Last Spring, the Board of Governors approved the University’s 2023/24 operating budget. At the time, we committed to providing an extraordinary Fall operating budget update because we knew that it was going to be a challenging financial year. Now that we have some critical pieces of information, I have provided an update to Senate and the Board of Governors, and can provide an update to our community.
There are several ongoing systemic factors that have affected the University’s operating budget this year and that will affect future budgets:
- The provincial government imposed a 10 per cent domestic tuition cut in 2019 which was then followed by an ongoing freeze on tuition fees for domestic Ontario students. These measures have brought domestic tuition rates down to the level they were in 2014/15 and have reduced the University’s revenue by an estimated >$250 million over the past five-year period.
- Provincial government funding is restricted to a set number of domestic students. Over the last 10 years, the province’s basic operating grant per domestic student for the University has been frozen. This translates to a $22 million gap in grants as a result of enrolment corridor-based caps in total grant funding for domestic students.
- The province has imposed numerous unfunded and under-funded mandates around student and community supports.
- The lack of federal government commitment to taking action in response to longstanding calls to provide better support for the real indirect costs of research, and for research graduate students, has put increased pressure on the operating budgets of research-intensive universities.
- A global pandemic and a number of geopolitical issues have impacted student mobility and enrolment, creating uncertainties that make enrolment management and budget forecasting challenging.
- Evolving inflationary and market volatility have increased the costs of goods and services across the board.
Current Year Pressures
The University started the fiscal year with a $4 million operating budget deficit. We knew when the Board approved this budget that there were additional points of uncertainty that we anticipated would have in-year impacts on the operating budget.
This uncertainty includes changes to our enrollment. Current projections indicate incremental growth in domestic student enrolment with a smaller decrease in international student enrolment that is consistent with the trend over the last three years. This trend is unsustainable and causes instability when planning for international student enrolment and financial planning.
Rising inflation rates have caused general expense pressures with the increased costs of goods and services. Interest rates have risen and have resulted in a $5 million increase in interest income projections for 2023/24.
The recent faculty salary adjustment and the staff salary adjustment prompted by the changes to Bill 124 have resulted in a base salary increase and one-time payments for all eligible employees. The base salary increases translate to approximately $16 million (salary and benefits) annual recurring expense, and the lump sum payments amount to an additional $8 million one-time expense, both applicable in the current budget year.
The Government of Ontario formed a Blue-Ribbon Panel to examine the financial sustainability of the post-secondary sector. The panel’s report has not yet been released, nor has the government provided a response to it. Therefore, it is unlikely that the outcome of the report will lead to any incremental revenue impacts of any outcomes related to BRP until the 2024/25 budget year.
Proactively Moving Forward
The Fall budget update estimates that our overall operating budget shortfall is $15 million this year. As was communicated at the time of the budget approval, the University will cover this shortfall using central reserve funds. However, this approach is unsustainable on an ongoing basis.
We expect cost pressures, constraints, and uncertainty on key revenue drivers to continue. Without further University actions and transformative changes to the current Ontario university funding environment, our operating budget deficit would grow significantly in the coming years.
Balancing the fiscal year 2024/25 and future years budgets will require a multi-faceted approach and a commitment to working together as One University. As we await action on the items that are currently being deliberated by the government, there will be difficult decisions to make. We will apply new measures to manage operating budget pressures in order to support our academic and research mission, as well as key priorities of the University. This will include a variety of approaches to reduce expenses in certain areas, and reallocate resources to other initiatives and priorities, to optimize spending and streamline operations.
An invitation to a Town Hall is forthcoming and I encourage you to attend. In the meantime, you can find a more in-depth budget update on the Provost’s website.