Kentucky Community and Technical College System
Board of Regents Meeting Minutes

October 13, 1997

The meeting of the Kentucky Community and Technical College System (KCTCS) Board of Regents was called to order by Martha Johnson, Chairwoman, at the library of the KY TECH Central Campus, Lexington Kentucky. All members of the Board were present. It was noted a quorum was present and that the press had been notified. Chairwoman Johnson asked the audience to introduce themselves, and who they were representing; approximately 43 people were in attendance.

A motion made by Richard Bean to approve the minutes of the August 25, 1997, meeting was seconded by Michael Hoseus and the motion passed.

Introduction of New Members

The new members, sworn in prior to the meeting by Judge Paul E. Gudgel, are: Bobby McCool, Mayo Regional Technology Center, Faculty Representative; Jack Hanel, Jefferson Community College, Faculty Representative; Charles O’Neal, Madisonville Community College, Student Representative; Cindy Fiorella, Owensboro Community College, Staff Representative; Mark Powell, Bowling Green Regional Technology Center, Staff Representative; and Donna Davis, Somerset Regional Technology Center, Student Representative.

Election of Officers

At this time a motion to adjourn sine die made by Richard Bean, and seconded by John Banks, passed. At this time the meeting was conducted by Dr. James R. Ramsey.

Dr. Ramsey opened the floor for nominations for Chair of the KCTCS. John Banks made a motion that Martha Johnson be nominated for Chairperson of the Board, the motion was seconded by Michael Hoseus. John R. Banks made a motion that nominations cease; seconded by Jack Hanel. Dr. Ramsey announced that with approval of the Board, Martha Johnson be elected the first Chair of the KCTCS by acclamation. All approved.

At this time, Martha Johnson called the meeting back to order and entertained nominations for Vice Chair. Lorna Littrell nominated Michael Hoseus, with a second by Diana Lutz. There being no further nominations Jack Hanel made a motion that the nominations cease and this motion was seconded by Cindy Fiorella. Michael Hoseus was elected Vice Chair by acclamation.

A motion was made by John Banks that the Secretary for the Board be someone outside of the Board, seconded by Chuck O’Neal and motion passed. Dr. Ramsey recommended that Martha Armstrong be appointed as Secretary, Jack Jordan be appointed as Treasurer of the Board. Diana Lutz made a motion to accept these recommendations, the motion was seconded by Lorna Littrell and the motion passed.

Accreditation Status Report

Delmus Murrell, Commissioner of the Department for Technical Education and member of the KCTCS Statewide Transition Team, reported work is continuing to meet the accreditation deadline of July 1, 1998, for the Technical Institutions Branch. The report to COE for their review will be submitted in late October or early November. Mr. Murrell reported that discussions with school directors, staff in the department and various others continue on governance issues. The annual meeting of the COE is in early November.

Dr. Ben Carr, Chancellor of the UKCCS and member of the KCTCS Statewide Transition Team, reported that the Prospectus would be distributed to the members of the Board. Dr. Carr reported that November 10-12, a fact-finding team of four to five individuals from the Commission on Colleges/Southern Association of Colleges and Schools would be visiting in Lexington and all interested parties will be invited to meet with them. This fact-finding team will compile a report, as result of the visit, which will then be presented to the Commission on Colleges, Criteria and Reports Committee on December 7-10 at the annual meeting of the Southern Association of Colleges and Schools. A decision will then be made on the substantive change application.

At this point, Mr. Richard Bean announced that Delmus Murrell would be retiring effective January 1, 1998, and expressed his congratulations and thanked him for his work in the past. This sentiment was heartily agreed to by other members of the Board, Dr. Ramsey and those in attendance at the meeting.

Report on Acquisition of Liability Insurance

Jack Moreland reported that as of October 13, the Board has liability insurance coverage in the amount of $2 million, which covers any errors and/or omissions the Board might make in the course of exercising its duties. The company, the Chub Group, is from New Jersey. The coverage was obtained with the help of the Department of Insurance and covers the Board until October 1, 1998. Mr. Moreland reported there would be other insurance polices such as workers compensation put in place on behalf of the Board.

