SEPTEMBER 2024:  THE SITUATION WORSENS

Lacking vigilance and ineffective governance, at both the campus and provincial levels, have set many of Canada’s leading universities on a path to unsustainability. One (Laurentian) filed for creditor protection in 2021 and, with its lessons apparently unlearned, others are heading for trouble. It’s a disturbing picture, about to get much worse.

The universities have been dragged down by a wave of bureaucratization that has deflected funding away from the classroom, undermined educational quality, and needlessly driven up student fees. This has happened over more than two decades, under the oversight of governing boards and provincial ministries whose vigilance is supposed to prevent it.

University finances are complex but those most relevant to the educational mission are contained within the General Operating (GO) Fund, which contains eight functions. Each can be assigned to one of three broad categories of expenditure – Academic-focused, Operational Support, and Student Services (see foot of page).

The chart below shows the “Big Picture” of General Operating (GO) finances for the average Top 25 university. It quantifies the changes in the sources of its GO Income and how it chose to allocate that money.

 

FRONT-A-2023Download this chart (Opens in a new tab)

Income Overview

The chart appears to support the frustrated narrative we hear from students and faculty. Real Provincial Grants have fallen by 13.4% since 2001. The increase of the first ten years has been more than obliterated by the 23.7% reduction since. Student Fees have almost doubled.

In 2001, the province provided 61.5% of GO Income at the average Top 25 university, and students 32.8%. From 2011 the balance started to shift rapidly, to the point at which a higher share was coming from students than the province. In 2023 it was 42.0% (province) and 51.6% (students).

But there’s more to that story. For reasons outlined HERE, the Per FTE Income averages exaggerate that shift. Those complexities should temper but certainly not invalidate the “blame the province” narrative. The fundamental shift is undeniable and significant, but the exact detail is unclear.

We can partially cut through those complexities, and see the degree to which the provinces have really been reducing funding levels, by removing the “Per FTE” angle and focusing on the inflation-adjusted provincial grant income. Domestic enrollment has been increasing throughout the past 23 years, so ANY reduction in inflation-adjusted grant income automatically hits domestic students. The following picture emerges from those numbers:

• Top 25 average grant income didn’t decline once between 2001 and 2010, although there were occasional declines in individual provinces.

• However, it has declined in 8 of the 13 years since 2010. In 2021-22, six of the eight provinces with Top 25 universities cut funding. In 2022-23 all of them did.

When most provinces started reducing the level of their operating grants in 2011, they did so primarily because they saw the significantly higher fees paid by international students as an opportunity to relieve themselves of some funding responsibility. Canada had long welcomed international students, but most provinces started encouraging their universities to increase the numbers.

The income-hungry universities were already competing for international students. That competition intensified – so much so that some of the universities started to act more like business competitors, keeping some key information out of public view.

Criticism of the provinces is warranted for three main reasons.

• They have effectively abdicated a large part of their funding responsibility and passed it to international students.

This was always a risky move based on the flawed assumption that it represents a sustainable longer term strategy. The danger deepens if the universities become addicted to this income, which they have – as, by extension, have the provinces. This is a critical vulnerability for both.

• Since 2011 many provinces have been intentionally hitting their own domestic students with cuts, compounding the already-burgeoning national issue of student debt.

The decisions to cut funding have directly triggered higher fees and fuelled rising graduation debt, creating negative social and economic consequences – not just for students but also for Canada and the provinces themselves.

The first major takeaway from Chart A is the growth in income. Adjusted for inflation and enrollment increases, it is 26.9% higher than in 2001, and 4.4% higher than in 2010 (despite the much-reduced provincial commitment). Income growth has far exceeded inflation and increased enrollment combined.

The 26.9% increase in Real GO Income since 2001 suggests that income IS NOT the central issue for Canada’s universities.

That may not align with perception in the post-secondary sector, although it’s an understandable perception – created by the provinces’ regrettable decisions to reduce funding. But that’s certainly not the only cause of PSE’s challenges.

The key determinant of income adequacy is not just the amount of the income but how effectively it is used in pursuit of the “Core Mission”. If a university fails to properly utilize its income, it will inevitably create the perception among those most disadvantaged by that failure (mainly students and faculty) that the problem is funding, when the issue might also be spending. That part slips by unnoticed every year at budget time, when the focus is always on the need to generate more income from student fees, and seldom on the need to increase resource allocations to the “mission central” Instruction area.

The true determinant of funding adequacy revolves around not just the level of the funding, but also expenditure efficiency.

