Thursday April 23, 2009
Robert Sutherland Hall, Room 202
Good afternoon. Thank you all for coming here to Robert Sutherland Hall and welcome to those watching from Ellis Hall and West Campus. This is my third report to the Queen's community this year on the state of the University's finances.
My term as principal will be over in a few months, and I am working closely with Principal-designate Daniel Woolf on the financial challenges we face. We talk about twice a week. He is already fully engaged in the issues facing Queen's, including our financial situation.
I regret to say that I see nothing that would suggest the tough times we have been experiencing over the past year will improve. But much progress has been made across faculties, schools and operating units in developing long-term and innovative approaches that — I trust — will maintain the academic excellence and spirit for which we are known.
Today, I would like to update you on where we are financially and operationally, as well as pose some questions about what lies ahead for Queen's University. I first reported to you in September, and then again in February, and the global financial situation has continued to deteriorate. The Conference Board of Canada recently described the Canadian economy as "falling off a cliff" in the first three months of this year. As Chancellor David Dodge remarked in a speech last month here in Kingston, 2009 is going to be remembered as a global financial disaster, no matter what anyone does. And the recovery -- when it begins -- will be slow. Please keep that last point in mind.
Ontario Universities are all facing similar difficulties: reduced provincial grants, tumbling endowments, and expenses rising at rates significantly greater than inflation, which has dropped to only 1.2 per cent!
This slide [slide 1] lists the variety of strategies our sister institutions are using to respond to declining revenues and increasing expenses. This problem is province-wide and is being faced and recognized by institutions throughout the public sector.
Let me turn now to the provincial budget, which was delivered about a month ago. All Ontario universities were hoping for some year-end operating relief. And we did get some. However for Queen's, the $3.5 million we received — though welcome and appreciated — is a drop in the bucket. I want to explain why.
Historically, the province has been our biggest funder on the operating side. But over the last 15 years, that's changed. And it's very significant for Queen's.
You can see [in slide 2] that provincial grants used to be 3/4 of operating revenue; now they are less than 1/2.
As I outlined in February, provincial funding — particularly in recent years — has been primarily tied to enrollment, and we have deliberately chosen not to significantly grow our undergraduate population. In some ways, this has been very positive for Queen's.
Our student, reputational and research rankings all prove that we continue to be a top Canadian university. But our decision to grow more slowly than our peers comes with a price — our share of the provincial pie — our system share — continues to get smaller. Last month's provincial budget crudely illustrates this fact.
The Ontario government is targeting a total of $150 million for 2008-09 in one-time immediate support to colleges and universities for enrollment and operating pressures. Usually, universities get 2/3 of the funding and colleges get 1/3. But in this budget, the funding was basically split, so the university pie shrank.
Of the $81.7 million distributed among Ontario universities, Queen's got $3.5 million: $400,000 for growth and the rest based on system share, and again - our system share has dropped because we aren't growing as much as many of our peers. Our system share has dropped by 1.3%, from almost 7% in 2000-2001, down to 5.6% this year.
That 1.3% may not sound like much, but it translates into $750,000 less in this year-end funding than we would have received a decade ago. It translates into $3 million less from the province for infrastructure funding this year than we would have received 10 years ago. When so many government grants are distributed based on system share, it adds up.
But let's focus on the positive. We did get $3.5 million from the province. We are using about $2.5 million to reduce our 2008-09 deficit.
The remaining million dollars will go to library acquisitions and to faculties and schools to ease the pain in 2009-2010. This slide [slide 3] outlines the process.
As we distribute this one-time funding, we must remember that the value of our Pooled Endowment Fund continues to drop. It is projected that by the end of April, our endowments will have declined $152 million or 24% over the last year.
The income we get from our endowments significantly enhances our academic mission. It supports student assistance, academic chairs, and contributes to the operating budget.
In addition, Queen's has a Pooled Investment Fund that supports the operating budget. This fund has declined $51 million or 29% over the fiscal year. These declines represent a $4 million drop in investment income that normally would go to the operating budget.
The Investment Committee of the University's Board of Trustees, which includes faculty and staff, provides strong stewardship over these funds and will continue to do so. However, we do expect income from these sources will continue to fall, and almost certainly affect the operating budget in fiscal 2010-11. In fact, our budget projections already include a reduced contribution from our endowments over the next few years.
The impact of the market meltdown is also affecting donations to the University and will continue to do so. A scan of any newspaper or newscast tells you that governments are awash in red ink. It will take them years to eliminate the deficits they are creating. This inevitably will be reflected in constrained annual grants to post secondary education and institutions such as Queen's. As the Governor of the Bank of Canada stated earlier this week: there is no silver bullet on the horizon. But within this challenging context, our goal remains clear. We must get our expenses to meet our revenues, and balance the operating budget. Like governments, this will take us several years to do.
