by James A. Bacon

The Youngkin-appointed majority in the University of Virginia Board of Visitors flexed its muscles for the first time Friday, asserting its authority to oversee the Strategic Investment Fund (SIF) accounting for 2% to 3% of the UVA academic division’s total spending.

Board members also signaled that they wanted advance notice of the administration’s proposed 2025-26 academic-year budget rather than being presented with a fait accompli in the June meeting.

Board deliberations were civil and non-confrontational. Indeed, the board approved a 5.5% increase in student housing and meal plans next year as well as tuition increases up to 4%, depending upon the program, for graduate and professional students.

Board member Doug Wetmore, who introduced the motion authorizing the board to assume more oversight of the SIF, stressed that the overwhelming majority of the administration’s proposals probably would meet board approval. “It’s been a very successful program,” he said.

However, he described it as “essential” for the board to review the proposals, which have added up to a half billion dollars since its creation in 2016. “A core responsibility of the board is to review spending of this magnitude,” he said.

A majority of board members agreed.

The Strategic Investment Fund is cobbled together from miscellaneous reserve funds that previously sat in bank accounts earning low rates of interest. UVA combined them into a single pool for administration by the University of Virginia Investment Management Company (UVIMCO) which could generate significantly higher investment returns. The income thrown off by those investments can be spent any way the University wants with no strings attached.

Former board member Helen Dragas controversially described SIF as a “slush fund” for UVA administrators before leaving the board several years ago and she was roundly criticized for it. Early on, the Board reviewed all SIF expenditures, which funded many worthy projects, President Jim Ryan explained to the board, but did not advance any strategic interests. In 2019 the board issued guidelines declaring that SIF funds should be deployed to advance the university’s 2030 strategic plan and effectively gave Ryan carte blanche over how the money was spent.

Ryan has used SIF-generated revenues as matching funds to advance the strategic plan and to raise revenue for matching gifts in the areas of financial aid, endowed professorships, and “transformational” projects such as the Karsh Institute for Democracy and the Manning Biotech Center. He told the board that it was exceedingly helpful in his fund-raising endeavors — and UVA has blown past all previous fund-raising records in its current campaign — to be able to offer the matching funds during negotiations with philanthropists. Often time was of the essence.

“Some big gifts are time-sensitive,” Ryan said. “I’d like to have your approval ahead of time. … Having that authorization when in the midst of negotiations is crucial.”

Rachel Sheridan, whose name has been batted around to succeed Robert Hardie has rector next year, said she was “sympathetic” to Ryan’s situation, but suggested that there were workarounds. In some cases, the president could preview his SIF asks ahead of time during board meetings, she said. When that wasn’t possible, he could consult with the executive committee or call a snap board meeting.

The longer the delay, Ryan protested, the greater the chances of blowing the deal.

A secondary issue was how much of the board’s time the SIF reviews would take. Perhaps the board could consider setting a cut-off for smaller allocations so it could devote more time to considering larger transactions, some suggested.

Other board members defended the current arrangement.

Manning, a mega-donor himself, agreed with Ryan that waiting three months to confer with the board could kill a deal under some circumstances.

Rector Hardie attributed much of UVA’s fundraising success to the existence of the Strategic Investment Fund. “Once we established the SIF, we managed to raise hundreds of millions for Access UVA,” the university’s financial-aid program, he said. “What problem are we trying to solve?”

“If it ain’t broke, don’t fix it,” said L.F. Payne in a similar vein.

The final result of the deliberations was an agreement to provide Ryan with $65 million in SIF funds for gift-matching purposes through the end of the capital campaign, not the $195 million for three years that he asked for. Meanwhile, the board will assume oversight of SIF allocations in the future. The issue of whether to limit board review of SIF funding proposals over a certain size was tabled for later discussion.

Bert Ellis reiterated his intention, first voiced yesterday, to vote against any spending increase until the administration produced a budget showing cuts in spending and tuition. “I’m an absolute no on this budget,” he said.

Though not following his lead, several board members did promise greater scrutiny over the budget.

While praising the administration and Chief Operating Officer J.J. Davis in particular for their work on the budget, Wetmore suggested that any large organization will develop bureaucratic “redundancies and overlaps” over time as part of “natural drift” within its budget. … Every once in a while, someone upstairs needs to take a look and see if somewhere there are three people doing the same job.”

Sheridan chimed in, saying, “It would help if we had that [budget] information before June, not at the last minute.” (June is the month before the start of the new fiscal year, leaving almost no opportunity to adjust a multi-billion-dollar budget in conformance with any changes the board might order.)

“Before the June meeting, you’ll get more of a look,” promised Robert Blue, chair of the finance committee.

Board members also showed interest in the issuance of bonds for capital projects. UVA has an AAA bond rating, and it issued long-term debt at possibly the lowest borrowing cost of any higher-ed institution in history. It set records in 2019, when it issued 100-year bonds at a 3.2% interest rate.

But the bond market is undergoing a fundamental shift, argued board member David F. Webb. The market moves in long-term cycles, and it appears that the four-decade cycle of declining borrowing rates that began in the early 1980s has reversed. Borrowing will become more expensive in the future, he said. UVA may want to consider adding more equity in its capital projects than in the past in order to reduce borrowing costs. But that would require setting aside internally generated sources of cash and limiting the timing of new projects.

“I hope we’re not issuing debt at 6% [interest],” added Sheridan, “because that’s not going to work.”

The December meeting represented a subtle yet significant shift in Board of Visitor deliberations. Traditionally, the board has been highly deferential to the administration, rarely questioning any of its priorities. The new board dominated by Youngkin appointees did not buck the administration on any specific spending proposals, but it did make clear that it would play a more aggressive oversight role in the future. Whether that leads to any substantive changes in priorities — much less to the aggressive cuts to spending and tuition that Ellis advocates — remains to be seen.

James A. Bacon is contributing editor to The Jefferson Council. Bert Ellis is a founder and former president of the Council.