Call to Order and Roll Call
The Program Review and Investigations Committee met on Thursday, June 12, 2014, at<MeetTime> 10:00 AM, in Room 131 of the Capitol Annex. Greg Hager, Committee Staff Administrator, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Christian McDaniel, Co-Chair; Senators Tom Buford, Perry Clark, Ernie Harris, Dorsey Ridley, Dan “Melano” Seum, and Whitney Westerfield; Representatives Leslie Combs, David Meade, Terry Mills, Ruth Ann Palumbo, Rick Rand, and Arnold Simpson.
Guests: Mary Elizabeth Harrod, Commissioner, Department of Public Resource Administration, Personnel Cabinet
LRC Staff: Greg Hager, Committee Staff Administrator; Chris Hall; Colleen Kennedy; Van Knowles; Jean Ann Myatt; William Spears; Shane Stevens; Joel Thomas; Brad Mackin, Carolyn Purcell, Graduate Fellows; Kate Talley, Committee Assistant.
Election of Senate and House Co-Chairs
Upon nomination by Senator Harris and second by Senator Buford, Senator McDaniel was nominated for the position of Senate Co-Chair.
Upon motion by Senator Harris and second by Senator Westerfield that nominations cease, Senator McDaniel was elected Senate Co-Chair by acclamation, without objection.
Upon nomination by Representative Rand and second by Representative Simpson, Representative King was nominated for the position of House Co-Chair.
Upon motion by Representative Combs and second by Representative Simpson that nominations cease, Representative King was elected House Co-Chair by acclamation, without objection.
Minutes for December 11, 2013
Upon motion by Senator Buford and second by Representative Mills, the minutes of the December 11, 2013, meeting were approved by voice vote, without objection.
Senator McDaniel recognized the new committee members, Senator Whitney Westerfield and Representative David Meade.
Staff Report: Cost and Funding of Higher Education in Kentucky
Tosha Fraley said that the first conclusion of the report is that from Fall 2000 to Fall 2012, enrollment in Kentucky public 2-year institutions increased 63.1 percent; 4-year undergraduate and graduate enrollment increased 20.6 percent. Fall enrollment in the state’s 4-year institutions grew steadily from 2000 to 2012. Growth in the state’s 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. The same semester, nearly 97,000 students were enrolled in a Kentucky public 2-year institution. In Fall 2010, 81 percent of undergraduate students at Kentucky public 4-year universities were full-time students; 19 percent were part-time students. In Fall 2010, 42 percent of Kentucky Community and Technical College System (KCTCS) students were full-time; 58 percent were part-time.
The report’s second conclusion 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.
Murray State’s graduation rate is better than approximately 75 percent of its benchmarks. Western Kentucky’s graduation rate was 49 percent, which is slightly above the median for its benchmarks. Four Kentucky universities were in the lowest quarter for 6-year graduation rates compared to their benchmarks.
The third conclusion is that tuition and fees for full-time resident undergraduate students have steadily increased among all Kentucky public 4-year and 2-year institutions.
After adjusting for inflation, the average annual tuition and mandatory fees increased 110 percent from over a 13 year period. The University of Kentucky (UK) and University of Louisville (UL) have the highest tuition and fees. The comprehensive universities were very close initially in the cost of tuition and fees, but there is now more variation among them. Using inflation-adjusted dollars, in Academic Year 2001-2002, the difference between the highest and lowest priced comprehensive universities was $258; in Academic Year 2013-2014, that difference was $1,678. KCTCS remains the lowest cost for tuition and fees.
Each Kentucky public 4-year institution’s published tuition and fees fall within the middle half of its benchmarks. UK, Morehead State, Murray, and Northern Kentucky have lower tuition and fees than the median; UL, Eastern Kentucky, Kentucky State, and Western Kentucky have higher tuition and fees than the median.
Conclusion four is that tuition and fees revenue 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 fees 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. Tuition and fees was the only revenue source that did not decrease from FY 2011 to FY 2012.
Comparing net general fund appropriations for Kentucky public institutions for FY 2002, FY 2008, and FY 2012, revenues peaked in FY 2008 for all public 4-year institutions and KCTCS. In FY 2008, the total net general fund appropriations for public higher education were slightly over $1 billion. UK and UL received less net general fund appropriations in FY 2012 than in FY 2002, and the six comprehensive universities and KCTCS received more net general fund appropriations in FY 2012 than in FY 2002. The total change for net general fund appropriations for Kentucky public institutions was 3 percent. Unless noted, these figures have not been adjusted for inflation or enrollment.
