Northern Economist 2.0

Saturday 9 October 2021

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.

Tuesday 2 February 2021

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 21st century as universities undertook massive capital spending projects to deal with rising enrollments, infrastructure renewal and program expansion even though long-term demographic projections suggested that enrollment growth would eventually ebb .  Long term debt as a percentage of total university revenue was higher in smaller Ontario universities though a decade ago, Wilfrid Laurier, Lakehead and UOIT seemed in worse shape than Laurentian.

 

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

 


 

 

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

 

 


 

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

 


 

 

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

 

 


 

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

Friday 11 September 2020

Stuff My Students Say - Online Teaching Edition

 

Well, this was my first week of classes and all things considered, it went remarkably smoothly for me and about 95 percent of my students though there were a few glitches. Turns out my bright idea for separate google Gmail accounts for correspondence with each course does not work very well for large classes given Gmail’s mailout restrictions on personal accounts and my own university’s spam filter so I guess I am going to have to use my course mail mailer on D2L which is a bit cumbersome but it will have to do.  Most students appeared to get started on self-directed web based learning reasonably well. This is the approach I have opted for with informal office hour type Zoom sessions where there can be some personal interaction and questions answered.

 

A couple of things for your amusement based on this week's observations.

1) About 5 percent of the students generate 90% of your email. However, that can be a lot of email when you have 150 students and the same ones email you multiple times to make sure you got their message.

2) Many students do not read the course plan provided or anything else it seems including the instructions sent by the university.

3) I think a lot of students do not realize the size of the classes they are in, the limits of technology, and the limits to an instructor’s ability to deal with their issues:

 

Some examples:

 

"Looking at the course plan for your class and of my other classes all of the quizzes for Economics clash with my Marketing's quizzes. I hope we can find a solution on how to fit both course requirements to my schedule. If it helps Thursdays I'm free by 3:00 p.m. and Fridays my schedule is clear."

 

By the way, this was received after I told them in a revised course plan that there would now be a 24-hour window for getting your "1-hour "quizzes back.  It is a class of 130 students by the way…

 

Or, how about this:

 

"Thank you for your email. I had a question, do the activities on Mindtap count toward our final grades?"

 

While mindTap can be used for assessment, I have not done that.  Again, it is important to read the instructions that come with the course. The Course Plan says 4 quizzes and a final and Mindtap is a study guide resource for yourselves to help you learn on your own.  

 

I have a question. I saw you posted the sample questions and quiz for the week 1. I wonder which one we need to submit? And how to do that? Thank you!

 

But they are sample quizzes with the answers at the back for your own practice. Why would I give you a sample quiz and the answers and then ask for it back?

 

I have registered for the course ECON 1100. Can you please tell me the timings of the class? as it is not showing in my course link website.”

 

It is a web-based course – i.e., in an earlier day and age it probably would be called a “reading” course. There are no class times. Perhaps students are confused by language such as synchronous and asynchronous learning (I know I am).  Not sure how the type of stuff is being communicated to them.

 

Some other ones:

 

I was wondering if there is the possibility of completing one of your scheduled quizzes at a date which is earlier than specified. More specifically, I am referring to Quiz #2, if this makes a difference with anything. I would be looking to complete it a week earlier on the 14th or 15th of October. Obviously I am aware the material would be the same

 

Again, this is a class of 130 and not a seminar course of 10 or 20.  

 

In response to an informal Zoom Meeting invite for a short voluntary non-mandatory “ informal office hour/getting to know you” session set for 11 am on a Monday:

 

I may not be able to attend. As I work M to F 8 to 4pm.”

 

This was followed by a request from the student for a recording of the session and a link to it be sent.  To the student’s credit, upon further explanation, they realized that recording what are essentially interactions with other students in a question and answer session was understandably not a good idea.  There is indeed learning behavior on the part of students.

 

And my personal favorite:

 

Will future all meetings happen on this day/at this time? I ask because I have nine hours of lectures starting at 11:30 on Mondays

 

My sympathies are all with the student on this one.  What kind of Zoom lecture scheduling on the part of a university is that?

 

It is going to be a draining first term.