Item 9

							                                                                                        Item #9
                                                                                  April 2, 2002


                            SETTING A CONTEXT
                 FOR FISCAL YEAR 2004 BUDGET DEVELOPMENT


Submitted for:       Action.


Summary:             Setting a Context for Fiscal Year 2004 Budget Development sets forth
                     broad parameters for the development of the budget for the next fiscal
                     year and communicates state priorities to institutions and agencies prior
                     to the submission of their budget requests to the Board of Higher
                     Education. The budget priorities outlined in this report are centered on
                     the six goals of The Illinois Commitment, respond to the statewide needs
                     and priorities identified in the Statewide Results Report, and build on the
                     previous year’s budget recommendations.

                     At the time this report was prepared, the General Assembly was
                     considering appropriations for fiscal year 2003.               After final
                     appropriations are enacted, the Board and the higher education
                     community may need to reassess fiscal year 2004 goals and budget
                     priorities based on the resources available in fiscal year 2003.


Action Requested:    That the Board of Higher Education approve the fiscal year 2004
                     priorities set forth in this item.




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                                                                                           Item #9
                                                                                      April 2, 2002

                                  STATE OF ILLINOIS
                              BOARD OF HIGHER EDUCATION


                            SETTING A CONTEXT
                 FOR FISCAL YEAR 2004 BUDGET DEVELOPMENT

         This item marks the beginning of the fiscal year 2004 statewide budget development
process. The report sets forth broad parameters for the development of the operating and capital
budget recommendations for the next fiscal year, and communicates specific state level budget
priorities to institutions and agencies prior to their submission of budget requests to the Board of
Higher Education. The budget priorities outlined in this report center on the six goals of The
Illinois Commitment, respond to the statewide needs and priorities identified in the Statewide
Results Report (December 2001), and build on the fiscal year 2003 budget priorities supported in
the Board’s budget recommendations and allocation of Governor Ryan’s budget.

         At its February 2002 meeting, the Board received a report outlining the fiscal year 2004
budget development schedule and inviting all institutional governing boards, administrations,
students, faculty and staff, agencies, advisory committees and other interested parties to submit to
the Board by March 1, 2002, any comments or suggestions for consideration in the budget
context report. The continued input from these groups is important to assure that the budget
recommendations receive not only broad-based support but also represent the consensus of the
higher education community. The Board of Higher Education’s Student Advisory Committee
was the only organization to respond to this invitation, and their suggestions are incorporated into
this report.

                             Supporting Statewide Strategic Goals

        A key component of the budget development process is the use of performance measures
to determine progress made individually by campuses, and collectively as a state in achieving the
statewide strategic goals of The Illinois Commitment. Each year, all higher education institutions
and agencies are asked to submit a Results Report to the Board of Higher Education that
summarizes key campus or agency accomplishments and contributions to the goals outlined in
The Illinois Commitment. Collectively, the Results Reports provide an assessment of statewide
progress made by higher education in addressing the state’s highest priorities.

         Development of a system of performance indicators is an important next step in further
implementing The Illinois Commitment. A recommendation on indicators and related issues will
be considered by the Board of Higher Education in summer 2002, and performance indicators
will be included as part of the statewide results report in December 2002. The indicators are key
to determining the progress being made, and will further inform the budget development process.

        Along with statewide results reports, Illinois’ rankings according to the national report
card issued by the National Center for Public Policy and Higher Education will be considered
during the fiscal year 2004 budget development process. Since the goals of The Illinois
Commitment are linked closely to the performance standards in Measuring Up 2000, the report
card rankings are important to the assessment of Illinois’ strengths and weaknesses and



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determination of future budget priorities. An update of Measuring Up 2000 is expected in fall
2002.

        The following sections of this report summarize each goal of The Illinois Commitment,
review progress or lack of progress outlined in the Statewide Results Report and in Measuring Up
2000, review analytical studies and the work of committees and work groups, and discuss how
each of the goals will be addressed through fiscal year 2004 budget initiatives. Institutions are
asked to review the statewide priorities and determine how consistent those activities are with
campus priorities, goals, and abilities, and how best the campus can contribute to each of the
statewide goals. The Board of Higher Education will target resources in its fiscal year 2004
budget recommendations toward programs and activities that will contribute directly to the
achievement of the goals included in The Illinois Commitment.

