The past year was productive for the University in most measurable ways. It brought smooth successions in key academic leadership positions; completion of several major building projects, with others commencing; unconditional reaffirmation of the University's accreditation by the Southern Association of Colleges and Schools; and improvements in the University's financial condition because of implementation of Virginia's 2005 and 2006 restructuring bills, prudent endowment investments, and continued success in our capital campaign. In recent weeks, the financial outlook here and everywhere has dimmed; what is now a global economic crisis began to take shape toward the end of fiscal year 2008. This report includes details on these issues and also a full account of the considerable achievements of our students, faculty members, and staff.
As implementation of Virginia's 2005 and 2006 restructuring legislation continued in 2007�08, we fulfilled our responsibilities by promoting economic development in Southwest Virginia, improving public schools whose performance has declined in recent years, and meeting students' need for financial aid. We received SCHEV certification of our performance under the management agreement. This approval allowed us to receive financial incentives such as interest on tuition and fees of approximately $1.75 million in 2007�08. By providing support for students from both lower- and middle-income families, the Rector and Visitors' AccessUVa financial aid program enabled some 848 students to enter the University last year. The total cost of the program in fiscal year 2008 was $53.8 million. Our agreement with Virginia's twenty-three community colleges guarantees admission based on satisfactory grades in specified required courses. This agreement brought some 299 new Virginia Community College System transfers to us in 2007�08. The Medical Center received the Governor's Volunteerism and Community Service Award for providing medical care to underserved persons in remote, rural mountain regions of Southwest Virginia. In accord with the restructuring agreements, the new University Staff HR Plan is beginning to come into service, with policies and programs that will give employees greater opportunities for growth and advancement. Under the new plan, employees will have access to career-path guides that will keep them informed about the education, skills, and experience they need to succeed in the careers they choose. In our new merit- and market-based compensation model, employees will have the opportunity to receive bonuses and raises for acquiring and using new skills and for using existing skills with superior results. The plan provides new tools to help supervisors and employees connect individual performance goals with departmental and University-wide strategies, making all of our work more cohesive.
The University continued its commitment to diversity as a core value by enrolling the most diverse first-year class in our history in the 2007�08 academic year. Approximately 34 percent of first-year students identified themselves as either minority persons or international students. By recommitting ourselves to working with small, women-owned, and minority-owned businesses, we placed 42.5 percent of our discretionary spending with these businesses, surpassing the 40 percent state goal. Compared with fiscal year 2007, our minority spending grew by 64 percent. This performance is consistent with the state's goals in the SWAM purchasing program.
In November 2007, we successfully concluded negotiations to bring Rolls-Royce to Prince George County to build a new jet engine advanced manufacturing facility. The Commonwealth Center for Advanced Manufacturing will be constructed and operated by the U.Va. Foundation and staffed in part by U.Va. researchers. As part of Rolls-Royce's agreement to locate in Virginia, the University will become part of an innovative partnership that includes Virginia Tech and the Virginia Community College System to collaborate with the company on a variety of projects in both engineering and business.
In 2001, John Kluge gave his 7,378-acre Albemarle County estate, Morven, to the University of Virginia Foundation. This extraordinary gift included the historic Morven Farm, ten other working farms, and more than two dozen houses and buildings. Mr. Kluge asked that we develop the core property for educational purposes and sell its surrounding land to fund an endowment to support University programs. In 2006, Mr. Kluge terminated his life estate, thus transferring responsibility for maintaining the property to the U.Va. Foundation and making Morven available for academic uses. Both he and we agree that as funds become available, a top priority will be programs to bring top international figures to Morven for sessions intended to address global issues that fall within the University's reach. Meantime, openings of appropriate parts of the property during Historic Garden Week, for visits by persons interested in the unique Japanese garden and house, and limited use for small-group meetings have begun to make Morven known to persons in the region.
