State universities could be facing $979 million in mostly unfunded post-retirement benefits if they don't modify their perks, according to a report released Thursday by the legislative auditor general.

"We hate to see this. We work really hard to protect our public employees. We recognize this is a stone that could sink the ship if we don't address it," said Senate President John Valentine, R-Orem.

That liability includes $633 million committed to current employees and is mostly unfunded, the audit says. Another $346 million could be tacked on if current programs "are allowed to continue unchecked" with cash stipends and insurance premiums offered to bridge the gap between early retirement and age 65.

Officials at the state Board of Regents contest the high figure, however, saying the audit did not consider that early retirement benefits are not obligatory, but are rather decided on a case-by-case basis.

Each higher-education institution decides who gets benefits for early retirement and budgets for those expenses, said Kevin Walthers, assistant commissioner for finance with the regents. "If the money's not in the department, it gets turned down. It's not an entitlement," he said.

Walthers added, however, that each institution will comply with the audit's recommendation to assess the amount already committed to early and post-retirement benefits and create a plan by the 2007 legislative session to fully fund all benefits. The audit also recommends the state's universities modify those benefits to a level that is affordable or at least sustainable into the future, audit supervisor Janice Coleman said.

"If steps are not taken to modify and fund higher-education's liability, the problem will continue to grow disproportionately and the cost may exceed the institution's ability to pay for these benefits," the audit stated.

The report also notes that the estimated $979 million in benefits is greater than the $895 liability attributed to the state in an audit last year. Coleman said that problem was alleviated by legislation earlier this year that modified state benefits, reducing the liability by $374 million.

Universities, colleges and applied-technology centers should do likewise, she said. If not, the audit states that taxes will likely have to be increased or educational programs cut to fund the promised benefits.

"If employers are unable to meet the unfunded commitment, employees can be left without a benefit they relied upon. In addition, the obligation may jeopardize educational programs by drawing funds away," the audit states.

The situation is likely not as dire as depicted in the audit, Walthers said. In particular, Walthers said the report's estimate of $979 million is likely exaggerated because it is based on a model that is not appropriate for higher education.

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