University to keep close eye on cuts

The financial plight of the University of Virginia dominated Thursday’s meetings of the Board of Visitors and its finance committee.

The state is cutting funding, more students cannot afford tuition and the school’s endowment has dropped dramatically in the past year.

The funding cuts ordered earlier this week by Gov. Timothy M. Kaine will translate to 2.5 percent cuts for schools and libraries within UVa and 3 percent for administrative units, said Leonard W. Sandridge, the school’s executive vice president and chief operating officer.

The governor has reduced state funding for the school by 8 percent. The cut was set to be more severe, but the governor used millions of dollars in federal stimulus funding to backfill from an original cut of 15 percent. A $1.8 million reserve the board had already built into the budget also helped cushion the blow.

Kaine’s fiscal finagling will need approval from the Obama administration, and UVa officials expect to know in about two weeks if it’s forthcoming, Sandridge said. If it isn’t approved, the school would essentially face another budget cut of about $9 million next year, when the funding would be unavailable.

John T. Casteen III, the school’s president, said officials should also monitor the impact of proposed cuts to the state’s contribution to state employee pensions. Some university employees are covered under a separate university retirement system, but others are still on the state system, he said.

The finance committee also decided to withdraw 5.5 percent of the school’s endowment’s market value to spend this year.

The change is up from 5 percent last fiscal year, but because the endowment’s long-term pool of investments lost about $1 billion in value in the last year, the actual amount of money spent will drop, from $164 million in the last fiscal year to $138 million this year. The pool is now worth about $4 billion.

The board tracks inflation to decide how much of the endowment to spend, but that metric would have put the figure at 6.6 percent, well above the board’s self-imposed 6-percent cap.

Yoke San Reynolds, UVa’s vice president and chief financial officer, said university’s staff recommended 5.5 percent because it would give officials “room to maneuver” in the coming year.

Board member Austin Ligon pushed for the full 6 percent limit this year.

“If this is not the year we pay the maximum, when is?” he asked.

Sandridge said the university has asked groups that receive endowment funding to plan for 5.4 percent and that endowment spending was just 3.7 percent only five years ago.

“We have dramatically increased payout on this endowment over the last five years,” he said.

During his remarks to the full board, Casteen also highlighted the steady growth in the number of UVa students receiving need-based financial aid. From 23.8 percent in fall 2004, the figure has risen to 32.1 percent this fall, he said.

Many parents have been laid off, and federal financial aid standards fail to account for underwater mortgages, he said.

“The acuity of need … is unlike anything we’ve ever seen,” he said.

He also said he expected UVa’s need increase to be steeper than in most of the rest of the country, Casteen said.

Right now, many recipients of need-based aid are from Northern Virginia, but that could change as more rural schools offer the kinds of courses necessary to ready students for UVa, he said.

The finance committee also, without much comment, voted to ask the governor to eliminate the requirement that half of general funds for graduate student financial assistance go to Virginia residents.

“The university’s highest-quality graduate student applicants are increasingly from out-of-state and require a higher level of financial commitment from the university,” reads the description of the request distributed to the board.