HESA

Higher Education Strategy Associates

Author Archives: Alex Usher

October 31

Apprenticeships and Commodity Prices

There’s been a lot of talk recently about the commodities “supercycle” coming to an end.  The most immediate evidence for this is what’s happening with the price of oil, which is falling rapidly (the spot price is down 27% in the last 4 months, but more importantly the 5-year futures price is down 24% ).   That’s both because of weaker global demand and because there’s a lot more oil out there than there used to be, thanks to (among other things) improved shale oil recovery techniques.

So what does this mean for higher education?  At the moment it seems unlikely to affect much for universities except insofar as it affects provincial economies, and hence tax revenues.  Alberta’s budget is less sensitive to oil prices than to gas prices; Newfoundland is the only province that is likely to get hit badly.  On the other hand, the economies of Quebec and Ontario are likely to see a boost – oil price drops tend to act like tax cuts, so that’s good news for universities in those provinces.

Where I think the end of the commodity supercycle (if that’s what it is) is going to hurt most is in skilled trades apprenticeships.  For the past decade and a half, apprenticeship registrations have been escalating constantly.  And while registrations have increased everywhere across the country, a lot of it has been driven by the migration of skilled tradespeople to Alberta (and to a lesser extent BC and Saskatchewan), which in turn has been linked to the rise in commodity prices, particularly the price of oil.

Figure 1 shows this pretty clearly.  The orange line is apprenticeship registrations, and the blue line is the spot price for West Texas Intermediate crude (which is the usual benchmark for Alberta crude).  It seems clear as day that the pick-up in apprenticeships in the late 1990s correlated pretty tightly with the return of the oil boom.

Figure 1: Oil Prices (in $2013 CDN) and Apprenticeship Registrations, 1991-2012

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

That said, it does seem as though apprentice registrations and WTI decouples somewhat after the oil price crash in 2008, so maybe they can withstand a further reduction in price.  But if oil falls below $80/barrel (which it did this week), some estimates are that fully a quarter of new projects become uneconomical.  Intuitively, this seems like it would have enormous knock-on effects, not just in Alberta’s resource industry but also in its construction industry.  And if all those people from Ontario and the Maritimes start heading home, then the knock-on effects will be felt in the rest of the country, as well.

We got into a very lazy habit over the past decade of thinking that training and apprenticeships in the skilled trades was “safe”.  We told a lot of kids that they should forego other forms of education, because they could make out like bandits as apprentices.

In the short term, that was true.  But back in the 1980s, in the trough of the last commodity bust, unemployment rates in the skilled trades were in the double digits.  It’s not completely out of the question that could happen again.

October 30

Times Higher Rankings, Weak Methodologies, and the Vastly Overblown “Rise of Asia”

I’m about a month late with this one (apologies), but I did want to mention something about the most recent version of the Times Higher Education (THE) Rankings.  You probably saw it linked to headlines that read, “The Rise of Asia”, or some such thing.

As some of you may know, I am inherently suspicious about year-on-year changes in rankings.  Universities are slow-moving creatures.  Quality is built over decades, not months.  If you see huge shifts from one year to another, it usually means the methodology is flimsy.  So I looked at the data for evidence of this “rise of Asia”.

The evidence clearly isn’t there in the top 50.  Tokyo and Hong Kong are unchanged in their position.  Tsinghua Beijing and National University of Singapore are all within a place or two of where they were last year.  In fact, if you just look at the top 50, you’d think Asia might be going backwards, since one of their big unis (Seoul National) fell out of the top 50, going from 44th to 52nd in a single year.

Well, what about if you look at the top 100?  Not much different.  In Korea, KAIST is up a bit, but Pohang is down.  Both the Hong Kong University of Science and Technology and Nanyang were up sharply, though, which is a bit of a boost; however, only one new “Asian” university came into the rankings, and that was the Middle Eastern Technical University in Turkey, which rose spectacularly from the 201-225 band last year, to 85th this year.

