xt7mkk94813m https://exploreuk.uky.edu/dips/xt7mkk94813m/data/mets.xml Lexington, Kentucky University of Kentucky 19540219 minutes English University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Minutes of the University of Kentucky Board of Trustees Minutes of the University of Kentucky Board of Trustees, 1954-02-feb19-ec. text Minutes of the University of Kentucky Board of Trustees, 1954-02-feb19-ec. 1954 2011 true xt7mkk94813m section xt7mkk94813m 


Irregularities




 













       Minutes of the Meeting of the Executive Committee of the University
of Kentucky, February 19, 1954.


       The Executive Committee of the University of Kentucky met in the
President, s Office at 10:35 a. m. , Friday, February 19, 1954, with the
following members present: Guy A. Huguelet, Chairman; R. P. Hobson,
J. C. Everett, Harper Gatton and Smith D. Broadbent.  Absent: None.
President H. L. Donovan and Secretary Frank D. Peterson met with the
Committee.



      A. Approval of Minutes.

      On motion duly made, seconded and carried, the minutes of the
Executive Committee of January 15, 1954, were approved as published.



      B. Report of the Comptroller.

      The Comptroller submitted financial report for the period July 1,
1953, through January 31, 1954. The report consisted of balance sheet
and related summaries covering the University fund transactions for the
period of seven months.

      The Comptroller also supplied information concerning the insurance
coverage and costs for University property for the fiscal year 1953-1954,
as follows:



Property Assignment



Division of Colleges
Experiment Station Farm
College Amortized Buildings
Motor Vehicles
Robinson Sub-Station
West Ky. Experiment Station
Camp Robinson
Residences & Temporary Bldgs.
Bingham Camp & Dawson Springs



Cert.    Insured
No.      Value



70
71
72
73
74
75
76
77
78



$15,
  2,
  9,



086, 020.00
133, 570. 00
135, 600. 00
84, 200. 00
86, 99 0. 00
96, 780.00
16, 340. 00
147, 382. 00
38, 370. 00



$26, 825, 252.00



  Insurance
  Cost

$38, 139.34
  8, 870.98
  10, 437. 88
    655.68
  1, 188.99
  1, 068. 73
    243. 68
  8, 086. 50
    783.61

$69,475.39




 






2



       Members of the Committee examined the financial report, expressed
interest in the information concerning insurance coverage, and upon motion
duly made, seconded and carried, the report was authorized received and
filed.



       C. Budget Changes.

       President Donovan submitted a list of changes in. the University budget
which had been requested, and recommended by him.  He read the list, which
showed a net decrease in budget appropriations of $1, 332. 84.

       Members of the Committee being advised, upon motion duly made,
seconded and carried, the budget changes were approved, and the necessary
budget adjustments were authorized made.



      D. Delayed Delivery of Bonds for Construction of New Men' s Resi-
dence Hall..

      President Donovan reported that the University had, about a year ago,
made a loan agreement with the Federal Government for the purchase of
$1, 400, 000 bonds for the construction of the new men' s residence hall, and
the bonds were sold, dated July 1, 1953. He further reported that the
Comptroller had not delivered all the bonds, and read the following letter:



                                        February 18, 1.954


      Dr. H. L. Donovan, President
      University of Kentucky

      My dear President Donovan:

             The University made a loan agreement with the Federal
      Government for the purchase of $1, 400, 000 bonds for the con-
      struction of the new Men' s Residence Dormitory.  These bonds
      were to run for a period of 40 years and bear an interest rate of
      3.01 per cent per annum.  The bonds were advertised and sold
      in 1953.  The usual procedure was to deliver $1, 400, 000 in
      bonds and receive government check.  The proceeds would be
      deposited with the State Treasurer.

             I saw no need to secure all of the money at one time and
      so stated. Great pressure was brought to bear to close the
      transaction at one time and receive all of the money, place it to
      the credit of the State Property and Buildings Commission against
      which they would let a contract for the construction of the dormi-
      tory-, and encumber the money available.  I made two trips to




 






3



      Frankfort to explain to the State Controller and to other members
      of the Department of Finance how it would save the University
      and State a large sum of money if we would not deliver the bonds
      at once but encumber construction contracts against state alloca-
      tion and anticipated federal funds. I secured the approval of the
      federal government and at length secured the approval of the State
      Controller.

