HESA

Higher Education Strategy Associates

Category Archives: Windsor

January 30

The Case of Southwestern Ontario

Yesterday I talked about ways universities can generate economic growth, and I promised to offer an example from Southwestern Ontario.

Southwestern Ontario has been in the news a lot recently due to its deteriorating economy, not least through the efforts of Western professor Mike Moffatt.  More recently, the Globe’s Adam Radwanski penned a feature article on what southwestern Ontario can learn from such economic revivals as has happened in the US rust belt.

Radwanski’s argument is a long one, but the bit relevant to post-secondary education just cites the examples of Pittsburgh and Akron, and says that universities should work more closely with industry to create new hi-tech centres of production.  Right off the bat, I think we can discard the Pittsburgh example.  For one thing, the city is in fact continuing to hemorrhage manufacturing jobs (3,000 last year alone), and for a second, the two institutions that have done the most to power the local economy are Carnegie Mellon (private) and Pittsburgh (semi-private), with a combined endowment of $5.6 billion.  Last I checked, the combined total for Western and Windsor was around $700 million.

Endowments matter because they allow institutions to take risks.  It’s probably not a coincidence that if you look at major US tech and innovation hubs where universities have served as a catalyst (e.g. Silicon Valley, Route 150 in Boston), the institutions at the heart are all private, and hence not worried about legislative scrutiny.  The only exception to this rule – UT Austin – just happens to be the world’s second-best endowed public university ($6 billion in assets, behind Michigan at $8 billion).

Ah, you say – but what about Akron?  That’s a public university, and it had a big role in helping the local rubber industry transition into a centre of excellence for polymers.  And yes, Akron is actually an excellent example, because it has a very close Ontario counterpart; namely, the University of Waterloo.

These days, people associate Waterloo with co-op, engineering, and integration with the local hi-tech economy.  But it’s worth remembering that when Waterloo started out in the late 1950s, the hi-tech economy didn’t exist.  Back then, Waterloo’s main industry – like Akron’s – was tires, and for the first decade or so of its existence, Waterloo was all about working with the tire industry.

Could Waterloo have worked harder to “save” the local tire industry, as UAkron did in Ohio?  Possibly.  But one big thing Akron had going for it was the fact that Goodyear had its corporate headquarters there.  Companies tend to do R&D close to home.  Even if Waterloo had tried some of the stuff Akron did, there’s no guarantee it would have had the same results because at the end of the day, Waterloo was a branch plant economy.  That matters.

Instead, of course, Waterloo did something better: it invented a new local industry essentially from scratch.  This did not occur by “working with industry” as we traditionally think about it.  It happened by giving a lot of people advanced training in a particular area, letting them create and spin-out companies, and then wait for the local economy to develop the deep pool of managerial skills and venture capital sources required to take products from concept to market.

(The importance of this last bit is insufficiently appreciated.  Take UBC, one of the country’s leaders in technology transfer: its life sciences spin-offs had a miserable time in the 80s and 90s because back then the only thing the local VCs and entrepreneurs understood was how to cut down trees and dig stuff out of the ground.  There’s a domestic life-sciences business ecology in Vancouver now, but it took 20 years to develop the required knowledge and skills.)

So, could Western University play a role like U Akron or U Waterloo?  Yes.  But it would have to bet on an industry or two (and it’s not clear which ones would make most sense).  And for the moment it is unclear that they have the desire, the cash, or the political backing to do so.  And even if they did, results would likely take a decade or more to show.  It’s a fix, but not a quick one.

September 24

The Math at Windsor

Not only is there strike talk at Laurentian, but there is also a strike in the air at Windsor (a one-day strike was held last week, but a full strike is promised for October 1st if no deal is reached).  Bargaining there began earlier this year, but for whatever reason, no progress was made in negotiations over the spring.  After a conciliator was unable to nudge the two sides closer together, the university was in the legal position to impose its offer on the faculty, which it did in early July. This was a canny piece of timing: by doing this in the summer, the university deprived the union of an immediate strike threat (because who cares if profs go on strike in summer?).

This was a rare case of a university playing hardball on timing; and though this may have wrong-footed the union, they’ve responded by making great rhetorical hay out of having a contract imposed on them.  Now, the strike is no longer about petty monetary demands, it’s about the right to collective bargaining.  Yay, righteousness!  And that’s a big bonus for the union, because if the strike was just about financial proposals, their position would be almost indefensible.

