March 10, 2003

Contact: Lynn Bretz, University Relations, (785) 864-8866.

Testimony by KU Chancellor Robert Hemenway before Senate Ways and Means Subcommittee on Higher Education

TOPEKA -- University of Kansas Chancellor Robert Hemenway testified today before the Senate Ways and Means Subcommittee on Higher Education. [Read previous release]

Here is a text of his remarks:

Since speaking to this committee a year ago, KU has lost $18.8 million through reductions and unfunded costs, or about 8 percent of our budget. As a result, we are hurting. We are not "whining," but we are hurting.

In January, Governor Sebelius announced her proposed budget for the coming year. In general, her proposal is helpful to the universities and the rest of public higher education.

I appreciate especially her recommendation of a 1.5 percent salary increase for state employees. Our faculty, unclassified employees and classified staff are vital to the University and we are grateful for their service to Kansas.

But they have gone without any salary increase this year, so the Governor's proposal is a step in the right direction. If enacted, we would expect the state to fully fund the 1.5 percent increase.

It is true, as the Governor stated, that her proposal "does not reduce current higher education funding." That is not the same, however, as being held harmless.

The three "Budget Needs" charts we've provided illustrate this clearly, in terms of what is needed to maintain the status quo. The Governor's new budget proposal does not repair any of the damage inflicted this year.

Our situation actually grows worse in FY2004, because the recommended budget makes no provision for funding health insurance cost increases or the additional costs resulting from other fringe benefit rates increases at its universities.

These unfunded costs must be paid. We can't cancel health insurance. We have to pay it. These costs, which we must absorb, have the effect of further cutting the budget at KU by an additional $3.7 million in FY2004.

So, even a "stand pat" budget means a cut of at least $3.7 million. The impact of these unfunded costs is especially severe at the Medical Center, and will result in further staff layoffs there during FY2003 and FY2004.

Over a three-year span (FY2002 through FY2004) -- adding in all the budget reductions and unfunded cost increases -- KU's resources have been diminished by about $27.2 million.

How will these past cuts -- and the prospect of additional cuts in the new year -- affect the university's capacity to help lift Kansas out of its existing budget crisis?

KU received $242 million in state funds in FY2002, but our total revenue was $708 million. We use state appropriations to leverage nearly three times as much money, including tuition, room and board, private gifts and research grants.

If you factor in the hospital revenues earned by KU Med, the direct economic impact of this university enterprise easily exceeds a billion dollars. The indirect impact is even greater. But it all begins with the state's original investment.

No other arm of state government generates this kind of immediate return on investment. We are committed to that economic development mission, but our ability to deliver is being undermined. That could hurt us for years to come.

Here's a partial damage report for KU as a whole. We have laid off 44 people, eliminated 159 positions (some of them vacant), and made selective, strategic reductions in programs.

We eliminated the distance learning physical therapy program in Pittsburg, a neonatal nursing program at the Medical Center, the mathematical geology section at the Kansas Geological Survey, and public access to our Museum of Anthropology.

Budget cuts are necessary in such a crisis. We understand that. But there are other things we can do. One of them is to cut costly, bureaucratic regulations imposed by the state.

For example, the KU Hospital was re-created as a public authority. KU Med is no longer a state agency, and it has enjoyed considerable growth and success as a result. We should not be afraid to explore new and creative ways of doing state business.

The administrative procedures of the State of Kansas have changed little during the past 50 years. Yet there have been major improvements in technology and communications during that time that would enable the universities to function more economically, freeing up state dollars to be leveraged further by the university.

I regard this effort as a continuation of the reform of public higher education in Kansas that began in 1999. We want to operate in the same way as Washburn University and the 19 community colleges, all of which receive State General Funds but without onerous regulations that eat up staff time and take money away from the education function.

If such reforms were enacted, KU would remain a state agency, subject to open records and meeting laws, Legislative Post Audit, and other forms of accountability.

The biggest difference would be a marked increase in our efficiency and effectiveness, despite the staffing and funding reductions mentioned earlier.

Toward this end, the Board of Regents and KU intend to pursue legislation that would implement specific recommendations presented to the Regents in December by the Council of Business Officers.

In a year where you cannot give the universities much money, you could give us the ability to manage the taxpayer's money better, and leverage it further.

Let me underscore that KU is in full agreement with the principal legislative goals of the Kansas Board of Regents concerning the FY2004 budget.

We urge the Governor and the Legislature to:

 • Maintain current levels of state funding and avoid further budget reductions;

 • Provide a 6 percent operating grant increase for the state universities, community colleges and technical schools; and

 • Fully fund the third year of faculty salary increases promised under SB 345 but delayed in 2002.

Accomplishing these goals would be difficult, but we have an obligation to tell you what we truly need.

