Can Ontario's Universities Be Made Sustainable? Part 1-The Issues

 

Ontario’s post-secondary system is facing the problem of financial sustainability.   Indeed, the inevitable question arises of whether Ontario simply has too many colleges and universities.  An excellent overview of this question with an accompanying discussion is available here.  And of course, there is always Alex Usher’s excellent blog on all aspects of Canadian universities with posts over the years on provincial and Ontario university finances.  However, the question I wish to address in light of the evolution of Ontario university finances is whether the system can actually be made sustainable with sustainability defined as having the resources available to fund desired expenditures. 

 

Resources are of course the revenues available to universities and they need to be compared to expenses.  Figure 1 plots the total revenues and expenditures of the Ontario university system as a whole from 2001 and 2022 and based on this very simple metric, the system as a whole is “sustainable.”  In 2022, the system took in $17.5 billion in total revenues whereas total expenditures were $17.2.  However, this is overly simplistic because Ontario universities do not function as a system per se but as 24 institutions (20 publicly supported universities and four associated universities).  Some of these institutions-usually large research intensive ones in southern Ontario -  have been running substantial surpluses but a rather large number have been running deficits and acquiring debt with the most extreme example  of what can happen there being the Laurentian insolvency.

 

 

 

The challenges facing a number of smaller institutions in particular and especially in Ontario’s north is that their revenues are having difficulty keeping up with expenditures.  Part of the issue is that provincial government grants have essentially not been growing over time and provincial funding as a share of total university revenues has declined as illustrated in Figure 2.  This leaves student tuition and fees and a plethora of other sources ranging from miscellaneous federal funds, ancillary fees, to investment income as the sources of sustainability.  Tuition fees have grown since 2001 from 24 percent of total university revenues to 45 percent in 2022.  The provincial share of university revenues has declined over the same period from 36 to 24 percent while all other remaining sources have also declined from 39 to 31 percent.  Notes again, that performance across individual universities may differ substantially.  Northern Ontario universities face particular challenges in growing domestic enrollment given that population is clustered in the GTA.

 

 

 

After a period of long-term provincial government behaviour which has essentially constricted their provincial grant funding and shifted reliance to tuition and other sources, the crux of the current set of issues is as follows.  Since 2018, domestic tuition in Ontario was cut by ten percent and then frozen.  Grant revenue has also been essentially frozen.  Universities in the GTA with access to a lot of students have boosted their domestic enrollment to generate revenues.  Universities without easy access to the GTA and its demographic advantages have recruited more international students, but all Ontario universities (and colleges in particular) have gone this route.  However, that door is now being shut at least in the short term by the federal government over concerns about immigration affecting housing stocks.

 

In the short term, the provincial government also finally responded in spring budget 2024 to its Blue-Ribbon Panel Report which called for tuition increases and increased provincial funding of $2.5 billion dollars  by providing a short term funding reprieve to universities that entailed about $1.3 billion over three years.  This is really half of what was recommended by the government’s own panel and was accompanied by an extension of the tuition freeze.  The Council of Ontario Universities noted this assistance while welcome  has fallen far short of what was needed and that eight universities are still forecasting operating deficits for 2023-24 and 12 are projecting deficits for 2024-25. 

 

So, where do we go from here?  Well, the problem really is this: Ontario does not want to pay for the university and college system it currently has.  It certainly wants local universities with a broad range of programs to educate their children, but it does not want to pay for them. Ontario has too many universities (and colleges for that matter) given what seems to be the expressed willingness to pay by governments and the public.  The Ontario public does not want to pay more for universities in terms of out-of-pocket tuition nor does it want to pay more in terms of increased government funding especially if it requires raising taxes.  This has been a feature of Ontario’s political culture for quite a few decades now, no matter the political stripe of the government.  This means that expenditures of the current system need to be tailored to what Ontarians as demonstrated by the actions of their government seem to wish to pay. More on that in a post to come.

AI, the Creative Class, and Universities

 

The concern over AI usurping human functions and activities continues to grow.  A recent article in The Economist lays out how AIs like ChatGPT could replace many white collar employees such as telemarketers, traders and even teachers.  Indeed, some of the sectors that will be most impacted include securities and commodity traders, insurance carriers, data processing and hosting, publishing, and believe it or not, monetary authorities and central banks (this one is actually quite amusing as many people feel central banks have computer like personalities anyway).   In terms of the least impacted sectors,  after a century of automation, it is the revenge of the blue collar workers as the least impact of AI will be in areas like agriculture and forestry, woods products, mining, and food  and drink services.  Most exposed are industries which rely on programming and writing skills or what is sometimes termed the creative class.  Indeed, teachers especially those in literature, languages and history are also expected to be heavily affected. 

