CPE finance leader talks campus funding, pandemic and career in Q&A

June 30, 2020

William Payne, CPE's vice president for finance and administration, has served at the Council since 2001 – a little more than 19 years.

He brings close to 40 years of experience in both the public and private sectors to his role at CPE.

You've served at the Council on Postsecondary Education (CPE) for nearly two decades. What drew you to work in higher education, and particularly at CPE?

My parents both dedicated their entire careers to education. My mother was a K-12 teacher for more than 30 years in Tennessee, primarily teaching English. My father was an area superintendent in the Memphis city public school system and later helped spearhead a comprehensive statewide education study for the Tennessee legislature, which led to significant K-12 and higher education reforms. I grew up learning about the importance of education around the dinner table, but I was most interested in my dad's later policy work for the Tennessee Higher Education Commission. I knew when I went to the University of Virginia that my ultimate goal was to work for a higher education coordinating board and follow in my dad's footsteps. I was determined to pursue a career that focused on state-level policy issues.

You took an interesting route. I understand you started with a focus on business?

That's right. In 1981, I earned a bachelor's degree in business administration with a minor in accounting from Union University. I went on to complete a master's in business administration with a concentration in finance from the University of Memphis. I was working part time for Federal Express for much of that time, often at night and on the weekends.

After I graduated in 1985, I spent the next seven years working in banking. But I still felt pulled toward education, so I resigned in 1992 and enrolled at the University of Virginia to begin work on a doctorate in higher education administration. I ended up earning two degrees from Mr. Jefferson's university: a master of arts in public administration in 1997 and a doctorate of philosophy in higher education administration in 2001. While in graduate school, I spent two years working for the executive vice president and CFO of the University of Virginia and four years working in institutional research at Piedmont Virginia Community College.

Those experiences provided the perfect background for my work now, not only in terms of the policy basis in public administration and higher education, but also my studies in accounting and finance coupled with my work in the private sector.

Your role at CPE involves a mix of all those specialties. What is your primary focus and how does your work intersect with administrators on campuses?

CPE must meet a number statutory requirements related to budget and finance matters on either an annual or biennial basis, including tuition setting, postsecondary budget development and performance funding.

Every two years, state statute calls for the Council to collaborate with Kentucky public colleges and universities to develop a unified budget request for submission to the state legislature and governor. We have regular meetings over an eight- to nine-month period with campus chief budget officers and presidents on what components to include and what level of funding to request. It's not something that happens overnight. It requires a great deal of input from a broad array of stakeholders.

Tuition setting is the same way. We spend four or five months over the winter working with budget officers from each campus and reviewing trend data for Kentucky institutions and comparative data from other states. We involve Council members, campus presidents, and student groups in those discussions. That process culminates in a tuition and fee recommendation that we bring to the Council, typically in April, on an annual basis.

We've also spent a great deal of time collaborating with campuses in recent years on the state's performance funding model.

It's always a balancing act to make sure we meet both the affordability needs of students and resource needs of our campuses.

Campuses have endured budget cuts in 11 of the past 12 years. We've seen a good deal of debate and news reports on these challenges, but how are campuses themselves coping?

It's been about a 21% reduction or $224 million in nominal terms, but after accounting for enrollment growth and inflation, the cuts to higher education total about 37% – close to $500 million.

Campuses are making hard decisions, and they are going to become even harder over the next 12 to 18 months, unfortunately. But our campus leaders have managed these challenges well in a difficult budgetary environment, especially given increases in fixed and unavoidable costs and Council-imposed tuition and fee ceilings. It's been a mix of merging programs, eliminating some programs and offering fewer sections of particular courses, which can sometimes make it difficult for students to graduate in four years.

Campuses have also generated savings from attrition among faculty and staff. My perception is that our institutions are still providing high-quality education, but maintaining quality in a declining resource environment is certainly a concern for the future. It's a very precarious situation even though we've seen a lot of great leadership at our colleges and universities.

