HESA

Higher Education Strategy Associates

Tag Archives: CAUBO

September 11

The Growing Importance of Fee Income

I made a little remark last week to the effect that on present trends, student fees would pass provincial funding as a source of revenue for universities by 2020-2021 and combined fed-prov government funding by 2025.  Based on my twitter feed, that seems to have got people quite excited.  But I should have been a little clearer about what I was saying.

First of all, by “on present trends”, I literally meant do the simple/stupid thing and take the annual change from 2014-15 to 2015-16 and stretch it out indefinitely.  One could use longer-term trends but for provincial government funds, the difference is minuscule because the 1-year and 5-year trends are pretty similar.  It’s harder to do that with the federal money because it jumps around a lot on an annual basis (is there a federal infrastructure program in a given year?  Have they given a one-time bump to granting council dollars?  etc.) and so medium term trends are harder to discern.   Second, when I said it would pass government funding, I meant for the entire budget, not just the operating budget (feds don’t really contribute to operating budgets).  And third, I was speaking in terms of national averages: regional averages vary considerably and in some provinces, fees passed government grants as a source of income some time ago.

Anyways, I thought it would be fun to do some inter-provincial comparisons on this.  To make things simple, I’m going to exclude federal funds from the exercise, and just look at provincial grants and student fees.  As previously, the data source is the Statcan/CAUBO Financial Information of Universities and Colleges Survey.

Let’s start by looking at how grants and fees compare to the size of the operating budget of universities in each province.

Figure 1: Provincial grant and fee income as a percentage of operating income, by province, 2015-16

Now, remember: some provincial and fee income goes to areas other than the operating budget and operating income is not restricted to just student fees and government grants.  Thus, you shouldn’t expect the two sets of lines to add up to 100%.  In some cases they add to more than 100%, in some cases less.  But no matter, the point is here that already in 2015-16 fees represent a greater portion of the operating budget than government grants in Ontario and an equal proportion in Nova Scotia.  In BC and PEI, fee and grant income are close-ish, but in the other six provinces government grants predominate.

Now let’s look at the five-year percentage change in income, in real dollars, from fees and grants.  This one is kind of complicated, so bear with me.

Figure 2: Change in income from provincial grants and student fees, by province, 2010-11 to 2015-16

There are seven provinces which share a pattern: increasing real fee income and decreasing real provincial grant income, though the extent varies.  The biggest shifts here are in Ontario and BC.  Quebec is the only province which has seen an increase in income from both sources.  In all eight of these provinces, we can do straight-line projections of the future pretty easily.

But then there are two provinces – Newfoundland and New Brunswick – which have seen net decreases in both sources of income.  Basically, this is what happens when a demographic collapse happens at the same time as a fiscal collapse.  In per-student terms this doesn’t look quite so bad because enrolments are declining, but since staff don’t get paid on a per-student basis that doesn’t help much when it comes to paying the bills.  It’s hard to do straight-line projections with these two because it’s quite clear the fee income declines aren’t going to continue indefinitely (the demographic collapse stabilizes, eventually).  So we’re going to say good-bye to these two for the rest of this analysis, while wishing them the very best in dealing with their rather significant challenges.

Ok, for the remaining eight provinces, let’s combine the info in those last few graphs.  Let’s take the income by source data in figure one, and then apply the trend changes in figure 2 to each province.  The easiest way to show this in a graph is to show fee income as a percentage of provincial grant income.  We can show this out to 2024-25, as seen below in figure 3.

Figure 3: Projected ratio of student fee income to government grant income to 2025, by province

What figure 3 really shows is that Canada is heading towards a much more financially heterogeneous higher education system.  For the country as a whole, fee income for universities should surpass provincial government grants in 2020-21.  But this masks huge variation at the provincial level.  Ontario and Nova Scotia (by now) already exceed that level.  BC will get there in three or four years, PEI will get there by 2024-25.  But the other provinces aren’t on track to hit that level until 2030 at the earliest (and in Quebec’s case it’s about 2055).

Another way to think of this is that in about a decade’s time, the funding landscape in places like Quebec, Manitoba and Saskatchewan is going to look the way it did in Ontario ten to fifteen years ago.  At the same time, Ontario’s funding landscape is going to look a lot like big American public schools, with less than 30% of the operating budget (and probably something like 15% of total funding) coming from provincial governments.  Differing incentives facing different universities means they are probably going to be run quite differently too: expect a greater variety of institutional cultures as a result.

Now, as with any straight-line projection, you should take the foregoing with a healthy amount of salt.  Politics matter, and funding trajectories can change.  This is one possible scenario, not necessarily the most likely but simply the one most in line with current trends.

But keep in mind that the above is the probably good news scenario for Ontario.  The bad news scenario would see the percentage of funds coming from fees restricted not by increasing the government grant, but by restricting student intake, or the intake of international students (which is where the big gains in fees are really coming from).  So even if you find this scenario disturbing: be careful what you wish for.

September 08

Trends in Canadian University Finance

New income and expenditure data on Canadian universities came out over the summer courtesy of StatsCan and our friends over at the Canadian Association of University Business Officers (CAUBO), so today it’s time to check in on what the latest financial trends.

In 2014-15, income at Canadian Universities was, overall, a record 35.5 Billion dollars (just above 2% of GDP, if you’re counting).  That’s up 1% in real terms over the previous year and up 5% on five years ago (2009-10).  But the composition of that income is changing.  Total government income is down 2% in real terms from last year and down 8% from 2009-10 (the latter being somewhat exaggerated because the base year included a lot of money from the 2009 budget stimulus via the Knowledge Infrastructure Program (KIP).  Income from student fees, on the other hand, was up 5% on the previous year and 32% up from 2009-10, again taking inflation into account.  That doesn’t mean that fee levels increased that much; this is aggregate income so part (maybe even most) of this change comes from changes in domestic and (more pertinently) international enrollment.