 

In the university sector, never one to shirk from the fad of the day, one suspects that there may indeed be a push towards AI instruction and course provision especially in subjects deemed heavy in language intensity. It will certainly be interesting to see how all of this evolves over the next decade and whether there will indeed be a substitution of AI instructors and course managers for in person teaching in a range of subjects.  Of course, the use of AI need not apply only to faculty.  University administration is also language intensive and rule driven and one could easily conceive  situations where universities dispense with administrators and replace them with semi-sentient AIs that devise, apply and enforce assorted rules for both students and faculty.  Try arguing with the AI for an assignment extension or sabbatical leave.  However, the cost savings would probably be significant given that nearly two thirds of university budgets these days are not directly faculty/teaching related.  Even assorted adjudication processes at a university such as university tenure committees could theoretically be done by an AI.  Indeed, the committees would be tireless and would always have quorum.  It would be a brave new world indeed.

 

Looking for an example of how AI can be applied to language intensive university administrative processes? I asked one of the AIs that I use to provide me with the executive summary of the quintessential university administrative slog – the strategic plan.  No university was named, so it is applicable to all.  Here is what I got:

 

ME: Draft me an executive summary of a five year university strategic plan that encompasses academic excellence, diversity and inclusiveness, innovation and research excellence.

 

AI: Executive Summary

This five-year strategic plan outlines the vision, goals, and objectives that will guide the university's growth and development in areas of academic excellence, diversity and inclusiveness, innovation, and research excellence. The plan focuses on enhancing the university's profile as a leading institution of higher education, which is committed to providing a supportive and inclusive environment for all students, faculty, and staff.

Academic Excellence

The plan emphasizes academic excellence, which is at the core of the university's mission. To achieve this goal, the university will focus on providing innovative, high-quality academic programs designed to meet the needs of the current and future job markets. The university will also evaluate and enhance its teaching methods, assessment practices, and curriculum to achieve academic rigor and reflective of modern pedagogy.

Diversity and Inclusiveness

The plan recognizes that diversity and inclusiveness is a strength that enhances the university's educational experience. To create a diverse and inclusive community, the university will champion efforts to recruit, retain, and support underrepresented student groups and faculty members. The university will also prioritize anti-bias training and provide resources to foster an inclusive and equitable campus for all.

Innovation

To promote innovation, the university will leverage the resources of the institution to support initiatives that spur entrepreneurship, creativity, and industry partnerships. The university will invest in technology and research infrastructure to improve its innovation capabilities and promote a culture of invention and commercialization.

Research Excellence

The university aims to be a leading institution in research excellence. The plan outlines objectives to promote research collaboration, increase funding, and support the recruitment of high-impact researchers. The university will establish interdisciplinary research initiatives that foster innovative discoveries and contribute to societal and economic development.

In conclusion, this five-year strategic plan is designed to strengthen the university's commitment to academic excellence, diversity and inclusiveness, innovation, and research excellence. Through these efforts, the university will attract and retain top talent, enhance its reputation, and advance the social and economic well-being of the local and global communities.

 

Can you tell the difference?  Will we be able to tell the difference between a class well-taught in person by a knowledgeable and versatile human being with social skills and a faceless AI? Maybe.  Will we ultimately be able to tell the difference between a university administrative process done by humans or an AI?  I think we all know the answer to that.  

 

 

Blue Ribbons and Ontario Universities

 

Ontario has made a number of announcements regarding its post-secondary education sector.  First, it extended its tuition freeze for a third year.  As you might recall, going into the pandemic, Ontario reduced domestic student tuition fees by ten percent and since then has held them frozen meaning that after three years of time and inflation, in real terms tuition has been reduced by at least twenty percent.  Though not emphasized this week, Ontario’s government grants to its universities also remain largely frozen.  As a result, with flat domestic enrollment and frozen funding, at the margin, Ontario university revenues have only been growing because they have been recruiting international students making them increasingly reliant on what could be a volatile source of revenue.

