Compliance Certification Report

3.10.1

The institution’s recent financial history demonstrates financial stability. (Financial Stability)

Narrative:

The recent financial history of The University of Texas Medical Branch at Galveston (UTMB) demonstrates financial stability as evidenced by growth in total net assets, unrestricted net assets, endowment market value, federal contracts and grants revenue, student tuition & fee revenue, faculty group practice revenue, appropriations, and in its Education and General budget despite unfavorable market conditions related to the health care arena. The university’s health care operations provide financial resources and support for the university’s educational and research initiatives.

UTMB is part of The University of Texas System and an agency of the State of Texas. The System is composed of nine academic and six health-related institutions of higher education, as well as the System administrative offices. The System is governed by a nine-member Board of Regents appointed by the Governor. All campuses follow common reporting and budget guidelines established by the State of Texas and The University of Texas System and are subject to the same audit standards and all campuses share a common fiscal year end which is August 31. Budget figures for FY 2007 are anticipated to be available in September 2007 and financial information shown below will be updated at that time.

UTMB has an annual loss (including operations, state appropriations, and investment income) of approximately $23 million. However, after adjustment for non-cash depreciation expense, contributions from the Sealy and Smith Foundation (of which UTMB is the sole beneficiary), and funding from the Permanent University Fund (PUF), the university has been more than able to meet its capital needs. The Sealy and Smith Foundation contributions that support the university’s capital initiatives and PUF capital funding, which is available through The University of Texas System, is not classified as operating income. PUF funding is an additional funding source available to component institutions for certain capital projects. Depreciation expense is recorded in accordance with Generally Accepted Accounting Principles. Although UTMB does not discretely fund depreciation, the university includes depreciation in the calculation of operating performance targets; those targets require a sufficient generation of margin to meet current and future capital requirements.

Individuals who manage and sustain financial stability of UTMB are qualified and competent to fulfill the expectations of their position (1).

Details of the university’s financial position over the past four years are presented here and will be updated as soon as FY07 financial information becomes available. Total Net Assets have increased from $945.5 million in fiscal 2003 to $1,2 billion in FY06, an increase of 22.4% (2) (3), while Unrestricted Net Assets have increased from $112.9 million in fiscal 2003 to $132.3 million in FY06, an increase of 17.2% (4) (5). Educational and General (E&G) fund balances have grown from $27.4 million in FY 03 to $44.9 million in FY 06, an increase of 63.8% (6) (7).

The university’s endowment funds continue to grow in number, and increase in total value. Market value of endowments increased from $280.3 million in FY03 to $402.2 million in FY06, an increase of 43.5% (8) (9). UTMB has developed an Endowment Compliance Plan that enumerates specific review and operational standards (10). The plan is implemented through the UTMB Endowment Compliance Committee, whose members include representatives from all schools, internal audit, compliance, and Office of University Advancement. The Office of University Advancement meets twice a year with other UT System members and reviews the effectiveness and efficacy of the compliance plan.

The university continues to attract federally sponsored contracts. Federal contracts and grants revenue increased from $96.0 million in FY03 to $123.6 million in FY06, an increase of 28.7% (11) (12).

Increases in student enrollment and tuition and fee rates were realized over the last four years. Student tuition and fee revenue increased from $7.9 million in FY03 to $12.0 million in FY06, an increase of 51.0% (13) (14). The State of Texas allows institutions of higher education the ability to charge designated tuition, that is, tuition in excess of statutory tuition (15). UTMB began charging designated tuition in FY05. Since that time, increases in rates and in student enrollment have contributed to the increase in tuition and fees. Enrollment data is shown in Table 3.10.1.a below.

Table 3.10.1.a. Enrollment by School 2002 through 2006

School	2002	2003	2004	2005	2006
Graduate School of Biomedical Sciences	315	350	361	341	348
School of Allied Health Sciences	334	356	369	428	464
School of Medicine	813	819	824	830	861
School of Nursing	543	533	567	573	582
Total	2,005	2,058	2,121	2,172	2,255

Revenues attributable to the faculty group practice have grown over the last four years. Faculty group practice revenue increased from $127.7 million in FY03 to $157.1 million in FY06, an increase of 23.0% (16) (17).

UTMB’s E&G budget has continued to increase from $590.7 million in FY03 to $697.7 million in FY07, an increase of 18.1%, as a result of fiscally responsible measures that have been taken (18) (19). The university has actively worked to improve recruitment and retention programs for students and recruitment of excellent faculty, and increase fundraising. These efforts have resulted in the resources and support necessary to continue existing programs and develop new programs required to provide an excellent education to the institution’s students.