Category: Budgets

  • The Coming Federal Cuts – Part 3: ISED

    The Coming Federal Cuts – Part 3: ISED

    Monday, we looked at the country’s overall financial situation (dire), and yesterday we looked at how cuts of a magnitude of 15% might affect key programs like the Canada Education Savings Program and the Canada Student Financial Assistance Program. Today, we’re going to look at how a 15% cut might affect the Government of Canada’s research subsidies, which in the main are run through the Ministry of innovation, Science and Economic Development (ISED). 

    (I will be speaking about “the tri-councils” as a single funding line; I am aware that the Canadian Institute for Health Research (CIHR) is funded through Health Canada but for this exercise it is easier just to lump them together).

    Let’s start by acknowledging that ISED is a sprawling mess of a department with small programs with very little political protection littered all over the place. I wouldn’t bet the farm on the $12 million “Futurpreneur Canada” making it out of this budget round alive. I also doubt the Universal Broadband Fund is going to continue at $900 million per year. Computers for Schools (sounded great in the 90s, less so now) and Computers for Schools Interns would also be on my endangered list. I suspect that the various regional development funds might be in for an outsized hit as well. All of which is to say that it is possible that the research enterprise – that is, the tri-Councils, the National Research Council (NRC), the Canada Foundation for Innovation (CFI) and all those organizations that get part or all their money through the Strategic Science Fund – might not get hit with a 15% cut. It’s quite possible all these other areas might take an outsized hit and allow the actual science stuff to get off with a lighter cut.

    That said, remember this key point: the budget exercise is not about cutting 15% of funding from where it should theoretically be in three years’ time (the government has a fiscal framework that extends out four or five years). It is about cutting expenditures from a 2024-25 baseline. That means that to get through any previously planned increase in spending, the cuts to existing programs must be more than 15%. 

    This matters for two reasons. First, it is because the government runs its subsidies to electric vehicles manufacturers through ISED. Those subsidies were worth $39M in 2024-25; they were planned to cost $2.1 billion this year and $4.2 billion in 2027-28 (i.e. it’s about half the department’s direct budget spend come two years from now, and about a third of total sci/tech spend if you include the tri-councils). To accommodate that increase while following the letter of the budget reduction request would basically mean requiring the entire department to shut down. That’s probably not happening (though one presumes that Carney’s announcement last week releasing Canadian auto manufacturers from their 20% EV sales target in 2026 might also lead to a reduction in EV subsidies to manufacturers). 

    Second, remember budget 2024? The one where the Liberals promised $1.8 billion in new spending on research and the whole sector cheered with relief? Yeah, well only $75 million went into the budget framework for 2024-25; 87% of that 1.8 billion is backloaded until after spring 2026. So, basically none of it is protected, and it’s all at risk. I wouldn’t be surprised in the least if they just cancelled the whole thing. And then, on top of that, we must worry about what happens to existing programs, and whether they take a 15% hit.

    CIHR transfers about $1.2 billion to Canadian post-secondary institutes each year, while the National Science and Engineering Research Council (NSERC) transfers about $1 billion, and the Social Sciences and Humanities Research Council (SSHRC) transfers about $440 million (although a fair bit of that last one includes combined tri-council projects which administratively run through SSHRC, including – if I am not mistaken – funding for the Canada First Research Excellence Fund). CFI is another $550 million a year or so. NRC is about $1.7 billion per year. The Strategic Science Fund is another $900 million or so, closer to a billion if you include base funding for Genome Canada. Canada Research Chairs are another $300 million. Call it $6.2 billion in total. Required savings to get to a 15% cut is therefore just under $1 billion.

    Where to start?

    Ask most researchers at universities what they would prefer, and the answer is likely that they would eliminate everything except the tri-council funding. Ditch CFI, significantly cut NRC, definitely obliterate the Strategic Science Fund – anything, anything, anything but touch tri-Council grants. I understand the preference, but as I noted last week, this is a monumentally detrimental position for the sector to take. Yes, basic research and the existing grant system are the basis of the existing tenure and promotion system, and as such is naturally dear to those in the system, but almost no one in Ottawa thinks that’s what these systems are for. If we’re going to keep research funding afloat, it’s probably going to be through more spending on things like the Strategic Science Fund.

    I have very little insight into the state of official Ottawa’s current thinking on the relative value of these various programs, but I could imagine three basic scenarios that get us to $1 billion in savings.

    Option 1 is a straight 15% cut across the board. Take out $400 million or so from the granting councils, $80 million from CFI, $250 million from NRC, cut the Strategic Science Fund and Genome Canada to the tune of $150 million or so, and lose about 350 Canada Research Chairs. 

    Option 2 would be the spare the professors approach. Now, you probably can’t spare them entirely, because they are such a big proportion of the overall expenditure, but if you jacked up the cuts to CFI, NRC and Strategic Science to say 25%, you could hold the losses to CRCs and the tri-councils to under $100M. I think this is unlikely, but it is a possible scenario.

    Option 3 would be the hammer the tri-councils approach. Because, as I said, I don’t think they are particularly well-liked at Finance/PMO. This is close to the inverse of option 2; zero cuts to NRC and Strategic Science, keep the CFI cut at 15% and take the rest of the necessary money out of the tri-councils. That would mean a cut of about $800 million or about 30% to council funding.

    And remember, all of this is on top of walking back the measures announced in the 2024 Budget. Ugly doesn’t even begin to cover it.

    To be clear: I suspect it is unlikely that the research area will get a cut of 15%, in part because officials will feel bad about doing serious damage to existing budgets after, I suspect, already taking away the Budget 2024 measures. If I had to guess, I would say that the department will probably come down hardest on regional development subsidies. Nevertheless, the scenarios above are possible even if not probable. Universities should start thinking about what they might mean and how they might cope. 

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  • The Coming Federal Cuts – Part 2: ESDC

    The Coming Federal Cuts – Part 2: ESDC

    Yesterday, I explained why the federal government now finds itself in a position where it has to cut program budgets by at least 15% just to keep the budget deficit to $50 billion by 2028. Today, I am going to explain how this will play out at Employment and Social Development Canada (ESDC), which plays a major role in funding for skills and education in Canada, mainly through the Canada Education Savings Program (CESP) and the Canada Student Financial Assistance Program (CSFAP).

    Now, just a note at the start. It is vanishingly unlikely that the feds will actually look for 15% savings in every program. The 15% rule is for the Department as a whole, and ESDC is one big mother of a department. It includes all sorts of programs including EI (which in theory is exempt from cuts), and child care.

    So, let’s start with CESP, which delivers about a billion dollars a year via matching grants to parents saving for their kids’ education via Registered Education Savings Plans (RESPs). This program doesn’t allow for a lot of nuance in cutting. The program gives out about $1.1 billion a year in Canada Education Savings Grants (CESGs), roughly 85% of which goes on a basic 20 cent-to the dollar match rate and about 15% of which goes to “additional” (i.e. higher) matching rates for lower-income Canadians (A-CESGs). It also runs the Canada Learning Bond Program, which is another roughly $150 million per year which is a non-matching grant of up to $2000 to children from low-income backgrounds to start their educational savings.

    There are basically four options here:

    1) The government could cut program spending across the board by 15%. That is, it could lower the base CESG matching rate from 20% to 17%, and A-CESG payment rates for lower income contributors to 26.5% and 34% from the current 30% and 40%. That would save about $150 million/year. It could also reduce the CLB payout to $1700.  