 

However, the provincial government is concerned enough about the future sustainability of its universities that it has also announced a Blue Ribbon Panel to “provide advice and recommendations to the Minister of Colleges and Universities to help keep the post-secondary education sector financially strong and focused on providing the best student experience possible. ” A blue ribbon panel or committee is generally a group of “exceptional” and “accomplished” people who are brought together to study a particularly vexing problem and bring their expertise to bear on providing solutions.  It is several notches below a Royal Commission but designed to bring a semblance of non-partisan expert advice to a problem.  This panel is expected to report back in summer of 2023.

 

Now it has already been remarked that there are no faculty representatives on this Blue Ribbon Panel.  However, it would be churlish to say the least to infer that the provincial government in any way thinks that university or college faculty are neither exceptional or accomplished.  In trying to choose faculty representatives for such a committee, one opens a can of worms larger than the universe.  If the provincial government had selected someone from the humanities, professional schools and sciences would have complained they were being neglected.  If a scientist, the humanities would have been outraged. If they chose a faculty member from a large university, the small universities would have complained.  If they had picked an economist, there would have been a chorus of criticism charging that the outcome was predetermined by selecting a minion of the capitalist neoconservative hegemony. You get the picture.

 

So in the end, the government chose a panel from people that it sees as leaders without a direct current stake in universities to study the problem.  There are no faculty nor do  there appear to be any currently serving university administrators on the panel either, though they all have links to post-secondary education in one form or another as well as board and community experience.   There is a member with student experience.  And there is past faculty and administrative experience in the case of Bonnie Patterson and Alan Harrison – who incidentally is also an economist who was at McMaster teaching at the time I was there in the 1980s.  There does seem to be an emphasis on CEO types with some financial experience and also strong representation from the new age of e-learning and other types of perceived innovative practices in education with CEOs from E-Campus Ontario and Contact North.

 

So, what will the panel decide? Well, that is to be decided obviously though I suspect e-learning and micro-credentials is one direction they are likely to emphasize. That will not please some universities who are trying to bring everyone back to the before times with full in person learning and on campus presences including night classes.  However, this is motivated as much for pedagogical reasons as it is for financial ones rooted in the need to fill parking lots, residences, and cafeterias with paying customers.  

 

The crux of the problem is that the provincial government thinks universities should be training people and providing marketable skills and is not happy where the money seems to be going.  Parents and students think that universities are supposed to provide the ticket to a career and lifestyle and do not seem to think the tuition fees worth what they are getting – though they still insist their kids go to university.  Essentially, the provincial government and the public do not perceive they are getting value for money especially given what appear to outsiders to be high paying cushy jobs for university faculty and staff. 

 

Meanwhile, university faculty believe they are independent researchers and scholars, building minds, and extending the frontiers of knowledge while university administrators seem to be conflicted players of whack-a-mole - negotiating the competing demands of government, parents and students, donors, and faculty and staff.  As the old university adage about where the money should go goes, faculty like new faculty hires, Deans like new programs, while University Presidents like new buildings.  So, the interim solution by government has been a grant and tuition freeze which universities have got around by bringing in more international students who can be charged as much as the market will bear.

 

Needless to say, this is not a scenario for long-term sustainability.  Demographics suggest that domestic enrollment in Ontario has peaked and will remain flat for some time to come.  Thus, without an increase in tuition fees, domestic students will not lead to increased revenues.  Moreover, domestic students want a flexibility in their learning environments – i.e., online learning – that seems to be at odds with the preferences of many university administrators and faculty.  Bringing in more international students is also not a stable long-term solution given that at any time that tap could shut.  And then there is the question that if the Ontario public university system is something Ontario does not want to pay more for either via public funds or private (more tuition) and is increasingly geared to international students, then why should it be as large as it is?

 

This last question is the uncomfortable one but needs to be asked given the increasing financial stress Ontario universities are facing especially in the shadow of the Laurentian bankruptcy.  Does Ontario have too many public universities given domestic demand? That is a question the Blue Ribbon Panel will inevitably have to answer.  Perhaps there should be mergers and rationalizations culminating in several province wide campuses – A University of Southwestern Ontario, A University of Eastern Ontario, a University of Northern Ontario and then a half dozen or so fully comprehensive research universities?  Should some universities be merged with community colleges to create Polytechnics?  Should there be a provincial E-University to satisfy the demand for flexible credentials earned online?  But then what of the rest of the system?

