Our Economic Health – Rewind
Although not a surprise, Ontario’s economic health is worse than we had previously been advised. This economic misstep was alluded to by the Auditor-General and confirmed by the province’s Lieutenant Governor in his recent sobering Speech from the Throne. On November 22, the Honourable David C. Conley announced that Ontario’s economic growth is lower than previously proclaimed. Specifically, we now know that revenue is nearly $800 million less than expected, economic growth is lower than what was projected (1.8% vs. 2.4%) and economic erosion was greater than anticipated (0.3% decline in the province’s GDP for the second quarter of this fiscal year). Moody’s Investor Services has granted Ontario a long-term credit rating of Aa1. Overall non-MBA translation: Not good news.
If we take a step back, we must ask ourselves what these revelations will mean to those of us in higher education. Certainly, we are experiencing record provincial deficits and we are accumulating record levels of dept. This does not bode well for public organizations including colleges and universities.
Ontario may not yet be the “Greece of Canada” as projected by McLeans Magazine in October of this year, but its economic condition is certainly weak. To that end, it is critical that this once-proud provincial powerhouse get its fiscal house in order and to do so will not be easy. It is complex and it is implicated by factors well beyond the borders of this province. Nevertheless, it is also the responsibility of educational leaders and their respective organizations to prepare for the implications of this economic reality.
The Way Forward
To begin addressing this financial challenge, the McGuinty government has taken two important steps. First, the government retained the services of former TD Bank chief economist Don Drummond. In January of next year, Drummond will recommend ways to curb government spending and reform government services. Second, it has just been announced that Peter Wallace will replace Shelly Jamieson as cabinet secretary and head of the Ontario Public Service. Mr. Drummond and Mr. Wallace will play critical roles in the effort to reduce spending, increase revenues and transform the province’s government.
Intuitively, it would seem to me that the way forward should be on the minds of most Ontarians. Certainly as leaders within higher education, it is important that we fully understand these economic forces in order to navigate the uncertain waters before us. Quite simply, it is easy to be a leader in good times. However when we are in difficult economic conditions, real leadership is not for the feint of heart.
What Might We Expect
Mr. Wallace has most recently served as the deputy minister of finance and is a career bureaucrat (Jamieson entered public life just six years ago). Wallace is respected by both major political parties and he will be expected to leverage his thirty years of public sector experience to lead the execution of significant budget cuts across the public service. How this will impact higher education is not yet known.
One person who may know more about the potential impact is Drummond. Although some stability in funding has been projected, this is far from guaranteed and how it is implemented is at best uncertain. To get some insight, it is interesting to review statements made by the former banker just eight months ago. As an example, Drummond co-authored an op-ed piece in the Toronto Star with Queens University Principal Daniel R. Woolf in late March. In that article, Drummond referenced TD Bank research while proclaiming “post-secondary education funding must rise at least 4 to 5 per cent a year until 2016 [and that] tuition increases must be at least 5 to 7 per cent per year”. There is no indication that he holds the same opinion today.
Drummond also stated that there was “a compelling case for governments to do their utmost to protect post-secondary education spending within overall spending restraint. Failure to at least maintain the current post-secondary education spending growth rate and failure to give institutions latitude on tuition will inevitably lead to an erosion of quality, which speaks to Canada’s competitive advantage”. We are hopeful that this plays itself out in his January report.
Notwithstanding this, it appears that we are headed for an adjustment in government grants. All indications are that this will result in a net decrease in real funding for Ontario Colleges. This poses a challenge for college leaders for the upcoming fiscal year. However, we must also consider how to position our colleges and universities for the years thereafter. We cannot ignore the economic realities facing our institutions and to that end, it is my opinion that all college leaders must plan a 3-5 year pro forma that will prudently prepare their institution for significantly less resources in the coming years.
It is simply not reasonable to think that the current post-secondary education system is able to sustain current spending practices; to do so would be irresponsible and naively ignore the reality that government (particularly in Ontario) has finite (and declining) resources. There is every indication that higher education funding will decrease in the coming years. The question is, what will we do about it.
The New Normal: Part 2 will explore how higher education leaders can prepare their organization for this economic uncertainty.