The Murray State University Board of Regents Finance Committee, along with most of the other Regents met Tuesday afternoon to discuss potential financial challenges in the forthcoming years at Murray State. President Bob Davies said many of the unknowns (like state appropriation and pension liability) may be answered in the upcoming legislative session, but felt the discussion couldn't wait until then.
No final actions or final decisions were made in this meeting.
Vice President of Finance and Administrative Services Jackie Dudley shared a list of "pressure points" for the fiscal year 2018. A 4.6% enrollment decline this year amounts to a $5.5 million estimated revenue budget shortfall. Dudley noted that the Spring and Summer terms are unknown factors at this time.
Ongoing uncertainty over possible changes to the state pension system could amount to an estimated $4.8 million increase in costs (if Governor Matt Bevin's proposed changes are not made). Dudley said if some changes are made then this number could change. As an example, Davies said if there is no change to the pension system, the current 49 cents per dollar to KERS will become 84 cents per dollar next fiscal year. He said the data is per State Budget Director John Chilton. Dudley said the university wasn't anticipating a change to in TRS until the Bevin administration recently asked for the actuarial numbers to be recalculated. TRS contribution rate is currently around 15.6% and some members are participating in a defined contribution plan.
Performance funding also presents a challenge to the budgeting process with regards to meeting metrics (which includes retention and graduation rates, STEM rates, etc.), Dudley said.
Also, state budget appropriation in the next legislative budget remains unknown, Dudley said. Davies said he took Bevin's call to other state agencies (not higher ed) to reduce their budgets by 17% as a "warning sign." He said appropriation depends on what happens with the pension reform and tax reform movements, but said the university is developing contingency plans for various scenarios. He said, "We are anticipating a reduction. How steep and how far would not be appropriate to forecast at this time."
State lawmakers reduced higher education funding by 4.5% in the 2016 budget.
Education and General Functional Expenditures
The following graph excludes auxiliaries, capital-type expenditures, grants and contracts and MSU Foundation expenditures. This is the operations, 'living budget.'
Enrollment pressures include free tuition at community colleges and flat and declining population, Regent Chair Steve Williams said. Davies said other factors include competition between universities increasing due to performance funding and price sensitivity.
The current targets are a freshmen class of 1,600 and a transfer class of 700. Reaching those goals could help stabilize an enrollment projection of an excess of 10,000 students (including graduate students).
Davies said more graduate programs are being developed for online learning and being reformatted to meet market needs. He expressed optimism for an upward trend in graduate enrollment.
Provost Mark Arant said online Murray State is competing on a national scale, as 7,500 higher ed institutions in the U.S. have such programs. Arant said MSU is looking at developing in the Paducah area masters degrees in Nutrition and Exercise Physiology and a Doctorate in Occupational Therapy. He said the university is exploring expanding veterinary options in Hopkinsville and other credentialing opportunities. The challenge, he said, is getting the resources together to get those programs off the ground. He also wants to better educate students and faculty on degree possibilities, for instance noting 400 pathways for History degrees.
The following graph shows how much money is allocated in each area to put budgetary items into perspective. Davies said any kind of budget reallocation can't come from one source, but a combination.
Davies said as the budgeting process is underway for the next fiscal year, tuition and fees will be a part of that discussion. If tuition were to increase at Murray State, here are the projected amounts:
- Current average in-state per semester: $4,410
- 1% increase: $4,454
- 2% increase: $4,498
- 3% increase: $4,542
- 4% increase: $4,586
Davies asked for discussion purposes what would be an "appropriate" tuition increase. Displaying a comparative graph of other universities in the state, Murray State is on the lower end. Assuming no other universities change their rates next year, a hypothetical 2% increase would match with Eastern Kentucky University, whose Board of Regents recently recommended not increasing tuition next year.
Davies said increasing tuition rates by 5% again, as in recent years, "will cost us students," adding that 4% or 5% is too high. He argued the net income would actually decline due to fewer students.
"Therefore, I would suggest us to be looking at a tuition increase of the zero, one or two percentage points. Three on the very, very outside," Davies said. He said though demographics are similar, Eastern Kentucky has a larger population and would not want to be "over-pricing" them.
With regards to a 0% increase, Regent Dan Kemp said he would prefer to hold tuition increases to match the rate of inflation given that costs go up and faculty and staff need cost-of-living adjustments. He said he would prefer an increase between 1-1.5%, but said that a serious discussion couldn't commence until knowing what the legislature is going to do with appropriations and pensions. He said in a 'perfect world' tuition increases should be kept to a minimum. Davies estimated if there was a 0% increase, MSU would need to attract an extra 80 to 100 students to increase total net revenue.
A special BOR meeting is set for May 11 for a final tuition recommendation, following guidance from the Council on Postsecondary Education.
Budget Work Plan
Dudley outlined a budgetary work plan underway on campus that includes an assessment of academic and administrative programs, a "position chill," a review of expenditures, revenue enhancement opportunities, outsourcing options (see below) and a review of cost avoidance practices.
Arant said all programs are filling out an academic review rubric to be returned to his office December 15. The team that built the rubric will reconvene and analyze the results, which will be ready by the middle of January with some conclusions made by the end of February. He said should a program be recommended to cut, then the Southern Association of Colleges and Schools (SACS) would need to be notified and a teach-out or sunset plan would have to be implemented. There are also considerations being made for potential new programs like Game Design and Drones. Ramping up a new program has a process as well, he said, for instance a new degree would have to go through a CPE process.
Various options for outsourcing could include dining, housing, health services, parking, bookstore and facilities management. Dudley noted other schools outsource some of these services, including universities in Kentucky. Outsourcing presents some financial gain, she said, and can mitigate future costs (for instance, pension liabilities).
Davies said the primary reason to outsource is to reduce costs. He said it would allow the university to focus energy and finances on the academic mission and an outsourcing entity can run the services more efficiently and could enhance program quality (as the entity would have specialized skills, technology, etc.).
Davies said Murray State is the only public university in Kentucky that self-operates dining services. He noted Eastern Kentucky University recently outsourced facilities management (The Lexington Herald Leader reports the $7.6 million contract with Aramark cut 180 jobs and saved the university $5 million). The University of Kentucky began taking steps to outsource dining services in 2014 - a contract with Aramark promised UK $126 million in savings over 15 years, the Herald Leader reports.
Davies also said most bookstores in the state are outsourced. Dudley said contractors may also provide capital to build new buildings (cafeterias, residence halls, etc.) instead of cash back. They may also hire back staff cut in the decision to outsource.
Murray State had recent turnover in dining services, with some retirements and resignations. "We've been very stretched to hire individuals in those areas," Davies said. The university has hired independent contractors to temporarily fill those positions.
"In terms of being self-operated on those big ones, entirely, we are the outlier in those cases," Davies said. Following up on whether Murray State currently outsources services and what, if anything, is being outsourced, Vice President of University Advancement Adrienne King said, "Historically, Murray State has self-operated all units on campus."
Regent Chair Williams said it would be premature to make any decision, but encouraged management to explore options. Regent Susan Guess said if faced with a $5.5 million cut, the university could 'save staff' if individuals are able to secure a position with the outsourcing entity. Regent Lisa Rudolph said the university wouldn't want to lose institutional control but just as a university would want to hire the right people, this would be a matter of hiring the right firm.
University of Tennessee at Martin decided last month to not outsource facilities management services as it would cost more than keeping their current operations.
Recent Chair Williams said transparency is important as decisions are made over the next couple of months.
The next Board of Regents meeting is on December 8.