OK, what about the next 100?  Here it gets interesting.  There are bad news stories for Asian universities.  National Taiwan and Osaka each fell 13 places. Tohoku fell 15, Tokyo Tech 16, Chinese University Hong Kong 20, and Yonsei University fell out of the top 200 altogether.  But there is good news too: Bogazici University in Turkey jumped 60 places to 139th, and five new universities – two from China, two from Turkey and one from Korea – entered the top 200 for the first time.

So here’s the problem with the THE narrative.  The best part of the evidence for all this “rise of Asia” stuff rests on events in Turkey (which, like Israel, is often considered as being European rather than Asian – at least if membership in UEFA and Eurovision is anything to go by).  The only reason THE goes on with its “rise of Asia” tagline is because it has a lot of advertisers and a big conference business in East Asia, and its good business to flatter them, and damn the facts.

But there’s another issue here: how the hell did Turkey do so well this year, anyway?  Well, for that you need to check in with my friend Richard Holmes, who runs the University Ranking Watch blog.  He points out that a single paper (the one in Physics Letters B, which announced the confirmation of the Higgs Boson, and which immediately got cited in a bazillion places) was responsible for most of the movement in this year’s rankings.  And, because the paper had over 2,800 co-authors (including from those suddenly big Turkish universities), and because THE doesn’t fractionally count multiple-authored articles, and because THE’s methodology gives tons of bonus points to universities located in countries where scientific publications are low, this absolutely blew some schools’ numbers into the stratosphere.  Other examples of this are Scuola Normale di Pisa, which came out of nowhere to be ranked 65th in the world, or Federica Santa Maria Technical University in Chile, which somehow became the 4th ranked university in Latin America.

So basically, this year’s “rise of Asia” story was based almost entirely on the fact that a few of the 2,800 co-authors on the “Observation of a new boson…” paper happened to work in Turkey.

THE needs a new methodology.  Soon.

October 29

Cost of Attendance

You may recall that we recently put out a paper looking at “net prices” in Canadian higher education, which concluded that, in many cases, these prices were substantially lower than is commonly believed, and that too many of our subsidies in higher education were effectively hidden from those who benefit from them.  The reaction for the most part was amusingly incoherent – mostly variations on “they must be lying, because I’ve never heard of these hidden subsidies”.

But there was one line of criticism that is very much worth discussing.  Several people said “look, expressing subsidies as a function of tuition is all well and good, but the cost of education doesn’t just consist of tuition and fees, it’s living expenses, too – so why didn’t you also include that?”

Fair question.  We did it for two reasons. The first is practical: fees are set and living costs are not.  Some students move to another city to study (either by choice or out of necessity) – that raises their costs by several thousand dollars.  Some students don’t move cities, but rather choose to move out of their parents house anyway – again significantly raising costs.  Students can and do choose various levels of accommodations, with different financial consequences.  Many students also either own or rent cars.  I could go on, but you get the idea: student living costs vary enormously either by choice or circumstance, and more to the point, these costs will be to some degree dependent on the resources government makes available, which brings an endogeneity problem.  It’s a methodological nightmare: hence, we decided to leave it alone.

But there’s another reason to leave living costs out: quite simply, they aren’t a cost of education.  Whether or not a young person goes to school, they need to live.  Those costs (or some of them, anyway) would be incurred regardless.

Pointing this out usually drives people mental.  “But they have to live!” people say, “and they can’t earn the money to do that while they’re studying!”  Well, indeed.  This is why the real cost of attendance is not what students spend, but rather what they fail to earn – their opportunity cost.  We confuse this point all the time, because through our student aid program we try to compensate direct costs rather than reward missed earnings.  But the fact of the matter is the actual “cost” is lost wages.

Could we have included lost wages in our “net cost” calculations?  Possibly – though of course we’d have to make a fair number of assumptions about employment rates, hours worked, and hourly wages, all of which would have been open to challenge.  So on the whole, it seemed safer to leave them out.

What about the policy aspect though?  Why do we compensate living costs rather than lost wages?  Two reasons, really.   First is that it’s a hell of a lot of easier to explain to students and the public.  And second, there are reasonable policy rationales for – at the very least – covering the cost of moving away from home, either for reasons of access (for students from rural areas who need to move to attend education) or program choice (for all students).

