Summary
Summary of the University's Budget Challenges
Since 2008/2009, U of G has developed its annual MTCU operating budget in the context of both the University’s first Integrated Plan and a multi-year financial plan to eliminate a $16-million structural deficit by 2011/2012. Both the first Integrated Plan and the multi-year financial plan are now complete, and the University has balanced its budget.
2012/2013 will begin a new five-year Integrated Planning cycle. As with its first Integrated Plan, the University will prepare a new multi-year financial plan (MYP) to maintain a balanced structural budget. The annual 2012/2013 MTCU operating budget will be developed in the context of the new MYP .
The University begins its budget process with assumptions about projected revenue and expenses, including the following:
- Estimates of revenue changes: provincial government grant; undergraduate and graduate student enrolment targets; tuition; and anticipated operational changes affecting the operating budget. A complex tuition framework determines annual tuition increases at Ontario universities. At U of G, tuition has increased by an average of 4.3 per cent a year in recent years.
- Estimates of expenditure changes: incremental costs of salaries and benefits; infrastructure costs such as campus utilities and technology inflationary costs; student assistance; any additional insurance and legal costs; approved strategic initiatives; and necessary reductions.
The University has been affected by inflation, including significant increases in costs of salaries and benefits. Increased utility costs have been mitigated by substantial reductions in energy and water use across campus; salary increases have been constrained at the negotiation table.
The University has also faced major increases in pension costs. While “normal” annual costs (about $23 million a year) have increased, the funding of the pension plans solvency deficit of $344 million (last measured Aug. 1, 2010) has posed a significant challenge.
Under provincial regulations, organizations including universities with defined-benefit pension plans must meet a solvency test every three years by demonstrating financial ability to meet current pension requirements if they were to wind up their plans under market conditions at the date of measurement.
Last year, the University received approval by the provincial government to suspend the usual solvency payments for three years under special legislation available to all Ontario universities. During this time, the U of G is required to pay only the interest on its solvency deficit (of $344 million), a payment that amounted to about $16 million per year. The University has accumulated a one-time contingency fund to cover these payments for the next three years. In 2013, when we must measure again and relief under the special legislation is scheduled to end, we expect payments to increase well above the University’s current ability to pay without major cuts.
This year, the University faces the usual challenges in balancing its budget. Administrators are paying attention to any additional revenue opportunities and any additional expenses. Specific challenges involve government grants, salaries and benefits, utilities and infrastructure, enrollment, strategic initiatives and future projects.
Government Grants
Since publication of the Drummond report, the provincial government has yet to announce financial support for the coming fiscal year. Queen’s Park has provided no confirmation of the MTCU grant and no information about financial support from the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA). We expect that the provincial budget will offer no grant increases and that the OMAFRA budget will be reduced.
Tuition
The government fulfilled an election promise to implement the Ontario Tuition Grant for students whose parents earn less than $160,000 a year. This grant is available in addition to the Student Access Guarantee providing financial aid. Discussions are ongoing, but no tuition framework yet exists. At this point we are estimating that tuition will increase by 3 per cent on average but the Council of Ontario Universities (COU) is pressing the government for higher increases to cover inflationary costs and to maintain program quality.
Salaries and Benefits
As the majority of employee groups have existing contracts with the University, we can predict salary increases. Benefits including post-employment costs are increasing by 10 to 15 per cent annually.
Utilities and Infrastructure
The University has medium- to long-term contracts for the supply of gas. This helps to stabilize some utility prices, but others rates have increased recently, especially in electricity. As mentioned earlier, some of those increases have been offset by reductions in energy use. For the past several years, reductions in water use have mitigated increases in water charges. The University must continue to invest in IT infrastructure and library resources to meet anticipated needs.
Enrolment
University competition for undergraduate and graduate enrolment has grown, but Guelph enjoys a very strong reputation. The University expects to maintain total student enrolment at last year’s level. To do so, U of G must admit more graduate students, maintain undergraduate admissions, attract more transfer students, reduce attrition and attract students not applying directly from high school.
Strategic Initiatives
To support strategic initiatives on campus, the University must continue to invest while addressing additional costs. U of G will need funding available to sponsor initiatives included in the next version of the Integrated Plan.
Future Costs
Development of the new MYP will help in considering future challenges while we complete the coming year’s budget. Following the Drummond report, the provincial government will likely provide no base increments to university budgets for the next several years, although it may fund specific targeted innovations or particular projects. To cover expected inflationary increases, further unit-targeted reductions will be necessary. As U of G has already made major budget reductions in recent years, it will need to consider new approaches. Currently, the University’s preliminary 2012/2013 MTCU operating budget assumes no reductions. In subsequent years, however, the University will likely need to reduce costs by between 2.5 and 5 per cent per year in order to maintain a balanced budget.