In a sobering e-mail, University of Kentucky President Lee T. Todd, Jr. warned faculty and staff late Friday that the state's budget problems could bring a third year of wage freezes, big tuition hikes and the possibility of layoffs.
If annual state funding drops dramatically below the current $310 million, Todd said UK could face draconian choices merely to maintain its current level of service.
"We face very difficult circumstances and there are no easy answers," Todd wrote. "Everything will have to be on the table for discussion as we build the university's budget for next year."
State lawmakers face a shortfall of up to $1.5 billion in the next two-year budget, which they must finalize by April 15. Gov. Steve Beshear will lay out his proposed budget to lawmakers on Jan. 19.
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"Over the next 60 days, we will do our very best to convince Kentucky's policy makers that their investment in us — even in these most difficult of times — is essential to Kentucky's long-term success," Todd wrote.
Rising costs for health care and other fixed expenditures mean the university will likely need an additional $17.4 million more next year just to continue operating at current levels, Todd warned.
It would take a 9 percent tuition hike to pay for that $17.4 million increase, but Todd said he would be "very reluctant" to recommend a significant tuition hike to UK's Board of Trustees.
UK spokesman Jimmy Stanton stressed Monday that Todd's message was not a final financial plan, but rather "an effort to explain, in great detail, the budgetary challenges the university is facing."
Increasing faculty salaries remains a top priority for Todd, Stanton said, but the e-mail offered little hope.
Increasing salaries by 1 percent would cost the university's general fund about $3.6 million a year, Todd said. "It is very difficult to add a recurring expense of that magnitude given substantial increases in fixed costs and the prospect of no additional support from Frankfort," Todd wrote.
In addition, he reminded the university's more than 12,000 staff and 2,000 faculty that many universities in other states have had to implement massive layoffs and furloughs to balance their budgets.
"Laying off a large number of employees so that those who remain can have a salary increase is not in the best interest of this University," Todd wrote.
The message appears to have hit home.
Robynn Pease, director of the office of work/life and staff trustee on the university's board, said that her co-workers who have seen Todd's e-mail "don't know what to think."
"They just know that things are really bad, and there is a great deal of anxiety about whether someone is going to have a job next year," Pease said. "Their most basic concern is just keeping jobs."
Dr. Hollie Swanson, vice chair of the university senate council, said that fellow faculty members had watched other universities make significant cuts and did not want the same to happen at UK.
"We're trying not to act out of fear," she said. "Neither Dr. Todd nor Provost (Kumble) Subbaswamy have made any concrete plans. It's more, 'We don't know exactly where we are right now,' which I think is prudent."
"What we want to do is be involved in all the decision-making so that we can make all the best choices," Swanson said.
The fact that the state is now using federal stimulus funds to help fund the university makes UK's financial outlook particularly tricky in fiscal year 2012 — the second year of the state's upcoming two-year budget, Todd said.
About $21 million of UK's $310 million state appropriation this year came from temporary stimulus funds, Todd noted. Since more stimulus funds are available for the next fiscal year, which begins July 1, the university should receive at least $306 million from the state that year, Todd said.
But in the following year, the state will have to find an additional $21 million just to maintain current funding levels, Todd said.
At a news conference with Gov. Steve Beshear on Monday, Todd also said UK needs more lab space and new buildings for its business college and law school. He said he has asked Beshear to fund the buildings, including a $205 million life sciences research complex, in his budget proposal to be unveiled next Tuesday.
Beshear responded that higher education is one of his priorities, and "we are working very hard to try to come up with a balanced budget in some very perilous economic times."
Many state agencies have seen their budgets decline by 20 percent or more since Beshear began the first of six rounds of budget cuts in December 2007, but the state's universities have been largely shielded from those cuts.
UK's funding is down 7.5 percent, or $25 million, since Beshear took office.