State cuts, KentuckyOne separation inflate UofL operating loss to $316M; Pitino, Jurich payouts curtail assets

State funding cuts, big payouts for high-profile firings and a costly separation from KentuckyOne Health have undermined the University of Louisville’s financial position and escalated its fiscal year net operating loss to nearly $316 million.

The loss is nearly $50 million worse than the year prior, primarily because of the institution’s separation from KentuckyOne Health, according to a new financial report the university posted on the controller’s office website Tuesday.

The separation from KentuckyOne Health is about to become more painful for UofL. The academic affiliation agreement between the two parties is scheduled to end soon, meaning that the health system would no longer have to pay the university tens of millions dollars each year. And the split would put in doubt the future of 56 full-time medical residents employed by the university at Jewish Hospital and Frazier Rehab Institute.

The university could not be reached Tuesday to say how it planned to deal with the projected loss in funding, which will complicate an already uncertain future of Jewish Hospital. UofL President Neeli Bendapudi said last week that the institution started “a process of transitioning service lines (from Jewish Hospital) to University of Louisville Hospital and elsewhere” — though university spokesmen told Insider that UofL was merely making contingency plans.

While the academic affiliation agreement is set to end Dec. 31, a spokesman for KentuckyOne Health said that the parties “remain in productive discussions … regarding the future of services at Jewish Hospital that are in partnership with UofL.”

Net gain shrinking

UofL’s net gain in fiscal 2018 shrank to a four-year low of nearly $3.1 million. | Graphic by Boris Ladwig

Money from the state and other sources helped offset the institution’s operating loss, allowing the university to eke out an overall $3.1 million net gain for the year, but that was down 89 percent from the nearly $29 million gain the institution recorded for the year ended June 30, 2017. It also was down 76 percent from the $12.9 million gain the university posted for the year ended June 30, 2016.

The fiscal struggles help explain why the university this summer hiked its tuition by 4 percent — the maximum allowed — and asked its departments to cut spending by 5 percent.

The university could not be reached Tuesday to say whether the deans accomplished those cuts or, if so, how many programs or positions they cut.

UofL said that operating revenue for the 2017/18 fiscal year fell by nearly $87 million, or about 11 percent compared to the prior year. Clinical services revenue, which includes dollars generated by the University Medical Center, fell $73 million, or nearly 22 percent — though the comparison is skewed as the KentuckyOne Health separation inflated revenue in 2016/17 by about $90 million.

For a less skewed comparison, the university’s operating revenue increased less than 1 percent compared to fiscal 2015/16, while the net operating loss worsened by nearly $14.7 million, or 4.9 percent.

State funding for 2017/18, at $133 million, fell 1.5 million, or about 1.15 percent.

Jurich, Pitino payments

Rick Pitino

The university also said its operations in the last fiscal year were dragged down by “nonrecurring” — meaning unusual — expenses.

Those included deferred compensation of $4.5 million owed to former Athletic Director Tom Jurich and a $5.5 million buyout of the contract of former basketball coach Rick Pitino, both of whom were fired after the program was swept up by a nationwide fraud and corruption sting into NCAA programs. Federal prosecutors in New York alleged in September 2017 that multiple UofL coaches were involved in a scheme to bribe two recruits into attending the school.

The university said Tuesday that it paid Jurich and Pitino the money by liquidating investments it held with the University of Louisville Foundation. The university used the same mechanism to pay $563,000 to the NCAA in a settlement after the conclusion of the investigation.

Lower expenses

Despite “many one-time and nonrecurring charges in 2018,” the university said it lowered its spending in 2017/18 by $38.4 million, or about 3.6 percent.

“The University had a campus-wide focus on reduction in spending that was very effective in the areas of supplies and salaries and wages,” the university said. “The separation from (KentuckyOne Health) also involved the planned spending of $13.2 million in 2018, which offset some of the other savings realized across campus during 2018.”

The university could not be reached Tuesday to provide details on the spending reductions.

Despite the “modest” $3 million net gain, the university said its financial position “remains strong” as total assets and deferred outflows of resources exceed total liabilities and deferred inflows of resources by a ratio of 2-1.