Feb. 9, 2004

Contact: Lynn Bretz, University Relations, (785) 864-8866.

Chancellor's prepared testimony for Senate Ways and Means Subcommittee

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Senate Ways and Means Subcommittee on Higher Education
Prepared Testimony by KU Chancellor Robert Hemenway
Monday, February 9, 2004, 3 p.m.
123 South, State Capitol

Members
Stephen Morris, chair
Jean Schodorf
Jim Barone
David Adkins
Nick Jordan

Senator Morris. Members of the Subcommittee on Higher Education:

Thank you for this opportunity to appear before you on behalf of the students, faculty, staff and alumni of the University of Kansas.

Joining me, and available to respond to questions, are:

 • David Shulenburger, executive vice chancellor and provost of the Lawrence campus, including the KU-Edwards Campus in Overland Park; and

 • Don Hagen, executive vice chancellor of the Medical Center, including the School of Medicine-Wichita.

Opening Statement

We support the Governor's budget recommendation. It appears to be a good faith effort to recognize some of higher education's needs.

We also ask for special consideration for two items not addressed in that budget proposal.

 • The special challenge of the KUMC, which includes a major effort to create an NCI designated center at KU to provide cutting edge cancer care and research.

 • The unfunded costs of increased employee health care, which this year totals $6.4 million.

The environment for KU this year is very different than it was when I addressed you in 2002 and 2003.

The economy of the state has stabilized. The outlook for business is improving. And the spirit of the people of Kansas is more optimistic than it has been in quite some time.

All of this is positive for the state and positive for the University of Kansas. At KU, we watch the rise and fall of the state economy the way Senator Morris eyes the futures markets.

The improving economy is reflected in the governor's budget proposal, which contains much that is positive for KU and other universities.

For example, we appreciate the 1 percent operating grant increase of $5 million for the regents system the governor is recommending. While less than the amount asked for by the Board of Regents, it would provide KU with about $2.2 million at Lawrence and the Medical Center. Significantly, it marks the first time in three years a governor has recommended any block grant increase for the universities. Unfortunately, mandated employer costs, such as health insurance increases, meant to be covered by the block grant, total $4.2 million more. I will comment on this in a moment.

The governor's proposal also recognizes the importance of the people who make our university what it is.

A famous Kansan named Dwight Eisenhower, who served as president of Columbia University after WWII, once addressed his faculty as "the employees of Columbia University." At that point, a professor rose from his seat and said, "Gen. Eisenhower, we are not the employees of Columbia University. We are Columbia University."

The remark was a little impertinent, but there's some truth to that statement.

Which is why I'm pleased that this budget proposal provides a portion of the third year of faculty salary increases promised by the state under SB 345. This represents about $1.4 million for KU faculty members. SB 345 was a promise broken; now it is a promise fulfilled.

The faculty and the staff -- who are the University of Kansas in many ways -- are servants of the state and deserve just compensation for their teaching, research and service. That has not happened the past two years, due to the poor economy and the state's resulting budget crisis.

Thus, I am grateful that the governor has provided for a general 3 percent salary increase for KU employees. Such an increase is a welcome signal to all faculty and staff -- after a couple of very lean years -- that their efforts are appreciated by the people of Kansas.

This increase also helps keep us from falling farther behind our peer universities -- regionally and nationally -- in the competition for excellent people.

These recommendations all help the university as we work to fulfill our mission as efficiently and effectively as we can. Overall, the governor's budget proposal underscores the central value of education in Kansas, from kindergarten through graduate and professional degrees. We believe strongly, and we think Kansans believe, too, that whatever helps education at one level helps education at all levels.

While it's never easy to fund this commitment adequately, it's important to remember that education is the best investment this state can make. As a key component of any workforce development strategy, it's the foundation for tomorrow's economy.

If we want safe streets, moderate taxation, a vibrant democracy and a secure retirement, we must support and educate the generation of students who will take our places all too soon, ready or not. The key to a prosperous Kansas is a sound education system, preschool through graduate school.

So, I believe this budget proposal is a significant improvement over the past two, and a solid starting point for legislative action.

Nonetheless, there are provisions in the plan that affect KU negatively and which represent a serious problem for us as we try to manage one university in four locations. You expect me to be honest with you, and I will be.

The most serious challenge we face, financially, is the one that I cited earlier, and is not fully addressed in the budget. Unlike other state agencies, the universities are not proposed to receive any new funding to cover such fixed employer costs as the increase in health insurance premiums and other fringe benefits.

The amount of this shortfall is $6.4 million at Lawrence and the Medical Center.

Ideally, the university's annual operating grant increase would cover these costs. That's part of what the block grant is for.

But I would remind you the regents requested a 7 percent grant increase, whereas the governor is proposing 1 percent. Somewhere in between those two figures is more than $4.2 million for KU that will have to be absorbed or funded in some other way.

I highlight this as an issue for the Legislature to consider as you review the governor's budget proposal this spring. Failure to fund the increase in our fixed employer costs is a de facto budget cut for the universities.

While we're grateful for the 3 percent salary increase, I must point out that it only covers the SGF portion of our payroll. The $5.2 million we receive is $2.7 million short of the $7.9 million needed to fund the 3 percent increase.

Finally, be aware that the governor's proposed increase of $250,000 in the Medical Student Loan program will require us, over time, to reduce the number of awards from the 120 traditionally authorized down to 90.

We will administer this program at the funding level you allocate. To fund 120 students, $1.35 million would have to be added to the budget over the next several years.

Much has been said during the past month about the budget recommendations contained in the governor's proposal. KU is certainly not exempt from budget reductions. At all KU campuses, these reductions amount to $5.4 million, including:

 • A permanent SGF reduction of $1.1 million, and

 • Administrative reductions of $2.0 million, funded from tuition.

In addition to these reductions, KU will also have to reduce our budget in FY 2005 by more than $2.0 million in one-time reductions to a variety of fee-funded programs, such as housing fees or parking fees.

We appreciate the fact that universities have been given flexibility in how to absorb most of these one-time cuts, but the reductions in tuition funds do raise the question of whether tuition that students pay is owned by the institution or the State General Use Fund. The regents will be proposing legislation that the interest earned on tuition funds deposited in the state treasury be allocated to the universities. We support strongly this action, because we do not believe that students pay tuition to earn interest for the state generally. They expect their tuition to pay for education.

In closing, it is important to state how this budget affects different parts of KU in different ways. Specifically, it hurts the KU Medical Center disproportionately, since that campus relies heavily on state funding and receives relatively little tuition funding.

The original Board of Regents budget proposal recognized this fact and requested special funding of $2 million for the Medical Center in the operating grant request. The governor's budget plan, however, does not include any special funding for KUMC. Dr. Hagen can speak to the specifics of this problem, especially his efforts to build an NCI designated cancer center.

The overall effect of the governor's budget proposal is a modest but welcome increase in funding, a result that is far preferable to the cuts and allotment reductions we've experienced in each of the past two years. But it leaves in place the adverse effect on the Medical Center and the $4.2 million gap between increases in health care costs and the operating grant. It provides significant challenges for us. But we also appreciate the commitment to salary increases, and we, like most Kansans, look forward to a better future.

Now, I'd be pleased to respond to any questions you may have concerning the budget proposal and its impact on KU.

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