The 6.9% cuts to operating grants for Alberta’s two leading universities will amount to first-year hits of $44 million at U of A, $32 million at U of C. The cap on tuition fees will be lifted, and both institutions will be permitted to increase them by up to 7%.

The Finance Minister has emphasized the importance of surgical cuts, but what does that really mean?

Let’s start by talking about what it doesn’t mean.

It must not be allowed to play out as it did during Premier Klein’s cuts of the mid-nineties. As outlined HERE, students and classroom funding levels were hit hard, but spending actually increased on Central Administration (the offices of the president and vice-presidents, and functions such as external relations, financial services, human resources, the registrar, and alumni affairs).

It was a disturbing insight into the weak governance and lacking provincial vigilance that have been a longstanding theme in Alberta.

With that as a backdrop, we can review the current situation at U of A and U of C, using data from the universities themselves*.

 

The Mackinnon Panel had a point – but badly overplayed it

Alberta’s major universities do enjoy higher levels of provincial support than those in the cited comparator provinces – Ontario and British Columbia, and average tuition fees are lower.

However, two factors undermine the Panel’s comparison and the resultant recommendations.

Firstly, tuition fee averages in Ontario and B.C. are significantly inflated by the fact that those provinces enjoy the lion’s share of international student enrollment, and the substantially higher fees paid by these students. Ontario has 48% of international students and B.C. 24%, while Alberta has just 5%. (See HERE for the Canadian Bureau for International Education report.)

In Ontario and B.C. it’s less about an ideological decision to fund their universities at lower levels and more about being relieved of much of their public funding responsibility by the swelling international tuition fee incomes. Many universities have become addicted to these incomes, and any decline in international enrollment will cause severe problems.

Secondly, tuition fees are only part of the story. Students are also required to pay compulsory non-academic fees (“other fees”), which were originally intended to partially fund student services. Students have long suspected that these other fees, largely unregulated, were used to work around provincial caps on tuition fee increases. This seems to be borne-out by the numbers, especially at U of A, where other fees are among the highest in Canada.

TABLE A indicates that Alberta’s leading universities are not lagging behind their peers when it comes to total operating income.

This doesn’t necessarily mean their incomes are adequate, but that income deficiency may not be the central issue. That notion runs counter to perception, but it appears to be a reality.

The perception is understandable. While incomes revolve around two variables with a highly public face (government grants and student fees), expenditures are largely opaque. Universities constantly emphasize their income deficiencies, but seldom provide insightful data on how they are spending the money. And yet expenditure efficiency is the key determinant of income adequacy.

A third factor undermined the Mackinnon Panel’s report. It focused heavily on the province’s level of investment in post-secondary education, but didn’t acknowledge the province’s historical failings when it comes to ensuring the prudent use of this funding. Albertans, including students, are dependent on the provincial ministry and provincially-appointed board of governors members to maintain adequate vigilance, but the numbers (especially those during the Klein cuts) show that this public duty has been neglected. We are now living with the consequences.

 

Expenditure inefficiency is a major issue

GO budgets must be allocated across seven functions, which we can condense into three categories:

  • Operational Support (Computing & Communications, Central Administration, and Physical Plant)
  • Academic (Instruction, Non-Credit Instruction – mainly extension programs, and the Library), and:
  • Student Services (Student Services)

TABLE B shows GO budget allocations in these categories since 2001.

The level of Operational Support costs is the key determinant of financial efficiency, because funds consumed in support functions cannot be spent on Academic or Student Service functions.

Operational Support Cost levels are an issue at most U-15 schools. Central Administration (the central bureaucracy) is a particular problem; the inflation-adjusted U-15 average cost has risen from $49.7 million to $107.2 million (10.8% of GO expenditure to 12.2%) since 2001.

For most of the past eighteen years, Alberta’s leading universities have been under-performing in a peer group that itself has significant issues with Support Costs.

