Bacon's Rebellion

Democracy Thrives in Sunlight

Could VCU Become the Next UVa?

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James A. Bacon
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UVa isn't the only Virginia university with a lot of unrestricted cash.
Unrestricted cash, cash equivalents and investments not with the Treasurer of Virginia. Image credit: Auditor of Public Accounts

When word leaked out about the University of Virginia’s $2.2 billion Strategic Investment Fund, UVa officials suggested that they had found a way to spin dross into gold. Sweeping up low-yield cash and short-term investments in assorted reserves and accounts, they consolidated a vast sum which, in the hands of the University of Virginia Investment Management Company, they expected to generate income of roughly $100 million a year. The financial innovation was a trick, they contended, that other public Virginia universities could do, too.

Yesterday, Eric M. Sandridge, audit director with the Auditor of Public Accounts, compiled a list of unrestricted cash and cash equivalents at Virginia’s major universities, which he presented to the House Appropriations Committee. That list is reproduced above.

Excluding UVa, Virginia’s higher ed institutions have $2.6 billion in unrestricted cash. Let us assume conservatively, as UVa does, that the cash, if placed in appropriate hands, could pay out 5% annually on a sustainable basis. That cash could throw off an ongoing revenue stream as large as UVa’s Strategic Investment Fund to use as the institutions see fit.

The primary beneficiary by far would be Virginia Commonwealth University, which accounts for $1.7 billion of the $2.5 billion, followed by Virginia Tech, which accounts for $465 million. (I presume that the “VCUHS” on the table above refers to VCU Health System.) A handful of other institutions could generate $1 million to $2 million in extra income a year. For the rest, the income would be chump change.

I’m not sure what the General Assembly intends to do with this information. I’m not even sure that other universities are set up to replicate what UVa has done — although VCU has a $2 billion endowment, second largest among Virginia public universities, and last year it created its own investment management company to manage the university’s financial assets. If VCU follows UVa’s strategy (and if I’m not overlooking something really important), in theory, the university could generate an additional $85 million in free-and-clear revenue each year. That would be a game-changer.

The VCU board of visitors then would face the same issue as UVa’s board: whether to use the windfall to advance the university as an institution or to make the university more accessible and affordable to students.

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15 responses to “Could VCU Become the Next UVa?”

  1. LarrytheG Avatar
    LarrytheG

    how is “unrestricted” defined?

    the document does not seem to define it…

  2. Izzo Avatar
    Izzo

    What do UVA and VCU have in common? Health systems (and research that goes along with it). That is likely the pot of gold.

    But come to think of it, didn’t VCU already do what UVA did once before? http://richmondbizsense.com/2014/02/12/universities-graded-on-fiscal-growth/

  3. Izzo Avatar
    Izzo

    I think it is going to be pretty hard to replicate what UVA and VCU do without a hospital or health services division. The schools without hospitals just don’t have the same funding model. So when the UVA leadership said other state institutions can follow the model, I think it was misleading and a bit disingenuous.

    49% of UVA’s total revenue comes from Net Patient Services. The report on the SIF says revenue from state appropriations, tuition, and endowments were not put into the SIF. That means only 23% of other UVA revenue (Grants and Contracts, Private Gifts, Auxiliary Enterprises, and “Other”) could have been ultimate sources of the SIF. Taking this into account, about 70% the funds that might have contributed to the SIF came from patient services. (See: http://www.virginia.edu/finance/finanalysis/report.html )

    It is difficult to do be forensically precise because UVA often gave the proximate sources of funds. For instance, the biggest initial source was something called “Internal Bank”, which was 71% of what became the SIF in 2008. But money for the Bank had to come from somewhere (the ultimate source), and I believe patient services was likely the largest source.

    If I am right, I suspect UVA didn’t want to explicitly say how much of the fund ultimately originated from patient services because of the optics (“You mean to tell me this money ultimately came from charging sick people?”). This is why this obscurantist episode dragged out for so long. They didn’t do anything wrong, but they didn’t want to have to explicitly show how the sausage was made.

    Looking at VCU and Virginia Tech, they have about the same number of students, but VCU has 3.7X as much “unrestricted cash”. The breakdown is telling in that 73% of VCU’s total comes from the health services side. The academic side of VCU is about the same as Virginia Tech. More evidence again that the health services side is the big contributor.

