Kentucky State University outlines financial corrective action plan

UPDATE 5:46 P.M.

FRANKFORT, Ky. (WTVQ) – More information was revealed Wednesday about Kentucky State University’s financial status after its former president resigned amid accusations of financial mismanagement.

The board of regents held a meeting to examine the causes and possible solutions.

Chief Financial Officer Greg Rush said the university is about 15-million dollars in debt.

“The bottom line is, we had 15 million dollars worth of old-year expenses hitting this year’s budget,” Rush said. “You’ll hear me say this several times as we go through this: we can’t budget-cut our way out of this one.”

Rush proposed a temporary solution. He asked the state for a 5.4-million dollar fourth quarter advance, and the board would work to clear invoices more than a month old by September 1.

Rush explained how the university got into this problem. He showed a chart revealing that, starting in 2019, KSU didn’t have enough money to cover its costs.

“These numbers are not going to get any better, and in ’21 they’re probably going to be worse,” Rush said.

Shortly after KSU’s former president, M. Christopher Brown II,  resigned in July, Governor Andy Beshear issued an executive order that appointed the Council on Postsecondary Education to look into the school’s finances.

Council President Dr. Aaron Thompson laid out his plan to do so, and to help KSU get back on track.

“I really want to tell you all that I appreciate you. I appreciate Governor Beshear stepping in, and I look forward to a better Kentucky State University.”

Interim President Clara Ross Stamps said though she’s disappointed some students are staying in a hotel, partly due to the school’s finances, she’s hopeful.

“Kentucky State will not be defined by a single moment,” Stamps said.

 

FRANKFORT, Ky. (WTVQ) – The Kentucky State University Board of Regents members were briefed on corrective actions implemented to stabilize and improve Kentucky State’s financial condition and guidance regarding the institution’s financial needs, cash position and outlook going forward.

And it’s a process that could take three years or more to recover from the current hole.

In comments to the Executive Committee of the Council on Postsecondary Education Wednesday morning while the KSU regents were meeting, CPE President Dr. Aaron Thompson stressed the challenges are going to take time.

“This could be at least three years or more,” Thompson said, calling it at least a “$15 million hole.”

With financial reviews still ongoing, Gregory Rush, vice president for finance and administration/chief financial officer, reported to the Board findings to date of $13.5 million in pending, past due or unpaid items:

  • More than $3 million in unpaid vendor invoices ($1.7 million of which is more than 121 days past due)
  • Payment of an ongoing energy performance contract of $621,868 due in June but not paid until July
  • Approximately $5.5 million not yet paid to the state to clear construction invoices, and a
  • $5 million unpaid Revenue Anticipation Note not cleared by June 30

“Thanks to the Council on Postsecondary Education’s (CPE) ongoing support, our request to the state budget office to advance Kentucky State’s fourth quarter allotment of $5.4 million was approved,” said Rush.

“We are very appreciative of the Governor and the state’s support to make this happen. Funds were received on July 22, allowing us to pay long overdue invoices for goods and services. Beyond protecting payroll, it was important that we pay the businesses who serve and support Kentucky State as soon as possible.”

Rush assured the Board that Acting President Clara Ross Stamps has requested due diligence and aggressive budget tracking and compliance review, which will be reported at each quarterly meeting.

“We’ve made progress, but the fact remains that we are in need of adjustment and accommodations to restructure outstanding balances owed to the state,” said Rush.

The financial issues have been simmering quietly for months if not longer but came to a head last month when President M. Christopher Brown II was forced to resign as some regents reported concerns to Gov. Andy Beshear and others.

The governor and CPE ordered intensive financial reviews. Wednesday’s meeting was the first of the board since last month’s changes.

Although not yet utilized, University officials requested permission to draw down $2.5 million of the Revenue Anticipation Note, Bush told the regents.

The University has made strides in cash management, processes to verify compliance with payment terms for all construction invoices and began a master budgeted position listing.

The University internal auditor will begin a review of expenditures for the past three years, while the purchasing department is updating and providing a list of all current contracts, which will be reviewed for necessity.

“This is not something we can cut our way out of,” Rush said. “Even with CARES federal funding and aggressive budget management, Kentucky State University needs an infusion of funding to meet baseline requirements for an institution our size. Historically, we’ve been able to make do and make the most of federal and state funding allocated. Resolving recent budget overages, delayed payments and implementing aggressive budget management is great, but Kentucky State will always be playing catch-up if funding levels remain flat.”

Based on documentation in the University budget office, expenditures exceeded the approved budget in each of the last three years. Unpaid invoices were pushed into subsequent years, resulting in a projected $10-$15 million shortfall for FY 2022.

Among the unpaid invoices are reimbursement payments to the state accounts that manage Kentucky State construction projects.

Kentucky State stopped paying state reimbursements in December 2019, with a balance owed of approximately $5.5 million.

Kentucky State has notified the USDA of the processing errors and delays in clearing payments owed to the state and is seeking an accommodation to adjust the payment plan.

Another budget gap on the horizon relates to deferred FICA payments from April 2020 through December 2020, as allowed under relief measures for COVID-19.

Total deferral is $1,530,000, which must be repaid over the next two fiscal years. Unfortunately, provision for payments of $765,000 due in December 2021 and December 2022 do not appear to be reflected in University budget documents.

Also impacting, but not addressed in the 2022 budget, is nearly $457,500 of unexpended state-appropriated, dedicated land-grant match funds.

By not expending these matching funds by the end of FY 2021, Kentucky State will need to expend these funds in 2022, which is in addition to the match requirement already budgeted for 2022.

“Going forward, we will remain in a posture of fiscal austerity, with forward-looking planning and projections based in reality,” said Rush. “Work has begun on a revised FY 2022 operating budget for presentation to the Board in September. We continue to work closely with CPE on financial and management improvement plans while coordinating to develop the FY 2022-2024 Biennial Budget request for Kentucky State.”

President Stamps has requested the entire University leadership team review and improve financial and administrative policies and procedures.

“The good news is that we are gaining clarity and understanding in regard to the financial health of Kentucky State University,” said Stamps. “Since its founding in 1886, this institution has navigated difficult times with resolve, discipline and dedication to serve Kentucky State’s education mission. We understand this is a lot to process and that we may well find additional unresolved items and issues. We pledge our commitment to accuracy, accountability, transparency, and commitment to collaborate with CPE, the Board and Kentucky State stakeholders to make necessary course corrections. We ask for your continued support and patience as we implement corrective actions.”

Kentucky State University Board of Regents Chair Dr. Elaine Farris said transparency has been crucial in navigating this challenging time.

“The board feels strongly that timely and appropriate information was not presented in the past to make informed decisions,” Farris said. “When the board received concrete information of financial concerns—verified information, the board took immediate action.”

Kentucky State University Board of Regents Vice Chair Dalton Jantzen said the transparency of the administration was appreciated.

“I think things have been masked for us for some time,” Jantzen said. “I appreciate the candidness and the straightforwardness of your presentation because that’s exactly what we need to make good informed decisions.”

Thompson spoke about the transparency and communication from Kentucky State officials throughout the process.

“Since this happened, CPE has had full access and good communication from Kentucky State,” Thompson said. “We have had a great working relationship so far. The governor has indicated support of Kentucky State, as well as Senate and House leadership and the CPE board.”

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