Masi spells out steps to balanced budget

Posted on Thursday, April 18, 2013

Photo: John Kelsey

Salary envelope will have to shrink, Provost tells Senate

By Doug Sweet

McGill needs to move now to try to contain a growing deficit amid a turbulent funding context that is anything but assured, Provost Anthony C. Masi indicated to Senate Wednesday.

Providing an overview of the proposed 2014 budget, which will go to the Board of Governors for approval on April 26, Masi said the combination of sharply reduced revenue and continuing spending commitments – including such things as pay equity, pensions and deferred maintenance – makes it impossible to balance the books in the short term.

The funding cuts from Quebec announced in December ($19.1 million in the current fiscal year and $19.2 million next year) plus the loss of anticipated increased tuition revenue following the reversal of previous planned increases, leaves the University facing a substantial deficit hole in its operating budget that must be addressed now before McGill’s accumulated deficit gets out of control, Masi said.

It won’t be easy. “This is a context of true uncertainty,” Masi told Senate. While a deficit of $7 million had been projected for the 2013 fiscal year, that will now become a $29.8- million deficit, as a result of the government’s cuts and loss of tuition revenue, he said. For the 2014 fiscal year, McGill’s deficit had been projected at $3.9 million. Instead, unless it takes steps to rein in spending, that could balloon to $43.3 million.

The additional challenge rests in the how uncertain McGill’s funding future remains. The 3 per cent tuition indexation (which late last week, was revised downward to 2.6 per cent) will not bring in enough to cover McGill’s expenditures, and the promised government reinvestment, projected to start in 2015, is contingent on economic conditions in Quebec and the government’s financial situation, Masi underlined.

When 75 per cent of the University’s operating budget is allocated to salaries and benefits, cutting $43 million (about 6 per cent of the operating budget) means a reduction in the salary envelope, or wage bill, Masi said.

Several mechanisms will be in play including a voluntary retirement program and normal attrition, as well as a senior administration pay cut of 3 per cent, a one-year wage and hiring freeze and a temporary freeze on position-rematch and special salary requests.

Depending on the uptake, or acceptance, of those measures, “we may have to engage in additional staff reductions,” Masi said.

Along with other economies and targeted cuts, the aim is to hold the 2014 deficit to $10.4 million, according to the budget presentation, and a return to a balanced budget by the 2015 fiscal year.

Adhering to the Quebec government’s suggestion of deferring the cuts over five to seven years would result in an accumulated deficit of $244 million by 2019, Masi said, versus an accumulated deficit of $122 million by that year if McGill follows the path charted in the budget. As Masi pointed out, every $10 million in accumulated deficit adds $250,000 in charges per year at an interest rate of 2.5 per cent.

Masi’s figures showed that the expected salary savings will be in the range of $21.1 million, minus expected one-time costs of $11.2 million. The professoriate will see a slightly slower growth rate as the tentured and tenure track professor replacement rate will be fixed at 0.7 : 1, a measure which has the approval of the McGill Association of University Teachers, which has also agreed to a pay freeze for all but assistant professors.

The decline in the growth rate of the professoriate shouldn’t be an undue burden on students, because enrolment growth will also be held to very modest levels, Masi said.

The student aid budget will continue to grow, but more slowly than forecast. McGill will still devote 30 per cent of net new tuition revenue to student aid, but because tuition increases come in at something less than 3 per cent, the contribution to the student aid budget will be much smaller.

It’s too early to know how many employees, who were offered the Voluntary Retirement Program, will take it. The deadline is June 3. And it’s too early to know how many employee groups will agree to the one-year wage freeze. Vice-Principal, Administration and Finance Michael Di Grappa told The Reporter that groups have until the end of the month to make their positions known to the University. Recent developments suggest however that the University is open to negotiations in order to reach the needed savings. Under President Robert Huot’s proposal, SEU Trades Downtown are being asked to accept a one-year salary freeze in exchange for three additional paid days off work during the 2013 Christmas holiday period. The University welcomed this counter-proposal, and extended it to all other University employee groups in the hope they will consider it as a contribution to deal with the current financial crisis. Decisions have been requested by the end of April.

June will be a month of number-crunching, to determine how much will have been saved by the various measures in the mix of cuts, freezes and slowdowns in spending. By sometime in the early summer, the University will announce the extent to which targets have been met by these measures or whether other steps, will have to be taken.

Masi expressed frustration with the changing financial picture. “We’ve had five different sets of tuition rates (announced) in the past year,” he said. “We do multi-year budgeting. Other universities are doing one year at a time.” But McGill’s lower professor-student ratio costs the University more and our stringent admission standards means we can’t just open the doors to let more students in.

“It’s almost impossible to come before you and say with any certainty that this is the way it will be. This is certainly no way to run a railroad.”

In addition, he noted, the federal government’s contribution to the indirect costs of research has essentially flat-lined in recent years because even though research dollars are up, the rate of indirect cost recovery has gone down to under 18 per cnt.

A number of questions from Senators focused on recent media reports about looming cuts to libraries, which both Masi and Dean of Libraries Colleen Cook addressed.

Libraries have been protected from budget cuts for the past 12 years, Masi said, but this year they cannot be protected completely. And some restructuring of libraries would have occurred regardless of the budget cuts, as McGill studies the way spaces are used and materials like books are or are not used in order to address the changing needs of library users for study and small group teaching spaces.

“We’re in the process of gathering input,” Cook said, referring to “unfortunate rhetoric” about rumoured cuts to the libraries in the faculties of Education and Medicine. “A final decision has not been made. There will be consultation. What I really need to emphasize is that everything is happening very, very fast and conversations have been very, very preliminary.”

One thing is clear, however. Libraries that used to be open 24 hours a day will have their hours reduced, except at exam time.

In answer to another question, Vice-Principal (Administration and Finance) Michael Di Grappa confirmed that the University is studying the possibility of selling or leasing what has become “inefficient and inappropriate space” as part of a plan to review McGill’s long-term academic space needs and help reduce the deficit at the same time. No specific spaces were identified.

For a more on the situation and the proposed budget, you can visit the budget cuts website.

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One Response to Masi spells out steps to balanced budget

  1. edmund idziak says:

    How would a 15-30% reduction in top administrator and senior management staff seriously affect the core functions (teaching, research) of the university?

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