Borrowing, tuition hike on table for UI

URBANA – The state's worsening financial picture has forced the University of Illinois to consider borrowing money to ease its cash crisis – something it opposed just last month – as well as raising freshman tuition up to 20 percent.

Interim President Stanley Ikenberry spoke to The News-Gazette on Monday, detailing the budget situation (poor), the need for cuts (mostly from administration) and the Category I scandal (over).

The state is now $487 million in arrears to the university, and the number could soon exceed $500 million, Ikenberry said.

"That's not sustainable," he told The News-Gazette.

Ikenberry, who previously predicted a tuition increase of about 9 or 10 percent, said the figure could be as high as 20 percent.

He said the most likely figure was in the mid-teens. Since tuition is held steady over four years, the annualized rate for a 10 percent increase would be less than 4 percent, he said.

Ikenberry said the UI must weigh social policy, the importance of keeping the flagship university open to lower- and middle-income students, as well as competitiveness with other institutions, in setting its tuition rates.

From a market standpoint, he said, the UI needs to look at Michigan, Indiana and Purdue, as well as more expensive private universities like Northwestern and University of Chicago.

For the first time, tuition and fees account for more of the UI's funding than state aid, Ikenberry said.

"Students and parents are the only thing keeping our heads above water," he said.

For the current fiscal year, which began July 1, the UI has submitted more than $600 million in bills to the state but received just $133 million in reimbursements, officials said.

"We're bumping up against the $500 million mark," Ikenberry said.

In fact, with no state money forthcoming, the UI could end its fiscal year June 30 with $550 million in unpaid bills from the state. And it appears those numbers will continue to escalate in fiscal 2011, "certainly up to $750 million," he said.

He said the university probably has enough money to last through the school year, and perhaps the fiscal year, but noted that the state's IOUs are piling up at an increasing rate. The state was $120 million behind last June.

The UI initially declined to sign on to a bill that would let universities borrow against tuition income or expected state appropriations because of the state's financial crisis.

Ikenberry said he had no objections to other universities pursuing that authority but didn't think it was good public policy. For one thing, universities would be on the hook for the loans, not the state.

But after spending a day in Springfield last week, with no apparent budget solution in sight, Ikenberry changed his mind.

"I've done a 180," he said Monday.

Southern Illinois University pushed the legislation, Senate Bill 642, but it now includes Western, Northern, Eastern and other schools.

It would allow universities to sell general obligation bonds through Aug. 31, 2010, to raise money for salaries and other operating costs. They could borrow up to 75 percent of the amount owed by the state and would have to repay the money within 18 months.

A Senate spokesman said an amendment to include the UI in the borrowing authority will be considered this week, likely in the Senate Higher Education Committee.

The measure would then return to the Senate floor for a vote, said Senate spokesman A.J. Sheehan.

Ikenberry is still hoping the state will come through with some cash so the UI can avoid borrowing. But he wants to have that option, just in case.

The UI is already borrowing from other cash sources, including tuition, insurance reserves and related funds that are spoken for down the road. Its only other options are borrowing against future revenue or "shutting down," Ikenberry said.

The legislation would give the UI the option of borrowing money for perhaps six to nine months, he said.

"If the state takes tough steps now to put its financial house in order, I'd feel better going into next year," he said. But if a solution is a year away, "that suggests the cash-flow problems of the state are going to get much worse in the next nine to 12 months."

Ikenberry said it's clear state leaders know the state is facing unprecedented problems, and most agree the solution is to cut expenses and raise revenue – that is, a tax increase of some sort. But there's no political will to act before the general elections in November, he said.

"There's every reason for the state to resolve its financial crisis immediately. But I don't see signs of it happening," he said. "Until we do that, things continue to become more and more perilous."

The UI is going through a complex budget-review process to identify potential savings through program consolidations and other cuts. Ikenberry said it's likely the university will be smaller in coming years in terms of programs and its "overall footprint." But enrollment probably won't go down, as tuition is now a primary source of income.

Ikenberry also said the UI was looking at other possibilities, including the General Assembly ending its scholarship program, as well as cutting programs.

But the interim president said there was no easy answer.

"I don't think we can cut our way through this, and I don't think we can tax increase our way out of it," he said.

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