Basically, it’s one of those cases where what makes sense for policy analysis and what makes sense for actual policy aren’t one and the same.

October 28

Responsibility-Centred Budgeting

As I’m on the subject of finances and budgeting these days, I thought it a good time to bring up the topic of “responsibility-centred budgeting” (RCB).  It’s a timely topic, given both this ludicrous article in the Edmonton Journal last week, and the fact that I have one loyal reader who’s been urging me to write about it for months now (Hi, Alan!).

Responsibility-centred budgeting basically says that units (usually faculties, occasionally departments) are responsible for raising their own funds and covering their own costs.  If you use less space, you have more money for other things; if you teach more students, you’ll get more money.  It’s a simple formula, and is very true to the medieval origins of the university, where professors were all required to set their own fees and collect their own money.

At this point in the discussion, everyone should quickly go and read Nick Rowe’s Confessions of a Central Planner, which is by far the best thing ever written in Canada on university management.  There’s lots of good stuff in that piece, but pay particular attention to one specific point Rowe makes: universities, for the most part, get paid based on how many students they teach.  Yet within most institutions, there is a Hobbesian war of all-against-all to get other people to teach students.  This is because historically, in most institutions, the link between the number of students taught and the funding one receives is loose at best, non-existent at worst.

Some people – mainly those who literally have no clue about how universities are actually financed – abhor the idea of money following students within the institution.  Often, they (and “they” are almost always profs in Arts) come up with scare stories about how money will all go to Science, Engineering, and Business.  And while it’s certainly true that professional schools tend to be money-spinners, at most institutions the departments that do the most teaching – and hence, do the work to bring in money from tuition and operating grants – are frequently to be found in Arts (typically, English is one of them).  Science and Engineering, despite being thought of as “big money” disciplines, tend to net out pretty even because they are also “big cost” disciplines.

The importance of RCB is mainly that it aligns incentives within institutions.  When units are responsible for generating their income and covering their own costs, they tend to use fewer resources, and focus more on generating income.  That’s good not just for bottom-line reasons, but also because it fundamentally changes an institution’s culture – from one where the (much-derided) central administration is a government to be lobbied for money, to one where everyone is involved in the search for revenue and efficiencies.

RCB is not quite as simple as it sounds – for it to work, each faculty needs some kind of staff able to do sophisticated budgeting and course development, and that won’t work at smaller institutions.  There still needs to be central oversight to ensure departments don’t go hogwild hiring tenure-track staff on the basis of short-term profits, or start gaming the system of pre-requisites and required courses in order to screw cognate disciplines.  And there’s still a role for central admin to play in redistributing some money to disciplines that could never make it on their own (mostly Fine Arts).

It’s not a panacea, of course, and there are ways it can be misused.  But on the whole, RCB is proving to be an important tool for Canadian universities to deal with their shift to being more tuition-reliant.

October 27

The Way Forward on Collective Bargaining

So, last week (here, here, and here) I noted that in most parts of the country, total compensation levels have been running more or less in line with changes to total operating grants.  But this is not a reason to become complacent about university finances and future collective bargaining agreements, for two reasons.

First, what I’ve been showing is that salary mass has been increasing in line with operating income.  But salary mass and salaries are two different things.  If I give very high salary increases, I can keep salary mass down by reducing total staff complement.  That is very clearly starting to happen at some universities, and it’s not necessarily positive.  So there’s that.

Second, all the projections I’ve made have assumed that growth in tuition revenue is going to continue at present rates.  But there are some good reasons to suspect that this won’t be the case.  On one hand, domestic student numbers are already falling in Ontario and the Maritimes, due to demographics.  But more importantly, there’s simply no guarantee we’ll continue to increase tuition revenues from international students the way we have for the last seven or eight years.  And yet, every time another campus signs a big-money salary deal with staff, this is implicitly what the system is banking on.

