In keeping with Penn tradition, the October 19 University Council meeting was primarily devoted to the presentations of the president, provost and other administrators on the State of the University. President Amy Gutmann’s report, including the portions presented by Craig Carnaroli, Omar Blaik and John Zeller as well as Provost Ron Daniels’ report, including the portions presented by Janice Bellace and JoAnn McCarthy are below.
President Amy Gutmann
I am very pleased to report on the State of the University. From our record yield for the Class of 2009, to the inspiring activity across campus in support of relief for Hurricane Katrina victims, to our increased focus on interdisciplinary undergraduate education in Arts and Sciences, we have much to be proud of at Penn.
Our unity around the Penn Compact as a road map to eminence has enabled us to establish concrete initiatives that will move Penn forward.
The priorities we have established include:
• Completing a new campus master plan, which is based on far-ranging consultations and integrates the postal lands to our east while advancing our vision of an ever more vibrant Penn campus;
• Develop a plan for global engagement;
• Recruit and retain first-rate faculty;
• Raise more funds for financial aid; and
• Plan a fundraising campaign that focuses on our highest priorities.
Today I will outline our plans for moving forward on these priorities. I have asked Provost Daniels and others to provide additional information in their reports.
And I am convinced that if our administrative and academic leaders, students and alumni address these priorities with the same spirited collaboration that they bring to teaching and study, to research, and to social action, we are on the road to tremendous success.
A great research university must have a campus that offers housing and research facilities that can accommodate growth. It must have a premier health system.
More than a century ago, Penn embarked on a major campus expansion that would propel the University to national prominence.
Our planned expansion to the east is another once-in-a-century opportunity to redefine Penn as the eminent urban research University, where eminence entails social responsibility.
Our Center for Advanced Medicine, one of the largest undertakings in the past half century, will transform the delivery of cancer and cardiovascular care in Philadelphia and along the Northeast corridor. It will also dramatically revitalize a long-fallow stretch along the Schuylkill River.
As important, it will bring hundreds of new jobs to West Philadelphia. Already in the construction phase 65% of the jobs in the design and early building phases have gone to firms owned by minorities and women. With this strong start, we are confident that we will meet our 30% inclusion goal.
We are especially proud that the construction management of the project is a joint venture between Driscoll and the McKissack Group, a prominent architecture and design company run by Cheryl McKissack, who is African American. This joint venture represents a true partnership: The McKissack Group has an equal stake in the project’s success. It also assumes an equal share of the financial risk.
Expanding our campus to the east will profoundly transform our teaching, research, and clinical practice enterprises, as well as our neighborhood and undergraduate life at Penn.
Our efforts will create more housing, classroom, green spaces and recreational space for our students, more research and teaching space for our students and faculty, increased capacity for our health system, and greater economic growth for our West Philadelphia community and region.
Successful completion of this project will integrate our entire Penn and West Philadelphia community within the city of Philadelphia as never before.
Our work with our University City neighbors in revitalizing our neighborhood has created a new vibrancy. The growing artistic and cultural life on and around our campus is spurring even more growth. Soon Philadelphia’s economic and cultural center of gravity will extend from Center City through University City.
In the past year we developed new guiding principles for campus development.
Executive Vice President Craig Carnaroli and Senior Vice President Omar Blaik will go into greater detail shortly. I have asked for a completed master plan and timetable for phased development by June.
Planning effectively for this transformation will call upon the expertise and perspectives of our Trustees, faculty, city and community leaders, staff, students, and alumni. A campus development planning committee has already begun to seek feedback and counsel from a broad array of deliberative and governing bodies at Penn. I am confident that by the end of this fiscal year, we will have a dynamic campus plan that the larger Penn community will embrace.
In the meantime, we are moving full speed ahead with other important projects that do not depend on the new master plan. The Sayre School Family Health Clinic, for which we are obtaining a $1.5 million grant, and a magnet public high school for which the School Reform Commission is seeking a site in West Philadelphia, are examples of town-gown partnerships serving the greater good. Stay tuned for news on these promising initiatives.