Report on Memorandum of Agreement

Mary Lassiter with the Office of Financial Management and Economic Analysis in the Finance and Administration Cabinet distributed a copy of the Memorandum of Agreement on Delegation and Assumption (MOA) between the KCTCS and UK Board of Trustees for consideration of the Board. Ms. Lassiter reviewed the items of discussion: (1) For what purposes will the KCTS incur debt; (2) Who issues debt on its behalf; how is debt issued; what is the security for these bonds; how much debt is currently outstanding and what happens to all the existing debt; (3) What are the obligations of KCTCS pursuant to this MOA.

Debt will be incurred for construction of new facilities as authorized by he General Assembly and renovation of existing facilities as authorized, which could be anything ranging from Americans with Disabilities Act improvements to construction of new schools. Referring to issuance of new debt for the Community College System (CCS), the issuer would be either the University of Kentucky or the State Property and Buildings Commission (SPBC). The issuer of debt for the Technical Institutions Branch will be either the KCTCS or the SPBC.

Ms. Lassiter explained state government, in general, does not issue general obligation debt, but rather, it issues most of its debt through the SPBC. The SPBC is composed of the Governor, the Attorney General and the Secretaries of the Finance and Administration, Revenue and Economic Development Cabinets. The primary function of the SPBC is to issue debt on behalf of the state and its agencies. There was approximately $1.1 billion of SPBC debt outstanding as of June 30, 1997. The SPBC is a general-purpose debt issuer for the state, and funds most projects except for elementary and secondary school buildings and roads.

Pertaining to debt for the CCS, if UK were going to be the issuer of the bonds, the General Assembly would authorize the project and appropriate General Fund debt service to fund the project. KCTCS would request UK to approve the project, as required by House Bill 1, and would request UK to issue the bonds. UK would issue the bonds with the assistance of the Office of Financial Management and Economic Analysis (OFMEA), and KCTCS would collect and administer the system revenues. If KCTCS were to petition the SPBC to be the issuer, the General Assembly would authorize the project and appropriate General Fund debt service to fund the project. The KCTCS would request UK to approve the project, then the KCTCS would request the SPBC to issue the bonds. The SPBC would issue the bonds and enter into a biennial lease with the KCTCS and the Finance and Administration Cabinet for the amount of the debt service. The financing structure is similar; it is just a matter of which legal structure you use, UK or the SPBC.

Martha Johnson asked Ms. Lassiter how the decision would be made as to which debt-issuing structure to use. Ms. Lassiter said it would be a function of how the Budget Bill is written. The Budget Bill is generally very specific with regard to which legal structure issues the bonds. It would also be a function of bond ratings and interest rates.

With regard to the security for the bonds, Ms. Lassiter explained that for the CCS with UK as the issuer, the security for the bonds would be the pledge of revenues of the CCS, primarily student registration fees. If the SPBC were the issuer, the security for the bonds would be the biennially renewable lease with the General Fund debt service appropriation. Ms. Lassiter explained the difference between general obligation debt versus lease revenue debt which is the security for all of the state’s outstanding debt where the General Fund makes the debt service payments. This is a well-accepted financing mechanism.

For the Technical Institutions Branch, if KCTCS were the issuer, the security for the bonds would be the pledge of the student registration fees. The anticipation would be that General Fund debt service would be appropriated but the system revenues would be pledged as the security for the bonds. If the SPBC were the issuer, the lease between the SPBC, Finance and Administration Cabinet and KCTCS would be the security for the bonds.

The CCS has approximately $101.9 million in bonds outstanding as of June 30, 1997. The FY98 debt service payments are $11.2 million and those bonds are currently rated A1 by Moody’s and AA- by Standard and Poor’s. The Technical Institutions Branch currently has $35.2 million of SPBC bonds outstanding which were issued to fund technical school projects. FY98 debt service on those projects currently is $3.6 million and the SPBC bonds are rated A by Moody’s, A+ by Standard & Poor’s, and A+ by Fitch Investors Service.

With regard to the existing debt for the CCS, the bonds remain in the name of UK. Pursuant to the MOA, the KCTCS will assume responsibility for the administration of the system and the payment of the debt service on these bonds. The SPBC bonds for the technical school projects will remain in the name of the SPBC and the Finance and Administration Cabinet assumes responsibility for the debt service on those bonds.

Ms. Lassiter explained the MOA on Delegation and Assumption. The Basic Resolution is a contract between UK as the issuer of the outstanding bonds and the Trustee which represents the owners of the bonds. There are $101.9 million bonds outstanding under this Basic Resolution. The MOA provides that both KCTCS and UK agree to be bound by the provisions of the Basic Resolution and that UK shall be the issuer of all future debt issued under that Basic Resolution. There is a distinction between whether or not bonds are issued under the Basic Resolution. If the SPBC were to be the issuer they would not be issued pursuant to this Basic Resolution.

