January 27, 2012

12 Percent Increase in State Higher Education Funding Goes to Pensions

By Andrew Thomason

ILLINOIS’ 12% increase in higher education spending for fiscal 2012 is going into the State Universities Retirement System (SURS) to address its underfunded pension program.

“THESE SURS appropriations do not go to individual institutions or agencies and are not available to be used for educational purposes,” according to the footnote in a study released Jan. 23 by Illinois State University (ISU).

SURS, WHICH is responsible for the pensions of the State’s university employees, is facing an unfunded liability — how much it owes in benefits compared with how much assets it has on hand — of $17.2 billion, according to its 2011 annual report.

ILLINOIS HAS a total stated unfunded pension liability of $85 billion, but a 2009 study by the Northwestern University Kellogg School of Management puts the figure as high as $219.1 billion. The study didn’t specify how much it estimates SURS’ portion to be.

THE “RAPIDLY increasing appropriations” have pushed Illinois’ higher education spending from $3.2 billion in fiscal 2011 to $3.6 billion this fiscal year, according the annual Grapevine study of state support for higher education put out by Center for the Study of Education Policy at ISU.

THE DRAMATIC increase in the amount of money being given to SURS, and the other state pension systems, seeks to make up for decades of chronic underfunding by governors and legislators, and shrinking returns on investments because of the stagnant economy.

FUNDING THAT made it to the college or university classroom decreased this year compared to last year by 0.76 percent, from $1.62 billion to $1.6 billion, according to the Illinois Board of Higher Education (IBHE), which oversees the state’s higher education system. Those figures reflect money going directly to education, such as operating expenses, and don’t include capital spending.

THE AMOUNT of taxpayer money making it to the universities for daily operations has been on a downward slide for a decade, said Alan Philips, deputy director of the IBHE.

“IN MORE recent years, it has been largely a result of the State’s fiscal challenges. The State just doesn’t have a lot of money,” Philips said. “It’s probably not very likely we’re going to see increases in State funding for education, and we’ll be lucky if (higher) education funding is held flat.”

SINCE FISCAL 2007, the total amount of higher education funding, including pensions, in Illinois has increased by 25 percent, from $2.8 billion to $3.6 billion. During that same time, state tax dollars going to SURS have increased from $255 million to $750 million.

THAT FIGURE is set to double next fiscal year, hitting $1.4 billion to meet the requirements of a 1994 law setting a pension payment schedule for the state.

WHEN HIGHER education spending figures are reduced by removing the costs of SURS, spending on higher education has increased by 9.4 percent since 2007, or at about the rate of inflation.

BETH SPENCER, a spokesman for SURS, said the increasing state payments to the pension system are the result of decisions made by past lawmakers and governors.

“THE STATE has systematically, over decades, failed to fully pay the annual required contribution,” Spencer said.

ILLINOIS GOV. Pat Quinn’s three-year budget projection holds education funding flat through fiscal 2015, though the Legislature must approve those figures each year.

QUINN AND legislators are looking to cut the spending on public pensions, including SURS.

QUINN SAID that one possible solution would be shifting the cost of the pensions. He highlighted shifting costs of elementary school teachers’ pensions to their local districts, a move that also could be applied to the collegiate retirement system.

ILLINOIS HOUSE Republican Leader Tom Cross (R-Oswego) and House Speaker Michael Madigan (D-Chicago) plan to have public employees either pay more to keep their current retirement packages or pay less and switch to a 401(k)-style system.

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