We also ask that the state begin to address the serious salary inequities facing our classified staff. Fixing this problem is a matter of fairness.

We have two additional concerns, both associated with programs that are specific to the KU Medical Center.

In FY2001, an appropriation of $1 million for pediatric research -- using tobacco settlement money -- led to the $4 million private gift that built the Hoglund Brain Imaging Center. Dedication of that facility is planned for March 26, and I hope you can be there.

This, in turn, led to a $2.2 million federal appropriation, championed by Senator Pat Roberts. Our plan has been to use that federal money -- along with a continued $1 million state appropriation -- to begin repayment of the Center's $9 million in equipment costs.

The Governor's budget proposal, however, eliminates the state's $1 million appropriation. Without that funding, we will not be able to utilize this unique brain imaging facility to its fullest capacity.

We encourage you to continue the $1 million, knowing that it will have direct and lasting medical and research benefits for Kansas children and others of all ages.

A second KUMC issue concerns our highly successful Medical Student Loan/Scholarship Program, an outreach effort designed to provide an increased supply of primary care physicians to underserved areas of Kansas.

The program is financed by a State General Fund appropriation and income from loan repayment. The Governor has proposed level funding of $2.2 million from the State General Fund for this program in FY2004. We sought an increase in order to enable us to award a full complement of 30 new loans this year.

It now appears that repayments and pre-payments are exceeding our original estimates. As a result, it may be possible to award some new loans this year. We will be leaving updated information with you today on possible funding options for the Medical Loan Program.

The outlook is better this year because of the large pre-payments we've received. It will still be necessary to reduce the number of new loans in future years unless the state appropriation is increased. That would be unfortunate, since the program has been so successful.

I urge you to give special attention to these two specific health care related issues at the Medical Center. In both instances, relatively small amounts of money would have a dramatic impact on the quality of research and medicine being practiced in Kansas.

I realize that I have painted a grim picture for you today. Despite the constraints and the shortfalls I've described, I want to assure you that KU continues to do good things for Kansas.

KU received a record $243 million in grants to support research of all kinds (with two thirds of it in the burgeoning life sciences disciplines). This figure has nearly doubled since 1995, and our rate of increase is among the highest in the nation.

Selected programs at KU were significantly enhanced this year as a result of a tuition increase approved in June by the Board of Regents as part of a five-year plan. Decisions concerning the use of that increase were made in consultation with our students, and the compact we've formed with them will guide us in future tuition enhancement planning.

About 20 percent of this year's tuition enhancement increase funded KU Tuition Grants for 3,900 lower-income students, essentially exempting them from the tuition increase. We are also using the funds to renovate classrooms, enhance technology and add faculty in key areas.

In addition, alumni and friends pushed the "KU First: Invest in Excellence" campaign of the KU Endowment Association to the $404 million level, and KU Endowment provided a record $68.9 million to our students, faculty, projects and programs last year. Unfortunately, that level of support can't continue.

Recent reverses in the stock markets mean that, compared with last year, the amount of money available for KU Endowment to spend from permanent, endowed funds will be 20 percent less.

Our students continue to make us proud. For example, a recent graduate -- Lt. Robert Chamberlain -- received a Rhodes Scholarship. Mark Bradshaw received a Marshall scholarship, the first such "double" in one year for KU since 1965.

And a slightly older alumnus -- Vernon Smith, a 1951 master's degree recipient -- shared the Nobel Prize in Economics last fall.

On the economic development front, KU played a significant role recently in the decision of a pharmaceutical products firm, Serologicals Corporation, to build a new manufacturing plant in Kansas.

Ground was broken in late January for this $28 million project, which will initially employ about 40 people in Lawrence.

We need more such success stories throughout the state. In her State of the State Address, the Governor announced plans for a "Prosperity Summit," designed to bring "together business and community leaders from across the state to meet with [her], Lt. Gov. Moore and key cabinet secretaries to explore opportunities for growing our economy and eliminating barriers that hinder the growth of Kansas companies."

We think that is an excellent idea, and we want to be part of it. The University of Kansas and all of the public institutions governed by the Board of Regents extend an offer to the Governor to provide facilities, staffing, publicity and anything else that would contribute to the success of this endeavor.

Educated people are an asset for any state, every bit as much as its roads, water, oil or wheat. If Kansas is to be positioned for economic recovery, the state must support its universities. An editorial in USA Today last April said it all:

"States hurt themselves by reducing their investment in higher education. According to Anthony Carnevale, vice president of the Educational Testing Service, states generally spend about $24,000 to put a student through a four-year public school. Yet the return to the state's economy is about $2 million during that student's working life, and the return to state treasuries is about $375,000 in tax revenues."

To quote some of our students, that sort of equation is a "no-brainer" in terms of where our priorities should lie during the coming year.