Sharing Our Kentucky Promise

It is an exciting time at the University of Kentucky – K Week is well underway, classes are about to begin and some 4,500 eager first-year students are dreaming big and “seeing blue.” It has been an exciting summer for the UK Family, and Mary Lynne and I continue to feel the warmth of our campus community and the city of Lexington. Over the last year, we’ve made incredible progress. We dreamed – and achieved – big dreams, and we remain energized for the bright days ahead as we prepare for our sesquicentennial.

Recently, I sat down with Business Lexington Editor, Tom Martin, to talk about the future of the University of Kentucky as we commit anew to our shared Kentucky Promise. We discussed UK’s top priorities of affordability and access, a robust undergraduate education program, our innovative housing endeavor and the international partnerships being built by our world-class faculty scientists. Enjoy!

"Business Lexington - Q&A: Eli Capilouto"

By Robbie Clark

The need to address today’s difficult economic realities has led to some controversial changes at the University of Kentucky under President Eli Capilouto, but UK’s top priority, he said recently, is undergraduate education.

TM (Tom Martin): One of the early bold steps that you made soon after arriving at UK was to decouple the university from the prospect of renovating and expanding Rupp Arena and the surrounding environs. Was that a difficult decision?

EC (Eli Capilouto): … I appreciate the task force and the mayor’s dream. I think it’s an exciting vision. I hope we get there one day, but my responsibility is to make sure that we have those facilities that complement our 21st century faculty. We need 21st century facilities so that we can attract the best and brightest, provide an education such that every student who leaves is the best and brightest.

TM: You oversaw a significant round of layoffs in the not-too-distant past. What are your priorities going forward?

EC: … Our Board of Trustees unanimously approved some priorities last October. And number one amongst those was redoubling our focus on undergraduate education. So that’s been our guide as we’ve had to make choices. Over the last three years, the University of Kentucky, I think, prepared itself well to be able to meet the demands and needs of undergraduate students. We grew our faculty by 9 percent. So we’re now positioned to grow our student body and provide them and our citizens more access to higher quality degrees.

Our faculty, who are never satisfied, thought that they could make what was an already exceptional curriculum even better. So they made tremendous improvements to our UK Core so that every student, when they take those fundamental core courses, will be well prepared for life.

… We also said we’re going to increase access and affordability, so next year we are not going to increase tuition more than 3 percent. That’s a bold commitment that few universities are prepared to make in this kind of environment. We increased our scholarships for our top-notch students by $10 million as well. That’s what we’ve done on the student side, on the faculty side, curriculum side.

(Concerning facilities,) we entered into the boldest partnership I think in higher education history, and that is a $500 million project to restore our residence halls. We want to grow that to 9,000 new modern beds. We only have 600 of our current 6,000 now that can be classified as “modern” and lending themselves in the living and learning environment to what we know undergirds success for students.

We’re also budgeting another $15 million in recurring funds so that we can fund debt up to $200 million to start rebuilding the academic core of our campus.

We’ve been able to hire just incredible researchers like Peixuan Guo. We got him from the University of Cincinnati. He’s one of the leading nano-biotechnologists in the world. This is going to make the quality of life for Kentuckians and people around the world even better through his research.

And lastly, the thing that we recognized we had to do: we have this incredibly talented and hard-working group of faculty and staff. We are planning a 5 percent salary pool for those terrific individuals for next year.

So those are the kinds of things we are doing to position ourselves to be an even brighter beacon to the state of Kentucky and fulfill our University of Kentucky Promise.

TM: We’re experiencing student access, affordability and loan issues across the country. The retention rate gap between low-income students and those who might come from more fortunate circumstances is widening. How do you plan to ensure that the university remains accessible across that gap?

EC: I mentioned that we increased our scholarships by $10 million. … While our tuition has gone up at the University of Kentucky, the out-of-pocket cost for our students in terms of how much they pay for tuition has gone up very little, and this is the result of a couple of factors. Our enhanced scholarships and also the federal government increased the amount of monies it made available through its Pell Grant Program, which helped other needs. So while our tuition is up to $4,700 for the average student, the out-of-pocket cost they experience is probably a little over $1,600. But that’s only gone up $100 or $200 in the last five years. So on average, we have done a lot, I think, at the University of Kentucky before I got here to recognize that access and affordability are a priority.

TM: You touched on facilities. Privatization seems to be a growing trend. How does this change things for public institutions? What are the implications?