    2) The government could eliminate the A-CESG pieces entirely and go with a flat 20% coverage. That’s a pretty quick way to a 15% reduction.

    3) The government could axe the CLB. Again, a very quick way to get close to 15% reduction.

    4) The government could hold the A-CESG and CLB harmless and reduce the CESG base rate even further, to about 15%.  

    Now, personally, I think CESG probably comes out of this unscathed – that is, a 0% cut – because it’s one of the most popular government programs in existence. But these options give you a sense of what cuts might be, if applied uniformly across the department.

    (Yes, there are also presumably some savings to be made on the personnel side, but it’s a pretty simple and lean program – if you could get savings equal to even 0.5% of total expenditures from that, I’d be shocked).

    Let’s now head over to CSFAP spending and see how that might fare. It’s a bit more complex than CESG so it’s worth looking at its basic cost-structure. Using data from the CSFAP’s 2023 Actuarial report, it’s possible to look at overall direct program costs, as shown below in Figure 1. Technically, this is not a full state of program costs because there’s another billion or so in “alternative payments” to jurisdictions that do not participate in the CSFAP (i.e. Quebec, Nunavut and the NWT). But since this sum is calculated as a fraction of direct programs, we can more or less ignore them here – a 15% cut of the direct costs automatically translates through to a 15% cut in alternative payments as well. And our target number – given that CSFAP direct expenses are about $4.2 billion – would be about $628 million.

    Figure 1: Major areas of CSFAP spending, in millions, 2023-24

    So where do you carve out that much money from CSLP? Well for starters we could and should get rid of the $429 million we spent eliminating interest on loans after graduation. These subsidies do nothing for access; rather, they boost the incomes of middle-class 20–30-year-olds who have already finished school. And it is not a long-standing program. It is, in fact, a quite recent thing, announced by then-finance minister Chrystia Freeland in 2023 when the Liberals were desperately trying to throw a bone to house-poor urban twenty-somethings who at the time were threatening to vote not-Liberal. Now cutting this wouldn’t be a straight $429 million savings – loss of that subsidy would likely lead to increases in bad debt and Repayment Assistance program (RAP) charges somewhat. So, let’s call that a $350M win.  

    Where to find the other $275 million? Not administration: most of the admin money is tied up in payments to provinces for running the front end of the program or to the National Student Loans Service Centre (an outsourced agency which resides over by Square One in Mississauga for running the back end), neither of which can easily be changed in the short term. Maybe you could lose a couple of million in staff costs but not much more. Very little you can do about bad debts either.  RAP and interest subsidies before consolidation could be made less generous. In particular, the income threshold for access to RAP could be brought back down from the current $45K (roughly – it depends on family size) to say $38K, and interest during school could be brought up from zero to the current inflation rate or the government rate of borrowing (i.e. somewhere between 2 and 2.5%). I don’t have access to detailed financial figures on this, but my guess is that the RAP measure might save $50M or so; in-school interest might get you $100M.

    That still doesn’t quite get us to the required $625 million, so the only option left here is to start hacking away at grants. A straight cut in the maximum grant would be the easiest way to cut costs; bringing that down from $4200/year to, say, $3500/year would reduce spending by something along the lines of $400M/year. Another and more likely option would be for the feds to copy what Doug Ford did when he wanted to contain student aid costs – change grant eligibility criteria in such a way as to make grants harder to obtain. The obvious way to do this, I think, would be to change the rules for dependent/independent student status (i.e. the point at which students are considered to no longer get money from their parents) so that it took students five years to reach such independent status instead of four. I am not exactly sure how much that would save, but I’d wager it would be a minimum of a quarter-billion. 

    So, your menu of cut options for cutting CSFAP is, essentially:

    Bring back interest after graduation $350 million
    Admin $3-5 million
    Reduce RAP threshold to $38K $50 million
    Introduce in-school interest of 2.5% $100 million
    Cut maximum grants by $700/year $400/million
    Change definition of independent student $250 million

    (To be clear here, I am guessing a bit on some of these numbers. Intelligently, I hope, but they are guesses. Don’t take the numbers here as gospel. And if any friends at CSLP want to correct me, please do!)

    If it were me, to get to (roughly) the required $625 million I’d bring back interest after graduation – or introduce an equal-to-government-rate-of-borrowing interest rate for the entire life of the loan, which probably ends up with similar savings – and change the definition of independent students. Neither are pleasant but these are the ones that would probably affect access the least.  

    (Again, the Liberals may choose not to cut anything in CSFAP, because hey this is an income security program of a sort, and if we’re obsessing about “affordability” – but that just means cuts elsewhere in the portfolio will be larger).

    Of course, ESDC is much more than these two programs. Take a gander at the full list of programs the programs the Ministry runs (I make it about fifty if you include everything). A lot of those are scattered skills initiatives like Youth Employment and Skills, Indigenous Skills and Employment Training, the Skills and Partnership Fund, Skills for Success Program, the Innovative Work-integrated Learning Initiative. I have no idea what most of these do exactly, nor is it easy to access any budget data about them. But let’s put it this way – few of these programs have a particularly large policy constituency to back them up. My guess is that cuts across these programs will be significantly higher than 15% and some of them may cease to exist altogether.  

    Enough for today.  Tomorrow we’ll do research funding.

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  • The Coming Federal Cuts – Part 1

    The Coming Federal Cuts – Part 1

    The biggest thing everyone is going to be talking about this year – barring another university doing a surprise Laurentian – is the set of federal cuts coming down the pike. They are big. And they are nasty. So, it’s worth understanding exactly the scale of what is heading in our direction. This is going to be a three-parter. Today, I will talk about the overall size of the cuts to come, and on Tuesday and Wednesday I will talk about how this will affect the two ministries that have the most to do with post-secondary education: Employment and Skills Development Canada (ESDC, tomorrow) and Innovation, Science and Economic Development Canada (ISED, Wednesday).

    So: we don’t know the exact scope of the budget cuts the government is contemplating. What we do know is the following:

    Preliminary budget figures for Fiscal 2024-25 show that the government of Canada posted a budget deficit of $43.2 billion on revenues of $495B, program expenses of $480B, debt charges (that is, interest on existing debt) of $54B and actuarial losses of $4B. We didn’t have a budget this spring, but spending projections for 25-26 from the 2024-25 budget show a projected deficit of $39 billion on revenues of $515B, program expenses of $496B, debt charges of $55B and actuarial losses of $2B.

    The Liberal Manifesto for election 2025 planned deficits of $60 billion or so right through to 2028-29. Its fiscal plan was basically i) existing spending commitments, ii) 30-odd billion in new spending and tax cuts and iii) tiny revenue changes, plus $20 Billion or so in counter-tariffs for 2025-26. (Yes, they also promised “savings from increased productivity” – otherwise known as “frantic handwaving” – of $6B, $9B and $13B in fiscal years ’27, ’28 and ’29. I am excluding them here but will return to them in a sec).

    Figure 1: Government of Canada fiscal picture according to the Liberal manifesto, minus the handwaving, in Billions.

    (The foregoing might all sound strange to those of you who recall Carney making pledges about balanced budgets. But, of course, as I pointed out back here, he never actually promised that. He promised balanced operating budgets, that is budgets with an only vaguely defined “capital spending” netted out. By a complete coincidence, the Liberal platform claimed the government spent roughly $50 billion in capital, so basically the government is already basically in balance.  Neat trick, but not sure bondholders will see it that way. I digress.)