The union position is that the university’s offer – 0%, 0%, and 3% over three years – is inadequate because staff can’t be expected to accept wage increases below inflation.  While that’s one way of framing the institution’s offer, it glosses over the stonking amount of money the university is offering faculty through its Progression Through the Ranks (PTR) system (for a refresher course on PTR, see here).  Under the university’s offer, every single professor (other than those with over 30 years experience) gets an annual pay rise of $2,550.  This isn’t based on merit or anything, the way it is at Alberta or UBC or Waterloo, it’s just for sticking around another year.  On top of that, they get 0%, 0%, 3%.

Now that doesn’t translate easily into a percentage figure because $2,550 represents a different percentage for each professor, depending on their current pay. But let’s take a stab at it based on known average pay by rank.  Current pay figures are unavailable (thanks for cutting the UCASS faculty salary survey, StatsCan!), but I do have them from 4 years ago – they’ve probably gone up slightly since then, but for giggles let’s use them to take a look at what the university offer means if the PTR is included.

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On top of that, there’s something called the “Windsor Salary Scale” – a Windsor-only deal, in place for decades, which means that the Windsor salary scale always rises at the Ontario median.  Based on the past few years’ deals, this would mean average pay rises of another 4% or so (15.4% now for assistant profs, if you’re counting) – though it’s hard to predict exactly, since we don’t know what future salary settlements across Ontario will look like.  On the other hand, professors will also be asked to pay more into their pensions, what with returns being so meagre in our low-interest rate environment.  So let’s call these two a wash and stick with the figures in the table above.

To summarize, this deal – which, recall, had to be imposed – will see nearly all faculty salaries rise by rates well above inflation (in the case of assistant professors, by a factor of two).  The only ones who will not see a rise equal to inflation are that tiny minority (the 30+ years crew) already at the top of the pay grid, and who in most circumstances will be earning over $150,000.

Remember, this is at a university in a region where first-year enrolment fell by 10% this year, and where the regional youth cohort (Windsor-Essex-Chatham-Kent) is set to shrink by 15% or so over the next six years – meaning the institution will receive even fewer tuition dollars, and will receive a declining share of total government grants budget, which, if we’re lucky, will decline by only 3% in real terms over the next three years.

And still the union said no.

August 25

Why Angela Merkel Matters to the University of Windsor

I was interested to see the coverage in the Windsor Star of President Alan Wildeman’s recent note to staff about the 2012-2013 budget.

The Star focused on the gap between $12 million increase in new costs and the $6 million increase in revenue as a reason for a coming round of tuition hikes. To me, though, this misses the real story:  namely, crappy pension fund returns.

Windsor, like many Ontario universities, is in a bit of a pickle about staff pensions.  The fundamental assumption behind defined-benefit pensions in the 1990s and 2000s was that one could expect pension-funds invested in the market to make serious money.  This meant that one didn’t need to fully pay for one’s pension obligations – the magic of economic growth and compounding interest would do part of the work for you.

But the Dow has been going sideways for a decade now and bonds yields are tinier than Brazilian bikinis – meaning that most pension funds haven’t been meeting their targets.  At Windsor the gap between pension plan liabilities and the current market value of pension plan assets is about $50 million (could be worse: at U of T it’s $1 billion), meaning it has a “going concern” solvency issue which needs to be addressed by a $5 million annual payment starting this year.

There’s most of your tuition increase right there.

To put the pension problem another way, as you can see in UWindsor’s admirably concise and transparent budget documentation, institutional pension spending has had to rise by 78% over the past four years and now takes up almost 8% of institutional spending.  Just to put that into perspective, the library only makes up 5% of spending. To put it yet another way, over the past four years the university has essentially has to reallocate a sum larger than the school’s entire IT budget just to deal with the pensions issue.

To repeat: this isn’t Windsor’s problem alone.  Pretty much every university with a defined benefits pension scheme is going through something similar.  And it could get a lot worse: if Eurozone bank problems cause credit markets seize up again this fall, equity markets will take another Lehman-like beating and university  pension funds will be headed for serious solvency problems that will require more than cosmetic tuition fee increases to solve.

So when you see all those stories about Angela Merkel, Nicolas Sarkozy and Euro bailouts, don’t think of them as a foreign issue.  Think of them as being possibly the cause of the next big Canadian university financial crisis.