Over two million students study at Canada’s colleges, universities and polytechnics – the equivalent of around one in every eighteen Canadians. It’s a constantly regenerating sector that, at any point in time, contains almost 10% of the future national workforce – people whose skills and financial circumstances will be vital to Canada’s social and economic well-being.

On the Front Page we saw that the face of PSE in Canada has changed significantly since 2001.

Student fees have skyrocketed, adding to student stress and burgeoning student debt.

Classroom funding levels have been reduced during a prolonged period of rising enrollment, resulting in larger class sizes and a swing away from seasoned faculty and towards cheaper adjunct faculty and sessional lecturers. This can only lead to declining educational standards, and so it has proven to be. Over the past ten years, Canada’s leading universities have tumbled in the Quacquarelli Symonds global university rankings.

Students and faculty, the central components of PSE, have understandably become frustrated and angry. The temptation is to look for a common adversary. Inevitably, the crosshairs land on the provinces, and the widespread view is that the problems result from inadequate funding.

But the numbers reveal that income inadequacy is not the root cause of PSE’s challenges. Across the Top 25, REAL General Operating income (i.e., adjusted for inflation and increased enrollment) has increased by almost 34% since 2001.

The thing that has shifted, and the likely cause of student frustration aimed at the provinces, is the split in the sources of that income. In 2001, 62% came from provincial grants and 33% from student fees; in 2019 those numbers were 46% and 48%, meaning that students are now contributing more than the provinces. While international student fees have magnified the extent of this shift, tuition and other fees for domestic students have increased exponentially.

The provinces deserve to be in the crosshairs, but not just because they have been reducing their commitment to PSE and shifting the cost onto students since around 2010. While that is valid reason for student frustration, any provincially funded sector must accept that funding will wax and wane for various reasons. PSE is the most likely to wane; unlike the other three high-expenditure sectors (health, social services, and K-12 education), PSE has an established user-pay income stream – student fees.

The real provincial culpability rests in the failure to ensure the existence of adequate systems of vigilance and governance. A key determinant of income adequacy is expenditure efficiency, and this is where the universities and the provinces have failed.

PSE’s challenges result from systemic deficiencies.

The Normalization of Deviance

The efficiency issues evident at many Canadian universities have developed from fundamental weaknesses in the budget process. It is the most critical process of the year, because it determines the operating budgets for every academic and non-academic unit, approves capital expenditures, and prescribes student fees.

Senior administrators make budget recommendations to their board of governors (Board), providing numbers to support them. Provinces and students claim that they can’t afford what their institutions are expecting of them. Administrators warn that anything less will trigger cutbacks. The Board eventually approves the budget, usually with a combination of fee increases and cuts, including cuts that adversely impact the academic program.

The efficiency decline since 2001 reveals that the process is flawed and dangerous. Those habitual “go to” solutions for budget shortfalls do not solve the problems, but mask and worsen them.

The numbers suggest that there are three weaknesses:​

  • The information provided to support the recommendations is often tailored to deliver a desired outcome. This can leave Board members unaware of broader factors (such as those below) that are key to effective governance; that information might produce a different outcome.
  • A failure to monitor longer-term patterns (not just the last year or two) has caused most universities to fall victim to “issue-creep” – a situation in which small annual movements turn into major change over a longer period. Those small movements create a damaging cost-and-impact spiral by bestowing additional funding on some areas only by taking it away from others. It isn’t sudden change, but a gradual drift that turns dangerous.
  • There has been a widespread and perplexing inability to differentiate between “variable cost” areas (such as Instruction and Student Services), where staffing and spending needs are more directly impacted by changes in enrollment, and “largely-fixed cost” areas (such as Central Administration), where increasing or decreasing enrollment exerts much less impact.
    Perversely, a reverse logic has applied. Over the past two decades, across the Top 25, budget allocations to the support functions have increased faster than allocations to the mission-central Instruction area. The disturbing consequences are addressed below in “The Ticking Time Bomb”.

Universities compound their weaknesses by comparing themselves to peers that are usually suffering from the same issues. This illustrates the danger of “social proof” – the notion that if everyone else is doing it, then it must be okay. As a result, a trend line develops toward lowest common denominators.

The resultant situation is a classic version of the concept of “normalization of deviance” – a term coined by American sociologist Diane Vaughan in her book on the Challenger space shuttle disaster. The term refers to a process in which a pattern of potentially dangerous behaviour becomes the norm, only to turn into a severe problem after “a long incubation period … with early warning signs that were either misinterpreted, ignored or missed completely”.

Diane Vaughan (4 January 2016). The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA, Enlarged Edition. University of Chicago Press. pp. 30–1. ISBN 978-0-226-34696-0.

