Year-end financial results and moving forward

October 20, 2010

To the Queen's Community:

The Queen's Board of Trustees met in Kingston over the first weekend in October and one of its many items of business was the approval of the Queen's audited consolidated financial statements for the 2009-2010 year. With improved investment performance, the University completed the fiscal year with a smaller deficiency of revenue over expenses from the prior year.

As we typically talk about the operating budget, it is important to set the context for the consolidated financial statements, which include all aspects of the University's operations. The operating fund represents just over 50% of total revenue. The other funds such as Research and Trust are typically for restricted purposes as per the terms of the funding agency or donor.

What the numbers tell us

Despite the improved 2009-10 performance, the audited statements confirm and reinforce a basic fact about Queen's current financial situation - that compensation and benefit increases outpace the increase in grant, fee and ancillary income.

In our previous update we talked about the need to address the pension plan unfunded liability. Simply put, unless we can make the Queen's Pension Plan sustainable, more and more money will need to be diverted to the funding gap, putting the squeeze on other areas of the operating budget.

Although investment returns were healthy in 2009-10, the losses our investment portfolios experienced in prior years are having a powerful impact on our bottom line. The effect is being felt both directly and indirectly: directly, through reduced returns on investments that feed our operating budget; and, indirectly, through the ripple effect of increasing liabilities in the Queen's Pension Plan - liabilities that we are obliged, by law, to address.

Another factor impacting the financial results is the level of debt required to support the capital projects undertaken to improve the campus environment for faculty, staff and students. No matter how necessary a building or improvement project may be, it is essential to manage the risks that come with investing in multiple, large-scale projects.

To help lessen those risks, the University has adopted a firm policy not to use debt borrowing for future capital projects unless they are supported by a stream of revenue that can help support that debt (e.g. parking garages and residences). In October 2009, the Board of Trustees approved a process for approval of new capital projects that supports this decision.

 

How will we address the financial challenge?

First, we will need to continue being prudent with how we allocate and spend the University's operating dollars. Maintaining discipline in our spending will ensure that we don't create new problems while we work to solve the existing ones.

Second, we must get to work on re-stabilizing the Queen's Pension Plan. The Plan is critically important to both current and former faculty and staff. We look forward to working with the University's employee groups to put this critical program back on stable foundations.

Are there other options?

There are always options. But we need to be realistic in how we manage our fiscal challenges.

Financial support for post-secondary education is becoming more and more fragmented with less and less of the funds coming from traditional, stable sources such as government (see our May 19, 2010 financial update). This means we must rely more and more on private sources of funding. As Chancellor David Dodge said in his remarks to the Grant Hall Society on October 2, philanthropic gifts used to provide the "nice-to-haves" for post-secondary institutions but, today, philanthropy pays a significant portion of the bill for the "must-haves." So while we must rely more on private sources of revenue, we need to be realistic about how quickly and how dramatically we can increase that kind of support.

So, the bottom line? We must be serious, realistic and careful as we plan for the future. We cannot create more financial risk without gambling on the University's ability to move forward with shaping its academic future.

If you'd like to have a look at the 2009-2010 audited financial statements, you will can download the document from the Financial Services site. (PDF 561 KB)

Should you have any questions or comments, please do not hesitate to email us at financial.challenge@queensu.ca.

Sincerely,

Bob Silverman, Provost and Vice-Principal (Academic)

Caroline Davis, Vice-Principal (Finance and Administration)