Last week we looked at likely paths for government funding in the big four provinces. Today, I want to look at how that might translate into actual changes at institutions.
The outlook for government funding, if you’ll recall, looks like this:
Figure 1 – Nominal Non-Health Dollars Available by Province, indexed to 2013.
But governments only account for about 54% of total revenue. Students make up 39% and “other” makes up about 8%, so to look forward, one needs to look at these other two sources as well.
It’s hard to discern a historical pattern for “other revenue” (mostly because endowment income rises and falls like a yo-yo), so let’s just assume for the sake of argument that it will grow at 4% for the next few years. Tuition is more predictable: Ontario has locked in 3% annual increases for the foreseeable future, while Quebec’s tuition will be linked to inflation (roughly 2%). Western provinces are more volatile on policy, but a reasonable guess is that BC’s path will be similar to Quebec’s while Alberta, being more populist and with cash to spare, will average something just below inflation (say, 1% p.a). Of course, aggregate tuition dollars have very little to do with average tuition limits, but for the moment let’s assume no increase in student numbers.
So, add all those dollars together and what do we get?
Figure 2: Net Income Projections for Post-Secondary Education, by province, to 2017-2018
That’s a little better, no? See what a little tuition can do?
Still, this is only income. We still need to look at expenses. Here, let’s assume that universities are able to keep their operating budget increases to 3% per annum (tight but do-able). In that case, assuming no enrolment growth, institutions in Alberta should have a very small surplus in 2017, while Ontario institutions will face a collective deficit equal to 11% of expenditures, or around $950 million.
Figure 3: Budget Gap Projections, to 2017-18
Now, clearly, that Ontario scenario can’t actually happen; long before institutions get to that point, they will cut spending and find more revenue. What figure 3 really represents is the size of the fiscal gap institutions will need to close over the next few years.
There are many ways to fill such a gap, but the main ones are wage freezes, hiring freezes and increased international enrollments. But $950 million is a big gap to fill. By my back-of-the-envelope reckoning, it’s equivalent (roughly) to a combination of a 4-year pay freeze and a 50% increase in international students. Do-able but painful.
There is of course a very simple way to make most of these problems go away: just give institutions a little more room on domestic tuition. Unfortunately, that’s probably too sensible a solution for our times.
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What’s that? Increasing the amount of money institutions can charge students means that they will increase their incomes? Wow, that’s such a groundbreaking idea. I can’t believe no governments in Canada have tried that before…
Gosh, you’re so smart, Alex.
In fact, we should just get rid of public education altogether so that institutions can charge whatever rich people are willing to pay, like US private schools. That way, there’s no cost to the public (except for a less-educated society and everything that comes with that), and institutions can be flush with cash (until the number of rich people falls drastically because the middle class disappears and everyone is too poor to go to school).
If only everyone were able to see the obvious logic and good sense behind your ideas.
I’m curious: do you think you sound smarter when you argue against points you made up yourself?
Absolutely. I’m just following your lead on things, here.
But I guess it is too much to ask to have governments actually take responsibility for operating public services well. Charging those individuals who use the services directly takes way less work.
No, taxing is simpler, but you have to get the population to agree. That doesn’t seem to be happening. Certainly not in Ontario, where the size of government as a % of GDP has risen by almost 50% in the last decade.
Also, state support to higher education actually doubled in constant dollars between 1998-2010 (on a per FTE basis it rose about 58%). So the idea that the state has abandoned HE is false. The problem remains how you actually pay for a good where costs escalate so much faster than inflation.
You don’t want tuition to increase? That’s fine: but no political party in Ontario is promising even an extra dime to higher ed, so there’s no hope in sight on that front. As a result, no tuition increases = cuts. Possibly, as I said, as much as 11% of current budgets. So anyone who argues the no fee increase position has to be honest enough to say how they think those cuts should happen. If you want to have that discussion, I;m more than interested in having it with you: it’s a useful one to have. Pretending there’s some other option where new money magically appearing from a source other than students in the next few years is significantly less useful.
If raising tuition was that simple… Raising tuition not only limits education to the very economically fortunate of our society at the cost to the middle class, but it also has a significant effect to the ability of students to consume goods and services upon graduation which affects our GDP. For the vast majority of students, a rise in tuition means greater loans and those loans limit an individual’s spending capacity upon graduation.
Second, raising tuition only addresses the revenue side. Most of the arguments in these posts suggest that cuts in the system will affect the quality of education. I beg to differ. Over the past decade in Ontario, there has been an increase in the number of students entering the system due to the double cohort, the poor economy (which pushes students back into education if they can’t find a job), the significant transfer of training that business sector pushed to the public sector and the desire of institutions to offer more programs to keep students (and revenues) longer. While student numbers have increased, the numbers of faculty have increased, but not at the same rate of student numbers. Interestingly, administrative costs have risen higher than the rate of increase of students. This means that the resources used to deliver has decreased in the classroom, while the cost to run the institution has dramatically increased. Until institutions get a handle on this “administration creep” there will be future funding issues.
I think students (and parents) would be willing to pay more for education IF they got more for their money. Right now, families are being asked to pay more for access to education, but are actually getting less for their investment than those that came before them. The real question is, can we afford to continue to justify funding an inflated model when in fact there are sufficient funds available in the system if institutions cut back on all non-classroom expenses and get back to their core competency which is teaching.
Hi Lindsay,
Thanks for reading. I would disagree with almost everything in your first para: i) there’s very little evidence to suggest that with the kind of student aid system Canada has – one which pumps out $7 billion a year in loans, grants, tax benefits, etc – that modest tuition increases have any effect at all on participation. ii) re: consumption – a loan doesn’t affect lifetime consumption and one’s lifetime impact on the econ0my just brings consumption forward in time. See here: https://higheredstrategy.com/the-debt-free-graduate-argument/
That said, I think you’re bang on on that the value proposition of HE is getting worse and that this is a major cause of the problems at the moment. But while you;re right that Admin costs have risen faster than the wage base of the professoriate, they haven’t risen *that* much faster. Certainly not enough to account for more than a small fraction of where the extra money went. I’m actually working on a project looking at this right now and I hope to be able to share this data soon.