Helping Laurentian Recover the AI Way

 Laurentian University is coming out of CCAA protection and apparently is required to come up with a new strategic plan that apparently will require hiring consultants according to a story in Northern Ontario Business.  According to the story: "Laurentian University is finalizing the hiring of a couple of third-party consultants to help guide the institution into the future.  Just who those consultants are has not yet been publicly revealed. The university’s president, Sheila Embleton, gave an update on this process during the April 18 meeting of LU’s senate. One of those consultants will lead a comprehensive operational restructuring of the university, while the other consultant will assist with the development of a new strategic plan for Laurentian. Laurentian is required to hire both of these consultants under the terms of its plan of arrangement after it exited insolvency under the Companies’ Creditors Arrangement Act (or CCAA) last year." 

One suspects that this is not going to come cheap.  So in line with my last post on how AI can help administer universities and even draft strategic plans, I inputted a query into my AI to see what it could come up with in terms of a simple report charged with providing a strategic plan for Laurentian's future.  Here it is and at a cost that does not even come close to the average high priced Toronto based consulting firm.  You will notice the query tries to kill two birds with one stone - a restructuring and a strategic plan.

My Query

Laurentian University in Sudbury is coming out of bankruptcy and needs a new strategic plan that will position the new university for recovery and growth. Please draft a five point strategic plan addressing Laurentian’s needs.

 AI Response

Introduction:

Laurentian University in Sudbury recently declared bankruptcy due to significant financial issues, requiring the development of a strategic plan to position the university for recovery and growth. This five-point strategic plan proposes a roadmap that Laurentian University can adopt to overcome its challenges and rebuild itself as one of Canada's top-performing universities.

1. Financial Stability:

Laurentian University needs to prioritize financial recovery and stability. This can be achieved through strategic cost-cutting measures, including but not limited to reducing unnecessary expenses, optimizing resource utilization, increasing revenues from non-core operations, and increasing enrollment numbers. A strong financial foundation will ensure the university's long-term viability and enable it to implement future plans.

2. Program Review:

Laurentian University should undergo a comprehensive review of its academic programs. It is essential to identify courses that need improvement, eliminate underperforming programs, and strengthen leading programs to improve the quality of education. The programs should be relevant to the current market demand and could offer co-op opportunities, internships, and real-world training to create well-rounded graduates.

3. Research Excellence:

Laurentian University should invest in advanced research to uphold its research and innovation community. The University should create funding and partnership opportunities that incentivize leading researchers to the university, promote interdisciplinary collaboration between researchers, and strive for national and international recognition. A rigorous research agenda will lead to groundbreaking discoveries and provide state-of-the-art facilities and support services for faculty and students.

4. Strategic Partnerships:

Laurentian University needs to forge strategic relationships with industry leaders, government organizations, and other academic institutions to drive growth in Sudbury and Northern Ontario. Such partnerships will increase resources, create technology transfer opportunities, bring world-class talent to the University, and enable financial and research support. Partnerships will also improve the university's visibility, and foster relationships with alumni and international students.

5. Campus Infrastructure:

Laurentian University should prioritize the development of its campus infrastructure. Investing in modernizing and upgrading the physical infrastructure will enhance student living and learning, increase research capabilities, provide advanced technological resources, and may lead to an increase in revenue opportunities. Additionally, a well-maintained campus will attract and retain faculty, researchers and students.

In conclusion, Laurentian University should employ these five strategies to achieve financial stability, improve academic quality, enhance research excellence, establish strategic partnerships, and modernize its infrastructure. The combination creates a strong foundation for recovery and growth and positions the University as a leading institution committed to providing a high-quality education and impactful research located in Sudbury.

 

Needless to say, all this is probably summarizes anything a consulting company will be able to come up with on this matter. 

 

Bailing Out Laurentian: The Province as Landlord?

 

Well, the Laurentian saga continues to develop in interesting ways and the latest developments are part of the rescue package by the provincial government.  Better late than never one supposes though doing things late often leads to additional complications.  Obviously, Laurentian and the province are trying to make up for what they failed to do earlier on given the preliminary report of the provincial Auditor General concluded that Laurentian did not need to file for CCAA protection. 

 

There is a detailed document related to the return to court May 30^th, but briefly the package for Laurentian to date is $35 million in operating money, COVID-19 funding of up to $6 million and up to $22 million dollars in funds to compensate for the drop in enrollment. Incidentally, applications from high school are down 43.5 percent.  However, on top of all this, the provincial government is offering to buy $53.5 billion worth of Laurentian University’s real estate – namely land or buildings.  

 

Laurentian is apparently asking the province to put the buildings of the newly independent NOSM University at the top of the list which would be 60 percent of the Health Services Education Resource Centre and the Medical School/NOSM building.  Dr. Sarita Verma, NOSM University's President, Vice Chancellor and CEO, and one of the most powerful physicians in Canada,  said she has not been privy to any discussions around the province's proposed purchase of Laurentian real estate.  But then Dr. Verma apparently was also not initially aware the province was going to make NOSM a university either.  However, lack of awareness has not stopped her from suggesting that it would be ideal if land adjacent to the two building was also part of the deal to accommodate “expansion.”  Nimbleness of narrative is an obvious requirement for broader public sector CEOs these days.

