Editor’s Note: In the May 24 print issue of the McGill Reporter, we ran an incorrect version of this article, titled “McGill continues to wage war on deficits.” We regret the error.
By McGill Reporter Staff
Although McGill is projecting a balanced operating budget in the 2012 fiscal year, following a small surplus in 2011, a little more red ink lies ahead, Provost Anthony C. Masi has indicated in the latest version of the Budget Book.
While longer-term forecasts suggest a return to budget surpluses from 2015-2017, inclusive, deficits of $7-million and $3.9-million, respectively, are forecast for 2013 and 2014. And that’s without factoring in uncertainty over where the tuition fee issue will be settled, as the provincial government wrestles with a determined protest campaign against its planned increases. “The budget book assumes that tuition will increase by $325 per FTE each year for the next five years, while a recently rejected compromise proposal would see increases of $254 for the next seven years,” Masi noted.
“On a total operating budget of more than $700 million, I presented a budget for 2013 that comes within 1 per cent of balancing – that is a $7-million deficit,” Masi said in an email exchange with The Reporter. “The root cause is structural; as a research-intensive university that also strives to be student-centred, McGill is chronically underfunded. In order to compete effectively with peer institutions, we have expenses that exceed our revenues.
“Our performance over the last two fiscal years was the result of a realignment in budgetary practices, reliance on across-the-board cuts, and a slowing down of some important projects for reinvestment. We also benefited from a retroactive one-time-only cash payment that MELS (Ministère de l’Éducation, du Loisir et du Sport) provided to McGill for previous years when our teaching grant was miscalculated.”
As part of its budgetary promises to improve support for post-secondary education, the Quebec Government has promised additional funding beyond tuition increases, reaching a total of about $850 million more by the end of the next five years. But strings have been attached to those funds, with the province establishing guidelines as to where and how the money can be spent.
Masi, as the chief budget officer and chief academic officer (after the Principal), ensures the predominance of academic priorities when it comes to budget-making at McGill. He says he doesn’t foresee conflict between the government’s spending priorities and those of the University.
“I always analyse and assess the impact that budget decisions will have on the quality of our research, teaching, and service mission,” Masi said. “According to the latest information, the new money has to be spent in four areas within a spread of percentages that must, of course, add up to 100 per cent.”
The province has determined that the new funds should be spent according to this breakdown:
• 50 ‐ 60 per cent on the quality of teaching and student services
• 15 ‐ 25 per cent on the quality of research
• 10 ‐ 20 per cent on the competitive positioning of the institution
• 5 ‐ 15 per cent to improved administration and management
“While in general earmarked mandates, even when new funding is involved, could represent an encroachment on the autonomy of the University to manage its own affairs, especially in a context of chronic underfunding, I believe that McGill will have no difficulty in spending the new revenues within the parameters transmitted to us,” Masi said.
There are at least three significant areas that generate the biggest headaches for budget-makers at McGill. They are: pension commitments, infrastructure, and declining support from government for the “indirect” costs of research.
Pensions have become major issues for a wide variety of organizations, in both the public and private sectors. McGill is no exception.
“Back in 2008,” Masi said, “I ran a special task force on dealing with economic uncertainty and one of the principal findings of a working group that focused on ‘costs’ was that the McGill University Pension Plan was likely to begin making additional calls on the operating budget.
“Then in December 2009 the legally required, external evaluation of the Pension Plan revealed a significant long-term liability (in the order of $114 million), but also immediate obligations of around $47 million, requiring additional University contributions of more than $6 million a year for the next decade or so.’’
While the provincial governments allowed the University to lengthen the time it could take to meet those obligations, it did not provide any funding to relieve the amount McGill would have to pay into the Pension Plan.
“The Pension Administration Committee unanimously recommended a series of stop-gap measures – which were controversial and initially not well-communicated and explained to the community – that were designed to save the current design of the Pension Plan,” Masi said, noting that McGill’s Pension Plan is operated as a hybrid, with some employees on a defined contribution plan and some, a declining percentage, on a defined benefit plan.
Even with recent changes to the pension plan, including the cessation of University contributions for individuals over age 65, “strains will be felt on the operating budget for the foreseeable future unless other measures are taken.”
Infrastructure upkeep adds to costs
When it comes to infrastructure, the University remains behind a large eight-ball, Masi said.
“The estimated deferred maintenance liability for McGill is close to three-quarters of a billion dollars based on the ‘facility condition index’ which is an estimate of what should be spent every year on maintenance, usually about 2 per cent of the value of the buildings.”
Given that McGill’s properties are estimated to be worth close to $2.5 billion, Masi said, then McGill should be spending about $50 million just to keep the physical plant from deteriorating – assuming it was in good shape at the start. Unfortunately, the Provost pointed out, McGill only receives about $25M for such purposes. “In addition, we are trying to renovate and upgrade some very old buildings and this adds to the costs. We are in constant conversation with the government on these matters. Indeed, we received a special allocation of $35M to renovate Wilson Hall,” Masi said.
“It won’t be enough, but it will help.”
As for the indirect costs of research, Masi said, government contributions have been in decline.
“I certainly have noted in the budget book and in various presentations that the rate of Federal Indirect Costs of Research that McGill and other very research-intensive universities have received has been declining over the past number of years.
“These indirect costs are real costs that universities must pay to support research and include items such as occupancy costs (including provision and maintenance of utilities and building services); building depreciation; central administration (such as research support, purchasing, accounting and payroll); library costs; capital equipment costs; faculty/ departmental administration costs and insurance and legal services.”
So if he could wave a magic wand and fix one thing about support for universities in Quebec, what would it be?
“Funding for public research universities is a very complex issue,” Masi said. “Rather than point to one tangible aspect of the funding formulae from Quebec, I would use the magic wand to change attitudes so that the different missions of universities in the system would be viewed as a source of strength rather than for making invidious comparison and that there would be no fear on the part of political and ministerial representatives to recognize, praise, and reward excellence in performance.
“In one stroke this could fix a myriad of woes in the way in which McGill is funded.”