5. Financial Report

Operating Results

The strong long-term expansion of resources supporting University operations continued in the 1998-99 operating year. University unrestricted revenues grew by $166.9 million, or 11.8 percent, to $1.581 billion. A 10.6 percent, or $136.1 million, rise in operating expenditures to $1.418 billion absorbed much, but not all, of this increase, allowing the University's unrestricted net assets before nonoperating activities to grow by $163.3 million. Setting aside from this amount increases in plant net assets and funds available for construction of $33.0 million and assets invested to support operations of $50.0 million, the remaining $80.3 million represented the year's growth in net assets to support current operations, up from $58.0 million in the prior year. Consistent with these results, the University's total cash and cash equivalents increased by $101.5 million during 1998-99 to $338.2 million.

The University's fifteen schools continued to see strong growth in their earned revenue during the year ended June 30, 1999. As university-wide enrollment grew modestly, by 115, to 20,625 students, income from tuition and fees, before deducting financial aid grants, climbed by 7 percent to $404.4 million. The largest revenue category supporting research at the University--government grants and contracts--expanded by 3.8 percent to $345.2 million. The sharpest revenue increase occurred in receipts from other educational research activities, up by $69.2 million, or 37.8 percent, to $252.5 million. The primary cause was the $29.8 million jump in royalty and licensing income from patents held by the University to $95.8 million, making Columbia the leading private institution in this category nationally. Finally, Health Sciences Division income from the medical faculty practice plan continued to rise, growing by 2.5 percent to $248.0 million, more than offset by overall practice plan costs of $250.3 million. (An assessment on practice plan revenues supports teaching and other activities in the College of Physicians and Surgeons.)

University fund-raising, measured in cash receipts, advanced, as mentioned earlier, to its seventh consecutive record year, at $284.5 million. Of this amount, $84.5 million took the form of gifts for current operations, $60.9 million were gifts to endowment, $20.2 million supported construction, $24.5 million were gifts to external trusts or gifts in kind, and $94.4 million represented a 20.7 percent rise in corporate and foundation support for University programs over the previous year. The University's Statement of Activities for 1998-99, which, rather than recording cash receipts, reports new pledges and cash not previously pledged, and excludes gifts in kind and gifts to outside trusts, identifies $189.5 million in private gifts, grants, and contracts in direct support of operations. An additional $44.3 million of endowment and student loan gifts brings the Statement's total to $233.9 million.

Effective for the 1998-99 operating year, the Board of Trustees of the University adopted a revised endowment spending policy designed to better capture for University operations the benefits of strong endowment investment performance. While including in its formula a mechanism to buffer the University's budget against year-to-year fluctuations in the value of the endowment's investments, the new spending rule will move University-wide annual spending from endowment toward a target rate of 5 percent of the prior year's beginning endowment market value. In 1998-99 budgeted spending from the pooled endowment managed assets totaled $100.8 million, or 3.7 percent of the prior year's beginning endowment market value--an 18 percent increase over the amount distributed in the prior operating year. As in past years, additional distributions from the endowment were made above the amount prescribed for budgeted operations. In 1998-99 these distributions totaled $14.2 million, and covered capital construction needs, the funding of accumulated operating deficits, and current operating shortfalls in the Arts and Sciences and the School of Law totaling $2.2 million. The resulting overall spending rate from the University's endowment, as a percentage of the prior year's beginning market value, was 4.2 percent. A further $56.6 million in investment income was received during 1998-99 in the form of interest income on current funds, income from separately invested endowment funds, net operating income of the University's real estate operations, and income earned on funds held by the New York State Dormitory Authority. The 1998-99 total of $154.6 million in investment income used to fund budgeted operations represented a 20.2 percent rise over the previous year.

Operating expenditures, as noted earlier, grew in 1998-99 at a rate (10.6 percent) about one percentage point below the rate of revenue growth for the year. Reflecting the University's priorities, they continued to display the same sharp divergence between the rate of growth of central administrative expenditures (the categories of University administration, and of operation and maintenance of plant) of 1.6 percent, and the growth rate for core program (instruction, research and educational administration, and libraries) of 10.9 percent. University-wide, salary expenditures increased by 8.5 percent, and fringe benefit expenditures by 13.1 percent, reflecting, in part, higher medical insurance costs, and an expenditure total for the previous 1997-98 year that was reduced by a one-time credit to the University for prior year pension contributions. As recorded in the Statement of Activities, the University's annual depreciation expense increased by 23.5 percent to $83.6 million in 1998-99, an increase attributable primarily to a change in accounting methodology required by the federal government for cost reimbursement purposes.