Furloughs

 in  a  time  of  surplus  

March  2011  

The  2010  surplus  means  there  is  no  "structural  deficit"  

With  the  release  of  the  Fiscal  Year  2010  Financial  Performance  Report,1  we  learned  that  SIUC  
spent  $15.8  million  less  than  it  took  in  last  year.    That  is,  we  ran  a  surplus  of  $15.8  million,  our  
largest  ever.    This  should  be  excellent  news,  news  that  raises  morale  on  campus,  and  shows  
to  the  outside  world  that  SIUC,  despite  the  challenges  it  faces,  is  in  excellent  financial  
condition.  Rather  than  pushing  negotiations  with  campus  unions  to  the  brink  and  raising  the  
threat  of  layoffs,  the  administration  ought  to  be  considering  how  to  use  this  surplus  to  pay  
back  employees  who  were  unnecessarily  forced  to  take  furlough  days.      

But  at  SIUC  a  budget  surplus  is  something  to  be  explained  away  rather  than  something  to  
build  on.    We  therefore  continue  to  be  told  that  SIUC  faces  a  massive  "structural  deficit"  that  
requires  university  employees  to  take  a  pay  cut.    In  our  earlier  White  Papers,2  even  before  
the  official  announcement  that  SIUC  was  in  excellent  fiscal  shape  at  the  end  of  FY  2010,  we  
disputed  the  Chancellor's  claim  that  furloughs  were  required  to  meet  a  gaping  hole  in  the  
budget.    We  are  pleased  that  the  Chancellor  has  chosen  to  respond  to  our  analysis  in  her  
"Leadership  Remarks"  of  2/22.3    But  we  find  her  response  unconvincing,  and  all  the  more  so  
now  that  we  know  of  the  FY  2010  surplus.    

As  we  stand  by  our  analysis,  we  will  not  test  the  patience  of  readers  by  disputing  her  
response  point  by  point  here.    The  prime  difference  between  her  analysis  and  ours  is  that  
she  cites  long  term  trends  in  order  to  justify  speaking  of  an  acute  crisis  this  year.    Would  it  be  
nice  if  state  funding  over  the  past  decade  had  increased  rather  than  remaining  flat,  and  

                                                                                                               
1
 http://vpfinance.siu.edu/FY10%20Year%20End%20report.pdf  
2
 Available  at  www.siucfa.org.  
3
 http://chancellor.siuc.edu/presentations/Leadershipremarks%2002282011.pdf.  
Furloughs in a time of surplus 2

tuition  revenue  had  increased  even  more  than  it  has?4    Yes.    It  would  also  be  nice  if  we  
hadn't  had  to  make  cuts  to  offset  those  trends.    It  is  profoundly  misleading  to  speak  of  a  
budgetary  shortfall  in  which  one  counts  only  decreases  in  projected  revenue  and  fails  to  
mention  decreased  spending.      

Yet  this  is  precisely  what  we  continue  to  hear  when  the  Chancellor  and  others  speak  of  a  
$15.3  million  "shortfall,"  as  if  it  were  some  fact  about  the  university's  fiscal  situation.  This  
number  is  however  a  fictional  construct  based  on  past  speculation  along  with  partial  and  
out-­‐of-­‐date  information.    With  a  little  creative  license,  it  may  have  been  a  useful  story  for  
conveying  a  truth  about  the  loss  of  potential  revenue  for  SIUC.  But  from  the  beginning,  it  
never  told  the  whole  truth.  Missing  from  the  story  were  the  deep  cuts  made  by  departments  
across  campus,  which  left  many  open  positions  and  slashed  spending  in  other  areas.  Neither  
did  this  story  mention  increases  in  revenue  from  tuition  and  student  fees.  

An  analogy  may  help.    If,  ten  years  ago,  you  estimated  that  your  salary  would  go  up  3%  per  
year,  only  to  find  that  it  went  up  only  2%  a  year,  you  would  now  be  making  far  less  money  
than  you  had  hoped  you  would.    But  if,  over  the  last  ten  years,  you  had  been  careful  not  to  
raise  your  expenses  by  more  than  2%  per  year,  and  in  fact  had  managed  to  save  a  good  
chunk  of  change  last  year  (your  personal  equivalent  to  SIUC's  $15.8  million  surplus),  you  
would  not  be  in  bad  financial  shape  this  year.      

Yet  that  is  precisely  what  the  Chancellor  is  claiming  about  SIUC.    It  is  time  to  scrap  this  
fiction.    Not  only  does  it  present  an  misleading  and  alarming  view  of  our  finances  (one  which  
may  well  scare  away  potential  students),  it  makes  it  all  but  impossible  for  SIUC  to  reach  fair  
agreements  with  campus  unions.      