        The timing of the higher education budget development process calls for setting the
context for fiscal year 2004 budget development before the Governor and General Assembly act
on fiscal year 2003 appropriations. For purposes of this discussion, fiscal year 2003 resources are
discussed in terms of Governor Ryan’s budget for higher education. Final appropriations may
vary from this level. Later sections of this report include a general discussion of anticipated fiscal
year 2004 resources, tuition and fee revenues, and local property tax revenues.

         New state resources likely will not be sufficient to support all requests for state funds in
fiscal year 2004. Therefore, institutions must assess each proposed program’s contributions to the
achievement of statewide goals and the way in which it will improve the special strengths of the
campus. Institutions will be expected to reallocate funds to supplement new state resources and
support the highest priority programs. It also is likely that campuses will request funds for
programs and activities that are not described in this report, which nevertheless will contribute to
the advancement of statewide goals. Institutions are encouraged to submit requests for these
programs, along with justification in terms of their contributions to The Illinois Commitment.

        Sustain Strong Economic Growth. Higher education plays a critical role in business,
industry, and the statewide economy. Of the many contributions Illinois colleges and universities
make to sustain or promote economic growth, one of the most important is to supply business and
industry with a skilled workforce. Colleges and universities must equip graduates with the skills,
knowledge, and learning traits to succeed in a workplace that changes quickly, provide training to
help business adapt to changing market forces, and ensure that academic programs, research and
public service are relevant to the needs of students and the requirements of business and industry.

         Colleges and universities play a significant role in supporting business and industry
through partnerships, research, and public service. The Statewide Results Report noted that the
National Science Foundation currently is funding over 1,350 research efforts at Illinois colleges
and universities -- well in excess of the number supported in neighboring states of Michigan,
Ohio, Wisconsin, and Minnesota. Community colleges provide a comprehensive range of
services based on local districts’ needs, including customized job training and testing,
entrepreneurship seminars and workshops, etc. Community colleges provided 9,655 customized
training courses for nearly 3,500 companies in fiscal year 2000.

         For fiscal year 2004, the Board will continue to support efforts to increase enrollments
and graduates in high demand fields such as nursing and teacher education, encourage university-
business partnerships, and address workforce training issues including increased worker mobility.
Priority will be placed on programs designed to address teacher shortages in various geographic
areas (including high poverty areas with hard-to-staff schools) and disciplines; improve relations


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with business and industry; respond to business assistance and workforce training needs; and
encourage research activities that support new ventures and promote economic development.
Priority also will be placed on proposals that help working adults access higher education
conveniently, and broaden access to baccalaureate completion programs for community college
graduates who cannot relocate to a residential campus to complete their studies, particularly in
high demand disciplines.

        Improve Teaching and Learning at All Levels. Statewide Results Report noted the
importance of a postsecondary education to succeed in the workforce of the future. The report
acknowledged that many students leaving high school are inadequately prepared for college or
the workplace, and that highly skilled, knowledgeable classroom teachers are necessary to better
prepare students. The report also highlighted the need to prepare more and higher quality
teachers to meet the needs of rising student enrollments, to replace the increasing number of
retirements, and to address retention. The number of unfilled teaching positions could exceed
5,000 by the year 2003. It is imperative that Illinois improve the recruitment and retention of
qualified teachers.

        To improve the preparation of its students, Illinois must recruit, prepare, and retain
qualified and effective teachers. While the state has thousands of highly qualified, dedicated
teachers, evidence shows that some teaching positions go unfilled or are staffed with under
qualified teachers possessing emergency, provisional, or substitute certificates. The result is that
some teachers are under-prepared to teach the content of their subject area, which negatively
impacts the learning experience for their students.

