As I reported to the community in September, Queen’s, like many other Canadian universities, is facing significant financial challenges. The recent global economic situation, which has affected investments, reduced liquidity and slowed economic growth, has made this worse.
Even elite private universities south of the border are being forced to re-evaluate their future plans in the face of tumbling endowments. Some of these institutions rely heavily on returns from endowments for operating funding.
An update to the financial situation at Harvard University by its President, Drew Faust, discusses the effect of an $8 billion loss in its endowment since the end of June when it stood at $36.9 billion. The impact of this loss is significant, given that that university relies on endowment income for 35% of its overall operating budget.
The presidents of both Dartmouth College and the Massachusetts Institute of Technology have also recently written to their communities with plans to significantly cut expenses - in both cases - by at least 10% over the next two years.
Many Canadian Universities, including Waterloo, the University of Guelph, Wilfrid Laurier University and York University are facing serious financial challenges and a number have addressed these challenges publicly.
The situation at Queen's has not improved since September. As a result of the current market uncertainty, Queen's investment revenues have further declined. By the end of November, the market value of Queen's endowment fund was estimated to have fallen by close to $125 million since the end of March. Donations are expected to decline and the declining returns also have an effect on the Pension Plan.
In addition, the Government of Ontario signaled in its October 2008 Fall Economic Statement that transfer payments for 2009-10 will not be as high as indicated in the 2008 provincial budget. Finance Minister Dwight Duncan also announced plans to limit salary increases of senior provincial public servants to 1.5% and to freeze the size of the public service at current levels. He made it plain that he expected similar actions to be taken by other publicly funded institutions.
The news of lower-than-anticipated provincial funding for the next fiscal year comes on the heels of a steady decline in government funding as a proportion of our operating expenses over the past 20 years. Our decision to maintain a smaller student population has exacerbated this decline in provincial funding both on the operating and capital side.
On top of this, Queen's spends approximately 70% of its operating budget on salaries, which will rise in coming years under the terms of existing collective agreements.
Meanwhile, we must continue to invest in facilities renewal in order to attract and retain the best students and faculty. Furthermore, we are obligated to spend our provincial capital-funding allocations for capital projects; we cannot apply them to operating spending.
In light of these challenges, and in order to protect Queen's academic quality and core programs and services, we plan to take the necessary steps to balance our operating budget in the medium term by implementing a 15% expenditure cut over the next three years and be deficit-free in three years. In addition, the VPs, Deans and I have agreed to make our small contribution by forgoing any salary increases in the coming budget year.
The alternative to the three-year approach I have just described is immediate, deep cuts to spending that would result in program cuts, mass layoffs and long-term damage to the quality of our academic offerings. That alternative is unacceptable.
Our financial challenges did not develop overnight and they won't disappear overnight. It may take a number of years to implement a sustainable financial plan. I have every confidence that by harnessing the dedication and talent of our students, faculty and staff we will be able to surmount these challenges and move forward together.
As a first step, we have initiated the budget planning process much earlier this year, to give ourselves more time to develop innovative solutions. We also struck several task forces to recommend ways to reduce spending and increase revenues. Summaries of their initial reports are now available on the Principal's Task Force pages.
Please submit any suggestions on how the university can save money or increase revenue to email@example.com.
Principal and Vice-Chancellor