What most people on Canadian campuses haven’t yet realized is the extent to which the 4.5% annual real increases in total operating budgets have been funded by international students (actually, a lot people don’t even believe that operating budgets have been increasing, but that’s another story).  And to keep those increases going into the future requires that institutions not only to keep the students they have, but also that they maintain a constant rate of growth.

So here’s the deal.  With institutional income increasingly coming from volatile market-based sources, sensitive to changes in demand, and quite possibly headed in the wrong direction, we are ill-served by a collective bargaining culture based on keeping-up with what profs at (insert comparator institution here) got 12 months ago.  That way lies an inflationary spiral.  What really matters is how total operating income is going to grow, and how to ensure salary mass increases don’t crowd out other important educational expenditures.

There is a simple way to do this, and, as I suggested back here, it involves linking pay to institutional income.  Institutions need to start saying publicly, at the outset of negotiations, what their likely income increases are going to be over the next 3-4 years, and make it clear that no settlement will be signed in which salary mass increases are more than this.  If an institution’s total net income is expected to increase by 10%, make it clear that 10% is the most that can be offered to staff.  Within that 10%, many things can be negotiated, of course.  But the bottom line has to link pay to income.

What if income increases more than 10%?  Staff should get their share of any incremental increase, of course.  That way, everyone has an incentive to see total revenues increase – which currently means giving everyone an incentive to be more foreign-student-minded.

Unions might not like this.  And that’s their right.  But then it would also be their responsibility to explain what universities should be cutting if growing paycheques can’t keep up with faltering revenue – publicly, and before the start of any contract negotiations.

October 24

Scenario Planning Outside Ontario and Quebec

After a one day hiatus, we’re back to the topic of scenario planning.  You’ll recall that on Wednesday, I showed some pretty pessimistic projections for what could happen to university financing in Quebec and Ontario.  Today, I have some better news for people in seven of the eight other provinces: your futures aren’t nearly so disastrous.

When scenario-planning at the provincial level, four things matter:

1)      The forecast for nominal GDP.  Over the long-run, government budgets tend to remain pretty stable with respect to the size of the economy.  And within the budget, the share to any given field of expenditure – with the signal exception of health – stays pretty constant, too.  So, a rough rule of thumb for what’s going to happen to government income is: it’s going to stay in-line with projected nominal GDP growth.  For this reason, it’s much better to be a university in a province like Alberta, where average nominal GDP growth over the period 2014-2016 is expected to be about 5.5%, than it is to be Memorial in Newfoundland, where the projected figure is just 2%.  In most provinces, though, the outlook is between 3 and 4%.

2)      Deficits. The only reason growth might not be equal to nominal GDP growth is if there’s a deficit to get rid of.  Here, there’s good news: BC, Alberta, Saskatchewan, and Newfoundland are essentially deficit-free.  Universities in other provinces are going to find the going somewhat tougher.

3)      The percentage of total income coming from fees.  In all provinces, nominal increases in fee income is outstripping increases in GDP; in other words: fees are becoming more important everywhere.  Obviously, this is better news for provinces that are already relatively fee-dependent than for those that are not; a 5% increase in fee income means a lot more in Nova Scotia (where fees make up almost half of all income) than in Newfoundland (where they make up about 15% of income).  In this sense, the Maritime provinces and BC are in better shape than the rest of the country.

4)      Whether salary mass is rising faster than total income.  If so, you’re in deep trouble.  It’s not true in most provinces; but it’s clearly been the case both in Alberta and Newfoundland over the past few years.

If we simply multiply out expected increases in nominal GDP, and assume that current trends for tuition revenue growth remain stable, we get the following projections for income:

Figure 1: Projected Real Annual Operating Income Increases, Based on Stable Increases in Tuition Revenue and Government Revenue Increases Based on Nominal GDP

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

(*indicates a province with a significant budget deficit, meaning institutional income will likely be lower than indicated)

Alberta looks set for a good few years, with real income increases of 4.5% or more, while Saskatchewan and BC look set for annual increases of 3%, or so.  Manitoba and the Maritimes are, in theory, set for increases of 2-3%, but given that all four provinces are carrying deficits the strong likelihood is that their governments will not increase their budgets at the same pace as nominal GDP, and so actual results will be somewhat smaller.  Newfoundland, where projected economic growth is shaky, and the university has little in the way of tuition income to fall back on, looks in deep trouble.