    Since the election, a few things have happened. Counter-tariffs are not collecting anything like the $20 billion forecast, we ditched the Digital Services Tax in a futile attempt to get the Americans to be nicer to us, and, most importantly of all, the prime minister promised to up defense spending by about $18 billion over the next four years in order to reach 2% of GDP by 2028. That means the actual fiscal picture, before any handwaving about savings, looks like this:

    Figure 2: Government of Canada fiscal picture, according to the Liberal Manifesto, minus the handwaving, including proposed spending and tariffs since April 28, in Billions.

    As you can see, we are a lot further away today from “operating balance” (i.e. a $50B deficit) than we were when Carney was elected. And this is where the handwaving/cuts come into play. So, let’s start thinking about how much money it would take to keep us at “operating balance”. In Figure 3, we see that by 2028-29, we are looking at about $32 Billion in cuts. The handwaving “efficiencies” in the Liberal manifesto were meant to cover just $13 billion of that, leaving another $19.2 billion or so to be made up, somewhere, somehow.

    Figure 3: Cuts Required Just to Keep the Government of Canada at Operating Balance (i.e. a $50B deficit), By Source, in Billions.

    I said “somewhere”, but there isn’t much mystery here. As Figure 4 shows, you divide government spending into four categories: debt charges (which the government has to pay regardless), transfers to provinces (which Carney has promised he won’t touch), transfers to individuals (ditto) and then “program spending”. As Figure 4 shows, the first three areas make up 58% of total spending. That means that the last area, program spending, is going to take up the entirety of these cuts. In 2025-26, program spending is estimated at $227 billion; a $32 billion cut to that equals an overall reduction in program spending of 14% by 2028. (Coincidentally, this was more or less exactly the size of the program cuts in the “savage” 1995 budget – $7 billion phased in over three years on a base budget of about $52 billion. Government grew back, as you can see.)  

    Figure 4: Government of Canada Expenditures by Category, 2025-26

    It’s worth being careful here. Overall program spending is $227 billion, but $46 billion of that is currently being spent on defense and housing, two areas that are almost certainly immune to cuts given the government’s overall priorities. Excluding these two fields from cuts means that the field of “cuttable” programs shrinks to $181 billion, and the size of the cuts required to meet the $50 billion target balloons to 17.7%.  

    This brings us to the program review that has been going on in Ottawa since July. Recall that Minsters were asked to bring forward scenarios that involved cuts of 7.5% for next year, 10% the year after that and 15% the year after that. Many thought initially that these numbers were deliberately overdone so that big cuts could be made in some departments so as to shield other departments from having to do the same. Now I am not so sure. That 15% target is awfully close to the 17% overall target the Liberals need to hit just to keep the deficit at $50 billion, and so I am starting to think that in fact the cuts might not be dispersed unequally between departments. They might really need 15% from everybody – and then some.

    There are a couple of alternatives of course that could lessen the blow. For instance, while Carney promised not to cut transfers to provinces, to my knowledge he never ruled out cutting the rate of growth of transfer payments (currently about 5% per year, across CHT, CST and equalization combined). Slash that in half and you’ve got yourself another $8 billion to play with by 2028, thereby reducing by a quarter the required amount of program cuts. Something similar could be achieved by de-indexing pensions for a couple of years. Or, unlikely as it seems, the Government could actually increase taxes (elbows up requires some sacrifices, no?). But, absent those measures, I think we need to seriously brace for impact. These cuts are real, they are huge, and even if they don’t hit this fall (it’s not impossible that the alleged fall budget might actually just be the usual fall economic statement under another name), they are for sure going to hit in early 2026.

    The question, really, is, what needs to be saved? What should the sectors’ priorities be? I’ll discuss that over the next two days.

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  • Summer 2025 | HESA

    Summer 2025 | HESA

    So. This is the last blog of the academic year. Service resumes Tuesday, 2 September.

    It’s been a long year. I’m pretty tired. How about you?

    This was the year it all kind of came crashing down: not just here in Canda, but everywhere else too. It’s too long to go through and my more faithful readers already know the story. It’s not just in Canada. In France, Australia, and the UK, we saw institutions having similar problems: all these fantastic higher education institutions we’ve collectively built and, quite simply, nobody wants to pay for it. Not through public funds, not through private fees. Nobody wants to pay for it.

    And then there’s American higher education would probably be going through something similar this year, only a greater catastrophe arrived first. I’ll pass over this in silence.

    Here in Canada, the sector is increasingly friendless. Parents and students seem less convinced that universities in particular represent good value. And governments are simply indifferent, not because they dislike universities necessarily, but because they dislike or distrust the knowledge economy universities are built to serve.

    Unfortunately, I think it is going to get worse. Not a single government in Canada released a budget this year which took into account the effects of US tariffs. The result? Allegedly healthy federal and provincial balance sheets are going to get pounded this year and next (and the especially unhealthy ones — BC and Quebec in particular — are going to be especially ugly). Deficits as far as they eye can see. As the saying goes, no one is coming to save us.

    I have no doubt that community colleges will find ways to get through this, because they have so far through this crisis mostly shown themselves to have the ability to do what it takes to right the ship. They might not look too good after another round or two of cuts, and it’s not impossible that a few rural colleges might disappear or shrink radically because what they get from governments and domestic tuition fees just isn’t enough to properly serve their communities, but on the whole, I think they will be ok.

    Universities, on the other hand. Well, that’s a different story.

    About a year ago, I said that the biggest change universities were going to have to undergo in this new financial age was shifting from a belief that every problem had a revenue-side solution to one in which every problem has a cost-side solution. Institutions can no longer solve their short-term problems by just recruiting another hundred international students. They actually have to change the way they do business. They have to change processes. They have to think about production functions and work processes in a way they haven’t before. And they have to do it while trying to pivot to new missions that give them more traction with government and the public.

    I am here to say that I don’t think it’s going so well.

    The message that “there is no one coming to save us” has, thankfully, penetrated fairly deeply in universities. Maybe not quite everywhere (hello, VIU!), but in most places. But what I am not sure has penetrated quite so deeply is the corollary that actual change is necessary. My (admittedly limited) vantage point on the sector is that:

    • I still see universities spending inordinate amounts of time trying to come up with new revenue-based solutions. It’s a habit they have a hard time kicking.
    • Universities are deeply resistant to doing more than the bare minimum of restructuring to meet immediate financial needs. The idea that deep structural change might be necessary remains pretty much anathema. This bare minimum approach means that when the next round of government cuts come – due to recession, or national re-armament or whatever – they are just going to have to cut again, and again, and again. There is very little sign of anyone trying to get ahead of the curve to make both big cuts and big investments in new areas that will help them survive the turmoil.
    • I still hear, distressingly often, senior people in universities utter the worst seven words in all of higher education: “we just gotta tell our story better”. Universities are reluctant to face the possibility that governments and the mass public don’t love them the way they are and that they may need to actually, you know, change.

    We need to stop acting like the research university of today – which in Canada is really only a creature of the 1970s or perhaps 1960s — is eternal. Universities can die, and have done so rather frequently across history. Universities are the product of particular configurations of social and economic forces. And now, at the moment when the western world is basically re-considering the entire post-WWII order, the idea that universities are going to be uniquely immune to change is bananas. Past performance — which I think has been pretty good — is not a guarantee of future safety.

