U of I President spells out grim future

University could be owed as much as $700 million from the state by December

Tuesday, June 15, 2010

Illinois' premier public university may be owed as much as $700 million from the state by year's end, threatening its "entire financial underpinning," its president told a group of regional business leaders Monday.
The prediction by University of Illinois Interim President Stanley Ikenberry comes just days after legislators granted state colleges the ability to borrow up to 75 percent of what the state owes them, with a maximum interest rate of 9 percent.
"This is a stopgap measure ... as a symptom of the underlying fiscal crisis, not a solution," Ikenberry told the Commercial Club of Chicago during a noon luncheon downtown.
Ikenberry said the university expects to finish the fiscal year at the end of June with $335 million in missing payments from the state - roughly 55 percent of its total appropriation.
Cutting faculty, staff and administrators, instituting a hiring freeze and trimming administrative costs, the university was able to save $87 million, he said.
Student tuition, which trustees raised by 9.5 percent last month, now covers half the academic budget.
With the state paying the other half, Ikenberry described a "weakened position to attract and retain top faculty," increasingly worried students and parents, and drained cash balances and suspended repair and maintenance work.
"When the state cuts or delays payment, it strikes at the heart of the enterprise and has a highly disproportionate impact," Ikenberry said.
With the $2 billion federal stimulus package - previously used by the state to plug funding holes - now gone, Ikenberry said he expects next year to be even worse. This year's deficit will carry forward, and cost of borrowing will compound the problem, he said.
"Part of the problem is that the state dollars really all go to our central academic mission of teaching and our academic operation. That's also the place (from which we generally) pay faculty salaries. If we can't make payroll, then all of the dormitory income and all of the research grants and contracts becomes kind of irrelevant," he said.
"I think the big issue is for us is liquidity. Ordinarily we don't have a liquidity problem. But if in effect we're making an interest-free loan to the state, that pretty well exhausts our liquidity. That takes a very difficult problem and begins to make it unmanageable. At some point down the road, we'll simply not be able to make payroll. That's the bottom line."
Still, Ikenberry noted, because of U of I's sheer size, the school may be in a better position than Illinois' 13 other, smaller public universities.
"We have a greater capacity to deal with the problem. A place like Chicago State or Northeastern or Northern, they don't have as many options as we have to do to deal with this," he said.
He urged legislators to act quickly to increase the state pension tax, control Medicaid costs and have state employees "contribute appropriately" to the cost of state health insurance.