The Finances of the University: A Lakehead Update

 

My last update on Lakehead University’s finances was in October 2021 and at that time despite the pandemic, it was doing well according to its 2020-2021 financial statement. From 2020 to 2021, revenues did fall slightly from $200.2 million to $198.4 million – a drop of just under one percent.  However, total expenses fell even faster going from $198.7 million in 2020 to $187.6 million in 2021 – a drop of 5.5 percent.  As a result, there was an operating surplus of $10.691 million in 2021 which was up from a surplus of $1.542 million in 2020.  And this was before the unrealized gains from an interest rate swap are factored in which brought  the total surplus to $14.456 million.  In the end, the sky did not fall during the pandemic. Moreover, there has been a long period of good financial performance given that over the 2000 to 2022 period, there have only been six deficits with the remaining years seeing surpluses – that is about 75 percent of the time.

 

We are now in summer of 2023 and while financial statements for 2021-22 are up and available, those for 2022-23 have yet to appear.  However, this type of lag appears customary across Ontario universities as the 2022-23 statements do not seem to appear on other university sites yet either.   Nevertheless, it is possible to quickly update the figures provided in October of 2021 with an additional year of data. 

 

 

 

Figure 1 shows that for 2022, revenues were at $184.824 million, down by $13.6 million dollars while expenses were up $17,470 million reaching $205.227 million.  As a result, the previous year’s surplus of $10.691 million had become a deficit of $20.403 million. If one factors in unrealized gains on interest rate swaps, then the deficit falls to $16.729 million.  At first glance, it would appear that the end of COVID savings and the resumption of in person teaching was accompanied by both rising expenditures and falling revenues. 

 

However, while general government grants from 2021 to 2022 fell from 64.014 million to $61.611 million, restricted grants rose from $16.838 to $22.005 million.  As well, Student fees also rose from $84.460 million to $86.962 million while the sales of goods and services nearly doubled in value going from $6.621 million to $12.279 million. All in all, taken together, these should result in rising rather than falling revenues.  However, the crucial variable here is the inclusion of investment income which was $20.055 million in 2021 (hence the large surplus that year) and -$5.384 million in 2022 (hence part of the 2022 deficit explanation).  However, it should be noted that much of this deficit is due to investment performance and if the 2021 investment performance had replicated itself, one would have seen a balanced budget if not a small surplus.

 

 

 

Figure 2 plots the university’s long-term debt, and it declined slightly in 2022 going from $106.575 million in 2021 to $103.655 million.  Figure 3 plots the main revenue sources – general government grants and student fees - in longer-term detail.  Total student fee revenue has been approximately stable since 2019 ranging from $84.460 million to $86.962 million.  This is despite the fact that tuition fees for domestic students were cut 10 percent by the provincial government and then frozen during that same period.  Like many other universities, Lakehead is now more reliant on international students whose tuition is not subject to the same restrictions. 

 

 

 

General government operating grants in absolute terms have also been stable for quite some time but in real terms (after inflation) they have declined.  As a share of total revenues, student fees have steadily increased over time while government general grant revenue has declined as a share of revenue.  Student fees now account for nearly 50 percent of Lakehead’s total revenue with general government grant funding now at about one-third.  This makes Lakehead much more sensitive to enrollment fluctuations than it would have been two decades ago when students fees accounted for about 30 percent of its total revenues.

 

Fortunately, enrollment has held up (See figure 4).  Total headcount enrollment (number of full time and part time students) has grown nearly 30 percent since 2017.  In 2022  the total headcount (as of November 2022) grew nearly 1 percent.  While the university’s total headcount has seen ebbs and flows, the overall trend since 2000 has been upwards.

So, there you have the update. Looking forward to the 2022-23 Financial Statement release!

The Finances of the University-Lakehead Edition

 

Many will have caught Alex Usher’s post on HESA dealing with university finances in Canada during the pandemic year which paints a surprisingly different picture of university finances than what one might expect.  Of the 34 universities with data available for the 2020-21 fiscal year, 30 of them posted surpluses and some of them were quite staggering.  For example, a 726 million-dollar surplus at University of Toronto (a $441 million surplus the year previous) or Queen’s with $144 million surplus (year previous was $35.7 million).  This seems quite at odds with the sky is falling scenarios that propagated the early part of the pandemic as universities argued that they were going to lose money. So how did this happen?

