Malloy: Shift health care, pension costs to universities

Gov. Dannel P. Malloy’s proposed budget would transfer responsibility for health care, retirement and other fringe benefit costs for thousands of employees to the state’s public colleges and universities — a move college leaders have warned probably will result in bold red ink in their budgets.

The governor’s proposed budget, released Wednesday, would send lump-sum payments to the Connecticut State Universities, the University of Connecticut, community colleges and online Charter Oak State College. Money for medical and other fringe benefits  would be included in those allocations.

Under the current system, when health-care and retirement costs prove higher than anticipated, state lawmakers have to find the money to make up the shortfall. If the governor’s recommendation becomes law, overruns would be left to college officials to figure out.

Ben Barnes, the governor’s budget chief, said this new approach means the money sent to the universities will be “an amount based on the judgment of the legislature, not an amount that has some basis in the cost of their employees.”

The colleges’ major revenue source outside state funding is student tuition and fees. In UConn’s case, when approving a 6.7 percent tuition hike for next school year, university officials did not factor in the potential costs of taking on these fringe benefits.

The Democratic governor’s budget director said Wednesday the shift will also allow the public to better understand what the state spends on higher education. The way the state currently funds higher education is “a complicated mess,” Barnes said during a budget briefing at the state Capitol complex.

While Barnes said this shift will be “cost neutral” in the first year, that is, the allocation will be based on estimated increases in these fringe costs for next year. However, if actual health care and other costs exceed that estimate, then the higher education units will have to pick up the additional cost mid-year.

“Over time, I suppose they have some risk that their benefits would rise more quickly,” Barnes said.

When the governor proposed this shift in 2013, he proposed increasing funding to cover fringe rates by 3 percent. However, between fiscal years 2011 and 2012, medical costs for all state employees – including college staff – jumped by 8.4 percent, reports the Office of the State Comptroller.

Less money for fringes

The governor recommends shifting $145.7 million over to UConn’s budget for fringe costs  in the 2016-17 fiscal year. That is $5 million less than UConn reports it is slated to receive for the current fiscal year.

When the benefits, which are paid by the state comptroller’s office, are factored in, state funding overall for higher education has steadily increased in recent years.

In the 2010-11 school year, the state provided the University of Connecticut $329.1 million compared to $385.1 million this fiscal year – a 17 percent funding increase over six years.

Funding for the the state’s community colleges, Connecticut State Universities and online state school also jumped – from $493.5 million during the 2010-11 school year to an estimated $580 million this fiscal year – a 20 percent increase.

The state is currently responsible for negotiating health and retirement benefits with the employee unions on behalf of the public schools. It was not immediately clear whether the University of Connecticut and the Board of Regents, which operates the community colleges and Connecticut State Universities, would be given that authority so they could better control the costs being shifted to them.

The current makeup of the state budget only outlines how much the state provides the schools in so-called “block grants” – funding that goes to pay for salaries of some employees. Those block grants have risen and fallen with the sluggish economy and frequent state-funding cuts to higher education.

That fluctuation has led college leaders to routinely say their funding has been cut and that state funding overall has not kept pace with the contractually mandated expenses negotiated by the state.

The governor is proposing cutting these “block grants” by 5.75 percent – or $13.99 million for UConn and $20.24 million for the Board of Regents.

UConn President Susan Herbst called the governor’s proposed budget “deeply disturbing.”

“This cycle is not sustainable if we wish to maintain our quality,” she said in a statement. “UConn has come so far in recent decades thanks to state investment; to go backwards would be an incredible waste.”

Board of Regents President Mark Ojakian, the governor’s former chief of staff, said he is reserving judgement on the impact of the cuts and proposed shift in funding fringe.

“We are assessing what that would mean and what affect that would have on our institituitions. It’s a beginning point in the conversation. It’s a difficult beginning point,” he said during an interview.  “We will talk with legislators about the real affects that this will have on students.”

The regents is slated to adopt tuition increases during its March meeting. Ojakian said that even if the governor’s proposed funding levels are approved by the legislature, he will not propose increasing tuition and fees by double-digits.

New retirement plan problem

Another dramatic risk to the college and universities’ budgets could be a huge influx of faculty and staff switching to a more expensive retirement plan. A state labor arbitrator four years ago ruled that the state’s public colleges need to offer their employees a second opportunity to join the state’s pension retirement system, as opposed to their 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 into the state’s pension plan, known as the State Employees Retirement System (SERS).

Under the defined contribution, 401K-type plan, the required annual contribution by the state is 11.9 percent of each employee’s salary. Under SERS, the required contribution is 53.6 percent.

For example, for an employee earning $50,000 annually, the difference is a $5,950 annual contribution vs. a $26,800-a-year contribution. The difference is so dramatic because the state is playing catchup 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 also being offered the opportunity to join the pension system, though it is unclear how much it would cost.

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