Program Review and Investigations Committee




<MeetMDY1> July 14, 2011


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Thursday,<MeetMDY2> July 14, 2011, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Fitz Steele, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Jimmy Higdon, Co-Chair; Representative Fitz Steele, Co-Chair; Senators Perry B. Clark, Vernie McGaha, Joey Pendleton, John Schickel, Dan "Malano" Seum, and Katie Kratz Stine; Representatives Dwight D. Butler, Terry Mills, David Osborne, Ruth Ann Palumbo, Rick Rand, and Arnold Simpson.


Guests: Tim Burcham, Vice President of Advancement; Terri Giltner, Director of Marketing; Ken Walker, Vice President of Finance and Facilities; Kentucky Community and Technical College System (KCTCS).


LRC Staff: Greg Hager, Committee Staff Administrator; Rick Graycarek; Christopher Hall; Sarah Harp; Colleen Kennedy; Van Knowles; Lora Littleton; Jean Ann Myatt; Cindy Upton; Kris Harmon, Graduate Fellow; Stella Mountain, Committee Assistant.


Approve Minutes for June 9, 2011

Upon motion by Senator Pendleton and second by Representative Osborne, the minutes of the June 9, 2011 meeting were approved by voice vote, without objection.


            Senator Stine said that she had questions for the Cabinet for Health and Family Services about the Medicaid follow-up report.


Kentucky Community and Technical College System: Marketing, Lobbying, and Administration Expenses

            Cindy Upton presented the report. KCTCS is a collection of community and technical colleges with a statewide governing board and president. The only comparable systems with statewide governance are in Colorado, Louisiana, and Indiana. Comparisons among KCTCS and these systems are limited because marketing, lobbying, and administrative expenses are reported in a single “institutional support” line item.


            KCTCS has the highest enrollment of undergraduates in Kentucky by far. Enrollment at KCTCS increased 23 percent from academic year 2006 to 2010, more than twice the rate of the fastest growing four-year universities. In comparison to the other states’ systems, KCTCS has more students, but the other systems’ enrollments have been increasing at higher rates.


            KCTCS’s broad mandate suggests that it should market itself to increase awareness of the system and the value of its programs. Marketing expense from FY 2006 to FY 2010 was $12.2 million. Total marketing cost was about one half of 1 percent of KCTCS’s operating expenses over the 5 years and includes $2.2 million in advertising at University of Kentucky (UK) and University of Louisville (U of L) sporting events, which started in FY 2008.


            KCTCS states that it evaluates the effectiveness of its marketing activities by monitoring enrollment, requests for information, the number of applications, the number of positive news stories, the number of persons attending events, and the number of times a marketing segment was seen or heard. KCTCS also conducted long-term analysis through the use of marketing assessments in 2006 and 2011. It is impossible to know if students would enroll without the marketing activities.


            KCTCS staff and other stakeholders such as students participate in public advocacy to influence legislative outcomes. The cost is included in KCTCS’s marketing budget. KCTCS spent more than $1 million from state funds and some private donations from July 1, 2009 to February 26, 2010, on public advocacy. The $1 million includes $143,000 spent during the 2010 regular session of the General Assembly, including travel, giveaways, displays, T-shirts, receptions, signs, and fans.


            KCTCS contracts with a government services firm for lobbying. Lobbying expenses for FY 2006 to FY 2010 were $636,000. This is less than 3/100 of 1 percent of operating expenses. KCTCS first contracted for state lobbying services in 2010. Federal lobbying requires registration and reporting of lobbyists’ income. According to the database, KCTCS spent about the same amount on lobbying over the 5-year period as U of L and almost as much as UK. KCTCS’s government services firm lobbied on issues related to student financial aid and workforce development. KCTCS credited several funding awards to the assistance of the firm.


            Recommendation 1 is that, if it is the intent of the General Assembly that state funds not be used to pay for lobbying activities, the General Assembly may wish to prohibit the practice.


            Administrative costs of a college or university are reported in the category “institutional support.” Examples of institutional support expenses are: marketing and lobbying; KCTCS president and other systemwide executive, administrative, and managerial staff; college presidents and staff; KCTCS Board of Regents and college governing boards; systemwide information technology services; payroll and personnel services; finance and legal services; purchasing and maintenance of supplies and materials; and internal and external audits.