Still, we have a financial plan. And we are moving forward. Let me report on some elements of our approach:
The task forces that I struck in the fall to look at key short and long-term issues are starting to implement the initiatives that have been developed.
The Cost Reduction Task Force has launched a new Office Suppliers program that is maximizing our purchasing power by using a single supplier. Our costs are expected to drop annually by about $480,000.
The Task Force on Virtualization will be piloting virtual labs and web-cast lectures starting in September.
New certificate and non-degree programs are being developed in the School of Business and Faculty of Education, as new revenue sources.
This work will continue. The most difficult element of our financial strategy remains the three-year 15% budget cut across all academic and administrative units.
After an extensive development and review process, here's how it looks[slide 5]for each area of the university. This is a breakdown of how units are planning to meet the 15% cut by fiscal 2011-12...Through this multi-year budget planning process, the University has been examining all of its activities and making some tough decisions.
Empty faculty positions across the University won't automatically be filled
There will be fewer visiting scholars, and some larger classes and labs
The Queen's National Scholar and Chancellor's Awards programs have been temporarily put on hold
Some new students may experience restricted choice in concentration combinations, and
The Library may not be able to buy as many books, journals and other information resources
At the same time, we are innovating, with some very positive results:
The Faculty of Applied Science plans to expand its unique-in-Canada program with the School of English that prepares and supports top students from Saudi Arabia who are sponsored to come to study engineering at Queen's.
Some professors are taking full advantage of technology -there's a very popular film course that's being taught using Twitter, FlickR, Wikis, Clickers and video captures. Arts and Science is going to expand the use of these teaching methods by adding virtualization components to first year Biology and Psychology courses.
The Faculty of Education's new partnership with St. Lawrence College is enhancing pathways into Technology Education programs and student success
The Department of Anatomy and Cell Biology is now posting and selling its extensive histology image collection on-line
Several faculties, schools and central services are communicating more with students via the web and e-mail, saving courier and postage costs, and helping to reduce our carbon footprint.
New programs will increase revenue to several schools (Business, Law, Education)
These are just a few examples of some creative thinking, and they are making a difference. I want to encourage more innovation across campus. To do that, Principal-Elect Woolf and I have established a fund to support projects over the next 2 years that would allow units, faculties or the University as a whole, to generate new revenue or contain costs. A process has been set up to evaluate proposals to access the fund. All of the details of the Principal's Innovation Fund can be found on the Office of the Principal website.
The idea is to try and give units a little flexibility to spend money now, in order to save more later - or create a new way to bring more money in. Although painful, it is evident that all of the hard choices being made and creativity being applied across campus are helping to reduce our in-year deficits.
I showed you a similar graph [to slide 6] in February - this one has been updated to include the work that's been done since then.
This top blue line shows how high our expenditures would be without the 15% cut. This simply was not sustainable. The middle red line shows how the difficult decisions you are making have moved us even closer to a balanced budget...which is the lower black line. But as you can see, and as I told you in February: the 15% cut is not going to be enough.
In fact, the gap is larger than we had been projecting for a number of reasons, including the fact that the faltering financial markets have forced us to adjust our investment income projections downward by about $4 million, and we've had to increase the payments towards our unfunded pension liability by $2 million.
The blue bars [bottom of each bar on slide 7] show that over the next three years, the in-year deficits will be reduced through the 15% budget cut. But the cost — which is the red bars [top portion of each bar] — is a very large accumulated deficit, currently projected at $33 million — that clearly will need to be reduced over the next two years. More budget cuts will then be necessary in the future to service this debt.
We have bought ourselves a little time to make some fundamental changes to our structures, programs and services, and I'm hoping the Innovation Fund will also help. But the three-year planning process comes with a $30-plus million deficit.
I had been hoping we could look at the largest, but mainly untouched, portion of the operating budget — the 70% that represents the wage bill, especially because the landscape has changed enormously. Most importantly, inflation has dropped to 1.2% from more than 3% only a few months ago.
I had been hoping we could ease the financial pain that's currently being felt, and that will almost certainly increase in the second year of the budget plan. As you will recall, in February, I invited employee representatives to sit down with me in good faith and discuss options, including salary freezes, voluntary retirement incentives, and constrained hiring, among others.
