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Some 2.2 million students study at Canada’s universities, colleges and polytechnics – the equivalent of about 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.

As outlined on the HOME page, things have changed significantly since 2001, and not for the better. Student fees have increased at a rate far above inflation, leading to ever-deepening student debt. Lower levels of funding are making it to the classroom; students encounter larger class sizes, and a gradual swing away from seasoned faculty and towards cheaper adjunct faculty and sessional lecturers. Faculty are repeatedly required to do more with less. Most of Canada’s leading universities have tumbled in global rankings since 2010.

The HOME page also highlighted the need to temper the widespread and longstanding perception that all of those disturbing consequences are the result of inadequate provincial funding.

While a large part of that perception is certainly justified, there’s another fundamental cause that slips by unnoticed, year after year – a disturbing, self-inflicted part.

How does that happen?

The Key Moment

The key moment of every year is the budget ‘debate’, when the Board meets to approve the university’s consolidated budget, tabled by its Finance (or Budget) committee. It includes the proposed General Operating (GO) budget, which incorporates the recommended tuition fee increase.

This is the only time at which the broader campus community, the public, and media see digestible information about the university’s finances. It’s not really a debate but a public formalization of matters that have already been decided. The “highlight reel” would look very similar at most schools.

The fee increase presentation by senior administrators focuses on a simple equation:

Projected Costs
LESS the Provincial Grant (and a few other items amounting to 5% of total income)
EQUALS the amount that must be collected from Student Fees to balance the budget.

The presentation provides information supporting the recommendation, including comparisons with the previous year and some carefully selected peer universities. The impact of inflation and increased enrollment is emphasized; there is usually a reference to the cost of negotiated settlements with the major campus unions – an intimidating dollar number because salary & wage expenditure constitute 60% of the budget. There are often exculpatory comments to the effect that “provincial grant income was lower than we had hoped”.

The picture has been painted: funding inadequacy necessitates the proposed fee increase. 

The student representatives make an impassioned case that the fee increase will hurt students who are already financially stressed, and worsen the vexing national issue of rising graduation debt.

Board members voice sympathy, but it is made clear that any reduction in the fee increase would necessitate budget cuts.

That “seals the deal”, and the budget, including the fee increase, is approved.

After the meeting, students and faculty, the two central components of PSE, voice frustration at the province for the adversity they are continually required to face. Those comments become the media headlines. The provinces have certainly ‘earned’ those headlines with a line of damaging funding decisions stretching back more than a decade.

The justified part of the perception is reinforced every year because that simple equation is always front and centre – empasizing the inescapable fact that student fees must fill the gap between provincial grants and expenditures.

However, analysis of longer-term patterns, using the universities’ own numbers, reveals a different perspective. It exposes some realities that are certainly not “front and centre” in an approval process that conceals far more than it reveals:

PSE’s challenges result less from income inadequacy than expenditure inefficiency.

Real GO Income (i.e., adjusted for inflation and increased enrollment) has increased by 26.9% since 2001, and has even risen by 4.4% since provincial funding taps started to close in around 2011. There are certainly significant funding issues, but that doesn’t look like an “income problem”.

Income adequacy isn’t just determined by the level of income, but also by how efficiently the money is spent.

The Expenditure side of the financial equation arrives at the budget debate as a largely opaque fait accompli. There may be some supportive comparisons with peer universities, but never any information that might jeopardize approval of the budget, as presented, including the fee increase.

At this point, another year of damage has been ensured, because that opacity masked an array of longstanding and damaging resource allocation patterns.

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The issues outlined on this site have developed over many years, and across national geography. Culpability doesn’t rest with one political party, or one era of provincial or campus-level leadership (including the Boards and their sub committees). They are the result of systemic failures of vigilance, governance and oversight at all three levels of the responsibility pyramid – campus, Board, and provincial.

Those failures have weakened these vital institutions and rendered the entire sector vulnerable to an almost inevitable crisis. The looming impact of declining international enrollment will trigger that crisis.

