What Drives Ontario University Deficits?

 

In the wake of the Laurentian insolvency, there is growing interest in the state of university finance in Ontario – at least amongst universities.  For the most part, for the Ontario government Laurentian and its plight  might as well be on the moon.  They would undoubtedly be much more preoccupied had the insolvency happened to the University of Toronto or Ryerson and then maybe not given at least one pundit has suggested that the current government really knows nothing about universities.

 

In any event, the final report on what happened at Laurentian that might shed a definitive story of what has happened there  is still to come though one media account summarizes it as too many programs, too many instructors, too many managers, too few students and not enough money.  And the previously mentioned pundit would add that tenured professors are overpaid while part-timers are underpaid, though relative to who or what is never elaborated upon.  That is essentially the level of financial debate regarding universities in Ontario.

 

So, what can we learn from  the information available on the recent state of university finances?  Well, an examination of university financial reports for 2020 is one way to start by comparing the deficits (-) or surpluses (+) of 20 Ontario universities.  It turns out that in 2020 a surprising number of universities did run a deficit – seven to be precise – but the majority ran surpluses.  The range runs from a deficit of -$21.5 million for Ryerson to a surplus of +$441 million for University of Toronto.  The interesting thing is how could both the largest and the smallest university deficit both be in downtown Toronto institutions given the similarity of the operating environment but there it is.

 

Comparing deficits for Ontario universities really needs to be adjusted for the scale of institutions in terms of enrollment given that total enrolment in 2020 (as taken from the AUCC web site) ranged from a low of 1,370 for Algoma University to a high of 93,081 at University of Toronto.  Using absolute deficit numbers is not going to tell you much.  Figure 1 thus presents the deficit (-)/surplus (+) per student.  The largest deficit per student is actually Wilfrid Laurier at -$527 per student in 2020 followed by Ryerson at -$455 and then Nipissing and Laurentian at -$374 and -$339 respectively.  Deficits are not a specific northern Ontario problem given the list includes Wilfrid Laurier, Guelph, Ryerson, Windsor and Ontario Tech. 

 

 

 

Are there any characteristics that might explain why these institutions  had deficits in 2020 while the others had surpluses – the largest at Algoma and University of Toronto respectively, now there is an interesting juxtaposition – at $5364 and $4,738 respectively.  The first and the last in terms of total enrollment both have the largest surpluses per enrolled student.   Who would have thought?  Algoma and U of T as the Alpha and Omega of Ontario universities.

 

Why not address the elephant in the room.  Do deficits or surpluses have anything to do with how generous faculty salaries are?  Figure 2 provides a ranking of average faculty salaries (all ranks) for these 20 universities taken from Statistics Canada with the exception of Algoma, which for some reason is not in the salary statistics for universities from Statistics Canada.  However, I took an average of the salaries provided in the latest Ontario salary disclosure (which I would imagine actually biases the number upwards a bit).

 

 

 

The results here are also interesting.  Unlike the steepness of the deficit/surplus profile, this profile is rather gentle going from a low of $111,000 at OCAD to a high of $176,550.  University of Toronto not only manages to generate the largest surpluses in both absolute and per student across all of Ontario universities, but it has managed to do it with the highest average faculty salaries. Laurentian, is decidedly middle of the pack when it comes to faculty salaries along with Wildfrid Laurier and Western.  Indeed, if you plot the deficit/surplus against the average faculty salary for these 20 universities, you get Figure 3 which gives the counterintuitive result (especially if you are an Ontario cabinet minister) that higher faculty salaries are correlated with bigger university surpluses.

 

 

 

Of course, Figure 3 is only an association.  What you really want to see is if there indeed is a statistically significant relationship between the two variables after controlling for some confounding factors.  Figure 4 presents the results of a very simple linear regression of the surplus per student on average faculty salary (avgfacsal), per student tuition revenue (perstudenttuition), whether or not the university has a medical school (medschool)  (which can be an expensive proposition), and the ratio of government grant revenue to tuition revenue (granttuitionratio) for the university.  Moreover, to account for the scale of institutions it is a weighted regression with the weighting factor being total student enrolment. 

 

 

 

The results show that arguing that higher faculty salaries will give you a better financial position is indeed not the right call.  On the other hand, the coefficient is also not negative nor significant for that matter.  In the general scheme of things, universities are not so dopey as to go around paying more than they should for the help nor are they captives of fiscal terrorist faculty associations when it comes to compensation.  Guess what? Having a medical school is not significant to a deficit/surplus position.  More interesting,  neither is the ratio of grant revenue to tuition revenue.  That is to say, government support of universities has stagnated so much that it really was not a statistically significant determinant of a university’s financial health in 2020. That is not to say it could not be or never was but in 2020 it is not.