         The allocation of the Governor’s fiscal year 2003 budget for higher education includes
$3 million for a new teacher loan repayment program, and places priority on maintaining funding
for the DeBolt Teacher Scholarship Program (to be renamed ITEACH) and the Minority Teachers
of Illinois Program. These initiatives were among the recommendations made by those attending
Governor Ryan’s Education Summit, and incorporated in Executive Order #1 that outlines the
Illinois Agenda for Excellence in Education

         For fiscal year 2004, the Board will place priority on programs and activities that
promote partnerships that enhance curricular content in teacher preparation programs to include
the Illinois Learning Standards, National Council for Accreditation of Teacher Education
(NCATE) standards, and the National Board for Professional Teaching Standards. Priority also
will be placed on proposals and activities designed to improve the induction and retention of new
K-12 teachers; improve the quality of content and delivery of professional development for in-
service teachers; support elementary and secondary students and, in particular, students from
groups with lower college-going rates, to take and successfully complete a college-prep
curriculum and therefore, improve their preparation for college; and promote baccalaureate
completion programs in middle grade and secondary education.

         Affordability.    The Board of Higher Education is committed to keeping higher
education affordable and accessible to the citizens of Illinois. This commitment is evidenced by
the Board’s strong support for need-based financial aid programs, including the Monetary Award
Program (MAP) and the Illinois Incentive for Access (IIA) program. The sheer size of the MAP
program was the major factor that earned Illinois an “A” grade for affordability in Measuring Up
2000. While Illinois has done an outstanding job in providing need-based student financial aid
through MAP, the Statewide Results Report notes that college is becoming less affordable for
students from low-income families, especially at four-year public universities and private
institutions, and student loan debt in Illinois is among the nation’s highest. If college costs


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continue to increase faster than students’ ability to pay, more Illinois citizens could be denied the
opportunity to attend college.

         The allocation of Governor Ryan’s fiscal year 2003 budget includes new state resources
to support the Monetary Award Program to improve access and affordability for students with
financial need. Funding is provided to cover tuition and fee increases, increase the maximum
award, and increase the number of awards. Support for less-than-half-time students is provided in
the fiscal year 2003 budget, and is an important component of MAP. The allocation also protects
funding for other student assistance programs.

         For fiscal year 2004, the Board will continue to implement policies that place priority on
need-based aid. As in past years, the Board will review Monetary Award Program requirements
to assure that the availability of student financial aid is responding to changes in student
enrollment patterns, costs, and financial need. Priority will be given to reducing the share of
family income needed to pay college expenses, ensuring that access to a college education is not
denied due to the cost of attendance, and improving college preparation through incentives.
Priority also will be given to providing additional resources for the Monetary Award Program for
less-than-half-time students and summer school students. Priority also will be placed on activities
designed to improve college readiness and time to degree, and transitions between high school
and college and between two- and four-year institutions. The Student Advisory Committee
would like to see increases in financial aid funding to assist a greater number of students, rather
than increasing the award amounts for the same number of students.

         Access and Diversity. The Board remains committed to increasing access to, and
diversity within, the state’s institutions of higher education. As more individuals seek higher
education in response to the demands of a knowledge-based economy, the student population
becomes increasingly diverse – more adults, more part-timers, more ethnically diverse, more
seeking a course or module or certificate, and more needing skills upgraded or credentials
updated. A major challenge ahead is providing access to college where new types of college
students live and work, and helping those students succeed.

        Illinois citizens must have access to affordable, high quality education and training,
available in a variety of instructional formats to meet diverse student needs. The Statewide
Results Report notes that several Illinois institutions have received national recognition for their
campuses’ student diversity. Overall, however, the educational participation and attainment of
minorities in Illinois continue to trail the majority population.

         The fiscal year 2004 budget recommendations will provide follow-up support to the
programs initiated in fiscal year 2002 and support specific recommendations emanating from the
report of the Committee on Access and Diversity and the report from the Presidential
Commission on Persistence and Degree Completion. The Board will also support new and
innovative ways to serve students traditionally less able to access higher education due to
constraints of time, place, or financial need. Priority also will be placed on programs and
activities that create opportunities to improve the diversity of faculty at Illinois higher education
institutions, support diversity in admissions decisions, enhance the transition from community
colleges to baccalaureate institutions for students from underrepresented groups, and seek to
reduce first-year college attrition among students from groups who have had historically lower
rates of degree completion and improve their rates of persistence and degree completion.

       Higher Expectations and Quality. Maintaining and assessing quality are central issues
for higher education, which has traditionally used a variety of means of quality control.