 

ISSUES AT THE CAMPUS LEVEL

 

Lacking vigilance

Adequate information is the prerequisite for strong vigilance and sound decision-making at the campus level. It’s also the prerequisite for effective oversight and governance at the Board of Governors level.

This information certainly exists – and has done for a long time.

ALL the analysis on the site is based on financial data that came from the universities themselves. They submit it annually to the Canadian Association of University Business Officers (CAUBO) – the organization they created in 1937, and continue to fund, with the objective of sharing information and best practices (see HERE). The data is compiled into CAUBO’s annual release of the “Financial Information of Universities and Colleges” report (FIUC), which CAUBO describes thus:

The FIUC is the only national source for comparable and consistent financial information for Canadian universities. It provides financial information to facilitate statistical and trend analysis on an aggregate level. It also allows users to study and understand long-term trends in university finance and expenditures, at both the institutional and national levels.

The universities have no excuse for lacking awareness of the issues outlined on this site, because they are plainly apparent in an analysis of their own data. The analysis turns the data into an invaluable “finger on the pulse” of efficiency. In the absence of that analysis it’s just a purposeless number collection exercise.

Had CAUBO taken that critically important next step and shared the outcome, it would have revealed the damaging resource allocation issues long before they became so widespread and deeply entrenched.

Lacking vigilance allows big damage to occur in small increments

The insidious dimension revealed by the analysis is that inefficiency doesn’t develop with a small increase in a single year. It develops in a succession of smaller increments that slip by unnoticed. The supposedly inconsequential becomes deeply damaging – without anyone really noticing.

Chart B on the Home page provides a vivid illustration of that kind of insidiousness at work. If senior administrators had recommended, back in 2001, that the university should increase spending on non-academic staff from 47 cents per dollar of faculty salaries to 58 cents, the recommendation would have received short shrift from the Board.

However, that shift has happened. It just occurred in small increments, and the additional cost at the Average Top 25 university in 2023 alone was a staggering $28.7 million. That could only be covered by increased student fees and lower allocation levels for Instruction.

Blinded by its own lacking vigilance, PSE has fallen victim to the malignancy that results from it.

Lacking vigilance on the nationwide scale compounds the problems

The numbers show that many of the problems are evident almost nationwide, because most universities are beset with similar efficiency and resource allocation issues. This triggers the danger of “social proof” – the notion that if others are doing it, then it must be okay. Damaging behaviours become normalized and a trendline develops toward ever-lower standards of resource allocation efficiency.

Universities aren’t practicing what they’re preaching

There’s a “Golden Rule” for any organization, whether in the private or public sector, that faces variable activity levels and relies on income to pay the bills: Don’t allow “Fixed Costs” (in areas that are less impacted by activity level changes – that’s mainly enrollment in PSE) to rise faster than “Variable Costs” (in areas that are more sensitive to them).

Even though that Rule is taught by their own Business faculty, most universities have flouted it.

Since 2001, enrollment has increased by an average of 58% across the Top 25. During that time inflation-adjusted expenditure has increased by 77% in the Academic-focused areas, but 106% in the Operational Support areas. (Expenditure on Central Administration, the largest component of Operational Support, has increased by 131%.)

Even since the provinces started reducing their support in around 2011, magnifying the importance of strong cost control and Mission-focused resource allocation, expenditure on Central Admin has increased at almost double the rate for Instruction (40% vs 22%).

Across two decades of rising enrollment, the universities have allowed costs in less enrollment-sensitive areas to increase much faster than costs in more enrollment-sensitive areas.

The failure to distinguish between fixed and variable costs doesn’t just breed inefficiency. It has potentially lethal longer-term ramifications for sustainability – that’s precisely why the Golden Rule exists. In the event of any significant decline in a key income, the only response would be a combination of higher provincial grants, major increases in student fees, and deep cuts to faculties and operating units.

