Bailey comments on proposed FY 20 UConn “unbalanced budget” at BOT

Executive Director addresses the Board of Trustees regarding the impact of the SERS unfunded liability and its impact on the proposed budget. See the text of the statement below:


June 26, 2019

Good Morning Mr. Chairman and Members of the Board of Trustees

My name is Michael Bailey, Executive Director of the AAUP Chapter at UConn

Later this morning, Executive Vice President for Administration and CFO Scott Jordan will be presenting for your consideration the proposed budget for the coming fiscal year.  For the first time as CFO, Scott will be asking the Trustees to approve a budget in deficit: nearly $20 million for UConn Storrs and another $7 million for UConn Health. You will hear that the budget would have been balanced, but for the unfunded pension liability costs associated with the State Employee Retirement Plan and retiree health insurance. 

From the beginning, the State never adequately funded the benefits it promised in 1939, relying on unrealistic investment returns and constantly refinancing the debt when the budget got a little tight. The State never saved a dime to pay for them until the 1970s. By 2014, the State had amassed roughly $100 billion in unfunded retirement liabilities; SERS alone has more than $20 billion (nearly all from Tier I, which has been closed to new employees since 1984).

To pay for all this borrowing, the Comptroller builds it into the current fringe rate as a surcharge.  In FY19, the surcharge for SERS unfunded liability was about 34% of salary, plus another 21% for unfunded liability in the retiree health insurance plan.  By comparison, the so-called normal cost of retirement – what it costs to prefund one’s retirement benefits, including pension and healthcare – was under 10%.  So, of that 96% fringe rate, more than half (55% of salary) has nothing whatsoever to do with the employee’s own benefits.

Thanks to the unfunded liability, UConn’s sponsored project fringe rates run about 25 percentage points higher than at competing institutions.  This leaves our PIs with less money to spend on actual research, which means fewer discoveries, fewer inventions, fewer publications, and fewer grant applications going out the next funding cycle.  And those grant applications that do go out are less competitive, because the granting agencies know that they will get more research for their money if they give it to another institution. That harms our researchers, our university, and ultimately our state as it means the University generates fewer jobs than it otherwise could.

For this reason, UConn-AAUP and our sister union at the Health Center, UCH-AAUP, spent the last year looking for a legislative solution.  We met numerous times with our elected representatives and, along with our CFO Scott Jordan and others, gave countless hours of testimony at legislative hearings.  Thanks especially to Representative Gregg Haddad, we eventually managed to get this problem in front of the Appropriations Committee, which was able to provide an additional $33 million to UConn Health to partially offset their high cost for unfunded liability.  Unfortunately they were unable to provide anything for the rest of the University, but we will be meeting with legislators again in the fall to try again.

What we can’t do is blame our current problems on collective bargaining.  First of all, most of the unfunded liability is associated with Tier I of the pension system, which predates state employee collective bargaining by about 40 years.  By contrast, the later tiers, which were bargained with SEBAC, are actuarially well-funded and also far less generous.

Second, it needs to be said that state employees and their unions have stepped up to the plate, repeatedly, to help solve the state’s budget problems:  in 2009, and 2011, and again in 2017. We have had furlough days, salary freezes, benefit cuts, and increased cost-sharing. The 2017 SEBAC deal alone will save the state an estimated $25 billion over 10 years.  (That’s about $60,000 per employee!) Today’s state employees are not the problem and they certainly cannot be the entire solution.  

Thank you.