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Campuses, for example, assess faculty for promotion and tenure and, more recently, post-tenure
review and ongoing program review. Other external techniques also are regularly employed,
including review and accreditation by professional associations; regional accreditation’ and
oversight through state certification, coordinating, regulating, and governing boards. In addition
to course-by-course assessment of student learning, public demand for testing what students have
learned at the completion of their academic programs is growing. The combination of a growing
public concern for quality and accountability and competition from the private sector has fueled
the impetus for colleges and universities to improve quality processes for curriculum, instruction,
and student learning and to implement trustworthy tests of student performance to assure the
general public and employers that a college degree is a meaningful credential of quality.

         In fiscal years 2000, 2001, and 2002, based on budget recommendations of the Board of
Higher Education, Governor Ryan and the General Assembly provided funds for the Recruiting
and Retaining Critical Faculty and Staff initiative. This initiative was designed to enhance efforts
to recruit and retain critical faculty and staff at Illinois public institutions by bringing faculty
salaries up to the median of their national peers. This plan provided state funds for an average
three percent salary increase and additional state funds (equal to one percent of the personal
services base in fiscal years 2000 and 2001, and two percent in fiscal year 2002) for campus
initiatives to recruit and retain critical faculty and staff. Each campus was expected to match the
one percent in state support with an additional one percent in institutional funds. As reported in
Full-Time Faculty and Civil Service Salaries at Illinois Colleges and Universities (August 2001),
the Retaining Critical Faculty and Staff initiative has been instrumental in improving faculty
salaries in comparison to faculty salaries at peer institutions. Yet, Illinois’ faculty salaries
continue to lag behind peer institutions by four percent.

         To continue efforts to improve the recruitment and retention of critical faculty and staff,
the Board of Higher Education’s recommendations for fiscal year 2003 included funds for the
fourth year of this initiative. The budget recommendations included funds to provide, on average,
a three percent salary increase to faculty and staff and state funds, equal to one-half percent of the
personal services base, to enhance academic programs and to recruit and retain critical faculty
and staff. No funds are included for this purpose in the allocation of the Governor’s fiscal
year 2003 budget.

         The fiscal year 2004 Board of Higher Education recommendations will continue to
support programs that strengthen the quality of Illinois higher education, including the ongoing
effort to recruit and retain critical faculty and staff, campus efforts to review programs and seek
program accreditation, and a variety of other initiatives aimed at assessing end-of-program
learning in all academic programs and improving the quality of curriculum, instruction, and
student learning. The Student Advisory Committee notes that quality faculty members are a key
component in ensuring a quality education for the students of Illinois, and to retain those faculty
members, salaries must remain competitive with peers and other states.

         Productivity and Accountability. The Illinois Commitment calls for Illinois higher
education to use resources wisely. It also calls on institutions to improve accountability by better
communicating their efforts and results to those interested in their performance. The continuing
responsibility of institutions and agencies is to prioritize programs and services within these
public purposes and to demonstrate productivity and accountability to those providing resources
to those activities. In addition, it is incumbent on higher education to increase efforts to become
more efficient and cost-effective to assure that all available resources are spent on the highest
priorities. Even before the current economic downturn, research into the perceptions and



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priorities of Illinois citizens found they expected higher education to operate in a more cost-
effective manner.

         The Statewide Results Report notes that colleges and universities are targeting resources
more precisely toward goals of The Illinois Commitment, and are reallocating resources from low
priority activities to high priority activities. The institutions have reallocated even as state
support has increased. They have reallocated to meet their commitments to the Retaining Critical
Faculty and Staff initiative and their matching requirements for the statewide plan to reduce the
backlog of accumulated deferred maintenance, worked on cooperative ventures to share ideas and
conserve resources, and utilized technology to improve programs and services.

         Protecting and preserving Illinois’ major investment in its higher education physical plant
is both a statewide and an institutional priority. These capital assets are diverse, ranging from
general classrooms and offices to highly sophisticated research laboratories. They are a critical
element of the support structure necessary to conduct quality instruction, research and public
service activities. If these assets are maintained properly and regularly renovated, the state’s
investment is protected and the facilities will last many decades. The fiscal year 2002 budget
included funding for the second year of a ten-year initiative to eliminate the current backlog of
deferred maintenance and establish a funding base that would support campus initiatives to
address maintenance needs on a current basis. No new funding was allocated for this purpose in
fiscal year 2003.