 

What is the most significant determinant in this albeit limited set of variables?  Tuition revenue per student.  The regression coefficient is positive and quite significant.  Figures 5 shows that there is indeed a nice positive slope to the relationship between surpluses per student and total tuition revenues per student.  And who are those two high-flyers at the far northeast corner of the chart? Why the Alpha and Omega of Ontario universities - you can decide which should be which.  Figure 6 shows it is little Algoma U – obviously the little university that could - and big U of Toronto – which is really not a surprise.  They appear to have boosted their enrolment as well as got the right mix of students (i.e. higher paying international students) to ensure their financial survival – at least for 2020.  Who knows what the future will bring?

 

 

 

 

 

COVID-19 In Thunder Bay Skyrocketing

 Today's announced new COVID-19 case amount in Thunder Bay District stands at 41 bringing the total since the start of the pandemic to 1,418 and the current number of active cases is at 273.  The District's Chief Medical Officer has suggested that we could be headed back to lock-down though given that the surge over the last two weeks was obviously incubated during the last lock-down one wonders if it will matter.  The problem is apparently largely tied to an outbreak among the homeless population in Thunder Bay though given the crowds packing shopping malls and a local ski resort over the last week in the wake of the lifting of the lock-down, it is likely the surge is going to continue.  In addition, while the recent surge is tied to the city's homeless population, it remains that there have now been several good-sized outbreaks in local schools the biggest at McKellar Park.

This is a pretty grim situation.  We can draw only limited comfort from the fact that the total outbreak to date has resulted in a total case count per 100,000 population as of February 23rd still substantially below that of the province as a whole - at 971 cases per 100,000 versus 2003 cases per 100,000 for the province as illustrated in Figure 1.  However, while the provincial total finally seems to be flattening out a bit, Thunder Bay's appears to have picked up steam as Figure 2 illustrates more  clearly.  

 

Figure 2 plots plots the daily change in cases per 100,000 for both Ontario and the Thunder Bay District since the start of the pandemic and here one can more clearly see that since the start of January, we have been definitely bucking the provincial trend.  While Ontario actually began trending down starting the first week of January, that is when we began to move in the opposite direction.  One wonders aside from the shutting of businesses, how much compliance there really has been with requests to not socialize on the part of the general public in Thunder Bay.  

 

 

This is exceedingly worrisome because even if the surge to date is a result of close contact with some of the other outbreaks - such as those affecting the jail and correctional center - the fact that it appears to be spreading more broadly amongst both the homeless population as well as in the schools makes it ever more likely it will spread further.  The flouting of social distancing and safety protocols this last week at local big box stores and the mall as well as the gathering of hundreds outdoors at a local ski resort have merely provided further opportunities.  If cases spike even further over the next two weeks, it will be unlikely that we can rein things in.  After all, in terms of the current daily increases in cases per 100,000, we are at the peak that Ontario was at in early January and there is no evidence it is slowing down.

The Messages of Perseverance

 

Yesterday’s successful landing of NASA’s Mars Rover Perseverance and the broadcast of early pictures was indeed a triumph of human perseverance made all the more uplifting because of the current travails of the coronavirus pandemic.  It remains that the long-term future of humanity will increasingly rest above and beyond with the first tentative steps into the solar system of the last 50 years being inevitability followed over the course of the next century by interstellar probes and more.  Yet, it is the name of the Rover itself which was drawn to my attention by a close friend who texted me today and said that the first pictures reminded him of the Northwest Company whose motto indeed was Perseverance.   This reminded me of perseverance in terms of both national and personal history.

 

First, the Northwest Company of Montreal was a vast fur trading enterprise that for nearly two decades more than held its own, against the Hudson Bay Company as a result of its perseverance against incredible odds.  While the HBC had the advantages of shorter north south supply routes and a charter from the Crown, the Northwest Company’s superior management, organization and entrepreneurship via its profit-sharing system enabled it to construct a web of forts and trading posts along Canada’s east-west river systems the crown jewel of which was the vast sprawling inland headquarters at Fort William (now Thunder Bay) that served as the rendezvous point for company business.  Having spent numerous student summers working as a historical interpreter at the modern reconstruction of Fort William, I can attest to its size and grandeur.

 

The NWC shareholders were field traders and doubled as European explorers with names that resonate in Canadian history such as Simon Fraser, Alexander MacKenzie and David Thompson.  It was perseverance indeed that in the face of a vast rugged geography and harsh climate allowed a trans-continental east west business arrangement using birch bark canoes to prosper and that according to Harold Adams Innis was the forerunner of the Canadian federation.  As my friend noted in his comparison, it was also about going forth into an endeavor away from the "comforts of their usual surroundings", which the harshness of space definitely is for humans.

 

Of course, it is not considered politically astute these days to celebrate the business achievements and role of male European fur traders in nation building.  And yet, the Northwest Company was ahead of its time in that unlike the hierarchical Hudson’s Bay Company, it was a partnership of sorts between Anglo-Scottish and French-Canadian businessmen, French Canadian labour and Indigenous peoples and their technology – canoes, pemmican, snowshoes.  Moreover, the trade was directly with Indigenous peoples who harvested the furs and until the decline of the fur trade were bargainers on par with Northwest Company.  Indeed, it was the decline of the fur trade that was the first step in undermining the economic and social welfare of First Nations as an important source of the livelihood they had grown dependent on vanished – an important lesson for all resource extraction economies.

