Funding of Higher-Education in Kentucky– Death By a Thousand Cuts.

The 2014 Kentucky legislative session is not over yet, but some would say it never really got started. The Governor has time to veto bills that have already passed, including line-item vetoes in the Budget. The House and Senate still have a final day or two to try to pass additional legislation or override any vetoes. Unless there is a miracle on the Ides of April, the budgets of the state Universities are now graven in stone.

What Makes a Good Legislative Session?
Complaints have been voiced that this session was not a fruitful one because so few bills of any significance were passed. That would be a valid observation if the most important function of the General Assembly was to pass good laws. Another school of thought, to which I have some affinity, is that the highest function of legislative bodies is to prevent bad laws from being born– legislative contraception as it were. From that perspective, our Kentucky House and Senate committees with their competitively-adversarial political party structures serve to prevent attachment of many nascent bills to the walls of their respective full chambers. Many bills deserve to be thus aborted.

I spent a good bit of my free time these past few weeks trying to understand what was happening to funding for the Quality Community Care Trust fund (QCCT) that has for some 30 years provided supplemental funding to the University of Louisville Hospital to care for uninsured inpatients. The amounts of funding provided by the city of Louisville and the Commonwealth have been decreasing, the contractual parties have changed several times, and the permitted uses of the money had slowly changed over time in an evolving medical ecosystem. In my opinion, that program is nearing the end of its useful lifetime. I have written about these matters often over the past two years and will continue to do so as I go through the Louisville archive of contracts and correspondence now available to me.

Not a Great Legislative Session for the State Universities.
Our public institutions of higher education are probably more unhappy than most with the outcomes of the session. At a time when they are being urged to enroll and graduate more students, their budget allotments from the general fund continue to shrink. Just as our state retirement systems were systematically underfunded to the point of impending insolvency, so too has funding to renovate or replace our university inventories of aging or inadequate buildings been ignored. What might have been accomplished in small pieces has now become an unmanageable disaster. Money for new educational facilities is largely a gleam in the eyes of university Boards of Trustee members. As I combed through legislative documents this spring, I had occasion to examine the blunt-knife approach to carving up academic budgets, but also to gain insight into the priorities of these institutions and the hoops they must jump through to advance their interests. The initial budgets from the General Assembly called for an across the board cut to the university budgets of 2.5%, and according to some, the 14th year in a row of such cuts.

How Does the Higher Education Budget Work?
The budget process is as arcane as it is resource-intensive. A cadre of people must have to work full-time between legislative sessions to guide their institutional requests through the legislative labyrinth. In an embarrassingly superficial summary of the process, universities must assemble, justify, and prioritize their requests for educational funding, for any major maintenance or new construction, and indeed for any program or purchase of more than $4000 even if the funding does not come from the state! Those requests are presented to the Kentucky Council on Postsecondary Education (CPE) which grinds the individual submissions from all state universities through a variety of formulas, trying to be fair to all, but probably satisfying none. The CPE takes notice of the priority rankings of the individual schools and attaches a priority ranking of its own, along with an opinion of whether major construction or renovation projects are eligible to be financed from the state’s general funds, from state-issued bonds, from agency bonds backed by the universities themselves, or from other university monies.

The CPE forwards a report of its recommendations to the Capital Planning Advisory Board of the Kentucky General Assembly which uses it to assist the Governor’s Office and the two legislative chambers in their respective budgetary deliberations. When I was still involved in this process more than 20 years ago, the universities were pledged to accept the recommendations of the CPE, but there were always attempts at end runs and for earmarks. For example, it was easier to get a new building if your local legislator had influence on the budget committees.

How Did it Turn Out?
Last January, UofL’s President James Ramsey stated the University’s top general legislative priorities to be: more operating money, more “Bucks for Brains” research money, and a new classroom building for the Belknap Campus. He also asked for more QCCT money for KentuckyOne Health’s University Hospital. (QCCT funds in the past have been funneled through the CPE even though they are unique to Louisville.) As we will see, only one of these came to be.

To a first careful reading, the specific capital construction and renovation projects and purchase recommendations of the CPE ended up virtually unchanged in the budgets of the Governor and the House. For this budgetary cycle, I had neither the time nor the courage to analyze the documents for each individual university, but some observations made on how the University of Louisville proposals fared in the process this year are representative and instructive.

