April 7, 2011

Dear Colleagues and Friends of the University of Illinois:

I want to take this opportunity to share with you my perspective on the state’s ongoing budget and pension crises and their possible impact on the University in the coming fiscal year -- and beyond. The state’s budget situation remains grim with a significant operating deficit that includes a backlog of unpaid bills expected to approach $7 billion by the end of this fiscal year. As of April 4, 2011, the state owes the University over $470 million in appropriation and financial aid payments for this fiscal year.

The governor proposed a fiscal year 2012 operating budget that would maintain funding for public universities at this year’s level, with a $25 million increase proposed in financial aid for eligible students. The University’s share of this proposal would be a $697 million general revenue fund appropriation and approximately $61 million in financial aid for our students. However, based on comments at both the Senate and House higher education appropriations hearings, we have been forewarned to prepare for a significant reduction in our fiscal 2012 appropriation. In those hearings I stressed the value of higher education in general, the University’s key role in generating tangible results for our students and the state, and the need for sustained state support to assure our continued success. See the URL below for my testimony this week before the House Appropriations Committee.

Two months are remaining in the state’s legislative session and we must realistically prepare for a reduction in the University’s fiscal 2012 appropriation. The University is no longer protected by Federal stimulus stabilization operating grant agreements that prohibited reductions in state operating appropriations below certain levels. Legislative leadership has indicated that a reduction of the Governor’s operating budget proposal of as much as $2 billion is under consideration. It is too early to predict the outcome of these budget deliberations and the ultimate impact on the University, but the campuses and UA have been actively planning for various scenarios. 

I am acutely aware that our faculty and staff have not had a general compensation increase since August 2008. Avoiding another round of furlough days remains one of my top priorities for fiscal 2012, as is a meaningful compensation adjustment.

While we will follow closely the fiscal 2012 appropriation budget legislation and will push for maximum funding, I am also wary of the pension and health-care adjustments that are being discussed in Springfield and the profound impact these adjustments would have on our faculty and staff.

The State University Retirement System (SURS) funding level has dropped to a dangerously low assets-to-long-term-liability ratio of 40% as of June 30, 2010, and SURS is paying out substantially more in benefits than it takes in contributions. Besides the statutory pension reforms (benefit accruals, retirement age) for new employees that became effective January 1, 2011, there is now some public discussion in the media and by legislators of extending these pension reforms to current University employees on a prospective basis, as well as possibly increasing employee pension contributions or offering alternate defined contribution retirement plans. As I said at this week’s meeting of the House Appropriations Committee, I believe the state should meet its promises to our faculty and staff, the majority of whom do not qualify for Social Security, to fund pension benefits earned. Lawmakers are also examining other benefit changes that would affect University employees and retirees, including increasing employee, retiree, and University contributions to health insurance; eliminating dependent tuition waivers for University employees; taxing benefit payments; and other actions. While it is clear there continues to be a state budget crisis in Illinois, it is not clear what priorities will be set or actions taken to address it.

I am committed to achieving the best outcome possible for our faculty and staff, and in the ensuing seven weeks I will work diligently with our governmental relations staff and elected officials in Springfield toward that goal. Like you, I believe the state should do everything in its power to fully fund and honor its commitments. But the state’s budget and pension funding problems are foreboding, and I want you to be fully informed on these issues.
To that end, a pension information forum is being held on each campus next week to brief you on current proposed legislation that may affect your benefits. On April 11th, 12 noon, the forum will be held at the Alice Campbell Alumni Center Ballroom on the Urbana-Champaign campus. Another session will be held on April 11th at 4 p.m. in Conference Rooms C & D of the Public Affairs Center on our Springfield campus. The session on our Chicago campus will be held on April 12th at 2 p.m. at the UIC Forum. I urge you to attend one of these sessions to be fully briefed on the issues. A website https://nessie.uihr.uillinois.edu/cf/policies/index.cfm?Item_ID=4534 is available containing the proposed benefit bills, with links to reports and summaries which you can use as an additional information resource. We are coordinating with other state public universities so that we can speak with one voice with a common goal to preserve earned benefits.

We are living with great uncertainty, but, by working together, we can navigate passage through these extremely difficult times and emerge with our best days still ahead. As I noted in my testimony before legislative committees last month and this month, the University of Illinois is a tremendous resource for the state. Our faculty, staff, and students continue to generate discoveries that enrich people’s lives and add to the social, cultural, and economic well-being of the state. I’m deeply proud of the work you do and appreciative of your commitment to our great University.


Michael J. Hogan, President
University of Illinois