This is disturbing because these costs are akin to fixed costs in a business. They should remain relatively stable, compared to the front-line costs in Instruction and Student Services, where activity levels are far more influenced by increasing enrollment. Instead, they have grown faster than expenditures in the core-mission areas. This poses a major threat to sustainability at times of declining enrollment or falling provincial funding.

Alberta’s leading universities spend much more than their peers on Operational Support

The average U-15 university spent $236 million or 26.9% of its GO budget on Operational Support in 2018 – up 102% from 2001. In 2018, U of A spent $405 million or 33.5% (highest in the U-15), while U of C spent $258 million or 29.1% (fourth-highest). See TABLE C.

 

The overspending on Operational Support has taken a toll on core-mission areas

The escalation in the level of Support Costs has been a primary driver of the need for increased student fees, but it has also created a range of troubling consequences for the academic program.

Alberta’s leading universities deliver lower shares of GO funding to the classroom

The average U-15 university delivered 57.6% of its GO budget to Instruction in 2018. U of A allocated 54.3% (13th in the U-15), while U of C delivered 56.4% (11th). See TABLE D.

Alberta’s leading universities allocate lower shares of GO funding to academic staff

The average U-15 university spent 53.8% of its GO salaries & wages budget on academic staff in 2018. U of A spent 50.9% (12th in the U-15), while U of C spent 47.8% (14th). See TABLE E.

The commitment to teaching quality is lower in Alberta

The lower level of funding allocated to academic staff is a significant issue, but it gets worse. In their quest for economies to fund those increasing Support Costs, Alberta’s universities have opted to downgrade the classroom experience by spending less on the most senior grade of faculty (those with academic rank), and more on cheaper adjunct faculty and sessional lecturers.

In 2018 the average U-15 university spent 85.2% of its academic salaries budget on faculty with academic rank. U of A spent 71.2% (last in the U-15), while U of C spent 78.6% (13th). See TABLE F.

 

SO WHERE SHOULD THE FIRST INCISIONS BE?

The clear target for fiscal remediation must be Operational Support costs. We can quantify current overspending by comparing two numbers:

  • How much U of A and U of C would have spent in 2018 if they had matched the spending levels of their U-15 peers;
  • How much they actually spent.

Even these peer group comparisons understate the magnitude of the problem in Alberta. Operational Support costs are a widespread issue, so performing below the peer group average represents an extreme version of an endemic problem.

When reviewing these numbers it’s important to remember that we’re looking to save $44 million at U of A and $32 million at U of C in the first year of provincial cutbacks.

  • In 2018 the University of Alberta spent $405 million or 33.5% of its GO budget on Operational Support; the U-15 averaged 26.9%. That represents an overspend of $79.7 million compared with its U-15 peer group.
  • In 2018 the University of Calgary spent $258 million or 29.1% of its GO budget on Operational Support. That represents an overspend of $19.4 million compared with its U-15 peer group.

     

All these issues represent a deeply frustrating squandering of what was supposed to be the “Alberta Advantage”. It seems that much of the benefit was channelled not to students and classrooms but to profligacy in support areas. This triggered needless increases in student fees and a declining commitment to educational quality – the very opposite of what the Alberta Advantage was supposed to provide.

Today’s students are already bearing the consequences of the weak governance and lacking vigilance of previous boards of governors and provincial ministries. It would be unconscionable if the universities were permitted to increase student fees before rectifying the inefficiency and declining quality that have developed over the past two decades.

There is clear potential for targeted fiscal remediation at U of A and U of C that doesn’t rely on increased student fees and exacerbate the problem of student debt. The incisions will certainly be painful, but they can at least be made in the right place – unlike the cuts of the mid-nineties.

 

* The financial numbers come from the annual reports of the Canadian Association of University Business Officers, and the enrollment numbers come from Universities Canada – both working in conjunction with Statistics Canada. This analysis focuses on the key General Operating (GO) Fund. The peer group is the U-15 – “a collective of some of Canada’s most research-intensive universities”. Incomes exclude Sale of Goods. Expenditures exclude Internal Sales & Cost Recoveries. All dollar values have been inflation-adjusted to 2018 levels. See HERE for explanations.