UofL’s Wish List.
The CPE forwarded UofL’s top four construction or renovation requests to the legislature in UofL’s own priority order:

1. Construct a new Classroom/Academic building on the Belknap campus, $80.6 million.
2. Construct new Instructional Building on the Health Sciences Campus, $71.7 million (of which half would be provided from the general fund, the rest by UofL).
3. Funding for a pool used for deferred and current renovation of buildings to prolong their useful lives, $68.5 million.
4. Funding to expand and renovate the Life Sciences Building on the Belknap campus, $72.0 million.

These requests totaled $256.9 million against general fund money either in cash or in state-supported bonds. (An additional $35.9 million would be provided from other University of Louisville money.)

UofL Emphasizes Research Facilities in Future Priorities.
Facility planning being the long-term process that it is, the Capitol Planning Advisory Board of the General Assembly was given a heads-up on what UofL’s priorities would be for the next two biennials through the year 2020. An additional seven major construction or renovation projects totaling $473 million were put on the table. A relatively small ($40 million) portion of the total was targeted for ongoing deferred or current general renovations, and for expansion of the School of Public Health. The lion’s share was targeted for another four major research buildings on the Belknap, Health Sciences, and Shelbyhurst campuses. No new academic buildings were listed.

CPE’s Recommendations Make It Into the House Budget: Renovation Money Cut
The recommendations of the CPE were preserved essentially intact through the Governor’s Office and into the budget of the House. That is not to say no changes were made at all. Somehow a $60.3 million new Medical Office Building for UofL was added to the House budget. Additionally and perhaps as a consequence, the $68.5 million recommendation of the CPE to fund the general renovation pool was cut to $40 billion over the biennium, thus kicking the deferred renovation can further down the road of impossible recovery.

New Clinical Building Projects of Unspecified Purpose.
The new clinical office building and several other of the specific items caught my eye. The current budget requested authority to lease clinical space in the East End, some $3.9 million to construct clinical and office space in West Louisville, and several authorizations to purchase numerous parcels of land near the Health Sciences and Belknap campuses. Funding for research facilities, research equipment, and athletic activities made up the large bulk of the individual requests.

I do not doubt that a new Instructional Building for the Health Sciences Center was the #2 priority for the University submitted to the CPE in its request for state money. The verdict is already in that the educational facilities at the Medical School are “inadequate.” I asked a University spokesperson how the new clinical facilities were going to be used. No specific location or purpose was revealed to me. The University noted that no appropriation was associated with the requests for new facilities, but that they “will enable the University to remain flexible with the rapidly changing health care market and have the ability to construct facilities as necessary and appropriate.” That sounds like a blank check request to me. I was informed that the Department of Pediatrics currently leases space at a location at Brownsboro Crossing, and that the new East End item “relates to the ability to lease additional space if it is deemed necessary and appropriate.” It was not made clear if the additional space would also be at Norton Healthcare’s Medical Center at Brownsboro Crossing. (UofL’s relations with Norton have not been very good lately.) The University’s definition of “necessary and appropriate” can cover a lot of ground. In the absence of any revelations about where our public university plans to expand its operations with its new general partner, KentuckyOne Health, I have already offered speculation. I will continue to keep my ear to the ground. (Help me listen, will you?)

UofL’s proposal faces a meat-axe in the Senate.
Of the 172 specific UofL items in the house budget, only 165 survived the Senate. Seven items totaling $230.8 million were removed including UofL’s top two priorities – the instructional buildings on its Belknap and Health Sciences Center campuses. When I first went through the list, I noted that the seven cut projects came from the 22 most expensive requests but it was not immediately obvious why these particular construction and renovation items were rejected. Looking through another lens however, it was apparent that regardless of merit, virtually all the deleted items were to be financed from the general fund. The single exception was an additional reauthorization to expand and renovate the Student Activity Center already underway. No other project financed from the general fund, either in cash or by state or agency bonding, was approved. I have no additional information why this exception was made.

Small Adjustment In the Conference Committee.
The story was not over! The Free Conference Committee, made up of members of the House and the Senate, restored two capital items that draw from the general fund: the new Classroom/Academic Building on the Belknap campus funded with state-issued bonds, and an otherwise obscure item labeled “Purchase Land Support Service-Northeast Quadrant costing $15.6 million financed with agency bonds, i.e. bonds issued by the University. Obviously some lobbying efforts were rewarded, but not others.