Ms. Lassiter continued that additional bonds issued under the Basic Resolution can only be issued at the request of the Board. The KCTCS would agree to be bound by the pledge of revenues of the CCS which is contained in the Basic Resolution and to apply those revenues as therein directed, for debt service and operating funds.

Ms. Lassiter went on to explain that KCTCS would accept responsibility for assuring that no actions in its control would be taken which would result in the University of Kentucky Community College Educational Buildings Revenue Bonds being deemed arbitrage bonds by the IRS. This is a very key component as well as the fact that no unilateral action may be taken by either KCTCS or UK regarding the redemption of existing debt or the issuance of additional debt under the Basic Resolution. The bonds that are outstanding will continue to carry the name of the University of Kentucky. UK has a vested interest in seeing that the CCS is managed credibly. KCTCS also has a vested interest in seeing that the CCS and the bonds are managed well.

Consistent with HB1, any unresolved conflict with the interpretation of the MOA would be resolved by the CPE with one caveat that the CPE will have no role in interpreting the provisions of the Basic Resolution which is a contract between the issuer and the bondholders. The effective date of the MOA is the same as the effective date of the delegation of functions from UK to KCTCS with respect to the Community Colleges.

Ms. Lassiter summed up by saying the obligations of the KCTCS were primarily to collect and administer the system revenues, to maintain the facilities financed by the bonds, to assure the timely payment of principal and interest on the bonds, and to establish registration fees at a level which provides adequate revenues to make the debt service payments on the bonds. Ms. Lassiter offered the assistance of OFMEA to the KCTCS for any financial management matters.

Dr. Ramsey pointed out that the Bond Resolution is also referred to as a Trust Indenture, and was written sometime in the early 1960s. It pledges as security to the bondholders the student revenues that are generated from the system. The security to the bondholder is the debt service appropriation so the security is stated to be the student fees that are generated, but the state has always appropriated the debt service.

Dr. Ramsey went on to say that if accreditation is not received there could be an impact. The primary security to the bondholder in the resolution is the student fee. Questions then would involve students qualifying for financial student aid and the effect on enrollment which could impact the flow of student fees into the system however the biennial appropriation of debt service would still be in place.

Ms. Lassiter said it was OFMEA’s recommendation the Board study this information and at the next meeting, adopt the MOA. The UK Board of Trustees will be addressing this Resolution at their December meeting. Dr. Ramsey expressed his concern that there needs to be a document that delegates management responsibility from UK to this Board.

Budget Process Status/Report

Mr. Carson informed the Board that there are two issues to discuss today: (1) Distribution of $8 million direct allocation for the individual community colleges for FY98 and (2) the issue of the capital budget for KCTCS.

Mr. Carson addressed the UKCCS Chancellor’s Office Recommendation for distribution of the $8 million. The recommendation identified a series of priorities: (1) faculty and staff increases, assuming a January 1, 1998, effective date in the current fiscal year this amounts to over $2 million with $4.2 million the next biennium. (2) Administrative systems implementation which is the student information systems but also includes other related systems which amount to $100,000 per institution with 14 institutions or $1.4 million. (3) Administrative systems staffing, one staff person per institution to deal with administrative systems workload which amounts to $350,0000 in base year and $700,000 the next two years. This leaves over $4 million in the base year for individual community college items.

Mr. Carson reviewed a schedule entitled UKCCS Worksheet on General Fund Support by College Unrestricted Education and General Revenue Budgeted 1997/98 which identifies the individual colleges and system categories and the related revenue showing the funding from two main sources; the state General Fund appropriation, and tuition and fees. A second schedule showed the Educational and General Expenditures budgeted 1997/98 showing the major spending categories.

Mr. Carson then referred to a series of options for the distribution of the $11 million. These five options are: (1) Pure "Equity"; (2) Maintain "Share of Pie"; (3 & 4) Modified "Equity":; (5) Chancellor’s Recommendation Framework. He suggested the Board may want to adopt one of these, modify one, or establish a new option of their own.

The "pure equity" approach would take the previous Council on Higher Education’s formula funding model as previously applied to four-year institutions but not to community colleges. Under this option there would be substantial variations among the individual colleges.