Complacency has been an enabler

The inefficiency has been able to develop and worsen because there have always been ways to cover its cost – increasing provincial grant levels (at least until 2010), rising enrollment (and the prospect of larger increases as Canada’s population grows), increasing student fees (coupled with the removal of restraints on those increases), and reduced funding levels for the “Mission Central” academic area.

A key enabler has been the rapid growth in international student numbers, which now represent some 18% of total enrollment. Fees for international students are around four-times those paid by domestic students.

Until now, there have always been ways to paint over the rust of inefficiency, and that has created a fiscal smugness. As the business saying goes, “growth hides a multitude of sins”; the cardinal ‘sins’ in PSE are, surely, overcharging students and underfunding classrooms.

Today’s inefficiency is not rectified by tomorrow’s enrollment or fee increase; it will still be there, and the historical patterns tell us that it will be worse.

Sooner or later, reality usually obliterates overconfidence, and Canadian PSE is heading rapidly for that moment.

Lacking Transparency

The very fact that the expenditure issues outlined on this site have been able to develop, year after year, is indicative of dangerously lacking transparency. It’s difficult to imagine that the Boards were aware of these ever-mounting inefficiencies, which means that the student and faculty representatives were unaware of them. How can those representatives advocate for their constituencies, and protect the wellbeing of the institution and PSE, if this kind of information is not shared with them?

Opacity appears to be an issue on the Income side as well. The Income topic references the fact that the CAUBO financial data and the Universities Canada enrollment data do not differentiate between domestic and international students. CBC had to resort to access to information requests to see the international student numbers and fee incomes at a number of colleges.

Lacking transparency hides the information necessary to keep these publicly-funded institutions efficient and fully focused on their Core Mission.

Flawed Budgeting Processes

All the behaviours outlined above inevitably combine to produce fundamental flaws in the annual budgeting process – the most important exercise of the year. The process, overseen by Senior Admin, starts inside faculties and departments. This is when today’s inefficiencies can be identified and rectified at source – or ignored and perpetuated.

The issues outlined on this site, and their continuing growth over many years, demonstrate that the latter course has been followed. But this part was not addressed during the process in which the student fee increase and Instruction budgets were approved.

The Normalization of Deviance

The issues are evident nationwide, to varying degrees, because most universities are beset with similar vigilance, efficiency and governance issues. They compound their weaknesses by comparing themselves to peers suffering from the same issues, and draw false comfort from the belief that tomorrow’s income will always pay for today’s problems. This is “Social proof” at its most dangerous.

This triggers Diane Vaughan’s “normalization of deviance” theory, referenced on the Front page. It 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.

The issues outlined on this site are PSE’s own version of missing or ignoring signs of impending failure.

This brings us to the second area of systemic dysfunction.

 

WEAK GOVERNANCE

 

The Board of Governors is the critically important “watchful eye” at each university. Some 60% of Board members are individuals from the corporate and non-profit sectors, while the remaining members are from the campus community (including representatives of academic staff and support staff, and elected student representatives). They all have a fiduciary duty to act in the best interest of the institution.

The Board’s role is usually set out on the university’s website. Here’s an example:

The Board of Governors oversees the management and operation of the University’s business and affairs.

The Board oversees the development of the overarching strategic direction and policy framework for the University, ensures that the University’s activities are consistent with its mandate, oversees the efficient and effective use of financial and human resources to meet institutional objectives and ensures that institutional risk is appropriately managed. These duties are mainly discharged through oversight of the President and senior officers, who are responsible for the management and day-to-day operation of the University. In this way, the Board assumes responsibility for the stewardship of the University.

https://www.ucalgary.ca/secretariat/board-governors

Effective oversight is central to the Board’s stewardship role, and to its ability to ensure “the efficient and effective use of financial and human resources”. The widespread existence of the issues outlined on this site raises significant concerns about the effectiveness of governance at a large number of universities, and in the PSE sector as a whole.

