Borrowing would be short-lived solution to crisis, officials explain

In late 2009, with an employee payroll looming, Southern Illinois University appealed to the state comptroller's office for some cash.

Like other universities, SIU was owed millions by the state, which is months – and hundreds of millions of dollars – behind on payments to agencies and vendors because of a huge budget deficit.

The state eventually came through with enough money to cover SIU's December payroll, but not before students, parents and faculty bombarded the school with questions about whether it would reopen for the spring semester, said Dave Gross, SIU's executive director for government and media affairs.

Hoping to avoid a repeat scenario, SIU officials sought legislation that would let it borrow money on a short-term basis against expected state appropriations. Senate Bill 642 would allow SIU, and potentially other schools, to sell general obligation bonds to raise money for operating costs.

The measure passed out of a Senate committee last month, and its sponsor, state Sen. William Haine, D-Alton, is considering amendments that would include other state universities. Gross said most schools signed on to the idea in a conference call with the governor's budget director Monday.

The University of Illinois is not among them. UI officials say borrowing is only a temporary solution to a much deeper state financial crisis, and would also cost the school money in interest. Under the bill, universities would be responsible for repaying the bonds, not the state, said Randy Kangas, UI associate vice president for planning and budgeting.

"We don't think that is a desirable public policy course," interim UI President Stanley Ikenberry said Tuesday. But he added, "I think it's reflective of a sense of desperation universities are feeling on this issue."

Ikenberry and the state's other public university presidents and chancellors released a joint letter Tuesday asking state leaders to commit to a reliable payment schedule for past-due appropriations.

The letter calls on Gov. Pat Quinn and Comptroller Dan Hynes to provide a payment plan for fiscal 2010 appropriations. It also asks elected leaders to work together to develop long-term financial solutions to the budget crisis.

As of last week, the state was $735 million behind on payments to the public universities for fiscal 2010, which began July 1.

To meet the "unprecedented" cash crunch, schools are postponing payments, using other funds to meet payroll and considering severe budget cuts. The UI last month announced unpaid furloughs for 11,000 employees.

"Without full funding of our appropriations in a timely manner, we will be forced to take even more drastic actions that will diminish the educational opportunities of our students and our service to the people of Illinois," says the letter, signed by 14 presidents and chancellors from the four-year public universities.

Ikenberry said the state must resolve its problems or risk permanent damage to its higher-education system. The state owes the UI about $431 million.

"We are asking for some assurance of a payment schedule. If we knew we were going to get payments every month for the next six months," that would allow schools to "plan more rationally," he said.

Ikenberry, who supports a tax increase and "belt-tightening" to resolve the budget crisis, hopes to spur legislators to act.

"The distraction of the primary is gone, but it may be replaced by the distraction of a general election," Ikenberry said. "Certainly there's an opportunity now to take some kind of decisive action. Even if it were not a complete solution, a first step toward a solution would help."

It may not be realistic to assume the state will come through with the full appropriation by June 30, despite assurances from Quinn's staff, Gross said. He predicted the payments could drag into July or August.

SIU President Glenn Poshard decided his university needed a line of credit as a backup plan, Gross said.

"We don't want to do it. It's going to cost us money. But weigh that against the consequences of not making payroll," he said.

The UI's Kangas urged caution. The UI has already lost interest income because of late state payments and didn't budget for interest costs on short-term borrowing.

"If other universities want to do this, that's their decision," Kangas said.

The UI has covered the state shortfall so far by borrowing internally from "unrestricted institutional funds" – money generated by grants and contracts for overhead costs. But Ikenberry warned Tuesday that the university is draining its cash balances.

"If, God forbid, the full appropriation is not received, the university's limited reserves will be decimated," he said in a speech to the Civic Federation in Chicago.

Northern Illinois University President John Peters said he "very reluctantly" signed on to the legislation.

"There's no state money coming in. We're out of solutions, so short-term borrowing might be all that we have left," Peters said.

Northern imposed a hiring freeze last fall, extended winter break to save energy costs, delayed equipment purchases and has approved only emergency repairs, he said.

n Chicago State: $10.6 million

n Eastern Illinois: $23.4 million

n Governors State: $9.5 million

n Illinois State: $40.5 million

n Northeastern: $18.4 million

n Northern Illinois: $59.6 million

n Western Illinois: $21.3 million

n Southern Illinois: $119.9 million

n University of Illinois: $431.7 million

Total: $735 million

Source: Illinois Board of Higher Education