A university that wishes to maintain global leadership must adopt and sustain a global perspective in its teaching, research and international outreach.
Penn is well positioned to lead. We have a successful track record of engaging locally here in West Philadelphia and with communities around the world.
To significantly extend Penn’s global perspective, I have appointed a Task Force on Global Engagement. Their charge is to develop two to three major initiatives that will forge stronger academic and institutional ties throughout the world, and foster more integrated global teaching, research and practice across the university.
Wharton Dean Pat Harker and Graduate School of Education Dean Susan Fuhrman will co-chair this task force.
Provost Daniels, who will oversee the task force, will discuss this exciting initiative in greater detail in his report today.
And later this fall, I will be traveling to India, the first of two visits to Asia, where I will personally involve our alumni in maximizing the global impact of Penn.
Recruit and Retain First-rate Faculty
For Penn to achieve eminence, nothing is more essential than recruiting and retaining the very best faculty and students. A truly outstanding faculty includes men and women from all backgrounds, so we are seeking more ways to broaden the diversity of our faculty.
This year we are proud to have brought aboard eminent scholars like Dan Koditschek, the chair of Electrical and Systems Engineering and a major force in robotics, and Mathematics Professor Werner Müller, who comes to Penn from the University of Bonn in Germany.
Our new faculty also are having a seminal impact far beyond our campus.
Archaeology Professor and noted Mediterranean scholar Brian Rose has been educating U.S. military troops preparing to leave for Iraq and Afghanistan about the cultural heritage of the Middle East.
Recently appointed History of Art Associate Professor Gwendolyn DuBois Shaw comes to Penn from Harvard University, with a special interest in African American art and issues of race, gender and identity. Associate Professor of English David Kazanjian has contributed significant research in transnational American literary and historical studies through the 19th century, as well as the Armenian diaspora.
These and many other new faces enhance Penn’s already impressive faculty bench.
Our Penn Integrates Knowledge initiative is a creative tool for attracting more top-flight talent. We have received an impressive list of eminent scholar-teachers to be considered, and I have asked Provost Daniels to update you further on the progress of this seminal program.
It is vital to attract a student body that reflects the socioeconomic diversity of the country. Our students on financial aid enrich our Penn community in untold ways.
I am thinking of the son of a grocery store clerk who wants to pursue both a doctorate in philosophy and a law degree.
Or how about a gifted writer who’s the daughter of a New Hampshire auto mechanic and the first in her family to attend college?
Or the son of a truck driver from Texas who’s become a standout at the Wharton School and a campus leader?
I am gratified that we have made important strides in increasing access for outstanding young women and men like these to a Penn education.
In addition to raising 140 new scholarship funds, we have eased the burden on middle and low-income undergraduate students. We also have enhanced the packages for graduate and professional students, but we have more to do in both these arenas.
Clearly, Financial Aid will be one of the priorities for our upcoming Fundraising Campaign.
Speaking of a Campaign…
I spoke earlier about the Penn spirit. But spirit alone will not realize our potential for growth. To capitalize on our promise we must grow our endowment.
We have begun planning for a five-year Campaign that will enable us to seize the opportunities that lie ahead. If the success of the past year is any indication, both the will and the commitment exist to scale impressive heights. Vice President of Development and Alumni Relations John Zeller will give you a more detailed report.
I would like to close these remarks by thanking all of you for the work you do to strengthen our Penn community. I look forward to the fruits of our continued productive collaboration. Executive Vice President Craig Carnaroli will now report on our financial health.
Craig R. Carnaroli, Executive Vice President
Thank you, President Gutmann. Good afternoon. I intend to provide you with a brief overview of the University’s financial status as well as a review of the major initiatives of the EVP Divisions in Fiscal Year 2005 and, finally, discuss the campus development planning process.
I am pleased to share with you that Fiscal Year 2005 was a success by nearly every financial measure. The University’s total revenue increased $323 million, or 8.7%, to almost $4.05 billion. The Health System constituted 58% or $187 million of this overall growth in revenue, reflecting an increase in patient activity. The University’s total expenses increased $253 million, or 6.8%, to almost $3.97 billion.