 

According to Usher: “Well, apart from the University of Saskatchewan (where the turnaround was mostly due to a quite amazing uptick in the investment portfolio), the formula was pretty simple.  Overall, university revenues rose slightly – about 2.6% in nominal terms – while expenditures stayed unchanged.   Essentially, the savings from keeping campuses closed offset the usual 2-3% growth in salary costs.”  Indeed, as he concludes: “universities did not in fact lose money during the pandemic.  They cut their budgets in anticipation of a fall in revenue and then the fall never came.  They will be in good shape to deal with the next year or two when, I suspect, we will see a bit more labour militancy that we’ve seen for awhile.”

 

So of course, the interesting question is how did Lakehead University do?  Well, Lakehead has also done surprisingly well according to its 2020-2021 financial statement that was recently released. From 2020 to 2021, revenues did fall slightly from $200.2 million to $198.3 million – a drop of just under one percent.  However, total expenses fell even faster going from $198.7 million in 2020 to $187.6 million in 2021 – a drop of 5.5 percent.  As a result, there was an operating surplus of $10.691 million in 2021 which was up from a surplus of $$1.542 million in 2020.  And this was before the unrealized gains from an interest rate swap are factored in which brings the total surplus to $14.456 million.  It turns out Lakehead, like Saskatchewan, did very well on its investment portfolio seeing an increase in investment income from $3.4 million the year before to $20.055 million – a staggering 488 percent.  One wonders why their management of their own investment portfolio does not translate into better management of the university pension plan – one of the worst university pensions in the country in terms of the benefits provided to retirees but I digress.

 

On the revenue side, aside from investment returns it turns out everything else was down.  Government general grant revenue was down 3 percent while student fees were down 1.5 percent.  There was a slight fall in enrollment which accounts for this as total enrollment (full-time and part-time students) went from 8505 to 8365 – a decline of 1.6 percent.  However, the good news is that 2021-22 is expected to see a rebound with total enrollment currently estimated at about 8668 – an increase of about 3.6 percent.  So, one can expect both tuition and grant revenue to rebound this year. 

 

As for expenses, well salaries and benefits were down -0.3 percent, supplies for operations were -25 percent, the costs of operating assorted sales and services were -61 percent, building and equipment maintenance costs were -19 percent and travel was down a remarkable 93 percent – from $4.1 million the year before to $302 thousand during the pandemic year.  This may prove to be one of the more important cost savings as the constant shuttling of administrators and staff from Thunder Bay to Orillia and Toronto obviously can be replaced by Zoom technology.  As for salaries and benefits, the university took full advantage of the provincial restraint salary guidelines thereby keeping compensation cost growth low and that will continue this year given the contract that was negotiated.  And, it turns out that having all the faculty and staff work from home saved several million dollars in operations and maintenance as costs like utilities were shifted onto employee home budgets.

 

 

So, in the end the sky did not fall and when the last year is placed in long-term context, Lakehead’s finances are indeed looking quite robust.  Figure 1 plots revenues, expenditures, and deficits since 2000 and they show growing revenues and expenditures and deficits in only 5 of the last 21 years. The last five years have seen a string of operating surpluses of which 2020-21 is the largest. Indeed, Lakehead has seen an accumulated surplus since 2020 of $83 million dollars.  Where has that money gone? Likely into the university’s long-term investment portfolio which according to the financial statement sits at about $144 million dollars and of course this year earned a whopping $20 million dollar return.  It certainly has not gone into paying down the debt which as Figure 2 shows went up $8.038 million in 2020-21 from th year previous to reach $106.6 billion.  This was to finance the athletic facility expansion. 

 

 

 

When it comes to long-term major revenue performance as depicted in Figure 3, government grants in total dollars have been flat at about $65 million annually since 2010 and as a share of total revenue have declined from a peak of 43 percent in 2009 to reach 32 percent at present.  As for student fees (tuition), it has grown dramatically since 2010 –nearly doubling from about $43 million in 2010 to reach $84 million at present.  Figure 4 shows that enrollment growth is only partially responsible for this because despite the long-term upward trend, total enrollment is about where it was a decade ago and has been recovering after a decline.  What has changed is the composition of the students as there has been a larger share of international; students who also pay much higher tuition.