Figure 1: Change in Real Income by Source, Canadian Universities, 2014-15 vs 2013-14 and 2009-10

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Let’s turn to a look at expenditures by type.  Salary mass for academic staff actually fell slightly last year after inflation, but over five years the overall salary budget for academics is up by 10%, after inflation. Again, this isn’t what’s happening to average salaries, it’s what’s happening to aggregate salaries, so it’s partially a function of average and partially a function of staff numbers.  For non-academic salaries, it’s an 11% increase over five years.  And yes, you’re reading that right: labour costs have risen 10% while income has risen only 5%.  Again, that’s exaggerated a bit by fluctuations in incoming funds for capital expenditures, but it’s probably not sustainable in the long term.  Because other elements of the budget are increasing quickly too: for instance, scholarship expenditures rose by 21% over that period to stand at over $1.87 billion.

 Figure 2: Change in Real Expenditures by Type, Canadian Universities, 2014-15 vs 2013-14 and 2009-10

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Finally, let’s take a look at expenditures by function within the operating budget.  Operating budgets as a whole are actually up quite a bit – 14% (this is partially offset by falls in the capital and research budgets).  Here’s how the money gets used:

 Figure 3 – Division of Canadian Universities’ Operating Budgets by Expenditure Function, 2014-15

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As you’d expect and hope, the lion’s share (57%) of the operating budget goes to instruction and non-sponsored research.  Most of the rest goes on three categories: administration, student services, and physical plant.  Figure 4 shows how growth in each of these areas has differed.

Figure 4: Change in Real Expenditures by Function, Canadian Universities, 2014-15 vs 2013-14 and 2009-10

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If you look at the “big four” spending areas, instructional and admin costs rose at roughly the same rate over fiver years (14% vs. 15%), while student services rose more quickly (21%) and physical plant less so (7%, with a 4% drop in the last year).  Non-credit instruction is up very strongly for reasons I cannot quite fathom.  But look at computing costs (up 31%) and “External Relations” (which includes Government Relations, alumni relations/fundraising and other marketing costs – up 27%).

In sum: i) government funding is down in real dollars but student income has replaced that income and more besides, so that institutional budgets are still increasing at inflation +1% per year; ii) compensation budgets (academic and non-academic alike) are rising faster than income, which is a problem for the medium-term and iii) there are a lot of small-ish budget items that are growing much more quickly than salaries (scholarships, computing, student services etc.) but given that compensation is 60% of the total budget, that’s still where the majority of the restraint needs to happen.

October 19

Canadian University Finances: An Update

Back in July, the Canadian Association of University Business Officers released the results of its survey of university finances for 2013-14.  The results underline the fact that institutions in Canada are facing some highly heterogeneous financial circumstances.

Let’s start with operating budgets.  Though universities are allegedly facing some kind of unprecedented austerity, total operating income rose by 4.17% in real dollars from the previous year  (inflation from September 2012 to September 2013 was a shade over 1%).  Income from government rose 0.9% in real dollars, from $11.1 billion to $11.2 billion.  But the big new source of money came from student fees, which rose 5.8% (again, after inflation) to $8.6 billion.  Remember, that’s not because tuition fees rose by 5.8%, but rather because both tuition fees and enrolment (notably, international enrolment) increased.

The surprise in 2013-14 was that although government grants and fees make up 91% of operating income, it was the remaining 9%, mostly endowment income, which actually accounted for 35% of all income growth, as shown below in Figure 1.  That’s probably not sustainable.

Figure 1: Source of Operating Income Growth

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So, if operating income went up 4.17% after inflation, universities must be swimming in cash, right?  Well, no.  Because, in fact, spending went up to match income growth exactly at 4.17%.  Figure 2 shows the year-on-year increase in real spending.

Figure 2: Increases in Real Spending

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Briefly: Compensation, which forms around 75% of the operating budget, is up by 4.6% after inflation (yes, after).  It’s not from hiring temps or sessionals, which gets classified as “other instructional wages” – that line item has actually shrunk slightly.  Total academic wages are up 3.6%; total non-academic wages are up 4.2%.  (Lest anyone get too excited about wage growth among non-academics, be aware that it’s primarily in student services and IT.  The smallest registered growth among all functional sectors was central administration, at 3.2%.)  But the real killer is what’s happening to benefits: up 9.2% in real terms.  Regardless of why this is happening (my guess: topping up barely solvent pension plans), the technical term for this situation is “bananas”.  But of course, it’s unfair to blame everything on the wage bill because universities aren’t excelling at restraining growth on their non-wage spending, either: that’s up 4.1%.  All of which is to suggest that the revenue theory of expenditure is alive and well in our universities; they raise all they can, and then spend all they raise.

Now of course, these trends aren’t spread equally across universities.  At some institutions, increases in operating budget came in at over 10% (UQTR, Trinity Western, and also UBC, but I think some of that is a reclassification issue).  Queen’s had an 8% real rise in income, and Toronto saw a 6% increase.  But at the other end of the table it’s pretty ugly.  UNB and PEI saw a fall of 3% in real terms, Mount Royal 4%, and NSCAD University a whopping 12%.

Similarly, outside  operating budgets, universities across the country have taken a hit.  Research income fell in nominal terms for the first time since 1995-1996; capital income fell by 8%, and now sits below $1 billion in real terms for the first time since 1998-99.

So, in short: operating costs are rising much faster than government funding, leaving institutions to fill the whole with larger student numbers and lots more international students. Research and capital funding are down in some serious ways.  But these trends are playing out in different ways in different parts of the country.  Kind of like last year only more so.

Happy Election Day, all; don’t forget to vote!