Bloomberg, January 4, 2011, Tuesday

Bloomberg

January 4, 2011, Tuesday

Bloomberg

States Luring Veteran Professors to Retire as Budget Cuts Loom

Darrell Fasching planned to keep teaching religious studies at the University of South Florida until he was offered a year’s salary of about $90,000 to retire and give up tenure rights earned over almost three decades at the school.

Fasching, 66, took the cash and left the Tampa campus Dec. 21, joining hundreds of professors at flagship universities from Illinois to Nebraska and Texas who have been coaxed into retirement with offers of as much as two years of pay to reduce operating costs.

Tenured teacher pay averages $117,000 a year at the top 200 U.S. public universities, according to figures from the Washington-based American Association of University Professors. Annual contracts for replacement instructors cost an average of $52,500, the group said an April report.

With the Center for Budget & Policy Priorities in Washington forecasting U.S. states will face fiscal 2012 deficits totaling $140 billion, “these buyouts will become more common,” said Roger Meiners, who teaches economics at the University of Texas at Arlington.

“Most states have horrific budget problems and they haven’t dealt with the kinds of cuts in higher education that are going to be necessary,” he said in a telephone interview.

State support for colleges and universities fell 3.5 percent to $75.2 billion in fiscal 2010, following a similar drop in 2009, according to figures from the Center for the Study of Education Policy at Illinois State University in Normal.

Growing Demand

“Enrollment meanwhile continued to grow even faster, in some states by more than 10 percent,” said Paul Lingenfelter, president of Boulder, Colorado-based State Higher Education Executive Officers, in an analysis posted on the association’s website. “Severe budget shortfalls and unmet educational needs are reaching crisis proportions, and budget reductions are continuing” in some states, Lingenfelter said.

Florida, which may face a deficit of more than $3 billion in the next fiscal year, cut funding for its 11 public universities by 22 percent from 2008 to 2010, University of Florida President Bernie Machen said in March. Tuition was permitted to rise as much as 15 percent this year at the Gainesville school, the budget and policy center in Washington said on its website in November.

“The budget picture in Florida is very bleak and things aren’t looking any better for next year,” said Fasching, the retiring professor in the fourth most-populous state. He said Florida’s economic outlook prompted him to take the buyout.

Missouri State Offer

Missouri State University in Springfield is offering up to $25,000 in bonuses to the first 50 qualified professors who agree to retire, according to information posted on its website. The school offered buyouts to faculty members last year as well.

“We anticipate having a significant reduction in our state appropriations for fiscal year 2012,” President James E. Cofer Sr. said in a Dec. 17 statement on the website. With 70 percent of Missouri State’s budget paying salaries and benefits, Cofer said, “there is little doubt that personnel will be affected by the reduction.”

Nationwide, state spending for each full-time student fell 5 percent in the past academic year and 9 percent the year before, the College Board said in an Oct. 28 report. Tuition and fees for in-state students at four-year public schools rose an average of 7.9 percent this academic year to about $7,600, it said. Costs have risen 5.6 percent annually through the past decade, after inflation, the New York-based nonprofit said.

Texas A&M University in College Station persuaded 104 professors to retire, said Karan Watson, the interim provost. At the University of Texas in Austin, 27 of 88 eligible professors in the College of Liberal Arts accepted buyouts totaling two years of salary, said Gary Susswein, a spokesman.

Richer Bids

Buyouts like those offered in Texas are expensive, and schools must have the resources to provide them, said Ronald Ehrenberg, an economist who teaches labor relations at Cornell University in Ithaca, New York. Moody’s Investors Service rates the University of Texas System’s debt Aaa, its highest grade. The University of Texas Investment Fund managed $25.1 billion in assets as of Nov. 30, according to a statement on its website.

The Texas system’s endowment, which includes Texas A&M and other schools, is the fifth-largest among U.S. colleges, behind Harvard University in Cambridge, Massachusetts, Yale University in New Haven, Connecticut, Princeton University in New Jersey and Stanford University, adjacent to Palo Alto, California. Just 23 four-year schools have Moody’s highest debt rating, including Harvard, Princeton and Yale.

State appropriations cover 14 percent of the University of Texas’s budget, down from almost 60 percent in 1976, Susswein said.

Anticipated Savings

The buyouts may save the two schools more than $15 million a year, based on average salaries for the departing educators of about $89,000 at Texas and $120,000 at Texas A&M, said Watson and Susswein. Texas cut spending at its public universities and other state agencies by 7.5 percent over the past two years and is seeking 10 percent more over the next two years to cope with a projected deficit of more than $15 billion, Susswein said.

