UConn faces $19.6M hole, driven by pension costs
School to close deficits by reducing hiring, finding efficiencies
As university leaders begin planning for next year’s budget, UConn must close a projected deficit of $19.6 million, driven largely by unfunded employee pension costs, a problem also plaguing the state as a whole.
The projected deficit for UConn Health, which includes John Dempsey Hospital and the university’s dental and medical schools, is $7.1 million, according to budget documents released Tuesday.
“UConn and [UConn Health] are fiscally healthy institutions, except for the unfunded liability costs that lead to annual deficits,” the documents, presented at a meeting of the UConn trustees’ financial affairs committee, read.
To offset some of those costs — coupled with the effect of state funding to the university system
steadily dropping over the past decade — UConn has had to raise tuition. The university is in the final year of a four-year tuition increase, with tuition for instate students expected to hit $13,799 this fall — up from $11,224 in the fall of 2016.
And despite the tuition increase covering about 37 percent of the deficit, assigning some of the fiscal burden to students is not a tenable nor ideal solution for the long-term, Scott Jordan, executive vice president for administration and the university’s chief financial officer, acknowledged at the meeting Tuesday.
As tuition has increased,
state support has decreased. Over the past decade, UConn and UConn Health have faced $166 million in state cuts, university officials said. In the past four years alone, academic and administrative areas at UConn have been cut just over $83 million to close past budget gaps.
Officials plan to close the upcoming budget deficits at UConn and UConn Health by reducing hiring and finding other efficiencies and by using money in the university’s fund balance. The financial affairs committee unanimously recommended a $1.33 billion budget for the university’s Storrs and satellite campuses, as well as a $1.13 billion budget for UConn Health.
UConn slipped in last year’s U.S. News & World Report national rankings
for public universities, which Jordan said can be attributed to a decrease in spending per student.
“We want to maintain an excellent educational environment for students,” he said. “Raising tuition for students and cutting spending is not how you help them.”
The university relies on tuition as a revenue source more than any other, even state support. While tuition brings in 31 percent of the university’s revenue, the state supplies about 26 percent, according to the budget documents. Tuition, student fees, housing and meal plans account for 56 percent of revenue.
Officials have not come to a consensus on additional tuition increases, but noted in the budget documents that “without a tuition increase plan … revenues can’t
keep pace with the rising expenditures” if state funding remains flat.
Housing and dining rates are also in the third year of a three-year increase. “Athletics revenue is declining due to drop in conference revenue and ticket sales,” officials wrote.
Jordan made it clear that as tuition increases, the university has — and will — remain “committed” to ensuring financial aid for students does as well, meaning despite the price hikes to attend UConn, the aid allocated to students will not fall behind.
Connecticut has among the worst systems in place when it comes to managing its unfunded liabilities, Jordan said.
“What’s unique in Connecticut is that the state employee retirement plan has made promises over
many generations that they never put money aside for,” he said.
Because faculty of the UConn system are classified as state employees, “fringe benefits” like health insurance and retirement funds are included as part of their pay, Jordan said. So even though staff are paid by the university, the state charges the school for the cost of those benefits.
The projected deficit at UConn Health would have been far worse, officials said, but the recently passed state budget included an additional $33.2 million to cover pension costs at the health center.
Between UConn and UConn Health, unfunded liabilities are affecting the university system by a total of $52 million in the upcoming fiscal year, Jordan said.
Jordan said he is not
trying to place blame on the state government or legislators — throughout the meeting several trustees stressed the “critical” importance of their relationship — but to highlight larger structural issues.
“We are acknowledging that there’s a big structural problem in state finance, and that the state government is trying to help, but that it does create a structural financial problem for the university, too, that we all need to work together to solve,” he said.
The UConn Board of Trustees will vote on the proposed budget June 26.