Expenditure Overview

Universities must maximize their delivery of funding to the academic areas, while having due regard for the need to provide a range of support services to students, and to operate the institution as cost-effectively as possible. Strong regard must also be given to the impact that decisions exert on the deepening societal problem of student debt. They have a duty to use funds prudently and keep student fee increases to a reasonable minimum.

Each university’s performance against those obligations can be compared on two levels – with its peers and with its own past.

The outcomes of those comparisons create the third reason for criticism directed at the provinces:

• The provinces have failed to ensure the existence of adequate vigilance and sound governance.

Every province has a duty to ensure that effective systems of vigilance and governance are in place at all of its institutions, and that those responsible for exercising it (including the province’s own appointees) perform their roles effectively.

Adequate vigilance and proper governance are the responsibility of two groups at the campus level – senior administrators and Board of Governors (Board) members. The Expenditure analysis demonstrates that those parties have, collectively, been falling well short in these duties for a long time.

The following key numbers (Top 25 Per FTE averages) make that case:

• Operational Support costs have increased by 106% since 2001 – far more than the 77% increase in Academic-focused expenditure.

• The decline in provincial grant levels, which started in 2011, should have magnified the importance of fiscal efficiency. Instead, spending growth in the Operational Support areas since 2010 (33%) has continued to exceed spending growth in the Academic-focused areas (19%).

• Student Services is a standalone function representing about 11% of the GO budget. The cost has increased substantially, but much of the growth was funded by purpose-dedicated compulsory student fees, and grants specifically for scholarships & bursaries.

The expenditure efficiency analysis becomes more granular in the Topic areas on this site.

One ratio in particular provides a very telling picture:

 

FRONT-B-2023

Download this chart (Opens in a new tab)

In 2001 the average Top 25 university spent 47.7 cents on administrative support staff for every dollar it spent on faculty salaries; last year that number was 58.2 cents. The vast majority of the increase has taken place in the Central Administration component of this cost.

The numbers for the Top 50 (another 25 universities were added to this site last year) show the same picture. See HERE for more on this damaging trend.

That’s a deeply disconcerting insight into the degree to which the administrative component has been permitted to overpower the academic component over the last 20+ years. That is showing no sign of abating.

The underlying data gives us the opportunity to cut through the “numbers fog” – the mist created by the sheer size and complexity of university finances. Efficiency assessments expressed in percentages or ratios don’t convey the costs and consequences in ways that resonate.

This is where an awareness of Relative Cost Impact (RCI) becomes important. (See HERE for an overview of the methodology.)

We can quantify the actual dollar cost of the higher spending level by calculating the answer to this question:

What was the additional cost, in 2022-23, of the increase in administrative support (from 47.7 cents per dollar of Faculty salaries to 58.2 cents)?

The answer is a stunning $28.7 million at the average Top 25 university (FTE enrollment 34,826).

That $28.7 million had to come from somewhere. Chart A makes clear that it has been funded by increased student fees and lower allocation levels for the “Core Mission” academic area.

We can take this a stage further and, for illustration, assume that it has been funded by students. That generates this question:

What has the cost been, per FTE student, since that escalation started?

Chart C shows that answer.

FRONT-C-2023

Download this chart (Opens in a new tab)

The Relative Cost Impact was $825 per FTE student in 2023; to be clear, that’s not the total cost of administrative support, just the amount by which it now exceeds the 2001 expenditure level.

So, $825 of each student’s 2023 fees was necessary to cover just that additional cost. Over a four-year program, that represents $3,300 of arguably needless student expense and, in many cases, graduation debt. And that doesn’t include the additional benefits costs that go along with those additional salaries & wages.

 

********************************

 

Table B illustrates the consequences of lacking vigilance and weak governance.

There are three troubling consequences of permitting these damaging trends to continue, year after year:

• Despite paying far more in fees, students are receiving less in educational quality. Faculty are constantly required to do more with less. THIS is how it looks from the student and faculty perspective.

• Surely not by coincidence, most of Canada’s leading universities have fallen in global university rankings. Thirteen of the U15 (“an association of fifteen leading research universities across Canada”) have fallen in the QS Global Rankings since 2010 (see HERE).

• The universities are needlessly impairing affordability and accessibility, and fuelling student debt – something that more than half of Canada’s post-secondary students carry into their lives beyond campus. The repayment obligations hamstring our younger generation before they even get started on the road of life.

The repayments swallow disposable income, constraining Canada’s economic growth, but there’s other damage.  We lament the decline of Canada’s smaller communities but we’re actually driving it. PSE is more expensive for their younger generation because most must leave home to access it, and many can’t return after graduating; the debt repayment obligations force most to pursue higher-income opportunities in major centres.