 

Second, perseverance also marks friendships and how those acquired at the dawn of one’s life persist, persevere and grow over time.  I am still in touch with my two best friends from high school – Harold and Rob - and though we all now live in separate cities we still manage to Rendezvous in Thunder Bay so to speak from time to time and update each other on our course and progress.  It was Harold’s text that triggered this post.  Everyone’s high school years are of course formative, but I cannot help but think back fondly to the numerous activities we participated in and how they ultimately shaped the work and life we all lead.

 

As teenagers, we even then had a strong interest in public policy.  Along with the usual debates and class discussions and projects – we actually ran a QUI Campaign for the Quebec referendum in 1980 at our Thunder Bay high school - we made a point of attending election rallies from all three visiting leaders with the 1979 election being especially memorable.  I had the car the evening we went to hear federal NDP leader Ed Broadbent and the most interesting part of the evening was the drive home when for whatever reason another vehicle chased us a bit while they brandished a tire iron out the window (My memory may be faulty here as the tire iron incident may have been after a City Council  meeting and I vaguely recall being in a van for that one). Anyway, on the way home the brakes on my dad’s car failed. 

 

As I was driving, along with keeping me calm they also helped slow the car by sticking their feet outside of their doors.  It was an evening out of a James Bond film I suppose though given our ages I suppose it was a bit more rural Alex Rider.  We persevered and did get home in one piece but in the hindsight that emerges, it was obvious that continuing to drive was the wrong thing to do. I should have let the car come to a halt or steer it into a snow bank given how badly things might have ended.  I suppose 16-year-olds do not always make the best decisions.  Still, it is the stuff of memories though naturally I somehow curiously neglected to share this story with my children when they were teenagers.

 

Still, perseverance is important when it comes to life’s experiences and challenges whether it is humanity’s attempts to understand the cosmos or people simply engaged in the ordinary business of life.  Perseverance is about getting through life’s challenges and persevering is helped a lot by having persevering friends.  

 

 

University Insolvency in Ontario: Who Might Be Next?

 

Laurentian University’s filing for insolvency and creditor protection has of course sparked some concerns that other Ontario universities may also be close to the brink.  Alex Usher in his HESA Blog has done a number of posts on Laurentian and university finances in general as of late and did some digging looking at Canadian universities in general with an emphasis on their deficits.  While much has been made about the impact of COVID-19 on university finance, it remains that in the case of Laurentian, the problems appear to be long-term and structural with years of repeated deficits combined with weakness in in tuition revenue and student enrolment growth.  This of course raises the question as to how the other universities in Ontario have been faring with these types of indicators.

 

Using consolidated financial statements for Ontario universities, the following figures plot three variables and rank the performance universities from highest to lowest.  With the exception of Ryerson university, which only posts the last three years of financial statements, all of the other universities have them posted with some going back nearly two decades.  Figure 1 plots the ratio of long-term debt to university revenues to provide an indicator of the indebtedness of universities.   

 

 

 

While interest rates are currently quite low and debt service costs not a large burden, it remains that some universities face higher burdens than others here.  Figure 2 plots the number of deficits since 2010 (with Ryerson* based only on the last three financial statements).   

 

 

 

Finally, Figure 3 works out the average annual growth rate of student fee revenue from 2015 to 2020 as an indicator of recent revenue growth (with Ryerson* again only available for the last three years).

 

 

 

In terms of debt to revenue ratios, the most indebted universities are Ontario Tech, Ottawa, Wilfrid Laurier, Lakehead and Windsor.  In the best shape are Guelph, McMaster, Toronto, Carleton and Waterloo.  Interestingly enough, Laurentian is mid-ranked with respect to long-term debt suggesting it is not a key source of its current problems.  While long term debt is not all of a university’s long-term labilities (for example, the cost of pensions and other employee liabilities are omitted), it nevertheless suggests that some have acquired a lot more debt than others – much of it before 2010 during a capital expansion phase.  However, long-term debt acquired for capital projects has not been the source of problems per se given that interest rates are low and debt servicing costs for most universities not that substantial.

 

In terms of deficits since 2010, the winner is Laurentian which has accumulated nine.  Closely following is another northern Ontario university, Nipissing, which comes in at seven.  After that are the Ontario College of Art Design, Brock and Windsor though it should be noted Brock’s four deficits were before 2015. At the other end of the spectrum, Carleton, McMaster, Waterloo and Western appear to have not had a deficit since 2010.  This is a key part of the problem for university finances given that some universities appear to have been persistently unable to balance their budgets over the long term indicating a deeper structural imbalancebetween revenue and spending.