    I am not saying here that universities shouldn’t fight for their own corner: they should! Often more vigorously than they currently do (see my piece on Bill 33, or on how they need to gear up for a fight with Bay Street over whether temporary residents will be international students or TFWs). But they can’t do it by digging in on the status quo.

    And so, I will end the academic year by repeating something I said a few months ago. To survive this coming period, universities are going to need:

    1. Ambition. Don’t waste time doing small things.
    2. Experimentation. The worst possible thing right now is an addiction to “the way we’ve always done things”
    3. Dissemination. No one institution got us into the mess. No one institution is going to get out of it alone, either. Institutions need to commit to sharing the results of their experimentation.

    I know every university in Canada can, if it chooses, commit to those three things. I have faith. And I believe that if they do, our university sector will come out as strong or stronger than any system in the world.

    But any institution that chooses not to commit to them…well, I think they are going to have some issues in the next three years. Serious ones.

    It’s up to us. Rest up this summer. Re-charge. We’re all going to need it in ‘25–’26.

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  • Provincial Budgets 2025-26 | HESA

    Provincial Budgets 2025-26 | HESA

    Ok everyone, all the provincial budgets are in and so it’s time for our annual look at what another round of irresponsible pan-partisan political leadership has wrought for our sector for the next twelve months.

    Figure 1 shows the province-by-province breakdown of this year’s budgets, showing the change in transfers to institutions in real dollars over 1 year and 5 years for each of the ten provinces. In most provinces, collecting this data is pretty easy—you just look at the Main Estimates. In Ontario it is more difficult because due to the Ministry of Finance’s crapulous incompetence, it is the one province in the country where Estimates do not appear on the day of the budget (it takes them several months to put out the detailed data; and while prior to 2018 the Ministry of Colleges and Universities was able to give out actual expenditure data on the day of the Budget, the Government no longer chooses to provide such information because shovel, manure, mushrooms, etc.). So in Ontario what you have to do is collect the previous year’s data, add the announced changes in expenditure, and then make some assumptions about the way funds are phased in (because the communications jackals who have taken over public budgeting in this province insist on phrasing spending as “$750 million over five years” to make numbers as big as possible, rather than explaining how the $750 million will be phased in on an annual basis). Which is all to say, these numbers are all pretty accurate except for Ontario, where there is a bit of a margin of error.

    Figure 1: 1-year and 5-year Changes to Budgeted Provincial Transfers to Institutions, Canada, 2025-26 Budget Year

    The one province that shows big change for 2025-26 is Prince Edward Island, which dropped a lot of money on UPEI this year in order to start a new medical school. Five other provinces (British Columbia, Alberta, Manitoba, Ontario, and Newfoundland and Labrador saw real increases (that is, increases greater than the rate of inflation) this year of between 1 and 4%. Four other provinces (Saskatchewan, Quebec, New Brunswick, and Nova Scotia) saw real declines of between 1% and 3%. Altogether, that combined nationally for real growth in provincial spending of about 0.9%.

    Over a five-year horizon, things are a bit different. The oil provinces—Alberta, Saskatchewan, and Newfoundland and Labrador—have all shown double digit declines in real expenditures (19%, 11%, and 18%, respectively), the “big two” (Quebec and Ontario) are down seven and six per cent respectively, while Nova Scotia and New Brunswick are down eight and two percent respectively. The only provinces that are up are Manitoba, where just before leaving office the Tories reversed a huge portion of their cuts of the previous eight years or so, British Columbia, which build a new med school at Simon Fraser and decided to give hefty wage increases to university and college staff (which did not, in the end, leave universities and college much better off—see Vancouver Island University for evidence), and the afore-mentioned PEI. Nationally, the drop in spending after inflation was 4%, and obviously would have been much higher without that anomalous BC result.

    So what does the overall picture look like nationally? Well, take a look at Figure 2. Basically, the picture is one of long-term stagnation.

    Figure 2: Total Budgeted Provincial Expenditures on Post-Secondary Education, 2006-07 to 2025-2025, in Billions of Constant 2025 dollars

    I suppose I should also update some charts I first made available earlier this year, looking at expenditures on post-secondary education as a percentage of total government expenditures, which I do below in Figure 3. Across the country, these percentages are down a long way over the past fifteen years, particularly in Alberta, which has gone from being by far the biggest spender in 2008 to being below the national average now.

    Figure 3: Budgeted Provincial Expenditures on Post-Secondary Education as a Percentage of Total Budgeted Provincial Expenditures, Canada and selected provinces, 2006-07 to 2025-26.

    Now, your brain might be whirring a bit trying to would out how Figures 2 and 3 can both be true. Overall spending is down only gently, but PSE expenditures as a percentage are crashing? It’s easy to explain, but not intuitive if you believe all the left-wing CBC nonsense about how governments are in austerity mode. This is nonsense: Canadian provincial governments are absolutely NOT in austerity mode. In most provinces, overall spending is wayyy up. It’s just that they are not choosing to spend any of that on postsecondary education. Since COVID, overall government expenditure is up 20% after inflation; since 2008-09, when post-secondary education peaked as a percentage of total expenditures, it’s up 59% after inflation.

    Figure 4: Real Change in Total Provincial Expenditures vs. Provincial Expenditures on Post-Secondary Education 2006-07 to 2025-26 (2006-07 = 100)

    Got it? Provinces are still spending. They just aren’t spending on postsecondary education.

    Anyways, just to finish things off, figure 5 shows changes in overall provincial spending on student assistance programs. It’s up a bit this year mainly because of Ontario. Unclear why there has been a rise, though I suspect it has something to do with the ongoing crappiness in the youth job market (something I will get back to in a blog next week) and the need for student aid to backfill.

    Figure 5: Total Budgeted Provincial Expenditures on Student Financial Assistance, Canada 2006-07 to 2025-26, in Billions of Constant 2025 Dollars

    So that’s your 2025-26 budget round up. Not as bad as some previous years but man, our sector is in a bit of a whole and just can’t get out of it. The message, as always, is: no one is coming to save us.

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  • Probably not the next Laurentian, but…..

    Probably not the next Laurentian, but…..

    As I noted yesterday, there are only two institutions in Canada which have run deficits in each of the last five years: St. Thomas University (STU) and Vancouver Island University (VIU). In both instances, these institutions have had deficits averaging between 4 and 5% of their total income over the course of those five years. By any definition, this puts them on some kind of watch list.

    As Figures 1 and 2 show, the root cause of both institutions’ problems is the same—namely, a big two-stage decline in enrolment. The first stage came in the early 10s, when the domestic youth population was shrinking, and the second came during Covid. The numbers are particularly bad at VIU, where the number of international students is down by over 35%. If these institutions could just get their enrolment numbers back to where they were in 2018, then STU’s tuition income would be about $3 million higher, while VIU’s would rise by roughly $20 million. In both cases, that would be enough to put the institutions well into the black. The much larger numbers at VIU are not just because it is a larger institution, but because the recent fall in student numbers is happening disproportionately on the international student side.

    Figure 1: Domestic and International Enrolment, St Thomas University, 2012-12 to 2022-23

    Figure 2: Domestic and International Enrolment, Vancouver Island University, 2012-12 to 2022-23

    At this point, folks, I am going to have to do something which some might find triggering, which is to invoke the L-word, because I am quite certain that everyone remembers the extent to which falling enrolment and a drop in tuition revenue were among the key elements in the collapse at Laurentian. I am not going to do this because I necessarily think either of these institutions is following the Laurentian path exactly. One very big dissimilarity is that neither STU nor VIU has any long-term debt, which was another of the key factors at work at Laurentian. Rather, I am doing it because I think at least some of the same dynamics are at play, particularly at VIU, which just happens to be about the same size as Laurentian in terms of enrolment and budget size, albeit without some of Laurentian’s big ambitions with respect to research. In fact, given the VIU/Laurentian similarity, I will concentrate the rest of this analysis on this west coast institution. I might come back to STU sometime, but for the moment, I will leave it aside.