One way external parties measure financial health is to examine the change in net assets. Simply stated, net assets are the difference between total assets and total liabilities.
For the consolidated University (including the Health System), total net assets increased $500 million for the fiscal year, primarily due to positive investment performance, a significant increase in contributions and improved operating performance. Penn concluded the fiscal year with total assets of $9.3 billion, total liabilities of $2.9 billion, and net assets of $6.4 billion.
On an internal basis, we evaluate our performance using our internal budget system, Responsibility Center Management. The news is equally encouraging. Ninety percent of the Penn centers ended last year at or below budget. More impressively, 75% of all University centers finished the fiscal year with a surplus. Much of the surplus is due to the positive activity from contributions and will be spent in future periods on the designated purposes.
Sponsored program activity provides over 18% of the consolidated University’s total revenue. In FY 05, sponsored program revenue totaled $733 million, an increase of over $54 million or 8% compared to FY 04. The indirect cost component grew by $18 million to $184 million, an increase of 10%. Total awards received reached $753 million, 62% of which was received from the Department of Health and Human Services, primarily the National Institutes of Health (NIH), Penn’s largest sponsor. Penn ranked second in NIH funding for the latest available federal fiscal year of 2004. I am also pleased to share with you that the University favorably completed its indirect cost recovery negotiations with DHHS.
Fundraising programs generated a remarkable 35% increase in new gifts and pledges totaling $342.8 million, with cash receipts totaling $289.2 million or an 18% increase over the prior fiscal year. Eighty-three new gifts and pledges of $1 million or more set a new record for Penn, and 40% of those gifts came from first-time donors at that level–a very positive sign of development program growth in anticipation of the University’s coming comprehensive campaign. Annual giving during FY 05 produced a robust $43.3 million, representing 13% growth over the previous year and also setting a new record.
In keeping with President Gutmann’s priority to make a Penn undergraduate education available to all outstanding students, Penn continues to build on its commitment to need-blind admission and provide need-based financial aid. In FY 05, 4,274 undergraduates with demonstrated financial need were awarded $116 million in aid to meet their needs. Of this total aid, $87 million was grant or scholarship, with $73 million coming from University resources. In addition, $86 million was available for graduate student aid.
Approximately 70.4% of all University students received some type of financial assistance. The University budget for this fiscal year provides an additional $1.8 million in incremental aid for undergraduate students. The average grant-aided freshman received $28,221 in total aid, with 80% of that amount being in the form of a grant. The University undertook two primary new initiatives to improve the affordability of a Penn education, including improvement of graduate stipends and a revision to undergraduate outside scholarship policy.
In FY 05, the University of Pennsylvania Health System, comprising the health-services component of Penn Medicine, strengthened its financial performance significantly. For the fifth consecutive fiscal year, UPHS generated a surplus, with a net operating margin of $72.5 million (excluding investment income). The Health System’s strong operating performance was attained in part through measures undertaken to increase revenue and reduce expenses, including the revenue cycle enhancement project, focus on key service lines (such as surgery, cardiology, and orthopedics), and supply chain initiatives.
With respect to capital investment, construction began on the McNeil Center for Early American Studies and moved forward on Skirkanich Hall, the Veterinary Medical Teaching and Research Building and the Lynch Life Science Laboratories. Renovations are underway on Vance Hall as well as the Evans Clinic and progressed on the Nursing Education Building and Fisher-Bennett Hall. The Translational Research Building, a state-of-the-art research facility adjacent to Penn’s campus, was completed by external developers and is ready for its School of Medicine tenants to take occupancy. Construction is expected to begin on the Annenberg Public Policy Center Building which will be funded by an extraordinary gift of $30 million from the Annenberg Foundation.
Projects to improve student living that are in progress or have been completed involved renovations to the fire alarm and sprinklers systems in several college houses including Hamilton, Hill, English and Sansom Place West.
