SIU President Glenn Poshard 1

How the Budget is Developed State Budget SIUE’s budget development process for the state budget is very collaborative and involves a number of constituencies, with primary involvement of the University Planning & Budget Council (UPBC), which makes budget recommendations to the Chancellor. UPBC includes representatives from faculty, staff, and students. The process for developing the state operating budget begins nearly two years in advance of the final approved budget. It is not final until the appropriation funding level for SIU is approved by the legislature. In recent years, this has occurred as early as May and as late as September. 2

How the Budget is Developed Non-State Budget The non-state budget development process is different for each fund group. For example, SIUE’s fee units (e.g., Morris University Center, Student Fitness Center, etc.) undergo a thorough, internal fee review process which involves the preparation of extensive, detailed financial forecasts by the fee units and their committees and includes a financial review and input by a large number of constituents. The VC for Student Affairs and the Student Government Association engage in a process to make fee increase recommendations. These recommendations for the mandatory student fee units, including requests for fee increases or new fees, must be approved by the Board of Trustees. 3

State Operating Budget Historical Data State Approp.Income Fund FY 2002$72.9 M$28.9 M FY 2007$63.8 M$53.8 M FY 2009 $69.2 M$63.2 M FY 2010$69.5 M$70.6 M FY 2011$64.2 M$74.4 M FY2012$63.5 M$82.5 M FY2013$59.7 M$86.5 4

State Operating Budget Historical Data % of Total FY02FY13 State Approp.71.6%40.8% Income Fund28.4%59.2% For every tuition dollar a student paid, the state paid (estimated):$2.52$0.69 5

FY14 Budget Challenges 1. Enrollment growth is no longer “assured” 2. Providing additional scholarship/financial aid funding to enhance student enrollment 3. Operating & Maintenance expense for new buildings not provided by state (Science Building, Art & Design, Engineering, Lukas Annex) $1.1M in FY14 and total recurring expense greater than $2.5M 4. Potential loss of $1.25M Pharmacy OSF funding 5. Potential of no tuition and fee rate increases in FY14 6

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SIUE Challenges – Today vs. Ten Years Ago  Declining Student Population  Higher Tuition & Fee Costs  Cash Flow Situation  State’s Negative Credit Rating/Pension Reform  Increased Level of Scrutiny by State & Federal Govt.  Competition for University Housing 10

Pension Reform Six Simple Steps: Reforming the Illinois State Universities Retirement System We proposed six steps to set the State University Retirement System (SURS) on the path to fiscal sustainability while ensuring retirement security for participants and honoring the constitutional guarantee against reducing already accrued benefits. 11

The steps in our proposal fall in three broad categories:  Reduce the normal cost and liabilities of the Tier 1 defined benefit plan  Focus on how the pension system should be funded  Institute a “hybrid” system to replace the Tier II program for current employees 12

Reducing Costs and Liabilities Step #1: The retirement annuity of current and future retirees will increase annually by one-half of the unadjusted percentage increase (but not less than zero) in the consumer price index-u in the previous twelve months, compounded upon the preceding year’s annuity. Impact: Reduces normal cost going forward and reduces unfunded liabilities. 13

Reducing Costs and Liabilities Step #2: Going forward, Effective Rate of Interest (ERI) for all purposes, including the money purchase benefit formula, portable lump sum refunds, purchase of service credits and returns of excess contribution will be set to a value equivalent to 75 basis points above the interest paid by 30-year U.S. Treasury Bonds. Impact: Reduces normal cost going forward and reduces unfunded liabilities. 14

Sharing the Funding Liability Step #3: Universities and colleges will contribute up to 6.2% of the pension eligible payroll of their employees to fund the annual normal cost. The cost shift will be transitioned at a rate of 0.5% of pensionable pay per year for the first eleven years and 0.7% the twelfth year. Impact: Reduces normal cost payment obligations for the state. 15

Sharing the Funding Liability Step #4: All employees enrolled in the Tier 1 defined benefit program will contribute an additional 2% of pay towards pension cost at a rate of an additional 0.5% of pay a year for the next four years. The additional employee contribution will not be included in the calculation of benefits under the Money Purchase Plan. Impact: Reduces normal cost payment obligations for the state. 16

Sharing the Funding Liability Step #5: In return for the above cost-shifting, the state shall be required to amortize the current unfunded liabilities of SURS in accordance with a payment schedule that steadily improves the funding ratio and is calculated based on a straight line amortization of the current unfunded liabilities with a reasonable closed amortization period. Furthermore, the state shall be contractually obligated to contribute to the pension system each year the full amount of all its payment obligations. If the state fails to make full payment, the pension system or any of its members may take legal action to compel the state to make that payment Impact: Assures long term funding and amortization of unfunded liabilities. 17

Revised Retirement Plan for New Employees Step #6: Any new employee who becomes a member of SURS will participate in a hybrid plan comprising a defined benefit (DB) and an individual defined contribution (DC) plan. The current retirement plans – Tier II plan and Self-Managed Plan – will no longer be offered to new employees. Any employee who is currently a member of SURS can elect to terminate participation in their current plan and elect to have retirement benefits of future creditable service provided under the new retirement plan. The irrevocable choice must be made during the six-month period following the effective date of the new plan. Impact: Reduces state normal cost payments by shifting costs to universities and colleges. Institutions gain flexibility to design system to fit their own needs. 18

SIU President Glenn Poshard 19