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million of savings that have been realized through making other management changes, as
detailed in the recent four-page white paper sent to board members.

       To illustrate the decision-making process, we will start in December, before the
Legislature met. Then we will look at where we were after the governor proposed his
budget and where we are today after the budget has been passed.

       Initially, the university assumed it would receive earmarked funds for
maintenance and operation of new buildings that were coming online - the BBSRB, the
women's health center, etc., - but the assumption was further that no additional
operating dollars would be offered. In the past three years, funding for maintenance and
operations has been cut, so our assumption of having funding for the new facilities was
rather daring. In February, when the governor's budget came through, the earmarked
funds were included and approximately $2.7 million for operating funds had been added
as a payback of about half of the previous recurring expense cuts. After the legislative
session was completed, additional earmarked funds were included, making operating
funding $13 million, a large boost.

       Over the period from December until now, we initially thought the needed
undergraduate tuition increase would be 16.4 percent for in-state and 7.9 percent for out-
of-state students. In February, with help from the governor's budget, we were going to
recommend a 14.6 percent tuition increase. But today our proposal is a 12.5 percent
increase for in-state undergraduates and 7.9 percent for nonresident undergraduates.

       We are putting a high priority on salary increases this year, and that strongly
influenced all of the figures suggested. UK's average salary increase for the past three
years has been 1.3 percent. It is challenging to retain and recruit faculty with raises of
that amount. Health benefits are expected to increase 10 percent, at a cost of $3.6
million. Scholarship funding must likewise increase to accommodate our own raise of
tuition costs. All of these cost increases are expenditures for people; and this is where we
plan to put our money - into increases for people.

       Our current plans include the addition of a "fighting fund" that will enable UK to
make counter-offers to current faculty being recruited by outside institutions. We have
chosen to offer salary increases of up to 4 percent, which is critically important. We also
have added a staff equity pool for the first time in a number of years. Health benefits
increases have been tightened to 9.4 percent, a figure to be proud of when compared with
increases for other states, entities, and institutions. Some changes have been made to
fund scholarship increases and put them on a more solid footing than before.

       Moving specifically to salaries: It is stated in the strategic plan that our goal is to
achieve 90 percent of the median salary of our benchmarks. If we do that, our average
salary will still be behind that of the other schools (except for Purdue). We had to
assume that the benchmarks are going to grant salary increases this year also, and we
assumed that figure would average 3.8 percent. Thus, to catch up, we increased our
effort to get 4 percent for our own faculty. It is against these benchmarks that we recruit,