Efficiency and Effectiveness
In March, President Capilouto provided an update to the campus, after the Kentucky House of Representatives approved its version of the state budget.
Under the President’s leadership, we have been sharing our story with the Kentucky General Assembly. It is a powerful story—one of progress and economic significance. It is a story of unprecedented student success and an unwavering commitment to the Commonwealth's future as the University for Kentucky.
We commend our state legislature for their commitment to a sound financial future for Kentucky. Our policymakers are confronting head-on the state’s very real financial challenges. Indeed, we share those principles and those goals. We are forging the same future for the Commonwealth by better utilizing the resources we receive. However, a brighter future tomorrow requires further investment in postsecondary education today.
The $280 million appropriated annually to the University of Kentucky from the state is the first dollar into the University’s operating budget. It supports all other revenue-generating endeavors and is key to UK’s central missions of teaching, research, and service. Without it, the work conducted by our faculty, staff, and students would not be possible. Those state appropriations fuel the engine that propels us forward.
Certainly, in any financial context, it is incumbent upon us to review and improve our business practices to provide the most efficient and effective services from the resources with which we are entrusted. Over the past decade, the University of Kentucky has aggressively pursued strategies to more efficiently utilize the resources that drive our education, research, service, and health care missions.
Since 2008, in the wake of a national recession, state appropriations on a recurring basis have been cut by $55 million.
So, as state appropriations have been limited, we have acted creatively by collaborating with external partners— utilizing their expertise— to drive our campus transformation. This transformation has been critical for us to build a campus that supports student success, academic excellence, and sophisticated research and health care. Moreover, only 10 percent of UK’s total capital investment is supported by state and federal dollars.
At the same time, we have supported our initiatives by effectively — and in a focused way — aligning our resources with priorities outlined in our strategic plan to provide for the wellbeing of Kentuckians.
I want to share a few examples of how we have improved our business practices to maximize the efficiency and effectiveness of the crucial investment from the State:
We evaluated outstanding bond debt for refinancing opportunities to lower costs.Because of our strong financial stewardship, we refinanced eligible projects three times in the last six years — to maximize savings and costs — totaling $41 million over the remaining life of the bonds.
Because of our efficient stewardship, we have garnered strong financial ratings from the country's leading ratings agencies. UK received an upgrade by Standard & Poor’s to AA in March 2015, making UK one of only 10 U.S. higher education institutions to receive a rating upgrade during calendar year 2015, out of 503 institutions rated by S&P. In January, we announced that Moody’s affirmed our AA2 bond rating. It was the second major rating in a row where the university garnered such strong marks for its financial health— an important indication of our reputation as an institution both regionally and nationally.
Both Moody's and Standard & Poor's cited our enrollment growth, vibrant health care system, and strong financial management in their reports. While many positive comments were made related to our University, both rating agencies noted the uncertainty of state financial support as a potential credit challenge to retaining our strong financial position.
We began paying our bills differently. UK is engaging in a multi-year initiative to begin paying regular purchase order invoices as virtual procurement card purchases, rather than via check. These payments are eligible for a procurement card rebate, thereby increasing the size of the rebate revenue to the University.
We are managing the rising costs of health plans. UK wisely made the decision years ago to manage our retirement program through a defined contribution plan, which requires three years of service to be fully vested to help ensure a strong and stable system. Additionally, UK is using a health care purchasing collaborative to control benefits costs.
We have avoided new utility costs, while moving toward greater environmental sustainability. The University’s Physical Plant Division (PPD) avoided additional utility costs due to intensively managing energy usage in buildings and through the use of new equipment. Our partnership with Ameresco has helped manage water and energy costs and usage, generating millions in savings and ensuring more efficient energy usage. Our new residence halls are LEED Silver targeted, and— where available— utilize geothermal energy options.
We led the establishment of the KY Rx Coalition Foundation. Created in 2011, the KYRx has expanded to include 24 employers, including the Kentucky Teachers Retirement System. The primary objective of the purchasing collaborative continues to be to save money on prescription benefits—not just for UK, but for other key state agencies as well.
We engaged in a new multi-media rights innovation. The University sought a new revenue opportunity through issuing an RFP to develop and market various campus multi-media rights sponsorships packages. The contract was awarded to JMI Sports. This innovative, long-term agreement is one of the chief reasons UK Athletics is able to remain one of the handful of truly financially self-sustaining athletics programs in the country. At the same time, UK athletics partners in unique ways to bolster the university’s academic priorities, funding millions in academic scholarships as well as $65 million of the new $112 million Academic Science Building, which will open for the 2016-2017 school year.
We are continually looking to negotiate and re-negotiate contracts to ensure the best price and best service. The University entered into a five-year contract with a scientific supply vendor in fiscal year 2015 to provide equipment and supplies for research activities. The University negotiated a contract execution fee in addition to various spending and prompt payment rebates. The University also renegotiated ground delivery service agreements with UPS and FedEx.
We moved to online W2s for both cost-effectiveness and greater efficiency. The University continued to generate savings by providing an option for employees to retrieve their W2 form online in lieu of receiving the paper form.
These examples represent only a small sample of our creative pathways toward the future. Each decision is driven by an institution-wide desire to more effectively serve our students, faculty, staff, and the future they help shape.
We can and will be more efficient and creative in the future. But efficiency cannot replace state support for our efforts on behalf of Kentucky.
We will continue — and expand upon— strong principles of financial stewardship that have guided us over the last several years, even as we forcefully tell the story of our momentum and the importance of state support that has helped make it possible.
We need the $280 million engine that fuels our progress, even as we strive every day to make that engine do even more for Kentucky.
You can learn more about our shared story, as the University for Kentucky here: http://www.uky.edu/see/UK4KY