EC: Well, the reason it really worked for us at the University of Kentucky was because we’ve entered into a partnership with EdR, a publicly traded company out of Memphis. They were able through the monies they raised through selling their stock to commit $500 million in cash. This is not a loan that we have to take out to support the building of these modern residence halls. This company has built and manages up to 40,000 residence halls/beds across the country. They are well experienced in this. They’ve been doing it for decades, so they bring their expertise. They can build a bed in our residence halls of better quality and for less price than those of us who don’t do it as frequently.

TM: Are safeguards built into the university’s agreement with EdR to ensure that your costs don’t exceed your projections and end up having to be passed on to students?

EC: Yes. We spent a lot of time negotiating that arrangement, and we have certain restrictions on price increases that take into account things like inflation. We also give them the opportunity to manage those residence halls. They have great expertise in that area as well and have demonstrated that they can do it more efficiently and more cost effectively than we can. So that means lower prices, more competitive rates for our students and their families.

TM: Are you thinking about broader application of privatization to other facilities on campus? Athletics, learning environment, that kind of thing?

EC: Well, what we are primarily going to focus on is sort of working within the rules of Kentucky. And in Kentucky for us to have permission to take on debt, we need to secure that from the General Assembly, and we will work to do that. It wasn’t included in the last budget, but the next time they make these considerations, we’ll be able to tell them that we have built into our budget $15 million of recurring revenues to support what is really the mortgage, just like you took out a loan for your home. And that will support $200 million of construction. I hope we can get, through philanthropy and other means, $200 million worth of matches so that we can undertake $400 million of construction in the next four years. That’s our primary focus.

It is a great time to make this kind of move, to invest now when prices are low, interest rates are low, and build facilities that are going to last 50 years. This is an opportune time. And a collateral benefit for Kentucky is it’s an economic stimulus too. We’ll put people to work; these people purchase goods. It has a ripple effect in our economy. It can be a real shot in the arm for Lexington and all of Kentucky because we are talking about, with the residence halls that we are building, in a few years spending a billion dollars on our campus to invest in Kentucky, so that this next generation is going to be better educated and better prepared.

TM: Our legislature has resisted extending bonding authority to Kentucky’s public universities to finance non-revenue-generating facilities such as classrooms and laboratories. Is expanded bonding authority something you will pursue?

EC: We are concentrating on getting permission through the existing processes to borrow money. I think many legislators told me if we can demonstrate a sound budget that exhibits how we are going to pay for this debt, they can be supportive. So that’s where our focus is now. We’ll be explaining to our legislators how responsible we have been.

In Kentucky, I think many people use as a guide the notion that your total debt shouldn’t exceed greater than 6 percent of your total revenues. At the University of Kentucky, we’re at 3.9 percent. If we were to take out another $200 million in debt, it would only go up to nearly 4.1 percent, so we are well under that guideline.

And we have the capacity to take on debt. We invested in our hospital $300 or $400 million, took out loans to do so. That was a $300 million operation 10 years ago; today it’s a billion-dollar operation. It provides incredible health care in Kentucky— the best health care you can find, right here in your own backyard. It’s created jobs, and it’s been a real boost to the economy. So we see some of the same things in our academic programs as possibilities.

TM: The pursuit of “Top 20” status: Does that continue?

EC: What is important to me is aiming high. The Top 20 Plan aimed high. We’ve got to continue to aim high. Circumstances that nobody imagined while we conceived that plan now are the facts of the day. (Harvard president) Drew Faust called it “the new normal.” It’s not new anymore, but that normalcy that she talked about is declining — a flattening of traditional sources of revenue. And we see this here in Kentucky. We had a $20 million budget cut again; state support, our federal support for research through NIH (National Institutes of Health) and NSF (National Science Foundation), are flat or declining. The dividends and payouts from endowments are flat. So we have to step back and ask, what are we going to do?

And one of the things that I can give you as a concrete example of what we’re thinking about at the University of Kentucky I got to witness on a recent trip to China. Among the activities that we undertook there, we looked at our opportunities for collaborations in energy research. China and its energy companies, electric companies, over the next five years will be investing … a trillion (dollars) in clean energy. They need it for their future.

That’s important to us in Kentucky. One of our research strengths here can be found in our Center for Applied Energy Research. I went along with Rodney Andrews, and in China, these guys are rock stars. They are world-class researchers; people know about their work. We’re already collaborating with universities and entities there. In the United States, we’re only going to invest $2 billion in this kind of research from the Department of Energy over the next five years.

TM: For the entire country?

EC: For the entire country. So this is a 500-fold difference. But when you have talent like we have here at the University Of Kentucky, we have opportunities for collaboration. The United States and China have entered into a consortium for this kind of research. We’re already a part of those activities. Those are the new ways we’ve got to find to earn our way into the future.