Figure 2 shows what happens if current rates of salary growth are subtracted from growth rates in income.  Provinces with positive numbers can – assuming their income numbers hold up – afford current rates of salary growth, while provinces with negative numbers cannot.  Nova Scotia and New Brunswick appear to have the most sustainable numbers, but recall that both their governments have deficits to eliminate, so in fact their position is likely not nearly as good as this graph makes it seem.  Prince Edward Island and Manitoba are headed for trouble, and Newfoundland’s prospects resemble the Titanic.

Figure 2: Difference Between Annual Projected Percentage Rate of Operating Budget Growth and Current Annual Percentage Rates of Salary Mass Growth

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

(*indicates a province with a significant budget deficit, meaning institutional income will likely be lower than indicated)

To sum up:

i)        Generally it’s better to be in the west than the east

ii)       Memorial University in Newfoundland is in for one heck of a shock pretty soon.

iii)     Most provinces appear to have relatively stable finances if you assume continued growth in tuition revenue, which implies continued international student numbers.  It’s not at all clear how stable an assumption that is.

We’ll wrap-up this topic on Monday, so stay tuned.

October 23

Where the Questions Are

I had planned to continue on today with my series about operating budgets by taking a look at some scenarios for Central Canada, but I’ve been on the east coast for work the past couple days, and so that post will have to wait.  We’ll get back to it shortly, I promise.  But for now, let me turn to something I’ve been thinking about lately.

One of the maddening things about many discussions that concern higher education and business is the crudeness of many popular views on their relationship.  Mostly, we hear about how business’ role is to “contribute” to higher education, either via taxes, or philanthropy, or both (depending on where you are on the political spectrum).  Often times, the role of business is to hire “our” graduates (and if that’s not happening then let the agonized introspection begin).

And while those things are all true, what these analyses actually miss is the true role of business, particularly with respect to science: it’s a huge, incomparable reservoir of questions to be answered, and problems to be solved.  Of course, people get this at the level of applied research – by definition, when companies engage with higher education on applied research, it’s to solve specific problems – but they have trouble understanding when it comes to “pure” research.  Partly, that’s due to rhetorical confusion – the wording of “pure” research (a rhetorical device of Vannevar Bush designed to keep money flowing to universities after World War II) implies that interaction between scientists and pretty much anyone else will “contaminate” research.

But a quick history of 20th century science will show you that this is nonsense.  Much of Einstein’s early work was hugely influenced by being immersed in commercial technology at the Swiss patent office.  Quantum physics was an accidental discovery made by German scientists who were trying to design more accurate instruments to measure very small weights.  The Manhattan Project wasn’t about meeting commercial needs, but as research goes, it’s about as applied as it gets.  Etc., etc.

The point here is that there are parts of commercial science that are up banging against the frontiers of the unknown just as much as university science is: just think of what was discovered at Bell Labs, or what Craig Ventner has accomplished.  It’s where the rubber hits the road: where the most advanced academic science gets put into practice and tested in real-world conditions.  Under commercial pressure, commercial science looks for every little advantage when learning how to cure disease, design better buildings, and develop new technology.

Even Vannevar Bush didn’t believe “pure” research happened in a vacuum.  Indeed, the justification for “pure” research is always that someone, somewhere, will find an application for it.  If you don’t have an inkling of where your “pure” research findings might actually be applied someday, you probably aren’t conducting your “pure” research in a way that’s very effective, because you’re not asking the right questions.

And this is the real reason universities need to engage with industry: it’s where the best questions are.  And you’re not going to get top-notch research without top-notch questions.

October 22

Scenario Planning for Ontario and Quebec

Yesterday, we looked at data from 2004 to 2012 to examine income and expenditure trends for Canadian universities, and found that salary and operating budgets were both moving up at a pace of around 4.4% per year in real dollars.  Today, I want to do a bit of scenario planning for the country’s two largest provinces using the same technique of focussing just on operating grants, tuition, and salaries. 

