Backed into a corner by shrinking state aid, Connecticut’s community colleges and regional universities will offer incentive payments starting next month to encourage senior staff to retire to cut costs.
Though the program would be open only to workers already eligible to retire, it marks a return to a controversial practice state government hasn’t employed in 14 years.
While retirement incentive programs produce short-term operating savings, they generally cost more over time by reducing pension fund investment earnings.
“As we respond to these daunting financial challenges, we remain dedicated to ensuring that our educational offerings remain accessible, equitable and of the highest quality,” the system’s chancellor, Terrence Cheng, told the Board of Regents for Higher Education last month. “This commitment underpins every decision we make, including the difficult ones regarding tuition and fees.”
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Facing a $140 million shortfall next fiscal year, the Regents raised tuition and fees last month — the second boost in two years — as part of a larger plan to stem the deficit.
The regents voted unanimously to offer incentives to full-time faculty, non-teaching professionals and management.
Between Feb. 1 and April 1, employees can select either a flat $30,000 payment or an amount equal to 1% of their salary multiplied by their years of state service.
Roughly 550 employees currently are eligible, and initial savings projections include $45.9 million if half of those participate, $68.8 million with 75% participation; and $91.8 million at 100%. But final savings projections remain uncertain.
That’s because the system almost certainly would have to refill some of those vacated positions, particularly among faculty, which would mitigate that savings.
For example, if 75% of eligible workers take the incentives, and if half the vacated jobs are refilled — likely with less experienced staff at lower pay — the $68.8 million projected gross savings falls to $34.4 million. If three-quarters of those jobs are refilled, the net savings is just $17.2 million.
And Cheng hasn’t offered any specific estimate yet on a rehiring rate.
“Certainly my intention and my team’s intention is to work very closely with each institution, to have that conversation about what is being refilled,” he told the regents at their Dec. 18 meeting. “That way we can continue to mount the best service and the best quality for our students while still yielding some financial stability and gain through this program.”
Faculty unions, which have charged repeatedly that state spending on public colleges and universities fails to meet students needs, raised two concerns about the incentive program.
Philosophy Professor David Blitz, a member of the Connecticut state university chapter of the American Association of University Professors and also of the faculty advisory committee to the Board of Regents, said the incentive plan should have been negotiated with labor. Unions can opt not to allow their members to participate in the program.
Blitz also read a letter from AAUP chapter leadership expressing fears that students would be harmed.
“CSU-AAUP has little faith in the BOR [Board of Regents] leadership’s ability to safeguard the quality of education that you provide for our students. We want serious guarantees that positions vacated by retirees will be refilled.”
Colena Sesanker, a philosophy professor at Gateway Community College in New Haven and political director of the Local 1973 of the Connecticut Congress of Community Colleges — commonly known as the 4C’s — also warned regents not to underestimate the importance of refilling faculty posts.
“These are institutions that have been drained for some time now of resources,” she said. “We’re talking about really valuable folks, so it’s a lot of institutional memory. That’s a lot of expertise that we’re losing, and we just raised costs.”
Full-time community college students will pay $5,218 annually starting next fall. That’s up 11% or $518 from two years ago. Similarly, full-time resident students at a regional university will pay, on average, $28,375 per year starting next fall, up 7% or about $1,800 from 2022.
Seth Freeman, president of 4C’s, said Thursday that without assurance of adequate refills, this program “is only a further attack on our working class students who rely on community colleges for accessible and quality higher education.”
And Dennis Bogusky, president of the Federation of Technical College Teachers, AFT Local 1942, said Gov. Ned Lamont, legislators and the regents “need to think bigger than this latest manufactured budget shortfall.”
The system, which includes the online Charter Oak State College as well as the community colleges and regional universities, received hundreds of millions of dollars in temporary state aid shortly after the coronavirus pandemic struck Connecticut in March 2020.
And while that aid has been drying up, education advocates counter that public colleges and universities were under-funded before the pandemic — and still haven’t healed financially from the problems caused by COVID.
While the system got about $250 million last fiscal year from surplus and from federal pandemic grants and $210 million this year, it would get just $76 million from these sources in the preliminary state budget for 2024-25.
CT has avoided paying retirement incentives since 2009
The retirement incentive program raises yet another concern.
Connecticut frequently offered much broader retirement incentive programs in past decades — affecting all agencies — to help close budget deficits. And unlike the plan approved by the regents, these were early retirement incentive programs, open to workers close to the legal retirement age as well those that had achieved it.
The single-biggest factor, by far, behind the tens of billions of dollars in unfunded pension obligations Connecticut had amassed by the late 2000s was its repeated failure to save adequately for those benefits on a yearly basis.
Failure to save means less money for the state to invest — and significantly less in compound earnings over time. And a 2015 study from the Center for Retirement Research at Boston College found the state’s poor habits stretched on for more than seven decades, between the late 1930s and 2010.
But another factor cited in the Boston College report was the early retirement incentive programs offered in 1989, 1992, 1997, 2003 and 2009. Connecticut worsened its pension debt by $4.1 billion between 1985 and 2010, and slightly more than one-third of that problem was caused by these programs.
Any time workers retire in greater numbers than actuaries anticipate, it places greater strain on the pension system. These unexpected retirees stop working and paying into the pension system and start drawing benefits out. Pension assets the actuaries are counting on to be invested become unavailable, and investment earnings are lost. Over time, the financial hit typically exceeds that of any gain in the operating budget as retirees’ salaries come off the books.
An early retirement incentive program places more strain on pensions than one that only offers buyouts to workers already eligible to retire.
But Gov. Dannel P. Malloy, who championed reforms that forced the state to contribute full recommended levels to its pensions, staunchly opposed any retirement incentive programs during his tenure, which ran from 2011 through 2018.
Lamont also has not proposed or negotiated any since he took office in 2019.
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The Board of Regents has more autonomy to manage its employees — including offering retirement incentives — than do traditional state agencies.
“We appreciate the efforts that the CSCU system are making to deal with their financial challenges,” Lamont’s budget spokesman, Chris Collibee, said Wednesday. “It has been clear for some time that there needs to be a more efficient alignment of their resources to the higher education market that they serve. This was an independent initiative of the system.”
But the regents, who are facing a daunting financial problem, have tried almost every option available to them to close a likely $140 million hole in the fiscal year that begins July 1.
They are counting on personnel savings to total at least $35.4 million. Cuts to security, and travel costs and other efficiencies would grab another $13.4 million.
Revenues from tuition and fee hikes will close another $30 million of the deficit, and the system will tap its reserves to cover another $20.4 million.
The remaining $40 million-plus of the problem would be solved by asking Lamont and the General Assembly to bolster state aid. And the governor’s budget office already is warning all state agencies and higher education units to prepare to live within the preliminary 2024-25 budget — and possibly even less.