The 5.1 percent tuition hike college officials are looking at to erase a deficit for the next school year may be nothing compared with the increases the system could be forced to implement if the governor gets his way.
Gov. Dannel P. Malloy’s proposed budget sheds the state’s responsibility to cover the actual costs of providing the medical, retirement and other fringe benefits for thousands of college and university employees.
Instead, the state budget would send a lump sum payment to officials at the Connecticut State Universities, the University of Connecticut, community colleges and online Charter Oak State College.
But college officials say the change has the potential to create bold red ink in their budgets, which are already hurting from a $93.2 million, 14 percent cut, in state funding over the last two fiscal years.
“They are pushing more cost down to the [college] system and saying, ‘Run your business’,” Gary F. Holloway, chairman of the Board of Regents’ Finance Committee, told the panel Tuesday.
The state comptroller’s office currently pays medical, retirement and other fringe benefit costs for thousands of faculty and staff at the state’s public colleges.
If costs come in higher than anticipated, state lawmakers will have to find the money to make up the difference. If the governor’s recommendation becomes law, overruns would be left to college officials to figure out.
College institutions’ only major revenue sources outside state funding are tuition and fees.
“There are some risks” with the governor’s proposal, William Bowes, the budget chief for the 100,000-student Board of Regents system, told the committee.
When recommending that $337.5 million in funding be transferred to the universities next year to cover the fringe benefits of college staff, the governor’s budget office predicts the cost will increase by 3 percent over this year’s predicted costs.
One problem, officials say, is that they are not convinced that the cost of providing medical benefits will increase by just 3 percent. Between fiscal 2011 and 2012, medical costs for all state employees — including college staff — jumped by 8.4 percent, reports the Office of the State Comptroller.
Another “dramatic risk” to the regents’ budget, Holloway said, could be a huge influx of faculty and staff switching to a more expensive retirement plan. A state labor arbitrator two years ago ruled that the state’s public colleges need to offer its employees a second opportunity to join the state’s pension retirement system, as opposed to the 401K-type retirement plan.
The difference means that either the state or the college system will be on the hook for paying significantly more each year toward the state’s pension plan, known as the State Employees Retirement System (SERS).
Under the defined contribution, 401K-type plan, the required annual contribution for the state is 9 percent of each employee’s salary. Under SERS, the required contribution is 46 percent.
For example, for an employee earning $50,000 annually, the difference is a $4,500 annual contribution vs. a $23,000-a-year contribution. The difference is so dramatic because the state is playing catch-up after years of chronically underfunding its pension liabilities.
If everyone eligible at the Board of Regents’ 17 institutions switches to the SERS pension plan, it would cost an additional $78.8 million a year, budget officials say. Employees at the University of Connecticut are being offered the opportunity to join the pension system, though it is unclear how much it would cost.
There could be some relief on the way from this pending wave. The state is asking the IRS to decide if current employees should be given a second chance. The second chance began being offered this fiscal year after an arbitrator’s decision. That decision stemmed from union complaints and lawsuits that said employees were being intimidated not to chose the pension option, and they were being given no meaningful explanation of the differences in the plans.
The IRS could rule any day.
If ruled illegitimate by the IRS, employees may still be offered the opportunity to change retirement plans, and it could potentially impact their taxable income.
Gian-Carl Casa, a top deputy in the governor’s budget office, said, “We did not assume [that] transfers” to the more-expensive retirement plan in the funding recommended be transferred to the universities’ budgets to cover benefits.
“The state is waiting on a letter from the IRS concerning the ARP/SERS issue. Once we get their decision, there could be a number of transfers, but the state will handle that situation when (if) it happens,” he said.
But college officials want a guarantee that the state will pick up the increased costs.
“It takes the risk away from [the state’s budget]. They now have locked us in to what they are going to pay us,” Jim Howarth, a top budget official for the regents, told the Finance Committee.
If health insurance costs increase by 10 percent, as it did just four years ago, the college system officials would be forced to turn to their only other options to close the deficit — tuition increases or reducing the number of faculty and staff by not filling positions as people retire or quit.
“We couldn’t absorb a number that large,” Howarth said, noting that tuition increases to cover that shortfall would need to be in addition to the 5.1 percent that the regents are already likely to approve next month.