            KCTCS spent more on institutional support in the 5-year period than any other state-supported institution – over $20 million more than UK. KCTCS also spent more than two of the three other states’ community college systems. However, KCTCS had the smallest percentage increase in institutional support expense over the 5 years at 3.1 percent. The other states’ systems had significantly higher increases with Colorado at almost 69 percent, Louisiana at 27.5 percent, and Indiana at 52.5 percent.


            KCTCS has 16 colleges that incur administrative expenses in addition to the system office. The overall increase was only 3.1 percent because most of the increase at the college level was offset by a decrease of more than $11 million, almost 45 percent, at the system office.


            Ms. Upton said that institutional support cost per student varied among the colleges, ranging from $342 at Owensboro to more than $800 at Big Sandy, Hazard, and Henderson. One way to measure administrative burden is to calculate institutional support as a percentage of operating expenses. KCTCS had the second-highest proportion of institutional support to operating expenses among Kentucky’s public institutions at 14.3 percent. KCTCS’s percentage of institutional support was below all three of the other states’ systems, which are similar in size to KCTCS.


            The governing board of each Kentucky postsecondary institution contracts for the services of a president. From FY 2006 to FY 2010, the president of KCTCS made about the same base salary as the president of UK. Compared to the other Kentucky public institutions, the average base salary of the KCTCS president was more than four university presidents and less than four others.


            A president’s total compensation package can include a performance bonus, deferred compensation, housing, additional long-term disability and life insurance, and other benefits not available to rank-and-file employees. KCTCS president’s total compensation for calendar year 2005 to calendar year 2010 ranged from $568,917 to $655,231 per year.


            Public postsecondary institutions are required to report a president’s compensation to the Council on Postsecondary Education (CPE), but total compensation cannot be determined consistently using this data.


            Recommendation 2 is that if more detailed cost information is needed from the public postsecondary education institutions, the General Assembly may wish to consider requiring CPE to collect and report it.


            The information the institutions report to CPE is useful in determining a governing board’s plans for compensating the president. The potential compensation of the KCTCS president more than doubled from FY 2006 to FY 2010 and was the highest among Kentucky public institutions in 2010. Over the 5-year period, the average potential compensation of the KCTCS president was more than all presidents except the president of UK.


            Excluding the president, total other executive, administrative, and managerial staff compensation at KCTCS was more than $25 million in the FY 2006 to FY 2010 period. This compensation increased almost 16 percent in the 5-year period. Other specific administrative costs requested by Program Review staff were information systems, legal services, finance, and the Board of Regents.


            Each college in the system has a president and administrative and managerial staff. The college presidents work under contract; other positions are KCTCS staff. From FY 2006 to FY 2010, $13.2 million in presidential compensation was paid from state general funds and tuition revenue. Overall, the salaries of KCTCS college presidents increased by 11.7 percent. College administrative and managerial staff costs totaled $73.4 million for the 5-year period. All other administration costs totaled $241.5 million.


            All faculty and staff are employees of KCTCS. Employees are members of the Kentucky Employees Retirement System, the Kentucky Teachers Retirement System, or a KCTCS-sponsored defined contribution retirement plan. The creation of KCTCS combined employees from the Workforce Development Cabinet (who were participating in one of the state-sponsored retirement plans) and employees from the UK Community College System, who were participating in a defined-contribution plan sponsored by the university. KCTCS maintained these systems for current and future employees.


            The KCTCS president, the 16 college presidents, and five members of the KCTCS president’s cabinet work under contract. They generally participate in the KCTCS-sponsored plan. One college president participates in the Kentucky Teachers Retirement System.


            KCTCS employees who were part of the UK Community College system and have chosen to remain in its personnel system are members of the university’s health plan. All other employees and all contracted positions participate in the Kentucky Employees’ Health Plan.


            Senator Schickel said that KCTCS has been a topic of interest for him since he was elected to the Senate. Lobbying during the past legislative session was questionable.


            In response to a question from Senator Schickel, Ms. Upton said that more than $1.6 million was spent on public advocacy by KCTCS from FY 2006 to FY 2010.


            In response to a question from Senator Schickel, Ms. Upton said that the public advocacy expenditures were not known for each college. The marketing expenses per college in Table 5 of the report include advocacy expenses.