The senior leadership team of the University of Pennsylvania is strongly aware of its stewardship and management responsibilities in the governance of the institution. The divisions that provide the core administrative services to the University work to fulfill their missions effectively while constantly identifying opportunities to increase efficiencies, contain costs, create additional resources, and improve the quality of life on campus. To that end, some recent accomplishments have included:
• the refinancing of $805 million of University and Health System long term debt to realize over $63 million of gross debt service savings;
• strategic redesign and improved administration of Penn’s benefit programs resulting in significant savings totaling $20.5 million (annual) and $11.9 million (one-time);
• the renegotiation of certain student loan arrangements to provide a $1 million increase in revenue;
• the implementation of strategic purchasing through electronic commerce procurement resulting in $4.3 million in cost savings;
• a $70 million reduction in the University’s contingent liabilities with respect to student loan guarantees;
• ongoing positive revenue growth in our diverse business units, including conference services, dining, and retail outlets.
During the coming year, the divisions that report to me will undertake a large number of collaborative and individual initiatives in support of my three stated goals: to effectively and innovatively create resources; to recruit and develop a diverse workforce; and to enhance the quality of life for those who interact in the Penn community. Some of these efforts will include development of a comprehensive diversity recruitment program, implementation of the next milestones of the Advancement Project as well PennERA and on-line tuition assistance, undertaking a “spend analysis” to identify cost savings, and an expansion of health and wellness program offerings.
I am excited about Penn’s present and future, but temper my enthusiasm when acknowledging the challenges our institution faces.
Since 1996, total crime in the Penn Police jurisdiction has dropped by 49%. During the same period, total robberies dropped by 50%. However, despite the tireless efforts of the dedicated men and women of Public Safety under the leadership of VP Maureen Rush, statistics indicate that the rapid reduction in crime had leveled off at the moment and, in some categories, experienced increases. These increases primarily are in non-physical, quality of life crimes, such as bicycle thefts and thefts from automobiles. In response to this reality, the Penn Police will expand its efforts at crime abatement and public awareness. Alternative policing patrol approaches, education about privacy and protection, technology improvements, and continued services, such as walking escorts, will be engaged to address the issue of campus safety.
As I mentioned, sponsored programs represents a critical component of Penn as a research institution. Penn has benefited significantly from several years of substantial NIH budget increases that ended in FY 03. However, the future NIH budget is programmed for only modest annual increases of 2-3%. It is imperative that Penn continues to manage its sponsored program resources with utmost responsibility and effectively demonstrate the benefits of ongoing and increased investments in university-based scientific research.
Finally, as you are all aware, the costs of utilities, particularly fuel, are at record high levels. The University, as a city within a city, is not immune from the effects of the price increases. The total utilities budget for this year is $62.7 million. Current projections indicate that our actual expenses will be approximately $68.7 million. Steam costs alone are currently 18.8% over budget and 38.7% higher that FY05 actual expenditures. As an institution, we have drawn from our utility funding reserve account to cover these expenses and will continue to work diligently to reduce usage and costs whenever and wherever possible.
Finally, Penn’s acquisition of the postal properties on the eastern edge of the campus represents a unique opportunity to influence the future of this great institution. Those on the Campus Development Planning Committee have been charged by the President to propose a campus-wide master plan that represents the best of Penn, now and for the future.
As the President mentioned, the Campus Development Planning Committee is operating with four guiding principles. First, the planning must be carried out in the context of the entire campus driven by University-wide priorities. Second, undergraduate education should remain in the core campus. Third, the area should be developed into an aesthetically appealing mixed-use, 24 hour urban environment with strong east-west links between the campus and Center City. Finally, the development of this land should be phased in by zones, with the understanding that land banking should be used to preserve options for future needs.
A vital component of the campus development process is to engage in consultative discussion with the broad spectrum of interests represented in and around Penn. Over the past several months, we have talked with faculty members from across the University, the Deans of the Schools, and senior administrators. We are also excited about working with the UA-GAPSA joint committee to ensure that the opinions and ideas of undergraduate and graduate students are well represented in the process. In the coming weeks and months, we will continue to meet with various constituents and groups to gather insights and information. We are also announcing that two Town Hall meetings will be held in early November which will be open to faculty, staff, and students to provide additional forums where thoughts can be shared.