Unfortunately, it is not hyperbolic to cite the Challenger analogy, because PSE has its own version of missing or ignoring signs of impending failure. Those are addressed below in “The Ticking Time Bomb”.

Fiscal Smugness

The financial inefficiency has been able to develop because there have always been ways to cover its cost – increasing provincial grants, rising enrollment, increasing student fees, and escalating cutbacks in the academic area.

Since 2001 REAL General Operating incomes have grown by almost 34%.

Even since 2010, when provincial contributions started to stagnate across much of Canada, it has risen by over 11%. That was made possible by a rapid growth in international enrollment. The number of international students in Canada surpassed half a million in 2017, and the resultant income boost has been substantial.

Until now, there has always been a way to paint over the rust of inefficiency, and that has created a fiscal smugness.

Sooner or later, reality usually obliterates over-confidence, and Canadian PSE has encountered that moment.

The Ticking Time Bomb

The inability or unwillingness to differentiate between variable cost areas and largely-fixed cost areas is a threat to sustainability at many of Canada’s leading universities. It has caused a dramatic increase in the level of funding directed to support activities.

Three General Operating functions provide operational support to the entire university – Central Administration, Computing & Communications, and Physical Plant. They are vital functions, and the university could not operate without them, but they are not core-mission activities. They are also expensive functions; in 2019 the average Top 25 university spent over $197 million on Operational Support, with a range from $108 million at the lowest-cost school to $556 million at the highest.

While each has its own challenges, these support functions are far less impacted by changing enrollment than the Instruction area.

Disturbingly, over that prolonged period of rising enrollment, costs in the areas least impacted by it have risen faster than costs in the areas most impacted by it:

Operational Support costs (which exclude Student Services) have grown by 92.4%, while expenditures on Instruction have increased by 82.5%.

More on Operational Support costs can be found HERE.

One of the clearest examples of the normalization of deviance is the growth of the Central Admin component. While it covers other activities as well, much of it relates to the bureaucratic cost of running the university – the cost of the senior leadership team and all of their support staff, and functions such as external relations, financial services, human resources, the registrar, and alumni affairs.

The cost of those activities is certainly impacted by inflation, but there is no reason, in an increasingly automated world, for it to track enrollment as well. But the growth of Central Admin cost has far exceed both factors combined:

Since 2001, the (inflation-adjusted) cost of Central Admin has risen from $44 million to $93 million at the average Top 25 university – an increase of 111%. Meanwhile, Instruction spending has risen by 83%.

This reflects a pervasive bureaucratization of most of Canada’s top universities. It is disconcerting that the cost of running a university is growing faster than the cost of actually being one. That is unsustainability personified.

More on Central Administration costs, and the Rankings, can be found HERE.

The irony of this situation is that, across campus, while the budget debate is swirling, professors in the business faculty are warning their students about the danger of allowing fixed costs to reach levels that cannot be sustained through the next downturn in the business cycle. While that warning has a more corporate focus, it is just as relevant to PSE itself.

The PSE equivalent of a downturn in the business cycle revolves around three main risk factors – economic adversity that prevents provinces from maintaining funding levels (which we’ve been seeing since around 2010), provincial restraints on student fee increases (which have been implemented in many provinces), and demographic or other change that results in declining enrollment.

When adversity strikes, the cost of the support functions becomes a millstone. Once taken on, these costs are extremely difficult to reduce because the very act of reducing them itself involves significant cost.

PSE’s “Challenger Moment”

The concept of normalization of deviance postulates that it usually takes an unforeseen event to transform yesterday’s dangerous behaviours into today’s disastrous consequences. With the Challenger tragedy it was an unseasonably cold morning in southern Florida.

For Canadian PSE it is COVID. It will exert a deep, double-barrelled impact:

Further Declines in Provincial Support

It will take years for the provinces to rectify the damage inflicted on their finances by COVID, and every publicly-funded sector will be impacted. As noted earlier, PSE is likely to experience the greatest impact because it is the only one of the four major sectors to have an alternative income source.

Declines in International student enrollment

The day of judgment for the mounting financial inefficiency was deferred by the arrival of increasing numbers of international students, who pay much higher fees. The universities targeted these students less for the cultural “shot in the arm” they bring to campus, and more for the financial one. The provinces encouraged this focus because they viewed it as a way of reducing PSE’s reliance on provincial funding. This was always a dangerous reliance, given the vagaries of international relations (such as Canada’s with China), and the fact that many source nations have been building their own PSE sectors with the goal of keeping more students at home.

But nobody foresaw the “nightmare scenario” of the COVID-19 pandemic. It is not just inflicting heavy financial damage on PSE. It is also posing fundamental questions regarding PSE’s mode of delivery.

