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For the upcoming biennium, subsection (9)(a)3 of the Performance Funding statute (KRS 164.092) stipulates that the funding formulas for both university and two-year college sectors shall include a “stop-loss provision for fiscal year 2020-2021 limiting the reduction in funding to any institution to two percent (2%) of that institution's formula base amount” (KRS 164.092). CPE staff believes this requirement should be addressed in the 2020-2022 budget bill in the same manner as the 1.0% stop loss was handled last biennium; namely, by reducing each institution's fiscal year 2020-21 regular appropriation by two percent of its 2019-20 adjusted net General Fund and transferring the resulting $14,997,800 total to the PEPF.
Subsection (9)(b) of KRS 164.092 reads that “[f]or fiscal year 2021-2022 and thereafter, hold-harmless and stop-loss provisions shall not be included in the funding formulas except by enactment of the General Assembly.” The clear meaning of this subsection is that, unless action is taken by the legislature in construction of the 2020-2022 Budget of the Commonwealth through bill language and appropriation amounts, all hold harmless and stop loss provisions will sunset in the second year of the upcoming biennium.
For 2020-21, funding for Mandated Programs and institutional operations less 2% of the adjusted net General Fund is requested on this “A form.” The “2%” represents the stop-loss and is transferred to the PEPF and is subject to redistribution according to the statute.
For 2021-22, at the advice of LRC budget review and OSBD, state General Fund is included on this A form for just the mandated programs. Please note that the Council, Council staff, and all institutional presidents and chief budget officers strongly recommend that the Governor and General Assembly keep a 2% stop-loss in place for 2021-22. To make that policy a reality, the funding in the institution's Performance Funding 2% Stop Loss "B forms" should be added to the institution's funding for 2021-22. Please note that there is a corresponding decrease in the budget request for the PEPF appropriation unit (requested by CPE), clearly showing that this transfer requires no additional state funding.
The impact of losing these provisions would be immediate and severe for Kentucky's two smallest universities, Kentucky State University (KSU) and Morehead State University (MoSU). For example, in the 2019-20 iteration of the university performance funding model, KSU's hold harmless allocation was $6,867,800 or 36.9% of its adjusted net General Fund appropriation in fiscal year 2019-20 and MoSU's hold harmless amount was $2,814,900 or 7.9% of its adjusted net General Fund that same year. Absent an infusion of new operating funds for the institutions—appropriated to the PEPF and distributed using the funding models—and barring any unanticipated large gains in performance at these institutions, it is estimated that KSU would lose more than a third of its funding that is available for educating students and MoSU would lose almost 8.0% of its similar funding. Six community and technical colleges (Ashland, Big Sandy, Hazard, Henderson, Madisonville, and Southeast) stand to lose a significant