How Tough Will It Get?

An interview with President Ramsey about the economy, the budget and moving forward in tight times

The post-9/11 economy has left colleges and universities across the country--public and private, large and small--facing serious financial challenges. Reduced state support, a downturn in private giving and lower returns on investments are driving schools to look to tuition increases, the elimination of academic programs, employee layoffs and other measures to balance their budgets.

At U of L, after a second straight year of permanent state budget cuts, students will pay 9 percent more in tuition this fall as part of a larger plan to address a projected $6.4 million deficit. In addition to the $1.4 million generated by increasing tuition rates by 9 percent instead of the originally planned 6.4 percent, the university is making $5 million in budget cuts across campus and identifying ways to generate new revenue. "Raising tuition is always painful," said U of L President James Ramsey at the time. "We have worked hard to ensure that we are not placing an undue burden of budget cuts on our students."

Ramsey understood the bleak economic forecast and the challenges it meant for U of L when he accepted the presidency in November 2002. As an economist and state budget director who had served as a faculty member and financial administrator at several universities, he was well aware that the state's resources were shrinking, threatening the progress of Kentucky's nationally recognized higher education reform initiative.

"U of L is the example of what can happen when a state puts its mind to building its higher education system and research capacity," he says. "I felt that I could best serve the state by making sure the university stayed on course during the difficult times ahead."

How difficult will the future be? Can the university continue its momentum in the face of a declining economy? What is the university doing to address the challenges? UofL magazine sat down with President Ramsey to pose these and other questions about the university's financial future.

As an economist, what can you tell us about Kentucky's economy over the next few years and how this might impact U of L?

Kentucky's economy began to experience a slowdown in late 2000 and continued to erode with the national economic downturn following Sept. 11, 2001. Kentucky continues to be a manufacturing state, and we began to see a loss of manufacturing jobs in late 2000 and throughout 2001. The impact of Sept. 11 caused the economic weakness to expand to other industries and sectors. Nationally, the economy has bottomed out, and we had anticipated a slow recovery to begin in Kentucky this year. Typically, manufacturing states such as Kentucky are slowest to bounce back from a period of economic slowdown, so we expect to see only modest growth over the next year before we see any marked improvement close to home.

Even though we hope we have seen the worst of the economic slowdown, we may not have seen the worst of its impact on the state budget and therefore U of L. The state has worked its way through tough years by borrowing against the future--deferring costs to the next year's budget and using significant one-time fund sources to balance the current year. This has allowed Kentucky to avoid draconian budget cuts to K-12 education and, to a lesser extent, higher education.

But this approach means that the problem has been compounded and will have to be addressed one way or another when the legislature reconvenes next January. Our legislators will have to make very tough decisions that could either help or hurt both K-12 and higher education through 2006 and beyond.

Public university funding comes from a large pie that includes K-12 education and other important priorities. How would you advise legislators to prioritize?

When it comes to education, we should not--nor will we--ask our legislators to choose between K-12 and higher education or pre-school and adult education. If any link in the educational chain is weak, our education system fails. We need to think about education as a continuum. Students who enter college well prepared by their K-12 education are more likely to graduate with professional skills that will contribute to an information-age economy. A weak higher education system will leave us with an under-prepared workforce or drive our students to seek better opportunities elsewhere.

Education is tied to every aspect of our state's success. A strong educational system will reduce expenditures on social services and corrections. It will lead to new knowledge that builds the economy. And we know that those who have higher degrees will earn more and therefore contribute more to our tax base. So education--at all levels--has to be the state's top priority because it influences virtually every other aspect of Kentucky's success.

Why is it that universities like U of L are continuing to raise tuition, often faster than the rate of inflation?

Nobody wants to raise tuition, and in our case it's the last place we look to balance the budget. But we also face some hard realities. Our two primary sources of revenue are state funds and student tuition, so we have few places to turn when state funding is reduced. In essence, we're operating with the same level of state funding this year as we did two years ago, yet we have increased costs due to inflation, the need to enhance learning opportunities and the requirement that we retain and recruit the best faculty.