 

Finally, when one looks at the average annual growth rate of student fee revenue since 2015, it is a northern Ontario university – Algoma – that does the best in the wake of it opening a satellite campus in Brampton.  Following it with annual tuition revenue growth well over 5 percent annually are Toronto, McMaster, Waterloo, Queens, Trent, Lakehead, OCAD and York.  The weakest performers are Ontario Tech, Laurentian and Nipissing.  Tuition revenue growth is important given that government grants have been frozen.  Even if there is a bit of a tight situation between revenue and spending, keeping the student fee revenues up by increasing enrolment keeps you ahead of the problem.  Falling behind here simply allows the other problems to add up.

 

The consistently worse performers across the deficit and tuition revenue categories are Laurentian and Nipissing.  Ontario Tech does not do so well on the tuition revenue growth front while OCAD has had deficit issues.   If there are future problems in the Ontario university sector, they may likely emerge first across these universities but who knows. Life can be full of surprises.    Much of course depends on the continued flow of students and tuition revenue and the interesting development this year is the fact that first choice Ontario applications were down for all but six of Ontario’s universities. Of course, these application statistics do not take into account out of province applicants or international students but nonetheless they are a cause for worry. 

 

Can any university expect any government assistance if enrolment tanks? Probably not.  The provincial government was aware of Laurentian’s problems and to date has chosen to let them resolve their issues via insolvency and restructuring no doubt pour encourager les autres.  In any event, government has been a contributing factor by cutting tuition ten percent and then freezing it to score political points while freezing grant revenue for years.  Universities are asked to operate like a business and be more customer oriented but their prices are regulated. Universities caught in financial difficulties may really have no option in the wake of a fall in student demand but to cut costs and in the case of Laurentian that may result in layoffs and program reductions. However, the reforms should not focus simply on short term cost cutting.

 

At least one astute observer has noted that many universities are over governed with high administrative and overhead costs and part of reforms of the university sector to reduce costs need to address this over governance.  There is simply too much middle management with numerous faculty Deans, Executive Deans and Vice-Provosts and their associated retinues of assistants, coordinators and facilitators.  Part of this is self-induced empire building but part of it is also federal and provincial regulatory make work environments.  Getting rid of middle management and decentralizing more to Department levels or simply combining faculties is one way to go.  A case in point, many smaller universities like my own which two decades ago had simply one faculty for Arts and Sciences and another for Professional Schools each with a Dean now have many more faculties. 

The Mining Frontier in Northwestern Ontario: Second Star to the Right, and Straight On Till Morning

 

Northwestern Ontario is seeing some good news with respect to the mining sector.  One recognition of this was the recent announcement regarding Lakehead University and Impala Canada launching a new mining research project.  The five year project involves the creation of an industrial research chair in mineral exploration to be held by Lakehead University geologist Peter Hollings and it is good to see investment in regional knowledge.  The prospects for continued growth have also been put forth by the Community Economic Development Corporation in their new mining readiness strategy which was announced this week.

 

The strategy is designed to help Thunder Bay capitalize on opportunities from the projected continued development in the region’s mining sector.  It estimates that continued development of the sector with Thunder Bay benefiting from supply chain spillovers in mining supply, workforce training, transportation and electrical infrastructure, and research will be substantial.  The current six operating mines in the region may double to 15 essentially doubling the workforce from the current 3600 with peak employment reaching just over 7000 by 2028.  However, there are challenges, not least of which is ensuring a supply of electricity as well as transport infrastructure.

 

This strategy is laden with optimism and good news as  befits a municipal community economic development organization. The employment forecast is probably a bit rosy given that mining is not really a labor intensive activity and benefiting from the employment opportunities requires a lot of knowledge and skill intensive labor not least of which are skilled trades such as carpenters and plumbers – already in short supply in Thunder Bay given they are spending their time fixing leaky pipes – as well as trained technologists and scientists. 

 

They could probably also use some economic expertise but sadly many in government economic development organizations still do not understand the distinction between a business and economics graduate and prefer the boosterism and optimism of a business graduate rather than the more realistic analysis of an economist.  Bosses generally only like to hear what they can do rather than what they cannot or should not do.  Just ask the management at Laurentian University how things are going so far?

 

As well, included among the new projected projects is of course the Ring of Fire chromite deposit which has been on the verge of development for a decade now and we are still waiting.  The real challenge in developing the deposit is not even transport infrastructure or resolving negotiations with affected First Nations.  All of that would actually fall into place rather quickly if the key variable trended dramatically upwards –the price of chromite.  Indeed, all of the rosy projections for mining development hinge on a continued upturn in commodity prices.  It is easier to negotiate something and develop it if you know there is indeed a big payoff coming and what size it might be.

