'State of denial' over true amount of UI financial reserves
URBANA — The continued slide in state support for Illinois' flagship public university and fundamental changes in higher education itself will require tough decisions in coming months, University of Illinois President Bob Easter says.
Amid other reviews looking at possible changes in administration and academic programs, Easter has commissioned a strategic-planning process to chart how the university can respond to that "paradigm shift" over the next few years.
Some faculty, however, remain unconvinced that the university's financial straits are as dire as advertised. They say the UI has a "billion-dollar reserve" and that administrators are holding money that could go toward salaries and campus needs.
Other faculty leaders call that notion misinformed. Education Professor Nicholas Burbules, chair of the University Senates Conference, complained about "a state of denial" on campus about the UI's financial challenges.
"I think we are at a critical juncture for the next couple of years. It's very important for faculty to understand what's at stake," said Christophe Pierre, UI vice president for academic affairs, who briefed conference members earlier this spring on the new strategic-planning process.
State funding, which has been on a downward trajectory for more than a decade, will likely continue to decline, Pierre said, and tuition has risen to the point where future increases must be limited to preserve student access.
A chart provided by the UI shows that, in constant dollars, tuition income has grown from about $350 million in fiscal 2002 to more than $1 billion this year — even as state funding has done the reverse, falling from more than $1 billion to about $393 million. Base annual in-state tuition will be $11,834 this fall, though some students pay $16,000 or more with college surcharges.
At the same time, Pierre said, the university can't simply "shrink" if it wants to preserve its international reputation.
Rather, he's asked all three campuses — Urbana, Chicago and Springfield — to draw up blueprints that can be used to make decisions about resources and how they're invested. They are to report back by the end of June.
Pierre said the plan will involve two components:
— Identifying areas where the university has some "control levers" — for example, the number of out-of-state students, who pay higher tuition; faculty size in various units; income from the transfer of technology to the marketplace; alumni support, and budget cuts.
— Deciding where and how those resources should be invested for the future.
Easter and Pierre said the end product won't be something that sits on a shelf.
"This is going to be an ongoing process for a while," Easter said. "It's clear that the funding paradigm is shifting, but the paradigm for higher education is undergoing changes as well," with the rise of online learning and more students heading to community colleges for the first two years of college, he said.
Concurrently, the university is conducting a review of graduate academic programs to better target resources, and evaluating the entire central administrative structure to reduce costs and create a more efficient way to support the campuses.
The Urbana campus is already a year into its "Visioning Future Excellence" process launched by Chancellor Phyllis Wise. That effort will be blended into the universitywide strategic planning effort. Wise said the changes in higher education aren't "shocking news," as they've occurred gradually, but "we do have to make tough decisions."
Burbules predicts resistance from faculty on all campuses to major budget cuts.
"There's always a reason not to make the tough decisions," he said, urging administrators to counter what he called misconceptions about the UI's cash reserves.
'Figures look good'
The university doesn't have a "reserve" per se, but cash balances in many different accounts across the system. All told, they amount to about $1 billion, but much of that total is spoken for — to fund scheduled construction projects or upcoming bond payments, for example, or to serve as a cushion for past-due payments from the state, administrators said.
The Campus Faculty Association, which is pushing for a faculty union, points to the university's latest audited financial statement, which lists more than $1 billion in unrestricted net assets as of June 30, 2012. The figure grew by $354 million last year, a result of rising tuition income, spending cuts and growth in some of the UI's self-supporting auxiliary operations, according to the statement.
The UI's unrestricted cash and investments have also grown by almost $1 billion in the last three years according to the financial statements, said Professor Richard Laugesen, incoming vice president of the CFA.
"Everywhere you look, all the figures look good," Laugesen said. "The university's finances are much stronger than the university has been prepared to state."
The union says it's time for more faculty input and public discussion of how those funds are used, suggesting the UI address "abysmal" faculty salary rankings and the poor condition of some classrooms.
"The point is those priorities can be changed by the board of trustees and the administration, and at the moment there's no transparency about how all of those decisions have been made," Laugesen said.
At the urging of Professor Matthew Wheeler, chair of the Urbana-Champaign Senate Executive Committee, administrators have attended recent senate meetings to explain the UI's finances in more detail.
Easter said the reserve is a "somewhat mythical figure," saying the university needs to counter the idea that "we have millions and millions of dollars just sitting around."
For one, the state still owes the university more than $250 million in reimbursements for the current fiscal year, which ends June 30. In January, that total had reached $500 million.