        State statutes also require a minimum contribution that must be made on an annual basis
for the State Universities Retirement System. Annual certifications of the required contribution
are made by the State Universities Retirement System, and are based upon the system’s funding
ratio on June 30 of each year. For fiscal year 2003, an increase of $24.2 million in state general
funds is allocated to meet this statutory requirement. The impact of recent economic and market
trends on this funding ratio may require a greater investment of state resources in fiscal
year 2004.

         In August 2001, institutions submitted their third annual Results Reports identifying the
performance measures for which the institution will be assessed during the next year and for
which it wishes to be held accountable. Statewide Results Report (December 2001) identified the
major challenges facing Illinois higher education, both those which higher education is
addressing and those which require additional state and campus level attention. Productivity, cost
effectiveness, and accountability will be demonstrated as higher education continues to address
the highest priorities identified by the citizens of Illinois, by institutions in their results reports,
and in the Statewide Results Report. The fiscal year 2004 budget recommendations will continue
to promote the allocation of limited resources to the highest priorities of the institutions and the
citizens of the state.

        During the past several years, Illinois higher education has enjoyed strong budgetary
support from the state, which has allowed institutions and agencies to offer new and expanded
programs and services, improve faculty and staff salaries, and enhance facilities even as they
reallocated and made better use of their base funds. During the current fiscal year, however,
higher education has been asked to reserve $25 million of its fiscal year 2002 appropriation, and
public universities have been asked to allocate $45 million for the state’s group health insurance
program. After fulfilling the State Universities Retirement System requirement, the Governor’s
fiscal year 2003 budget for higher education operations and grants provides $50.5 million, or
2.1 percent, less than fiscal year 2002 appropriations. The Governor’s budget for fiscal year 2003
will require higher education institutions and agencies to make careful, and sometimes difficult


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decisions in their internal budget allocations. These decisions likely will involve layoffs, deferral
of equipment and other purchases, postponement of deferred maintenance projects, and leaving
positions vacant.

                                   Analyses of Funding Sources

         Illinois higher education is funded through a multitude of funding sources: state general
funds, student tuition and fees, local property taxes, state and federal grants and contracts, and
other miscellaneous revenues. Some of these revenues (e.g., state appropriated general funds,
tuition revenue, and local property tax revenue) fall under the Board’s responsibility to consider
in developing budget recommendations for Illinois higher education to the Governor and General
Assembly. Other funding sources (e.g., federal grants and contracts) are reported to the Board
but are not included in the Board’s budget recommendations due to the restricted nature of these
locally held funds. Therefore, in terms of setting the fiscal year 2004 budget context, state
general funds, tuition revenue, local property tax revenue, and reallocated resources are the most
relevant.

        State General Funds. One of the largest revenue sources for public higher education
operations and grants is State of Illinois general funds, including the General Revenue Fund and
the Education Assistance Fund. The General Revenue Fund is the largest state fund established
to account for the daily operations of state government. The Education Assistance Fund was
established in 1989 to account for the proceeds of the income tax surcharge that are dedicated to
education. In fiscal year 2002, general funds appropriations for higher education operations and
grants totaled $2.7 billion, including $2.2 billion from the General Revenue Fund and
$460.0 million from the Education Assistance Fund.

         The General Fund allocation to higher education depends not only on available general
funds but also on the allocation of general funds among other state programs and services. In
fiscal year 1970, at a time when higher education enrollments and programs were expanding
rapidly, the state allocated 17.6 percent of its general funds budget to higher education. By 1980,
that percentage had dropped to 13.6 percent. In fiscal year 1990, that percentage stood at
13.3 percent, primarily the result of revenues generated by the income tax surcharge. Since fiscal
year 1990, the percentage of the state general funds budget for higher education has fallen
steadily to 11.1 percent in fiscal year 2001. The Governor’s fiscal year 2003 budget increased
higher education’s share of the state general funds budget to 11.6 percent.