 

 

 

 

 

So, there you have it.  Lakehead’s finances during the pandemic were quite good and come on top of a long-term stable and improving financial situation marked by rising revenues, enrollment growth and an expanding university investment portfolio.  This echoes the comments made by the university during the situation at Laurentian that Lakehead is "very financially sound".  That is good to know. If Alex Usher is right, Lakehead like the rest of the university sector will see increasing calls from its faculty and staff for a return on their investment of time and personal resources into the operations and success of the university.

Woes of Northern Ontario Universities: Bad Medicine at NOSM

 

In the wake of the news of the Laurentian layoffs and the provincial government’s unwillingness to assist the situation there in any direct financial fashion, a new disruption to northern Ontario’s universities was announced.  The Ontario Government apparently without consulting with the affected stakeholders is now proposing that the Northern Ontario School of Medicine and the Université de Hearst become independent, stand- alone universities.  The Northern Ontario School of Medicine (NOSM) opened in 2005 and is currently a not-for-profit corporation of Lakehead University in Thunder Bay and Laurentian University in Sudbury.  Obviously, the province is using the current restructuring and chaos at Laurentian to pursue other agendas that include interfering in existing corporate arrangements.  Clearly, it does not have enough on its hands with the pandemic.

 

The creation of NOSM was a long-term effort by many in northern Ontario and since its opening 2005 an ongoing partnership has been forged with university faculty and staff on both campuses, health-care providers, Indigenous communities, community and regional business leaders.  The academic oversight provided by Lakehead and Laurentian has created a unique curriculum that has trained over 600 physicians in a learning model that spans the entire region and conducted research and training relevant to health needs in the north. NOSM has made use of infrastructure – buildings, administration, services and otherwise – on both campuses that have generated substantial cost savings for the government. Given the Ontario government has already stressed university finances by cutting tuition 10 percent and freezing it and keeping provincial grants frozen, why would it continue to stress specific institutions in northern Ontario further by subjecting them to the disruption and costs of tearing asunder something that is working?

 

This development is really quite remarkable, and one wonders if the province is planning to sever the Michael G. DeGroote School of Medicine from its affiliation with McMaster or unilaterally grant the University of Toronto’s Faculty of Medicine independent status also?  Probably not, because those are settled southern schools in the provincial heartland and the core of Ontario civilization which is nestled in a 10-kilometer swath alongside the 401 Highway corridor.  Meanwhile, the Northern Ontario School of Medicine is so far away and therefore is still considered part of Ontario’s colonial administration heritage. The colonialist overtones of this intrusive activity are even more remarkable given that NOSM in particular has a focus on rural/remote and indigenous health and services.  Or, has the provincial government already obtained buy-in from First Nations in Ontario’s North?  There has been silence so far from Alvin Fiddler, the Grand Chief of Nishnawbe Aski Nation who is usually quick to respond to injustice.

 

The provincial government news release calls this action “Steps to Strengthen Postsecondary Education in Northern Ontario.”  How making NOSM with 460 students and Hearst with 160 students separate independent degree granting institutions strengthens the system by adding two tiny universities that will require endless subsidization beyond what they are already getting is considered sound public policy is a good question.  And one imagines that in the case of NOSM, the fact that it was on two campuses was never something that it liked and may even be complicit with the government in getting separate status so they can move to a shiny new campus in one location. After all, even if the province did not consult with Lakehead or Laurentian before announcing their proposal, they must have discussed it with NOSM’s administration, right? I would not be surprised if NOSM’s future new stand-alone home is a nice new mega building and campus in Sault Ste. Marie, home of the current minister of Colleges and Universities.  Who benefits from government policy is always a good question to ask.

 

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.

Thunder Bay's Economic Evolution: A Brief History

From its origins as a fur trade company headquartered at Fort William, to the development of the grain and forest sectors, Thunder Bay’s economy has seen ebbs and flows over the course its history.  Key to its modern economic development was the federal government decision to route the Canadian Pacific Railway through the Lakehead and the arrival of the transcontinental railway in the 1880s.  Indeed, without this explicit government intervention it is unlikely Thunder Bay would have developed into a city as large as it is today.  Government action in assorted forms has been one of the pillars of Thunder Bay’s economy. 