“It’s short-run budget pressures that are driving this,” Ehrenberg said in a telephone interview. “The danger is you may lose your most talented faculty.”

To avoid losing academic stars, Chancellor Harvey Perlman at the University of Nebraska at Lincoln reserved the right to approve individual buyouts that were accepted. The incentives included a year’s pay for professors who were at least 62 years old and taught at the school for 10 years or more, said David Lechner, vice president for business and finance. Perlman hasn’t disclosed how many professors will participate, Lechner said.

Tenure Protection

Tenure rules and laws prohibiting mandatory retirement can make removing senior instructors difficult, said Meiners, the University of Texas economist who co-authored “Faulty Towers.” The 2004 book examines the effects of the job-protection system.

Educators typically earn tenure over five or six years based on teaching performance, research and professional service, said John Curtis, research director at the American Association of University Professors, in a telephone interview. The system is supposed to protect academic freedom and promote innovation rather than promise a lifetime job, he said.

Private colleges and universities have cut budgets because of falling endowment returns and rising competition for tuition dollars, Curtis said. Mostly, they’ve resorted to freezing wages and hiring and curbing benefits, he said.

At Harvard, retirement incentives were offered to 176 professors 65 or older with at least 10 years on the job, according to last year’s annual faculty report. It said 46, with a median age of 70, accepted.

Lasting Effect

The effects of departures by the most-seasoned professors may not show up immediately in schools they leave, Curtis said.

“Experienced and active faculty members who will be leaving and replaced in the short-term are going to be followed by people who are much more transient,” Curtis said. Instructors lacking tenure don’t have as much support to develop new courses or work with students outside of class, he said.

At Texas A&M, senior faculty turnover had slowed since 2008 because diminished retirement savings made it harder to quit, said Watson, the interim provost. The collapse in assets from the start of the financial crisis to March 2009 erased $11 trillion from the value of U.S. equities, according to data compiled by Bloomberg.

South Florida’s Fasching had postponed his retirement after U.S. equities fell to a 12-year low in March 2009, cutting his retirement savings by a third. “The one-year salary they offered me was enough to put me over the top,” Fasching said.

Costs May Rise

In California, which is facing a $22 billion budget gap for the year that begins July 1, faculty buyouts aren’t being contemplated, according to Dan Simmons, a law professor in Davis and chairman of the system’s academic senate. Even so, retirement costs may rise faster than projected.

One group of administrators including academic deans is pressing state university regents to increase retirement benefits for those who are the best paid, earning more than $245,000 a year, Simmons said. The group wants the increases to be retroactive to 2007, adding $51 million in costs to the system’s pension, which already confronts a $21.6 billion funding gap, according to Peter King, a system spokesman.

Buyouts may have an unintended consequence, by prompting senior faculty members to postpone retirement because they anticipate another incentive plan, Cornell’s Ehrenberg said. “Once you do it, people will hang around, hoping you’ll do it again,” he said.

Illinois Buyouts

About 133 professors age 55 and older at the University of Illinois in Urbana-Champaign took buyouts offered last year which included a half a year’s salary, said Michael Andrechak, associate provost for budgets and resource planning. The state, which faces a deficit equivalent to more than half its $26 billion general-fund budget, owes its university system $400 million, he said.

Removing senior professors will provide little benefit for the Illinois employee retirement fund because the money has already been pledged to the educators, Andrechak said. About $1.7 billion of the state’s $5.3 billion backlog of bills for fiscal 2011 was owed to its pension plans, Moody’s said in a Dec. 6 report.

About 59 percent of employees of U.S. universities participate in defined-benefit plans, mostly sponsored by state governments, according to TIAA-CREF, the New York-based nonprofit that specializes in retirement plans for educators.

Tenure and union contracts hinder administrators as they try to cut personnel costs quickly and cheaply, said George Leef, research director at the John William Pope Center for Higher Education Policy in Raleigh, North Carolina.

“You’ve hardly seen any hardball tactics except at institutions that are on the verge of collapse and only then do they get serious about reducing costs,” Leef said.

To contact the reporters on this story: David Mildenberg in Charlotte, North Carolina, at 6587 or dmildenberg@bloomberg.net; Janet Lorin in New York jlorin@bloomberg.net.

To contact the editors responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net; Jonathan Kaufman at jkaufman17@bloomberg.net.