Ontario

Ontario sits in between two divergent trends – real public funding has been stable or declining for many years, while tuition revenue has been increasing by about 8% per year, thanks mainly to the influx of international students.  As a result, since 2009, operating budgets have been increasing by 3.8% per year, which has been enough to deal with salary mass rises of 3.9% per year.

But can Ontario keep up that pace?  We’re already at the start of a phase where domestic enrolments are declining, and at best government income is going to decrease by about 1% per year in real terms (according to the government’s own budget papers, future increases will be 1%, less than the recent norm of 2%).  So a best guess at what’s going to happen is that government income trajectory will remain negative, and the 8% per year budget increases will start to trail off somewhat.  If this happens – and of course this still depends on ever-increasing international student numbers, which is by no means assured – then current levels of salary mass increases can be tolerated.

But what if things don’t go as planned?  What if international student numbers don’t offset losses from declining domestic student numbers?  What if the Wynne government decides to make one significant cut (say, 5%) in budgets this year to finally get the deficit under control, now that they have a majority government?  In this case, assuming no change in salary mass trajectory, salaries would rise to 82% of combined operating grant and tuition, from 76% today.  That may not sound like much, but let me turn those words around and phrase it another way: in order to accommodate current levels of growth in the salary budget, in a pessimistic scenario, the non-salary portion of the operating budget – light, heat, scholarships, lab supplies, etc. – would need to be cut by 25%.

Figure 1: Budget Scenarios for Ontario, 2012-13 to 2017-18

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

So the quick summary here is: If you want salary mass increases to continue, find ways to bring those foreign students in.  Otherwise, you either have to accept massive cuts to non-salary areas or a cut in salary growth.

Quebec

The situation in Quebec is both more straightforward and more problematic than in Ontario.  There, the government has already signalled it will cut funds in nominal terms next year in order to balance the budget.  The only question is what happens afterwards – and I have assumed here that spending will rise again at the rate of projected GDP growth.  Tuition revenue growth was never as high in Quebec (5% per year in real terms) as it was in Ontario, as Quebec doesn’t attract as many international students – there is no obvious reason to think this will change.  On the other side of the ledger, salaries as a percentage of total income is 87% of combined government grants and tuition, compared to 76% in Ontario (if you’re wondering why Quebec universities feel poorer than Ontario ones, there’s your answer right there).  You can come up with other scenarios, of course, but most plausible ones look worse than this.

Put these factors together and you get a pretty ugly picture.  Operating budgets are simply not likely to grow much in the short term, so even a continuation of current salary trends – a 2% real increase per year, or about half what it is in Ontario – would mean salaries rising from 87% of income to 91.4% of income.  Meaning, in short, that without a change in salary policy, Quebec universities would have to cut a third of their non-salary budget in order to make ends meet.

Figure 2: Budget Scenario for Quebec, 2012-13 to 2017-18

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

Whichever way you look at it, the numbers are ugly.  Compression of salary mass seems almost inevitable in Quebec; for Ontario to avoid the same requires institutions to continue a not-necessarily-sustainable trend of enrolling ever-increasing proportions of international students.

Tomorrow, we’ll get out of central Canada and see how things stack up elsewhere.

October 21

Operating Budgets

So, yesterday I said it was pretty easy to show what’s going on in university budgets just by looking at operating grants, tuition, and salaries – and so I thought, perhaps, I should practice what I preach.  So here goes:

Between 2004-5 and 2012-13, operating grants from provincial governments rose from $8.27 billion to $10.9 billion (all figures inflation-adjusted, expressed in 2012 dollars), an average increase of 3.5% per year.  But this encompasses two very distinct periods.  Up until 2009-10, the rate was about 5%, whereas since then the average has been 1%.