 

The good news is commodity prices seem to be doing well.  Silver, for example, is at an eight-year high. Gold rose dramatically in 2019 and 2020 though it seems to have declined a bit for 2021.  Palladium, nickel, copper and zinc are all up – however, chromium is down about 14 percent for the year.  Indeed, the price of high-carbon ferrochromium appears to have come down about 40 percent over the last two years.  Will the demand for chromium pick up as economies recover in the post-pandemic period?  Chromium is used to harden steel and make stainless steel, so it depends on what the demand for things that use stainless steel is going to be like.  Given the shift away from commuting, it certainly won’t come from the demand for automobiles.

 

In the end, the mining readiness strategy is a business case rather than an economic case with the economics consisting largely of the perfunctory economic impact study as the ceremonial accompaniment justifying the recommendations.  The recommendations include such potboilers as “promote Thunder Bay as a full-service community” – something right out of the 1970s -  as well as “regular government communications on mining”, “prioritize municipal infrastructure development” and “enhance existing mining supply/service directory”.  One suspects that ultimately the mining boom will occur more as a result of rising commodity prices and private sector initiative than anything a community economic development organization can do.

 

One more thing.  The mining readiness strategy is mainly concerned with getting things in place to help support and capitalize on mining development that in the end is really out of the hands of the Economic Development Corporation. It is important to be ready for when it happens. It is also important to be ready for after it happens.  Economic development thinking in Thunder Bay and the region is entirely focused on short term up front economic and employment benefits.  That is understandable given the generally low growth in the region and the hunger for jobs.   It is also the legacy of a natural resource extraction mentality that has always assumed that there is a vast stock of resources and once one larder has been emptied, you can move to the next one. Where the next larder will be is usually not on the radar until the first one is empty.

 

How can the benefits of a growing mining sector be channeled into long-term benefits via either investment of resource rents and revenues or the use of acquired expertise to service mining projects around the world and create future high-end employment locally? What is the plan for when current mines near the end of their production in terms of creating opportunities based on those employed in a project that is wrapping up?  I suppose no one is really thinking about that but then I suppose one of the features of a natural resource economy is boom and bust and one enjoys the boom and then worries about the bust when it happens and hopes it is somebody else’s problem.   In northern Ontario, it is always clear sailing ahead and one cannot rightly imagine a morning without economic challenges for its children.

 

 

Municipal Budgets, Facts, Debates and Bullying

 

The 2021 Thunder Bay City budget should finally be ratified this week and getting there has been an interesting process on a number of fronts.  First, is the sudden epiphany that struck city administrators by the fall that business as usual tax levy increases in the 3-4 percent range were not going to work this year given the push back from both business and residential ratepayers.  Second is the rather assertive tone of debate adopted by some councilors in response to presentations and discussion during the budget process.

 

With respect to the actual budget, the initial 2021 budget request came in with a proposed tax levy increase of just over 2 percent.  However, rather than go up from there, which has often been the case in past budget seasons, councilors have managed to whittle it down slightly to 1.83 percent.  Ratepayers in Thunder Bay however should not relax and assume this is a new era whereby the City of Thunder Bay has finally realized its limitations and will begin a new transformative vision of more sustainable municipal government.  Rather, one suspects the long game of the part of Administration is still that this is a short-term one-off event and next year with the pandemic subsiding, it will be time for larger tax increases to recover lost ground.  This will be a mistake given that Thunder Bay needs to engage in a major exercise to bring its costs especially for government administrative services and protection more in line with other jurisdictions.

 

As for the tone of debate, well here we were treated to the spectacle of one councilor effectively interrupting a presentation to vigorously challenge debate the presenter’s facts and opinions rather than ask questions in a manner more akin to a court proceeding rather than a council meeting.  In response to the presenter’s call for a review of police service spending which has accounted for half the tax levy increase since 2018, the councilor in question countered with the immense workload of the Thunder Bay police service in that it had responded to 5,000 incidents which “in his mind” equaled the amount that Toronto officers attended.

 

This in itself was an interesting empirical point given the data for 2019 comparing total criminal code violations excluding traffic reported in Toronto and Thunder Bay provided below in Figure 1.  Needless to say, the total volume of incidents in Toronto vastly exceeds Thunder Bay. However, perhaps the councilor in question was being more nuanced and meant incidents per 100,000 population in which case Thunder Bay comes in at 7,046 and Toronto at 3,471 – at double the rate.  In either case, where the number 5,000 came from and what it really means is probably best answered by the councilor.   

 

 

 

However, if the councilor was trying to make a case supporting the police service, he was certainly not doing them any favors in his presentation of the data and facts.  If one can be permitted yet another colorful marine metaphor, In launching argumentative torpedoes at presenters, the inability of councilors to effectively target and launch runs the risk of sinking their own ship.  While one may think they are conducting an in-depth analysis while floundering under the water, it is probably wiser to begin from well above the surface and first survey the potential hazards.

 

More serious however was the debating of the presenter rather than simply asking questions and what in essence amounted to a form of bullying and badgering the presenter.  Needless to say, this did not go unnoticed by several other councilors and to their credit they did attempt to rein the offending councilor in.  Needless to say, the presenters provide input and answer questions to provide clarification and it is the councilors who are then supposed to debate the evidence amongst themselves rather than engage in self-congratulatory speeches and grandstanding.