The  Amazing  Disappearing  Surplus  

The  release  of  the  facts  about  the  2010  surplus  has  not  caused  the  Chancellor  to  change  her  
story  about  the  structural  deficit.    She  has,  however,  introduced  us  to  a  new  story.  We  

                                                                                                               
4
 Despite  enrollment  declines,  tuition  income  went  up  $3.0  million  last  year.    

 
Furloughs in a time of surplus 3

distributed  a  flier5  during  our  Valentine's  Day  Unity  Rally  which  outlined  the  good  news  from  
FY  2010.    The  Chancellor  has  now  characterized  that  flier  as  misleading,  only  to  then  show  in  
some  detail  that  we  accurately  calculated  the  budget  surplus,  based  on  the  official  FY  2010  
year  end  report  distributed  to  the  Board  of  Trustees.      

The  chart  below,  taken  directly  from  that  report  (and  our  flier),  shows  how,  despite  
originally  projecting  a  deficit  of  some  $3.5  million,  the  SIU  system  ended  up  with  a  surplus  of  
$36  million—as  the  (bottom)  blue  line  representing  revenue  ended  up  crossing  and  
surpassing  the  green  line  representing  expenditures.    SIUC's  share  of  this  $36  million  is  $15.8  
million.      

Our  flier,  using  the  administration's  chart  and  the  administration's  figures,  is  misleading,  
according  to  the  Chancellor,  because  the  surplus  we  have  accurately  reported  is  not  
available  to  be  spent.        

About  half  of  the  $15.8  million  surplus  cannot  be  spent,  according  to  the  Chancellor,  because  
it  comes  from  "restricted  funds".    Our  flier  also  made  some  such  distinction,  by  
concentrating  on  the  "Income  Fund"  (funds  received  in  tuition).    Even  considering  this  fund  
alone,  our  flier  noted,  and  the  Chancellor  agreed,  that  SIUC  took  in  $8.4  million  more  than  it  
spent.    We  will  return  below  to  the  meaning  of  this  rather  powerful  term,  "restricted  funds,"  
but  for  now  focus  on  the  income  fund,  as  the  Chancellor  does.      

                                                                                                               
5
 Available  at  www.siucfa.org.  

 
Furloughs in a time of surplus 4

This  $8.4  million  surplus  in  the  income  fund  cannot  be  used  to  avoid  furloughs,  according  to  
the  Chancellor,  because  almost  all  of  it  must  be  retained  in  a  variety  of  reserve  funds.    Some  
$4.4  million  is  required  for  a  "Mandatory  System  Reserve  Fund",  as  is  indeed  reported  in  the  
FY  2010  report.    Other  reserves,  previously  undisclosed  in  public  documents  we  are  aware  of,  
include  a  "Law  School  Reserve"  ($1.0  million)  and  an  "Off  Campus  Degree  Program  Reserve"  
($1.8  million).    In  addition,  some  $1.5  is  needed  to  cover  the  FY11  budget  deficit.6    These  
various  needs  total  $8.7  million,  $0.3  million  more  than  the  income  fund  surplus  of  $8.4  
million.      

Luckily,  the  Chancellor  reports  that  the  income  fund  had  a  beginning  cash  balance  of  $4.0  
million.    This  figure,  also  previously  unreported,  was  apparently  tucked  away  in  the  $108.4  
million  in  "Ending  Cash  Balance"  SIU  held  as  of  June  30,  funds  we  have  normally  been  told  
are  essentially  off-­‐limits.7    But  the  availability  of  these  $4.0  million  would  appear  to  mean  
that  SIUC,  even  after  the  provision  of  considerable  reserve  funds,  retains  $3.7  million  in  
ready  cash.      

No  such  luck.    The  Chancellor  argues  that  this  total  is  "woefully  inadequate  to  respond  to  a  
major  system  failure"  and  cites  $450  million  in  deferred  maintenance  as  reason  to  worry  that  
such  a  major  system  failure  may  be  imminent.    To  meet  such  a  major  system  failure,  
prudence  would  require  a  cash  reserve  of  $19  million  dollars.      

The  university  certainly  needs  reserve  funds.    But  this  new  account  of  our  finances  raises  
more  questions  than  it  answers.      

• Why  must  we  have,  in  addition  to  millions  in  "Ending  Cash  Balance,"  two  layers  of  
reserves,  including  not  only  the  "mandatory  system  reserves"  and  reserves  for  
separate  units  like  the  law  school  and  off-­‐campus  programs,  but  a  $19  million  dollar  
reserve  for  "major  system  failure"?      

