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.
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