    Let’s start by looking at budget surpluses over time at VIU and Laurentian. Figure 3 shows the last fifteen years of VIU’s surpluses/deficits and compares them to the fifteen years prior to the insolvency declaration at Laurentian. Based simply on the last five years or so, there is no question that VIU is actually worse than Laurentian. The institution has spent $34 million more than it earned in the last five years; Laurentian, in contrast, was only $9 million in the red over a similar period prior to insolvency. But shift your eyes to the left of that graph for a minute, and you’ll see another difference: Laurentian ran deficits basically for most of the fifteen years prior to its events, whereas VIU was in pretty good shape. What that meant was that when the bad times started five years ago, VIU had a decent accumulated surplus to draw from. That is why the institution has been able to carry on over the past few years, but since it has now drawn down well over half of its accumulated surplus ($30.6 million in 2024, down from $78 million in 2018), that strategy doesn’t really have any more room to run.

    Figure 3: Long-term Record of Surpluses/Deficits, in Millions, Laurentian vs VIU

    There are also significant differences between the two institutions when you look at cash balances, as below in Figure 4. Laurentian was basically out of gas and surviving on fumes for several years prior to the collapse, with cash reserves barely enough to cover a couple of weeks of operating expenditures; VIU has never been anywhere near that point. However, note the big dip in VIU’s cash last year. It reversed itself, but only because the institution sold off a big chunk of portfolio investments precisely (I think) to boost cash reserves. There are warning signs here for sure, albeit nothing like Laurentian’s blaring klaxons.

    Figure 4: Long-term Record of Cash Position at End of Fiscal, in Millions, Laurentian vs VIU

    The final comparison I want to make has to do with what is known as the “working capital ratio.” This is one of the key financial tests that the Government of Ontario uses to identify institutions in financial trouble, and it is the ratio between “current assets” (basically, cash plus accounts receivable) to current liabilities plus deferred contributions for research. Anything below a ratio of 1 puts you in the “high-risk” category.

    (Nota bene: some people think this ratio is not very useful because in a liquid market, institutions can move “long-term” investments to short-term fairly easily—as indeed VIU seems to have done last year when it sold off some of its portfolio investments in order to recharge cash reserves. However, since it’s an official government metric, it’s probably due a little respect, so I am using it here anyway.)

    One challenge in comparing VIU and Laurentian on the working capital metric is that they don’t quite calculate their liabilities identically, mainly because their respective provincial governments don’t ask them to categorize balance sheets in the same way. Specifically, VIU does not break out “current” from long-term liabilities, and also it lists substantial sums of tuition fees owed as “deferred revenue” while Laurentian does not. My read of this is therefore that to make the two sets of data on current liabilities comparable, one has to exclude from VIU’s numbers both “deferred capital contributions” and “deferred revenue”. Which is what I have done below in Figure 5.

    What Figure 5 shows is arguably similar to what Figure 3 shows: a metric in which a) neither institution looks particularly good, but b) Laurentian’s position is on the whole worse, and c) Laurentian’s deterioration is long and gradual while VIU’s is rather sharp.

    Figure 5: Long-term Record of Working Capital Ratios, Laurentian vs VIU

    To be crystal clear: I don’t think VIU is really on the verge of Laurentian-ing. It has no long-term debt. It has had a bigger cushion to fall back on. The province is on the verge of a youth boom, which should help a bit in bringing student numbers and revenues back up. It is working for a provincial government which is far more proactive than the frequently clueless one in Queen’s Park. And in fall 2023, it adopted a fairly aggressive if not especially strategic program of cost-cutting (ten percent for all units over three years), which in theory was supposed to right the ship.

    However:

    1. Even if VIU is not Laurentian, many of its key financial indicators look awfully familiar. From deficits to cash levels, to working cash ratios, it all seems very Mark Twain: history does not repeat, but it rhymes.
    2. That aggressive deficit reduction package didn’t reckon with Marc Miller, whose cuts to visas and policy of publicly crapping on the quality of Canadian institutions is likely to result in further drops in international student numbers and therefore reductions in income in the millions of dollars. There could still be problems ahead (I assume this may be what has been behind this week’s decision to consider suspending and/or cancelling roughly twenty programs at the diploma, undergraduate and graduate levels).
    3. The VIU community appears to be only dimly aware of how bad things are. When VIU President Deborah Saucier recently resigned, it was—according to CBC at least—because the VIU community would not support further cuts because they were not “supported by evidence.” Now, there may have been more to it than that (Lord knows CBC can be pretty crapulous at fact-checking post-secondary stories), but if it is anywhere near the truth, then the VIU community is clearly having some trouble facing a pretty serious reality, and that complicates any revival plan.

    Vancouver Island needs a second, flourishing undergraduate university and that can only be achieved through a strong financial base. Best wishes, therefore, to the folks at VIU as they grapple with these issues.

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  • Post-COVID University Surpluses (Deficits) | HESA

    Post-COVID University Surpluses (Deficits) | HESA

    Ok, everyone, buckle up. For I have been looking at university financial statements for 2023-24 and the previous few years, and I have Some Thoughts.

    In this exercise, I examined the financial statements from 2017-18 onwards for the 66 Canadian universities which are not federated with a larger institution and had income over $20 million. L’Université du Québec was excluded from the analysis below because it has yet to release financial statements for 2023-24.

    Figure 1 shows the average net surplus (that is, total income minus total expenditures as a percentage of total income) across all institutions for the fiscal years 2017-18 to 2023-24. As is evident from the graph, fiscal years 2018 through 2021 were all pretty good, apart from 2020 (the stock market did its COVID tank right at the end of the fiscal year and radically reduced investment returns that year), and overall surpluses were in the 6% range, which is not bad. But post-COVID, things got a bit rough, and the returns dropped to about 4%. Note, though, that there is a significant gap between the “big beasts” of the Canadian university scene and everyone else. In the good years, U15 institutions, which in financial terms represent about 60% of the system, saw surpluses about two percentage points higher than non-U15 institutions. Since 2022, the gap has been about three percentage points.

    Figure 1: Average Surpluses as a Percentage of Total Income, Canadian Universities, Fiscal Years 2018 to 2024

    Why have surpluses shrunk in the past few years? No surprise here: it is simply that costs have increased by about 7% in real terms for the past five years (that is about 1.4% above inflation each year), while revenues have only grown 3.7% (0.75% above inflation each year). Income growth has been pretty similar across U15 and non-U15 institutions, but expenditure growth has been significantly larger at non-U15 institutions.

    Figure 2: 5-year real change in Income and Expenditure, Canadian Universities, 2018-19 to 2023-24

    It is worth pointing out here, though, that all of this data is from before any of the effects of the international student visa cap of 2024 come into play. In eight out of ten provinces, it has been income from students that has driven universities’ revenue growth over the past five years. Only in Quebec and British Columbia has government spending been the main driver (and yes, I know, the idea that revenue from students is declining in British Columbia was a bit shocking to me too, but I triple-checked and its true—this is the one part of the country where international student revenue was falling even before Marc Miller started swinging his axe around).

