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Planning & Budget
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4-19-11

TO: Faculty and Staff

President Poshard provided the following report to the SIU Board of Trustees at its meeting last Thursday, April 14, 2011. I believe it is an excellent summary regarding issues such as pensions, performance-based funding, and cost savings facing higher education in our State. I provide it to you with his permission. Our thanks go to the President for his continued efforts on behalf of public higher education in the State of Illinois and the SIU system, in particular.

Please accept my very best wishes for the remainder of the semester.


Vaughn Vandegrift, Chancellor
FY11-6



President Glenn W. Poshard's Report to the Board of Trustees at its meeting on Thursday, April 14, 2011.

Thank you.

Before I begin I would like to let the board know that today is student lobby day for Southern Illinois University and that students from both campuses will be visiting the capitol to add their voices to the concerns we all share about the direction that state funding for public higher education is headed.

Year after year we get incredible students representing the university, taking their own time away from their studies, to meet and talk with legislators about their stories of how they finance their college education and why it is so important for the state to provide financial aid. They do a great job and I wanted to recognize their efforts.

I would also like to congratulate Chancellor Cheng on her installation ceremony later this week. The events that we have already celebrated and those planned for later in the week have just been outstanding. Tuesday evening I had the pleasure of introducing Chancellor Vandegrift who was recognized as the St. Louis Area Boy Scouts Citizen of the Year, an honor, Mr. Chairman, that you had received several years ago.

For the next few minutes I would like to brief the board and our constituency groups on where I believe things stand in terms of the on-going state budget crisis and its impact on our university for the coming fiscal year.

If we can take a step back a few months we will remember that the legislature, after years of putting off the need to raise revenue, finally in January increased the Illinois individual and corporate income tax rates.

The revenue from the income tax increase is expected to raise $7 billion a year for the next four years before the rates automatically fall back.

The new revenue is projected by some economists to lower the state's structural deficit from $12.5 billion to somewhere in the $6 to $7 billion range. This large deficit remains because of the unprecedented drop in state revenues during the recession and a provision in the state's finance act that allows Medicaid and state employee group health insurance obligations to be paid without regard to the fiscal year in which the appropriation for the liability is made.

One-half of one percent of the increase in the new tax rates is earmarked to refinance more than $7.0 billion in currently owed obligations to the state's health care providers, human service agencies and educational institutions. The state is in arrears to this university by over 133 million dollars. We have 80% of the FY gone and we have received barely one-third of our funding.

For the refinancing plan to pass the legislature, it must be approved by a 3/5ths majority and that will be very difficult.

The success or failure of that plan is at the heart of the FY12 budget process and will dictate how all other spending is allocated, because without dealing with the backlog of bills, without a long term debt refinancing plan in place, it will be nearly impossible for the legislature to put the state's finances in reasonable order before the debate on renewing the income tax increase takes place in four short years.

If the income tax is to be renewed it will require incredible fiscal discipline for these next four years to convince voters that the state has acted responsibly with this new revenue.

Speaker Madigan and President Cullerton have instituted an appropriation process this year that is inclusive of the minority party, a group that seems ready to assume their important role as the loyal opposition. Senate Republicans, who have remained unconvinced of the Governor's budget reduction actions, unveiled their budget ideas in a detailed plan released last month.

From my discussions with the legislative leaders I do believe that their will be a bi-partisan budget plan passed this year and that it will reflect a philosophy of paying the state's contractual obligations first, such as pensions and group health care, and then reducing spending in all other areas of state government necessary to balance the state budget over the next four years.

As I have reported previously, the Governor recommended flat funding for universities this year and a 6% increase in student aid, but his budget proposal is nearly $2.0 billion higher than the revenue estimate now being used by the House of Representatives in their own appropriation process. The Senate revenue estimate is nearly a billion higher than the house, but still $1.0 billion lower than the Governor's spending levels.

The FY12 House committee budget mark provided to the house higher education committee last month will not sustain both the FY11 higher education appropriation levels and the required $200 million increase in the FY12 certified contribution amount for the state universities retirement system. The committee has already moved forward on the full pension payment, so at this time we are very concerned about how the higher education budget is being developed.

Our estimate is that there would need to be an almost 10% reduction in higher education appropriation levels in order for the committee to meet this mark.

Prior to passage of the FY12 SURS appropriation we were given assurances that this level of reduction was not being considered, but it is clear from my testimony in both the house and senate appropriations committees that some significant level of reduction is now likely. It will be necessary to plan our FY12 university budgets in anticipation of further reductions in state support.

It is hard to quarrel with the argument that the state should pay its full contractual obligations owed to its pension systems, it is equally clear that these payments cannot be sustained over time without either finding new revenues to help finance this obligation and or reducing liabilities further than the tier two plan enacted last year.

