Budget Post-mortem

Dear Colleagues,

On Tuesday, we learned that the Province of PEI will provide an additional $750,000 toward the Main Campus operating grant to UPEI for the fiscal year 2004-05 (for a total Main Campus operating grant of $19,901,773). For AVC, the Provincial grant for 2004-05 will be $5,538,995, as previously committed in a multi-year, interprovincial funding agreement. In addition, the Province provides $664,480 as an annual capital grant for maintenance and equipment and $396,200 for capital at AVC. In Tuesday’s Budget, the Province reiterated the commitment made last fall to contribute $25 million over a ten year period toward capital enhancement and renewal at UPEI, in concert with the University’s Building a Legacy Campaign.

The additional $750k toward the Main Campus operating grant is 25% less than the level of funding that had been previously promised ($1 million). This is disappointing, and will require rigourous fiscal planning to manage within this operating envelope. In my January 30th newsletter on budget-making, I indicated that the year-over-year incremental costs for Main Campus are $1.85 million. With subsequent developments, notably the resolution of the faculty negotiations, the number is even higher. Further, we learned through the provincial and municipal budgets of additional payments to government (e.g., a 50% increase in our water bill; the 3 cent increase in gasoline tax).

Now that we know the amount of the Provincial grant, we are left with only three ways to make up the difference: through tuition revenues, by generating other new revenue, or by more effective management of existing resources. The Board of Governors will consider the tuition issue when it approves the budget at the end of April. In anticipation that we would face an even tighter-than-usual budgetary situation for 2004-05, all Main Campus units were asked in early March to make recommendations for cost savings within our current budgets. That process has produced some excellent suggestions, and admittedly a fair share of pain. This is not about identifying waste, but about identifying items that can be considered lower priorities or where we can find better ways to do things we currently do. Of course, this is exceptionally challenging in an operation where only a small fraction of the budget might be called “discretionary” (i.e., where more than 70% of the budget is devoted to salaries and benefits). A similar process has been underway over the past year at AVC, to deal with the same squeeze between inherent increases in costs and revenue growth that does not keep pace.

From the point of view of the Province, the announced funding for UPEI comes in the context of a budget that includes overall cuts of $8 million in grants and subsidies, and $20 million in departmental program reductions. Moreover, it comes in a year when the Province announced a current year deficit of $85 million for 2003-04 and is projecting a deficit of $33 million for 2004-05. It also comes in the context of lower-than-usual projections for growth in the PEI economy, notably due to some extraordinarily challenging conditions in the farming and fishing sectors and with a downturn in the national economy (Canada had GDP growth of 1.7% last year, and didn’t grow at all in January of 2004). Further, Prince Edward Island experienced a formula-driven reduction in federal equalization payments last year. The bottom line is that UPEI’s funding, while not adequate to deal with our incremental costs, was treated as a priority in a year when the Province’s budget included significant cuts and difficult choices across government. The following chart shows the pattern in Provincial government grants to Main Campus, from the mid-1990's through to 2004-05.

On March 23rd, the federal government delivered its budget for 2004-05. The headline in the March 24th Globe and Mail read “Reading, Research and Austerity”. As one colleague commented, “two out of three wasn’t so bad”. In a climate of tightened-up federal spending, there were increases in funding to the three research granting councils, totalling $90 million, plus $5 million per year for a new CURA programme at SSHRC. It is very significant that these granting council increases were accompanied by a further $20 million to account for the indirect costs of research, thereby implying acceptance by government that indirect costs should rise in step with research grants. Universities collectively are still advocating that the overall rate of indirect costs should rise to at least 40%, rather than the 27% level at which they are currently funded nationally. The federal budget included numerous other commitments to research and innovation: additional funding of $60 million for Genome Canada; $5 million annually for a new Network of Excellence to deal with mad cow disease and related conditions (BSE/TSE); an additional $200 million to Sustainable Development Technology Canada, an arm’s length foundation to support development and commercialization of environmental technologies; and, enhanced funding for international development and research and innovation in agriculture.

On the learning front, the federal budget included a series of items directed at student assistance: changes to the Canada Student Loans program, interest relief and assistance with debt reduction, grants for low-income students and students with disabilities, a new Canada Learning Bond, an education savings grant, and new investments in aboriginal education.

When we consider the combined federal and provincial budgets, we have an interesting - and challenging - situation. Universities across Canada struggle to achieve sustainable core funding. We did not gain any ground this year; in fact, we can say that we slipped by a step or two. Still, by comparison with the situation that prevails in other provinces, we continue to hold our own. On the “opportunities” side, we see significant new funding, related to research and innovation and to community development and learning. The obvious challenge is to be astute and proactive in accessing and participating in these special opportunities, and to be prudent and efficient in how we deploy our core resources. Yes, there are challenges. And, yes, we have to advocate for more sustainable core funding. That being said, when we compare our situation with what pertains generally in the public sector, on Prince Edward Island or in other provinces, we have to be grateful that education and research are treated as one of the top two public policy priorities (the other being health) of both the provincial and federal governments.

The best argument we can make in advocating for even more resources, adequate resources, is to continue to demonstrate the importance, and the value, of what we do. That’s what we have been doing at UPEI, which is why we have been doing so well, and that’s what we’ll continue to do. I thank all colleagues for their participation in the University’s financial planning and management. Making this work successfully comes down to good management, and doing the most with the resources we have, at the level of each individual colleague, of departments, of faculties, and of the University as a whole. Thank you.

Sincerely,

H. Wade MacLauchlan
President and Vice-Chancellor