trying to attract faculty that would be likely to go to these schools. We have been
successful in attracting a number of such faculty.

       The area of scholarships is another in which President Todd has always felt that
UK was not competitive. Having talked to high school counselors, parents, and others,
he concluded that other state universities were offering a much larger volume of
scholarships than UK. This inadequacy has been alleviated by strengthening the
Governor's Scholars and the Governor's Scholars for the Arts offerings. But UK is still
offering the lowest percentage of any school in the state of Kentucky despite the
percentage of recipients almost doubling from 2.6 percent to 4.6 percent. We need to
increase this figure further to compete with Kentucky schools as well as with our
benchmarks.

       Other changes in the budget include putting an additional $1.5 million for debt
service into the IRIS project so that it is properly budgeted and there is no large balloon
payment at the end.

       Insurance presents another interesting situation: UK has been insuring its
buildings at their original cost, not at their replacement cost. We are changing now to
cover the replacement value of our buildings. Automotive insurance has gone up because
we have not increased that contribution since 1996. This budget will begin to remedy
that situation financially also.

       UK must purchase at least $150,000 of library books and databases to maintain
the library's current position.

       The budget will take another financial hit with respect to receiving lower service
assessments from Lexington Community College while at the same time retaining the
people for whom UK used to receive the service assessments. Other adjustments of
service assessment amounts have been made, specifically, Medical Center assessments
will decrease by about $1 million this year because better tracking of the actual value of
such services revealed that the previous year's assessment was a slight overcharge.

       President Todd said that overall, we have expenses of approximately $35 million
for salaries, health benefits, and scholarships. From various sources of income, we
expect to receive income of approximately $31 million, leaving a shortage of $3.2
million. This amount must be found somewhere, but it is encouraging that previously we
thought the shortage would be $10 million.

       President Todd wanted the board to be aware that even during the past three
years, investment has been made in some program improvements, at the rate of
approximately $.5 million a year, and this budget will allow an increase in that figure.
The provost will receive an additional $400,000 to deal directly with the various requests
he receives.