04/05/18 - Update on Activities in Frankfort

Dear Colleagues:

Several bills affecting NKU have been passed by the General Assembly and were presented this week to the Governor for action. We thank the Northern Kentucky Legislative Caucus for hearing us and making our people and NKU a priority in Frankfort.

I would like to provide some clarification and details on the following four topics of importance to NKU. I will elaborate further on each item later in this communication.

• The State Budget – The net impact of the state budget on NKU as it currently stands is a gain of $2 million, thanks to the efforts of our legislative caucus and their fight for performance funding for higher education.

• The Pension System – Increased pension costs continue to be the largest single factor affecting our university budget.  The General Assembly passed two pension-related bills: one to provide some modest reforms to our pension system, and one to provide a possible direct relief opportunity for NKU to exit the KERS system.  The latter, House Bill 362, was advanced by leaders of our own legislative caucus and provided the only meaningful opportunity for pension relief for NKU.  That bill was vetoed by the Governor yesterday; however, there is still a possibility for this relief opportunity to be revived.  We continue to evaluate our best course forward.

• Tenure Provisions – Despite new legislation addressing a limited aspect of tenure, we have no plans to change existing NKU policies and procedures related to tenure. 

• Tuition Waivers – New legislation may effect employees enrolled at other institutions, but has no impact on NKU faculty and staff, nor their family members, taking classes at NKU.

More on the State Budget

Under House Bill 200, the General Assembly has passed a budget that will, if signed by the Governor:

• Cut our state appropriation by 6.25% (just under $3.2M).

• Appropriate to Kentucky higher education an additional $31M in performance funding, of which $24M will be allocated to Kentucky’s eight four year universities.  NKU is expected to receive in excess of $5.1M from this allocation.

• In the face of inevitable cuts to state appropriations for all state agencies, our legislative caucus served as powerful and successful advocates for performance funding.

The combination of the direct cut to our state appropriation and the anticipated performance funding increase results in a net positive budget impact of about $2M for NKU.

The Kentucky Center for Mathematics (KCM), housed at NKU, was originally defunded in earlier versions of the proposed state budget for NKU; however, funding for KCM was restored in the final budget.

More on the Pension System

Despite the positive state budget impact, we have other budget pressures, both internal and external, that force us to plan for internal budget cuts potentially as high as $20M.  The largest single factor continues to be our increased pension costs, with other pressures including increases in fixed costs, operations and maintenance costs associated with the new Health Innovation Center, and investments required for safety and compliance.

Without any pension reform or relief, NKU was previously advised that our KERS contribution would increase by nearly $13M in the upcoming fiscal year. That is effectively the same as a budget cut of nearly $13M.

The first pension-related bill passed by the General Assembly includes a number of reforms designed to reduce the long-term cost to the pension system. While the bill might help to modestly reduce our contribution in future years, it would have limited impact on our projected KERS contribution increase for the upcoming fiscal year. Therefore, as we plan our budget for 2018-19, we are still planning for this nearly $13M pension impact.

The second pension-related bill passed by the General Assembly, House Bill 362, was vetoed yesterday by the Governor.  Although this bill was vetoed by the Governor, we are advised that there is still a possibility of reviving this bill through a legislative override of the veto. The legislature will reconvene on April 13 and 14 to consider veto overrides.

House Bill 362 offers Kentucky’s comprehensive universities the option of exiting the KERS system, if the university commits to having its employees exit the KERS system effective July 1, 2019 and pays its full unfunded pension liability.  The following conditions would apply to NKU and NKU employees:

• If NKU makes a timely commitment to exit KERS, NKU employees in KERS would continue to accrue KERS benefits through June 30, 2019. Thereafter, these employees would participate in NKU’s existing defined contribution plan with TIAA in which each employee contributes 5% of their salary and NKU contributes 10%. Employees would retain all KERS benefits they accrued through June 30, 2019, and those retained benefits could not be reduced.

• If NKU makes a timely commitment by June 30, 2018 to exit the KERS system effective July 1, 2019, NKU’s financial commitment would be as follows:
  
  
  • NKU’s KERS contribution would remain at this year’s level for FY19 and FY20, eliminating the nearly $13M annual budget hit beginning this coming fiscal year.
    
    
  • Beginning in FY21, NKU will pay off its unfunded KERS liability over 30 years, with no interest.  All estimates provided to us and our own projections indicate that our annual payment over those 30 years would be appreciably lower than our projected annual KERS contribution beginning next year.
    
    
  • This pension bill provides the only meaningful relief from the pending $13M increase in our KERS contribution.

There are many complex dimensions to House Bill 362 and its implementation by KERS, including most importantly how KERS computes NKU’s unfunded liability. Today, we don’t know what that unfunded liability will be under the terms of the bill. What we do know is that any increase in our annual contribution required to pay this liability off over 30 years cannot exceed 5% per year from today’s contribution level beginning FY21.

Because House Bill 362 included many changes from its earlier Senate version, we have not had time to fully assess the impact that exiting KERS would have on the university.  All evidence to date points to this bill offering the best and only option to avoid the pending drastic increase in our pension costs that will have serious consequences for our workforce.

If House Bill 362 is restored in the final days of the General Assembly and NKU is provided this opportunity to exit KERS, we will continue to evaluate the impact of any such transition on each NKU employee currently in KERS to ensure we can mitigate any adverse impact appropriately before proceeding to make such a change.

We will continue to research the pension bill options and will provide you with additional information as we learn more.  

More on Tenure

The General Assembly has not passed a bill that eliminates tenure. Rather, the General Assembly has passed a bill that explicitly provides universities authority to remove tenured faculty members when the reduction is a result of the Board discontinuing or modifying an academic program upon determining that program changes are in the university's best interest due to low enrollment, financial feasibility, budgetary constraints, or declaration of financial exigency. This bill requires 10 days’ notice before taking such action.

While I understand this bill has caused concern among faculty on our campus, I want to be clear – NKU has firmly established policies in our Faculty Handbook that provide due process for removing tenured faculty members under these conditions, and we have no plans to change how we handle such situations.

The bill passed by the General Assembly does not prevent universities from continuing to apply existing policies that are consistent with this bill, as our policies are. The bill has not modified the rights provided to tenured faculty that are contained in the Faculty Handbook under such circumstances.  As such, passage of this bill would not change our process if a tenured faculty member was adversely impacted by discontinuance or modification of a program.

More on Tuition Waivers

Finally, another bill was passed that changes the state’s tuition waiver legislation. The change only applies to employees utilizing the waiver at other institutions. NKU faculty and staff as well as their family members who are taking classes at NKU will not be impacted. We are continuing to study how this change might impact those employees who use the waiver at other institutions, and in the meantime we will make determinations of how best to proceed on a case-by-case basis.

I know this is a lot to process and I do understand the uncertainty and anxiety you may be experiencing.  Please know that we are doing everything we can to minimize the negative impact of more budget cuts and escalating pension costs.  As many of you know, our budget process has included several budget forums and the gathering of suggestions from the campus via our online budget suggestion site which has generated a large number of suggestions currently under review.

Gerry

Gerard A. St. Amand
Interim President
Northern Kentucky University
Nunn Drive
800 Lucas Administrative Center
Highland Heights, KY 41099
Phone: 859-572-5123
Fax: 859-572-6696