 

In the wake of the Laurentian debacle, the provincial government has nevertheless been creating new small financially weaker universities left right and center so it appears they are not too concerned that there may be too many universities.  Moreover, all communities with their own current university campuses will scream if their university is no longer a “real” university or does not offer the range of programs they are used to having.  Just don’t ask them to pay for it.  The political cost of major change is high and as a result there is unlikely to be any major change. 

 

My guess, is that along with keeping all the current players in Ontario’s university system, the end game is going to be the creation of assorted new online learning options independent of the current system and perhaps even new targeted private micro-universities that will provide the programs the provincial governments thinks should be offered.  This is in keeping with the provincial government policy towards its post-secondary sector of the last thirty years that has allowed colleges to evolve into perceived lower cost universities and universities expand their physical footprints without much thought as to what might happen down the road. 

 

Some of this is already underway and what the Blue Ribbon Panel may offer is some way of moving forward in a transitioning post-pandemic university environment that is still moving towards an unknown equilibrium.  At minimum, it will provide a justification for what the government wants to do. On the other hand, the panel may surprise everyone – including the government - with their recommendations which is why governments do not necessarily follow what Blue Ribbon Panels or Royal Commissions for that matter, suggest they do.

 

 

 

Ontario Universities: Is More Competition Underway?

 

Ontario universities saw the release this week of the preliminary application statistics for the 2023-24 academic year by OUAC, and they are quite intriguing given that they suggest that there may be a shift underway in how students both apply and make their ultimate choices.  These applications are for full-time, first-year, fall-entry, undergraduate university study or 101s as they are known, and applications are up 2.9 percent this year though the number of applicants is down slightly by about one-firth of one percent.  Figure 1 plots both applications and applicants over the period 2014 to 2023 and though both exhibit a rising trend the number of applicants has been more volatile as a result of the pandemic year. 

 

 

 

What is more interesting is Figure 2 which divides the number of applications by the number of applicants in each year and reveals that over time individual applicants have been applying to more universities.  From 4.6 applications per applicant in 2014 to 5.8 in 2023.  This suggests that students are open to considering more options either because they are shopping around or perhaps to ensure that they get into a program they desire.  In any event, this alone suggests that university recruitment out of Ontario high schools may be getting a bit more competitive.

 

 

 More evidence to this effect is provided in Figures 3 to 5.  Figure 3 ranks Ontario’s universities with constituent affiliated campuses included with the main campus (for example, King’s, Brescia and Huron are included with Western) and there is definitely a pecking order in terms of application totals: Large (University of Toronto, York, McMaster, Toronto Metropolitan, Western, Waterloo and Guelph: 59,218 to 40,461), Medium (Queen's, Ottawa U, Wilfrid Laurier, Carleton, Brock, Trent, Ontario Tech, and Windsor: 37,638 to 10,665) and Small (Lakehead, Laurentian, Nipissing, OCAD, Algoma and Universite de l'Ont Francais: 3573 to 22).  Yes, 22 for Universite de l'Ontario Francais which because it had only 14 applicants last year it registers the largest percent increase in 101s of all Ontario universities at 57 percent making it such an obvious outlier that it is omitted from Figure 4.

 

 

 

 

 

 

Figure 4 plots the universities ranked by the percent increase in preliminary 101 applications in 2023.  Some of the largest increases are for smaller universities.  Of the top 10, only two are in the large university category – Guelph and York – while four are in the medium category – Windsor, Ontario Tech, Wilfrid Laurier and Brock - and the other four are all smaller institution – Nipissing, Laurentian, Lakehead and Algoma. Coincidentally, all four of these are in northern Ontario.  Figure 5 plots the percent increase in 101s applying in 2023 against the number of applications in 2022 for these institutions and there is a definite correlation between size and growth.  Smaller places in terms of previous application numbers on average seem to be seeing higher growth in applications this year.  

 

 

 

 

 

 

 

Now, to keep things in perspective, this does not mean that University of Toronto or McMaster are going to have trouble filling their first-year classes this year.  The main competition is still between the bigger places. They have way more applications than they need to fill their spaces making them still the overwhelming choice for most.  The seven largest universities ranked by applications accounted for about 64 percent of applications.  The eight medium sized places accounted for 34 percent and the remaining small universities accounted for just over 2 percent.  The small furry mammals are hardly a threat to the larger denizens of Ontario’s university system.  Still, the fact that their application numbers are up suggests that some students may be becoming more open to venturing outside their home communities which are invariably close to the GTA.  As well, students in these communities with smaller universities may be deciding not to go to school in higher cost centers. The cost of living in the GTA for students away from home is undoubtedly a factor in these inflationary times and so we may be seeing the smaller more out of the way places improving their enrollment at least at the margin.  This should hopefully spill over into budgetary positions given that Ontario universities have faced freezes in both their tuition and government grant revenues.

