Kentucky State University to request $23M from state to cover budget shortfall

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Kentucky State University will request $23 million from the state to cover its budget shortfall, plus an additional $1 million per year until 2024, the board of regents agreed Tuesday.

The board of regents met in a special called meeting on Tuesday, where it heard an update on the Kentucky Council on Postsecondary Education analysis of the school that is currently underway. The $23 million will be requested by CPE from the general assembly, and then used to cover KSU’s budget shortfall, said Travis Powell, vice president and general council for CPE.

KSU’s major financial issues began in 2019, when KSU’s operating expenses began exceeding operating revenues, Powell said. The university’s cash reserves have been depleted, which has led to many of the financial issues, Powell said.

“Significant operating deficits, especially in 2019 forward, have resulted in depletion of reserves and this current structural deficit is unsustainable,” Powell said, adding that, “Reserves have been depleted, and that’s what put us in the situation that we’re in currently.”

Issues can be traced back to “poor leadership” over the university’s finances that did not comply with the university’s policies, Powell said. In the course of reviewing the university, CPE was unable to find documents that show how university leadership arrived at some calculations outlining the financial standing of the university, Powell said.

Aaron Thompson, CPE president, said the university had “bad leadership business activity,” leading to many of the issues, including leadership that did not follow policies and procedures.

KSU, the only historically Black college in Kentucky, is currently under state oversight after its former president, M. Christopher Brown II, suddenly resigned in July. Gov. Andy Beshear issued an executive order for CPE to investigate the school’s finances and recommend management changes.

Thompson said despite the financial issues, KSU has a strong foundation to move forward with, including a strong retention rate.

“We will learn our lesson from this go-around,” Thompson said Tuesday.

The university will not wait for a new president to be selected before addressing the financial issues, Thompson said.

Using the composite financial index, CPE found significant differences between what was originally reported and what the actual finances were of KSU between 2015 and 2020. Numbers that were originally reported showed the university was relatively financially healthy, but in actuality, the university was under financial stress.

The university’s cash and cash equivalents dropped from $14 million in 2018 to $2 million in 2019. Earlier this year, the board learned that KSU was facing a $15 million budget shortfall coming from unpaid bills, mounting debts and several years of spending that outpaced revenue. That shortfall, plus a projected shortfall of $7 million for the current fiscal year, resulted in the $23 million request.

The CPE review also found that KSU’s accounting system is inadequate, and the university does not currently have any long-term financial planning, Powell said.

The board also approved plans to begin a search for the next president. A request for proposals will be created to find a search firm to help with the process. There will also be a search committee made up of 11 members: one member from CPE, two KSU students, two KSU faculty members, two KSU staff members, two alumni and two community members from Frankfort.

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