Ken Walker from CPE explained the funding formula has been used in Higher Education since 1982. For the community colleges it was applied at the system-wide level. The formula was intended to calculate support based on average support levels for the activities at each university or the community college system. This generated approximately $125 million to $126 million. The formula calculation itself was based on rates derived from other states’ formulas resulting in a funding level similar to those other states. The CPE went through a process of approximating actual funding levels in other states and that amounted to approximately a 20% recalibration downward. This established the funding objective that was the request level used for each university and CCS going into the 1996 Session. CPE picked up where funding in the 1996 Session left off.

Mr. Carson explained there is a 56% gap between the best-funded institution and the least-funded institution. When viewing the other options, he suggested the Board check to see if the 56% gap stays the same, gets less or gets bigger. This is one way to check and see whether or not the other options make progress on the equity issue. The CCS funding has not been looked at between and among institutions in the same way it has been reviewed between the four-year institutions.

Dr. Ramsey added that the funding formula was driven by enrollment. The policy makers at the state level did not use the recommendations that were made to them by the previous Council on Higher Education. The institutions that would be growing faster than others would be getting 3%; those growing slower would be getting 3%. There is a gap for all institutions. The CCS is going to be different because the formula has never been applied at this level. But system-wide, for this reason, there is disparity among the nine institutions as well. Dr. Ramsey continued that one of the Governor’s objectives was to deal with this disparity and define the base for each of the institutions. It was hoped that there would be more money to bring everyone up to their base but what was able to be accomplished was to bring each system up to about 95 percent.

Moving on to the other funding options, Mr. Carson explained that Option 2 takes the framework from the Chancellor’s Office recommendation and applies those numbers to the individual colleges; Option 3 is an attempt to create a hybrid of Options 1 and 2 by taking the numbers out of the Chancellor’s recommendations and then take what is left over, $4.15 million and then distribute that on an equity basis; and Option 4 is a variation of Option 3. Under this option there was not enough money to do all the recurring part of the salary increases. The same system request from the Chancellor’s office, provided the staff salary increment recurring needs, then distribute the $1.7 million left by equity. This is to make sure everyone receives the Chancellor’s request and sufficient recurring dollars.

Option 5 is the "share of the pie" option. This is a breakdown of the institutions in terms of the base budget already enacted. Mr. Carson cited an example: If one institution gets 21% of the base budget today, it gets 21% of the $8 million.

Mr. Carson explained that this information was compiled to show the Board how the money would be allocated but added that the Board could designate certain things be done with the money. There was one option that did have specific programmatic objectives, such as funding for salary increases, and administrative systems support, but there were four other options that simply generated an amount of money per institution.

Dr. Ramsey added that this decision is the Board’s decision. This is different than the $3 million set aside for KY TECH. This $3 million for KY TECH was deposited into one of the investment and incentive trust funds and the allocation criteria for that will be determined by the Council on Postsecondary Education; KCTCS will react to that very important decision.

Mr. Richard Bean asked if the Transition Team had a suggested priority in mind or does the Transition Team look at this without recommendation. Dr. Ramsey replied the options presented were without recommendation but offered the assistance of the Transition Team to the Board in developing a recommendation if that was the desire of the Board.

Dr. Hanel asked why the increase in salaries were effective January 1, 1998 instead of being retroactive back to July 1, 1997. Ron Carson responded by saying that it has to do with the structural balance issue. It was the belief that the KCTCS Board would not be in a position to make a recommendation on the allocation of these funds until December. Dr. Hanel asked if it is a 5% and 7% for faculty and staff effective January 1, does hat not translate to 2?% and 3?% increases for the year. Mr. Carson responded, yes, on a cash basis. Cindy Fiorella added that there has been some historical inequities in salary issues. There is serious under-funding in areas of both faculty and staff.

Mr. Carson then presented a draft resolution concerning a Board recommendation to the CPE with regard to the 1998-2000 capital budget request. The resolution deals with the development of a capital budget pool approach for KCTCS rather than having the traditional listing of line item capital projects in excess of $400,000 for which state funds are being sought. KCTCS would make a request to the CPE for a capital construction pool. If this process is accepted by the Governor and the General Assembly, then this Board would identify individual projects from a listing from the two systems for inclusion in the pool. Mr. Richard Bean made a motion that the Board adopt this resolution. The motion was seconded by Mark Powell and it motion passed.