Transportation is another pillar of Thunder Bay’s economy.  During the first decade of the twentieth century, there was a massive boom rooted in infrastructure building for the transport needs of the western Canadian grain economy that saw the twin Lakehead cities of Port Arthur and Fort William become the largest grain port in the world.  At its peak, over 30 grain terminals lined the waterfront.  Indeed, growth was so rapid that many believed the Lakehead would become the Chicago of the North.  Population quadrupled between 1901 and 1911 and the real per capita value of new construction was never higher than during this period.

Yet, as the twentieth century wore on, there was growing realization that as well as Thunder Bay was doing, it was not going to be the Chicago of the North.  The remainder of the twentieth century saw continued but slower growth and Thunder Bay’s ultimate evolution was more akin to Duluth Minnesota – the American Lakehead – rather than Chicago.  Thunder Bay’s economic growth slowed in the wake of World War I and the Great Depression and resumed during the resource boom of the 1950s and 1960s.  Indeed, natural resource extraction and processing whether forestry or mining have always been another pillar of Thunder Bay’s economy.

Port Arthur and Fort William amalgamated to form Thunder Bay in 1970 ending the urban competition that in retrospect appears correlated with better economic performance given the economic slowdown that ensured.  After 1970, labor saving technological change, aging capital stock, a shift in world grain markets and increasing international competition also eroded the competitiveness of Thunder Bay’s grain transport and forestry sectors culminating in the forest sector crisis, which saw substantial job losses in Thunder Bay and the surrounding region.  These job losses were aggravated by high energy costs with respect to electricity which were especially damaging to the energy intensive pulp and paper sector.  Total employment in Thunder Bay has never recovered from the peaks reached in the first years of the twenty first century.

In the wake of the forest sector crisis, recent years have seen a stabilization of the Thunder Bay economy and a shift in its composition towards employment in research, regional health and social services, and higher education.   This base continues to support a growing range of retail and service activities particularly in hospitality and accommodation oriented around a growing tourism scene that has drawn some international attention.  Nevertheless, economic growth has been slower compared to the rest of Canada and Ontario. While the unemployment rate in Thunder Bay is low, it is because the labor force has shrunk faster than employment as a result of an aging population and youth out-migration.  Population in Thunder Bay peaked in the 1990s and has declined slightly since.   While the First Nation’s population has been expanding, its future economic engagement hinges on the long-term success of initiatives to expand human capital via education and training.

 

As for the future, tomorrow is yesterday as Thunder Bay’s economic future will still rely on its traditional three pillars – government, transportation and natural resources.  These pillars will of course make use of new knowledge and technology and will require innovative entrepreneurial vision to recognize and implement new opportunities. Thunder Bay’s transportation infrastructure and its pivotal location on the east west transport corridor, the role of regional government services and the ongoing potential of the mining sector combined with information technology and the knowledge economy will be the economic forces propelling its future.

A version of this article was originally composed for Lake Superior News appearing there October 16^th in advance of the October 20^th Lakehead University In Conversation Talk at Brodie Library titled Going from Chicago to Duluth of the North: Thunder Bay’s Economy in the Past, Present, and Future.  

Celebrating Grain Transshipment at the Lakehead

There was a short and well attended ceremony and plaque unveiling today at the Western Grain By-Products Elevator Site on Kingston Street held by the Historic Sites and Monuments Board of Canada and Parks Canada.  The elevator is the former Fort William Elevator No. 10 which was built in 1913 at the peak of the Canadian wheat boom.  The plaque is the outcome of a long period of lobbying and work by the Friends of Grain Elevators and commemorates the role of the grain elevators at the Lakehead twin cities of Fort William and Port Arthur in facilitating Canada’s role as a leader in the international grain trade.

The development of the grain industry and its transportation infrastructure during the Wheat Boom period of 1896-1929 was an event of national historic importance given that it represented the fulfillment of the national economic strategy envisioned by the Fathers of Confederation.  Under the criteria for events of national historic significance, the development of the grain industry and the grain transport infrastructure at the Lakehead (the former twin cities of Port-Arthur-Fort William, now Thunder Bay) qualifies as a “defining episode” in Canadian history. 