The root cause of this regression rests in fundamental flaws in vigilance and governance, as described in the MORE page.

The inevitable outcome is what we’ve been seeing for well over two decades, and it has been punishing for educational quality and, especially, for students – Canada’s “future generation”.

Longtime PSE consultant Alex Usher summarized the situation well in a June 2024 commentary. He said “I don’t think it’s an exaggeration to say that in the past 25 years, the sector never found a problem for which the solution was not on the revenue side”. He suggests that “we might have to centre efficiency for a change” and foresees a painful swing to “cost-side solutions”. Nevertheless, “done right, the institutions that emerge on the other side might be better ones.” Read it HERE.

As troubling as the above tables are, they are multi-university averages. While performance at some schools was better, performance at others was much worse. It is unfair for all universities to be found guilty by group average, so rankings are important in assessing efficiency.

Rankings provide school-specific insight, but they also create the potential for false comfort. Performing at an above-average level is not an attribute if group-wide performance has been declining for decades. That’s demonstrably the case in many of the factors addressed on this site – triggering the dangerous “normalization of deviance”, discussed on the MORE page.

Rankings require the schools to stand the test of comparison – not just with their peers but also with their own past. If a university’s spending levels move out of step with either (as they have in Chart B), questions must be asked. There will be credible explanations in some cases, but the failure to monitor and challenge these shifts is precisely what has allowed the issues to develop and worsen.

But the same goes for provincial ministries. They appoint a significant proportion of Board members and have their own duty of oversight. The ministries can also be ranked – based on the performance of their universities.

So, throughout this site there are rankings covering the performance of both the universities and the provinces. They culminate in an overall ranking covering the financial efficiency of each Top 50 university (and province) in 2023. (See HERE for an overview of the methodology.)

Rankings are seldom welcomed in PSE or provincial governments, especially if they paint an unflattering picture. But the assessments are multi-dimensional and utilize the universities’ own numbers. How else can we determine their efficiency in pursuing their Core Mission?

This Front page addresses the “big picture” and presents the Overall Ranking; the Topics pages “drill down” into the detail.

 

OVERALL-RANKINGS-2023

Download this chart (Opens in a new tab)

Please Note: The “Last Year” rank in this year’s table might differ from last year’s rank for some universities. This is due to a change made in the Administrative Cost assessment criteria to provide additional insight. This change is explained under that Topic.)

********************************

The analysis on this site provides insight into something that is opaque to anyone outside a core group of senior administrators. Although they consume billions of dollars of pubic and student funding, the finances of our universities only move into public view, briefly, when their annual budgets must be approved. Even then, only limited snippets of carefully-selected information are released, with a focus on highlighting income inadequacy and justifying student fee increases.

The status quo is neither acceptable nor sustainable.

This website is focused on the university side of the PSE sector. There’s no reason for confidence that the college and polytechnic side – just as vital to Canada’s wellbeing – has been immune to the same failings, and it’s certainly vulnerable to the same dangers, especially in Ontario.

 

THE UNTHINKABLE CONSEQUENCES OF INACTION

The issues outlined on this site combine to produce the situation PSE faces today – declining efficiency, tumbling educational quality, rapidly-increasing student cost, and skyrocketing student debt levels. The 2021 collapse of Laurentian University sounded a loud klaxon across Canadian PSE but there are few signs that it was heard. The line in Chart B is still on its inexorable upward track. Disturbingly, some of the failings outlined in the Report on the Laurentian crash are widespread.

As bad as the situation is, a much gloomier scenario is already developing.

The situation brings to mind the “normalization of deviance” theory outlined by Diane Vaughan in her book “The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA”. Vaughan postulated that it usually takes an unforeseen event to transform yesterday’s dangerous behaviours into today’s disastrous consequences.

The Challenger disaster was caused by the refusal, despite numerous warnings, to act on the recognition that an O-ring seal could fail in certain circumstances – with catastrophic consequences.

Unfortunately, it is not hyperbolic to cite the Challenger analogy, because Canadian PSE has its own set of dangerous behaviours, and missing or ignoring signs of impending failure.

The most dangerous behaviours are outlined HERE, The threat they pose turns into a reality in the event of any significant decline in a key income variable, especially enrollment.

The unforeseen event in the Challenger disaster was an unseasonably cold morning on launch day in southern Florida.

Canadian PSE’s unforeseen event occurred in January 2024, when the Federal government announced that it would be capping international study permit approvals at current levels, and then reducing them by as much as 35% for two years.

The decision angered the Provinces and caused alarm throughout PSE, but they were hearing a ticking sound coming from a ‘bomb’ they had constructed themselves.