  4. LarrytheG Avatar
    LarrytheG

    Good commentary, Izzo! And I’d agree – on target – these are like allied business units as opposed to core elements of the Academic entity.

    there’s a symbiotic relationship of sorts where the Medical entity can provide direct relevant education to academics and the University can provide a graduated workforce to the Medical.

    but the idea that the govt should come in and decide how that relationship should work on the premise that the University is charging “too much” for tuition is beyond the pale especially when at the same time we advocate the “free-market” for things like health care, payday loans, etc.

  5. DonR Avatar
    DonR

    If I thought either UVA or VCU had a competent plan to spend the money with measurable goals and clear accountability for success, I would have no objection to these funds. But that’s not the case. UVA and VCU want to spray money in various directions in the hope of becoming “more better”. There are no credible measurable results projected for this multi-billion dollar orgasm of spending. None of the management people will be in their present positions in 10 years when we’ll know whether these schools have become better universities. Like so many other government spending sprees this is an unaccountable free for all.

    Back in July and August the Imperial Clown Show in Richmond demanded information from UVA regarding the sources and uses of its multi-billion dollar slush fund. Open letters were written and signed by 11 members of the Clown Show insisting on full disclosure. What has happened since then? Nothing. We still don’t know the sources of the funds. Izzo puts forth a credible hypothesis that the money came initially from over-charging patients and, presumably, insurance companies. We just don’t know. Here it is late November and the Imperial Clown Show in Richmond’s promise of demanding full disclosure rings as hollow as the heads of the members of the Clown Show. Once again we are reminded that a corrupt and ineffective state legislature is good for some occasional hot air and not much more.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      DonR is right on target.

      And now too Obama’s Federal Government business model, upon which UVA had pinned its hopes on to assure itself an ever growing fountain of other peoples monies to fund UVA’s waste, is under grave threat by the Trump Revolution. Hence, UVA’s Ponzi scheme, including its research driven university, is at even graver risk than before.

    2. James A. Bacon Avatar
      James A. Bacon

      Don, Eric Sandridge provided an accounting in August of where the money came from. Here’s my post on that topic. And here is the table summarizing where the Strategic Investment Fund money came from:

      https://i2.wp.com/www.baconsrebellion.com/wp-content/uploads/2016/08/SIF.jpg

      In explaining how the General Assembly has dropped the ball on digging into the origins of this money, what questions would you ask that Sandridge failed to answer?

      (If you find that table too hard to read, click here.)

  6. Izzo Avatar
    Izzo

    James,

    This doesn’t show the ultimate source, only the proximate source in most cases. The funds for the Internal Bank that showed up in 2008 came from somewhere, right? Banks don’t pop up without some sort of capitalization. The notes in this report just say that it came from current operating funds. But operating funds also come from somewhere, don’t they? The exercise I did above suggests that the likely the largest source (perhaps 70% or more), given the university’s revenues and the sources of funds that were explicitly excluded, are “Net Patient Services” from the health services division. The report below indicated that indeed this is a source of funds, although it did not put a percentage on it. Specifically, the report said (on page 18) that the sources include “Medical Center Profits/Reserves.” http://sfc.virginia.gov/pdf/education/2016/Interim/082616_No1_APA.pdf

    So what does that mean? Where does a medical center get its revenue? It certainly gets a lot of it from “Net Patient Services”, which is 49% of the University of Virginia’s total revenue. This would be the amounts collected from patients and insurance payers. So I would argue Don is right in saying this is money that could have potentially been used to lower health care costs or to fund health care projects. Instead, it has been placed into a generalized fund from which distributions can be made at the board’s discretion.

    The report concludes that UVA can do this under controlling Code of Virginia sections. But it also explicitly says that it does not comment on policy (e.g. should it be used to control/reduce tuition or should medical center funds remain focused on controlling healthcare cost or other health objectives?).

    So you can’t say UVA was doing money laundering, since this is legal, but they were, in my view, trying to obfuscate the sources so that these types of questions wouldn’t be asked. The vague descriptions that were given were, to me, evidence that there was something they wanted to avoid discussing.

    So I’ve given a long description, but think again about the original post with an Occam’s razor point of view. Two institutions have extraordinary balances. The others all lag far behind. They happen to be the only two that have medical centers. One can conclude this is largely a medical center surplus phenomenon. Perhaps that should be discussed.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Bingo!!! – legal money laundering that should be illegal but isn’t given our dysfunctional regulatory systems of governance of health care in this country, among the many other dysfunctions growing like topsy in this country over the past decade, and having to do with non profits charging and handling of other peoples money as it is charged and spent on their health, welfare, and daily living.