           The contracts were executed and encumbered against the
      state funds of $500, 000 which the State Property and Buildings Com-
      mission allocated for this project and anticipated proceeds from the
      sale of the bond issue. We spent the first $500, 000 before we de-
      livered any of the revenue bonds to the purchaser. In January I
      delivered $400, 000 of these bonds to the government. We still hold
      $1, 000, 000 of the bonds which have been authorized and executed.
      In this manner we permit the interest to accrue to the University
      and not to the federal government. I propose to continue to delay
      delivery of bonds to the federal government until such a time as we
      need another sum of money to pay monthly estimates for work
      completed by the contractors.

           Through delayed delivery of bonds, which is being done with the
      approval of the President and the Executive Committee, the Universi-
      ty will save, during construction of the dormitory, in excess of
      $43, 000. 00.

           There is another way we could farther save on interest if you
      and the Board approved.  We will need another $400, 000 or $500, 000
      in about May and perhaps the balance of the bond issue in about De-
      cember. In this manner we would be paying interest on $500, 000
      for May and June when we would only need perhaps $100, 000 for May
      and June commitments.  The same process would apply from month
      to month. We can borrow short-term money from the bank against
      the federal commitment in blocks of $100, 000 and save another $5, 000
      to $7, 000 in interest during the remaining period of construction of
      the boys' dormitory.

           I thought you might desire to report to the Executive Committee
      our method of financing the dormitory, the savings thus effected,
      and let them approve or disapprove the short-term financing herein
      suggested.

                                             Very truly yours,

                                  (Signed)  Frank D. Peterson
                                             Comptroller.


      The Comptroller further explained how interim borrowing for financing
payment of construction might save an additional amount in interest during the
construction period of the new Men' s Residence Hall. It was brought out that
short-term money could probably be borrowed for la% to 2%, whereas the
long-term coupon bonds purchased by the Federal Government bear an
interest rate of 3. 01%6 per annum.  It was further explained that the




 







4



Comptroller had not sought legal advice as to whether or not the University
could issue promissory notes for short periods of time, to be liquidated with
the proceeds from the revenue bonds when delivered to the Federal Govern-
ment.  The Comptroller stated that he desired to secure the approval of
the President and Execative Committee before pursuing the question further,

         Members of the Committee discussed delayed delivery of bonds,
and possible further savings through interim financing, and upon motion duly
made, seconded and carried, the Comptroller was authorized to proceed,
subject to approval of the Attorney General? s Office, and concurrence of the
attorney for the Department of Finance.



        E. State Auditor' s Report on University Finances.

        President Donovan submitted copy of the annual audit report of the
Auditor of Public Accounts of the financial records of the University for the
fiscal year ended June 30, 1953. He stated that this report had been made
under the supervision of T. Herbert Tinsley, Auditor of Public Accounts, by
Warren Van Hoose, certified public accountant.  He advised that the report
was available for examination by members of the Board of Trustees, and he
would appreciate it if members would read and examine the report.  The Au-
ditor of Public Accounts reported that "1. . . all accounts have been consistent-
ly maintained according to standard principles of accounting for such institu-
tions of higher education, and, in our opinion, fairly represent the results
of the operation. '

        Upon motion duly made, seconded and carried, the report was au-
thorized received and filed.



        F. Extension of Virginia Avenue through University Property.

        President Donovan reported that there was some agitation for the ex-
tension of Virginia Avenue across University property to connect with Tremont
Avenue.  Plot plans were examined and considerable discussion followed. No
action was taken.



        G. Report on University Fund Balances as of July 1, 1953.

        President Donovan recalled an article appearing in the Courier-Journal
under date of January 31, 1954, written by Mr. Hugh Morris, Frankfort corre-
spondent for the Courier-Journal. He stated that monthly reports had been made
to the Executive Committee and Board of Trustees throughout his administra-
tion, revealing the fund balances. However, in view of recent publicity con-
cerning fund balances belonging to the University, he desired to report more
fully on the University' s finances, and read the following statement prepared
by him and Mr. Peterson.




