Program Review and Investigations Committee





<MeetMDY1> December 11, 2013


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Wednesday,<MeetMDY2> December 11, 2013, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Representative Martha Jane King, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Christian McDaniel, Co-Chair; Representative Martha Jane King, Co-Chair; Senators Tom Buford, Julie Denton, Ernie Harris, and Jimmy Higdon; Representatives Dwight D. Butler, Leslie Combs, Terry Mills, Rick Rand, and Arnold Simpson.


Guests: Robert King, President, and Bill Payne, Associate Vice President for Budget and Finance, Council on Post Secondary Education


LRC Staff: Greg Hager, Committee Staff Administrator; Chris Hall; Colleen Kennedy; Van Knowles; Lora Littleton; Jean Ann Myatt; William Spears; Joel Thomas; Kate Talley, Committee Assistant.


Staff Report: Cost and Funding of Higher Education in Kentucky

Lora Littleton and Tosha Fraley presented the report. Ms. Littleton said that the first conclusion of the report is that from fall 2000 to fall 2012, enrollment in Kentucky Community and Technical College System (KCTCS) institutions increased 63 percent; undergraduate and graduate enrollment in Kentucky’s 4-year public institutions increased more than 20 percent. Enrollment in 4-year institutions grew steadily over this period. Growth in the 2-year system has been inconsistent, with an annual increase and decrease of more than 10 percent in recent years.


In fall 2012, more than 128,000 undergraduate, graduate, and post-doctoral students were enrolled in a Kentucky public 4-year institution; nearly 97,000 students were enrolled in a Kentucky public 2-year institution. As of fall 2010, 81 percent of undergraduate students at the public 4-year universities were full-time students; 42 percent of KCTCS students were full-time.


Conclusion 2 of the report is that for six of eight Kentucky 4-year public institutions, the 6-year graduation rates for students entering in 2005 were below the median rates of their benchmark institutions.


For students entering school in 2007, the 6-year baccalaureate graduation rate for Kentucky public 4-year universities was 48 percent. It was 36 percent for low-income students, 27 percent for underprepared students, and 32 percent for underrepresented minorities. For students entering school in 2005, Murray State University’s graduation rate was better than approximately 75 percent of its benchmark institutions. Western Kentucky University’s graduation rate was the only other rate above the benchmark median. Four Kentucky universities were in the lowest quarter for 6-year graduation rates compared to their benchmarks.


In response to a question from Senator Harris about why the range among the benchmarks was so large, Ms. Littleton replied that these were the actual graduation rates.


Approximately 63 percent of students who graduated from a 4-year institution in 2011 were employed in Kentucky in 2012. Nearly 80 percent of students who graduated from 2-year colleges in 2011 were employed in Kentucky in 2012.


Conclusion 3 is that tuition and fees for full-time resident undergraduate students have steadily increased among all Kentucky 4-year and 2-year public institutions.


Average, inflation-adjusted annual tuition and mandatory fees for full-time resident undergraduate students increased 110 percent from Academic Year 2001-2002 to Academic Year 2013-2014. The University of Kentucky (UK) and University of Louisville have the highest tuition and fees. The comprehensive universities had similar levels of tuition and fees at the beginning of this time period, but for Academic Year 2013-2014, the most expensive comprehensive university costs $1,600 more than the least expensive. KCTCS continues to have the lowest tuition and fees. For Academic Year 2010-2011, the published annual tuition and mandatory fees for full-time resident undergraduate students at each of the state’s 4-year public universities fell within the middle half of its benchmarks. UK, Morehead State University, Murray State University, and Northern Kentucky University had lower tuition and fees than the median of their respective benchmarks.


State lottery proceeds are a significant source of funding for scholarships and grants. Total funding, which was more than $120 million in 2011-2012, has been relatively stable for 8 years. Funding for the Kentucky Educational Excellence Scholarship, which is the largest program, increased each year from 2001-2002 to 2011-2012.