TM: What did you bring back from China that you would like to see implemented at UK?

EC: Well, you know there is a lot of talk in China today and in our newspapers as well about their economy. It’s had incredible growth. They’re making huge investments in infrastructure. Will it have a soft landing or crash landing? You hear a lot of speculation. A writer who had lived there a year said he had heard “I have this dream” more often in nine months than he’d heard in a decade in the United States. So it’s a place with big dreams, and it was a reminder to me that we’ve got to continue to dream big.

You also realize that China knows that the key to their future is brain power. The iPhone, which is manufactured there, represents a $200 per phone sort of export imbalance — you know, they send (it) to us in terms of a trade balance, because that’s the wholesale price of that phone. But they know they only capture $6 out of that $200, the manufacturing portion. The people who really made money off of the iPhone are those who developed the intellectual property, those who developed the design, the marketing, and did the sales. And that’s mostly in the United States. China recognizes they need to be at the front end of that. They want to be those who discover and create the future through new technologies. So it was a reminder to me that we’ve got to maintain our edge. They’re investing heavily in education because they know that is essential. We cannot forget our responsibilities in this same regard if we’re going to secure the future of Kentucky and secure the future of this country.

TM: Are commercialized research and entrepreneurialism being encouraged among faculty and students alike?

EC: Our students come expecting this. … There are all kinds of creative solutions to needs we have out there to be better informed, to improve our quality of life and to expand our economy. We have got to have environments within our classrooms and experiences outside of our classrooms that prepare our students for that kind of world.

You saw it in China. When I flew there I was reading a book, China Airborne. It’s about how China is trying to be a leader in the aviation industry in the future, and it was a coincidence for me that the plane I was riding on had been built by Boeing, a U.S. company, but the engineers were out of Russia, wing manufacturing and designers were out of China, and operation and switching equipment was out of Wichita, I believe. And it reminded me that our students have to be able to work comfortably in a global economy that crosses boundaries, cultures and races. I was so pleased with another benefit of going to China. We must have had two or three dozen students over there doing their study-away experiences, and I met with them and learned how much they had grown. And I also got to see how we are able to make these things possible through local partnerships. One was a student that spent two weeks there on a particular program, but she got to extend it for another six weeks through support from Lexmark. It’s an international corporation; they supported her internship there. They do business around the world. It worked for them, it worked for our student and it’s going to work for Kentucky’s future.

TM: Are you seeing any increase in Chinese students coming to UK?

EC: We have had good healthy growth in that. We have 600 Chinese students at the University of Kentucky; 400 are in graduate programs and 200 in undergraduate programs. Thanks to the work of our faculty and our deans, we have joined together with several universities in China. We’ve had over 400 students from our College of Education do their practice teaching not only here but in China. Good for China, good for us. We learn a lot from each other.

TM: The university has unveiled a marketing initiative called the Kentucky Promise. What is that about?

EC: The Kentucky Promise was birthed 150 years ago, and every generation of administrators and faculty at the University of Kentucky has taken it seriously, although maybe by another name, but it is that commitment to educate and prepare students for the future.

Things have certainly changed from that time we first opened our doors, but the University of Kentucky is about change. It has to be that beacon, that shining light that says, “This is a way forward.” And you have to have a willingness to think anew and to change in turbulent times. That’s the commitment we make to the Commonwealth; that’s the commitment we make to the students. It’s the commitment we make to our fellow citizens who through their hard-earned wages and taxes have made a commitment to our university. We have got to remain that shining beacon of hope, regardless of how dark the day may get. We’ve always done that. I’m confident we’re going to do that. We have thoughtfully and strategically taken the steps just like we have in the past to make sure that future is bright.

TM: What is your perception of UK’s role in helping Lexington develop its local economy?

EC: I’ve said many times that the city’s destiny and our destiny are intertwined. One of the greatest assets you can have in recruiting students, I think, is a vibrant metropolitan area, and we have unique strengths there, too. You look in the Southeastern Conference outside of Nashville and Lexington, and the rest of these universities are all in very small towns, and you can see that from an historical context. Lots of universities, those early ones, were placed in small cities. Ours is what I call a perfect size: 350,000 people, a good number of businesses, a rich place for our scientists to discover opportunities for partnership and bringing those ideas to the market. So we have got to be working together with our city. We’re proud partners in all kinds of things, and the mayor and I speak frequently. He likes to dream big dreams, and I hope we’re a part of a lot of them.