The University of Kentucky faces a potential budget deficit next year of more than $10 million, raising the prospect of job cuts and the possibility that some planned academic projects could be stalled indefinitely.
Draft estimates of cost increases and expected state funding cuts point to painful moves on the horizon, Angie Martin, UK's vice president of planning, budgeting and policy analysis, told the Herald-Leader on Friday.
UK, like the other publicly funded Kentucky universities, had to absorb a 2 percent budget cut last month, which UK officials say they expect state officials to extend into the next fiscal year, which begins in July.
Last week, UK President Lee T. Todd Jr. sent an e-mail telling students, staff and faculty that the administration, not academic programs, would take the full $6.3 million hit to this year's budget. The cuts wouldn't cost any jobs through June 30, university officials said.
"The promise not to cut positions is for 2008-09," Martin said Friday. "We cannot make that statement for 2009-10. We don't know yet. I don't have a balanced budget yet."
What Martin has in front of her is a list of expenses for the 2009-10 year that far outweighs the amount of tuition revenue, university investment income and anticipated state money that UK relies on to fund its $650 million annual academic budget.
That portion of the budget doesn't count UK Medical Center or the Athletics Department, whose finances are separate.
UK, like the rest of Kentucky public colleges, has become more dependent on tuition income from students as state funding has essentially flat-lined during the last decade.
UK approved a 5 percent tuition increase last month — the highest allowed for next year by the state's Council on Postsecondary Education. That raise is expected to inject an additional $14.5 million into UK's academic operations, Martin said.
But it won't be nearly enough to cover rising health care and utility costs while counteracting further state funding cuts and plummeting investment income, thanks to the stock market's tumultuous last 18 months.
UK was slated to receive nearly $316.9 million from the state this academic year. After the 2 percent mid-year cuts, it will receive $310.5 million.
To help cover the difference, Todd's office is emptying the $2.2 million in UK's savings account and spending the $2 million in start-up funds UK had been saving to cover operational costs for a planned data center at Coldstream Research Campus, Martin said.
That project is now on hold indefinitely, she said.
Next academic year, UK is slated to get nearly $320 million from the state for its operations, but university officials are betting that doesn't happen.
Todd, in his e-mail last week, wrote that Kentucky will face a budget deficit of several hundred million dollars.
"There are only so many ways to solve that problem, and most of them include further reductions in state support for postsecondary education," Todd wrote. "So there is a good chance we have not seen the last of budget cuts."
Although Martin said she will base her budget on the full state allotment, she plans to build in $10 million in reserves in anticipation of being cut to the current $310 million funding level.
Martin said she plans to propose the first draft of UK's budget for next academic year to the Board of Trustees on June 9.
But everything about the budget-crafting process — including the timing — is proving to be difficult, she said.
"This year, I'm getting very nervous because it's April, and normally I would have already told the areas 'This is how much money you have,'" she said.
In addition, uncertainty remains about how the economy might affect next year's enrollment.
Other key questions that will affect the size of the university's deficit are unanswered, such as when UK's new pharmacy building will open, and thus, how much it would cost to cover its utilities. Electricity, water and sewer costs could exceed $4 million a year for the 280,000-square-foot building, Martin said.
Overall, the utility budget for the academic buildings — not the hospital or residence halls — probably will increase 10 percent, to $25.3 million next year, Martin said.
UK, which operates its own employee health insurance program, will see its health costs increase 8.5 percent next year, an increase of $2.1 million.
On the bright side for employees, their costs won't go up. The university will shoulder the full burden of the increase "in consideration" of salary freezes for the second straight year.
Another key factor feeding the deficit is UK's investment income. The university typically relies on $10 million of its investment income to help fund academic programs each year. That figure is down to $4.5 million next year, Martin said.
UK Provost Kumble R. Subbaswamy has led a series of meetings to warn deans and department heads about the ominous budget signs and ask them to start drawing up ways to trim.
Martin said any cuts will have to be made strategically.
For instance, a department with a high student-faculty ratio and vacant positions might be largely spared.