      The same Izzo comment likely relates to that other predatory non-profits such as northern Virginia’s Inova’s sudden wealth, and its related predatory practices that it uses to gain a monopolistic position along with UVA in the universe of government regulated health care. And other similar “legal” money laundering schemes that take away other peoples money (that of fellow citizens), and apply it to selfish ends.

      These people know they are doing wrong if only because they go to such lengths to disguise where these vast sums come from.

  7. LarrytheG Avatar
    LarrytheG

    still trying to understand, under what theory does the General Assembly get to involve itself in the revenues from non-Academic sources like Medical?

    And why in the world would you want the GA involved in the first place given their own record of incompetence and feckless behavior with things like the Tobacco Fund and other stuff?

    More fundamentally – why would you want the GA to involve itself directly in ANY state or quasi-state agency and question/override the career folks running that operation?

    what justifies a subsidy for tuition to the school rather than directly to students to start with? If you gave the tuition to the student – nd let them then choose what school – there actually would be some real competition. When you give the money direct to the school – then you have a whole bunch of folks who think – that then that gives them the right to directly intrude in decisions and choices made by that entity -no matter how little or how big the subsidy -just the fact they have a subsidy means anyone can them claim they are justified in telling the University how they should be doing business.

    And again – we have more than half a million people in Virginia who work – who do not have insurance – and we talking about subsidies for people with family incomes of 100K and more…

    we’re at a point – where everyone is asserting that they are more entitled to their govt goodies – than others getting govt goodies and it ain’t pretty.

  8. Izzo Avatar
    Izzo

    If the ultimate source of most of the funds that go into the Strategic Investment Fund originate as UVA Medical Center operations surpluses, as seems highly likely to me, does anyone here have an issue with that? I am curious how the contributors on this board see this.

    Based on what I have seen, it appears the flow is this: Medical Center Operating surplus –> Consolidated Operating Surplus –> Intermediary designation like “Internal Bank” or “Capital Renewal Program” –> Strategic Investment Fund. The input funds originates from patient services. The output is the board can spend it as it pleases.

    VCU appears to still keep their Medical Center and Academic funds separated in the report Jim cited. UVA has consolidated them into the SIF.

    1. Lift Avatar
      Lift

      As I see it, there is no acceptable way for a public, non-profit institution to squirrel away so much money. If revenue is excess from Med Ctr, then lower charges to patients/insurers. If excess if from unspent operating funds, then lower tuition. My understanding is that endowment gifts are not in this mix, so if donors want to give and not have their $ rebated in any way, they can opt to give to endowment.

  9. Izzo Avatar
    Izzo

    Lift, I have to say I agree. It just doesn’t seem right for a not-for-profit (tax exempt) medical center with tax exempt status to make what is essentially $85M profit / year and put it into areas outside of health care, as is happening here with the SIF.

    I wonder what the net impact of these not-for-profits is on healthcare costs? They appear to be using it to gain enviable market positions (Duke Medical made$355M profit in 2015, which is a 12% margin). It is possible they are lowering competition and raising costs, which is a perverse outcome for a not-for-profit, which has that status because it doing something for the public good.

  10. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Izzo –

    I am glad that you have circled back around to this issue. Your Nov. 17 comment above exposes one of the most important hidden and unreported truths and scams going on in today’s society today – that is the recent emergent corrupt alliance of the Federal Government, Non-profits, and crony capitalist cabal of deal making and mutual manipulation of public assets and power to private gain, a devil’s bargain that now is sucking the wealth out of America’s middle class, along with their nation’s vitality, an increasingly rigged system that is upending any chance for a level playing field for all but a few to join in innovation, opportunity and wealth creation.
    This ongoing enormous hidden transfer of wealth and opportunity into the hand of few by corrupt means is pure scam, and should be a crime. UVa. Strategic Investment Fund is Poster Child for how these scams work. If one looks back at the record one can clearly see the links those involved went to hid the dynamics and methods used to covertly build that fund out of public monies in the hopes of deploying it to the personal advantage of a very few.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Correction to last sentence above-

      “If one looks back at the record one can clearly see the lengths that those involved in building these funds went to hide the dynamics and methods that were used to covertly build that fund out of what in essence were public monies paid for health and educational services by the public in the hopes of skimming and then diverting major portions to those ill gotten gains to unrelated business opportunities that by and large work mostly for the great personal advantage of a very few. It the classic scam but uses public monies, public institutions and false pretenses to pull off the theft.

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