So, PSE’s “Challenger moment” has arrived.

Where From Here?

The only alternatives are to maintain the status quo or to fix the fundamental issues. Both are painful and costly.

  • Without major improvements in financial efficiency, the only response is to throw heavy cost increases at students, and implement further cuts in the academic area. The burden would not be borne by the system that created the problems, but by those who inherit them – mainly students. The decline of Canada’s universities in the global rankings would continue.
  • But fundamental change would be expensive. There are major costs associated with a transition from inefficiency, especially when it revolves around staffing levels. There would be an interim period when the remedy seems more costly than the malady, but the most important thing is to fix the malady.

There is really only one option because the status quo is unsustainable and its consequences too destructive.

Fundamental changes must be made if Canadian PSE is to “turn the corner”. That will be difficult and painful, because the cost of implementing lasting solutions will be major – in financial terms and human terms.

Funding the Re-structuring

Exceptional situations require exceptional responses, and this is certainly an exceptional situation.

Canadian PSE is at a watershed moment. Most of our universities have, over many years, built a core of inefficiency that is no longer sustainable. It has impacted adversely on accessibility, affordability, educational quality, and Canada’s status in global PSE. It has also fuelled the societally- and economically-damaging problem of student debt, which broadens and deepens every year.

The first challenge is to fix these issues without throwing unmanageable cost increases at students, or further damaging the academic area.

The dilemma could be resolved by taking advantage of something else that most Canadian universities have built over the years, but in a more positive direction – reserve funds totalling hundreds of millions of dollars.

These fund balances were accrued during much sunnier days – when provinces were more supportive, universities were more efficient, class sizes were smaller, and students paid much lower fees and did not have to carry a heavy debt burden into life beyond the gates of campus.

If ever there was a need to access “rainy day funds” it is now.

While some of these reserves are restricted to certain purposes, others are not. And it is not beyond the powers of senior decision-makers at campus and provincial level to temporarily amend some of the restrictions.

This may well be the only way of rectifying the problems without inflicting lasting damage on a younger generation that did not create them.

Making the Solutions Permanent – Fixing the Causes

The second challenge is to implement lasting systemic solutions.

Society relies on a triumvirate – senior administrators, Boards, and provincial ministries – to ensure the effective use of public funds, and to safeguard PSE and students. It has long been accepted that universities must enjoy a high level of academic autonomy, free from political interference. Rightly, provincial governments do not reach into everyday campus-level affairs, leaving them in the hands of Boards and senior administrators. But that does not negate the provinces’ public duty of vigilance.

The numbers indicate that many of PSE’s challenges have developed in the shadows created by lacking vigilance at senior administration level, at Board level, and within provincial ministries. This has happened over a lengthy period, and across national geography, so culpability does not rest with one political party, or one era of provincial or campus leadership. It is a fundamental systemic problem.

Governance

Our post-secondary institutions consume billions of dollars of public and student funding, but their finances are complex and largely opaque to the general pubic. The only digestible information is released at budget time, when fee increases must be approved.

The taxpaying public and fee-paying students rely on the Boards to ensure the overall health of these institutions.

A 2016 study by the Canadian Association of University Teachers revealed that almost half of the Board members at Canada’s 15 research universities were from the corporate sector, 42% from the academic community (academic, support staff, and student representatives), and some 8% “from within the public service”.

https://www.caut.ca/bulletin/2016/09/do-you-know-who-sits-your-board

Most external appointments are made by provincial ministries. These prestigious positions are key components of the structure necessary to keep Canadian PSE strong and publicly accountable. However, the appointees are entirely dependent on the information placed before them by senior administrators.

The most critical decisions of the year occur during the annual budgeting process. As noted earlier, that process has serious failings surrounding the adequacy of decision-making information.

A governing board without adequate information is lip-service to effective governance.

Board members have a fiduciary duty to the province and its citizens – not to the current provincial minister or governing party – to protect the best interests of the institution. If they are not receiving adequate information to properly fulfill that legal duty, they must demand it.

The information deficiencies do not just disadvantage external appointees. They also undermine the ability of the representatives from within the campus community, especially students – the intended beneficiaries of the process, to properly fulfill their role. These representatives are one of the system’s most important “checks and balances”, but an absence of adequate information renders their presence token.

But the responsibility for ensuring the existence of this information does not just rest with Board members. The provinces must play a vital part in the process.

Governments

The fear of public criticism from within the PSE sector causes ministers to shy away from intervention at the campus level even when they feel it may be warranted by their duty to protect the public interest and safeguard the wellbeing of PSE and students. Many of today’s issues are attributable to weaknesses in the government/governance interface.