    Figure 3: 5-year real change in Income by Source and Region, Canadian Universities, 2018-19 to 2023-24

    If you assume that international student numbers overall drop by 40% over three years (which is roughly what the government says it wants to achieve), then what we are likely is a decrease of about 11% in total university revenues between now and 2027 (assuming no other changes in enrolment or tuition fees, and an annual increase in government expenditures of inflation plus 1% which is what we saw in last year’s budget cycle but I wouldn’t necessarily bet on it for the future). Meanwhile, if we keep expenditures increasing at inflation plus 1.5%, we will see an increase in expenditures of about 6% by 2028. The result is what I would call a trulyyawning financial gap over the next four years. And it is precisely this that keeps senior admins up at night.

    Figure 4: Projected changes in Income and Expenditure, Canadian Universities, 2017-18 to 2027-28, Indexed to 2017-18

    Now to be clear, I don’t expect the sector to be posting multi-billion dollar gaps implied by Figure 4 (for clarity: while Figure 4 displays changes in projected income and expenditure in index terms, if the gap that opens up between 2024 and 2028 is as depicted here, the change in net position for universities will be equal to about $7 billion in 2028, which given current surpluses of $2 billion/year implies aggregate deficits of about $5 billion/year or about 11% of total income). The income drop will probably not be quite this bad, both because I expect institutions to raise fees on international students, and because I suspect international student numbers will not fall quite this far because provinces will re-distribute spots going unused by colleges (due to the reduction in enrolments that will ensure from last fall’s changes to the post-graduate work visa program). Similarly, the increase in expenditures won’t be this high either because institutions are going to do all they can to “bend the curve” in anticipation of a fall in revenues. But bottom line: there’s a looming $5 billion income gap that has to be closed just to stay in balance, and larger if we want the system to have at least some surpluses for rainy (rainier?) days in future.

    Anyways, back to the present. We can, of course, drill down to the institutional level, too. At this point in the exercise, I have chosen to exclude two more institutions from my calculations. The first is Concordia because it has a unique (and IMHO really irritating) practice of splitting its financial reporting between the institution and its “Foundation” (don’t ask), with the result that the institution’s financial statements alone tend to show the institution as worse off than it really is. The second is Royal Roads, which uniquely took a stonking great write-down on capital investments in 2024 and so frankly looks a lot worse than I think it should.

    So with our sample now down to just 63 institutions, Table 1 shows that in fact most universities have been doing OK over the past few years. Of the institutions included in this part of the analysis, 39 have been deficit-free since 2021-22, and 28 have not shown a deficit in any of the last five years. However, there are three institutions where it might be time to start worrying: Carleton, which has posted three consecutive deficits, and St. Thomas and Vancouver Island University, which have posted deficits in each of the past five years. Carleton is a little bit less worrisome than the other two because it socked away some huge surpluses in the years prior to 2022 and so has a little bit more runway. I’ll come back to the other two in a moment.

    Years in deficit Since 2019-20 Since 2021-22
    5 2 –
    4 0 n/a
    3 6 3
    2 13 7
    1 16 16
    0 28 39

    Figure 5, below, shows combined net surplus over the past five fiscal years (2019-20 to 2023-24) as a percentage of total revenues. There are eight institutions which have net losses over the past five years, and another eight with surpluses between 0 and 2% of total revenues, which I would characterize as “precarious.” There are another 29 institutions with combined five-year surpluses, which are between 2 and 5% of total revenues, which are not great but not in the immediate danger zone either. Finally, there are 18 institutions with surpluses of 5% or more, which I would characterize as being “safe,” including two (Algoma and Cape Breton) which have five-year surplus rates of over 20% (this is what happens when your student body is 75%+ international)

    Figure 5: Distribution of 5-year aggregate net surpluses, Canadian Institutions, 2019-20 to 2020-24

    But note the right-hand side of that graph. There are two institutions that have five-year deficits equal to more than 4% of their total revenues. And those two are the same two that have posted deficits for each of the past five years: St. Thomas University in New Brunswick and Vancouver Island University in British Columbia. I’ll talk about them in a bit more depth tomorrow.

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  • Check-in on Administrative Bloat, 2025 Edition

    Check-in on Administrative Bloat, 2025 Edition

    Check-in on Administrative Bloat, 2025 Edition

    It’s been a little over five years since I took a serious dive into the question of “administrative bloat,” which apparently exists everywhere but in the statistics. Still, always good to check assumptions every once in a while, and I thought five years was long enough to make a new look at the data worthwhile. So here goes:

    Let’s start by reviewing what we can and cannot know about staffing at Canadian universities. StatsCan tracks the number of permanent ranked faculty pretty accurately through its University and College Academic Staff Survey (UCASS), and in a loosey-goosier fashion through the Labour Force Survey. The latter gives much higher numbers than the former, as shown below in Figure 1, which compares the number of “ranked” academics from UCASS with the number of permanent, full-time academics from the LFS.

    Figure 1 – Full-time Academic Staff Numbers According to LFS and UCASS

    StatsCan also tracks the total number of employees—both salaried and hourly—in the university sector using the Survey of Employment, Payroll and Hours (SEPH). However, in theory, if you subtract the number of FT academic staff from the number of total staff, you should be able to get the total number of non-academic staff, right? Well, unfortunately, this is where the discrepancy between UCASS and LFS runs into some problems. In Figure 2, I show the implied number of non-academics using both methods. The growth rates are different because of the difference in observations in the early period, but the two estimates do both converge on the observation that there are about 130,000 non-academic staff at Canadian universities, or about two and a half times the complement of academic staff.

    Figure 2 – Implied Non-Academic Staff Numbers using SEPH, LFS and UCASS

    So, that’s evidence of bloat, right? Well, maybe. Personally, what I take from Figure 2 is that either (or both) the LFS numbers and the SEPH numbers are probably flaming hot garbage. There’s simply no way that the number of non-academic staff has increased by 170% in the past twenty years, as a combination of the SEPH and LFS data suggests. For reasons that will become apparent shortly, I also have serious doubts that it’s increased by 85% either, as the combination of SPEH and UCASS suggests. Because there is a second set of data available to look at this question, one that shows expenditure on salaries, and it shows a much different picture.

    The annual FIUC survey shows how much money is spent on wages for ranked academics as well as how much is spent on non-academics (it also shows wages for instructional staff without academic rank,” but I exclude this here for ease of analysis). Over the past three years, it is true that non-academic salary mass has risen, and academic ones have not (score for the bloat theory!), but looked at with a 25-year lens, Figure 3 shows that the rate of increase is about the same (score one against).

    Figure 3 – Total Expenditures on Salaries by Employee Group, in millions of $2023

    Basically, the salary data in Figure 3 tells a completely different story than the SEPH/LFS/UCASS data in Figure 2. All you do is divide the spending data by the implied headcounts to see what I mean (which I do below). Figure 4 shows the implied change in average academic pay and average A&S pay, dividing total FIUC pay by the UCASS academic staff numbers and the A&S staff numbers implied by subtracting the UCASS numbers from the SEPH numbers, i.e., the orange line from Figure 2. To believe both sets of data, you have to believe that average academic salaries have increased substantially while average salaries for non-academics have declined substantially.

