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.