Significant percentages of students graduate with debt. For FY 2011, only KSU and UK had fewer than one-half of graduates without debt. More than two-thirds of graduates of Eastern Kentucky, Morehead State, and Northern Kentucky had debt. Average student debt per institution ranged from less than $19,000 to more than $36,000 at the time of graduation.
From FY 2005 to FY 2011, full-time-equivalent undergraduate and graduate enrollment at Kentucky public institutions increased every year except FY 2007. Total expenditures increased every year during this time period and at a greater rate than enrollment with the exception of FY 2010. From FY 2004 to FY 2011, enrollment increased approximately 31 percent and total inflation-adjusted expenditures increased approximately 55 percent.
Conclusion five is that in academic year 2011-2012, Kentucky public 4-year institutions spent $670 million on public service and $484 million on research. UK, EKU, and Murray had the highest percentage of spending devoted to public service, compared to their benchmarks. Research as a share of total spending was below the median benchmark institution for UK and UL.
From FY 2004 to FY 2011, total expenditures of Kentucky public institutions increased 55 percent, expenditures for instruction increased 54 percent, public service increased 132 percent, and research increased 41 percent. The public service expenditures increase was driven by UK, which increased public service expenditures by 269 percent. In FY 2011, Kentucky public institutions had $4.9 billion in total expenditures. Of that amount, $1.28 billion was for instruction, $691 million was for public service, and $487 million was for research.
In FY 2012, total operations and maintenance was $209 million, student services was $145 million, information technology was $107 million, travel was $59 million, and public safety was $22 million. That year, UK and UL accounted for 67 percent of total athletic expenditures of $215 million.
Information on adjunct, non-tenure track, tenure track, and tenured faculty with teaching loads over time is shown in this table. In academic year 2011-2012, Kentucky’s public 4-year institutions spent $450.5 million toward 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, salaries increased 42.4 percent at Kentucky’s 4-year institutions, not including Kentucky State.
Administration and staff include persons who maintain the facilities and provide information technology support. It may also include professional nonfaculty, office clerical, and executive personnel. 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 Kentucky State and Murray State. Northern Kentucky had the largest increase, at 96 percent. Increases were less than 40 percent for Murray State and UK.
From FY 2003 to FY 2012, total retirement and other post-employment contributions for Kentucky’s public 4-year institutions increase approximately 111 percent. Three institutions increased by more than 100 percent. In FY 2012, total employee health benefits paid by Kentucky 4-year institutions was $183 million. For four institutions, this was an increase of more than 100 percent since FY 2003.
In response to questions from Representative Palumbo, Ms. Fraley clarified that UK has the highest 6-year graduation rate among Kentucky public institutions but is among the bottom quarter among its benchmarks.
Referring to the slide indicating that state appropriations for UK have declined compared to other institutions, Representative Palumbo commented that UK seems to be doing more with less. Tax reform should be considered as a way to increase revenue.
Senator Buford said that he would like to see comparisons of tuition and fees and their increases for public schools in states with populations of 6 million or less. Administrators and faculty at Kentucky institutions with graduation rates lower than 50 percent should be asked why they think this is the case. Senator McDaniel said that staff could generate a letter.
In response to a question from Senator Harris, Ms. Fraley confirmed that dollar amounts were not adjusted for inflation except for the trend in tuition and fees.
Upon motion by Representative Simpson and second by Senator Buford, the report was adopted.
In explaining his vote, Representative Simpson said that he would like Ms. Fraley to make this presentation to the Budget Review Subcommittee on Postsecondary Education. Funding of higher education is being done by addition and subtraction. This year, 1.5 percent per university was subtracted. The concept of rewarding universities that are performing well should be considered. Increases in enrollment are good, but he is more concerned with students graduating and getting jobs in their area of study.
Report: Number, Cost, and Policies Related to Non-Merit Employees
Ms. Kennedy said that for this report, Program Review staff estimated the number and cost of non-merit employees in the executive and judicial branches of Kentucky state government. In 2012, there were nearly 3,500 non-merit employees in the executive branch, at an estimated cost of $238 million. There were 675 non-merit employees in the judicial branch, at a cost of nearly $36 million.
The term “non-merit” employee is not defined in Kentucky, either in statute or in clearly-stated personnel policies. The closest definitive correlation between the term “non-merit” and an employee category is for the executive branch in the Personnel Cabinet’s Employee Handbook, which defines an “unclassified employee” as “an employee serving in an unclassified (“non-merit”) position. That handbook, however, does not have the force and effect of law. In the judicial branch’s personnel policies, which do have the force and effect of law, no mention is made of the term “non-merit.” For this study, executive branch “unclassified” employees are considered non-merit employees. “Classified” employees are considered merit employees. Judicial branch “non-tenured” employees are considered non-merit employees in this study. “Tenured” employees are considered merit employees.