Our primary expense is in compensation for our faculty and staff, because the success of what we do rests with their work. We've been working hard to bring salaries up to the median of similar universities to help us retain and attract top-notch employees. We must continue to find ways to provide salaries above the median; being average is not acceptable. The cost of library materials has increased 10 to 15 percent annually for the last two decades, well beyond the pace of inflation. And we are constantly looking at ways to upgrade technology so students learn on the same types of equipment they'll be using in the workplace.

This means that even as we tighten our belts to address budget cuts and even as we look for new ways to bring revenue into the university, we must also look to tuition increases to ensure that we can provide students with the support and quality they expect when they come to campus.

Some people suggest that higher education hasn't trimmed the fat and therefore doesn't need more funding. How would you respond?

I think it's critically important for institutions to be accountable for how they're using the funds they receive, whether they're state dollars, tuition dollars or private dollars. At U of L, we have a public scorecard that outlines progress toward our goals so that people can evaluate whether we're spending our resources effectively.

We've also looked inward and reallocated more than $21 million from low-priority areas to strategic, high-priority initiatives tied to our institutional goals. We're always evaluating our academic programs and services--it's an ongoing process. We've had to make some tough decisions, and we're a better, more efficient university for having made them.

But we know that future stress on our budget will threaten our ability to achieve our goals, so we're working hard to make sure people understand the importance of what we do and seeking creative ways to generate additional financial support for the university.

Such as...?

We're actively building partnerships with other organizations--Louisville Metro Government, area health-care agencies, state government and federal agencies, and foundations and corporations--so that we can combine resources and accomplish mutual goals.

We're working with donors who are interested in helping students through scholarships or advancing research in health care, education, entrepreneurship and many other areas.

We're hiring internationally recognized, highly productive faculty whose research attracts funding; the goal is to make it possible for them to be fully supported by extramural funding.

We work with our federal delegation--Senators Mitch McConnell and Jim Bunning and Rep. Anne Northup--to secure funds for key projects. Similarly, we've worked with state agencies such as the Office of the New Economy and Dr. William Brundage to fund projects that will benefit the state.

These are just some of the ways we can advance U of L when funds are tight.

Can you use the university's endowment?

The endowment, which is made up of private gifts to the university and managed by the University of Louisville Foundation, is very important to the university. Gifts to the endowment are invested so that returns can benefit the university for many years to come. (I should note that the investment earnings from the endowment also have dropped due to the economy.) The university also receives outright gifts, but nearly all donations, whether they're endowed or direct, are restricted in use.

Most donors, like our many partners, make their contributions to support specific projects such as cancer research or an endowed chair or scholarships for students in a particular field. You'll rarely find people stepping forward to support the general operation of the institution--to pay the utility bills, put equipment in the classrooms, maintain the sidewalks or give raises to staff, for example. It's natural that people want to designate their gifts to an area of the university need that matches their interests.

We value all of the financial support we receive, whether it's general funding from the state or the targeted funding we receive from donors, granting agencies and other partners. Every investment is important.

Whose investment is it, and what are the payoffs?

The university has many investors, from the students and families who pay tuition for a quality education to taxpayers who, through the state, invest in future leaders and research to move the commonwealth forward.

Alumni invest because they know that the success of the university reflects on the value of their degrees, and many donors contribute because they know that their support will make a difference in the life of a student, the cure for a disease or a faculty member's ability to address a community need.

The payoff is tremendous. Every dollar invested helps us attract additional support and contribute to the economy. We know, for example, that the state's

$66.7 million investment in the first two rounds of the Research Challenge Trust Fund, or "Bucks for Brains," has attracted an additional $66.7 million in private funds.