 

So, what to make of all this?  Well, for those worried about provincial government intrusion into university management, becoming a university’s landlord is definitely going to be an interesting development. If a market based rent is charged, there will be claims of gouging. If a very low or zero rent is charged, then it will be seen as a unique and special subsidy and one suspects other medical schools in the province not to mention other universities will raise the issue.  And, as for the $22 million dollars to compensate for an enrollment drop, that also sends another message from the province.  The provincial government was obviously sufficiently rattled by the prospect of a university going bankrupt on its watch that it is making a major effort now. Can other universities also count on the same assistance should their enrolment drop without having to wait for bankruptcy proceedings?  After all, to almost lose one university is unfortunate but having several go would suggest a disregard bordering on carelessness, neglect and other things we teach our children to avoid.

 

The final interesting message is for Thunder Bay and Lakehead University.  Let us be clear. There is no danger of NOSM leaving Thunder Bay or the northwest.  At the same time, should NOSM acquire convenient expansion space near its Sudbury site, the odds are the bulk of expansion is going to go into the Sudbury campus with Thunder Bay becoming a satellite in endless orbit around its Sudbury star.  Needless to say, such projections of potential outcome will be dismissed as the delusions of yet another tenured university faculty member with no real world experience.  I say, you have been served notice.

 

 

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.

 

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?

 

 

 

 

 

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.

Some Recent Posts, Activities and Other Musings

Along with Northern Economist, I also contribute to two other blogs - the Fraser Institute and Worthwhile Canadian Initiative.  I try to post material related in some way to Northern Ontario on this blog - albeit with a fair number of exceptions.  My posts on the other two blogs tend to be almost exclusively on either provincial, national or international economic issues and often with a strong economic history bent.

I just did a post on Worthwhile Canadian Initiative comparing the most recent employment numbers to what transpired in the early 1980s.  The inspiration for this was a number of media reports that gushed positively to no end about how well employment was performing and that there was plenty of steam left in Canada's economy.  Indeed, a number of stories noted that Canada's January-February employment growth in 2019 was the best since the same two months on 1981.  Of course, all of these stories neglected to add what happened after February 1981 which was one of the most severe recessions in the postwar period that saw unemployment rates peak at nearly 13 percent.  For this post, click here.

And then there are my last two posts on the Fraser Institute blog.  As part of the lead up to the March 19th Federal Budget, I take a look at federal government finances and note that large deficits are on track until 2022-23.  A key point is that there has not been a revenue slowdown.  While these deficits might be understandable during a recession or as part of a strategic investment mandate, it is not really the case here.  It is just more spending.  For this post, click here.

Finally, a post on the evolution of the United States federal debt looks at the the contribution to the debt to GDP ratio ranked by president all the way back to George Washington who incidentally was pretty good at fiscal management given the hand he was dealt in the wake of the American Revolution.  Overall, wartime presidents have seen the largest increases in their debt to GDP ratios with Franklin Roosevelt and Woodrow Wilson topping the ranking.  For this post, click here.

Overall, it has been a pretty busy time between blogging, the occasional media interview (did The Current in December with an interview after Stanley Fischer) working on research papers in health and historic wealth inequality, public presentations - did Port Arthur Rotary in November and on the books for Fort William Rotary in April - and other assorted research projects.  Of course there is never enough time to do everything and my historical projects on Lakehead Port Statistics pre-1950 and constructing a fiscal series for Ontario pre-1960 are going to take a lot longer than anticipated...

In other news, I am off on some travels this month.  Have a trip to Regina coming to visit their Economic Department and I will be heading off  to Sudbury and Laurentian University next week for a couple of presentations during their Research Week. My first presentation is a paper co-authored with Rob Petrunia (Lakehead) as follows:

Monday March 18th: 1:00 – 2:35 pm Economic Inequality and Crime Rates in Canada (Governors’ Lounge, 11th floor, R.D. Parker Building)The Department of Economics will present a talk by Dr. Livio Di Matteo (professor of Economics at Lakehead University) on a critical issue in an age of globalization and technological change: the rising trend in income and wealth inequality and its adverse social effects.

My second presentation is titled "Arrested Development: Northern Ontario's Economy in the Past, Present and Future and is part of the following session:

Tuesday March 19th: 10:00 – 11:30 am The Economy of Northern Ontario: Structural Changes and Implications for the Labour Market( Governors’ Lounge, 11th floor, R.D. Parker Building)The Department of Economics will present a seminar on the changing economic landscape and the effects of long-term structural changes on the labour market of Northern Ontario

The latter talk with be a pretty expansive overview of the history of Northern Ontario's economy in terms of its development, the host of government initiatives and plans over the decades, what has worked or not worked, and thoughts about the future.

If you are in Sudbury for Research Week, feel free to attend!