    Figure 4 – Change in Implied Average Pay, Academic Staff vs. A&S Staff, 2001-02 = 100

    In Figure 4, the blue line representing academic salaries is more or less consistent with the long-term trend in salaries we have seen by looking at salary survey data (which I last did back here): significant growth in the 00s and much slower growth thereafter. There are no staff salary surveys to use for comparison, but let’s put it this way: when people talk about “bloat” in non-academic staff positions, they normally mean it in the sense that the bloat is coming from expensive A&S staff, overpaid A&S staff, etc. For Figure 4 to be true, the growth in staff numbers would need to come almost entirely from more junior, less well-paid staff. It’s not impossible that this is true, but it’s not consistent with the general vibe about bloat, either

    So who knows, really? There’s a lot of contradictory data here, some of which argues strongly in favour of the bloat argument, but quite a bit of which points in the other direction. Better data is needed to answer this question probably isn’t forthcoming.

    Meanwhile, we can take one last look at A&S expenditure data. We can check to see if the pattern of A&S salary expenditures across university operating functions has changed over time. As Figure 5 shows, the answer is “a little bit.” Central Administration now takes up 25% of total A&S salary expenditures, up from 22% 20 years ago. Student services and external relations are up much more sharply in proportional terms, but since they were both starting from a low base, they don’t impact the overall numbers that much. Libraries, physical plant, and non-credit instruction are the categories losing share.

    Figure 5: Share of Total A&S Salary Mass by Function, Canadian University Operating Grants, Select Years

    And there you have it: more data than you probably needed on administrative bloat. See you back here again in 2030.

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  • Ontario in 2029 | HESA

    Ontario in 2029 | HESA

    Back in 2022, just after the last provincial election, I wrote a piece looking forward a few years and predicted that the years 2023-25 were going to be chaos for Ontario postsecondary institutions. And I was right, although I can’t claim to have anticipated any of the specifics. Given that we are now going back into an election, I thought I would try to look into a crystal ball and look at what the province’s postsecondary system will look like financially if our glorious premier is re-elected for another four years.

    To do this, of course, requires making a few assumptions, not just about what will happen in the future but, given the inevitable Canadian delays in producing data, what’s been happening in the past two years as well. Hard data on the student numbers which drive aggregate tuition income does not exist beyond 2022 because the provincial government is deliberately suppressing data on this subject. Yes, really. Until last year, Ontario had one of the best records in the country when it came to openness on enrolment stats, usually publishing quite detailed data within six months of end of the calendar year. As of today, it has now been twenty-one months since the last update. By complete coincidence, the data that has not been updated covers the exact period where provincial government was asleep at the wheel in terms of oversight of international student intake. Can’t have that data going out before an election, I guess.

    Anyways, that means the following projections require a bit more educated guess work than usual. For transparency, here are my assumptions:

    • I have based student number projections for 2023-24 and 2024-25 on data I could find from the Ontario Universities Application Centre (OUAC) and from federal open data on student visas issued up to fall 2024.
    • I am assuming that international student enrolment will bottom out in 2025-26 and resume 10% annual growth thereafter, and that domestic enrolment will grow 2% per year, in line with projected increases in the 18-21 population. The assumptions on international students might be too generous, in which case all my projections will be too optimistic. Keep that in mind as you read this.
    • I am assuming that the provincial government will not add any new funding to the system beyond what was announced in the run-up to the 2024 budget, but that the extra funding announced as a response to the Blue-Ribbon Panel will be maintained past 2027.
    • I am assuming the freeze on tuition will be maintained, but a gentle (but below-inflation) rise in average tuition will continue due to students switching from cheaper humanities courses to more expensive STEM ones.
    • I am going to focus on the main sources of institutional operating income, which are tuition fees and provincial operating government. I am excluding from this analysis anything to do with income from federal or private non-student sources.

    Let’s start with public expenditures on postsecondary education. The problem of falling real public expenditures began well before Ford took power, but this trend has worsened under Ford. Until last year, he consistently allowed inflation to erode funding. The only time he increased institutional funding was in 2024, after the report of the blue-ribbon panel, and even then the three-year package he announced barely allows funding to keep up with inflation. When this new funding evaporates in 2027, the prospects for any new funding are uncertain: I think it is more likely that the government will revert to its previous practice of holding funding constant in nominal dollars but fail to provide any help to offset inflation. Assuming this is true, the path of government funding for Ontario postsecondary institutions will be as shown below in Figure 1.

    Figure 1: Ontario Government Transfers to Post-Secondary Education, 2001-02 to 2028-29 (projected) in Billions of $2023

    Now of course, public funding only makes up about a third of total funding in Ontario postsecondary education. What happens when you include tuition fees? Well, it looks like the graph below, Figure 2. Again, as you can see, the “take-off” point for the system we have today clearly lies in the McGuinty/ Wynne period, but boy howdy did the Ford team double-down on the model it inherited.

    Figure 2: Total Operating Income by Source and Sector, Ontario Public Postsecondary Institutions, 2001-02 to 2028-29 (projected) in Billions of $2023

    Now, this is one of those cases where it helps to disaggregate what is going on in the system and look separately at what’s going on in the universities and colleges. Let’s start with colleges in Figure 3.

    Figure 3: Total Operating Income by Source, Ontario Colleges, 2001-02 to 2028-29 (projected) in Billions of $2023

    I’ve been writing about the big fall in college revenues for a few months now, but even I find this graph shocking. Total operating income to the college system is going to crash by about a third between 2023-24 and 2024-25 and then probably will start to recover thereafter. Basically, you should consider the period 2015-2025 as a huge fever dream that is now breaking and sending the system back to exactly where it was a decade ago, minus about 15% of its public funding and a similar drop in the number of students (domestic enrolment really crashed over the past decade).

    Figure 4 repeats the exercise for universities. This one might seem puzzling for many, because it appears to show very little drop in funding in the 2020s. I mean, yes, there’s a teeny dip in 2024, but absolutely nothing like what we see in the colleges—so why are universities screaming about their untenable financial positions?

    Figure 4: Total Operating Income by Source, Ontario Universities, 2001-02 to 2028-29 (projected) in Billions of $2023

    Well, the answer is that universities don’t have a revenue challenge so much as a cost challenge. Colleges have an enormous amount of freedom to rearrange or reduce staff. Universities, to put it mildly, do not, partly because of tenure and partly because collective agreements between universities and faculty contain clauses about layoffs and financial exigency which impose very high barriers and costs to any institution that tries to reduce academic headcount. This forces institutions to force as many cuts as possible on non-academic staff and services, but there are limits to how much you can do before students start turning away.

    Plus, of course, universities simply got in the habit of getting ever larger. Looke at what happened in the 18 years before the Ford government took power: 17 straight years where the average annual income growth after inflation was 5%. The internal political economy of Ontario universities simply evolved so that growth less than 5% was believed to be “austerity.” Since Ford came to power, annual growth has been effectively zero, even as institutions are dealing with the costs of accommodating the major shift in students from humanities to STEM. The gears inside universities are grinding to a halt and even going in reverse this year and next. And universities are—by design—poorly engineered to deal with a lack of growth.

    So, what can be done? Well, in the world we all wished we lived in, this situation would be attracting serious political attention. But it’s not. Ontarians quite like having world-class universities and colleges; they just don’t feel like paying for it. Had the cuts started a few weeks earlier, or had the election been called a few weeks later, the current Program Apocalypse (which seems more than on course to deliver the closure of over 1000 programs across the province) might have become what political animals call “a kitchen-table issue,” that is an issue so important than voters talk about it at the kitchen table. Kids not being able to get into the programs they want to get into because they have been shut due to budget cuts? Yeah, that’s a kitchen table issue. One that might yet have some impact on the election, though probably not a decisive one.

