As officials and students from the University of Connecticut protest over proposed reductions in federal money flowing to the university under Gov. Ned Lamont’s budget proposal, the governor has also offered to take on Connecticut’s higher education legacy retirement debt.
Amounting to roughly $60 million per year, the General Fund would pay the legacy pension debt, retiree healthcare and the other post-employment benefits (OPEB) match for all university and college employees and consequently reduce the block grant funding to those agencies by the same amount making it neutral. The universities would then pay the usual fringe benefits for all employees, including the “normal cost” of pensions, which do not include the pension debt.
Unfunded pension liabilities have long been a thorn in the side of Connecticut’s public colleges and universities, including UConn, resulting in tight budgets and tuition increases. The fringe benefit rate for UConn, for instance, rose to 68.5 percent in 2022, according to a UConn Board of Trustees budget presentation, which blamed rising costs on unfunded pension liabilities.
In previous years, UConn officials have approached lawmakers seeking relief from those pension debts. UConn officials from both the University and the UConn Medical Health Center also argued the increased cost for employees due to the pension debt put UConn at a competitive disadvantage for obtaining research grants.
“Over the last decade, officials at both UConn and the CSCU system have expressed concerns about rising ‘legacy’ fringe benefit costs. These costs have increased as the state increased funding for pensions and retiree health costs that had accumulated but had been ignored for decades,” the budget said. “The new methodology will have OSC fund certain fringe benefit costs for all employees at these given institutions consistently throughout the year. Streamlining this process will eliminate significant administrative work, enhance budgeting and forecasting, alleviate the institutions of risk associated with rising pension costs, and enhance future research grant competitiveness.”
“If you’ve been covering this area for a number of years, you’ll know that the constituent units of higher education have been asking relief for many years from what they call legacy costs,” said OPM Secretary Jeffrey Beckham during his budget presentation. “These are the costs to them of pensions and retiree healthcare. We are, this year, taking this on to the General Fund, relieving them of that liability and that will allow them to have a much lower fringe rate and that will position them, we hope – especially UConn – being more competitive at securing research grants.”
The state has included fringe benefit costs as part of its grants to UConn and UConn Health, but it was not enough to cover the entirety of the unfunded pension debt, according to budget presentations by the UConn Board of Trustees.
According to the fiscal year 2022 budget presentation, UConn was responsible for paying $147.8 million in unfunded fringe liabilities and the state reimbursed $111.1 million, leaving a $36.7 million debt to UConn Storrs, which came out of their revenues like tuition.
However, the governor’s budget, which decreased the amount of federal ARPA funding UConn would receive over the next two years and removed additional state funds sent to the university during the pandemic, was met with stern words from both UConn officials and students.
UConn students held a protest outside the capitol on Wednesday claiming Lamont was cutting UConn’s budget and feared the changes could amount to thousands in tuition hikes, as indicated by UConn President Radenka Maric.
In a statement published by UConn Today, Maria said the governor’s proposed funding was not enough to make up for the salary increases from the governor’s $1.9 billion deal with the State Employees Bargaining Agent Coalition last year that awarded raises and bonuses to state employees, including UConn employees and staff.
“The governor’s proposal does cover more of what are known as historical unfunded ‘legacy’ costs related to employee fringe benefits that the state assigns to UConn and UConn Health – but it would simultaneously reduce our block grant, cancelling out any fiscal benefit for the university,” Maric said.
In response, Lamont issued a statement saying his funding for UConn was “historic,” and adding the ARPA funds were meant to be one-time revenue replacement and never intended to fund on-going expenses.
“Our budget proposal includes the largest block grant ever proposed for UConn in state history,” Lamont said. “I am a strong believer in UConn’s contributions to the economic growth of Connecticut, and that is why I’ve proposed increasing the state block grant funding for the university every year since taking office. Our proposal provides UConn with funding to support wage increases and brings pension and retiree health costs onto the General Fund to enhance their competitiveness in obtaining grant funding.”
Lamont released a chart showing the allocations to UConn and UConn Health over the years, including ARPA funds and additional state funding during the pandemic.
The chart showed a proposed $776.4 million block grant during the 2024-2025 biennium with additional state support of $110.4 million. The block grant alone is $24 million more than the previous block grant, and up more than $114 million since the 2018-2019 biennium.
The block grant for the CSCU system was also increased to $754.9 million, with an additional $146.5 million in ARPA funds and $21.5 million in previous ARPA funds. Budget officials noted that enrollment in CSCU schools has declined by roughly 25,000 since 2014.