June 10, 2011
To the Queen’s Community:
At the Queen’s Board of Trustees meeting on May 6, the Board approved the University’s 2011-12 Operating Budget. The Board was updated on the University’s current financial challenges and the plan going forward – including the administration’s commitment to bring an end to deficit budgets this fiscal year. The briefing also provided an opportunity to familiarize the Board with the relevant highlights of the provincial budget and to emphasize the looming challenge of meeting the province’s solvency regulations for the Queen’s pension fund.
The Current Operating Numbers
The Board has approved the operating budget, which represents 57% of total expenditures.
The Board was presented with an operating budget for 2011-12 that will see the University run a deficit of $3-million. This will be the fourth year of deficit budgets, and while efforts have been made to limit the size of the annual deficit, it is a situation that cannot continue. The administration has committed to ending deficit spending, and to presenting the Board with its plan to eliminate the structural deficit at the March 2012 Board meeting.
To achieve the goal of a balanced budget next year, we will have to find a further $6.3-million in cost-containment and/or secure alternate or increased revenue opportunities. Planning is underway to realize this goal, but enormous challenges loom on the horizon. The $6.3 million is NOT a one-time cost, but must be generated through base funding. That will involve either cuts to current operating funds or finding sustainable sources of alternative funding (a possible but unlikely solution).
The Size of the Challenge
As we outlined in detail in our last financial update, the challenge of meeting our pension obligations remains the single largest financial challenge we face in the next few years.
Our budget projections are based on the assumption that we will attain three years of pension solvency relief from the provincial government (Stage 1 relief). While it will not be easy to manage our commitment to a balanced operating budget for next fiscal year, the real challenge will be to eliminate the structural deficit given that we'll have to start making solvency payments in three years (2015-16). We must have a plan in place to make the pension plan sustainable in order to qualify for the Ontario Government’s second stage of the solvency relief program, which spreads the payments out over 10 years rather than 5. (Note: This will not reduce the amount we must pay, only the time we are given to make the payments.) Even then, however, we will still be required to begin making significant payments to restore equilibrium to the plan.
The additional special pension payments begin at a relatively modest $8-million this year but could well rise to $34-million when the solvency payments commence in September 2015. We simply do not have the room to absorb charges of that magnitude without seriously eroding our ability to deliver core services. To that end, we have begun exploring all the options available to us in dealing with this challenge. To help fund these payments, there will be an additional charge this year to all unit budgets of 1% of pensionable earnings, rising to 3% next year.
In addition, we will need to discuss everything from credit options to early-payment options to selling university assets. This work will continue as a top priority. At the same time we must live within our means, which will require our community working together to make this happen- it won’t be easy.
The Provincial Budget
The Ontario budget, released at the end of March, contains a number of items that will impact the Queen’s operating budget and those of post-secondary institutions, in general.
First, the government is committed to funding an additional 41,000 university spaces over the next five years. This commitment presents an opportunity to universities to generate additional revenue from increased enrollment over the next few years. However, there will be challenges for Queen's in tapping into this potential, as increased enrollment brings its own set of challenges around accommodation and classroom space -- we simply don’t have much room to grow with our current facilities.
Our budget projections are based on the current, limited enrollment plan approved by Senate. The Enrollment Planning Task Force, which has been meeting since September, has completed its final report to the Principal. The report contains a set of bold recommendations for growth supported by funding commitments by the Province.
Once again there was no inflationary funding in the Provincial budget, and all incremental grant funding will be tied to growth. However, in the latest speech by Minister of Training, Colleges and Universities John Milloy regarding our sector (May 30), he suggests there may be allowances made for some institutions not to grow and we are awaiting details. We will be exploring all possibilities with regard to increasing revenue.
Second, the government has joined other levels of government in reducing its involvement in capital investment and stimulus programs. There were no new capital programs announced for this year. This means we will need to limit our expectations around government support for our capital funding requirements. A recent audit of the University’s deferred maintenance needs set the backlog at $234-million. $2.8-million of that amount is critical and must be dealt with in the next year. The operating budget deferred maintenance fund will be reinstated this year, as one-time provincial funding we have received in prior years has now been depleted. These funds will be targeted at the high priority items from the recent audit as well classroom upgrade priorities.
Calculating the Risks
Moving forward, we are facing a number of risks to our balanced budget plans. While we believe those risks can be managed, they are significant. The pension risks alone could seriously derail our operating budget for years to come. We also have to factor in: the challenge of expenditure and compensation restraint; enrollment risks; an unknown provincial grant and tuition plan beyond 2011-12; and the significant deferred maintenance backlog at the University. All together, these present a formidable challenge. It's a challenge we will need to meet with a combination of tenacity, creativity and a cooperative spirit. With broad-based support and collaboration, we stand a much better chance of rising to the occasion and overcoming the hurdles ahead.
We remain thankful to the faculty, staff and students of Queen’s for your continuing support and contributions.
Bob Silverman, Provost and Vice-Principal (Academic)
Caroline Davis, Vice-Principal (Finance and Adminstration)