%Johns Hopkins 5.0% 4.8% 4.3% 4.6% 4.7% 4.7%

M.I.T 4.2% 3.7% 4.6% 6.2% 4.2% 4.6%Penn 3.4% 4.9% 4.6% 4.8% 4.4% 4.4%Harvard 2.9% 3.5% 4.9% 5.5% 5.1% 4.4%Dartmouth 3.8% 3.8% 4.4% 5.0% 4.5% 4.3%Columbia* 3.6% 3.8% 4.4% 5.0% 4.7% 4.3%Brown 3.9% 3.6% 4.6% 4.4% 4.9% 4.3%Duke 3.7% 4.2% 3.9% 5.0% 4.5% 4.3%Yale 2.9% 3.5% 3.9% 4.6% 5.0% 4.0%

Princeton 3.3% 3.4% 4.0% 4.5% 4.5% 3.9%

16 School Average (excluding Penn) 4.8% 4.6%13 School Average (excluding Penn, Harvard, Yale, Princeton) 4.8% 4.7%

* Not yet announced. 2004-05 Total is based on 4.7% projected increase.

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Percentage of Penn FreshmenReceiving Financial Aid from Penn

43.3%42.8%40.2%39.2%39.8%39.0%

44.2%

0%

10%

20%

30%

40%

50%

60%

97-98 98-99 99-00 00-01 01-02 02-03 03-04

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Composition of Freshman Aid Packages

0%

20%

40%

60%

80%

100%

97-98 98-99 99-00 00-01 01-02 02-03 03-04

Grant Loan Job

Avg. Aid $19.7k $21.1k $21.7k $21.4k $23.5k $24.5k $25.2k

% Change +6.8% +3.0% -1.3% +9.9% +4.0% +3.1%

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Annual Percentage Change in Penn’sUndergraduate Tuition & Aid Expenditures

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1998 1999 2000 2001 2002 2003 2004 2005P

Tuition

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Annual Percentage Change in Penn’sUndergraduate Tuition & Aid Expenditures

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1998 1999 2000 2001 2002 2003 2004 2005P

Tuition Aid Expenditues

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FY 1999 FY 2004 Avg. Annual Actual Projection Cmpd. Growth

Endowment & Gift Income $ 3.6M $ 9.7M 22%

General Operating Funds 49.1M 62.1M 5%

Outside Grants 9.7M 12.1M 5%

Total UG Aid Budget $ 62.4M $ 83.9M 6%

Endowment & Gifts as % of Penn-funded Total 6.8% 13.5% as % of Total 5.8% 11.6%

Total Undergraduate Need-Based GrantsFive-Year Growth

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Institutional Undergraduate Financial Aid Sources Ivy and Selected Schools for AY 2001-2002

$000s

Restricted % of Unrestricted % of TotalInstitution Funds Total Funds Total InstitutionalPrinceton 37,178 96.9 1,208 3.1 38,386Yale 28,258 96.1 1,160 3.9 29,418MIT 35,313 91.7 3,196 8.3 38,509Harvard 47,235 81.7 10,570 18.3 57,805Dartmouth 21,869 74.4 7,541 25.6 29,410Stanford 27,021 57.9 19,684 42.1 46,705Columbia 10,719 42.1 14,716 57.9 25,435Brown 10,269 30.8 23,093 69.2 33,362Cornell 10,704 22.4 37,157 77.6 47,861Duke 5,770 18.2 25,879 81.8 31,649Penn 6,750 12.0 49,669 88.0 56,419

Note: Survey is updated every two years.

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FY 2004 Financial Aid Budget

FY 2003 FY 2004 FY 2004 % Change Actual Budget Projection 04P v 03A

Undergraduate Student Aid $ 78.2M $ 83.1M $ 83.9M 7.3%Penn Aid 66.2 71.1 71.8 8.5%Outside Aid 12.0 12.0 12.1 1.0%

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FY 2004 Financial Aid Budget

FY 2003 FY 2004 FY 2004 % Change Actual Budget Projection 04P v 03A

Undergraduate Student Aid $ 78.2M $ 83.1M $ 83.9M 7.3%Penn Aid 66.2 71.1 71.8 8.5%Outside Aid 12.0 12.0 12.1 1.0%

Grad. & Prof. Student Aid $ 98.0M $107.2M $107.9M 10.1%Penn Aid 74.6 80.8 82.0 9.9%

Outside Aid 23.4 26.4 25.9 10.7% Total Student Aid $176.2M $191.3M $191.8M 8.9%

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Summaryl The Strategic Plan and Budget are aligned

– The President and Provost direct resources to our strategicpriorities.

– Deans and senior administrators develop budgets that support theunderlying strategic plans.

l Our Immediate Challenges– Sponsored Program Direct and Indirect revenue growth is slowing.

The Indirect Cost Recovery Rate may be reduced.– Financial Aid continues to grow faster than the rate of increase in

tuition, driven by greater need and more generous packages forundergraduates, and by higher stipends and health insurance forgraduate students.

– Financial Aid is under-endowed requiring us to use unrestrictedfunds to meet financial need.

l Our Long Term Opportunities– Building on Excellence has identified term and financial aid

endowment, faculty chair endowment, and investments in newand renovated academic buildings as top priorities.