         Governor Ryan’s fiscal year 2003 budget includes $2.6 billion in general funds support
for higher education operations and grants, $26.3 million, or one percent, less than fiscal
year 2002 appropriations. Of the total amount provided in the Governor’s budget, $24.2 million
in incremental funding are earmarked for the State Universities Retirement System. As a result,
funding for higher education operation and grants is $50.5 million, or 2.1 percent, less than in
fiscal year 2002.

        The Governor’s fiscal year 2003 capital plan includes $283.7 million in new
appropriations for higher education. The plan includes $30 million for capital renewal,
$50 million for the second year of the community college enhanced construction program, and
$118.6 million for VentureTECH. The top 11 projects and project 20 on the Board of Higher
Education’s capital priority list are funded in the Governor’s budget.

        The Illinois economy is diverse and generally reflects the economic trends of the nation.
While it is too early to predict the fiscal health of the state and the availability of general funds in


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fiscal year 2004, the current state of the U.S. economy and leading economic indicators are useful
in providing guidance regarding the economic outlook for fiscal year 2004. In recent weeks,
strength in a number of economic indicators has convinced many economists, including Federal
Reserve Chairman Alan Greenspan, that the U.S. economic recovery has begun. In his March 7th
testimony before the Senate Committee on Banking, Housing and Urban Affairs, Greenspan
issued an optimistic appraisal of the economy stating “the recent evidence increasingly suggests
that an economic expansion is already underway.” Greenspan tempered his remarks by telling
the Congressional Committee that he was still concerned that a number of factors could slow the
recovery. Greenspan reaffirmed earlier Federal Reserve projections, which call for relatively
weak economic growth of between 2.5 and 3 percent in calendar year 2002. At the time this
agenda item was prepared, weaker than expected February retail sales sent the U.S. stock market
into a tailspin and raised doubts about the strength and timing of the recovery.

         In March 2002, the Illinois Economic and Fiscal Commission (IEFC) revised its revenue
estimates downward for fiscal year 2002 and a preliminary revenue estimate for fiscal year 2003.
The IEFC report notes that general funds revenues fell $296 million during the first quarter of
fiscal year 2002 and then rebounded in the second quarter with a $211 million increase. While
this resulted in a net decrease of $85 million over the first six months of the fiscal year, the strong
second quarter created hope that year-end revenue estimates, which had been revised downward
in the fall of 2001, still could be achieved. Unfortunately, this optimism quickly gave way to
doubt when the strong second quarter was followed by weak January revenues that were down
$90 million. As a result, general funds revenues were down $175 million through the first seven
months of fiscal year 2002, excluding $226 million in transfers from the Budget Stabilization
Fund. Due to the underperformance of the state’s revenue sources during the first seven months
of the fiscal year, the IEFC decreased its fiscal year 2002 revenue estimate by $330 million. The
revised estimate now reflects a $90 million, or .4 percent, increase over fiscal year 2001. The
Bureau of the Budget’s fiscal year 2002 revenue estimate is slightly more optimistic in calling for
year-end revenues to increase $244 million, or 1.0 percent, over the previous year.

        The IEFC notes that “the average recession in the post World War II era has lasted
11 months”, and since the current recession dates back to March 2001, the early signals of a
recovery fit the pattern. Barring unforeseen circumstances, the IEFC forecasts modest growth in
fiscal year 2003. The IEFC forecast calls for an increase of $433 million, or 1.8 percent, in
general funds revenues in fiscal year 2003. The Bureau of the Budget is expecting general
revenue funds to grow at 2.0 percent, or $480 million.

         Since the release of these estimates, Congress has passed and President Bush has signed
The Job Creation and Worker Assistance Act of 2002. This federal economic stimulus package,
designed to help businesses expand, will have a short-term, serious impact on state revenues.
The Bureau of the Budget estimates that the state will lose $250 million in fiscal year 2003 and a
total of $660 million over the course of the next three years, effectively reducing the amount of
funding that will be available for state services and programs in fiscal year 2003 and beyond.

