As part of the 2015/16 provincial budget released in October 2015, the Government of Alberta outlined its commitment to supporting a two per cent increase to the Campus Alberta Operating grant for both 2015/16 and 2016/17. Using this commitment as a base, the Budget Advisory Committee (BAC) has been working over the past few months to develop a balanced University of Lethbridge operating budget for 2016/17.
The preparation of the University budget is very complex and requires making assumptions about revenue and expenses. In making these assumptions, the BAC must take into consideration the uncertainties inherent in certain budget line items. The BAC has adopted a conservative approach to ensure that any changes to these assumptions will still allow for sufficient resources to provide for a balanced budget.
The significant budget uncertainties that are considered by BAC are:
1. Campus Alberta Grant
The Provincial Campus Alberta Grant is the largest single revenue line item for the University, which comprises approximately 68 per cent of the University's revenue budget. Although the Provincial Government normally informs institutions of at least the next fiscal year's percentage increase to the University’s Campus Alberta Grant, unfortunately this percentage increase has not always materialized. For example, the University had been informed in writing by the provincial government that it would receive a two per cent grant increase for each of the years 2012-13, 2013-14 and 2014-15. The 2 per cent grant increase was realized in 2012-13, but at the beginning of the 2013-14 fiscal year the province announced a 7.3 per cent reduction to the grant. Any major fluctuation in the Campus Alberta Grant has substantial implications for the budget of the University.
2. Tuition Revenue / Student Enrolment
Tuition fee revenue comprises approximately 28 per cent of the University's annual revenue budget. The change in tuition revenue year over year depends upon the tuition fee rates and student enrolments.
In the recent past, the maximum that tuition fees could be increased annually was up to the Alberta Consumer Price Index. On June 18, 2015, the provincial government announced a freeze to tuition fees and mandatory non-instructional fees at 2014-15 levels for the 2015-16 and 2016-17 fiscal years, and required the rollback of the Faculty of Management tuition market modifier which was previously approved in spring 2015 by the former provincial government. The province has announced that a review of tuition fees will be done over the next year so it is difficult to predict tuition fee revenue beyond the 2016-17 fiscal year.
Tuition revenue is also influenced by student enrolments. The Campus Alberta Planning Resource (CAPR), provided by the provincial government, anticipates a shift in the age distribution for Alberta learners over the next 10 years; while overall population growth is anticipated to be over 21.8 per cent, the projected growth of 18-34 year olds is much lower at 6.1 per cent. There is much competition amongst post-secondary institutions for students, so the University must maintain its recruitment efforts to ensure students are well aware of the high quality programs that exist at the University of Lethbridge. Significant efforts have also been put into maintaining and enhancing student services to improve our student retention rate. These efforts have resulted in an increase of student retention numbers by three per cent over the past year, which is a major accomplishment.
3. Investment Income
There is significant uncertainty and variance in investment income, which comprises approximately three per cent of the University's revenue budget. The major influence on investment income is the performance of the markets. The Board of Governors Finance Committee manages this risk using a diversified investment portfolio to meet our objectives and specific performance standards related to expected rates of return.
4. Exchange Rates
The majority of the University’s expenditures are in Canadian funds, but when the exchange rate shows a significant downward trend, as we have experienced in the past year, the impact of this severely reduces our buying power, especially for library acquisitions and information technology contracts.
The largest component of the University’s expenditures is salaries and benefits. Salary adjustments are based on contract negotiations with the respective associations and unions and assumptions for the negotiated increases are built into the budget. These assumptions may or may not be accurate and thus can have a substantial impact on the overall budget. Attracting and retaining quality faculty and staff continues to remain a Board of Governor’s priority.
6. Pension Plan Contribution Rates and Employee Benefits
Most employee benefits are negotiated with the respective employee groups, but there are a few, most notably the pension plan contribution rates and health care premium costs, that are paid by the University but are set by external agencies, that can increase significantly year over year.
7. General Inflation Pressures
Just as for all households, there are general inflation increases in most expenditures and the University needs to anticipate the impact of these changes on the budget allocation to each budget unit.
8. Deferred Maintenance
Deferred maintenance refers to maintenance projects that are required for building and equipment upkeep, but have been postponed due to a lack of funds. Deferred maintenance can allow minor repair work to evolve into more serious conditions.
In order to be a top destination university, our facilities must be well maintained. The University allocates a portion of its operating budget to address deferred maintenance projects. Deferred maintenance on our facilities is estimated at $154 million (2014: $153 million) based on a facility condition report completed by the University in January 2015. This means that if the University undertook all the maintenance projects it would require $154 million.
While the budget is still being developed, it is apparent that the University will have to make reductions to balance the 2016/17 budget. This annual deficit in our operating budget is because revenue from the Campus Alberta Operating Grant will increase at two per cent for 2016/17, tuition and student fees will remain frozen, and many of our base operating expenditures will increase in 2016/17.
To help address this deficit, a voluntary exit/retirement incentive package has been developed for all staff (academic and non-academic) who are on continuing appointments and who agree to leave in the 2016/17 fiscal year. Please note there are some differences from the package that was offered to academic staff in 2013. If you are interested in learning more, please contact your Vice-President, Associate Vice-President, Dean/University Librarian or Executive Director before March 31, 2016.
Over the course of the coming weeks I will use this forum to share additional information on the University of Lethbridge operating budget and some of the budget uncertainties I’ve outlined, illustrate how we will achieve a balanced budget for 2016/17, and suggest ways that we can attain greater budget sustainability for the University of Lethbridge.
Dr. Mike Mahon
President and Vice-Chancellor