In the early years following Mr. Kluge's gift, our first priority was investment in conservation and maintenance. More recently, accumulation of endowment from sale of the non-core properties and from appreciation in endowment values has allowed us to shift our focus to programming. In the past year we hired Stewart Gamage, former vice president for public affairs at the College of William and Mary, as Morven Programs Director, and we undertook several necessary upgrades and refurbishments in buildings on the core property, as well as refurnishing buildings that require new furniture for University use. We are grateful to Mr. Kluge for entrusting Morven to the University, and we look forward to protecting and using this treasure for University programs.
During 2007�08, the University's academic leadership underwent dramatic, important changes. Dr. Tim Garson left the Medical School deanship to become provost in July 2007. In the year following his appointment as provost, we appointed five new deans: Paul Mahoney, Law; Meredith Woo, College; Dorrie Fontaine, Nursing; Steven DeKosky, Medicine; and Billy Cannaday, Continuing and Professional Studies. Other key appointments included Tom Skalak as vice president for research, Gowher Rizvi as vice provost for international programs, and Beth Turner as vice provost for the arts. We will appoint the first dean of the Batten School during the upcoming winter. This new generation of capable, visionary leaders will guide the University into the next decade and beyond. Dr. Garson's capacity to attract uncommonly promising applicants for these positions and to participate effectively in final recruitment and hiring adds tangible value to administrative work at the senior levels.
Dr. Garson and Mr. Sandridge have completed a new academic plan through the work of the Commission on the Future of the University. Our general strategy is to strengthen core resources while funding selected new programs that will further distinguish the University. For example, the Jefferson Public Citizens program will enable faculty-mentored teams of undergraduate students to conduct rigorous research and apply that research to society's most pressing problems through service projects. More commission initiatives are coming. The commission is working this year on the financial requirements for its recommendations and on metrics suitable for the use of the Rector and Visitors as they oversee implementation.
The dramatic downturn in the economy that began in 2007�08 has taken a toll whose full effect we cannot yet measure. The University is now facing an overall reduction in state funding of $10.6 million, or 7 percent of our General Funds. This translates to some 3 percent of the consolidated academic operating budget (i.e., tax funds + tuition revenue). This reduction follows on the permanent $9.6-million cut imposed in 2007�08, and it too is permanent. We have absorbed these reductions, and continued our progress toward self-sufficiency. The past year brought reaffirmation from the top three rating agencies of our AAA-bond rating, in conjunction with the issuance of $231 million in tax-exempt long-term bonds in May 2008. We started developing the University's treasury function from scratch four years ago, and in 2007�08 we completed the infrastructure using the new investment flexibility afforded by the 2007 investment legislation. Vice President and Chief Financial Officer Yoke San Reynolds oversaw implementation of an Internal Bank in 2007�08 — the first visible manifestation of our treasury program. Completion of the treasury infrastructure came just in time to help us ensure adequate liquidity to cover capital and operating expenses in the face of tightening credit and liquidity in capital markets. Ms. Reynolds' systematic leadership in completing this infrastructure has been valuable to the entire organization.
Despite the economic crisis, we continue to make progress in the Campaign for the University of Virginia. As I write, current and future support commitments total $1.8 billion, with considerably more anticipated in the second half of the current fiscal year. Generous commitments made during the first half of the campaign have given us momentum heading into the second half. Nonetheless, we all understand that we must redouble our efforts to succeed in a permanently altered economic environment.
Thomas Jefferson wanted his University to be the bulwark of the human mind, a place where each new generation discovers what he called "the important truths, that knowledge is power, that knowledge is safety, and that knowledge is happiness." Faculty members, staff, students, parents of students, alumni, friends in government, and other persons who are committed to sustaining excellence here have enabled us to pursue our founder's vision this year. That vision, one of the most powerful statements of purpose to emerge from America's Revolution, continues to capture a place in the minds and souls of this generation of students as it has in each generation during these 183 years in which Virginia's youth and the youth of other states have come to drink the cup of knowledge with us.
John T. Casteen III
President