Our Economic Health – Rewind
Higher Education Finance - Illustration by Paul Lachine
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.
Reality Check
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.
KMD
The New Normal: Part 2 will explore how higher education leaders can prepare their organization for this economic uncertainty.
Kent MacDonald 
Kent, has there ever been a time in your Algonquin memory when post-secondary budgets were not in crisis? As an Algonquin employee, I have never once in my 11 years, heard, “Folks, we had an excellent year, and can look forward to another good one or two.” Bob once told us at the president’s functions, the year AFTER the 2006 strike, that we had a “good year.” That was not what we were hearing around the bargaining table leading up to the strike vote.
In the meantime, every college campus in Ontario has been perpetually festooned with building cranes over the last decade, in such a way that bricks and mortar, not faculty, were lauded as the true fixed assets of our colleges. With every VIP ribbon-cutting and shovel-turn, we celebrated construction and left the faculty recognition to token ceremonies or student nominations.
We have perpetually had an axe held over our heads and it has gotten tedious. It seems to me that “Wolf” has been cried so often, that the rank-and-file can do little but shrug and let matters happen as they will.
Hi Joe
Thank you for your insights. There is no crisis. However, I will reaffirm that a wide variety of economic data and a wide range of prognosticators from all political parties agree to this fact: Ontario has never been in an economic situation like the one we find ourselves today. That is, as countries and states around the world have their credit ratings slashed, see their unemployment rates increase and record depts accumulate, it is both prudent and responsible to look closely at these realities in order to best position our colleges and universities for long-term success and sustainability. Again, the intent of this post was not to suggest there is a crisis. Rather, it was meant to reflect some of the challenges we face and the need for us to prudently manage through these challenges.
As for capital, we were certainly fortunate to receive provincial and federal KIP funding (Knowledge Infrastructure Funding). Indeed, there have been cranes on campuses across the province. This is a good thing. They are but one indicator of the government and industry’s efforts to transform underfunded capital projects. Unfortunately, this is not operational funding and is limited to one-time capital expenditures. In the case of Algonquin College, this one-time investment directly increased access for hundreds of new students in Ottawa and a new campus in Perth. Further, we are very fortunate to have the antiquated learning space in Pembroke replaced by new learning facilities by the Fall of 2012. All of these timely investments ensure our faculty and staff have the facilities they require to enhance the overall learning experience for their students.
We can never do enough to celebrate our staff and faculty. This is something that can always be improved and your point is well taken.
Thanks again for your comments!
KMD