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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.

The Council on Postsecondary Education, Council staff, and all institutional presidents and chief budget officers strongly recommend the Governor and General Assembly keep a 2% stop-loss in place for 2021-22.

To make that policy a reality, the funding in this B form 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.

It was not the intention of Postsecondary Education Working Group (PEWG) members for Kentucky institutions to have to contend with fiscal cliffs like the ones facing KSU and MoSU. In fact, in a Goal and Guiding Principles document produced by a Funding Strategy Steering Committee of the working group, committee members agreed to a set of principles to guide funding model development, which included an imperative for the distribution mechanism to be “Reasonably Stable” and “not permit large annual shifts in funding to occur” (Report of the Postsecondary Education Working Group to the Governor and Interim Joint Committee on Education, Appendix B, December 2016).