This challenge was not unforeseen, as the following comments indicate:

I believe (that) in all universities around the world we are dealing with very important issues of how to strike the proper balance between universities and governments, how to strike the proper balance between the autonomy of universities and the reasonable accountability of universities for the public funds that sustain much of their activity.

http://research.ncku.edu.tw/re/commentary/e/20090327/2.pdf

These words came from a senior university administrator – Dr. Michael Stevenson, then President and Vice-Chancellor of Simon Fraser University.

That was in April 2004, and the inefficiency issues have worsened because this central challenge remains unresolved.

The resolution does not rest in a binary choice between university autonomy and ministerial intervention.

It rests in the recognition by provincial ministries that they must set in place mechanisms to ensure that Boards have the information necessary for adequate vigilance and effective governance. Those mechanisms are extremely difficult to create at the individual campus level, especially if there’s reluctance within senior administration to make important information more accessible. Moreover, the information needs to include multi-school comparisons, which would require the simultaneous commitment of multiple schools.

PSE is an area of vital national interest falling under provincial jurisdiction. Most of the current issues transcend provincial borders, and will only be addressed effectively with inter-provincial cooperation. This magnifies the need for provincial ministries to work together, regardless of political differences, to confront these challenges.

One of their first actions should be to implement something advocated by the Educational Policy Institute (in a paper co-written by PSE consultant Alex Usher, founder of Higher Education Strategy Associates) in November 2006 – the creation of a Pan-Canadian Common University Data Set. This would produce a central database covering all the key information required to monitor the efficiency of every Canadian university, and – ideally – every college and polytechnic.

That has long been an absolute prerequisite for effective fiscal vigilance and improved governance, and it is more than unfortunate that this paper did not receive the attention and response it deserved. Had it done so, many of PSE’s current issues – at the national, provincial and campus levels – would have been addressed before they became so damaging and dangerous.

It has now become a crucially important initiative but it can only be created with inter-provincial cooperation. It must be a dynamic, professional exercise initiated and maintained by the provinces, not a personal hobby-horse for an amateur retired guy with limited capabilities.

If these Boards are to become more effective, and if Board members are to fulfill their legal duty, the ministries must ensure that they have the tools to do the job. That is not happening.

Inter-provincial cooperation in areas of vital national interest is not a choice but a duty. The provinces have been part of the problem, and must now, individually and collectively, become the catalysts in implementing the solutions.

……………………………………………………………………………………

These issues have been permitted to grow over many years – beyond the awareness or control of those who were there to prevent it. That is a failure of governments and governance. With the advent of COVID-19 the issues are destined to worsen.

The remedy does not rest in the “band-aid” solutions of the past. It requires some corrective surgery that will inevitably be painful, and a major upgrade of governance and vigilance to ensure that the fix is permanent.

 

 

Why have I created the site?

When a site like this appears from the ether it’s understandable that visitors will want to know where it comes from, who put it there, and what their motivation might be.

 Retired since 2008, I spent twenty-five years of my life working at two major universities, initially within central administration but mostly with student government.

 I’ve chosen to poke my head above the parapets of retirement because the financial inefficiency of our post-secondary institutions has long been a personal hobby-horse, and because nothing has changed since I wrote an article on this topic for Macleans in January 2010. I’ve continued accumulating the data, and created this site because I’m concerned at things I continue to see, long after they first became issues. I hope to keep the site updated (time, circumstances and health permitting) as new numbers and new issues emerge.

 Of course, I have a natural fondness for students, having worked so closely with them for so many years. But I’m also a Canadian, a father and a grandfather, and that’s why I decided to devote personal time and money to the development of this site. The current situation is damaging, dangerous and unsustainable, and it is negatively and needlessly impacting young lives and the fabric of our country.

 Nobody has “put me up to this” – only my two grandchildren can do that to me these days. After spending so much time on this analysis over the years, sharing my concerns is something I feel I have to do before the lid closes on me. And before those grandchildren (hopefully) set foot on campus for the first time.

 My hope is that the site will help to spotlight issues that have needed to be addressed for a long time. This reaches to the heart of things that are very important – our students (those of today and future generations), our post-secondary institutions, and the unique Canadian society in which we are privileged to live.

 On a closing note, I must beg your indulgence. I was born eons before the technology-crazy world of today appeared. The nature of the subject matter makes this site text- and table-heavy, and that won’t work so well for people who do most of their surfing on smartphones and small tablets. And, regardless of how you access it, the site will appear rudimentary and lacking in glitzy features; that’s down to two things – at my age it’s substance over style every time, and there are limits on the affordability front.

William Doswell Smith – Edmonton, Alberta