I thank you for your time and attention. To discuss campus development further, I will turn the podium over to Omar Blaik, Senior VP for Facilities and Real Estate.
Omar Blaik, Senior VP for Facilities and Real Estate
I am before University Council to discuss four issues:
First, the campus plan, second, our ongoing construction work, third, real estate development projects and fourth, utilities issues.
In terms of the campus plan, the University is working with Saski Associates a world-class urban planning firm to develop a land use strategy for the newly acquired post office lands to the east of campus. We are studying the physical distance between the eastern edge of campus and College Hall to demonstrate that it is equidistant to that of College Hall to 40th Street. We are studying the time it takes to walk this stretch of campus to the east and have discovered that it can be traversed in 10-20 minutes, and is very walkable. One point that is important for us to also consider: as the campus needs to grow east the campus plan must be constructed so that it established itself as part of the University City and Center City grid, as well as the urban grid that exists today connecting West Philadelphia from its northern edges through to its south.
There are large swaths of land that are disconnected from their surroundings and one of the challenges we have is how to recreate the urban grid to take full advantage of the 24 acres that will soon be part of our campus. Concluding this thought, the campus plan is an opportunity for the east campus, but also for the entire campus. As we grow to the east, we have an opportunity to reflect on the existing facilities that are now located in our core, and if we could add more academic use to our physical core, while directing growth eastward.
Let me now segue from that to some of the projects that we are currently working on. The School of Veterinary Medicine’s new building is a state-of-the-art $70 million project and we’re hoping to finish the project by the end of next summer. It will be known as the Vernon and Shirley Hill Pavilion, for the School of Veterinary Medicine. The School of Medicine will be occupying the top floor, illustrative of the integrated research that will be going on between the different schools. This building is located on a site that used to be a gas station and used to be a very different intersection of crossroads that we reconfigured to allow for the expansion to be contiguous to the rest of the Vet School complex. (See Almanac October 4, 2005).
The next project that also is in the research area is Skirkanich Hall for the School of Engineering. This new building provides the first public gateway between the entire engineering complex and the public streets. It sits tall and light, and is comfortable next to the Towne Building. It will be the place for research in Bioengineering; but, similar to Levine Hall, it will be the connector for Towne and Moore and GRW and Levine Hall, creating a full circulation of the entire engineering complex in ways that the Engineering School has never enjoyed before. This project is scheduled to be completed in late spring of next year.
The Lynch Life Science Building is a multi-phased project, with Phase One at $61 million due for completion in a few months. As we proceed with the strategic plan for SAS, we will be able to hopefully chart a course for how we will get Phase Two completed as well.
The Harnwell House renovation project, was finished this summer concluding the renovations of the three high rise buildings. Now we are actively at work on a landscaping improvement around the buildings and on Locust Walk. We are expecting that most of that will be completed by spring totally changing our view of what the former Superblock used to look like.
Another exciting project coming to completion is the School of Nursing, an $8 million project creating for the first time a logical entrance, that is connected to the rest of the schools, and to the rest of the pathways, that is making the School of Nursing and its Dean very proud (Almanac November 16, 2004).
The Law School classroom renovations, along Chestnut Street, even though this is an interior project, given what’s going on Chestnut Street, we want to create more transparency on campus. The Dean’s and the Building Committee agreed to a major improvement to the façade of that part of the Law School to open up to Chestnut Street as well.
The McNeil Center is going to have very prominent location on campus, is going to be completed by November. The completion of Fisher-Bennett Hall, which we are also expecting within the next two months represents significant upgrades to a building that has needed quite a bit of investment for the past several decades, and we are proud that we have finally made these investments and this building will be a great place for classrooms, and for the English and Music departments (Almanac November 9, 2004).
Real Estate Development
Now allow me to move to the off-campus developments. The construction has started on the Mixed-Use Development on 40th and Chestnut. Approximately 100 market rate housing, as well as street level retail, will enliven 40th and Chestnut. We have also broken ground on the mixed-use development on 34th and Chestnut, and we are expecting opening in the fall of 2007, of 290 market rate apartments, along with street level retail along the 3400 block of Chestnut Street.
