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Business Officer Magazine
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Rising to the Top

A large public research institution puts a plan in motion to meet a state mandate for success.

By Lee T. Todd Jr.

In 1997, the Kentucky General Assembly mandated that the University of Kentucky (UK), Lexington, become a “Top 20” public research university by 2020. The directive was part of a broader reform of Kentucky’s postsecondary education system. Yet, it came without any definition or analysis of how success would be measured or what it would cost. In the first several years after this new and lofty goal was established, the university continued to experience the traditional boom-and-bust cycles of state appropriations. The result was an undirected effort toward achieving a goal that was not sufficiently strategic or focused.

It became clear that a Top 20 university could not be built through incremental budgets, short-term plans, and reaction to external forces. To set the institution on a rational and strategic trajectory toward Top-20 status within the determined time frame, the university had to make a clear and convincing argument as to why achievement of the goal mattered for Kentucky, how progress would be measured, and what resources would be needed.

Setting the Stage

In 2005, I directed the creation of the University of Kentucky’s Top 20 Business Plan, a specific statement of resource needs calculated by establishing long-term goals across nine measures: (1) ACT/SAT scores, (2) student-to-faculty ratio, (3) graduation rate, (4) postdoctoral appointments, (5) doctoral degrees granted, (6) faculty awards, (7) faculty citations, (8) federal research, and (9) nonfederal research.

Based on nationally collected data for each measure, we calculated the university’s position relative to 88 other doctoral research–extensive public universities in the United States with federal research expenditures of $20 million or more per year. The calculation determined UK’s rank as 35th in the nation.

By using transparent measures of progress, the plan serves as a thoughtful and detailed response to increased legislative interest in holding postsecondary institutions accountable for tax and tuition dollars spent. It also includes other guideposts of progress that resonate with policymakers and the general public, such as number of bachelor’s degrees awarded and level of community engagement.

We then analyzed the gap between UK’s performance on each measure and the performance of the institution that ranked 20th at the time on that particular measure. The issue was then one of determining how best to close those gaps. The university considered various scenarios, including improving the quality of education while maintaining current enrollment levels, increasing the number of students enrolled while maintaining current levels of student learning, or increasing both the quality of education and the number of students enrolled. We consulted administrators, faculty, and staff from across the campus as we analyzed and developed these strategies.

An analysis of the relationship between a university’s enrollment and its productivity, reputation, and rankings provided compelling evidence that size matters. This realization coincided with the understanding that Kentucky’s long-term economic success depends upon a substantial increase in residents with college degrees. When the business plan was developed, the percentage of U.S. citizens with college degrees was 27.2; in Kentucky, it was 19. Based on this information, we identified enrollment growth as a solution to Kentucky’s needs and a mechanism for strengthening the state’s flagship university.

Figuring the Funding

The investments needed to implement the strategies identified in the plan fell into six broad categories: faculty, academic support, undergraduate education, student aid, support services, and facilities. We determined specific financial needs through a series of interviews with campus leaders, basing calculations on existing institutional and external data. These discussions were led by the vice president for planning, budget, and policy analysis, and the vice president for institutional research, planning, and effectiveness. They included external consultants retained by the university.

Estimated costs were adjusted for inflation to determine the annual infusion of new resources needed between the establishment of the plan in 2006 and the 2020 statutory deadline for achievement. The financial model, developed by external consultants and the office of planning, budget, and policy analysis, predicted the required cumulative investments for each category through the fiscal year ending June 30, 2020. A total increase of $1.097 billion for expenses, including debt service on new facilities, was projected by 2020, which was an increase of 93 percent over the FY05–06 General Fund base.

The university did not expect all additional Top 20 investments to come from state appropriations. In consultation with the chief administrators of the relevant units, the business plan included increases in investments, gifts, indirect cost recovery, clinical activities, and internal reallocations calculated on the basis of past behavior and the expectation of more aggressive activities in each area. These projections indicated that UK could fund 40 percent of the $1.097 billion needed to reach Top 20 status by 2020.

The critical issue facing UK and the Commonwealth of Kentucky was how to generate the remaining funding by 2020. Working together, the state and UK needed to determine the optimal combination of state appropriations and tuition revenue to cover the gap.

We developed two very useful tools for this purpose: Figure 1, depicting the direct relationship of increasing or decreasing state funds to tuition rates needed to close the revenue gap; and Figure 2, illustrating the results of consistent, moderate investment from the state over time. Figure 1 shows what percentage increase in tuition is necessary based on the amount of state funds available. (To see the relationship, note the red boxes that are used in Figure 1 to find the corresponding tuition rates needed at varying levels of state funding. If the state provided UK with $18 million, for example, follow the bar down to the red box and then over to the left axis and see that a 9 percent increase in tuition is necessary to generate the revenue to fund the Top 20 plan.) Figure 1 showed us that we needed to increase tuition 9 percent annually through 2012 and 4 percent annually from 2013 to 2020. That revenue, combined with increased state appropriations (shown in Figure 2),provided the necessary increase in support from public funds.

We presented this statement of cost and results to the governor and the members of the 2006 Kentucky General Assembly. The assembly embraced the plan and provided the first installment of state funding with the budget for FY07–08.

Low rankings in the measures of undergraduate education (ACT/SAT scores, student-to-faculty ratio, and graduation rate) dictated that we use the initial investments to fund the provost’s “war on attrition.” The university added more than 70 faculty positions, hired academic advisers to coach students, cre-ated a 2020 Scholars Program (www.uky.edu/AcademicScholarships/2020.htm) to address affordability and access, and targeted funds to improve the university’s retention and graduation rates.

We have already seen results: Between fall 2005 and fall 2008, the retention rate increased from 77.8 percent to 81 percent; the graduation rate increased from 59.6 percent to 61.4 percent; and the number of bachelor’s degrees awarded increased from 3,285 to 3,775.

Suffering Setbacks

Not surprisingly, the institution’s fiscal picture has changed since the 2006 legislative session. The Commonwealth’s tax receipts began to decline in December 2007. By July 1, 2008, the university’s state appropriations had been reduced by 6 percent, wiping out the initial investment in the business plan. The university had to eliminate more than 70 faculty positions and 117 staff positions as well as cut operating expenses by $3.7 million to cover the reduction. The negative results of these actions will soon be evident. The state’s fiscal picture continues to deteriorate, and more reductions are expected.

However, the university remains committed to the plan and what it means for the people of Kentucky. The only way for the university to escape reactive, circumstance-driven funding is to continue to pursue a thoughtful, long-term plan.

The process of developing a business plan builds coalescence around the goal. For UK, it is to become a Top 20 public research university. The best plans are constantly revised and used to guide decisions given various environments. Rather than gathering dust on a shelf, UK’s plan continues to guide campus decisions. The university is in the process of recalibrating the plan—including the evaluation of the measures and targets, and scenarios for success—and updating resource requirements in the context of new realities. The updated plan will be presented to the 2010 General Assembly as it develops Kentucky’s 2010–12 operating and capital budgets.

LEE T. TODD JR. is president, University of Kentucky, Lexington.