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June 2012
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REASONABLE KCTCS capital bonds plan sensible way to meet needs

We cast a wary eye whenever Kentucky talks about increasing bonded indebtedness. The commonwealth had debt obligations (including pensions) of about $64 billion at the end of 2012, or almost $14,600 per person. In August 2012 Barron's, one of the nation's leading financial publications, ranked Kentucky 47th in the nation in financial health because of the state's pension deficit and high total debt per capita.

Hamstrung by this debt burden, the Legislature has been unable for the past three biennial sessions to fund capital projects for the state's community and technical college system (KCTCS) despite the fact that with 92,000 enrolled students, it is by far Kentucky's largest higher education institution.

So this time around Gov. Steve Beshear and system president Michael McCall are pitching a more novel approach. The governor has asked for $145.5 million in "agency bonds" that would be funded by KCTCS itself, rather than the state's general fund. That money would go to underwrite 75 percent of the cost of one capital project for each of the state's 16 community/technical colleges. The colleges and their local supporters will be responsible for raising the remaining 25 percent of the amounts needed to launch the projects.

In the case of West Kentucky Community and Technical College in Paducah it would translate into $7.5 million toward the roughly $10 million needed to convert the former Kitchens Inc. building on Harrison Street into the linchpin of WKCTC's fast-growing Paducah School of Art and Design. The school has grown to more than 400 students in its six years of existence despite operating from an array of temporary quarters. The 30,000 square foot Kitchens Inc. building would with renovation provide permanent quarters and modern studios for the program, while meshing neatly with the surrounding historic and arts district in Lower Town.

Paducah already has a head start on the local funding effort, having kicked off a fundraiser in July that has logged more than $650,000 in pledges.

But the KCTCS share of the funding still requires legislative approval. The community colleges have not in the past had authority from the state to issue "agency bonds" - that is, bonds on which they themselves are liable. And the funding of those bonds will not be without pain. The money will come from a KCTCS student "capital fee" that will start at $4 per credit hour this fall and increase to $8 per credit hour in later years.

KCTCS officials also conceded this week that the capital fees are independent of tuition increases likely to be implemented in coming years to meet other general needs of the colleges.

That is of course a concern. We have expressed the view in the past that tuition and fees at Kentucky's two- and four-year colleges have been rising too fast - much faster than inflation and personal income - and that to the extent Kentucky sees more college graduates as the key to its future economic success, this has become a serious headwind.

But on balance, we believe the bonding proposal is a good one, and the legislature should authorize it to go forward. The fact significant local money as well as student fees are required to fund these projects makes them self-limiting in a way that should weed out ambitions that are extravagant or lacking in local support.

It is unfortunate that much of this must be accomplished on the backs of students via the new fees, but that is a consequence of reckless legislative spending sprees of the recent past, in which both parties were complicit, which have left the state tapped out for investments as basic as these. We think under the circumstances this is the best and most reasonable way forward.

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