A message to the Queen's community

From the Provost and the Vice-Principal (Finance and Administration)

May 19, 2010

To the Queen's community:

We are providing you with an update on the University's financial situation as we end the 2009-10 fiscal year and begin fiscal 2010-11 with a budget approved by the Board of Trustees at its April 30 meeting.

Queen's, along with most Ontario universities, is struggling with a major structural dynamic: how to continue to provide a quality academic environment, while there is higher demand for post-secondary education, but relatively constrained government funding.

Current budget situation

We ended 2009/10 with a deficit of $2.6 million. The deficit had originally been forecast as $8.3 million, but was reduced because of:

• The one-year salary and benefits agreement signed with the Queen's University Staff Association ($2M)
• Lower-than-anticipated utilities costs thanks to a relatively mild winter ($1M)
• Full (not discounted) funding for all undergraduate growth ($1M)
• Unanticipated year-end government funding ($1M)
• Other Central Savings, primarily benefits ($0.7M)

While these developments lowered the in-year deficit, they unfortunately do not address the fact that our costs are still surpassing our revenues. There still remains the question of how to make the University financially sustainable, and we must maintain our search for ways to expand revenue and reduce costs until this is done.

2010-2011 Budget

On April 30, the Board of Trustees approved our 2010-2011 budget within a five-year horizon. We had presented a three-year framework to the Board last year, but as part of unit budget discussions in early January, it became clear that most units required a longer timeframe to reduce their structural deficits. This is the basis for the new five-year outlook that aims to bring spending in line with expected revenues.

The approved 2010-2011 budget projects a $3.8M deficit. Throughout the coming year we will provide updates on circumstances that may alter our deficit forecast.

Looking ahead, we face two major financial issues: the cost of compensation and unfunded pension liability.

Cost of Compensation:

Our biggest operating expense - as in all public sector institutions - is compensation (salaries and benefits). Compensation at Queen's represents approximately 70% of our operating budget.

As the first graph shows, about half our operating revenue comes from provincial and federal grants. The provincial government has introduced a bill that immediately freezes compensation for everyone not covered by collective agreements. The government also expects new agreements with bargaining units will contain no net compensation increases for two years. Read MTCU memo (PDF 61 KB). We will be negotiating with all employee groups in this context.

For the last decade, faculty and staff salary increases have consistently surpassed the Consumer Price Index. This has benefited the University, as it has enabled Queen's to continue attracting and retaining excellent faculty and staff who have supported our teaching and research mission but it has also been a major underlying cause of our financial problems.

Unfunded Pension Liability:

As at many other Ontario universities, our pension plan, a component of the overall compensation budget, is our single biggest financial risk.

The gap between employer/employee contributions and our current and future payout obligations is widening. The size of the gap the last time the plan was evaluated, in August 2008, was $45M. The University has been required by law to use $6M per year from the operating budget to cover this gap. Since the Fall 2008 market meltdown, we know the gap has increased significantly.

Starting in fall 2011, after the next required pension valuation, we must set aside funding for additional special payments to address the unfunded liability. A large portion of these payments - called solvency payments - is required by regulations that treat universities as organizations that could go out of business at any time. Five provinces exempt their universities from these regulatory provisions, but so far Ontario does not. Ontario universities are working with government to seek exemption from these payments, but this will take time and, ultimately, may not happen. To be prudent we have built the worst-case scenario into our five-year budget outlook.

Even with solvency relief, our pension plan needs major restructuring. Any changes to the plan will have to occur through bargaining with our employee groups. Among the possible changes, employees will be asked to increase their contributions to the pension plan to help deal with this major problem.

Academic-driven budget

Together, we will be working closely to ensure that budget planning is driven by the University's academic priorities.

The Principal has emphasized that we must be engaged in academic planning, both now and on an ongoing basis, regardless of the financial situation. Our academic planning must guide Queen's towards an academically defensible set of priorities, and our budgets need to be shaped, in tough times as well as good, to meet those ambitions.

We want to thank faculty, staff and students for their continued efforts in helping us work to resolve these important issues as we move forward together in continued challenging times.

Please email your questions, comments or ideas to financial.challenge@queensu.ca.

Sincerely,
Bob Silverman
Provost and Vice-Principal (Academic)

Caroline Davis
Vice-Principal (Finance and Administration)