At the Lakehead, the rail and water components of the grain transportation system came together in a transportation node that linked together the economy of Canada.  Along with the fleets of grain transport steamers, the twin cities also became key points for the three national transcontinental railways that were completed during the boom era.  As well, at the Lakehead, the grain transport sector played the role of a booming sector in Thunder Bay's economic development. 

Between 1905-1929, grain shipments increased seven-fold and for much of the 20th century The Lakehead was the largest grain port in the world and Canada accounted for the bulk of the world’s grain exports.  At its peak, over 30 grain terminals lined the harbour with a storage capacity of nearly 100 million bushels.  Today, fewer than a dozen of these giant “Castles of Commerce” (as they were so aptly named by Rudyard Kipling) remain along the waterfront.  Many of the key players in the development of the Lakehead’s grain transportation role and the Canadian grain industry in general such as C.D. Howe and N.M. Paterson also went on to contribute their expertise to the national political stage. 

Grain transshipment at the Lakehead is an economic event of national historic significance in that it played the cementing role in the east-west grain transport infrastructure of the Wheat Boom era, a key stage of Canada’s development.   It represents a fulfillment of the key ideas of the National Policy economic strategy and represents a tangible application of those ideas in Canadian economic and historical development.  Without the Lakehead, there would have been no east-west economic flow.

 

 
Today’s ceremony was recognition of The Lakehead’s important role in Canadian economic history.

Lakehead Faculty of Science & Environmental Studies Celebrates Service!

Well, today was the last day of classes at Lakehead and there was an impromptu gathering at the end of the day at the Lakehead Outpost of faculty from Economics, Chemistry and Physics to celebrate the end of term.  As well as celebrating the end of this term's classroom service, there was also  recognition of the long time service of three faculty members - two who are are the table in the accompanying photos.  Dr. Steve Kinrade from Chemistry and Dr. Bakhtiar Moazzami from Economics have reached the 30 year service milestone - I'll let you guess who they are.  A third member of our faculty - Dr. Scott Hamilton from Anthropology - also is celebrating 30 years and was even seen at the outpost but did not make the photo.  Congratulations to all our colleagues on the completion of another teaching year!

Art in Northern Ontario: A Visit with Visual Arts at Lakehead University

The creative arts are a fundamental component of life and the human experience.  Northern Ontario and Thunder Bay in particular are blessed with vibrant and engaged arts communities whose creative work and activity deepens the regional quality of life.  In Thunder Bay, a vital component of the creative arts is the Visual Arts Department and associated programs at Lakehead University where the faculty and students have been contributing to the regional arts scene for decades.  Many generations of artists have acquired and honed their skills in the facilities and programs of Lakehead's Visual Arts Department.


This week, I received an in depth immersion in visual arts and the creative process as a result of my role as a reviewer for the Quality Assurance review of the visual arts program at Lakehead University.   I joined Sally Hickson from the University of Guelph and Laura Peturson from Nipissing University and spent two days visiting with staff and students at the Visual Arts Department at Lakehead.  It was certainly an illuminating experience learning about the different streams of the program and it was an eye opener learning about the capital intensity of the program given the facilities and equipment required to mount a quality program in the arts. It was quite instructive learning about ceramics, printmaking, painting, drawing and sculpture.




 



The students and faculty of the Visual Arts program regularly exhibit at the Thunder Bay Art Gallery as well as with other private galleries and their work is an impressive contribution to the region's cultural assets.  Much of their work is also showcased on campus and the recent opening of the Alumni Commons at Lakehead provides an attractive venue for their work.  All the best to the students, faculty and staff of the Visual Arts Department at Lakehead University.

Lakehead is Looking for a President

Lakehead University is looking for a new President and Vice-Chancellor - and so are Laurentian and Algoma apparently.  That is a lot of change in northern Ontario higher education in just a very short time.  Lakehead has issued a call for consultative input so if you are interested in contributing, check out the call that was issued in this last week's media relations bulletin.  If you are interested in any thoughts I might have on the matter, feel free to read my post on Worthwhile Canadian Initiative.  Have a great long weekend!