 

This is not just a Thunder Bay phenomenon at the municipal level. City councilors and administration in Hamilton, Ontario for example are developing a reputation for being rather pugnacious towards their ratepayers and have been called out for hostile attitudes towards residents appearing before council.   In Hamilton, there is a proposal supported by legal advice from their lawyers and administration to ban public letters critical of city council behavior from the public record of their meetings.  This has prompted concerns that councilors in Hamilton may be trying to shield themselves from criticism. 

 

Of course, in Thunder Bay, the response to criticism or questions on some matters - such as the leaky pipe sodium hydroxide fiasco – is simply to hide behind their lawyers and not answer questions.  It would appear that in both Hamilton and Thunder Bay, lawyers appear to be hard at work in making sure there is less democracy.  Coming on the heels of pandemic lock downs and social distancing that reduce personal and direct access to your representatives, it would appear we have entered a new era of government dictates from on high. And one gets the impression that many politicians do not seem to mind.

COVID-19 Cases Trends: Where Next for Ontario and Thunder Bay?

 

The news on COVID infections in Ontario has become quite positive in recent days with counts showing a decline.  Indeed, as Figure 1 shows,there is a definite downwards slope to the daily count profile but we are still some distance away from the lows reached circa the first week of August when daily counts average about 100 per day.  Given the total number of current cases of 275,330, 100 cases per day constitutes a growth rate in cases of about 1/3 of one percent whereas it is currently about 15 times higher at 0.6 percent.  However, the apparent downward trend will start the call for a relaxation of restrictions.

 

 

 

Needless to say, there are reasons not to start relaxing restrictions given the spread of the more contagious new variants as well as some erratic performance of the numbers with widely shifting daily case counts as new reporting systems are implemented.  As well, as Figure 2 shows, deaths have yet to exhibit a substantial downward trend in Ontario.  

 

 

 

At the same time, the new unemployment numbers released today suggest that protracted lock downs come at a great economic cost.  However, the slow and reactive nature of Canadian governments to the pandemic has now put us in this place.   In the absence of substantial high rates of vaccination - given that Canada is lagging other countries substantially - as well as more available rapid testing that would allow business to test and isolate their staff -  it is difficult to see what the other options are?

As for Thunder Bay, well the daily case count trends there do not look too good.  As Figure 3 shows, we have gone up and still appear to be quite high.  While the majority of the recent cases have been confined to the institutional settings of the prison and correctional center, it remains that with the staff going back and forth to home and work and the release of some prisoners into the community, the potential for rapid community spread is still high.  

 

 

 

Needless to say, the move by the Mayor to declare a second state of emergency makes perfect sense given the need to isolate and protect vulnerable populations.  At the same time, the Mayor also called for relaxation of lock down restrictions for small business a few days before which appears somewhat inconsistent with what followed, but politicians are known for changing their minds.  Sometimes, it is even based on evidence.

 

Given its low population density and relative isolation, Thunder Bay should be able to create a reasonably good bubble.  However, as isolated as it is, it would appear that cases continually pop up and quite a few are linked to travel.  While it is true the number of cases directly linked to travel are small, it remains that those cases have spread the virus whether the case counts and testing catch it or not.  The best thing Thunder Bay and the District Health Unit could do right now is help the move to implement more rapid testing starting with everyone who gets off a plane at the Thunder Bay Airport.  

 

It would be more useful to catch them as they arrive rather than several weeks later with the subsequent announcement that someone on a flight tested positive.  Rapid testing services should also be provided to businesses and institutions that want to open up more generally.  As well, why not innovate a testing version of the "Ride" program?  The District Health Unit with a mobile van in conjunction with the Thunder Bay police should pick locations around town where continually shifting traffic stop points are set up.  Traffic stops would be conducted and the driver and passengers pulled aside and asked what "essential business they are up to" and then provided with a rapid test and must await the result in their vehicle.  Indeed, given there are limited ways to drive to Thunder Bay, the odd random checkpoint at the City limits might also be a good thing to try.

 

No doubt there will be many who argue that this is "authoritarian" and an infringement of "Freedoms." Okay. Make the rapid test voluntary if you want.  It can be declined. However, it is still an opportunity for health unit officials to stop and provide information and get the message out in a more direct way to a public that often still does not get it.  The inconvenience of being stopped in itself may make people think twice about going out for non-essential reasons and help slow transmission.

Why Laurentian Has Filed for Creditor Protection and Not Lakehead

 

Yesterday’s news that Laurentian University is facing insolvency and has filed for protection from its creditors in the wake of a deteriorating financial situation brought about by the impact of COVID-19 is an important development in Ontario’s university sector.  Laurentian’s President Robert Haché said the move was necessary to put Laurentian on a firm footing after years of deficits and that: ““We are facing unprecedented financial challenges and our financial health is currently amongst the weakest in the province compared to other universities.”

