President's Pension, Budget and Legislative Recap

June 2, 2011

Dear Colleagues,

We closed the books on another semester two weeks ago, which in theory means that it was a time to catch our breath...but not so this year.

The last few weeks have proven to be exceedingly busy for NIU administration and staff. We have been  grappling with the decisions made or left unresolved by the Illinois General Assembly regarding future pension benefits for current employees, annuitant health care benefit changes, a reduction to our operating base budget for FY2012, procurement reform, and a new emphasis on performance-based funding and outcome measures.

I want to take this opportunity to bring you up-to-date on these critical issues.

I also want to encourage you to monitor NIU Today, the university's Budget and Pension Update website and your faculty/staff email accounts over the summer to obtain current information on any further actions taken that affect our faculty, staff, annuitants and/or students.

Pensions

Pensions remain the single most-important issue affecting every employee here at NIU. The good news is that it seems that any future changes to be enacted will not affect any pension earnings accrued by employees to date.

However, change in the way the state's five pension systems are administered going forward appears to be a certainty. Increased employee contributions, a later retirement age and switching from a defined benefit formula to a plan similar to a corporate 401K are among the changes that continue to be discussed.

While the General Assembly set aside consideration of SB512, the main pension reform legislation, it is clear from comments made by Speaker of the House Mike Madigan and House Republican Leader Tom Cross that this was only the beginning of discussion on this topic. They have promised hearings during the summer with a goal of revisiting the issue in the fall veto session, which begins Oct. 25.

Any changes approved by the legislature are almost certain to face court challenges as many argue that the state constitution forbids midstream changes in state employee pension programs.

Annuitant Insurance

A proposal that would have ended free health care for annuitants with 20 or more years of service was also shelved. The plan would have instituted a new system under which all retirees would be required to pay a percentage of their health insurance costs. It would have established a sliding scale taking into account years of service, age at retirement and the size of the pension collected (as a measure of ability to pay). While this was set aside, this is another issue that could be revisited this fall.

FY12 Budget and FY11 Cash Flow Crisis

As the legislative session concluded, the General Assembly passed a budget which calls for a 1.15 percent operating base reduction for FY2012. This is almost a relief considering some of the cuts we have endured in the past. However, as has been the case in recent years, cash flow will continue to prove a daunting challenge, even more so than a slight base budget reduction.

At this moment, 11 months into Fiscal Year 2011, the state is nearly $43 million behind in its payments to the university. Put another way, with four weeks remaining in FY2011 we have received only 58 percent of the money that was promised to us. Our budgetary hole is much deeper today than it was one year ago and there is no last-minute influx of revenue on the horizon to make up that difference. The state has postponed the FY11 closing date until Dec. 31, extending the deadline to make up what it owes, but where that money might come from remains unclear.

We do not foresee this situation improving any time soon. If anything, it will get worse as we start Fiscal Year 2012 saddled with last year's debts and facing a future of revenue trickling in, rather than flowing in at a predictable rate. In addition to these issues, we must remain cognizant of our student enrollment counts, as tuition revenues are critical to the continued operational stability of the university.

This cash flow crisis has forced the university to scramble all year, living from paycheck to paycheck, as we struggled to meet our $18 million monthly payroll, my top priority. To ensure that we can continue to do so, all of the cost control measures that have been standard operating procedure for the past few years will remain in place indefinitely, and new areas will continue to be explored.

Like other public universities, NIU is faced with no additional funding from the state to offset unavoidable cost increases on goods, services and utilities; costly, yet unfunded, state mandates; and a serious backlog of deferred maintenance that demands attention to prevent our infrastructure from crumbling.

Countless students, faculty, staff, alumni and prospective students and their parents have commented to me over the last few years that we simply must address this escalating deferred maintenance problem. Campus beautification and deferred maintenance have hit a crisis point, and we can no longer put off critical repairs and maintenance.

Vision 2020

In September 2010, I unveiled our new Vision 2020 Initiative. Since then, more than 109 faculty, staff, students, administrators, alums and donors have been working diligently behind the scenes to move that project forward.

This benchmarking exercise will help define and shape NIU for decades to come. I am delighted to report that the seven working groups have made excellent progress, and we plan to make their reports available for public comment later this month on the Vision 2020 website. I encourage you to read the reports and provide feedback.

Based on what I have seen so far, I am excited about the path that this initiative will lead us to, and I look forward to sharing details with the campus in the fall.

NIU's educational quality is dependent on the quality of our faculty and staff. My primary goal is to guarantee that an NIU education a student receives is the best we are capable of providing. We absolutely must remain competitive, not only to continue to attract the best faculty and staff, but also to ensure that our students are well-served through their NIU experience as they move into a competitive professional environment.

I will continue to keep you updated as developments occur throughout the summer. In the meantime, please take the opportunity to recharge and refresh this summer. We have many new and returning students who are counting on NIU to help them achieve their lifelong goals and dreams. This is our life's work, and what continues to motivate me each day. These students are truly not only our future, they are Illinois' future. And NIU will not let them down.

Best,

John G. Peters
President