PUBLICATIONS Inside Illinois Vol. 24, No. 16, March 3, 2005

Higher education facing reduced funding

By Sharita Forrest, Assistant Editor
217-244-1072; slforres@illinois.edu

Academic programs and employee pensions at the UI may face changes if the FY06 budget proposed by Gov. Rod Blagojevich is passed by the Legislature.

In his Feb. 16 budget address, Blagojevich recommended that state general fund appropriations for the UI and other public universities remain at their FY05 levels for FY06, which would mean $697.9 million in general funds for the UI.

The Illinois Board of Higher Education had proposed a 1.1 percent increase for state universities next fiscal year, an increase of about $7 million for the UI.

In his proposal, the governor restored funding for the State Matching Grant Program, which provides several million dollars in matching support for federal research projects at the university, and he included funding for Illinois VENTURES LLC and several capital projects.

The state faces a potential $1.1 billion deficit in FY06, and its continuing economic difficulties may present UI officials with some tough decisions, including how to fund approximately $47 million in new expenses next fiscal year, including the operating costs of newly constructed facilities at Urbana and Chicago, utility price hikes and Medicare payments. Although tuition and fee increases at all three campuses next fiscal year will cover about $29 million of those expenses, university officials will be faced with a multimillion-dollar revenue gap.

Chet Gardner, vice president for academic affairs, said, “I think that the $47 million figure is going to come down a little bit, but not a great deal, and the gap will have to be funded by reallocation. And what that means is simply that we’ll have to take the money out of existing programs to pay those bills. It’s going to fall disproportionately heavy on academic programs simply because over the last three or four years we have disproportionately cut the budgets of our administrative units. There’s not a lot more blood we’re going to be able to squeeze out of administrative and service activities. It’s the harsh reality: The state has trouble with its budget, our costs are rising, and we have to find the revenue somewhere. Unfortunately, we’re at a point now where the academic programs are going to be affected the most.”

That could mean eliminating some course sections, reducing the number of teaching assistants and eliminating some faculty positions through attrition and by closing vacant positions. Several critical academic program initiatives that administrators had hoped to implement on all three campuses next year may also be eliminated.

Two of the administration’s highest priorities next year will be ensuring adequate revenue for need-based financial aid and for a 3 percent increase in salaries and benefits for faculty and staff members, Gardner said.

The university will be setting aside an additional $2.8 million – for a total of more than $24 million – for need-based financial aid to help the neediest students offset the costs of next year’s tuition and fee increases.

Providing a salary increase program next year will be crucial for the university to retain and attract faculty and staff members, administrators told the board in September when presenting the FY06 budget request. Periodic years of no or low salary increases over the past 15 years have eroded the UI’s salary competitiveness with peer institutions in the national market.

To cut costs in FY06 and beyond, the governor proposed reforms to the pension benefits provided by the State Universities Retirement System. The governor proposed reducing the imputed interest rate for participants’ in SURS defined benefit plans from an average of about 9 percent to 6 percent, a rate analogous to the other four state retirement systems. Blagojevich said that the reduction would save the state $750 million next year and more then $10 billion over the next 40 years.

Blagojevich also proposed eliminating a SURS provision whereby employees’ contributions are matched at a higher rate than those of members in other state pension programs, a move that the governor said would save the state $2.5 billion over the next 40 years.

These measures, in addition to other reforms, would reduce the state’s spending by $100 billion over the next four decades, Blagojevich said.

Among other changes, the governor proposed capping salary increases for end-of-career employees at 3 percent per year in the years preceding retirement and forcing institutions that offer large end-of-career salary increases to assume the additional costs themselves.

“(Large end-of-career raises) are considered by most people to be an abuse of the system, and those kind of rules could be changed even for existing employees,” said J. Fred Giertz, chair of SURS’ investment committee and a professor of economics and faculty member in the Institute for Government and Public Affairs. “However, the 3 percent limit seems unreasonably low. It would be better to limit the increases to the overall average for all employees.”

Currently, state employees can retire with full benefits at age 55 if they have 30 years’ service. For new employees only, Blagojevich proposed raising the age to 60 and the number of years’ service to 35 years. For new employees with at least eight years’ service, the governor also proposed raising the retirement age from age 60 to 65. These measures would save the state $5.5 billion over the next 40 years, Blagojevich said.

Modifications to pension benefits for existing state employees “will probably be modest if approved because there’s an Illinois constitutional requirement that pension benefits that have been earned or are in the process of being earned can’t be taken away or impaired. There’s considerable protection for people who are already in the system, although there are some changes that have been suggested that might have some impact,” Giertz said.

However, the governor’s plans to scale back pension benefits could have the unintended effect of forcing the university to inflate base salaries to make its salary and benefit packages more attractive to potential faculty and staff, Giertz said.

“It’s really not going to save us as much money as suggested because some of the savings on the pension side will be lost in terms of having to pay more base salary, so it’s kind of a no-win situation,” Giertz said.

While the governor’s proposed changes have alarmed some constituents, Giertz said it is unlikely that the Legislature will approve them without substantial modifications.

“I don’t think anyone should be overly concerned right now about exactly what was in the governor’s message because it still has to go through the General Assembly and a lot of changes probably will take place,” Giertz said.

The annual rite of negotiating a state budget for the next fiscal year, which starts in July, is just beginning for the Legislature, and university President Joe White hopes that the UI and its supporters will be able to persuade state lawmakers to increase the university’s budget when they meet with the higher education appropriations committees of the Illinois House and Senate this spring.

“We are hopeful that during the legislative session, we’ll be able to secure some additional funding reflecting the IBHE’s recommendation of a 1.1 percent increase; that would really help us provide critical faculty support and keep education affordable for our students,” White said. “I appreciate the governor’s recommendation for level funding, not because it’s what we need – we really need more – but because the state’s budget situation is excruciating.”

White said he has already begun meeting individually with state legislators, and Rick Schoell, executive director of governmental relations in the University Office of Governmental Relations, said that staff on the three UI campuses are preparing to mobilize the university’s supporters.

“We’ll be using every available hand to get our message out: students, faculty, the trustees, alumni – everybody,” Schoell said. “We will certainly make our point that the university is a great investment in terms of quality education, and it’s also able to give the state an economic lift with many of the projects we do that produce jobs and discoveries that get into the marketplace.”

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