 

Among the compounding factors to the impact of COVID-19 on the university’s finances were years of recurring deficits, the poor demographics in northern Ontario, the closing of the Barrie campus project and the Ontario governments decision to first cut and then freeze tuition fees.  Needless to say, the recent Ontario University application numbers showing a drop in first choice applications for nearly two-thirds of Ontario universities and surges in applications for the remainder – McMaster, Waterloo, Toronto, Western, Ottawa and York - has not helped matters.  Obviously, given the COVID situation, all the GTA students really want to stay in the GTA next year though how they are all going to be accommodated is beyond me.  There may be online recruitment opportunities for the smaller universities outside the GTA.

 

Of course, Laurentian’s predicament and that of smaller universities in Ontario in general is not that surprising.  As noted over a decade ago, one of the perils of being a small university was the bigger burden of debt acquired in the first decade of the 21^st century as universities undertook massive capital spending projects to deal with rising enrollments, infrastructure renewal and program expansion even though long-term demographic projections suggested that enrollment growth would eventually ebb .  Long term debt as a percentage of total university revenue was higher in smaller Ontario universities though a decade ago, Wilfrid Laurier, Lakehead and UOIT seemed in worse shape than Laurentian.

 

So, why is Laurentian in trouble and not say Lakehead? Using data from annual financial statements, it is fairly easy to piece together some answers.  The two universities are fairly similar, in terms of their total enrollment, though Laurentian is slightly bigger at just over 9,000 students in total enrollment while Lakehead is just over 8500.  Total revenues and spending are shown in Figures 1 and 2 and they also show similar size total revenue and spending envelopes over time.    

 

 

 

They also now have similar stocks of debt.  On the surface, Lakehead has a bigger stock of long-term debt than Laurentian (see Figure 3) but the stock of debt has gradually diminished since 2011-2012 whereas Laurentian appears to have acquired its debt more quickly in recent years. 

 

 

 

 In a sense, Lakehead has had more time to deal with its debt stock in the wake of the rapid acquisition prior to 2006. Most of it is also the result of capital projects rather than cumulative deficits.  Since 2006, Lakehead has only run deficits three times (Figure 4) whereas Laurentian has managed to run one 11 times. Continual deficits have a nasty habit of adding up over time.

 

 

 

Given nonexistent growth in government grants, a big difference between the two institutions has to do with where the recent revenue growth.  Laurentian as a bilingual university has had difficulty maintaining and staffing the range of programs necessary to attract enrolment to offset weak grant revenues and the tuition freezes.  Offering programs in both languages in a sense has harmed potential economies and the cancelled Barrie campus was supposed to be an avenue for growth though how successful it might have been is an interesting question.  Lakehead on the other hand has been able to expand into international enrolment and particularly graduate international enrollment and attract them to their campus.  Unlike residents of the GTA, international students seem willing to try out Thunder Bay. 

 

 

 

As Figure 5 shows, Lakehead’s tuition revenue since 2006 has been consistently above Laurentian – even though it is the slightly larger university – and it has actually grown rapidly over the last few years.  Laurentian has not and its persistent deficits mean that it will need to take some steps to deal with its finances though advertising to potential students you are insolvent is probably not the best recruiting tool.  Given the application drops across the Ontario system for smaller universities, the Ontario government will be facing increasing issues in its university sector in the wake of it deciding to hamstring university revenues on the tuition front.  In the end, universities need to make sure that their costs are balanced by their revenues and that will be a challenge in the current environment.

The Zaniness Continues at Thunder Bay City Council

 

Canada’s longest running combination of basic income for politicians experiment and situation comedy continues with the weekly meetings of Thunder Bay City Council as they wrap up their budget reviews and deal with their usual business at hand.  For those of us of a certain vintage, the online meetings do look like a continually shifting combination of the Brady Bunch intro and Hollywood Squares and during the long meetings one can draw some amusement from deciding which councillor or administrator is playing the role of Paul Lynde, or perhaps Gladys, Marcia or Peter. 

 

Nevertheless, even the councillors themselves seem to be increasingly exasperated by the meetings with last week seeing one councillor complain out loud about accomplishing nothing after several hours of debate on the presence of hockey nets at city skating surfaces produced no solution.  Several weeks ago, the chair of the budget committee’s facial expression was priceless as one councillor for whatever reason went on a bit of a rant that the city budget was so complicated that it made him dizzy.  It would appear that fiscal vertigo is one of the job hazards of being a Thunder Bay City Councillor.

 

And last week’s meeting also dealt with the free transit fare proposal and produced a suggestion that given the cost of implementing a completely free fare system, that perhaps there should be one free day a month.  One is surprised that the more progressive minded members of council did not use this opportune juncture to  borrow from the collective wisdom of our current Prime Minister and recently departed Governor General to state that we all experience reality differently and that transit patrons should simply decide when boarding the bus if they thought it was a fare free day.  In the end, Council simply decided to freeze transit fares saving riders $68,000 as it would appear that the $115,000 cost of one free day a month was better spent on a new Thunder Bay waterfront sign.

