Across Kentucky, regional universities are struggling to put together budgets for the next fiscal year, which begins July 1.
In addition to rising costs and declining state support, they face the problem of uncertainty: They might owe the struggling Kentucky Retirement Systems a payment equal to 49 percent of their payroll for covered employees, or it might be 84 percent of payroll.
The difference in the two numbers is many millions of dollars. At Eastern Kentucky University, it’s $13.2 million or almost $23 million.
It’s a tough way to build a budget and, either way, is “unsustainable,” says EKU President Michael Benson. That’s why he and other presidents of regional universities are hoping Gov. Matt Bevin calls a special legislation session soon to decide the issue.
The regional presidents, along with quasi-governmental organizations such as county health departments, mental health nonprofits and rape crisis centers, thought they had a solution. House Bill 358 would have allowed universities and other groups to opt out of the Kentucky Employees Retirement System, starting their own defined-contribution system while agreeing to pay the pension system all that is due for retirees already in the system. The University of Kentucky and the University of Louisville have their own defined-contribution pension systems.
On April 9, Bevin vetoed the bill, saying the General Assembly could do better. Among other things, he said the bill would have allowed the Kentucky Finance and Administration Cabinet to take over the management of universities or agencies that defaulted on their pension liability payments to KRS for more than 30 days. In the event of such a takeover, pension checks and health coverage would not have continued for retirees until payments resumed, and all employees would have been bumped into defined-contribution retirement accounts, permanently losing their right to continue with defined-benefits pensions at KRS.
Since the veto, no date for a special session has been set, and Kentucky’s politicians seem more concerned with the May 18 gubernatorial primary than heading back to Frankfort. On June 30, all universities must have their budgets adopted for the next fiscal year.
“I urge the governor and legislature to act quickly and with resolve to make the necessary changes to HB 358 and get it signed into law,” Benson wrote in an April 23 editorial. “It is imperative for EKU, other universities and quasi-governmental agencies. We must have the certainty and flexibility afforded by HB 358 in order to perform our core functions of educating, protecting and caring for those in our communities.”
Several universities, including EKU, Western Kentucky University and Morehead State University, made drastic cuts last year in anticipation of the pension crisis, which has been looming for years. At EKU, for example, regents voted on a budgetary bloodbath last year, firing nearly 100 full-time employees, cutting 12 degree programs and closing the Danville regional campus. Those savings can cover next year’s pension costs.
But the following years look even scarier. On Monday, the KRS board admitted it had not been accounting for longer lifespans. The new analysis bumps the system’s liability to $16.3 billion, which means state universities could owe even more. That, in turn, will mean continued tuition increases for students.
The Northern Kentucky Board of Regents took a different tack. It has already adopted its 2019-20 budget based on pension contribution rates staying at 49 percent, or about $17 million.
If the General Assembly does not act before July 1, they’ll be faced with a $27 million payment, creating a $10 million deficit.
“To fill that hole would be a monumental task,” said Adam Caswell, NKU’s vice president of government affairs. “So we continue to remind lawmakers of the tremendous impact it would have on our campus.”
It’s extremely difficult to adopt a yearly budget without knowing the full extent of expenses, Caswell said. It’s even harder if you’re trying to take a long-term view of the university’s finances.
“What encouraged us most about House Bill 358 is that we would know the extent of our obligations, rather than every year reacting to what have been drastic increases,” he said.
Easing the pension emergency is even more important based on the state’s ambitions. Caswell noted that Kentucky is one of three states in the nation that has not reinvested in higher education since the end of the Great Recession.
“We can’t have strong economic development without a great workforce and there’s not a greater manufacturer than our college and universities,” Caswell said. “So if we want to be able to continue to grow the demands of industry, we should be invested more than we have historically.”
Officials with the Kentucky Community and Technical College System declined to comment in detail on the special session, saying the school is “planning our budget based on what we know now.” Their pension contribution could be $9.4 million or $15.8 million.
At WKU, the budget is being planned with a pension contribution of $14 million, the worst-case scenario.
Morehead President Jay Morgan said Morehead’s budget must be finished by next month, and the current increase in pension costs would be between $2 million and $3 million. Those funds will come from a combination of frozen positions, eliminated positions, and phased retirements.
“Teaching students will be our priority, and lots of other things may have to take a back seat,” Morgan said. “We are hopeful that the governor and the General Assembly can discuss a reasonable way forward for the regional universities and other quasi’s — sooner, rather than later — and that gives us some relief from drastically rising pension costs.”