Last year, when costs increased more than expected to provide benefits for UConn Health Center employees, it cost the state $10 million.
While employees wait to see if they can switch to the original pension plan, the state and employees union agreed to begin offering existing employees a hybrid plan in the interim. That plan allows employees to join the pension plan, but upon their retirement or when they leave their job they can elect to take a lump sum payment or get a pension. The tradeoff is that employees are required to pay more towards the plan, but it is still more expensive for the state.
For the 100 employees at the colleges served by the Board of Regents that transferred to this new hybrid plan, the increased cost will be $3 million this fiscal year, officials report.
Dan Livingston, the chief labor negotiator for the state employees’ union, said that however this ordeal sorts itself out over who will pick up the cost of covering the fringe benefits, it will not impact employees.
“I will not comment on that internal accounting process,” he said during an interview.
The state’s recent history in supporting higher education provides no reason for officials to believe more funding will be forthcoming. Over the last two fiscal years, lawmakers have cut funding — unrelated to benefits — to the state public universities and colleges by almost $93.2 million.
These reductions in block grants have led to fewer faculty members being paid for by the state; rather tuition dollars are now left to pay for more faculty.
In the governor’s proposed budget, he recommends reducing the number of positions funded by state appropriations by 584 people at UConn for the next fiscal year.
Asked why there’s such a drastic reduction in state-funded staff, UConn’s budget office responded in an email that it is the result of state funding cuts.
“The number of [positions funded] is a function of how much UConn receives in the general fund appropriation. Less appropriation, fewer,” full-time staff, the email reads.
Faced with declining enrollment, years of cuts in state funding and a mandatory 5 percent pay raise for unionized staff after an agreement the Malloy administration made with the collective bargaining unit two years ago, the Board of Regents estimates they would need to increase tuition by 12.4 percent to close the deficit.
The regents have decided to close the gap by reducing the number of faculty by continuing the hiring freeze and not filling positions once people retire or quit. Other cuts will also be deployed in an effort to blunt the tuition increase needed.
Holloway said he expects the Finance Committee to approve a 5.1 percent increase for in-state students on March 5, after lingering questions are addressed by the panel. The increase excludes the potential added cost of the fringe benefits.
“You are going to see more cuts … just to make the 5.1 percent work,” Holloway said. “The implications of that in terms of what we are doing to the system year after year after year is a whole other subject matter.”
A handful of students attended Tuesday’s meeting to express their displeasure with what they think is the state’s shortchanging their colleges.
“It’s something that has riled people up,” Chris Marcelli, a senior at Central Connecticut State University, said of the proposed tuition increase. “A lot of people are going to ask, ‘Where am I going to get that money from?’” Students are also organizing to walk out of class and head to the state Capitol the day the regents plan to approve tuition increases.
Marcelli’s friend, also a senior at CCSU, said students are getting the brunt of the state’s fiscal problems.
“I have an issue with how this impacts the students,” he said after Tuesday’s meeting, noting the tuition increases in recent years have added to the amount in student loans he will need to repay.
Budget officials at the regents’ office and UConn both report that the governor’s recommended funding does not fully cover the required 5 percent pay increases for unionized employees.
The governor’s budget office “added collective bargaining increases into the appropriation, then cut the appropriation by an amount greater than the pay increase request,” UConn’s budget officials responded in an email.
How UConn plans to makeup for these shortfalls is unclear, as President Susan Herbst has said the state’s flagship system will not turn to further tuition and fee increases. When UConn’s governing board approved a four-year, 24 percent hike in tuition and fees, the intent was to use that money to hire new 290 new full-time teaching faculty.
Tuition and fee proposals the UConn Board of Trustees will consider next week raise the mandatory cost to attend the university by just $10 a year on top of the 6 percent already approved. The proposal also creates a couple of new fees some students will be required to pay, such as a $20 fee for each online course they enroll in.
The governor has recommended a $2.1 billion plan to build new facilities at UConn to drastically increase enrollment, an influx that would bring in major additional tuition dollars.
Follow Jacqueline Rabe Thomas on Twitter @jacquelinerabe
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