1. 1 ICCHE Annual Conference Higher Education Update Dr. Alan Phillips Executive Deputy Director Illinois Board of Higher Education February 7, 2014

2. Current Situation (State) The State is currently experiencing a debt crisis. Pension and Medicaid costs are exceeding the rate of State revenue growth. The State is months behind in its payments to colleges and universities. Adequate financial aid funding, for both MAP and Pell, continues to be of concern. We may see additional funding reductions in FY15 if the temporary tax increase expires as scheduled at the end of the CY14.

3. Current Situation (State) State revenue projections for FY15 ($35.2B) are down $1.2B from current year revenue. The Backlog of unpaid bills is expected to grow from the current level of $5.6B to $16.2B by FY17. As of the end of December, the State was over $750M behind in payments to the public universities and community colleges for FY14, and over $8M behind in MAP payments. The Governors 3-year budget projections anticipate a $1.9B deficit by the end of FY15 and annual deficits of over $4B in FY16 and FY17. The deficits are largely driven by the expiration of the temporary tax increase If the pension reform legislation is overturned by the courts, the situation will be worse.

4. Current Situation (Colleges & Universities) State funding for higher education operations has declined steadily over the last 15 years. The availability of financial aid funding is declining at a time when low-income families have less ability to pay for college. Over the last several years, there has been minimal funding for capital projects, to include renovation, remodeling, maintenance, and repair. Universities and community colleges continue to deal with unfunded mandates such as: Illinois Veterans Grants, CDB construction administration fees, and various procurement issues. Institutions try to protect instruction, but are often forced to squeeze cost savings out of instruction and student support services. The burden of financing a college education has increasingly fallen on students and families.

5. Current Situation (Colleges & Universities) Over the past decade, state appropriations for higher education operations and grants (excluding retirement) have decreased from the all-time high of $2.4 billion in FY 2002 to less than $2.0 billion in FY 14, a decrease of $427 million, and when adjusted for inflation, the decline for the public universities is over 27%. In FY13, for the first time, the certified SURS funding requirement of $1.4 billion exceeded the $1.2 billion operating appropriations for Illinois public universities. In FY14, The SURS certified contribution increased by $100 million to $1.5 billion, and in FY15, it will increase to $1.55B. When adjusted for inflation, state funding for community colleges in FY14 is $113.9 million, or 28.0 % less than in FY99. Funding for community colleges is $40.4 million, or 10.7 % below FY99 levels even after the inclusion of funds for adult education and postsecondary career and technical education. Universities and community colleges continue to deal with unfunded mandates such as: Illinois Veterans Grants, CDB construction administration fees, and various procurement issues. Average enrollments at Illinois public universities and community colleges continue to decline, which creates additional fiscal challenges for the colleges and universities.

8. ISAC Funding Trends State support for the Illinois Student Assistance Commission (ISAC) in fiscal year 2014 is $79.9 million, or 17.0 % below fiscal year 1999 levels when adjusted for inflation. In recent years, an unprecedented increase in demand for need- based financial has resulted in the early suspension of MAP awards. In fiscal year 2013, ISAC suspended award announcements for MAP applications received after March 20, 2012 but later released awards for applications received through April 2 nd. In fiscal year 2014, ISAC suspended award announcements on March 1, 2013, the earliest suspension date since the creation of the MAP program. The earlier suspension date tends to disproportionately affect community colleges students, as many that are independent students that tend to apply late for college and financial aid. In fiscal year 2014, ISAC estimates approximately 178,500 eligible MAP applications, including 128,600 from community colleges, will go unfunded because of the suspension date.

9. FY15 Capital Improvements Last Year, the IBHE approved a new capital project list for FY14 and indicated support for Illinois Jobs Now! projects. Unfortunately, there was no Capital Bill in FY14, and the FY15 project list is nearly identical to the FY14 list. The General Assembly has not approved a new capital bill since Fiscal Year 2010. To date, nearly $1.1B of $1.6B in Illinois Jobs Now! higher education capital funds have been released. The backlog in deferred maintenance at public universities and community colleges was estimated to be over $3.8B in FY13, an increase of $2.2B since FY03.

10. Core funding for public colleges and universities. Cash flow to public colleges and universities Funding for need based financial aid. Adequate funding for institutional grant programs. Capital Funding, to include, Capital Renewal and Deferred Maintenance funding. The impact of unfunded mandates. The continued implementation of Performance Based Funding. The priority for funding is directed toward maintaining core capacity, deferred maintenance, MAP, and funding for grants. IBHE will be requesting level funding for FY15. Key Fiscal Concerns and Priorities

11. On a Positive Note The Governor’s three year budget essentially holds education funding flat for FY15, FY16, and FY17. However, there still exists budget deficits for those same years of $1.9B, 4.1B, and 4.5B. The State has addressed the pension issue, provided it isn’t overturned by the courts. The Governor is looking for ways to expand the MAP program and is doubling his commitment to the program. The state is working on the creation of STEM learning exchanges that will benefit 194 high schools and over 18K students throughout the state. IBHE is involved in a effort to develop Guided Pathways for Success (GPS) to STEM Careers in partnership with SIUC, UIC, and City Colleges of Chicago. Illinois is working in partnership with other states on a national initiative (State Authorization Reciprocity Agreement (SARA)) that will make distance education courses more accessible to students across state lines, as well as making it easier for institutions to participate in interstate distance education.

12. Outlook for FY15 The major spending pressures impacting the state budget in recent years will continue to play a significant role in budget deliberations, which will be compounded by a continued backlog of unpaid bills. These perennial spending pressures include funding for Medicaid; other healthcare programs, including the State Employees’ Group Insurance program; K-12 education; and the state retirement systems, which will require an estimated $200 million increase in employer contributions for fiscal year 2015, of which $44.2 million of the estimated $200 million is for the State Universities Retirement System. Recent trends in program cost increases, service levels, and other factors in each of these areas suggest that they will once again have the potential to place significant demands on existing state revenues, not to mention a predicted revenue decline ($1.9B) that may occur in fiscal year 2015 due to the expiration of the temporary tax increase.

13. Questions?