 

Ontario Universities: The Challenges

 

Well, the news for universities in Ontario this last week was that the provincial government was freezing tuition fees for another year.  Moving into the 2022-23 academic year, this is now the third year in a row coming on top of a ten percent reduction for the 2019-20 academic year when the freezes began.  The Ontario government is heading to an election in June and this move is ostensibly being sold as “ensuring that student have access to affordable, high-quality postsecondary education, and reducing the financial strain on families” (as stated by the Ontario Minister of Colleges and Universities).  No doubt, the current government wants to demonstrate it has a heart, is working hard and has big big dreams.  However, the goal of decreasing the financial strain on Ontario families is being accompanied by an increase in the financial strain facing Ontario universities as was noted by McMaster.  My own university seems to have remained silent with respect to public pronouncements on the matter but then as a small university its approach is probably wise and akin to being a small furry mammal that lets the larger Bronto and T-Rex universities take the asteroid impact.

 

In the wake of the debacle involving Laurentian which saw Ontario as the only province with a university going into receivership, one would think the provincial government would be more aware of the burdens facing universities during the pandemic.  Along with the program delivery, cost, and revenue disruption caused by the pandemic, universities in Ontario – which on average rely on tuition for anywhere from 40 to 60 percent of their revenues – have also been deliberately financially constrained.  They are not allowed to raise tuition fees, nor are they being provided with increases in provincial government grant funding and are being subjected to increasing oversight in terms of their programs designed to make them more business-like and attuned to market conditions.  And while restraining universities financially, the provincial government at the same time has increased competition in the provincial university sector by creating more universities. 

 

One would have thought that central planning had gone the way of the Berlin Wall but, just as autocracy has resurfaced in the world, so has central planning in Ontario.  The provincial government thinks it can have its cake and eat it too probably because under Bill 124, the province is limiting salary increases to one percent in certain parts of the public sector.  The thinking is undoubtedly that universities do not need to raise tuition if salary increases are limited to one percent.  Oddly enough, the provincial government exempted municipalities from Bill 124 under the argument that they have substantial own source revenues but not universities.  Universities really are not so much publicly funded these days as they are publicly assisted but apparently are not allowed to consider tuition as own source revenues.  There you have it. 

 

The result has been that universities, being the resourceful entities that they can be, have coped by increasingly relying on international students as a source of revenue because the tuition freeze only applies to domestic students.  International students are paying what the market will bear and the difference is an illuminating shot of what tuition fees might look like if Ontario students were paying a larger share of the costs of university education. 

 

At McMaster for example, tuition for Canadian undergraduates in 2021-22 ranged from $5,955 to $6,043 depending on program of study.  For international undergraduates, the range was $31,470 to $37,237.  At my own university, the undergraduate domestic tuition ranged from $5,398 to $5,985 while the international counterpart was $25,750 to $26,500.  Universities in Ontario for the time being have seen increasing enrollments – even with the pandemic – and rising tuition revenues from international students making the provincial government’s strategy seemingly a success - except for Laurentian of course.  However, with international enrollment approaching 20 percent even at smaller Ontario universities and an even larger share at some of the bigger ones, the question about access may shift to whether more international students are being accepted at the expense of domestic ones. 

 

True, one could argue that should not happen as international students are essentially subsidizing domestic ones and increasing resources – a win-win situation except perhaps for international students who are paying more.  However, the real issue is that universities in Ontario are becoming increasingly dependent on international students and subject to potential major fluctuations in enrollment which makes their financial stability somewhat more precarious.  Accompany that with the large amounts of debt most universities have acquired to finance expansions of classrooms and residences pre-pandemic which then sat largely empty during much of the pandemic, and you can see that finances can quickly become unpredictable.

 

With the return to in person learning at Ontario universities this fall, the financial challenges that have been provided by the Ontario government will be augmented by the transition to full in person learning which not all students welcome with open arms.  (And to be frank, not all faculty welcome it either. If you were living in the GTA, no 2 hour commutes over the last two years would have generated a lot of time for research). Many students have welcomed the flexibility of in person learning given it has enabled them to schedule their education around employment.  There may be a slip in enrollment as students decide to not return to finish programs that are fully in person given what seems to be a robust labour market now. 