Conclusion 4 is that tuition and fees surpassed state funds as the largest source of revenue for the state’s public institutions in FY 2010. It is the only revenue source that has increased each year since FY 2005.


In FY 2012, tuition and fee revenue was approximately $1.46 billion, state funds were approximately $1.28 billion, federal funds were approximately $793 million, and donor funds were approximately $156 million. From FY 2005 to FY 2012, tuition and fees revenue increased approximately 83 percent, state funds increased approximately 10 percent, federal funds increased approximately 44 percent, and donor funds increased approximately 20 percent. Revenue from tuition and fees was the only source that did not decrease from FY 2011 to FY 2012.


Net general fund appropriations for Kentucky public institutions peaked at slightly over $1 billion in FY 2008. Compared to FY 2002, net general fund appropriations in FY 2012 were lower for UK and Louisville and higher for the six comprehensive universities and KCTCS. Over this 10-year period, overall net general fund appropriations for Kentucky public institutions increased 3 percent.


In response to questions from Sen. McDaniel, Ms. Fraley said that she was unsure whether KEES funding was included in state appropriations, but that whether it was included or not would have been consistent over time.


Ms. Fraley said that as of FY 2011, only Kentucky State University and UK had fewer than one-half of graduates without debt. More than two-thirds of graduates of Eastern Kentucky University, Morehead, and Northern Kentucky had debt. Average student debt per institution ranged from less than $19,000 to more than $36,000.


The report’s fifth conclusion is that in academic year 2011-2012 Kentucky public 4-year institutions spent $670 million on public service and $484 million on research. UK had the highest percentage of spending devoted to public service compared to its benchmarks. For UK and Louisville, spending for research as a share of total spending was below the medians of their respective benchmarks.


From FY 2004 to FY 2011, Kentucky public institutions’ total expenditures increased 55 percent, expenditures for instruction increased 54 percent, public service spending increased 132 percent, and research spending increased 41 percent. The increase in public service expenditures was driven by UK, which increased public service expenditure by 269 percent. In FY 2011, Kentucky public institutions had $4.9 billion in total expenditures, which included $1.28 billion for instruction, $691 million for public service, and $487 million for research. Other expenditures included academic support, student services, institutional support, operation and maintenance of plant, scholarship and fellowship expenses, auxiliary enterprises, hospital services, and independent operations.


 In FY 2011, UK had 65 percent of total public service expenditures; Louisville had 14 percent. The comprehensive universities had 15 percent. Eastern had nearly one-half of the $103 million in public service expenditures by the comprehensive institutions. KCTCS had 7 percent of public service expenditures. The same year, UK had 63 percent of the research expenditures, Louisville had 31 percent, and the comprehensive institutions had 6 percent. KCTCS had no research expenditures.


From FY 2005 to FY 2011, full-time-equivalent (FTE) enrollment increased each year except FY 2007. Total expenditures increased each year during this time period and at a greater rate than FTE enrollment with the exception of one year. Over this period, FTE enrollment increased approximately 31 percent and total expenditures increased approximately 55 percent.


As of FY 2011, UK and Louisville each spent less than approximately three quarters of their respective benchmarks. Among the comprehensive universities, Western and Eastern spent more than their respective median benchmark institution; Morehead, Murray, and Northern spent at the median, and Kentucky State spent slightly less than the median. That year, each Kentucky public 4-year university devoted a greater percentage of expenditures to public service than its median benchmark. UK and Eastern spent the highest dollar amounts compared to their benchmarks. UK spent $448 million on public service expenditures, nearly 15 times more than its lowest benchmark and more than 3 times its median. Eastern spent nearly $50 million on public service, which was nearly 31 times higher than its lowest benchmark and almost 6 times more than its median.


In FY 2011, UK, Louisville, Eastern, and Northern each spent less as a percentage of total expenditures than the median of their benchmarks on research; Kentucky State, Morehead, Murray, and Western spent more than did their median benchmarks.