How has shrinking state support impacted tuition?

There's been upward pressure. Prior to 2009, increasing tuition and fees was a solution that institutions routinely relied upon to replace state appropriations. Since that time, CPE has sought to maintain affordability and access for students when approving tuition and fee rates each year by adopting tuition ceilings.

We've been fairly successful at that since we began capping tuition and fee increases in 2009. The average annual increase has been right at 4%. That average will actually decrease after this year's tuition cycle because, with the challenges from COVID-19, many campuses are forgoing tuition increases for the 2020-21 academic year. But in the absence of state budget cuts, we could have kept the average annual increases even lower – in the range of 1% to 3% per year.

It's always a balancing act to make sure we meet both the affordability needs of students and resource needs of our campuses. Since 2009, revenue from tuition and fee increases has only covered about 60% to 70% of campus budget shortfalls caused by fixed cost increases and reductions in state support.

We've seen great progress over the past five years in closing the gap between minority and non-minority students in terms of degree completion....Financial incentives are an important way to get institutions to align their priorities with those of the state, and I think it has changed behaviors.

You spoke earlier about your work on performance funding. Why is that the right approach for higher education?

Performance funding provides some important financial incentives for institutions to pursue – and hopefully achieve – the goals that Kentucky has set out for higher education.

I'll give you a very real example: We've seen great progress over the past five years in closing the gap between minority and non-minority students in terms of degree completion. I believe this is a direct result of the rather large financial incentives that we built into the performance funding models, which have encouraged campuses to recruit and retain minority students and see them to the finish line.

We've seen a similar effect on STEM+H (science, technology, engineering, mathematics and health) degrees. Financial incentives are an important way to get institutions to align their priorities with those of the state, and I think it has changed behaviors.

We are seeing institutions implement internal budget models that are much more aligned with the state's goals. Some institutions have begun to place greater emphasis on providing need-based institutional aid, as opposed to merit-based aid.

The state's performance funding work group will meet this summer. Do you anticipate any changes to the model or new proposals?

The original concept was to implement the performance funding models with new state appropriations to get them off the ground. We have two: a public university model and a two-year college model.

Almost immediately upon completion of the models, funding went in the opposite direction, and higher education has endured three budget cuts over the past four years.

At the same time, because of stop-loss provisions required in statute, the postsecondary institutions had 1% and 2% of their general fund appropriations carved out in fiscal years 2019-20 and 2020-21, respectively, and placed in a Postsecondary Education Performance Fund for redistribution.

Several comprehensive universities and KCTCS (Kentucky Community and Technical College System) institutions made contributions to the fund, but received no distributions when the models were applied.

As a result, some institutions have faced the equivalent of two budget cuts in the same year. Every institution experienced cuts ranging between 1% and 2% last year and this year, and some institutions received additional reductions in their base budgets to support performance funding.

That's been a difficult situation for those campuses to manage, and I expect they will seek to address it when the Performance Funding Work Group reconvenes in July.

And I assume COVID-19 has only exacerbated all the challenges we've discussed?

It has exacerbated the problems greatly.

As the number of coronavirus cases began to escalate in mid-March, all of Kentucky's public postsecondary institutions made the appropriate decision to suspend face-to-face instruction and transition to online learning. And there were significant costs associated with that transition, including hardware and software costs, professional development for faculty, and housing and dining refunds and credits.

Thankfully, passage of the CARES (Coronavirus Aid, Relief, and Economic Security) Act provided an infusion of federal dollars to assist students and families with college costs and help postsecondary institutions offset COVID-19 related expenses. While these funds were not sufficient to cover all pandemic-related costs, most of our institutions have been able to weather the storm. But this coming year is going to be challenging.

Are you seeing reasons for optimism?

My fervent hope is that members of Congress recognize that state and local governments across the country are in dire straits, and pass a bill that will provide federal appropriations to help offset COVID-19 related revenue shortfalls at state and local levels.