UI to ask for 3.8 percent boost in state funding
The slides on the latest state economic update had titles like "Titanic Ahead" and "Worse News."
Despite the dire forecasts, the University of Illinois outlined a budget request Monday that asks the state for more money for fiscal 2016 — a $67.7 million operating budget increase, or about 3.8 percent more than the UI will get in the fiscal year that started July 1.
It's been awhile since that approach worked. The last time the UI received an increase in its state appropriation was 2009, and nearly all of that $19 million was later rescinded. Funding for the current year is $1.4 million less than last year. On the construction side, the UI hasn't received a dime for five years, although 2010 was a banner year, with more than $250 million worth of capital projects funded.
Christophe Pierre, vice president for academic affairs, told trustees at a committee meeting Monday that the UI has important funding needs and has to make its case.
"Even though our state appropriations have remained stagnant at best," he said, "it's important to remain optimistic."
Recounting the university's financial challenges, Pierre said "uncertainty" is the key word — in the state budget, federal support for research, financial aid funding and pension reform. Employee health care costs keep rising, and the university is approaching an upper limit on tuition rates, he said.
The budget request, if approved by trustees in September, would include almost $40 million for "competitive compensation" for faculty and other academic employees; $26.5 million for facility needs, including updated classrooms and operating costs for new buildings; and $1.55 million to cover payroll increases and other inflationary costs.
Separately, the UI is asking for a supplemental appropriation of $25 million to cover the cost of treating low-income patients at its health care center in Chicago. A state hospital fund intended to pay those costs ran $50 million short last year, hospital officials said. The request has been turned down several times before but if granted could generate federal Medicaid matching funds, they said.
Pierre also displayed a graph with more than $670 million worth of capital needs, with the "repair and renovation" item topping the list on each of the three main campuses. Urbana's request to the state includes $15 million for the Natural History Building renovation, $40 million to renovate Altgeld Hall, and $50 million to redevelop the main and undergraduate libraries.
Most of those projects are carry-overs from previous years. With the exception of 2010 — when the university received money for the Lincoln Hall renovation, the petascale computing project and lots more — the state has not funded any capital budget requests for a decade.
"Each year, this graph gets a little bit more depressing," Pierre said. "It's very hard for the university to plan for capital improvements."
Pierre said the university will continue to work on "cost containment and prudent spending"; exploring other sources of income, such as fundraising and higher tuition paid by out-of-state and international students; and "strategic investment" in key areas, rather than simply cutting across the board.
As part of his periodic state economic updates, UI Chicago Professor David Merriman of the Institute of Government and Public Affairs told trustees that a recent drop in state unemployment resulted from a shrinking labor market, not more jobs, which means little prospects for new state revenue.
And if legislators fail to extend the income tax increase set to expire in January, it will cost the state about $1.8 billion in revenue in the coming fiscal year, he said. The rates are scheduled to drop from 5 percent to 3.75 percent for individuals and from 7 percent to 5.25 percent for corporations.
This year's flat-funding budget used "tricks" to balance the budget, such as delaying payments for spending obligations and borrowing $650 million from special state funds — "not a sustainable long-term policy," he said.
Under "Titanic Ahead," Merriman said the state could end up with a $4 billion budget deficit at the end of fiscal 2017, and that figure will balloon to $6 billion if the higher income tax rates are allowed to expire.
On top of that, the recent pension changes projected to save the state millions of dollars a year may be ruled unconstitutional by the Illinois Supreme Court, which recently threw out the state's attempt to cut health insurance subsidies for state employees.
Illinois' bond rating is the lowest in the country, which has meant higher borrowing costs and a "reputational cost" estimated at more than $80 million over five years, Merriman said.
"The state is certainly paying a price," said Vice President Walter Knorr, the UI's chief financial officer, noting that the state has taken itself out of the general obligation bond market "until this is resolved."
How would the UI spend its increase?
$39.6 million: Faculty pay raises and other "competitive compensation"
$26.5 million: Improving classrooms, operating/maintenance needs
$1.55 million: Inflation/payroll cost increases
Total requested: $67.658 million, representing a 3.8 percent increase over current base budget of $1.765 billion.