Operating Budget Constraints and Measures

For more than five years, the University has been applying internal financial constraints since the Ontario government mandated a 10 per cent domestic tuition cut in 2019 and ongoing tuition fee restrictions. These constraints include budget cuts, the deferral of large project spending, the redistribution of budgetary resources, and the implementation of several measures to promote efficiencies and savings through coordinated business processes.

In November 2023, the University of Waterloo community was briefed on the financial state of our institution through a communication and the Operating Budget Town Hall. Since then, we have continued to experience pressures from systemic factors that directly impact the University’s operating budget, including constrained provincial government operating grants, ongoing government-imposed restrictions on tuition fee changes, inflation, and declining enrolment of international undergraduate students, to name a few.

The University will mitigate the projected 2023/2024 operating budget deficit by constraining centrally controlled spending in-year and using one-time central reserve resources as necessary. However, this is not a sustainable strategy for balancing our operating budget in an ongoing manner, nor in providing for strategic investments necessary to support the University community.

Understanding the recent provincial funding announcement

On Monday, February 26, the provincial government responded to the Blue-Ribbon Panel’s report with a $1.3 billion funding package over three years, most of which will begin in 2024/2025. This funding is welcome, but it is important to note that a large fraction of this package is not related to ongoing base operating funding. 

We understand from the Ministry for Colleges and Universities (MCU) that it will be a few weeks before we receive communication regarding exactly how much of the new funding package from the government will be allotted to Waterloo, but we can make some assumptions based on current information.

Of the $1.3 billion in funding, $903 million over three years will go to a Postsecondary Education Sustainability Fund starting in 2024/2025, designated to two separate purposes. Of this amount, $203 million has been designated to provide relief to those institutions previously identified as being in the greatest financial need. However, because Waterloo achieved a healthy rating in MCU’s 2023 University Financial Accountability metrics, we understand that we will not be eligible for this.

The remaining $700 million over three years from the Sustainability Fund is to be allocated to all publicly assisted colleges and universities across the province. We understand that the distribution of this funding will be determined by MCU and will be related to the core grant funding of individual institutions, which we expect will translate into about $7 million for Waterloo in 2024/2025.

In addition to the Sustainability Fund, there is a special one-time allocation of $100 million related to over-enrollment in STEM programs. MCU indicates that this fund will be distributed in the current fiscal year (2023/2024), and we estimate our share of this to be $12 million. This one-time funding will help to manage the budget transition from 2023/2024 to 2024/2025, but is not an ongoing commitment to funding sustainability. 

Other components of the MCU funding package include specific research and infrastructural commitments that do not contribute directly to operating budget sustainability. 

The government also announced that the tuition freeze for domestic students from Ontario will continue for at least another three years.

Planning for the 2024/2025 University Operating Budget

During the most recent Senate and Board of Governors meetings, we shared revenue and expense projections for the 2024/2025 operating budget using the best available information at the time, which projected an anticipated gap of approximately $85 million in the absence of constraint measures. We also identified areas of uncertainty surrounding major determinants of the budget that will continue to develop this year and throughout the 2024/2025 fiscal year. With the recent minimal investment from the provincial government, we anticipate a slight reduction in that gap to $75 million, which does little to change longer term projections.

As noted above, this new funding will provide very little to Waterloo’s ongoing operating budget, and comes with a continuing tuition freeze for at least the next three years. In addition, international tuition revenues remain uncertain due to possible ongoing effects of recent declines in international undergraduate student enrolments, as well as the challenges and confusion created by the cap on international study permits for this year’s admissions cycle that was recently imposed by the federal government.

On the expense side, there is uncertainty regarding the outcomes of the employee salary negotiations and discussions, as these processes are underway but not completed.

The opening 2024/2025 operating budget is being prepared to present to Governance committees in the coming weeks, ultimately to seek the Board of Governors’ approval in April.

The budget proposal will contain a broad spectrum of specific measures with recommendations to approach constraints responsibly, considering the best information available, and allowing for adjustments as the uncertainty associated with the major budget determinants becomes clearer over time. A multi-modal, proportional approach to budget measures is being proposed to ensure that we continue to support the University’s academic and research mission, and other key priorities, while under ongoing budgetary pressures.

One major component of budgetary measures will be to address 57 per cent of the anticipated gap with ongoing spending reductions ($42.5 million) beginning at the start of the 2024/2025 fiscal year.

This will be achieved through a four per cent ongoing budget reduction to Faculties and Academic Support Units (ASUs) which translates to approximately a $24 million reduction, as well as a 28 per cent budget reduction to centrally controlled operating resources normally used to fund strategic priorities and investments to support the University Community, which translates to $15 million. There will also be targeted budget corrections of $3.5 million to reduce some unit budgets, in order to better reflect recently identified budget right-sizing opportunities based on historical spending activity. Reducing costs to this extent on an ongoing basis within one year will be a significant challenge but is necessary, since estimates based on current information indicate that expenses will continue to increase for the 2025/2026 and 2026/2027 fiscal years, while revenue growth projections remain flat with significant areas of uncertainty. We can expect that further work to balance the budget in those years will be required.

Another major component of budgetary measures will be the application of one-time resources during the year to address the remaining portion of the anticipated 2024/2025 operating budget gap.

This will require a one-time contribution from Faculties and ASUs in 2024/2025 equivalent to two per cent of their ongoing budgets, estimated to translate into $12 million total, as well as a one-time contribution from central reserves to cover the remaining deficit. This approach ensures that we do not immediately cut too deeply in the face of budget uncertainty. But as noted above, this component does not contribute to a sustainable strategy, while it does facilitate a transitional solution.

Associated with the above broad approach will be immediate measures to reduce spending through workforce planning. This will include implementing a limited hiring program, with few exceptions that will require enhanced approval processes. HR will provide guidance, including an evaluation of opportunities to coordinate and share services in key support areas.

We will continue to find ways to save costs and find efficiencies through coordination and rationalizing priorities. A shift in our approach to operational coordination is required, which relies on those with local budget decision oversight looking critically at how they allocate discretionary budgets (such as spending on travel and internal events), and all employees thinking about how to optimize individual practices. These changes will look different across the institution and will depend on the nature of the work. However, we all must begin to think critically about our daily practices and view them against the priorities of our institution. In the coming weeks, HR and Finance, together with the Integrated Planning and Budgeting Office will provide support and resources for leaders as we navigate these changes. More information and next steps will be provided in meetings with ASU and Faculty Financial Officers.  

As multi-year planning continues, it will be important to address areas that can provide further alignment in processes and strategies for expense reduction. An integral component in this planning will be up-front priority investments to facilitate longer-term benefits. We also remain committed to finding ways to achieve efficiencies through the modernization of processes to reduce procurement spending; the streamlining, digitization, and automation of processes; improvements in roles and structures; and in space optimization.

Committing to focus on these areas will promote strategic alignment and coordination across the institution, as identified in the Provost’s response to the Provost’s Advisory Committee on Building a Resilient University of Waterloo report, and is consistent with several initiatives already underway. These initiatives include the development of an Integrated Planning and Budgeting Process, a Campus Master Plan, and others. Our infrastructure and Campus Master Plan will include approaches that enable the monetization of University resources to provide revenue streams that are capable of supporting project spending and external borrowing costs for priority capital projects, improvements, and deferred maintenance.