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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

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.