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Planning & Budget

Planning & Budget
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TO: Faculty and Staff

President Poshard provided the following report to the SIU Board of Trustees at yesterday's meeting.

Vaughn Vandegrift, Chancellor

President Glenn W. Poshard's Report to the Board of Trustees at its meeting on Thursday, May 12, 2011

Thank You Mr. Chairman,

Before I begin, I too would like to personally welcome our new board members. I have had the chance to meet with each of them and am delighted that the Governor has re-constituted the board with individuals with such experienced backgrounds in business, education and law.

I believe I counted six SIU degrees among our four new trustees. So to our alums, welcome back to Southern Illinois University, we are very proud of the success you have achieved in your professional lives.

And we anticipate that your commitment to serve your Alma Mater will help prepare it for an even brighter future. Thank you again for your service.

Last week, I was in Springfield speaking with legislators and assessing the current session of the state legislature. Several topics impacting the university and its employees have begun to unfold as the session tilts towards its May 31st conclusion.

Because of the financial impact of these issues I would like to take a few minutes to brief the board on the status of these issues.

Two budget plans have now been officially introduced in the Assembly. A House plan, developed by the House Higher Education Committee, working in a bi-partisan fashion, reduces appropriation levels for public universities by 1.15%. For the SIU system this translates into a $2.5million reduction.

With all things being relative, this level of reduction is good news considering last year our state appropriations were cut by more than $14 million.

However; this smaller level of cuts was achieved by eliminating access to the state's monetary award program to students attending for-profit institutions. Essentially, a decision was made to mitigate cuts at our public community colleges and public universities, by no longer allowing for-profit institutions to participate in the state's monetary award program.

It remains to be seen if this policy decision by the committee will prevail. If it does not, the level of cuts in the House plan for public universities could more than double.

And in fact an amendment was filed last night that restores the for-profit's MAP eligibility and in turn increases the cuts to public universities by 2.5%. We will be trying to defeat this amendment as the House budget plan plays out today, tomorrow and next week

The house proposal for the first time in two years appropriates funds for reimbursement for veterans' grants at about a 25% level. This is good news considering the funding was eliminated last year for this important program.

A senate plan has also been filed which would reduce our state operating grant by $11 million. This five percent reduction, if enacted would mean that our state appropriation levels would have dropped below 1999 levels with a 12% reduction over the last two fiscal years.

The Senate plan also provides funding for the Illinois Veterans Grants and funds the monetary award program at FY11 levels with no eligibility changes.

Across all higher education programs the senate plan cuts $86.4 million or 4.1% and the House plan cuts nearly $35 million or 1.6%.

Given the fact that the legislature has already passed appropriation bills fully funding the state's various pension obligations for the coming fiscal year, I am pleased about where these levels of cuts are presently. Again, it is only May 12th and the budget process is just becoming clearer, but the current house plan is a proposal we can work with and lobby on behalf of.

I encourage all of our various constituency groups to communicate to our elected representatives about the benefits of supporting the smaller budget cuts to public universities contained in HB3700. A personal email or a personal phone call to our legislators will go a long way in protecting us against deeper cuts.

I remain concerned about the pending pension proposal affecting current public employees. Possible plans could not only adversely impact the individual pension benefits of our faculty and staff, but also shift certain employer contributions from the state to its universities. There is no question that most policymakers in Springfield believe that some combination of increased revenues, such as greater employee and employer contributions, coupled with a reduction in benefit levels for pension credits not yet earned by current employees, is the most likely outcome.

It is likely that some pension proposal affecting current employees will be offered today or tomorrow.

It will be a three option proposal for current employees for pension credits not yet earned. This would include an option of continuing in the current plan, but at a much higher employee contribution rate; a second option to move to tier two benefit levels for a defined contribution plan, which has already been passed for new employees, or move to a defined contribution plan such as a 401K in which employees put so much aside and the state will match a portion of it. However, there is no guaranteed annuity. The sponsor of the plan has indicated that the effective date for the legislation would be July 2012.

In my view, this plan, including all of these options, represents no less than a forced migration into lower pension benefit plans for university employees. The notion that proponents of this legislation are suggesting that this plan can somehow withstand scrutiny on the constitutional issue of diminishment of benefits because it somehow provides a choice of options for employees, is comparable to the idea that there are free elections in Venezuela.

The actuarial result of such a plan will be to greatly increase the unfunded liability of our pension systems because there will be fewer employees paying into them. The legislation essentially gets the state out of the defined benefit business but at a very expensive price.

