Lawmakers' pension indecision frustrates UI
Legislative inaction on pension reform leaves the University of Illinois exactly where it was six months ago: wondering when the system will be fixed, and how much it will cost the UI and its employees.
"I think there's a lot of uncertainty as to what's next. Are they going to have a special summer session? Are they going to wait until after the November election? Could the legislation be altered?" UI spokesman Tom Hardy said Friday.
Meanwhile, the state budget for fiscal 2013, which starts July 1, would cut the UI's state appropriation by more than $43 million, UI officials said.
Legislators failed to enact bills to rein in escalating pension costs before adjourning early Friday.
Gov. Pat Quinn said he planned to convene the four legislative leaders in the next week to "forge a pension reform agreement as soon as possible and return to Springfield to enact it into law."
Lawmakers had settled on a plan to force public employees to accept smaller cost-of-living increases in their pension checks or lose the free health insurance provided by the state to retirees. It would apply to retired state employees, downstate and suburban Chicago teachers, university staff and other public employees.
The change, bitterly opposed by employee unions, was estimated to save the state billions of dollars in coming years, addressing the $83 billion pension funding gap.
But lawmakers fought over a provision that would have shifted future retirement costs to schools, community colleges and universities.
A revised bill, which left out the cost-shifting provision but made schools responsible for any retirement costs from late-career raises, passed a House committee Thursday morning but made it no further.
The UI had worked with other state universities for months to push changes that would protect employee benefits as much as possible and not cripple the institutions financially, requesting that any cost-shifting be phased in over time. UI President-designate Bob Easter visited Springfield twice in recent weeks to lobby legislators or testify.
The UI's Institute of Government and Public Affairs also developed a "hybrid" defined-benefit pension plan that would include contributions from both employees and employers, tie interest rate increases to market rates, pair a modest increase in employee contributions with new direct contributions from universities, and improve the less-generous "tier II" pensions for employees hired after Jan. 1, 2011.
"There's disappointment that a lot of time and effort on the part of a lot of people kind of came up short," Hardy said Friday. "I would say that some progress has been made, but we haven't been able to cross the finish line."
The proposed changes would affect tens of thousands of UI employees and retirees.
Legislators had proposed that universities pick up 1 percent of their employees' normal pension costs each year starting in 2014. That would have cost the UI $14 million to $15 million a year, eventually totaling $180 million annually.
UI officials expect the idea of cost-shifting to resurface, this year or next.
"They may not have pulled the trigger, but that doesn't mean we've dodged the bullet," said UI Vice President and Chief Financial Officer Walter Knorr.
Some analysts fear the changes could prompt top faculty to bypass the university or drive current professors away. Easter said any change in pension benefits is viewed by employees as a "negative."
"Our real concern is to have a pension program that's sustainable for our employees," to keep the UI competitive with its peers, he said Thursday in Chicago.
UI Chicago Professor Don Chambers, chairman of the UI's University Senates Conference, said faculty are annoyed because legislators delayed required payments to the pension funds to appropriate money for other programs, even as professors, teachers and others continued paying into the system.
"The money was there. We all paid our money. We were denied the ability to pay into Social Security ... and the state made a lot of money on us," Chambers said. "Now we have a pension crisis."
Faculty senators on the three campuses approved a resolution saying, among other things, that promised benefits should be maintained as guaranteed by the state constitution, and that the state should be responsible for any unfunded pension liabilities.
Other UI officials note that the state has been reducing the UI's appropriation for several years in part to cover escalating pension costs.
Knorr reported that the proposed 2013 state budget would result in a $43.5 million reduction in the UI's general appropriation, to $646 million. That amount would include the $15.8 million for the state surveys, which used to be a separate appropriation.
And UI students will likely lose financial aid dollars from a $15 million cut in the state's Monetary Award program, Knorr said.
Administrators said each 1 percent hike in the UI's tuition rate raises approximately $3.5 million university-wide, so making up for lost state appropriations would require a substantial tuition increase. That's not an option at this point, said Trustee Edward McMillan.
"We have to find opportunities to reduce our costs. We have to," he said.
Hardy said Knorr and campus budget officers have been working out different scenarios in anticipation of state budget cuts, and will be evaluating those plans over the summer.
Trustees set tuition levels for 2012-13 in January, raising rates for incoming freshmen by 4.8 percent.
The state currently owes the university $241 million in past-due reimbursements for fiscal 2012, which ends July 1, plus the $15.8 million for the surveys, Knorr said.