A key University of Connecticut panel Tuesday endorsed new main campus and health center budgets that preserve programs while managing significant shortfalls caused by state government’s huge, unfunded pension liabilities.
The Financial Affairs Committee unanimously recommended a $1.33 billion budget for the main campus in Storrs and for the satellite campuses, as well as a $1.13 billion budget for the Farmington-based health center.
Tuition and fee hikes under previously approved schedules would go forward under the budget plan, but no supplemental increases would be needed.
The full Board of Trustees tentatively is scheduled to vote on the plans on June 26.
“Our core business is so strong, so good,” said Trustee Andy Bessette, chairman of the Financial Affairs Committee, referring to the academic, research and other programs as well as operations at John Dempsey Hospital, which is part of the health center.
Bessette acknowledged that the ongoing shift of pension expenses from state government onto its flagship university is a growing challenge. “But are we affecting the quality of the product on campus?” he added. “The answer is no.”
Over the past decade, governors and state legislatures increasingly have struggled with surging costs tied to pension pledged to state employees and to municipal teachers.
Connecticut has more than $50 billion in unfunded liabilities associated with two main pension funds and its retirement health care program for state employees.
This problem reflects decades of inadequate savings ordered by governors and legislatures, chiefly between 1939 and 2010.
For every $1 in salary paid to state employees, Connecticut spends 64.3 cents on retirement benefits. And of those 64.3 cents, 9.7 cents goes toward saving for present-day workers’ retirement benefits and 54.6 cents covers the fiscal sins of the past.
These legacy costs aren’t extracted directly from most state agency budgets.
But public colleges and universities are handled differently. The state gives them a block grant for operating costs, and additional assistance to cover only some of their fringe benefit costs. And as the state’s pension costs have exploded, higher education’s funding has slowed.
That means UConn’s main and satellite campuses would run a $11.4 million surplus next year if the university’s fringe benefit assistance wasn’t discounted to help the state with its pension debt problem.
State government reduced fringe benefit funding to the university by $31 million. This turns an $11.4 million budget surplus into a $19.6 million potential shortfall.
Scott Jordan, UConn’s chief financial officer, said the 1.5 percent gap likely would be closed through reduced hirings and other efficiencies, and by drawing on the university’s fund balance not designated for special projects.
“UConn’s core functions … are fiscally sound and healthy,” he said.
Several years ago the trustees approved a schedule of tuition and fee hikes for each fiscal year between 2017 and 2020. The last increase of those four would take effect, as planned, in the new budget.
For a Connecticut resident living on campus, tuition and mandatory fees would rise from $28,604 to $30,484.
For out-of-state students living on campus, tuition and mandatory fees would rise from $50,972 to $53,152.
But Jordan also sounded two notes of caution.
The new budget, which grows spending 4 percent, does include a modest amount of new hiring. But the university has compensated for shortcomings in state fringe benefit funding by trimming departmental spending in each of the past three years.
And Jordan said he believes that while this has not harmed core programs to date, it is not a long-term solution.
“Remember, UConn’s resources are really students’ resources,” he said.
Jordan’s second note of caution is that the fringe benefit problem has the potential to worsen down the road.
A preliminary forecast of likely UConn costs and revenues shows the gap widening from $19.6 million in the upcoming fiscal year to $122.3 million by 2024.
Former state House Speaker Tom Ritter, who is interim chairman of the Board of Trustees, said UConn must remain vigilant, but added he’s pleased with the concern Gov. Ned Lamont and the current legislature have demonstrated on this issue.
“I think everybody understands,” he said. “They have been attentive. And we have terrific people in our government relations department.”
Bessette said he also is optimistic the new governor and legislature are prepared to work with UConn year after year to ensure this challenge doesn’t harm vital programs. “It’s a never-ending partnership,” he said.
The legislature formed a special working group this year to analyze the long-term impacts of the fringe benefit funding on public colleges and universities.
And the $1.13 billion budget recommended for the upcoming fiscal year for the health center would have faced a $55 million potential deficit had not Lamont and legislators agreed to a last-minute funding boost of $33.2 million.
UConn Health Center officials further whittled that deficit down to $7.1 million by scaling back spending on equipment and other capital purchases.
Dr. Andrew Agwunobi, the chief executive officer of the health center, said the remaining $7.1 million deficit would be closed with other efficiencies to be achieved throughout the upcoming fiscal year.
Similar to the budget for the main campus, the health center plan would incorporate a previously approved tuition and fee hike, but no supplemental increases are ordered to deal with the gap in state funding.
For the school of dental medicine, tuition and mandatory fees would rise as follows:
- For a Connecticut resident, from $37,137 to $38,437.
- For a resident of another New England state, from $63,086 to $65,294.
- For other out-of-state residents, from $74,891 to $76,191.
For the school of medicine, tuition and mandatory fees would rise as follows:
- For a Connecticut resident, from $40,092 to $41,495.
- For a resident of another New England state, from $67,791 to $70,434.
- For other out-of-state residents, from $74,172 to $75,575.
The payment of 64 cents on a payroll dollar for retirement benefits is an eye opener. It is transparent in state college budgets, where these benefits costs aren’t buried as in other state agencies. When you add in other benefits like medical, dental, disability, etc, the state undoubtedly pays over $1 in benefits for every payroll dollar it spends. Compare that with the private sector, where benefits costs are 1/4 to 1/3 as much, and you begin to see why this state is going broke. Combine that with salaries that are in many cases higher than the private sector and you have a recipe for fiscal disaster. Is it any wonder that 428 residents are moving out of this state every week? That figure was quoted in the headline Mirror article today.
The athletic department also runs a $40 million dollar deficit; why not blame the university’s deficit on athletics rather than retirement liabilities? It’s all about priorities and at UConn the priorities are not academic excellence. I guess we should continue to pay soccer coaches $200k/year rather than provide a new English professor making $70k with a pension.
Excellent point. Wait until the state has to demolish the 40K seat football stadium in East Hartford in about 2023. The place is used 7 times a year and can’t be filled. A money pit.
Remains puzzling why UCONN’s endowment remains so modest reportedly at just $385 million.
Yale raises that much and more each year. Wesleyan, Trinity, Fairfield – each much smaller private colleges – has similar sized endowments as much larger UCONN. And most well known public Universities across the nation have quite large endowments. CT taxpayers spend roughy $2 billion annually on UCONN. Yet its graduates aren’t very generous.
UCONN does post among the nation’s highest ranking salaries/benefits with full Profs. earning $150k. The larger question is why in a small State with about a dozen nationally prominent small colleges and the world renown Yale complex CT should spend $2 billion on its State Univ. headquartered out in the Storrs farmlands. Both NY and Mass sited their nationally prominent public universities in major cities playing major roles in the nation’s economy.
Finally, anyone familiar with the funding deficits in our major depressed cities public schools can only be mystified at our State’s generosity with its public colleges. If our major depressed cities are ever to have a real chance at renewal they need first rate public education to create a skilled labor force that attracts new business. Reportedly, many if not most UCONN grads head out of State to secure t he good jobs that aren’t available in CT.
Note: PIB has been an adjunct Prof. In UCONN’s Business School in Stamford teaching Graduate finance.