It’s difficult to pinpoint the causes of the governance dysfunction because most Board (and Board sub-committee) activities take place beyond the sight and hearing of anyone outside their membership.

An oft-heard criticism from faculty is that the “top-down” nature of decision-making processes on today’s university campuses means that the Boards don’t always see the information they need to see; much is decided without ever reaching the Board table. That sounds like a plausible explanation because it’s difficult to believe that Boards would have allowed the issues to develop if they had been aware of them.

A frequent complaint from the student side is that they are listened to but not heard – that the consultation (sometimes formally required by provincial legislation) is often token and cursory, and that answers to questions are not always forthcoming.

A governing board without adequate information is lip-service to effective governance, leaving Board members unable to fulfil their fiduciary duty.

The constituency representatives are particularly disadvantaged because they also have a duty to the members of the constituency they represent; lacking information denies them the ability to argue their case and fulfil that duty.

Another issue is the sheer size and complexity of university finances, which makes it difficult for Board members to fully appreciate the implications of the decisions they are making.

Large dollar amounts, esoteric percentages, and carefully-selected comparators don’t reveal inefficiencies and dangerous trends – they mask them.

Undisclosed information strips the system of crucially important “watch dogs”.

A “top-down” system, in which senior administrators determine what the Board sees, creates particular danger. While the constituency representatives are there to protect the interests of their constituency, they are also keen to protect the interest of the university itself and PSE as a whole. Those who study, teach and work on campus are perfectly placed to perform the “watchdog” role that PSE so obviously needs, but undisclosed information prevents them from doing so. Attempts to introduce their own data are not always well received.

Undisclosed information can prevent Board members from seeing different options.

The expenditure issues outlined on this site indicate that, frustratingly, there were always alternatives to those student fee increases and declining allocation levels for Instruction.

That’s an indictment of the current system. Therein rests the rationale for implementing a procedure-based mechanism for approving Tuition Fee increases at the individual university level, and ensuring that the institution’s Core Mission is the central imperative in campus-level resource allocation decisions. That mechanism, discussed in the INCOME topic, would essentially force universities to start minimizing fee increases and maximizing the delivery of funding to the classroom.

It must be stressed that criticism of Governance is not a criticism of Board members. These are talented people with successful lives away from the Board table – that’s why they were appointed to these important, prestigious positions. They are committed to their Board roles, but they can only fulfil them (and their legal duty) effectively if they are provided with the information that enables them to do so.

The goal is not to turn them into a management board, immersed in too much fine detail, but to provide them with the information that allows them to exercise effective oversight. Much of the stronger fiscal vigilance would be exercised in the Board’s Finance (or Budget) committee, which contains Board members with strong finance and accounting skillsets.

 

FAILINGS AT PROVINCIAL LEVEL

 

PSE is an area crucial to the national interest but falling within provincial jurisdiction, so the provinces are at the top of the PSE pyramid. That means holding “ultimate responsibility”, which explains why the theme of this section is the question that a lot of people (students, faculty and the general public) will soon be directing at the provinces:

You helped PSE get into this mess. How are you going to help PSE get out of it?

When it comes to the first part, there are arguably three elements of provincial culpability:

Inadequate funding

Most of the frustration historically directed at the provinces revolves around funding inadequacy. There has always been an unbridgeable gap between what PSE feels it needs in order to meet its Mission, and what provinces are willing and able to provide.

Any provincially funded sector must accept that its funding support levels will wax and wane for various reasons. It is generally understood that PSE is the most likely to encounter wanes because, unlike the other high-expenditure provincial sectors (health, social services, and K-12 education), PSE has a user-pay income stream – student fees.

That unbridgeable gap will always exist because provincial governments will fund PSE as they are financially capable of funding PSE, and ideologically disposed to fund PSE.

Nothing will change that, so those skirmishes will continue.

