Kentucky's 1 of only 5 states to cut money for higher education this year

Kentucky was one of only five states that slashed funding for higher education this fiscal year, putting more pressure on public universities to save money and raise revenue without overburdening students with skyrocketing tuition rates.

The fallout from the 2008 recession hurt governments and public colleges across the country, but most states have finally stopped making cuts to the schools relying on their support, according to Grapevine, a joint project that involves Illinois State University and annually compiles data on states' higher education appropriations.

In Kentucky, however, budget reductions have become the new normal for publicly funded schools like the University of Louisville and Eastern Kentucky University.

"Our institutions are down to the bone now," said Aaron Thompson, president of the Kentucky Council on Postsecondary Education.

Only five states — Alaska, Kentucky, Minnesota, Ohio and South Carolina — decreased funding for higher education in the 2018-19 fiscal year, compared with the 2017-18 period, according to Grapevine, which doesn't include certain state appropriations, like those for capital projects or debt service, in its calculations. 

The commonwealth cut funding for public universities and community colleges by 2.4 percent this fiscal year — the second-biggest percentage drop in the country.

Meanwhile, state governments' collective support for higher education rose 3.7 percent. 

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"This is the fifth year in a row that, nationwide, we've had modest increases," Grapevine editor Jim Palmer said.

Just because most other states didn't slash spending on higher education this fiscal year doesn't mean their schools have rebounded from the 2008 recession, though.

Overall, state funding for public colleges was more than $7 billion less for the school year that ended in 2018 than it was in 2008, according to an October 2018 report from the nonpartisan Center on Budget and Policy Priorities. But Kentucky's cuts still stand out.

From 2008-18, Kentucky's per-student spending dropped 27.2 percent, which equates to nearly $3,000, according to the center's report. It had the 12th-worst percentage decline in the nation compared with other states.

Diminishing state funding isn’t the only thing hamstringing schools’ budgets — so is Kentucky's pension crisis.

The commonwealth's public universities, except for U of L and the University of Kentucky, participate in the state's underfunded pension system — and their payments are rising as the government grapples with around $43 billion in related debt.

The top threat to the Richmond-based school's ability to operate effectively, one EKU official said, is the possibility Kentucky will fail to stabilize the system.

EKU's pension obligations doubled over the past decade and may double again — practically overnight — from about $11 million to $20 million when the next fiscal year begins in July, because of big increases in its required contributions, said David McFaddin, vice president of engagement, regional stewardship and government relations.

"It is the single biggest financial factor on the expense side that is growing exponentially, and we have very little control of that," he said. "The amount of resources left to invest in higher education has become more and more limited."

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Palmer doesn’t think states’ declining financial support for universities across the country reflects a lack of motivation among lawmakers.

"Legislators want a good, strong public higher education system," he said. "I think the will is pretty much there. The problem for the most part, I think, is the capacity."

States sometimes put their already limited dollars toward other pressing needs, such as K-12 education and health care, he explained. Only five states reduced higher education funding this fiscal year, but Palmer noted that over a dozen of them did so the prior year.

And even though many states recently stopped trimming funding for public colleges (at least in the short term), Palmer said an economic downturn — which many people in the finance sector have predicted for the near future — could quickly change that. 

"What I worry about is the prospect of another recession ... then all bets are off," he said.

But Thompson, of the Council on Postsecondary Education, cautioned that public universities and community colleges are key to improving Kentucky's economy.

"You're not going to be an economic development engine without a good higher education system," he said. "When you start cutting to the bone ... it has to hurt quality."

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Budget cuts take toll

The state's current budget, which the legislature approved early last year, included an across-the-board 6.25 percent cut that impacted U of L and other state schools.

To soften the impact, the government divvied up an extra $31 million among public universities through a new funding model that's based on their performance, reflected in things such as graduation rates.

EKU got $3.4 million, which McFaddin said mostly made up for the state-level cuts it experienced. Other schools, including U of L and UK, received some of the $31 million too, but Kentucky State University and Morehead State University received none of it.

Even with the boost some schools got from that performance-based funding pool, university officials still had to slash expenses to cope with the latest cuts, as well as other financial pressures, such as pension contributions and declines in enrollment.

EKU, for example, came up with a plan to collectively ax $25 million from its budget during fiscal years 2019 and 2020, McFaddin said. To reach that goal, it slated 153 jobs — only 57 of which were vacant — for elimination. It also closed its campus in Danville and got rid of its men's and women's tennis programs, among other cuts.

Like EKU, other public universities in Kentucky announced layoffs in 2018, including KSU and Western Kentucky University.

Kentucky's biggest public universities struggled with financial challenges, too.

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U of L reduced its budget by about 5 percent, or $20 million, this fiscal year, although it gave its colleges a way to recover some of that reduction if they submitted proposals to improve student recruitment and retention, Chief Financial Officer Dan Durbin said.

The university used a mix of strategies to save money, which included eliminating vacant positions, spending less on travel and printing, consolidating software purchases across different offices, restructuring administrative units to streamline management functions and tweaking its health insurance arrangements.

"We're hoping that the state support we have remains stable ... (but) if we have opportunities to drive costs out of the system or increase revenue, we are absolutely moving forward on those things,” he said.

About $500 million of U of L's $1.2 billion budget — $127 million of which comes from the state — are general fund dollars, which are used to cover employees' salaries and benefits as well as other operating expenses, Durbin said. 

But the rest of the money in the budget, including grants, gifts from donors and revenue from athletics, generally is reserved for more restricted purposes, unlike the general fund dollars, he said. That makes it hard to rebound from state-level cuts.

"Every dollar that we lose hurts because we have to make it up from somewhere," he said.

Durbin and officials from other universities stressed that they know lawmakers support their mission to educate Kentuckians and expand their career opportunities.

Even though public officials have cut core funding for higher education repeatedly, Durbin said they try to help in other ways. For example, the state financed the $80 million construction of U of L's new Belknap Academic Building, which opened last year.

"They're struggling with pension liabilities and things like that," he explained. "The state does have some things in place to help reward institutions who are moving in the right direction and trying to achieve good, strategic things."

Morgan Watkins: 502-582-4502; mwatkins@courierjournal.com; Twitter: @morganwatkins26. Support strong local journalism by subscribing today: www.courier-journal.com/morganw.