 

The solution to this could be to allow universities to charge substantially different tuition fees for domestic students for in person and online classes.  If universities are really trying to fill their in-person classrooms and some students really want the flexibility of online learning, then many courses need an in-person section and a separate online section.  Hybrid – unless properly done with substantial classroom investments – ultimately becomes voluntary in person classroom attendance with fully online evaluation and the attendant issues that involves.   Those students who want online should pay for the flexibility it provides with a much higher tuition fee. 

 

How will the Ontario government deal with these challenges?  Given their approach to date, they are unlikely to give universities the flexibility and autonomy they need to implement such changes as differential pricing for in-person and online courses dependent on university needs and decision making. Given their tendency to disrupt the university sector, they are more likely to mandate that universities only offer in-person classes and set up a separate provincial on-line university to compete with them.  You heard it here first.

 

 

In Person or Not in Person: That is Not Quite the University Question

 

The pandemic saw the rapid unrolling and implementation of mass online learning at the university level with a varied suite of tools including Zoom.  Of course, the growth of online learning had been underway for some time but it was the pandemic that provided the opportunity for mass diffusion of both the techniques and the technology.  My personal recollection at my own university in the years leading up to the pandemic was a general pressure to put all materials online as well as offer more online options for students in order to accommodate their “needs” and “busy schedules” so as to encourage or maintain enrollment by offering flexible learning options.

 

Oddly enough, the year of the pandemic, I had decided to try out two courses with web based course options – the modern equivalent of what I suppose used to be called a correspondence course – and lo and behold as fate would have it, I had to do everything online.  I offered self-directed learning options with Zoom weekly tutorial interaction. In the end, I liked it more than I had imagined. Moreover, I found out that more students were able to take the more esoteric offerings I taught such as Canadian Economic History and History of Economic Thought.  Indeed, the registrations in those courses doubled and tripled given that in previous years course conflicts limited the number of students that could take those courses. And, the flexibility of schedules did not hurt me either allowing for a lot more opportunities for attending online seminars around the world as well as more research activity.

 

Now it is true, that I still like in person teaching.  The in person class I taught this fall was quite enjoyable and the attendance unlike other years of in person teaching was high and constant because the students who took the in person course I taught wanted to be there in person.  Those that did not took the online courses.  Which brings me to my point, the insistence of many universities – including my own – that next fall will be one hundred percent in person.  Indeed, they are even insisting that a certain proportion of these in person courses be scheduled as night classes.  I guess the current surge in inflation is not the only throwback to the 1970s.  Given the push to online of the pre pandemic decade, such an insistence seems odd not the least because the students themselves are divided on the issue. 

 

While some students want more in person teaching, many others want continued online to accommodate schedules that include part time work.  The impact in enrollment from mandating one hundred percent in person classes is uncertain to say the least.  Indeed, I can already hear my administration lamenting next year that my own courses are undersubscribed after the drop from the pandemic levels which will occur by their insistence on a return to a more inflexible scheduling system that generates more student course conflicts that prevent students from taking my courses.

 

I can understand why universities are maintaining they want more in person because in the end for universities it really is all about the money and ancillary revenues from parking fees, residences and campus restaurants and pubs are down dramatically.  Yet, annoying a large chunk of the student body by insisting on one hundred percent in person attendance to fill up residences and cafeterias will probably erode enrollment also affecting revenues.  This may be why universities while proposing one hundred percent in person classes really intend for a hybrid option in which you lecture to students in person while recording the lecture for those unable to attend. 

 

However, hybrid class delivery requires substantial investment in classroom lecture capture technology to do properly.  Moreover, in implementation what a hybrid class will likely result in is voluntary classroom attendance with everything else online – including evaluation.  After all one cannot realistically have some students writing online tests and other in person at the same time and still have a level evaluation playing field.  In the end it will all revert to the lowest common denominator. I personally am not looking forward to having a class of one hundred students in which by mid-term the attendance zeros out so that I have to talk to an empty room while recording.  If I have to do that I may as well do everything via Zoom.