         Tuition and Fee Revenue. Tuition and fees represent a major source of revenue for
Illinois colleges and universities. The Governor’s fiscal year 2003 budget assumes tuition and fee
revenue deposited into public universities’ income funds will total $642.9 million and will
account for nearly 30 percent of public universities’ funding for operations and grants (state
general funds and tuition revenues only). At community colleges, tuition and fee revenue sources
in fiscal year 2003 are expected to total nearly $229.1 million and account for nearly 20 percent
of total resource requirements.



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        Fiscal year 2002 tuition and fee increases averaged 5.7 percent at Illinois public
universities and 4.8 percent at Illinois community colleges. For fiscal year 2003, tuition and fee
increases at public universities, based on budget request submissions, are estimated to average
10.0 percent. Any subsequent action taken by university governing boards regarding tuition and
fee increases will necessitate a revision of this estimate. At community colleges, tuition and fee
increases are projected to average five to six percent in fiscal year 2003.

         The Illinois Commitment calls for Illinois higher education institutions to limit increases
in the net price to students to increases in students’ ability to pay. The Board will continue to
review tuition and fee increases as part of the budget development process, and will consider each
institution’s contribution to the statewide goal of maintaining or improving affordability, defined
as increasing costs at rates not greater than increases in students’ ability to pay.

         Local Tax Revenue. Audited operating revenues at Illinois community colleges totaled
$1.1 billion in fiscal year 2001. Approximately 42.5 percent of that revenue is derived from local
property taxes and corporate personal property replacement tax revenue. While this represents a
significant source of revenue for community colleges on a statewide basis, the support per
institution varies widely based upon the local wealth of individual districts. Local property taxes
provide, on average, approximately $2,675 per full-time equivalent (FTE) community college
student. By institution, local property tax revenue per FTE student ranges from a low of $639 to
a high of $5,945. Equalization grants attempt to address this disparity in local tax wealth across
the state by providing additional state funds to those districts with below average local revenue
per student. For fiscal year 2003, a total of $77.4 million is included in the allocation of the
Governor’s budget for Equalization Grant funding.

         During the 1980’s, the percentage of total community college operating revenue from
local property taxes rose from 36.8 percent to 40.3 percent. Between fiscal years 1990 and 1995,
this percentage rose to 43.0 percent and had remained relatively stable until dropping to
41 percent in fiscal year 2000, and 42.5 percent in fiscal year 2001. The implementation of the
Illinois Property Tax Extension Limitation Act and the increased use of tax increment financing
(TIF) districts have limited the ability of community colleges and other units of local government
to increase local property tax revenue. Community college districts in the suburban collar
counties have been under tax cap limitations since 1991 and districts in Cook County have been
affected since 1995. Throughout the rest of the state, the ability to approve tax caps has been in
place since 1996. As the growth, and potential for growth in local tax revenue diminishes,
community colleges’ reliance on tuition and fee revenues and state sources to meet their resource
requirements will increase.

                         Reallocation of Resources and Accountability

        The resources available from the state, local taxpayers, and students will not be sufficient
to address all of the budget requests submitted by higher education institutions and agencies in
fiscal year 2004. Many important programs and activities may be delayed or not fully
implemented because of lack of resources. The Illinois Commitment calls on Illinois colleges and
universities to reallocate within their base budgets from lower to higher priority programs and
services. Such reallocations should be in excess of one percent of the base budget and reported
annually in the institution’s results report.

        In addition, as part of its recommendations, the Board of Higher Education will continue
to ask campuses and agencies to contribute a match from institutional funds to jointly support
statewide and campus priorities, such as improving the competitiveness of faculty and staff


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salaries and addressing the backlog of deferred maintenance projects.        Only through this
combination of state made.

         While higher education has significantly improved accountability through institutional
and statewide performance measures, the process must be one of continuous improvement.
Institutions need to recognize the importance of specific program and institution-wide
performance measures and better communicate results to the Board. The Board of Higher
Education must better integrate the performance and results reported by each institution into
statewide assessment and develop, in cooperation with the colleges and universities, better
information systems and analytical tools to assess performance and results, thereby improving the
quality of institutional and statewide results reports and enhancing statewide accountability.

        The staff recommends adoption of the following resolution:

         The Board of Higher Education hereby approves the fiscal year 2004 budget priorities
set forth in this item.




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