In FY 2011, instruction expenditures per full-time equivalent student were less than the institution’s median benchmark for UK, Northern, and Western. Louisville, Eastern, Kentucky State, Morehead, and Murray spent more than the median of their benchmarks. Louisville spent the most among Kentucky public 4-year universities at slightly under $14,000 per FTE student.


In FY 2012, $209 million was spent in total for operations and maintenance, $145 million for student services, $107 million for information technology, $59 million for travel, and $22 million for public safety. That year, UK ($73 million) and Louisville ($72 million) accounted for 67 percent of total athletic expenditures of $215 million.


For academic year 2011-2012, UK had the most full-time tenured and tenure track faculty members, nearly 1,300. Kentucky State had the fewest full-time tenured and tenure track faculty and the lowest average salary without benefits.


UK had the most full-time administrators and staff, nearly 8,300, and the highest average pay at just less than $60,000.


In academic year 2011-2012, Kentucky’s public 4-year institutions spent $450 million for salaries without benefits for adjunct, non-tenure track, tenure track, and tenured faculty with teaching loads. From academic year 2002-2003 to academic year 2011-2012, faculty salaries increased 42 percent at Kentucky’s 4-year institutions, not including KSU, for which data were not available for all years.


In academic year 2011-2012, public 4-year institutions spent $986 million on part-time and full-time administrators and staff. From academic year 2002-2003 to academic year 2011-2012, part-time and full-time administrator and staff salaries increased 50 percent at Kentucky’s 4-year institutions, not including KSU and Murray, for which full data were not available. Northern had the largest increase, 96 percent. Increases were less than 40 percent for Murray and UK.


From FY 2003 to FY 2012, retirement and other post-employment contributions for Kentucky’s public 4-year institutions increased more than 100 percent. In FY 2012, total retirement and other post-employment contributions by Kentucky’s 4-year institutions was $198 million. In FY 2012, total employee health benefits paid by Kentucky 4-year institutions were $183 million. Costs of employee health benefits increased by more than 100 percent since FY 2003 for four institutions.


Approve minutes for November, 14, 2013

Upon motion made by Senator Buford and a second by Senator Denton, the minutes of the November 14, 2013, meeting were approved by voice vote, without objection.


Selection of Study Topics for 2014

Senator McDaniel made a motion to select four topics for study by staff:

•           oversight and transparency of money earmarked for the Bluegrass Water

            Supply Commission;

•           prevailing wage;

•           Kentucky Fair Board, including potential for privatization; and

•           quasi-governmental agencies in the Kentucky Retirement Systems.


Senator Buford seconded the motion.


In response to a question from Representative Mills, Senator Buford said that there had been no final audit of the Bluegrass Water Supply Commission, which received an appropriation of approximately $1.5 to $2 million.


In response to a question from Representative Simpson, Representative King said that there would be additional topics proposed by House members of the committee.


Senator McDaniel’s motion was adopted by roll call vote.


Representative King proposed two House topics:

•           whether technology used by Kentucky agencies is appropriate and up to

date; and

•           a comparison of pay rates of executive, supervisory, and rank and file state

employees; and teachers and administrators in school systems.


Representative King noted that the committee is required by statute to evaluate the child fatality and near fatality study panel each year beginning in 2014.


Representative Simpson said that the third proposed House topic is local pension systems that exist outside the state pension systems. There is concern that the pensions are not properly funded.


Upon motion by Representative Simpson and second by Representative Combs, the three House topics were selected by roll call vote for study by staff.


In response to a question from Senator McDaniel, Ms. Fraley said that staff did not look at the readiness of transfers from KCTCS to 4-year institutions.


Senator McDaniel read from a list in the report of reasons for increased costs. He asked why the reasons did not include increased quality of education. Ms. Littleton said that the reasons listed were general and taken from the research literature.


In response to a question from Senator McDaniel, Ms. Fraley said staff gave CPE a list of requested data items. CPE could better explain the availability of the data.