 

So, what is the solution?  Good question.  For what it is worth - and I have learned what I have to say seems to be worth little in a world where everyone’s mind is made up in advance -  I think there will need to be a mix of in-person and online options for students.  The in person class will be in person – no recording of lectures and no online evaluation.  The online classes will be a blend of approaches and will include web based courses, Zoom type lecture courses and hybrid courses.  Yes, in the end, a hybrid course is really only an online course with voluntary classroom attendance offered as a compromise that allows university administrations to pretend they have their cake and can eat it too. I think universities should aim to make sure students take about half their courses in person and the other half can be some form of online option.

 

Why is having a large chunk in person important?  In the end, students need to experience a traditional lecture environment because a lecture, just like a performance of Macbeth, is quite different whether it is done as a live production or whether it is a film.  Moreover, students need to interact socially with other students as well as their instructors as part of the learning experience.  If students do not get to know their instructors and their instructors know them, how will they be able to get proper letters of reference and recommendation when the time comes?

 

As for the mix of what courses are online and what are in person, that is best left to individual departments and their faculty members to decide.  Universities should set the broad parameters of what the blend should be but allow departments and faculty members the flexibility to determine the precise blend based on their experience of what works and what does not work.  In the age of personal experience, technology and flexible tailoring of options to suit one’s needs and expectations, micro managing is something that belongs to the age of dinosaurs. 

 

 

Ontario's War on Universities: Coincidence, Incompetence or Strategy?

 

As the Laurentian saga continues to unfold, one is forced to consider the possibility that what is in play in Ontario is not a one-off event of an unfortunate university that did not manage its finances well but perhaps a broader strategy to restructure the university sector.  While such an opinion will be labelled as paranoia by many it remains that a number of variables seem to be coming together that may ultimately create a number of Laurentians. 

 

If this is happening by coincidence, then it is ultimately a reflection of the inconsistency and incompetence of government policies. If it is not a coincidence, then it remains that perhaps conditions are being created to provide incentives for universities to change in a manner that the Ontario government thinks they should. It is no secret that governments have a predisposition for professional programs as opposed to arts and science and the list of the 69 discontinued programs at Laurentian happens to include a rather large number of arts, science and social science programs. 

 

Universities are semi-autonomous and increasingly subject to government program and operation oversight, but they are still independent enough to resist the types of rapid program shifts that government politicians, policy makers and bureaucrats are fond of as they pursue assorted agendas and flavours of the month.  Their faculty associations have also negotiated agreements that include exigency clauses that make it difficult and expensive if not impossible to implement short-term, long-term or permanent layoffs.  How to get around exigency clauses and get rid of tenured faculty? Why file for insolvency under the Companies’ Creditors Arrangement Act (CCAA) which essentially allows the university to financially restructure and get around the exigency clauses.

 

Financial pressure is needed to create a situation whereby a university may eventually feel it needs to file for insolvency.  Ontario universities have been subject to essentially declining or frozen grant funding for a number of years now.  They have compensated by raising the revenue portion from tuition on domestic students, but the Ontario government decided to cut tuition fees by ten percent and then frozen them. Indeed, it has now extended the freeze for a second year because it says it “wants to protect students’ and families’ pocketbooks during the COVID-19 pandemic.”  

 

Now, Ontario and Canadian demographics are such that the pool of domestic university aged students has not been growing substantially and the result is the pursuit of international students who not only are coming in large numbers but can be charged higher tuition than domestic students.   However, on the same day that Ontario announced that it was extending the Ontario domestic student freeze another year (out of province students are exempt from the freeze) it was also revealed that the federal government was facing demands by Ontario to suspend the entry into Ontario of international students.  Needless to say, given the importance of international students and their tuition to the finances of many Ontario universities, the results for university finances this fall would be catastrophic.

 

So, what are we to make of all this?  Is this all an unfortunate coincidence of a number of independent measures and decisions randomly coming together to create a financial storm for the university sector? Is it simply the result of a government that does not understand how to consult and as a result makes damaging policy decisions that border on incompetence?  Or has the government decided to take the case of Laurentian as an opportunity to see if it can create the nudge for massive changes in a university sector that to date has been able to resist change? 

 

Of course, the pursuit of such a strategy requires a sophisticated and calculating behind the scenes over-mind and the Ontario government to date has not exhibited such a tendency.  It probably is a combination of coincidence and poor policy making.  On the other hand, it could be as simple as the Ontario government realizing that most people do not care too much about universities making them an easy target for financial cuts to what remains of government university funding down the road. Smaller universities in the end require less grant funding. 

 

 

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?

 

 

 

 

 

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.