I know the possibility of pension changes to current employees is an issue on the minds of many of our faculty and staff. The majority of our employees are not eligible for social security, so this is a very important matter to our people. I wish I could provide you some level of certainty about the legislation now pending in the General Assembly. I cannot.

President Cullerton visited SIUC last week and I urged him to continue working on his ideas of how we could find new revenue sources to stabilize our pension funds. His chief legal counsel has written a well-argued opinion available on the SURS website that asserts that virtually any change in law to current employees benefit level would be an unconstitutional diminishment. Others, pressing for further reductions in pension obligations, have written that changes going forward, benefits not yet earned, could be reduced.

There seems to be some speculation in the middle ground of opinion that requiring more contributions from employees and extending retirement ages would not be viewed as a diminishment of benefit levels promised.

Again, it is clear that the legislature wants to address this issue and may do so in a bi-partisan approach. The pension liability is the 800 pound gorilla that is preventing funding from increasing in other areas of state government, including higher education.

Our Governmental Relations staff is currently participating in pension discussions with SURS, the annuitants association, other universities, community colleges and the various collective bargaining agents. All of us understand that it is in higher education's long term interest to get this issue settled. We do not want to see our employees' pension benefits diminished and as an administration, we are willing to consider plans or ideas that may include employer contributions in the same way we contribute to the stabilization of the state's group health insurance program.

I would also like to brief the board on new budget related legislation now making its way through the General Assembly that will institute a new performance based funding model for public higher education.

The legislation is an outgrowth of the work done to date on the comprehensive plan for public higher education, known as the Public Agenda.

The legislation creates a framework to establish the necessary metrics for the goals of the Public Agenda. The first university budgets that will reflect performance based funding principles will occur in IBHE's FY13 budget submission.

Again, in light of the income tax that was passed, many of the members that voted for that increase are now insisting on outcome based budgeting. It represents the biggest departure that I can ever remember in the way the legislature allocates its funding.

Each institution will be measured against its own performance in key areas such as retention and graduation rates and based on improvements in these areas, additional funding will be made available.

The legislation charges IBHE with the responsibility of putting together a broad based working group tasked with devising an allocation system. I have asked Chairwoman Hightman of the IBHE to consider SIU's service on this task force.

This is an outstanding opportunity to create new funding opportunities for public higher education. As this unfolds over the coming months, I look forward to reporting its progress to the board.

In addition to performance based budgeting, another major reporting initiative is also moving through the assembly. This legislation will require public universities to document any cost-saving measures undertaken during the previous fiscal year and to report annually to the legislature on new academic programs created, existing programs that have been closed or consolidated, and programs that exhibit low performance or productivity.

This legislation represents accountability and efficiency proposals that I think our university will do very well on. My office looks forward to working with our two chancellors in compiling this important information. In my view this legislation represents an opportunity to demonstrate to the legislature how we are reacting to the ever changing educational demand of a dynamic and global workplace as well as another chance to reinforce the many initiatives we have undertaken throughout this budget crisis to balance our budget while preserving the quality of our academic programs.

Finally, regarding state legislation, another bill currently making its way through the legislature is the issue of concealed carry. Both the House and Senate are currently considering legislation that would allow Illinois citizens to carry concealed weapons on their person. While the legislation would exclude individuals from bringing guns into schools and college buildings, individuals could carry weapons on the campus.

We are working diligently with our other public universities, the federation of independent colleges and universities, and the community colleges to secure an exemption to create gun fee zones for our entire campuses.

Recently the Illinois Campus Law Enforcement Administrators issued a statement citing research that "concealed carry" initiatives do not make places of higher education safer; but in fact, have the potential to dramatically increase violence on campuses. I concur in this opinion and met last week with Senate President Cullerton about this issue and I do believe that we will be successful in our efforts to secure a campus wide ban.

I did not want to close without also expressing my serious concerns over the debate on spending that is now occurring at the federal level. We are closely following the proceedings and are working with our national associations APLU (Association of Public and Land Grant Universities) and AASCU (American Association of State Colleges and Universities) and our state economic development agency in opposing proposed funding cutbacks in the research, student aid and workforce development funding now being debated.

At this point in time the most significant causality of the cuts that have been agreed to thus far by the President and the Congress has been the elimination of summer school PELL grants. This will impact the university and result in the loss of millions in PELL aid for summer school students.

However; President Obama has made increasing educational attainment rates one of his administration's highest priorities, but his objectives to reach his goal to boost college graduation to the highest proportion of college graduates in the world by 2020 will require an increase in the number of college graduates by 50%, an estimated eight million additional graduates by the end of the decade.

The President's goal cannot be accomplished without supporting the PELL program. Though we all recognize there are serious funding issues related to the program and the sustainability of the significant increases that have occurred in PELL funding over the last four years, I am confident that with the president's position on this issue that our students will continue to receive the financial aid they need to succeed and complete their degrees.
Mr. Chairman that concludes my report.

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