In the executive branch, the key distinction between a non-merit and a merit employee is that a non-merit employee serves at the pleasure of the appointing agency or authority, whereas a merit employee can only be dismissed for cause following a process defined in statutes and regulations. The hiring, promotion, and penalization processes are strictly defined for merit employees; while for non-merit employees they are left largely to the discretion of the agency. In the executive branch, the body of law that governs the merit system is KRS 18A.005 to KRS 18A.200. This study describes four categories of executive branch non-merit employees. The first category is a lengthy list of positions specifically named in KRS 18A.115 as exempt from the executive branch merit system. Examples include employees of the governor, members of boards and commissions, and cabinet secretaries. The second category is made up of entities statutorily authorized to create their own personnel systems separate from the provisions of KRS Chapter 18A. Examples are the Kentucky State Police and the Unified Prosecutorial System. The third category is made up of entities statutorily authorized to create specific groups of non-merit employees who do not fall under the provisions of KRS Chapter 18A. An example is the Department of Military Affairs. The fourth category is made up of entities with employees that have been statutorily designated as non-merit. An example is the Kentucky State Fair Board.
The entire KRS Chapter 18A applies to executive branch state employees, even though KRS 18A.005 to 18A.200 is the body of law that governs the merit system. Colloquially, non-merit employees are often called “non-chapter” employees, while merit employees are often called “chapter” employees or “18A” employees. This causes confusion. Further, some statutes within KRS 18A.005 to KRS 18A.200, the merit system body of law, also apply to non-merit employees. Ms. Kennedy gave examples to illustrate. Although the administrative regulations in KAR Title 101 are divided into classified, or merit, and unclassified, or non-merit, chapters, some of the merit regulations include references that also apply to non-merit employees.
Recommendation 1 is that the General Assembly may wish to consider revising the KRS 18A statutes to clearly separate the body of law that governs only the merit system from the body of law that governs the non-merit system.
Recommendation 2 is that the General Assembly may wish to consider revising KRS 18A so that statutes referring to “this chapter” that refer only to KRS 18A.005 to 18A.200 reflect that meaning.
Recommendation 3 is that the Personnel Cabinet may wish to consider revising KAR Title 101 to clearly separate the body of law that governs only the merit system from the body of law that governs the non-merit system.
The two main changes to Kentucky law in recent years regarding executive branch non-merit employees are related to Personnel Cabinet reporting requirements and the length of the probationary period for certain non-merit employees who move into merit system positions. In 2010, legislation was enacted that requires the Personnel Cabinet to submit to the governor and the LRC, every 6 months, a list and designated information for specified filled positions considered to be non-merit under KRS 18A.115. Each submission of the list must indicate any position that has been added to the list since the last submission. Also in 2010, legislation was enacted that requires the Personnel Cabinet to report to the LRC, on a quarterly basis, the number of employees in each program, cabinet, and department of the executive branch. That report must include the number of all full-time, non-merit employees, listed by cabinet and department, who are employed pursuant to KRS Chapter 16 (State Police); KRS Chapter 18A (executive branch personnel); and KRS Chapter 151B (Education and Workforce Development Cabinet). It is possible that the statutes for this list should now include KRS Chapter 156 because many statutes formerly in Chapter 151B were revised and renumbered following a reorganization within the cabinet. Also, in 2010, legislation was enacted that lengthened the probationary period from the usual 6 months to 12 months for many categories of executive branch non-merit employees who move into merit positions.
The Kentucky Court of Justice operates its own personnel system, which has the force and effect of law. Judicial branch employees are not covered by the KRS 18A statutes. Judicial branch non-merit employees are “at-will” employees who serve at the pleasure of their appointing authority for an unspecified period of time. They are somewhat different from executive branch non-merit employees in that the judicial branch personnel policy specifically states that an appointing authority may terminate a non-merit employee’s employment for any reason or no reason, with or without notice, at any time. Non-merit employees do not have the right to appeal disciplinary actions. Examples of judicial branch non-merit employees include judicial staff; court administrators; chief deputy clerks; and principal administrative officials.
Mr. Thomas said that the Kentucky Human Resources and Information System (KHRIS), which went live in April 2011, is the current state human resource and payroll management system. The Unified Personnel and Payroll System (UPPS) previously served as the primary human resource management system, but there were also non-integrated systems. He explained that data from the two systems are not directly comparable and that Program Review staff had to make decisions as to which groups of employees to count as non-merit.