The decision to abdicate a significant proportion of provincial funding responsibility

The provincial decisions to shunt a significant part of their funding responsibility onto the shoulders of international students was on an entirely different plane. It was opportunism at its most risky, because the provinces were opting to pin the wellbeing and future security of Canadian PSE on a range of complex factors well outside their control. They should have known that their universities, ever-hungry for new revenue, would quickly become addicted to that income.

Those outside factors have arrived at PSE’s door, and they will bring challenge of crisis proportions to many universities. colleges and polytechnics. The likely consequences are alarming.

In the absence of major increases in provincial support and some creative solutions, they will include huge fee increases for domestic students, skyrocketing student debt levels (with the repayment obligations impacting local, provincial and federal economies), major cuts across campus (including Instruction), and possibly even the demise of some institutions that have existed for over a century.

It needn’t have been this bad, and many of the deep failings outlined on this site would not have taken root, if the provinces hadn’t been guilty of their third failing.

The third element of provincial culpability has arguably caused the greatest damage:

The failure to ensure the existence of strong vigilance and effective governance

The duty to ensure strong governance in PSE transcends political ideology. Regardless of province, it is a duty owed to the provincial citizenry, and especially to the intended beneficiaries of the process – students. These are our new generations, and the future wellbeing of Canada rests on their shoulders. For many Canadians, they are their children, grandchildren, nieces and nephews.

This failure knows no politics. It has occurred under all provincial parties, across many years, and under the oversight of Board members appointed by those governing parties.

But lamenting the provinces’ failures isn’t going to solve them. That’s the second part.

 

So, how can the provinces help PSE out of this mess?

 

Resolving the underlying causes of these issues will require fundamental systemic change. It will also require all parties to do something they haven’t always done well in the past – work together.

The provincial ministries must take the lead in this, individually and collectively, because few who work within PSE would voice much confidence in its ability to change from the inside. The replacement of the traditionally more-collegial approach with an often heavy-handed “top-down” approach has sadly damaged relationships and trust, making cooperation difficult to secure.

The provinces have been part of the problem, and must now, individually and collectively, become the catalysts in implementing the solutions.

They have the medium for that process HERE. On that website the Council of Ministers of Education, Canada (CMEC) claims:

Over 50 years of Pan-Canadian Leadership in Education

Never in those 50 years has there been a more important time to show leadership.

There would be no shortage of knowledgable, reasonable people across campus, and beyond, who could offer constructive input on how to fix these problems. Based on the issues outlined on this site, and their underlying causes, the process should focus on four imperatives:

  • Requiring higher levels of vigilance and efficiency at the campus level.
  • Ensuring that Board Members receive the information necessary for effective oversight.
  • Enhancing the ability of constituency representatives to fulfil their roles and serve as “watchdogs”.
  • Increasing transparency.

At least three central components are prerequisites for implementing effective long-term solutions:

A National Database covering all the information necessary to monitor efficiency

The financial data utilized by this site is helpful when it comes to “seeing through the opaque”, but CAUBO doesn’t appear to have taken the next, critically important step – converting it into a key tool for measuring and monitoring expenditure efficiency.

PSE data is “out there” in multiple places and many forms, including audited financial statements. However, it has some limitations. This was noted by the Educational Policy Institute way back in November 2006, when the authors advocated the creation of a Pan-Canadian Common University Data Set. (Read it HERE)

This kind of information has long been a prerequisite for effective fiscal vigilance and improved governance because it wouldn’t allow universities to choose which information they are willing to place within public view. Had that recommendation been implemented at the time, many of PSE’s current issues – at the national, provincial and campus levels – would have been addressed long before they became so damaging and dangerous.

Eighteen years later, to my knowledge, this key piece is still not in place.

It has now become crucially important but it can only be created with inter-provincial cooperation. That must be a dynamic, professional exercise initiated collectively by the provinces.

It should be re-emphasized that, while universities make their data available through CAUBO, there is no similar information source for colleges and polytechnics, at least that I’ve been able to find. Given what this analysis has revealed for the universities, it is unsettling that this crucial sector may be flying largely off the public radar. Many colleges and polytechnics are probably beset by similar failings, and may well be more damaged than the universities by the looming declines in international enrollment.