Tuition income has been rising by 5.3%, but here again we see a two-period effect.  Between 2004-05 and 2008-09 the increase averaged about 3% per year, after inflation; since then it’s been about 7%.  And this when actual tuition rises have only marginally outpaced inflation – the growth has mostly come from increases in fee revenue from international students and professional Master’s degrees.

Put all of that together and you get Figure 1, below, which shows that operating grants increased 4.4% per year, after inflation.  And you thought there was some sort of crisis.

Figure 1: Operating Income at Canadian Universities, 2004-5 to 2012-3, in Millions of $2012 (Source: CAUBO Financial Information on Universities and Colleges)

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

So much for income.  What’s going on with compensation?  Well, here’s the simplest way of showing the data.

Figure 2: Operating Budgets and Total Salaries & Benefits at Canadian Universities, 2004-5 to 2012-3, in Millions of $2012 (Source: CAUBO Financial Information on Universities and Colleges)

unnamed

 

 

 

 

 

 

 

 

 

 

 

 

In 2004-5, staff compensation was 72%, and while it bounced around between 69% and 74%, by 2012-3 staff compensation was still exactly 72%.  And although the portion of this which goes to academic salaries fell slightly (40.8% to 39.2%), it was offset by a rise in benefits.

Now, it’s tempting to look at all this and say “what the heck is all the fuss about”?  Institutional income and salaries are rising at the same rate, meaning pay rises are affordable and, by implication, staff costs have not increased faster than non-staff costs.  But this is looking backward to a time when institutional income was rising 4.4% per year.  The question is: how likely is it we’ll keep hitting that mark in the future?

Tune in tomorrow for some scenario planning.

October 20

Talking About Money

As I go from campus to campus across the country, one of the things that truly astonishes me is the poor quality of conversation about money.

There are far too many campuses where the administration insists everything is fine, until it comes time to negotiate collective agreements (especially with faculty) – at which point everything is suddenly disastrous.  As a result, faculties are naturally suspicious of these claims.  If everything really is disastrous, they reason, why are we only hearing about this now?

When administrations present claims ham-handedly, this scepticism is fair.  Where problems arise, however, is when faculty unions decide to play on this scepticism, and start spreading (what are essentially) falsehoods about university finances.  “They’re diverting operating budgets to the capital budget!” goes one oft-told story – which seems to be born of unwarranted jumping-to-conclusions about “unrestricted” and “restricted” funds in institutions’ annual financial reports (the unions assume they are equivalent to operating and capital, which they aren’t).  So one major problem we now have is that there is simply no common set of understandings on campus about the financial situation institutions face.  It’s getting to the point where some schools practically need a Parliamentary Budget Office to set out some common ground.

Though people like to make university finance out to be hugely complicated, it’s not.  You can more or less ignore everything going on in the capital and research budgets: for most purposes, the operating budget is what matters.  On the income side, well over 90% of operating budgets come from government operating grants and tuition fees.  On the expenditure side, salaries and benefits make up 75% of operating expenditures.  If salary mass is growing more slowly than operating grants and fees, a pay raise (or some new hires) might be in order; if operating grants and fees are growing more slowly than salary mass, you’ve either got to rein in salaries or find some other stuff to cut.  Many people out there want to complicate this, but that’s really all there is to it.

What institutions need to do is constantly inform their communities about what’s happening to those three things, and invite everyone to think through scenarios for the future.  Think we should all get 3% raises?  How likely is it that government income will rise to match?  If not, is everyone prepared to take on more international students to keep the appropriate amount of money coming in?

Institutions could be publishing something on this every month in their house newspapers.  If they wanted to, they could send something out to all staff every week.  They could invite faculty to help them find better ways to communicate budget information.  Then there would be some shared understanding of financial situations, and the atmosphere on campus would get a lot less tense.  I’d cite McGill here as something of a leader: I’m a big fan of their budget infographics and budget books.  Not coincidentally, McGill seems to be one of the places that has adjusted to declining revenue with the least amount of fuss.

Most faculty know times are tough, and want to be part of the solution rather than part of the problem.  But their goodwill can’t be tapped so long as institutions aren’t more open about finances and financial projections.

Page 1 of 6412345...102030...Last »