In 2011 and 2012, the number of executive branch non-merit employees decreased by 2.3 percent, from just over 3,500 in 2011 to 3,447 in 2012. In 2003, the number of executive branch non-merit employees was just over 3,500; in 2010, the number of non-merit employees was just over 3,600. Nearly one-third of non-merit employees as of 2012 were in the Unified Prosecutorial System, which consists of commonwealth’s attorneys, county attorneys, and their employees. Outside of General Government Cabinet agencies, six other cabinets have greater than three percent of the total number of non-merit employees. Three have greater than five percent.
The Personnel Cabinet did not provide cost data, so Program Review staff estimated cost using data gathered by LRC Budget Review. Data were obtained through the InfoAdvantage Data Warehouse and are based on information from both UPPS and KHRIS, depending on the year. The data show salaries only, so the total cost estimate in this report is calculated by adding 45 percent for estimated benefits for full-time employees and part-time salaried employees working 100 hours or more per month.
In both nominal and adjusted amounts, annual cost was lower in 2010 than in 2006. For 2012, annual cost was estimated to be $238 million, a decrease of 1 percent from the previous year when adjusted for inflation.
In 2012, the total number of judicial branch non-merit employees was 675, less than a 1 percent decrease from 2011. Since 2003, judicial branch non-merit numbers have ranged from just over 600 to just under 700 employees. The number of judicial branch non-merit employees has remained relatively stable since 2007.
The cost for judicial branch non-merit employees represents total compensation, including annual salary, FICA, retirement, and health and life insurance. In 2012, total compensation for judicial branch non-merit employees was nearly $35.7 million dollars. This represents a 16 percent increase from 2003, when adjusted for inflation. Because of the detail of the data the Administrative Office of the Courts provided, trends for different types of compensation were identifiable. Salary and FICA were just under $25 million in 2012, a decrease from 2003. Health and life insurance costs nearly doubled from 2003 to 2012 after adjusting for inflation. Retirement costs in 2012 were more than three times higher than in 2003.
Program Review staff reviewed the personnel systems in Alabama, Arkansas, Florida, Georgia, Missouri, and Virginia. The states with merit systems most similar to Kentucky’s are Alabama, Missouri, and Virginia. Arkansas does not have a merit system, per se, but the personnel system is structured in such a way as to provide classifications and pay schedules for employees. Typically, this sort of personnel structuring is seen in merit systems; however, Arkansas does not have a merit system authority. Florida does not have a merit system but still maintains structured pay plans for employees. Recruiting and hiring are conducted by individual agencies, according to their policies. Florida restructured its classification scheme to reduce the number of employee classes. The old classification scheme included over 3,000 classes; the new structure is consolidated into 237 occupations. Georgia has been a totally at-will personnel system since 1996.
Individual agencies determine all policies for hiring, dismissal, and appeals. The appeal process is conducted in-house and does not go above the agency director level. Termination is permitted with or without cause, so long as no prevailing contractual obligation affects employment status.
In response to a question from Senator McDaniel, Mr. Thomas said that he would check for an explanation for the spike in judicial branch non-merit employees from 2006 to 2007.
Senator Westerfield asked why prosecutors are classified differently than employees of the Department of Public Advocacy, who are merit employees in the Justice and Public Safety Cabinet. Ms. Kennedy said that representatives of the Personnel Cabinet may be able to address this.
Representative Mills asked about the availability of Personnel Cabinet reports that are sent to LRC. Mr. Hager said that reports received by LRC are distributed to the committees of jurisdiction.
In response to a question from Senator McDaniel, Ms. Harrod said that the Personnel Cabinet does not maintain data on personnel costs. The Office of the State Budget Director has these data.
In response to a question from Senator McDaniel, Mr. Thomas said that the data accessed by LRC Budget Review staff used in the report come from the same source used by the Office of the State Budget Director.
Senator McDaniel asked whether the data used are the most accurate and are not an estimate. Mr. Thomas replied that the report and presentation used the term estimate to indicate that, because there is no statutory definition of non-merit, categorizing some employees as merit or non-merit is open to interpretation.
Senator Seum asked for clarification as to whether the Personnel Cabinet was underreporting the numbers for some types of employees. Ms. Kennedy said the types of employees to be reported on are determined by statute; it is not a decision by the cabinet. The cabinet’s report is accurate; the Program Review report just includes different categories.
Senator McDaniel asked whether staff investigated outcomes measures such as disciplinary procedures for Georgia. Mr. Thomas replied that staff analyzed the structures of different state systems for comparison but did not research outcome measures.
Senator McDaniel commented that state employees have higher retirement and insurance benefits than private sector employees. They have not been getting salary increases, although the recently enacted budget will help. They are higher cost, lower compensation employees, which makes keeping employees difficult.
Senator Buford said that salary data are available via newspapers; everything is on the record.
Senator McDaniel said he would like to postpone action on the report until staff could report on whether the cost data used are the best available.
The meeting adjourned at 11:20.