The university has had to keep cash on hand to cover its payroll and other costs until the state comes up with the money, administrators said. And given the state's instability, it's hard to predict when that might happen.
UI Board of Trustees Chairman Christopher Kennedy recently noted that the past-due payments from the state has rarely dipped below $300 million since mid-2009 — effectively reducing the UI's annual state funding by that amount.
"At any one time, do we have cash sitting in the bank? Yes. (That) allows us to do things like keep payroll running when the state owes us almost $500 million," said Randall Kangas, UI associate vice president for planning and budgeting, who remembers wondering in 2009 if the UI would be able to pay its employees.
'Unrestricted' but designated
Funding for capital projects has also been sparse, officials said. As a result, the university has had to "dig into the reserve for things we never anticipated," including the $70 million renovation of the Natural History Building, Easter said. At the Chicago campus, the exterior of University Hall is literally falling off, he said, with a makeshift umbrella set up to catch chunks of falling concrete.
There are also obligations against some of the cash balances, for insurance funds, workers' compensation, classroom renovations and other costs, Kangas said,
The University of Wisconsin faced harsh criticism from legislators this spring when a fiscal bureau reported that its reserve funds had almost doubled since 2009, mainly from tuition revenue, at the same time the system raised tuition at a 5.5 percent annual rate, according to the Wisconsin State Journal.
Kangas said the UI's situation is different, in that Wisconsin isn't facing a backlog of unpaid bills by the state — or a state pension crisis.
"My impression was, they were piling up more balances that did not have an intended use," he added. "I don't think we're in that same position."
The $1 billion in UI assets is considered unrestricted for external accounting purposes because there are no bonds against it, but much of it is designated for specific purposes within the university, such as the state payment backlog, Kangas said.
The largest piece — close to $500 million — is slated for "plant funds," for renewal and replacement of university buildings, he said. Currently, that includes the UI's share of the new $95 million Electrical and Computer Engineering Building (the state is paying half) and other major campus projects.
Another big chunk is "institutional cost recovery" funds from grants and contracts, or ICR, which cover administrative overhead for federally funded research. The money is split among the faculty researcher, his or her college, campus and university administration, the UI Library, operations and maintenance, and other units, Kangas said.
Some individual faculty have reserves of several thousand dollars, or more, built up over many years of grant funding. The money is used for computer upgrades, travel to conferences and other professional costs, Burbules said.
"Faculty consider it money they have earned," Burbules added. "They would scream bloody murder if that money was swept back up into the administrative pool."
The assets also include money set aside by specific UI units, such as the Krannert Center for the Performing Arts, the Division of Intercollegiate Athletics or the UI's auxiliary enterprises, as well as unrestricted private gifts, patents and copyright royalties, Kangas said.
Low cash, high debt
As for asset growth, Kangas said, in recent years the UI set aside money for major projects and held back tuition income "to make sure we're meeting payroll. Everybody's being very careful." The university has about 150 days of cash on hand, below the Big Ten and national median, he said, and its total cash and investments are right at the Big Ten average.
The university also wants to make sure it can meet future bond payments if state funding problems escalate, Kangas said, noting the UI's $1.7 billion total debt is well above the Big Ten average.
The state has been an "unpredictable partner" at best the past few years, he said, and more uncertainties lie ahead. The recent state budget deal provides flat funding for the UI next year, but Gov. Patrick Quinn had called for a 5 percent cut and could veto the legislative budget or impose a rescission next year, he said. The state will still have $6 billion to $7 billion in unpaid vouchers, and the university may have to absorb a cost-shift for employee pensions that could cost several million dollars a year, he said. Beyond that, the state income tax increase expires in 2015.
"There is enormous risk out there," Kangas said. "We want to make sure, as best we are able, that our highest priorities are taken are of."
Easter wants to provide a salary increase program this year, avoid furloughs and address some of the $1.6 billion backlog in repairs and renovation projects, he said.
"Call it a rainy day fund," Burbules said. "It's only prudent budgeting to hold back some money given the uncertainties of what we're facing."
Laugesen acknowledged the state backlog of payments, but also said it hasn't compounded significantly since the initial crisis in 2009. In that time, the university's assets have grown, he pointed out.
"Nobody is arguing that the state support is not a pretty significant problem. But we don't think the university is broke," said Professor Susan Davis, communications director for the CFA.
Burbules said transparency is important, and faculty and students need access to accurate information about the budget situation.
"I don't think administrators are against that," he said. "I'm convinced that there are some very difficult choices ahead, and that slogans and easy cheap shots are not ways to deal with those realities."