Budget Development Discussion

overview Public Funds Fixed Costs Employee Compensation Revenue Enhancements Cost Reductions Student Impact

KCTCS Public Funds Revenue background & Comparison

Public Two-Year Colleges College Funding Indicators 43% 43% 24% 49% 61% 25% 63% 59% This slide shows that Kentucky’s public two-year colleges are getting 41% in appropriations (or having to make up 59% in tuition) per FTE relative to surrounding SREB states receiving much larger percentages in appropriations, i.e., Mississippi 63%, Georgia 51% and Arkansas 57%. *SREB State Data Exchange - March 2016

Public Funds Revenue 2008-2016 Institution Dollar Change Percent Change University of Kentucky $573,919,000 $737,504,100 $163,585,100 28.5% University of Louisville 355,198,200 439,769,978 84,571,778 23.8% Eastern Kentucky University 178,916,900 224,991,197 46,074,297 25.8% Kentucky State University 43,945,600 37,934,297 (6,011,303) -13.7% Morehead State University 95,518,800 115,960,900 20,442,100 21.4% Murray State University 130,344,200 164,576,800 34,232,600 26.3% Northern Kentucky University 152,189,500 189,442,300 37,252,800 24.5% Western Kentucky University 209,052,000 274,397,500 65,345,500 31.3% KCTCS 397,175,000 418,170,600 20,995,600 5.3% $2,136,259,200 $2,602,747,672 $466,488,472 21.8%

Tuition cost comparison 2003-04 $2,370 $3,520 $4,498 2016-17 86.9% 144.1% Research Comprehensive KCTCS 48.5% 89.8% $4,620 $8,636 $11,276 Annual Tuition Kentucky’s comprehensive institutions’ tuition is 86.9% and the research institutions are 144.1% higher than KCTCS with the gap widening annually. Average student financial aid residual for a KCTCS student is approximately $2,000 per semester. Based on full-time comparison of resident undergraduates students taking 15 credit hours per semester for two semesters, or 30 credit hours per year.

KCTCS Fixed cost Increases background & examples

Kentucky Employee Retirement System (KERS) Employer Rate Fiscal Years 2003-2018 To illustrate the growth in cost of KERS, this chart shows the astronomical rise in percent of KERS since 2003. We have approximately 1,143 participate in KERS and KTRS (557 KERS, 586 KTRS). The total projected cost for 2017-18 is $16 million ($10.9 million for KERS, $5.1 million for KTRS)

Changes to KRS contributions 2012-2017 Fiscal 2011-12 Fiscal 2016-17 Contributions $ Change % Change KCTCS 4,870,055 13,242,140 8,372,085 172% Sources: Kentucky Retirement System, Fiscal Year 2011-12; Participating Postsecondary Institutions, Chief Budget Officer Estimates, Fiscal Year 2016-17.

Impact of state funding Cuts & KERS Increases 2012-2017 (C + D) (F ÷ A) A B C D F G Fiscal 2011-12 Net General Fund Fiscal 2016-17 Net General Fund(1) NGF Change KERS Change Combined Budget Impact Percent Appropriations FY12 to FY17 Impact 200,744,200 181,605,000 -19,139,200 -8,372,085 -27,511,585 -13.7% (1) Includes additional appropriations of $1,602,500 for the partially funded KERS increases in fiscal 2014-15. KERS = Kentucky Employees Retirement System Sources: Kentucky Retirement System, Fiscal Years 2011-12 through 2015-16; Participating Postsecondary Institutions, Chief Budget Officer Estimates, Fiscal Year 2016-17.

FY18 Projected EXPENDITURES (1) Unavoidable Fixed Costs: Employee Benefits (KERS, Unemployment, Workers Comp, etc.) $2,900,000 Other Fixed Costs (Property & Liability Insurance, Utilities, etc.) 800,000 $3,700,000 Reduction in Expenditures: Potential Contracts Reduction and Efficiency Effort ($1,000,000) Balance $2,700,000 We have approximately 1,143 participate in KERS and KTRS (557 KERS, 586 KTRS). The total projected cost for 2017-18 is $16 million ($10.9 million for KERS, $5.1 million for KTRS)

KCTCS Salary Increases background & examples

Employee compensation and turnover KCTCS continues to experience the loss of key faculty and staff and the inability to hire new employees due to the lack of competitive compensation 2016 Compensation and Classification Study (Study) by an external consultant (Hanna Resources Group) reviewed KCTCS’s faculty and staff salaries and found that KCTCS was roughly 85% of the market for comparable positions Implementation of the Study will help KCTCS: 1) move closer to the market, 2) be more competitive in hiring, and 3) promote faculty and staff retention For the three most recent years (FY 2015, 2016, and 2017), Kentucky’s other public postsecondary education institutions have on average awarded salary and wage increases roughly twice what KCTCS has been able to provide, with KCTCS providing no increase in FY 2017 In 2016 KCTCS had an external consultant perform a compensation and classification study, the study found that KCTCS was paying on average 85% of current market rates. Business and industry hiring our faculty away in high wage, high demand positions of healthcare and manufacturing