            In response to a question from Representative Simpson, Ms. Upton said that the universities’ governing boards set their presidents’ salaries. The salary of each KCTCS college president is negotiated between the KCTCS president and the college president.


            Representative Simpson asked about salaries of community college presidents in the other three states. Ms. Upton said that staff did not get those numbers in the course of the study.


            Senator Pendleton asked if payments for state and federal lobbying could be distinguished. Ms. Upton said that KCTCS only began state-level lobbying in 2010.


            Senator Pendleton noted that the president of the community college in his district took a decrease in pay.


            In response to a question from Senator Higdon, Ms. Upton said that advertising at UK and U of L sporting events began in 2008.


            Representative Mills noted that the report covered the salaries of presidents and administrative and managerial staff. He asked if this information was available for positions such as professors and maintenance staff. Ms. Upton said that staff did not gather information on other categories.


            Representative Mills said that such information would be useful for comparison.


            Representative Mills asked who checks into the details of spending for institutional support. Ms. Upton said that financial statements are audited annually by independent firms.


            Representative Mills asked if staff delved into particular spending of presidents and executives. Ms. Upton said no but that more information could be provided.


            Representative Butler asked why the cost of legal services increased by 600 percent. Ms. Upton said that staff were not sure but that it appears to be related to a lawsuit filed by a former college president.


            In response to questions from Representative Simpson, Ms. Upton said that the individual college boards have no input into the salary and benefits of their presidents, but each board evaluates its president which might enter into the salary decision on some level. The individual college boards have no input into the salary package for the KCTCS president.


            In response to questions from Senator Seum, Ms. Upton said that the annual audits of colleges by private firms are available to the public.


            Senator Seum noted that he was concerned about the rise in tuition.


            In response to a question from Senator Schickel, Ms. Upton said that information on public advocacy expenses per college could be provided by KCTCS.


            Representative Steele said that this information should be provided to the committee.


            Mr. Walker addressed three questions asked by committee members earlier in the meeting. In response to a question from Representative Simpson, he said the five factors in determining college presidents’ salaries are the number of employees, number of students, number of campuses, the size of the budget, and previous presidential-level experience. In response to the comment from Senator Pendleton, he said the change in salary of the Hopkinsville College president was because the new president did not have as much experience as the predecessor. In response to a question from Representative Butler, he said that he had done further research on the cost of legal services after the report had been printed. The number in the report includes a contract for property acquisition. Legal services actually increased to $351,500, an increase of 179 percent.


            Senator Higdon reviewed specific public advocacy expenses from the report. He said that KCTCS went too far in some of the things it did. Even as KCTCS was advertising at UK and U of L ball games, a survey indicated that its name recognition declined by 9 percent among high school students.


            Senator Higdon asked who is classified as a student. Mr. Burcham said that headcount enrollment is the number of students who are taking at least one paid course for credit.


            Senator Higdon asked if there were any perks involved in the advertising at UK and U of L. Mr. Burcham said that students representing KCTCS at sponsored games got tickets. Ms. Giltner said that this was 20 to 25 students per game.


            Representative Simpson voiced concern about using taxpayer dollars to lobby legislators. He asked if there has been any discussion of this decision. Mr. Burcham said that students were very interested when the transfer issue was being considered by the General Assembly and that coming to the capital was an educational experience for them. He said that KCTCS has taken note of the reaction to the promotional activities.


            Representative Simpson said that he took exception to this. Public money could be better used to reduce tuition. He said this is poor judgment, and he hopes that it will not be repeated. Referring back to the factors used to set presidents’ salaries, he said that success in getting students to finish should be considered.


            Representative Palumbo noted that lobbying using public funds is a general issue; it is not just done by KCTCS.


            Senator Schickel said that numbers that are small as a percentage of a total still have symbolic value.


            Senator Schickel asked about the value of recruiting students to technical schools by advertising at university ball games. Mr. Burcham replied that market research in 2006 indicated that there were hundreds of thousands of Kentuckians who were not accessing higher education. The UK and U of L sports networks were determined to be the best way to reach the adult market. KCTCS could purchase radio and television time through sports marketing contracts with UK and U of L at cheaper rates than it could otherwise. This is part of the overall brand strategy targeted at an adult population.