Not Small Change in Any Event!
I was afraid to add it all up, but over the two year biennium the UofL Budget summary listed $279.5 million from the General Fund, $1.1 Billion from University Restricted Funds, and $194.5 million from Federal Funds. The total biennial amount from all three sources is $2.477 Billion. This represents a massive cash flow through the various schools and departments of the University and does not even count money that the state does not know about or is not responsible for!

I prepared a table from the three respective legislative budgets but it is not clear to me what the numbers mean. University administrators will no doubt talk about yet another 1.5% decrease in their state funding but I do not know how to calculate such a figure. For example, in previous years, the dollars coming to UofL from the general fund included some $22 million of QCCT money for indigent care. It appears that this year, those funds , reduced markedly, will come from somebody else’s budget. Some of the state money in the current Senate and Conference Committee budgets includes money appropriated in an earlier year and may not be entirely new. (Can anyone explain this?)  Additionally, the state universities receive substantial state money for individual programs, service contracts, and the like. Nonetheless, for UofL, the amount of money from the state’s general fund is small compared to the restricted funds such as tuition, gifts, clinical income, a variety of grants, and so forth. It is for this reason that when it is to their advantage, UofL officials will reasonably refer to itself as a “state-assisted” University.

At Least the FDA Examines the Sausage.
I will not pretend to know what went on in Frankfort: most of the nitty-gritty occurred behind closed doors. I subsequently learned that in the Conference Committee budget, each university was given its top priority project from the general fund but I have not confirmed that myself. UofL has had the Belknap campus instructional building as its top priority for several years and it has every reason to be happy.  UofL is proud of its athletic and commercial research enterprises, but its most recent application for a chapter of thePhi Beta Kappa Honorary Society was recently rejected again. Perhaps someone will tell us why. We need to be seen as something more than just a sports and party school. Education must be unequivocally seen as our top priority. I do not believe that is the perception today.

Too Bad for the Medical School.
Sadly, the medical school did not get its new educational facility. I do not know how heavily it was lobbied for.  Given that it was recently placed on probation by its accrediting organization in large measure because it’s teaching facilities were “inadequate,” the need for such construction seems obvious and non-deferrable. When I look down Chestnut Street today (see photo at top) I see several brand-new research castles, a spanking new private practice medical office building, and a beautiful renovated medical administration building, but not a single new educational facility from when I first came to Louisville 30 years ago. Looking ahead at requests for the next two legislative budget cycles that are already on the table, I see evidence of only more of the same. If UofL wants to convince our legislators, its students, our public, and our accreditors that education is its top priority, I suggest it try harder. A little internal re-budgeting might be in order!  A new medical school teaching facility may be nothing more than a rounding error in the cash sloshing across the campuses in such amounts that millions are sometimes not even missed.

Public or Not– That is the Question!
There was a time when UofL wanted to be part of the state system. No doubt there are times when the University’s present leadership is ambivalent about it’s public status. I am too– to a point. On the one hand it bothers me to see the academic enterprise used as a political football. Certainly none of the decisions made in either the House or the Senate seem to have been based on academic merit. Any such value judgments would have been made in the CPE where decisions are still partly political in nature.

On the other hand, it bothers me to see a nominally public institution take advantage of that status when it wishes, but then ignore the requisite responsibility for transparency and accountability; hiding behind self-designated private status or behind the firewalls of its associated foundations and corporations. The University of Louisville will no doubt continue to blame the plateauing of its research activity and other shortcomings on withdrawal of support by the state. It makes a good fundraising story and takes the University itself off the hook. There is only one acceptable way for the University to make its case to the public and its elected representatives– stop fighting the court decisions that declare UofL to be subject to open record laws and open the University’s books– all of them. If your argument is valid, your constituency will come to your rescue. We want to believe you, but you have to earn our trust back before we feel too sorry for you.

As always, if I have made an error of fact, please let me know.  If you have a different interpretation, let us know that too.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
April 6, 2014

Facility Condition Report UofL 2007,  (1.1 MB PDF)
CPE Position on University Operating Budgets, (0.2 MB PDF)
CPE Recommendation on Capital Investments, (0.3 MB PDF)
CPE Recommendation on Bucks for Brains, ( 0.2 MB PDF)
Capitol Planning Advisory Board- Entire Statewide Report,  (5.2 MB PDF)
UofL Pages Capital Planning Advisory Board,  (0.2 MB PDF)
Links to House, Senate, and Conference Committee Budgets.
UofL Details House Budget,  (0.1 MB PDF)
UofL Details Senate Budget,  (0.1 MB PDF)
UofL Details Conference Committee Budget,  (0.1 MB PDF)