                                                                                                               
6
 The  Chancellor  characterizes  this  as  "$1.5  million  of  'hiring  freeze  savings'  accumulated  in  
FY10  to  help  fund  FY11  budget  surplus".    This  is  somewhat  opaque.      
7
 In  the  FY  2010  year  end  report  (see  note  1  for  online  reference).      

 
Furloughs in a time of surplus 5

• What  is  the  purpose  of  "mandatory  system  reserves",  and  reserves  for  the  law  school  
and  off-­‐campus  programs,  if  they  cannot  be  used  either  for  a  "major  system  failure"  
or  to  meet  the  (purported)  shortfall  that  has  led  to  the  call  for  furloughs?    

• If,  despite  the  largest  surplus  ever  last  year,  SIUC's  cash  reserves  are  "woefully  
inadequate",  were  past  budgets  woefully  irresponsible?  

• If  we  really  are  some  $15.3  million  short  of  the  $19  million  in  reserves  we  need,  how  
will  a  mere  $2.6  million  in  furloughs  suffice?    Will  we  need  six  years  of  furloughs  to  
raise  enough  cash  to  avoid  "woefully  inadequate"  reserves?  

• Just  what  sort  of  "major  system  failure"  predicated  by  deferred  maintenance  ought  
we  to  be  worried  about?    Did  the  derecho  storm  of  May  9,  2009,  for  example,  not  
count?    

• Why  are  we  told  of  this  woefully  inadequate  situation  only  now,  as  negotiations  with  
campus  unions  are  entering  a  critical  phase?    

In  the  absence  of  compelling  answers  to  such  questions,  it  is  difficult  to  reach  any  conclusion  
than  this:  furloughs  are  not  a  fiscal  necessity  but  an  administrative  priority.    No  change  in  the  
fiscal  situation,  not  even  the  announcement  of  a  large  budget  surplus  last  year,  was  going  to  
deter  the  administration  from  insisting  that  employees  give  back  $2.6  million.      

Looking  to  FY  2011  

SIUC's  track  record  of  conservative  budgeting  gives  us  excellent  reason  to  believe  that  our  
budgetary  situation  will  be  better  at  year's  end  than  initial  estimates  would  have  indicated.    
That  is,  the  chart  pictured  at  the  outset  of  this  report,  while  showing  a  larger  than  average  
upward  slope  toward  a  surplus,  isn't  usual  in  showing  happy  news  in  the  fourth  quarter.    In  
every  year  for  which  we  have  information,  SIUC  has  underestimated  its  budgetary  
performance:  

 
Furloughs in a time of surplus 6

SIUC  Budgeted  Result  vs.  Actual  Result8  

Fiscal  Year   Budgeted  result  (millions)   Actual  result   Difference  

2007   -­‐0.62   +  7.82   +8.44  

2008   +2.52   +  18.05   +15.53  

2009   -­‐1.94   +  5.21   +7.15  

2010   -­‐3.54   +  15.8   +19.3  

2011   -­‐6.03   ?   ?  

SIUC's  budget  estimates  have  been  consistently  conservative.    There  is  no  reason  to  suspect  
that  this  year  will  be  any  different.    And  thanks  to  last  year's  surplus,  we  have  a  healthy  
cushion  in  place.    

What  we  know  about  FY  2011  confirms  that  the  pictures  is  hardly  as  dire  as  the  
administration  has  portrayed  it.    The  federal  stimulus  money  is  indeed  gone,  but  
expenditures  were  cut  so  much  during  the  last  fiscal  year  that  we  would  have  run  a  surplus  
last  year  even  had  we  received  zero  dollars  in  federal  stimulus  (our  surplus  was  $8.4  million  
in  the  income  fund  alone;  federal  stimulus  dollars  accounted  for  about  $7.1  million  of  our  
state  appropriations).9    Thus  even  without  the  federal  stimulus,  we  started  this  year  with  a  
surplus,  not  a  deficit.  

Labor  costs  this  year  for  the  FA  bargaining  unit  alone  will  be  $1.9  million  less  than  last  year,  
due  to  the  hiring  freeze.    The  ACsE  reports  that  their  cost  to  the  university  will  be  some  $1.4  

                                                                                                               
8
 Figures  taken  from  the  annual  "budget  books";  those  from  recent  years  are  available  at  
http://vpfinance.siu.edu/FY%202010%20Budget%20Book.pdf  (2010)  and  
http://vpfinance.siu.edu/FY%202011%20Budget%20Book.pdf  (2011).      
9
 For  the  sum  of  the  federal  stimulus,  we  subtract  this  year's  state  appropriations  from  last  
years,  via  the  2011  budget  book  (referenced  in  the  note  above).  

 
Furloughs in a time of surplus 7

million  less  this  year  than  last,  due  to  cuts  in  civil  service  positions.    And  tuition  revenues  this  
year,  according  to  the  Chancellor,  should  be  roughly  $3.0  million  higher  than  last  year.    It  is  
hard  to  see  these  figures  adding  up  to  anything  other  than  a  surplus.      