 







                                                                                 5

             A REPORT ON THE UNIVERSITY'S FINANCES

                       H. L. Donovan, President


      More than a quarter of a century ago the president of a Kentucky state
college overspent the appropriation made for his institution and created a
deficit of some thousands of dollars. He requested the General Assembly
to bail his institution out of this financial dilemma. Very reluctantly the
state administration and the legislature made an appropriation covering the
deficit and at the same time enacted a law which stated in substance that
in the future if any college president permitted his institution to incur a def-
icit, he would be subject to a fine and a prison sentence.

      Since I prefer to reside in Lexington rather than at La Grange, I have
during my twenty-six years as a college president scrupulously obeyed this
law.

      During my thirteen years as President of Eastern Kentucky State Teach-
ers College and during the thirteen years I have been President of the Univer-
sity of Kentucky; these institutions have been operated in such a manner as
to have always a surplus at the end of every year. In order to administer
these institutions and come out at the end of the year with a small surplus it
is often necessary to delay needed repairs to buildings, eliminate the purchase
of books, scientific equipment and other supplies vital to instruction. In-
creases in salaries so sorely needed by faculty personnel have been withheld
to a later date. Good business practices have always been followed in the
institutions for which I have been responsible regardless of what sacrifices
were necessary to keep them from falling into debt.

      On Sunday, January 31, my good friend, Mr. Hugh Morris, Frankfort
correspondent for the Courier-Journal, published an article in which he
stated that "During the last decade, the University of Kentucky has wound
up each fiscal year with substantial surpluses and unencumbered balances
in its three principal funds. e He then proceeded to analyze these funds in
his article in which he leaves the reader to infer that "the University hasll' t
been spending the money it does have", and, therefore, doesn' t need any
increase in its appropriation at least until all of its unrestricted, restricted
and plant funds are spent.

     On Thursday before this article was published the following Sunday, Mr.
Morris called me on the telephone and discussed with me briefly the substance
of the article he was preparing and asked me a few questions about these funds.
I begged him to come to Lexington and sit down with Comptroller Frank D.
Peterson and me and permit us to explain each item about which he had some
question.  He indicated that he would attempt to get permission from the
Courier-Journal to come to Lexington, and that he would call me later and
make a definite appointment if his "boss" would give him permission to do so.
Mr. Morris did not call me again,

     I desire to report to the Board the things I would have told Mr. Morris
if he had come to discuss this subject with me.

     The total assets of the University of Kentucky as of June 30, 1953,
were $38, 844, 737. 81. Its total budget will range from approximately $7, 000 000
to $10, 000, 000 annually depending somewhat on the amount of construction it




 






6



may do in any one year.  This means that your University is big business.
It also means that if it is operated on a sound financial basis it must employ
sound financial practices as does any other solvent business, and this is the
theory on which we have operated throughout the years I have been President
of the University of Kentucky. To maintain that a university should end its
fiscal year on June 30 with no balance whatsoever is to endanger the orderly
financial operations of the institution and sooner or later to face a financial
crisis that might wreck the institution for several years. The older members
of the faculty of the University will never forget that in the depression in 1932
the University was operated on a "hand to mouth" financial basis, and that
state revenues fell off materially until the appropriations from the state did
not equal the estimated budget and there was no money for operation of the Uni-
versity from about the first of January until the next July. For two months
members of the faculty, staff and other employees received no salaries and
thereafter only $100. 00 per month until the opening of the new fiscal year,
July 1. The hardship and privation endured by the faculty during this time
in the great panic that swept across this country constitute a tale of woe that
has never been written.  It is to avoid just such a disaster again that we here
at the University have felt that a surplus at the end of the year less than four
or five hundred thousand dollars might some day prove disastrous.  As a
matter of fact, after our budget was made last April (1953) and approved by
the Board of Trustees, Governor Wetherby found that the state, s income from
taxes was lower than had previously been estimated and it became necessary
for him to cut the budgets of all state agencies, including the University.
The cut for the University was $279, 800, If the University had not operated
on the policy of having a surplus for just such emergencies, all salaries of
employees would have had to have been cut back so as to absorb this loss in
revenue.  As it was this institution was able to meet the reduction in income
without reducing salaries at a time when the cost of living was still rising.

