Thursday, January 28, 2010
The State does have a fiscal problem, and it has been solving the problem in the short term by delaying payments to vendors, and now the State is delaying the appropriation for higher education.
Moody’s downgraded the State of Illinois debt in December of 2009. Fitch, another ratings service, gave Illinois an A rating on 12/30/2009, and put the state on a watch list for a possible downgrade as well.
The reason for Illinois’s fiscal problem is that income tax receipts have been lower than expected. The size of the problem for the 2010 budget is $2 billion, which is approximately 7% of the State’s General Fund budget.
Looking further in the future, there has been talk of budget holes in the $12-$13 billion range. The current governor wants to raise the income tax rate on those earning more than $250,000 per year, and a democratic candidate for governor wants to implement a progressive income tax system (instead of the current flat tax system). Every Republican candidate for governor is against a tax increase.
What is the response to this?
1. What is the State likely to do? The State appropriation is only 16% of the total revenue source for the UI system. There may be a 6% reduction in the appropriation. The appropriation is only 16% of the UI system’s revenue, so in terms of total revenues, the 6% reduction will reduce overall UI revenues by less than 1%. This reduction is not large enough to lead to furloughs.
2. The UI administration, in its budget documents, at times implies that the State appropriation funds the entire academic mission at the UI, which overstates reality. Administrators often argue that “this” money can only be used for “this,” and “that” money can only be used for “that.” However, the reality is that the UI system is one system, not a General Fund only system or a State Appropriation only system. That is why an analysis must focus on the health of the entire system, and not some component of the system that the administration claims is out of money.
3. The State is not considering eliminating the entire appropriation; they are considering delaying payments to the UI system. These payments are going to be repaid at some point. Note that the rating agencies did not rate the State bankrupt or junk; they gave the State “A” ratings, which is the 3rd highest rating for both Moody’s and Fitch. If the rating agencies believed that the higher education appropriation would NEVER be paid back, then the rating would have been much lower (such as the Baa2 rating given to the State of California).
4. What about the current cash flow problem caused by the delay of payments? Michigan faced this exact situation about 18 months ago, when the State delayed 2 months of the annual higher education appropriation. In Michigan, like Illinois, the state funds between 15% and 30% of the public universities’ total revenues (note: this percentage is over 65% in California). Not one public institution in Michigan asked the employees to give back salary money, nor did the administrations at these schools give back their salaries. All that happened was that the universities used their existing cash reserves to deal with the short term problem, and then were made whole when the full payments were made about 6 months later (it was 6 months from the time a payment was delayed to when it was repaid in full by the State). Now, is Michigan in worse shape than Illinois? Absolutely.
5. What should the UI do in response to a short-term cash flow problem?
6. a. The first thing would be to use existing reserves. The Moody’s viability ratio measures how many months of reserves an institution has in relation to total expenditures. If we omit the UI Foundation (which is a very conservative approach), the UI system had approximately 12% or 2 months of reserves as of June 30, 2008. The standard recommendation is to have between 5% and 15% of reserves. Note that these reserves are 12% of total expenses. Therefore, a reduction in a few months of the state appropriation should easily be handled from current cash reserves, which are significant.
b. If the administration claims they have no cash reserves, they can borrow short term money to guide them through this period. Borrowing money is not a long term solution, but this is a short term cash flow problem. The UI system still has a very strong credit rating.
c. Any reduction in spending should not come from the employees, but from administrative costs and administrative spending.
d. The reserves of the UI Foundation should be used to help with any short term cash flow problem. The UI Foundation has over $1 billion in assets; any temporary shortfall can be borrowed from the Foundation, and then repaid when the State pays the appropriation. It is not advisable to use Foundation dollars, but since they will be repaid in a short time, it is a solution that is preferred to reducing the pay of current employees.
e. The last option, after the above three have been exhausted, would be to ask the UI system’s employees to accept a temporary reduction in pay. When the administration gets the appropriation back from the State, then the pay reduction should be paid back to the employees, with interest. Let’s be clear: the 6% decline in the annual appropriation may be a permanent reduction. However, this small reduction is not nearly large enough to support any furlough. Consider this: if the UI system is receiving a temporary decline in the appropriation, then any reduction in pay should be temporary and should be fully refunded.
Wednesday, January 27, 2010
Concerned about furloughs?
Voluntary pay cuts? Budget cuts?
What's at stake? What can we do?
Lower Level, Rooms K-1 & K-2
1001 S. Wright St.
Bring your ideas for discussion with other faculty members:
- Transparency and shared governance in a time of crisis
- Collaborative responses to furloughs and budget cuts
- The future of accessible public higher education
- Preserving the research mission of the U of I
Sponsored by the Campus Faculty Association and concerned faculty across campus.