I am also deeply concerned about the effect all of this talk about pension changes is having on the tapestry of our human resources. Many of our most experienced faculty and staff may very well leave this university's employ simply by the fear and uncertainty of it all. We know the retirement inquiries into SURS and our HR departments have risen dramatically in recent months, so I am concerned about a mass exodus if this proposal becomes law.

As one example, our health care providers serve much of downstate's Medicaid population and where will that vulnerable population go to receive medical services when there are no more university doctors?

If this state wants to have a quality public university system then keeping and hiring the best faculty and staff must be made a higher priority. The employees of this state are not the ones that have neglected the state's pension obligations. Each month these employees make their contributions and it is now time for the state to do the same. By every measure, this state provides modest pension benefits to its university employees; it is not that benefits are too high, it is that the state's obligation has been ignored too long.

Our public universities are willing to participate in discussions about increasing revenues into the SURS by cost shifting normal costs of pension benefits to the direct employer, whether that is a local school district, community college, or public university.

Normal costs for our pension system represent approximately 10% of total payroll, but currently the state is making pension contributions at 25% of payroll with 15% of that going to the unfunded liability resulting from years of underfunding.

Taking on normal costs would be a financial burden on the university and would require years to phase-in, but as President, I am willing to listen to such ideas if they are part of a comprehensive plan to solve our pension obligations without reneging on benefits promised to our employees.

On a related subject, the issue of health care for our current and retired employees and retirees is also very much on the agenda in Springfield.

A study commissioned earlier this year by the legislature's fiscal arm is expected to be released sometime in the next two weeks that will outline potential proposals to require certain types of retirees to contribute to their health care premiums.

Retiree health insurance now costs the state $500 million a year, while current retirees pay only about $12 million in premium costs. The legislation is expected to target non-Medicare retirees with mainly between ages 55 - 65 premium amounts based on income levels similar to the approach used for current employees health care premiums... Again, this issue is very fluid and the various employee bargaining agents are arguing that these provisions need to be collectively bargained, before implementations.

Another important issue affecting hundreds of our employees and their families is the decision by the state to drop Health Alliance in which more than 1,350 employees of SIU are enrolled as an HMO option in central and southern Illinois. A legislative investigation is currently underway and CMS is now indicating that a final decision on this issue is pending. Health Alliance is protesting the award and until further information is known the benefit choice period for health plans will be extended.

This office has voiced its concerns about the decision to drop Health Alliance and the implications that has on the provider network that will be available to our employees in the Carbondale and Springfield areas. Hopefully, we will have a reasonable resolution to this issue very soon.

Another important funding issue now before the Legislature is a proposal to repeal the 1996 law that allowed boards of trustees of public universities to hold tuition revenues locally. Such a plan would be disastrous for public universities.

State statutes delegate the sole authority to establish tuition rates and collect tuition revenues to public universities' boards of trustees. It is important that our board maintain corresponding authority to set expenditures and retain its own treasury monies from student tuition payments.

Through the cash crisis of FY 2009 forward, having retention of income funds has allowed SIU to work with the State through its cash flow crisis. Without local retention, and because the State is at least seven months behind in its payments, it is doubtful any of our universities could be meeting payroll payments.

So we are diligently watching the progress of this proposal and so far we have been able to bottle the bill up in the higher education committee.

I would also like to report that performance funding legislation that has been moving forward since the creation of the IBHE Public Agenda three years ago has now moved one step closer to passage with its unanimous vote in the Senate Higher Education Committee last week. I expect the plan to move to the Governor's desk sometime next week.

A final note is that we continue to monitor the federal budget negotiations and the potential impact it may have on PELL grants. This critical financial aid program for low and moderate income Americans has a $10.7 billion shortfall that has grown over the last several years as the recession drove many low-income Americans back to college, while income eligibility rose and the maximum grant amounts increased by more than $800 over the last two years.

It is clear that some changes will be required to sustain the program and we already know that summer PELL grants will be discontinued in next year's federal budget. It is likely that to ensure the financial viability of the PELL program and to gather the necessary political support to increase PELL funding the future of the program will likely be linked to student outcomes.

I will be spending time in Washington, D.C., during the coming months to lobby against these PELL grant reductions in trying to effect a solution to keep the PELL an integral part of this country's efforts to increase its attainment rates. SIU receives millions of dollars from PELL grants each year and this funding is critical to the future of our students and our university.

Mr. Chairman that concludes my report.

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