      I refer anyone who has the slightest doubt about the wisdom of main-
taining a surplus at the end of a fiscal year to the financial statements of
business corporations that have similar capital investments and income and
expenditures of the magnitude of those of the University. What would any
business do at the end of the fiscal year, especially if it did not have authority
to borrow money as the University does not have, without a working balance
on which to operate?

     From what I know about sound business practices I believe that the Uni-
versity of Kentucky should at all times have a working capital of five to six
per cent of its budget that it may meet its financial obligations on time and
never be embarrassed in its ability to pay its bills promptly. What is a good
financial practice for business is likewise good for colleges and universities,
A state institution should not be penalized in its appropriation when it prac-
tises frugality and sound business methods. If it is required to spend all of
its surplus before getting any additional appropriation at the end of any budget
period, the public can expect frequently some reckless spending just before
the date for the lapsing of funds that have been appropriated for a state agency.
I believe anyone who has been connected with state government in any capacity
will recognize the truth of this assertion,

     From what source did our current unrestricted fund come?  The Con-
gress of the United States in 1945 enacted Public Law 346, known as the G. I.
Bill of Rights. This law provided that institutions could charge the cost of




 







7



the education of a veteran to the Federal Government and that the institution
would be reimbursed on the basis of the established cost of educating a vet-
eran.  The average cost over the period of the eight years this law has
been in operation has amounted to approximately $300. 00 per annum for each
veteran in attendance at our institution.  In other words, the University has
been reimbursed at the above rate for all of the veterans it has educated
under Public Law 346. The following table will indicate the amount of money
the University of Kentucky has received from the Federal Government for this
service.


                Year                             A mount

              1945-46                      $     8,053
              1946-47                          693, 130
              1947 -48                       1, 445, 39 2
              1948 49                          735, 536
              1949 -50                         524, 115
              19 50 -51                        474, 889
              1951 -52                         460, 179
              10952-53                          99, 21 1
              19 53 -54                         50,000 (estimate)


     It will be noted that the amount has varied from $8, 053 to $1, 445, 392.
Instead of spending all the money we received in any one year it was early de-
cided to spread this money out over as many years as possible, spending
$400, 000 to $500. 000 per annum instead of being rich one year and poor
another. I can assure you that the orderly policy we have followed in the ex-
penditure of these funds has been beneficial to the state and the taxpayers, and
has not resulted in reckless spending in a year when there were large sums
accruing to the University and finding ourselves in financial difficulties when
the amounts were tapering off as they have been in the last two or three years.
If this has not been sound financing, then I am open to criticism.  It is from
this source that we were able to build up a working capital for the University
which has resulted in a surplus year after year. I do not hesitate to predict
that if the University is not permitted to have a reasonable balance that it may
carry over from one year to the next it is in for hard sledding in the future.
All of the current unrestricted balance as of July 1, 1953, has been budgeted
for current operation of the University during the year 1953-54.

     The unrestricted balance as of June 30 is now appropriated and allocated
for the current year, and as of this date we have an unallocated surplus in the
unrestricted fund of $151, 000, which is too small for a safe operating balance
of an institution of the size of the University.  So much for the current unre-
stricted fund.

     The current restricted (trust) funds are those funds restricted for the
purpose for which they may be designated.  This fund on June 30, 1953,
amounted to $2, 094, 376. 03.  The Comptroller has a complete breakdown of
this fund under seven categories appearing on pages 24, 25, 26 and 27 of his
annual report.  A study of this report will reveal that much of this money
represents gifts that have accrued to the benefit of the University over a period
of many years, None of it has come from state appropriations which have been




 






8



paid by taxpayers.  The money from all state appropriations has been complete-
ly spent annually. Various sums of money have been given for the purpose of
carrying on many different types of activities by individuals who have a high re-
gard for the work the University is doing.  These sums vary from a few dol-
lars to more than a quarter of a million dollars.  The amount of our current
restricted (trust) fund at the University of Kentucky is very small as compared
with that of many other state universities of our size and quality.