I started that process by meeting with non-faculty groups and then the faculty association. Initially, it was decided that we'd begin consultations with the faculty. Earlier this month, the University tabled two proposals. One is a suggested early retirement program. The other looked to achieve the equivalent of a 2% decrease in faculty salaries by closing the university for five days throughout the year, which could save $400,000 a day. Discussions continue on early retirement options, but to date no progress has been made on finding other compensation savings.
I am disappointed with the pace of the process. I believe we are wasting valuable time. Our situation needs quicker action. Definitive answers on whether or not any agreements can be reached are essential if for no other reason than to reduce anxiety on campus concerning job security.
As the 2009-2010 budget demonstrates, we have tried to protect our support staff as much as we could. But we are now in a position where we are vulnerable. If we are unable to achieve agreements with employee groups that have the effect of reducing the wage bill, I predict that starting in 2010-2011, layoffs will be unavoidable, and working conditions will inevitably deteriorate.
So this is where we are. These are all of the numbers. These are our realities.
And within this dynamic and stressful environment, I think it's important that we don't lose sight of our fundamental strengths and we should pause for a moment to reflect on the challenges that have emerged as we have been dealing with the financial situation. We need to ask ourselves: how can we adapt to changing realities while protecting the core strengths that define us?
I'd like to focus on five core strengths, recognizing that these are a few from a larger list.
1. Academic Excellence is at the heart of everything we do.
Any decisions we make must consider how our choices will enhance our academic mission in the long term. As an institution, there is a clear need to reaffirm what we mean by academic quality. It clearly means more than what we have done in the past. But we need a new consensus about what it will mean in our future.
2. Our people — our students, faculty, and staff.
We continue to recruit excellent students and superb faculty and staff. Our people matter, and we must do everything in our power to maintain this crucial resource and not take it for granted.
3. The Queen's Education.
We view a Queen's education as being more than formal course work. It's made up of all student experiences in the broader Queen's learning environment.
In this area, two themes appear to be emerging. Our scores from the National Survey on Student Engagement (NSSE) suggest that there is some opportunity to improve the formal part of Queen's student education. The ways we teach and some of the content we deliver may be becoming somewhat dated and in need of review.
On the other hand, students' outside-classroom experiences place us in the top ranks of Canadian universities, and we must continue to nurture this part of the Queen's experience.
4. We rightfully value our history and traditions.
The challenge before the community now, however, is "how do we pay appropriate respect to past ways of doing things, while ensuring that our practices and subject matter are at the cutting edge of our disciplines and programs going forward?"
Here, I believe the search for the appropriate balance between tradition and best practice has been, at best, uneven. In some quarters, this search has been characterized by nostalgia, inertia and resistance to change. In other areas, clearly cutting-edge approaches are developing.
The point to be made here, particularly given the student survey indicators just referenced, is that the search for appropriate balance cannot be delayed. Delay will cost us reputationally and financially. In this regard, academically, we are on borrowed time, and our competition continues to advance. We must engage, and redefine the balance point between traditional ways of operating, and best practices in all our disciplines and spheres of operations.
It's critical that although our current financial challenges are an unambiguous incentive, the fundamental values driving this process must be academic. The process must reflect normal academic values — they must be data-driven, empirical (and not opinion-driven), reflect best practices, and be transparent and rigorous.
5. Finally, we have historically valued our strong sense of community and collegiality.
As constraint increases, the threat to this strength will increase, as personal and small-group interests receive greater attention than broader University interests. But in the final analysis, we all work in this place and Queen's is far more than the sum of our constituent parts.
We must not allow factionalization or balkanization in our constituencies to happen by default. The reality of the Queen's community has been one of our strongest differentiators for more than a century. We ignore this at our peril and I am concerned that we have not paid sufficient attention to this shared value.
We have, in our over 100-year history, weathered hardships before. But we have done it as a community, made up of different interest groups with a shared goal. Here, the community matters, and we all have an obligation to sustain it.The financial challenges we face pose a number of threats to Queen's and to all of our sister institutions, continent-wide.
But let us not be confused: while we must adapt to a constrained fiscal environment, our bigger challenge is how we will adapt in an academic milieu to academic challenges and developments that could see our traditional position as a leader in Canadian post-secondary education challenged.
In closing, I would like to thank all of you — staff, faculty, students — who have worked so hard under stressful conditions to get us to this point.
As I said earlier, Principal-Elect Woolf is engaged in the work going on across campus and will be in an excellent position to keep us all moving forward. He and I are in regular contact. He's coming to town next week, and once he moves back in July, we will be working hand-in-glove all summer. There will be a seamless transition.
These are extraordinary times. They call for extraordinary actions, ideas, changes and innovation. But most of all, they require engagement and action by all members of the Queen's community. We are capable of all of this, if we work together.