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 21st 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.