    Could institutions do more to make this a kitchen table issue? Yes, they could. At the university level, institutions could be more overt in saying they will no longer be able to support as many spots in expensive, high-demand programs. At the college level, institutions could be more aggressive about closing programs in the skilled trades. So far, they have been very reluctant to do this even though their high cost-per-student should probably lead a lot more of them to be on the chopping block if financial sustainability were a major issue. But institutions are reluctant to do this because it’s hard to play chicken with the government without seeming to play chicken with the general public. And the only way things could get worse for institutions right now is if they lose what’s left of the public sympathy they have. Which is to say: yes, they could be doing more, but it’s easy enough to explain their hesitation in doing so.

    Anyways, sorry to readers in the rest of the country for all the Ontario-centricity. If you’d like to know more about how the mess in Ontario—partly due to inept oversight by the Ford team and partly due to an inept response by federal immigration minister Marc Miller—affects the rest of the country (and it does), have a listen to my guest appearance on the Missing Middle podcast last week. Good fun.

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  • More Eating the Future | HESA

    More Eating the Future | HESA

    Morning everyone. Welcome back. Some statistical wonkery today, with respect to the analysis of government expenditures on postsecondary education.

    Many of you will recognize Figures 1 and 2 from earlier blogs or the State of Postsecondary Education 2024. They represent the two most-common ways to look at commitments to postsecondary education: the first in per-student terms, and the second in per-GDP terms.

    Figure 1: Provincial Expenditures per FTE Student by Sector, 2022-23

    Figure 2: Provincial PSE Expenditures, by Sector, as a Percentage of Provincial GDP, 2022-23

    These two approaches have their respective strengths and weaknesses, and not surprisingly they generate slightly different conclusions about how strong each jurisdiction’s efforts are writ to postsecondary education, one focused on the “recipients” of funding (students) and the other focused on the source of the funding (the local economy). Neither is definitive, both are useful.

    But there is another way to look at this funding, and that is not to look at how much institutions receive as a proportion of local jurisdictional output, but to look at what percentage of government spending is devoted to educational institutions. Examined over time, this figure tells you the changing status of postsecondary education compared to other policy priorities; examined across provinces, it can tell you which provinces put more emphasis on postsecondary education. Of course, no one tracks this in Canada, because it involves a lot of tedious mucking around in government documents, but what is this blog for if not precisely that? I wasn’t doing anything on my holidays anyways.

    So I decided to pair my long-term data series on provincial budgets (the most recent one posted back in April), with a new data series on total provincial spending which I derived simply by looking at consolidated expenditures in each province since 2006 and expressed in these same budgets. Usual disclaimers apply: provincial spending definitions aren’t entirely parallel (or at least they use different words to describe what they are doing) particularly with respect to capital, so inter-provincial comparisons are probably a tiny bit apples-to-oranges even if each province’s data is consistent over time. Take the exact numbers with a grain of salt but I think they will mostly stand up to scrutiny.

    Figure 3 shows provincial transfers on postsecondary institutions across all ten provinces as a percentage of total provincial spending. And it’s…well, it’s not good. As recently as 2011-12, provinces spent five percent of their budgets on postsecondary education. Now it’s three and a half percent. Or to put it another way, as a proportion of total spending, it’s down by about thirty percent.

    Figure 3: Provincial Spending on PSE as a Percentage of Total Provincial Spending, Canada, 2006-07 to 2024-25

    Is this due to particular events in particular provinces? Not really. Let’s just take a look at the four big provinces (which make up 85% of the postsecondary system. The provinces all started in different places (Alberta, famously, spent a heck of a lot more than other provinces back in the day) and the slope of decline is gentler in Quebec than elsewhere, but the basic path of decline and the eventual destination is similar everywhere. Notable by its absence in any of the four provinces are any clear break-lines which coincide with a change in administration—these declines are pretty consistent regardless of whether governments are left, right, or centre. It’s not a partisan thing.

    Figure 4: Provincial Spending on PSE as a Percentage of Total Provincial Spending, Selected Provinces, 2006-07 to 2024-25

    Figure 5 shows each province’s performance both in 2006-07 and 2024-25. As can clearly be seen, every province saw a decline over the 18-year period. This was not especially driven by one or two provinces: all provinces seem to have come to an identical conclusion that postsecondary institutions are not worth investing in. The size of whatever drop was in most cases inversely proportionate to how high spending was back in the initial period. The biggest drops were in Alberta and Newfoundland, which back in the day were the two highest spenders, riding high as they were on oil revenues. The smallest drop was New Brunswick, which was the weakest performer back in 2006-07. Ontario…is Ontario. But basically, the entire country is converging on the idea that investments in postsecondary need to be in the 2.5%-4.5% range rather than in the 4-7.5% range as they did 20 years ago.

    Figure 5: Provincial Spending on PSE as a Percentage of Total Provincial Spending, by Province, 2006-07 vs 2024-25

    Now, the obvious conclusion you might draw from this is “hey! Huge declines in public support for public postsecondary education!” But this is not quite correct. Remember: these are ratios we are looking at. Some of the delta will be due to changes in the numerator, some will be due to changes in the denominator. Figure 6 shows changes in both postsecondary spending and total provincial spending. And what’s clear is that the changes we have been examining in Figures 3 and 6 have more to do with the expansion of total spending rather than a decline in PSE spending.

    Figure 6: Real Change Provincial Spending on PSE Institutions vs Real Change Total Provincial Spending, Canada, 2006-07 to 2024-25 (2006-07 = 100)

    That increase in provincial spending in the last decade—30% over and above inflation—is wild. And deeply inconvenient for anyone who wants to build a narrative around generalized “austerity.” But what is clear here is:

    1. transfers to universities and colleges have trailed provincial spending everywhere and without reference to ideology of the governments in question, and
    2. ii) if transfers had not trailed general spending, they would be roughly $9.5 billion better off than they are today.

    And by a simply *amazing* coincidence, $9.5 billion–in real dollars—is almost identical to the increase in income  postsecondary institutions have seen in revenue from international students over the same period (it’s about a $9.2 increase from 2007-08 to 2022-23, the last year for which we have useful data—the 2024-25 is likely somewhat higher but we don’t know by how much).

    There a number of conclusions one could draw from this, but the ones I draw are:

    • Governments are spending more. A lot more. They just aren’t spending on PSE. Instead, they are spending it on an ageing population and other things that juice consumption. Eating the future, basically.
    • The drop in government support for PSE relative to overall spending increases is universal. No government provides any evidence of contrarian thinking. None of them think PSE is worth greater investment.
    • Changes of government are also almost irrelevant. They may change the “vibe” around postsecondary education, but they don’t change financial facts on the ground.
    • There is a really basic argument about the value of postsecondary education which somehow, postsecondary institutions are losing with governments and, I think by implication, the public. That, and nothing else, needs to be the focus of institutional efforts on external relations.

    Provincial governments are eating the future. But the data above, showing that the trend transcends geography and political ideology suggests that at base, the problem is that the Canadian public does not think postsecondary education is worth investing in. Working out how to reverse this view really needs to be job one for the whole sector.

    (Or, to be a bit cuter: the sector needs to do a lot less Government Relations and a lot more Community Relations.)

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