Presidential Search Status Report

Jack Moreland explained the six-member search team had been appointed. Richard Bean will serve as chair and other members are Martha Johnson, Michael Hoseus, Lorna Littrell, Bobby McCool and Cindy Fiorella. A draft presidential profile was distributed. Mr. Moreland said that a meeting of the search committee had been requested by Elizabeth Rocklin of ACCT, the presidential search firm hired by the Board, within the next two weeks. Mr. Moreland reported that if the dates in the projected timeline are met the selection of the new president could occur by February or March.

Personnel System RFP Status and Report

Dr. Newberry, Vice Chancellor for Academic and Student Affairs and a member of the KCTCS Statewide Transition Team, reported that the Personnel Work Group is endeavoring to make sure the transition to the new system is handled effectively and that the faculty and staff is being informed during the transition. He noted that 3,400 full time CCS employees would be transferred to the management of KCTCS, and all will retain their current policy and benefit packages. In the Technical Institutions Branch, there are approximately 1,300 employees and they are under both KRS Chapter 18A (300 employees) and Chapter 151B (1000 employees).

Dr. Newberry reported there are four sets of policies and benefits to be studied. He said there will need to be interim policies for new employees hired after the management transfer. By June 30, 1998 permanent policies are to be in place. Also new policies are to be developed, among them a third party appeals mechanism, which the personnel consultant will be able to assist with. A few of the issues the Board will be dealing with are: personnel records, compensation and classification systems, payroll administration.

Dr. Newberry reported that the personnel consulting firm will, by December 15, present to the Board detailed plans for completion of the critical personnel transition policies, procedures and activities. By April 1 the consultants will present for review and adoption, a final product which will include detailed plans for actual implementations for policies, procedures and activities. The RFP stated that this date could come as early at January 1, 1998 for CCS depending on accreditation and the actual date of transfer.

Dr. Newberry further commented that the top-ranked firm has been identified and been asked to come for an interview on October 16. Following this interview, a recommendation will be made to the Transition Team by the Personnel Work Group.

Establishment of Standing Committees of the KCTCS Board of Regents

Jack Moreland presented information regarding the standing committees of the Board of Regents for each of the eight universities. He presented four standing committees for the consideration of the Board: Finance, Administration and Technology; Academic Affairs and Curriculum; Efficiency, Effectiveness and Accountability; and, Executive Committee. Mr. Moreland suggested that the members review these committees and submit in writing to him or Chairperson Johnson which committee/s they would like to serve on. From this information Chairperson Johnson will select the committees and the chairs of each.

Michael Hoseus asked how these standing committees tied in with the Transition Team committees. Mr. Moreland responded that once it is established what the standing committees would be, then the chair of those committees could work with the appropriate work group of the Transition Team.

Marvin Russow made a motion that the KCTCS Board of Regents establish these four committees as listed above, the motion was seconded by John Banks and the motion passed.

It was decided that any questions the Board might have would be faxed to Dr. Jordan by October 24 and his research and responses will be distributed to the Board members by the next meeting.

Update on Postsecondary Education Reforms

Dr. Ramsey reported that a few items being considered by the CPE are: the process for developing a strategic agenda for higher education; determining the allocation criteria for the strategic incentive and investment funds including the $3 million; development of budget recommendations by the CPE with submission to the Governor by November 15 for both the operating and the capital budget.

Dr. Ramsey reported Gary Cox, Acting President of the CPE, had accepted a new position as Executive Director of the Kentucky Association of Independent Colleges and Universities, effective October 15, 1997. Dr. Ramsey presented to the Board a resolution honoring Mr. Cox for his dedicated and professional service to the Commonwealth of Kentucky and postsecondary education.

Mr. Richard Bean made a motion that the Board adopt this resolution which was seconded by Lorna Littrell and the motion passed.

Dr. Ramsey introduced Lee Todd and Norma Adams, two new members to the CPE, who were present for another meeting in the building.

New Business

Jack Moreland announced that a committee is working on health and retirement benefits and was hope to have a recommendation on both at the next meeting.

Bryan Armstrong reported on the new employee newsletter which will be produced once a month by the KCTCS. He also provided the Board a manual including suggested talking points, a speech and a Power Point presentation. Mr. Armstrong asked the Board to respond to a survey in the manual and return it to him.

A future meeting date of the Board of Regents was discussed.

A motion to adjourn made by Marvin Russow and seconded by Mark Powell passed. The meeting adjourned at 5:30 p.m.