From Wirepoints, reprinted with permission:
Illinois’ higher education crippled by skyrocketing pension costs – Wirepoints
By: Ted Dabrowski and John Klingner
Illinois has lost more full-time equivalent students over the last decade than any other state in the country, according to a 2020 College Board report (see Appendix). Tuition has doubled in the past 15 years, pushing it to the 4th-highest in the country. And administrative bloat has siphoned money from university classrooms, according to Illinois Senate Democrats.
State lawmakers and education officials have for a long time blamed Illinois’ higher education woes on a lack of funding, giving the impression that students have fled and tuition has jumped because overall state support for higher education has dried up.
That’s simply not true. Total state spending on higher education has more than doubled to $5 billion today from $2.5 billion in 2000 – an increase of about 3.4 percent annually and above the average 2.1 percent inflation rate over the same period. The real problem is that the entire increase has been sucked up by skyrocketing retirement costs, putting pressure on many aspects of higher ed.
A Wirepoints analysis of higher ed spending shows that of the new, cumulative state appropriations to higher education over and above base spending in 2000, every dollar has gone to pensions, and then some.
As the below graphic shows, state spending on operations (funds for universities, colleges, student aid, technical education, and other grants) remained flat or fell over the entire period to make room for the steep increase in retirement spending for higher ed pensions and retiree health insurance.
As a result, more than half of all state university and college appropriations go to retirement costs today, up from just 14 percent in 2000.
Overpromised and overgenerous pensions
In 2015, the growing cost of student tuition and a compensation scandal at the College of DuPage sparked the Illinois Senate Democratic Caucus to launch an investigation into the growing costs of the university system’s administrative bureaucracy. Their Investigative Report on Executive Compensation at Illinois Higher Education Institutions reported that:
“While tuition at Illinois’ public institutions has skyrocketed, so has executive compensation. This report finds that tuition increases have coincided with a dramatic increase in administrative costs, including the size of administrative departments and compensation packages for executives.”
Data from the National Center on Education Statistics further revealed that the administrative and management staff in Illinois higher ed grew by 26.4 percent from 2005-2015, compared to a 2.1 percent increase in instructional staff and a 2.9 percent drop in FTE enrollment.
The Senate Democratic Caucus also found that the expanding bureaucracy in higher ed grew the state’s pension costs.
“Much of this revenue growth has been used to support an increasingly larger bureaucracy and excessive administrative salaries. This is also evidenced by ever increasing state tax contributions required to cover the pension and health care expenses of this administrative growth.”
In fact, the total pension benefits promised to university workers (accrued liabilities) grew more than 1,000 percent (7.6 percent annually) from 1987 through 2020 – far faster than the state budget, Illinois’ economy or taxpayer incomes could keep up with. The rapid growth in pension benefits was the subject of Wirepoints’ Special Report: Illinois Pensions – Overpromised & Overgenerous
The core problem with university pensions is the same as the state’s retirement crisis a whole: benefits were overpromised by Illinois lawmakers.
The perks and benefits they’ve given away over the past few decades – high salaries, spiking, early retirement ages, 3 percent cost-of-living adjustments, and more – mean career university workers receive retirement benefits far beyond what most Illinoisans in the private sector can afford.
Take Illinois’ recently retired career university workers – retired after 1/1/2017 with 30-plus years of service. On average, they ended their careers with a final salary of $93,000 and began collecting benefits at age 59. They get an average pension of $71,000 a year and can expect $2.3 million in total benefits over their lifetime.
Top State University Retirement System pensioners can make far more than that – largely due to their six-figure final salaries and early retirements. A majority of the top retirees in the graphic below retired with a $450,000-plus salary and will receive more than $9.5 million in lifetime benefits.
Some of the retirees below were medical doctors at the public universities, but many other top beneficiaries such as Clarence Bowman and Patricia Granados were university administrators. Bowman, a former president of ISU, retired at 60 with a final average salary of $435,000 and a starting annual pension of $347,000. After several years of a 3 percent compounded COLA, his pension now exceeds $422,000. His COLA increase for just one year is now more than $12,000.
As pension costs have devoured the state’s – taxpayers’ – appropriations toward higher ed, Illinois’ education complex has increasingly shifted the burden onto students through higher tuitions. The Senate Democratic Caucus report noted that as state money was diverted from classrooms to pensions, universities hiked tuition so much that college and university officials had money left over to spend on more administrators and higher salaries:
“While state operating support for public universities has declined by 7% over the last decade, the corresponding increase in tuition and fee revenue has not only offset state budget cuts, but sustained annual public university revenue growth rate in excess of 5%.
In all, the average tuition and fees at several Illinois public universities have more than doubled since 2006, according to the earliest data available from Illinois Board of Higher Education.
Students at Northern Illinois University, for example, paid a tuition of $7,229 a year in 2006. By 2022, tuition will have doubled to $14,691. That increase is three times more than the growth in inflation over the period.
All that has pushed Illinois’ in-state tuition for public 4-year institutions to the fourth-highest level in the country, according to the College Board. At $14,420, Illinois only trails Vermont, New Hampshire and Pennsylvania. All of Illinois’ neighbors have far lower tuition and fees, with Indiana, Iowa, Missouri and Wisconsin charging less than $10,000 per student.
One interesting note regarding the Senate Democratic Caucus report is that it strongly criticized the state of higher education before Bruce Rauner became governor. Gov. Rauner became the punching bag for the problems in higher ed after his 2016-2017 budget impasses, but the Dem’s report shows clearly that the majority of the problems in higher ed preceded him. Rauner deserves blame for his many governance failures, which we documented here, but not for the crisis in higher education.
Fix the pensions, stop the bleed
The Illinois Board of Higher Education has responded to the state’s loss of students by calling for hundreds of millions in more funding for grants, subsidies and an even greater focus on “equity.”
They’re treating the symptoms rather than the disease. As long as Illinois lawmakers continue to ignore major pension reform – which we outline here – expect Illinois’ youth to continue to leave Illinois’ borders in search for an affordable, quality education.
The College Board reported last year that Illinois’ full-time equivalent student enrollment dropped more over the last decade than in any other state in the country. Illinois lost 17 percent of its FTE in 2018 compared to 2008.