 

There are of course more serious issues to be discussed but councillors in Thunder Bay prefer spending time on these digressions to avoid the more serious business at hand.  To use yet another colorful marine metaphor, it would appear they are simply a school of freshwater smelts who rather than swim upstream to perform their reproductive duty as nature and need mandate, prefer to linger in the shallows, dally around the shore and even go in the opposite direction by joining the flow downstream.   In the end, they do not accomplish what they should and all they manage is entangling themselves on hockey nets and other debris. 

 

Among the more serious issues are two in particular.  First, there is the matter of the 2021 budget which after several review meetings has done little to further reduce the levy.  Apparently, the few hundred thousand dollars in savings that have been generated by the ponderous line by line review is seen as sufficient given that the starting levy increase came in at about two percent.  Suggestions of making more substantial reductions were rejected by most councillors and the Mayor, because they have apparently already made so many and they have been keeping levy rate increases after assessment growth at an average of 2.39 percent since 2012. 

The selective mathematical analysis leaves out the point that the total levy increase since 2012 has actually averaged just over 3 percent annually.  Moreover, one wonders how they can continually say they have made reductions when the total tax levy continues to grow faster than the rates of population growth and inflation combined.  It remains that the councillors have yet to seriously deal with the spending and staffing reform necessary to reduce the tax levy to more sustainable levels.  As stated previously on Northern Economist, given that nearly 60-70 percent of the municipal tax levy is spending on wages, salaries and benefits, there needs to be a policy of reducing the staffing footprint via attrition with reallocation to priority services and functions. 

 

The hard work of making more lasting structural changes in spending, given that Thunder Bay spends substantially more than other municipalities particularly on protection services and administration, is too much for our councillors to handle.  Instead, as shown in last week’s meetings, the councillors prefer the parry, thrust, dodge, spin approach to policy debate with several councillors shedding crocodile tears for the taxpayer’s burden and then calling for tax reform at the federal and provincial level to reduce the reliance of municipalities on property taxation.  No doubt, they will next send a delegation to Belgium requesting Pfizer speed up vaccine deliveries to Thunder Bay because the High Council of the Lakehead has decreed it.  Of course, there is a certain irony in the fact that external powers often respond to our City councillors and administration with the same casual indifference that Thunder Bay ratepayers have come to know.

 

And speaking of casual indifference when responding to constituents, secondly, there is the perpetually pesky matter of the pinhole leaks in the wake of the addition of sodium hydroxide to the water supply.  Thunder Bay City Council and Administration have delivered their reply in court.  In response to the lawsuit filed by St. Joseph’s Care Group (SJCG), they simply deny any responsibility for the problem.  Indeed, their position is summarized by:

 

·       the city reasonably and in good faith exercised its power resulting from policy decisions concerning the management, maintenance and modification of the water system

·       the city denies that its acts or submissions caused or contributed to the presence of pinhole leaks in copper water pipes

·       the city lawfully carried on its responsibilities for the general benefit of the community at large

·       the city at no time made non-natural use of its water supply or infrastructure

 

None of this is surprising as the City has basically denied any responsibility all along, nor has it offered any assistance given the hardship thousands of homeowners and institutions have suffered in Thunder Bay.  Indeed, the real problem with the pinhole leaks issue is not only whether they followed an approved process but also the City’s reaction of doing absolutely nothing to assist property owners once the problems became apparent. 

 

What is more surprising is the assertion that: “The plaintiff knew that its pipes were old and beyond their reasonable life expectancy, yet they took no steps to replace them, nor did they install water leak detection systems.” What they are essentially saying is that if your house in Thunder Bay is more than 30-40 years old, you should go probably go out and replace all of your piping as preventive maintenance.  The building codes in Thunder Bay are so high quality that houses have a forty-year expiry date.  That should be an interesting addition to Thunder Bay’s marketing as a destination for prospective businesses and immigrant seeking to come and set up shop in Thunder Bay.

 

Moreover, while the SJCG is represented by Cheadles LLP of Thunder Bay, the city has used the tax dollars of the affected parties to hire the Toronto Law Firm of Theall Group thereby ensuring the leakage of water pipes is being supported by the leakage of spending power out of the local economy.  But then, the hiring of Toronto law firms to deal with local residents whether it is litigation or labour bargaining has become a feature of publicly funded institutions in Thunder Bay.  No doubt, councillors will assuage their consciences by intoning the importance of shopping local in Thunder Bay and asking for the rest of us to support local business as we select companies to replace our copper pipes.  If that does not stimulate the economy, then having your housing stock expire every forty-years should do the trick in generating new housing construction projects for a non-growing and aging population.

 

The zaniness continues and we are all paying for it.