Finally, I would like to end on the important subject of cost increases in utilities. Penn normally averages around $14-16 million annually on steam procurement, but we are projecting to be in the $40 million range. We are actively participating in a campus energy conservation program. With your permission and Dr. Gutmann’s leadership, we are going to institute some conservation plans this winter that we’d like you to cooperate with us on. Sweaters are in. So, I just plead my case here that we would like more conservation and not less of that. That concludes my report.
John H. Zeller, VP Development and Alumni Relations
I am delighted to have this opportunity to update you on Development & Alumni Relations’ activities. We are at the beginning of a very exciting time for the University, as it prepares to embark upon a new comprehensive fundraising effort.
First, let me begin by reporting on the remarkable year that FY 2005 was for fundraising and alumni relations at Penn.
President Gutmann has already mentioned the creation of 140 new undergraduate scholarships this past year. Those gifts and others for financial aid during the year totaled more than $32 million, $29.4 million of it in the form of new endowment.
New additions to the University’s endowment exceeded $150 million during FY 2005.
Our overall total for new gifts and pledges was $443 million.
Annual giving programs, the lifeblood of unrestricted support for schools and centers, brought in $43.3 million—11% of our cash receipts and a new record for Penn!
Two years ago, in FY 2003, Penn received an extraordinary $154 million commitment from the Annenberg Foundation that was instrumental in setting our all-time one-year fundraising record.
What is different about this past year is that our success reflected very broad distribution of success in fundraising across the University. For example, gifts of $1 million or more grew by 25% over the previous year, and our largest gift was $30 million. Many schools and centers exceeded their goals for the year.
That broad support is also evident in Penn’s outreach to its alumni. Over the past three years, participation in Alumni Weekend, the annual capstone event for alumni engagement and class reunions, has grown by more than 50%.
This past year, more than 4,000 members of Penn alumni had a chance to meet and welcome President Gutmann at events across the United States.
Alumni Relations is also concentrating its attention on future alumni strength through its strategic focus on undergraduate students from Day One of their Penn experience. We know how dependent future alumni involvement is on active engagement in the present, and Alumni Relations’ “Penn Traditions” program is building that enthusiastic support early.
Tangible evidence of our success in establishing a culture of giving among Penn’s youngest alumni is participation in the Senior Class’ gift drive, which has jumped dramatically during the past five years from about 20% of the class to more than 50%. One interesting note: the majority of senior class gifts are made on line, which also reinforces our commitment to continue building fundraising performance with new technology.
These markers of growth and success are particularly gratifying as we look toward a new comprehensive campaign that will be the most ambitious fundraising effort in Penn’s history.
To ensure success, we are very actively engaged in a rigorous planning process. That planning began more than two years ago with discussions with deans and center directors to identify needs. Those continuing conversations have combined during the past year with the outline of core University fundraising priorities within the Penn Compact. We are exploring campaign feasibility and interest areas with Penn’s Trustees and selected potential lead donors as we move forward with a formal process of goal-setting that will be completed in the coming months.
The campaign began its “quiet phase” officially on July 1 and will kick off its public phase in the fall of 2007.
We are working closely with the Development Committee of the Trustees right now to establish the fundamental policies required to conduct a campaign:
• Counting and crediting–how and when gifts will be counted over the seven-year period that the campaign will be conducted.
• Gift pricing–what amounts will be required to create named gifts for professorships, scholarships, etc.
• Volunteer structure–the organization that will play an active, day-to-day role in steering the campaign toward success in meeting its goals, as well as the honorary participation that will recognize donors who make extraordinary commitments, not only through their own gifts, but also through their willingness to engage others in supporting the campaign.
We have also begun to roll out a new database–ATLAS–that dramatically enhances our ability to manage the huge amount of information required to support and document a campaign’s progress. This is a joint project of Development and Alumni Relations, the Treasurer’s Office, and Information Systems and Computing.
All of these initiatives will contribute greatly to the Development and Alumni Relations’ program and the Penn Compact. I look forward to reporting on the success of our Campaign in the coming years.