The Income Overview outlines the chain of events that started in around 2011. This was when most provinces started reducing the level of their operating grants because they felt that income from international students could relieve them of some funding responsibility. Effectively, they abdicated a large part of that responsibility and passed it to international students. As if this wasn’t enough, many also started implementing cuts that directly targeted domestic students.

The universities didn’t view those cuts as a warning sign, warranting higher levels of efficiency. Instead, always hungry for more income, they started competing with eachother for international students, and then “ramping up” the fees they were required to pay. Inevitably, the universities became addicted to this fast-rising income. Instead of confronting their inefficiencies, they perpetuated and deepened them.

Neither the provinces nor the universities seemed to recognize that they were creating a very risky reliance – opting to become increasingly dependent on factors beyond their control. These included geopolitical factors such as Canada’s relationship with the source nations of about half of the incoming students – China and India. Both relationships would encounter challenge in the years to come.

And neither the provinces nor the universities realized that Canadian PSE was becoming less efficient and less “mission-focused” every year, or that the problems of student debt were taking an ever-increasing toll on Canada’s younger generation, and on our national fabric – in bigger cities, smaller towns, and rural communities.

These aren’t “wise after the event” perspectives. There were many people within and beyond the postsecondary sector voicing concerns long before I wrote about the issues in a 2010 Maclean’s article. 

In the end it wasn’t geopolitical factors that became PSE’s failed O-Ring. It was the Federal government’s response to the pressure that the rapidly increasing numbers of international students were placing on Canada’s housing and health infrastructure.

This saga grows even more sorry for the fact that it exemplifies a recurrent, self-inflicted weakness that undermines our nation. The provinces set out on a new track without adequately consulting the Feds, and then the Feds pulled the pin on it without adequately consulting the Provinces.

While they point accusatory fingers at eachother, Canadians must live with the frightening consequences.

Even in those times of relative plenty, when Real incomes were increasing substantially, PSE was delivering declining efficiency, tumbling educational quality, needlessly-increasing student cost, and fast-rising student debt levels.

As nothing was being done to address the profligacy and inefficiency, the only thing protecting domestic students from even larger fee increases and even deeper graduation debt was, ironically, the international student fee income.

The imminent declines in that fee income take Canadian PSE into a nightmare scenario. There are only four ways to absorb the heavy impact of the lost international fee income – substantial increases in provincial support levels, much-enhanced cost-efficiency from the universities, still more cuts to the classroom, and huge increases in domestic student fees that will make those of the past seem negligible.

But that’s the scenario we will face – unless the provincial governments and PSE institutions finally start working collectively to correct PSE’s longstanding and destructive failings.

As outlined on the MORE page, Canadian PSE’s control structure is fundamentally broken. The disturbing consequences are about to worsen in a way that will – and should – shake the sector to its foundations. It took years of oversight neglect for PSE to reach this situation, and only some thoughtful systemic remediation will rectify the underlying failings.

PSE can no longer handle the kind of decision-making that has characterized much of its recent past: “There’s waste, so cut the funding” from the provinces, and “They’ve cut the funding, so students must pay more” from the universities. Solutions like those haven’t come close to resolving the fundamental issues, and never will. We’re capable of far better.

The remediation process should embrace an issue of principle. The problems of excessive cost were created by the weak vigilance and governance of previous years, at both the campus and provincial levels. Those problems will be expensive and painful to fix, and that will take time. However, the problems are not the fault of today’s students – or tomorrow’s. For far too long, a system that is supposed to protect students from needless cost has been allowing it to build, and then billing them for it (see Chart C, above). That is unconscionable.

Two central canons for the remediation process should be to avoid billing students for the cost of yesterday’s systemic failings, and to reverse the declines in educational standards.

 

Thank you for visiting this site.

 

SOURCE DATA OVERVIEW:

The financial analysis on this site focuses on the General Operating (GO) Fund, which represents over 64% of total expenditure at the average Top 50 university. It covers Instruction & Non-Sponsored Research, Non-Credit Instruction, and the Library (the Academic-focused functions), Computing & General, Physical Plant, and Central Administration (the Operational Support functions), and Student Services. Almost three-quarters of the GO budget is spent on staff. The numbers come from the universities themselves, via their affiliated organizations – the Canadian Association of University Business Officers (CAUBO), and Universities Canada, both working in conjunction with Statistics Canada. See more information in Data Sources.

N.B. Following its collapse there was no 2021 (2020-21 Fiscal Year) data for Laurentian University. To maintain data continuity, Laurentian’s 2020 and 2022 numbers were averaged for that year.