In response to a question from Senator McDaniel, Ms. Fraley said that she would provide the exact definition of “public service” used in the data.


Senator McDaniel commented that from 2003 to 2013, inflation was 27 percent. During this period, enrollment in Kentucky universities was up 16 percent, and costs increased 177 percent, while the state appropriation increased 1 percent. There is a marked difference in what students are asked to pay and appropriations. He would like to see Kentucky universities be national leaders in providing quality education to everyone. He is concerned about the priorities inside these universities as they continue to lobby the legislature. Appropriations have gone down nationally, while Kentucky’s appropriations went up. This is a spending problem, not an appropriations problem.


Mr. King explained that some of the data requested are exclusive to the campuses; they do not come to CPE. He noted that he had provided a letter to the committee responding to the study. He encouraged committee members to review the presentation he made at the June 2013 Program Review meeting.


In response to a question from Senator McDaniel, Mr. King said that almost all requested data were provided. Mr. Payne said that 98 to 99 percent of requested data were provided. Some data provided may not have been included in the report.


Mr. King said that regarding benchmarks, CPE worked with campuses to develop a funding model. Each university identified other universities that were similar based on criteria such as mission and size. Each Kentucky university has about 19 such benchmark institutions. The methodology used in this study to compare institutions to their benchmarks was abandoned about a decade ago.


Senator Buford said that the June presentation to the committee included federal compliance costs among the reasons for increased costs. He asked for a description of some of the costs. Mr. King said that the burden of reporting related to public safety is increasing. He also noted required reporting on employment of graduates and health coverage and research regulations related to utilization of human subjects.


In response to a question from Senator Buford, Mr. King said that he could investigate whether there are any unduly burdensome state requirements that could be remedied.


Representative Combs said that faculty are the main connection to students. She is concerned about overspending on administration and staff. She commended smaller institutions for keeping the margin between spending on faculty and administrators and staff smaller. The focus should be on dollars spent per FTE, however.


Mr. King agreed with the statement about FTE; the staff report does not take enrollment into account. Many administrators are devoted to providing student services, such as financial advisors, registrars, and mental health services staff. There are many other people providing student support who account for the growth in administrative expenses. As more people have been encouraged to attend college, there are more students who are not as prepared. This has put a burden on colleges to meet these needs, which falls not just on faculty.


Representative Simpson noted that there is some duplication between faculty and administrators. Under HB 1, the concept was for community colleges to meet the needs of underprepared students. By encouraging these students to go to 4-year universities, we increased the cost. Not having a state system leads to inefficiencies. He hopes that CPE will work with the General Assembly to create a mechanism to make higher education more economical. We hold universities responsible for ensuring that an average student in Kentucky can get an economical education.


Mr. King replied that in the 1990s a choice was made not to create a state system. In 2009, SB1 created a pathway to address the problem of students completing high school unprepared to do college work. We are now seeing more high school students coming to college prepared. There was pressure on universities to grow student enrollment. A lot of work is now going on to find ways to help these students and progress is being made. There are differences among underprepared students. Some only need math help; some need help in all areas. Eighty percent of underprepared students are starting at community colleges. Page 16 of the CPE presentation to the committee shows that campuses are improving in graduating students. The General Assembly used to cover the cost of maintenance and operation of new buildings. That cost has been shifted to the campuses. The Program Review study did not take into account financial aid when discussing tuition. Most students do not pay “sticker price.”


Representative Combs said that it would be interesting to look at the number of students qualifying for financial aid and the levels of aid.


Representative Simpson asked whether charges for out-of-state students are too low.


Mr. King said that there are two categories of out-of-state students: those admitted through reciprocity agreements in some border counties and everybody else, who typically pay twice the in-state rate. Officials are continuing to monitor whether the reciprocity region is too broad.


Representative King said that due to lack of a quorum, the presentation on the staff report on non-merit personnel would be postponed to a later meeting.


The meeting adjourned at 2:35 PM.