A set of incisive Key Efficiency Indicators

The effective use of Key Efficiency Indicators (KEIs) and comparators is fundamental to remediation. This site contains some, but they are just an illustrative and amateurish start.

KEIs would enable key decision-makers to monitor the efficiency of their university by comparing it to all universities and to its own historical performance. This is central to addressing the fundamental and damaging flaws in the current vigilance and budgeting processes, and it’s the key piece in the quest to improve governance standards and increase transparency.

The provinces will rightly claim that they use this approach already, by requiring their universities to use Key Performance Indicators (KPIs) to guide decision-making, but the reality is that they’re clearly not effective.

Ironically, one of the most important KPIs used by several provinces doesn’t promote efficiency in resource allocation, but the opposite. The KPI in question prescribes an acceptable level for support costs, but that level is set as a percentage of income. This automatically permits universities to allow their support costs (those “Fixed Costs” discussed above) to track inflation and enrollment. It’s one of PSE’s most dangerous failings, and that particular KPI actually encourages it.

Perhaps the most insightful Key Efficiency Indicator on this site, and the one that has drawn the most attention, is the rapid rise in administrative cost shown in Chart B on the Home page.

Another one, currently unaddressed on the site, would assess investment efficiency. Investment income is one of those “other incomes”, and it’s particularly important because it reduces reliance on provinces and students. At a quick glance, some universities appear to be efficient at investing idle funds, but others do not.

The most important competition between Canada’s PSE institutions should not be for international student fee income. It should be for expenditure efficiency, educational quality, and value for students.

The Common University Data Set paper referenced above provides extensive insight into the possibilities for other insightful efficiency measures.

Implementing a set of common Key Efficiency Indicators across Canadian PSE would also require the provincial ministries to work together, and commission a credible organization to liaise with the PSE sector to determine what is needed to ensure proper vigilance.

Increased transparency

The efficiency of our PSE institutions, whether universities or colleges or polytechnics, is currently hidden inside a fog of complexity that effectively makes them opaque.

That problem is exacerbated by the top-down nature of decision-making, which can create a situation in which governing boards and key campus constituencies are unaware of important information. That poses many dangers.

KEIs are not a panacea if they are not used properly, especially at budget approval time. Shrouding them in secrecy destroys the transparency of these publicly-funded institutions and makes accountability impossible – especially to the public and key campus stakeholders.

There is no rationale for the financial efficiency of our PSE institutions to be opaque to those who fund them (students and the public), teach in them, and work at them. Certainly, some sensitive areas need to be beyond public view, but not matters related to their overall finances and efficiency.

The KEIs should be public information. Nothing to fear, nothing to hide.

The Impediment to Progress

There are certainly ways to start permanently resolving these issues, but it is important to recognize a reality:

The main impediment to progress will be resistance to change and comparison.

Universities have become notoriously resistant to comparisons that don’t cast them in a favourable light, and similarly resistant to change impacting their current “power balance”. This is a sector in desperate need of improvement, and much of that is because the “power balance” (rooted in the control of information) has increasingly become a power imbalance. This not a people issue but a self-perpetuating systemic issue. Misplaced campus-level sensitivities cannot be permitted to obstruct the quest for improvement.

Provinces, entities in which political ideologies are central, are similarly reluctant to face comparison. But PSE is an area of vital national interest falling within provincial jurisdiction, and it is approaching a breaking point. Inter-provincial cooperation aimed at addressing its endemic failings (and impending crisis) is not an option – it’s an obligation. This sector is far too important on the national, provincial, local and human levels to fall secondary to the whims and vagaries of provincial politics and inter-provincial relationships. And the Federal government, again of whatever stripe, needs to stand ready to help however it can.

The most compelling reason to remove these impediments is chillingly simple:

If the issues aren’t fixed, and soon, there may well be more Laurentians.