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The rising financial precarity of universities

Canadian universities emerged from the pandemic with investment growth, but long-term sustainability is a consistent concern.


Despite early concerns that the COVID-19 pandemic could pose serious financial challenges for Canadian universities, a recent report from Statistics Canada reveals that the sector recorded a budget surplus of $1.5 billion in 2021-22. This figure is down $6.2 billion from the previous year’s $7.7 billion high, due to pandemic and market-related circumstances that resulted in nearly across-the-board declines in revenue, coupled with a slight increase in expenditures.

2021-22 witnessed the conclusion of pandemic-related governmental grants, softening investment incomes and a gradual return to on campus activities – plus, in the background, a particularly severe uptick in inflation. In 2022, the annual growth of Canada’s Consumer Price Index hit a 40-year high.

The Statistics Canada report primarily makes comparisons with data from 2020-21. David Robinson, executive director of the Canadian Association of University Teachers, said this data may not provide a solid baseline due to the early impacts of the pandemic. However, the comparison does offer a snapshot of the short-term financial fluctuations that the sector has seen since 2020.

In 2021-22, funding from the provincial and federal governments provided the highest and third-highest source of university revenues respectively, accounting for a combined 46 per cent of total revenue. Compared to the previous year, both sources of revenue declined as pandemic-related financial support concluded.

At the provincial level, universities saw the end of special funding to support transitions between online and in-person learning. Klarka Zeman, chief of the education indicators section of the Canadian Centre for Education Statistics, pointed to a similar story with federal funding, which dropped significantly. In part, this drop occurred because the federal government had offered universities a one-time $416 million grant to keep 22,000 research projects afloat when Canadian universities and health research institutions shut down in 2020.

Read also: Why universities logged record-high revenues in the midst of the pandemic

Tuition fees were the second-highest source of universities’ revenue, accounting for 32.5 per cent of the sector’s financial intake. Although Statistics Canada indicated that tuition revenues had declined after adjusting for inflation, Ms. Zeman said that at face value, tuition revenues actually increased – they just couldn’t outpace the inflation.

Revenues from investment incomes also declined, which Statistics Canada attributed to the “underperformance of major stock market indexes both nationally and internationally.” The agency had predicted this outcome in the previous year’s report, pointing to 2022’s early stock market dip.

The only major source of revenue to increase in 2021-22 came from products and services such as student residences, parking and facility rentals. Still, the $2.6 billion figure remains lower than the $3.7 billion annual average of the five years before the pandemic. After all, the 2021-22 year did not bring a full, uninterrupted return to in-person operations. Although many institutions returned to in-person learning in Fall 2021, a surge fueled by the Omicron variant at the close of the semester prompted a number of universities to move classes back online for several weeks.

Mr. Robinson said that, in the early days of the pandemic, universities were worried about serious impacts on revenues, particularly in the case that student enrolments collapsed. “The good news is, that didn’t materialize,” he said. But it does explain why universities reduced unnecessary expenditures in 2020-21, resulting in the largest decrease in expenditures in more than 20 years. In 2021-22, expenditures rebounded slightly as costs including travel and utilities increased, but they did not yet return to pre-pandemic levels.

Notably, however, 2021-22 brought the largest year-over-year drop in salary and benefits expenditures since 2000-01. “Again, inflation here is the culprit,” Ms. Zeman said. “In nominal terms the salary expenditures went up, but once you adjust for inflation, they actually decreased.” Mr. Robinson speculated that another contributing factor may have been retirements from older professors, who receive a higher pay rate due to seniority.

Overall, the data from 2021-22 reveals that the sector as a whole weathered the pandemic well, and the $1.5 billion surplus offers a sense of stability in the current moment. However, Mr. Robinson said that year-over-year changes aren’t as telling as the bigger picture, which is what matters most. As governments have withdrawn public funding over the span of a decade, long-term data points to rising financial precarity among Canadian postsecondary institutions. “The decline of public funding has made university revenue streams far less predictable,” Mr. Robinson said.

“After three years of disruption, many are now returning to a more stable financial forecast, but financial sustainability remains a consistent concern at many university campuses,” said Philip Landon, the interim president and CEO at Universities Canada (publisher of University Affairs). Mr. Landon considers provincial underfunding “the biggest challenge we’re facing as a sector right now,” and said that convincing governments to “pay their fair share of public education” will be universities’ greatest financial priority in the coming year. He added that a number of universities, particularly in Ontario, are currently running significant deficits, which won’t be sustainable over time.

To fill funding gaps, Canadian universities have become particularly reliant on revenues from ballooning international tuition fees – which could leave them vulnerable to a number of forces in the coming years. In British Columbia, Simon Fraser University is projecting revenue shortfalls for 2023-24 due to “softening” international enrolment. In Ontario, The Varsity recently reported that the University of Toronto’s international tuition rates are reaching the top of the market, meaning that further hikes could spell enrolment decreases. According to reporting from The Globe and Mail, international students across the country currently pay between three to 10 times as much in tuition and fees as domestic students.

Canada’s housing minister Sean Fraser said in August that the government is considering a cap on international student intake, which could have serious ramifications for university finances.

As universities continue to reckon with volatile funding in the wake of the COVID-19 global health emergency, students and staff alike will see consequences. Already, Mr. Robinson said that unpredictable funding is helping drive precarious employment among academic staff, who are increasingly assigned short-term contracts because of uncertain long-term funding. At the graduate student level, as research funding stagnates and stipends hover around the poverty line, Canada’s brain drain will continue as talent and research flock to other countries.

Meanwhile, students are facing stagnating wages, cuts in student aid, and all-time-high costs. Brandon Rhéal Amyot, interim chairperson of the Canadian Federation of Students, told University Affairs that as rising tuition meets the growing cost of living, students are forced to make difficult choices between affording nutritious meals, transportation to campus, housing and their education.

“Budgets are about priorities, at the end of the day,” they said, adding that alongside funding the postsecondary sector, governments need to ensure that students are broadly supported, including through investments in housing.

“Governments have that power. They’ve shown it to us before, and it’s high time they show it again.”

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