Our Bucks for Brains researchers have attracted more than $53 million in federal commitments for research. And every $1 million in federal funding for research generates $2.2 million for the local and state economies. That's a pretty good return on the investment.

There are other returns. A top-notch research university gives students hands-on access to the best faculty and most recent thinking in their fields, making them better prepared when they graduate. It creates knowledge that helps businesses, improves social services, benefits educators and health-care providers and spins off into new companies. It provides its community with exciting cultural opportunities through the arts. It even provides another form of entertainment through athletics and draws visitors to the community and state.

Speaking of athletics, there's a lot of talk nationally about highly paid coaches and costly athletics facilities and programs in comparison with funding for academic initiatives. Is there a disparity?

There's no question that it takes resources to support a top-notch, competitive athletics program. We've invested more than $100 million in athletics facilities alone over the past decades to address gender equity and improve the academic and athletics opportunities for our student athletes. Most of this funding came from private donors who target their gifts to the athletics program.

Our facilities also allow us to attract outside events to Louisville that generate revenue for the department and the community. For instance, Papa John's Cardinal Stadium will be host to the state football championship games, and Cardinal Park is home to a number of tournaments ranging from regional softball championships to the NCAA field hockey finals.

We also work to hire the best coaches, because successful coaches attract successful students and additional revenue to the athletics program. For instance, since the arrival of Coach Rick Pitino, whose salary is covered in part by broadcast agreements, the waiting list for basketball season tickets has grown to more than 3,000. Donations are up. National television and other media exposure of our basketball team and the university have increased exponentially. Fan enthusiasm is at its highest point in years.

Rather than taking away from our students' academic experience, all of these activities add to the campus life for our students. They also serve as valuable tools as we promote our university to top prospective students. It's not either/or--athletics or academics--but how a good athletics program supports and builds visibility for the university's primary academic mission.

On a related note, are you concerned about mixed messages sent by breaking ground and opening new buildings when we're cutting the budget? How would you explain this to a taxpayer?

I would say that the fact that we are able to continue to open and upgrade facilities demonstrates that we're moving the university forward even in tight times. As with all of our initiatives, we make the best use of multiple sources of funding.

We recently broke ground on the $41 million Belknap Research Building. The state is contributing $25 million, and the university is covering the additional $16 million through the issuance of bonds. Grants obtained by the researchers using the new facility will cover the debt service on those bonds. Sen. McConnell secured a $1.7 million federal earmark toward the construction of a cleanroom, a laboratory to work on microelectronic devices.

Similarly, this spring we opened the Delia B. Baxter Building to support health sciences research; funding came from the Commonwealth of Kentucky, the Donald E. and Delia B. Baxter Foundation and Norton Healthcare. We're even building two new residence halls, one funded through a corporate partner and the other through private contributions.

Can U of L maintain its progress when resources are tight?

We must; we have no choice. We must stay focused on our goals. But it won't be easy, it may take longer than we planned, and we may have to make difficult choices. We see universities across the country cutting needed academic programs, raising tuition by double digits, laying off large numbers of faculty and staff and abandoning critical research programs.

We've managed to avoid the worst of these ramifications by carefully prioritizing and being accountable for everything we do. However, we know that additional cuts or lack of additional funding to address rising costs and student needs will impede our ability to meet the state's goals for U of L.

In 1997, our legislators implemented House Bill 1, which outlined Kentucky's agenda to reform the state's postsecondary education system by the year 2020. Each of the state's colleges and universities was given a clearly defined mission for the future.

The University of Louisville, according to the legislature's charge, is to become "a premier, nationally recognized metropolitan research university" as part of a "seamless, integrated system of postsecondary education strategically planned and adequately funded to enhance economic development and quality of life." This is our daily focus.

Our commitment is to meet this goal by working with our many partners, asking them to continue their support and share our message. With Kentucky and states across the country struggling financially due to the lagging economy, it's more important than ever that we succeed.


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