Moving  forward  with  transparency  

The  administration's  insistence  that  furloughs  are  still  required,  despite  a  record  surplus  last  
year,  raises  the  question  of  whether  any  financial  good  news  would  be  enough  to  lead  them  
to  retreat  from  their  position.      

But  those  skeptical  about  the  Faculty  Association  may  well  raise  the  opposite  question.    
What,  if  anything,  would  ever  lead  the  association  to  admit  that  SIUC's  finances  were  in  bad  
shape?    We  have  a  simple  answer:  an  actual  budget  deficit  at  the  end  of  a  fiscal  year.    Had  
SIUC  lost  money  last  year,  and  needed  to  dip  substantially  into  its  cash  reserves  in  order  to  
fund  expenditures,  this  would  be  a  very  different  conversation.    We  would  be  perfectly  
willing  to  do  our  share  to  help  SIUC  resolve  a  true  fiscal  crisis.    The  FA  bargaining  team  has  in  
fact  made  suggestions  over  the  bargaining  table  for  setting  up  contractual  mechanisms  to  
deal  with  both  short  term  and  long  term  fiscal  problems.      

Actual  deficits  or  surpluses—as  opposed  the  "projected  shortfalls"  the  Chancellor  has  been  
talking  about—come  into  existence  only  at  the  end  of  a  fiscal  year,  when  final  income  and  
expenditures  can  be  counted.    Yet  the  university  must  obviously  budget  for  future  years.    
And  the  faculty,  both  via  the  faculty  association's  responsibility  to  bargain  contracts  and  the  
faculty's  more  general  shared  governance  responsibilities,  should  play  a  active  role  in  setting  
those  budgetary  priorities.      

Doing  so  would  require  rather  more  transparency  than  is  currently  available.    The  
chancellor's  decision  to  share  with  us  a  brand  new  story  about  the  fiscal  situation,  the  tale  of  
the  two  reserve  funds,  ought  to  make  it  patently  clear  that  faculty  did  not  have  adequate  
information  prior  to  the  release  of  this  new  information,  two  thirds  through  the  current  
fiscal  year.      

 
Furloughs in a time of surplus 8

An  additional  problem  lies  in  decidedly  ambiguous  terminology.    Those  who  scrutinize  the  
budget  have  learned  to  be  suspicious  of  terms  like  "structural  deficit"  and  "restricted  
funds".    Some  deficits  are  structural,  and  some  funds  are  restricted,  but  unless  these  terms  
are  carefully  defined  they  obfuscate  rather  than  clarify.    We  find  it  difficult  to  see,  for  
example,  how  a  university  that  ran  a  $15.8  surplus  last  year  can  face  a  massive  structural  
deficit  this  year.      

And  the  term  "restricted  funds"  ought  to  refer  solely  to  those  funds  which  are  provided  
from  external  sources  (as  a  donor  or  the  state),  and  the  external  source  restricts  the  items  
on  which  these  funds  can  be  spent.    Most  university  funds  are  in  fact  "designated  funds",  
funds  the  university  designates  for  a  specific  purpose.    Once  so  designated,  once  earmarked  
for  a  particularly  purpose,  they  can  not  routinely  be  redirected.    But  there  is  a  crucial  
distinction  between  funds  the  administration  has  decided  to  spend  on  one  priority  
("designated  funds")  and  funds  that  could  only  ever  be  spent  on  one  priority  ("restricted  
funds").      

Too  often  administrative  decisions  about  campus  priorities  are  characterized  as  eternal  
necessities  simply  because  they  were  made  in  the  past.    And  too  often  budgets,  which  are  
planning  documents  for  the  future,  are  presented  as  if  most  figures  on  them  were  carved  in  
stone  upon  Mt.  Sinai.    Decisions  once  made  sometimes  cannot  be  taken  back.    But  faculty  
should  have  a  role  in  making  those  decisions,  rather  than  being  presented  with  them  as  faits  
accomplis.  Some  of  these  decisions  will  be  difficult.    But  they  do  not  become  easier  when  
they  are  made  without  the  participation  of  the  faculty.    They  become  harder.  

We  were  told  that  furloughs  were  necessary.    They  were  not  and  are  not.    We  therefore  call  
upon  the  administration  to  drop  its  demand  for  furloughs  and  make  plans  to  reimburse  
those  employees  forced  to  take  furloughs  already.    And  we  call  upon  the  administration  to  
return  to  the  bargaining  table  with  the  ACsE  and  to  commit  itself  to  genuine  good-­‐faith  
bargaining  with  all  campus  unions.