     Permit me to analyze briefly just a few of the items making up the cur-
rent restricted (trust) funds. First there is the Haggin Fund, a gift from Mrs.
Margaret Voorhies Haggin, in memory of her distinguished husband, James Ben
Ali Haggin.  This trust was established and is administered by a board of trus-
tees (not trustees of the University).  The University of Kentucky receives
annually a part of the income from this Trust. This income is a gift to the
University to be administered under the control of the Board of Trustees of the
University.  My distinguished predecessor, Dr. Frank L. McVey, always
regarded the income from this trust as a fund to be spent for the enrichment
of the program of the University - not money to relieve the state of some of
its financial obligations. It is to be used for the advancement of cultural
values which the state has always been niggardly in providing.  Through the
years the money has been spent for scholarships, fellowships, the publication
of books, the purchasing of rare books for the library and for filling the gaps
in our library when sufficient state funds have not been made available, for
music and art, and for supplementing the salaries of personnel that could
not be maintained under the maximum salaries allotted under state laws, and
occasionally for the purchase of a piece of property adjoining the University
for which no state funds were available at the time it was on the market. The
fund is reimbursed from rentals on the property until these obligations are
discharged.

     Dr. McVey frequently discussed with me what he regarded as the way
in which this fund should be expended, One of his great desires was that the
fund should be permitted to accumulate until it reached $300, 000, which he
thought at the time would be sufficient to erect on the campus a museum which
he greatly desired for the University but believed that the state would never
erect out of state funds.

     Should this fund ever be grabbed by the state arid taken over and mingled
with other University funds from tax sources, and the word of this practice
reached private foundations and donors of gifts, this source of income for the
University would dry up immediately since few, if any, foundations or wealthy
donors will permit their donations to be turned over and controlled by any
other body than the Trustees of the University.  The Director of the Sloan
Foundation when he was on our campus a few years ago made a public state-
ment to the newspapers of Kentucky that the Foundation would cancel its gift
from the Sloan Foundation to Kentucky if this institution were required to
cover it into the state treasury.

     Another restricted (trust) fund is that turned over to the Board of Trus-
tees by the Board of Control of the College of Pharmacy when that institution
became one of the colleges of the University.  This sum amounts to approx-
imately $100, 000 and is to be used only when the state appropriates funds to
erect a building for the College of Pharmacy on the campus of the University.
It was a gentlemen' s agreement at that time that this fund should be spent




 






9



for furnishing and equipping the College of Pharmacy.  To spend it for any
other purpose would be to dishonor a contract made some years ago between
the Board of Trustees of the University and the Board of Control of the Col-
lege of Pharmacy. Also among these restricted funds are gifts from the
Keeneland Foundation, the Sloan Foundation, the Grayson Foundation and the
General Education Board, and from many corporations and businesses that
have made gifts for scholarships and specific research which must be spent
in accordance with the terms of the gifts.

      There is in the fund also approximately $200, 000 which has accrued
from rentals of property given to the University for the housing of married
students, and low-income faculty members, and for the use of dormitories
by the A. S. T. P. during the war,  The University has regarded this money
as money that should be spent to replace the temporary housing which is
rapidly disintegrating.  This fund should not be used for recurring expenses,
especially when it comes from property placed on our campus by the Federal
Government for the housing of married students and low-income faculty
members.

      The University is not unlike any other state agency in that it expends
all of its state appropriated funds during the period for which such funds
were appropriated.  The flexibility that is so necessary for the operation
of the University is made possible by utilization of funds that come to the
University from sources other than the legislature.

      We cannot believe that the Governor or the legislature, or any responsi-
ble citizen of the state would want laws enacted that would hinder the Universi-
ty from receiving funds from foundations and donors,

      These restricted funds are sacred to the purpose for which they were
given and if the time ever comes when we should ignore the pledge we have
made to the donors, then the University would be unworthy to receive future
gifts.

     In the current restricted trust fund is another category of funds belong-
ing to students and others and held as deposits by the University. Many years
ago the Board of Trustees adopted the policy that all students reserving rooms
in the dormitories must make a deposit on the rooms with the Comptroller
of the University. Students enrolled in laboratory courses make breakage
deposits. University staff members make deposits for keys to insure the
return of the key when the holder leaves the University.  The University had
on June 30, 1953, $85, 687. 54 of this type of money.  This money does not
belong to the University; it is held by the University to be withdrawn upon
proper clearance.