Friday, January 15, 2010
Scorching new letter to the editor by CFA Executive Committee member:
Before we implement furloughs that will cause considerable hardship, we should reduce the costs of activities outside the research and teaching missions of the university.
We continue to increase administrative positions, for example, often at high salaries, even as cuts undermine these missions.
How can we implement furloughs fairly if it comes to that? First, acknowledge that these are substantial wage cuts following several years with tiny or no raises. We have fallen further and further behind. Now wages – along with travel, research, and other funds – are being reduced. Cuts in academic units continue to diminish the quality of undergraduate and graduate education.
Second, acknowledge the vast salary gaps between faculty and the proliferating number of highly paid administrators. The university's plan to exempt workers earning less than $30,000 and assess a small number of top administrators a higher number of furlough days is a modest effort in this direction. If the number of impacted administrators were increased, it would be possible to exempt a greater number of the lowest paid.
This crisis draws our attention to some misplaced priorities and a conversation that is long overdue. We should reduce our bloated administration and the charity we practice toward private corporations in the research park. We cannot afford the costly corporate policies implemented over the past decade.
The human costs could be reduced if we invested our limited resources where they are needed most – in teaching and basic research, not huge administrative salaries and support for private corporations.
Thursday, January 14, 2010
Pay cuts (masquerading as “furloughs”) are on the way. The Campus Faculty Association believes:
(1) if we must have furloughs, they should be more progressively tiered. The administration has made some effort in this direction, by exempting those who earn less than $30,000/year, and by singling out a small number of highly-paid administrators for the greatest number of furlough days. A greater number of days off for those with the highest salaries will yield the greatest financial returns for the university. Moreover, it is clearly unreasonable to expect an adjunct instructor who makes $32,000/year to take the same amount of time off as a tenured colleague who earns $200,000/year. In some other universities with similar budget problems, the number of “pay cut days” is being calibrated with increments of—for example—$20,000 in salary. Such an arrangement would be somewhat more difficult to implement, but much more equitable than the current plan."
(2) if we must have furloughs, they should be taken in such a way as to demonstrate to students, their families, and the public the educational “costs” of the budget crisis. If the impact on teaching is disguised, then the legislature has no incentive to restore even the limited contribution they now make to the university’s budget. While many colleagues will feel ethically and professionally bound to teach their classes, it is possible to do this in ways that publicize the university’s budget crisis. One possibility is to use “furlough days” to engage in alternate forms of teaching; another is simply to announce on a given day that one is teaching without pay, and then state on the University "Furlough Days Taken" form that "I was too busy to take a furlough." Please contact us with your creative responses to the furlough situation (and read our blog—address below—for other people’s ideas).
(3) though the university’s cash crisis compels sacrifices from all of us, calls for pay cuts as “shared sacrifice” ring hollow in the absence of real shared governance. The process culminating in the announced furlough policy cast faculty as subordinates rather than partners. We instead must shape what we are sacrificing for. Financial transparency, including explanations for rises in administrative costs amidst shrinking resources for teaching and research, would be a key step in that direction.
Now is the time for faculty to take action to protect their own interests, as workers, as professionals, and as the beating heart of the university.
We encourage our members to join us in “collective furlough/action days” in order to demonstrate the effects of the furloughs to students, the media, and the broader public. Exact dates will be announced shortly.
Our intention is to use these days to strengthen the faculty response to the budget crisis and issues of equity on our campus. Common activities might include lobbying the legislature, a teach-in on the increasingly corporate character of the university, and, most importantly, devoting any furlough time to organizing a union that will be able to resist these and future cuts.
In the meantime, any and all of the following will help:
—Write to administrators about furloughs.
—Discuss furloughs in your units, to develop responses to this threat. Language authorizing furloughs is now a permanent part of our contracts. CFA senate members will work in the senate to produce a unified faculty statement regarding the furlough threat.
—Contribute your ideas about how to resist the administration’s current furlough policy, including efforts at surveillance and intimidation, to the CFA blog: http://campusfacultyassoc.blogspot.com.
—Use the media to educate the public about the impact furloughs will have on higher education in Illinois.
—Help us organize. If you would be willing to organize or host a recruitment meeting for your unit, please contact Kate Clancy (firstname.lastname@example.org) or Jim Barrett (email@example.com).
REMEMBER, A UNITED FACULTY IS A POWERFUL FACULTY!
PLEASE SHARE THIS MESSAGE WITH YOUR COLLEAGUES TO BUILD A MOVEMENT TO PROTECT OUR UNIVERSITY!
Megan McLaughlin, President
for the Campus Faculty Association Executive Committee
Wednesday, January 13, 2010
Also, for an edifying read on "furloughs" in nearby state, check out this law prof's blog.