Postsecondary institutions annual Salary increases Average Salary Increases (FY2015, FY 2016, and FY2017) Eastern Kentucky University 0.83% Kentucky State University 0% Morehead State University 2.2% Murray State University 1.2% Northern Kentucky University 0% Western Kentucky University 1.0% University of Kentucky 2.5% University of Louisville 2.3% Average for State Universities 1.3% KCTCS 0.67%

SREB State Data Exchange 2014-2015 Indicators Report This shows that in Kentucky our salaries for full-time faculty are $46,106, 3rd lowest if the SREB states in 2014-15. Likelihood, given that KCTCS has not been able to consistently give a meaningful salary increase over the past several years, this ranking, at best has not improved, but worsened. The data presented is for community colleges only based on the average salary per full time faculty. SREB State Data Exchange 2014-2015 Indicators Report

FY18 Projected EXPENDITURES (2) Potential Additional Expenditures: Compensation and Classification Study (Phase I) $1,100,000 Salary Increases with benefits ($2.7 million per 1% increase) At 1% increase $2,700,000 At 2% increase $5,400,000 At 3% increase $8,100,000 Range of Additional Expenditures for Employee Compensation: Comp & Class and 1% salary/benefits $3,800,000 Comp & Class and 2% $6,500,000 Comp & Class and 3% $9,200,000

FY18 total Projected EXPENDITURES Fixed Costs: Benefits and other Fixed Costs minus Reductions $2,700,000 Range of Additional Expenditures for Employee Compensation: Comp & Class and 1% salary/benefits $3,800,000 Comp & Class and 2% $6,500,000 Comp & Class and 3% $9,200,000 Total Fixed Costs and Employee Compensation Increases: Fixed Costs, Comp & Class, 1% $6,500,000 Fixed Costs, Comp & Class, 2% $9,200,000 Fixed Costs, Comp & Class, 3% $11,900,000

revenue enhancement to cover expenditures increases

Overview and items to consider… Tuition, fees, and other charges are the largest recurring fund source for KCTCS colleges. CPE approved tuition rate takes into consideration the affordability to Kentucky residents. In 2015-16, CPE data shows the lowest 3 quartiles of full-time, in-state KCTCS students who received grants/aid had enough to cover almost all annual costs for tuition, fees, and books.

Student Affordability overview The Council for Postsecondary Education (CPE) sets tuition parameters in an effort to maintain affordability for Kentucky residents. The previous slide displays affordability as it relates to students claimed on their parents’ family income and adult students living independently. For example, KCTCS students claimed on their parents’ income with an average household income of $60,000 or less, have relatively no out-of-pocket expenses for unmet tuition, fees, or book costs. KCTCS adult students with an average household income of $50,000 or less have no out-of-pocket expenses for unmet tuition, fees, or book costs and actually receive a residual student aid check. Only students claimed on their parents’ income making on average more than $123,712 annually, have any significant out of pocket expenses.

Potential tuition Revenue $1.3 million in additional tuition revenue for each $1 per semester credit hour increase @$6 (Approved CPE maximum) $7,800,000 Note: Online Course charge amounts calculated assuming a 13% decrease from prior year online enrollment

Budget Scenarios overview Scenario I Tuition – $6 Salary – 2% Charges--LOW Scenario II Salary– 2% Charges--HIGH Scenario III Salary – 3% Scenario IV Revenue Tuition Increase $7,800,000 Fees & Other Charges $7,200,000 $9,600,000 $15,000,000 $17,400,000 Expenses Fixed Costs $2,700,000 Comp/Class Study $1,100,000 Salary Increase $5,400,000 $8,100,000 $9,200,000 $11,900,000 Net Balance $5,800,000 $8,200,000 $3,100,000 $5,500,000

Reduction in Cost of Books

Efforts of barnes and noble to decrease average cost of books to students since fy15 2014-15 Barnes & Noble promotes book RENTALS and ELECTRONIC books AVERAGE ANNUAL SAVINGS per student for books since FY14 is $91.96 B&N estimates additional $17.16 SAVINGS per student for FY18 if faculty expand adoption of Open Educational Resources (OER)

Summary of impact to students

Tuition Increase $6 per credit hour @ 18 credit hours per year (average of KCTCS students) = $108 annual increase Books cost over last 4 years = -$109 annual decrease

Questions?