     The amount of money in the University, s plant fund will vary greatly
from time to time, depending primarily upon whether the University has a
building program in process of completion.  The majority of the buildings
on the campus of the University have been erected out of bond issues authorized
by the Board of Trustees and by funds received from the Federal Government
in the first and second PWA bond issues,  Later Bowman Hall, the Coliseum,
the Library and Serving Building, the Journalism Building, the six fraternity
houses and the Stadium were authorized constructed out of bond issues.  At
present the men; s dormitory and the women' s dormitory are being erected




 







10



out of a loan from the Federal Housing Agency and allotments from the State
Property and Building Commission for the boys, dormitory; and a government
loan, and a gift from Keeneland Foundation for the girls' dormitory. Plant
funds must provide for the principal and interest on these bond issues. Money
received from the bond issues and unexpended is in the fund as are also funds
accredited to the Experiment Station plant fund and appropriated for repairs
and new equipment, for properties, for land or roadways and for other plant
developments.  There are sometimes unappropriated moneys in the fund
waiting to be allocated but most of it has already been designated for some
particular project under construction but not yet paid out,

     May I summarize then my answer to Mr. Morrisv article in which he
says, "the University hasn' t been spending the money it does have" and in which
he leaves the impression with the reader that we do not need what we have re-
quested for the support of the University.  I would like for Mr. Morris to find
out if Harvard, or the University of Michigan, or Ohio State, or Indiana, or
Princeton, or Duke, or Tulane, or Vanderbilt, or any other great university
of this country does spend all the money it has in any one year of its opera-
tion.  Or do they reserve a working capital, the sanctity of gifts made for
specific purposes, endowment. funds on which income only is spent, student
deposits, or a dozen or more other kinds of funds which all institutions of
any importance have under the control and direction of their boards of trustees?
Would the people of Kentucky like to see their University spend every dollar
of its money by the end of each fiscal year, June 30, and appear on July 1
naked as a new born baby with no money with which to buy anything until it
could draw a requisition against the new appropriation, which might or might
not be sufficient to operate it during the following year?

     Do the people of Kentucky want us to disregard the sanctity of a con-
tract to spend funds given for specific purposes for the current operations of
the University?  Would our citizens tolerate our spending student funds for
current expenses of the University?  We believe the people of the state re-
spect the sanctity of a contract whether written or whether made as a gentle-
men' s agreement, and from this practice we shall not depart.

     At the close of his article Mr. Morris cites the salaries of certain ad-
ministrative officers at the University of Kentucky, and the top salaries of
department heads and professors, apparently with the idea of showing that
they compare favorably with the salaries paid administrators in the state gov-
ernment. There is no objection to having such a comparison made, except
that it means nothing in terms of the University, s problem in providing an
administrative and instructional staff of the high quality that the state should
want.  The University i.s not in competition with the state government. It
competes, rather, with the other publicly supported and private institutions
of higher learning in America and it is this competition that it must meet.

     The University of Florida examined the salaries of administrative
officers in 1952-53 in forty state universities. In these institutions the medi-
an salary of the president was $14,940.  A second study made at the University
of North Carolina indicates that for institutions comparable in size with the
University of Kentucky, and which are members of the American Association
of Universities, the average salary of the presidents is $21, 000. For the
Land-Grant Colleges which are not members of the American Association of
Universities, the median salary is $15, 172. It can be said, in other words,




 







I1



that any university that pays its president less than $15, 000 is, in this regard,
in the lower 50 per cent of all publicly supported institutions.

      The median salary of vice presidents in twenty-three state universities
in 1952-53 was $12, 000, which is $1, 000 more than is currently received by
the Vice President of the University of Kentucky. In eight of the twenty-three
universities the salary of the vice president was $12, 000, or more.

      The median salary of comptrollers and other top business officials in
thirty-one state universities was $9, 200 in 1952-53. At that time the salary
of the Comptroller at the University was $9, 368, slightly above the average.
However, there are twelve institutions in the list of thirty-one where the
comptroller or top business official was paid $10, 000 or more.

      The average salary of department heads at the University of Kentucky
during the current year is $7, 703. For professors, other than department
heads, the average is $7, 044; for associate professors, $6, 137; for assistant
professors, $5, 277; and for instru