            Senator Schickel said that during the 2010 session, he had spoken with students putting up yard signs who said they were doing so at KCTCS’s request. He agreed with the educational value of students coming to Frankfort but thought they should not be coming at others’ request. Mr. Burcham said that he understands that legislators are unhappy with the techniques used and that it will be rethought.


            Representative Simpson said that KCTCS is not advertising adequately if students are going to proprietary schools that cost more and may be providing less value to students. Mr. Burcham agreed but said that the cost of such advertising is prohibitive. Sports marketing contracts are the most cost effective given their reach.


            Representative Mills asked about salary increases for other types of staff. Mr. Walker said that the other categories can be reviewed. He noted that an increase in a category over time is a function of salaries and the number of people in the category.


            Representative Mills asked who checks on executives’ use of credit cards. Mr. Walker said that the use of a credit card is checked with the immediate supervisor and the second-line supervisor. The KCTCS president does not have a KCTCS credit card. The audit reviews the president’s expenses.


            Representative Mills commented that boards should take a hard look at administrative expenses, which seem high. Any money saved in higher education should be used to get more people through college and into jobs.


            In response to a question from Representative Rand, Mr. Burcham said that marketing is done both in house and by contract.


            Representative Rand asked what factors are used in determining the KCTCS president’s salary. Mr. Walker said that the salary is set by a contract between the Board of Regents and the president.


            Representative Rand asked what the standards are for the president’s performance bonus. Mr. Walker said that the Board of Regents determines standards at its June meeting. At the end the year, the board determines whether the predetermined objectives have been met.


            In response to a question from Representative Rand, Mr. Walker said that CPE does not have input into presidents’ salaries.


            Representative Rand commented that he has heard from many students about the expense of college. The culture of an institution is affected by what the CEO makes. Boards of Regents should take the fairness of compensation of leadership into account. Mr. Walker said that he agreed with the recommendation in the report that better information should be collected on compensation so that comparisons can be made.


            Senator Pendleton said that he has mostly heard from parents. He would like to hear more about lobbying from all universities. There should not be a knee-jerk reaction that would discourage young people from coming to Frankfort.


            In response to questions from Senator McGaha, Mr. Burcham said that KCTCS has a contract with Thorn Run, which is responsible for contract lobbying.


            Senator McGaha said it would be more effective for students to make appointments to speak to him directly.


            Senator McGaha asked for details on the approximately $80,000 identified in the report as “other benefits” of the KCTCS president. Mr. Walker said that this included long-term disability, workers compensation, retirement, health insurance, life insurance, and long-term care insurance. The board pays the employee and employer share for retirement.


            In response to a question from Senator McGaha, Mr. Walker said that he thought headcount was used in determining salary but that he would check to be certain.


            Senator McGaha said that using headcounts could be inconsistent. Students might have different course loads. One institution could have a lot of students taking one course. Another could have more students taking full course loads.


            Senator McGaha asked for elaboration on a $1.2 million contract dealing with transfers that had recently come before the Government Contract Review Committee. Mr. Burcham said that the contract is not about transferring credits. The contract is with the John Gardner Institute of Excellence, which has standards to follow for getting associate degrees that lead to baccalaureate degrees. The purpose is to help students get four-year degrees.


            Senator Pendleton cited the example of a student’s course not being accepted at a regional university, which should not occur under current law. Guidance counselors should be doing their jobs so that this does not happen.


            Representative Steele cautioned KCTCS officials to remember today’s hearing for the next legislative session.


            Representative Steele said that the first order of business at the committee’s next meeting will be the Cabinet for Health and Family Services addressing Senator Stine’s questions.


            Senator Stine said that the Medicaid Report is an important and timely report covering a subject dealing with a large part of Kentucky’s population and involving a lot of money. She hopes that Acting Commissioner Wise will be at the committee meeting to answer questions and update the committee on the contracts.


            Senator McGaha noted that the Government Contract Review Committee will be reviewing the Passport contract. The committee will not be reviewing the other new Medicaid managed care contracts because they were issued as master agreements, not contracts. Staff should ask about this.


            Upon motion by Representative Simpson and second by Senator Schickel, the report Kentucky Community and Technical College System: Marketing, Lobbying, and Administration Expenses was adopted by roll call vote.


            The meeting adjourned at 11:52 AM.