Category: Funding and Finances

  • From Funding Formulas to AI: Pedro Teixeira on Higher Education’s Next Challenges

    From Funding Formulas to AI: Pedro Teixeira on Higher Education’s Next Challenges

    Welcome back to our fourth season. Time Flies. We’ve gone back to an audio only format ’cause apparently y’all are audio and bibliophiles and not videophiles, so we decided to chuck the extra editing burden. Other than that, though, it’s the same show. Bring you stories on higher education from all around the world. So, let’s get to it.

    Today’s guest is Pedro Teixeira. He’s a higher education scholar from the University of Porto in Portugal, focusing to a large extent on the economics of education, but he also just finished a term as that country’s Secretary of State for higher education. That’s a position closer to a junior minister rather than a deputy minister, but it has elements of both.

    I first met Pedro about 20 years ago, and I ran into him again this summer in Boston at the Center for International Higher Education’s biannual shindig, where he was giving the Philip Altbach lecture. And let me tell you, this was the best lecture I have listened to in a long time.

    Two reasons for this. First, Pedro spoke about his experiences as a Secretary of State trying to negotiate a new funding formula with universities in that country. I won’t spoil the details, but one big highlight for me was that he was in the rare position of being a politician, trying to convince universities not to have a performance-based element in their funding formula. And second, he talked about the future of higher education in the face of possible falling returns to education due to wider adoption of artificial intelligence.

    It was such a good talk, I knew my World of Higher Education podcast listeners would think it was great too. And while I couldn’t record it, I did do the next best thing. I invited Pedro to be our lead off guest for this season’s podcast. Let’s listen to what he has to say.

    The World of Higher Education Podcast
    Episode 4.1 | From Funding Formulas to AI: Pedro Teixeira on Higher Education’s Next Challenges

    Transcript

    Alex Usher: Okay, so Pedro, you were an academic at CIPES (Centre of Research on Higher Education Policy) at the University of Porto, and you went from that to being a minister of state. That’s not an unfamiliar path in Portuguese higher education—Alberto Amal, I think, did something similar. But that move from academia to government, how big a shift was that? What did you learn, and what were you not expecting when becoming a minister of state?

    Pedro Teixeira: I think you’re right in the sense that there are quite a few people who have done this, not only in Portugal but also in other parts of Europe, in different areas. And I think it’s always a bit of a challenge, because there’s this expectation that, since you’re an academic—and especially if you’re an expert on the topic—people expect you to have a solution for all the problems. And it’s not exactly like that.

    At the same time, I think one is worried that what you do in office will be coherent with what you had advocated as an academic and with what you had written about specific topics. That’s challenging.

    In some respects, I wasn’t very surprised by what I faced, because I had been involved in advisory roles and I knew people who had been in that kind of policy role. So I think I wasn’t—I mean, there were the things you expect, like the amount of work and the long days. But I never felt that was really the most difficult part. Of course, going through these things and living them is a little different than knowing them in the abstract.

    But I think the main concern for me was the permanent pressures. You are always concerned with something, always worried either about the problems you have to deal with or the problems that will emerge.

    What I was not so happy with was the lack of a sense of urgency in some of the actors, both on the government side and on the side of stakeholders in the sector. Because if you feel the problems are significant, you need to move forward—of course not rushing, but you do need to move forward.

    On the positive side, I think the quality and dedication of staff was very important. Civil service is often criticized, but I found that very important. And the other thing that was also very important was the role of data and evidence, while at the same time you also need to develop arguments and persuade people about the points you’re trying to make.

    Alex Usher: So what were those urgent issues? I know one of the big things you dealt with was a funding formula—and we’ll come to that later—but what, to your mind, were the other big urgent issues in Portuguese higher education at that time?

    Pedro Teixeira: As we know, most people in their higher education system always think their system is very specific, very different from everyone else. But in fact, we know there are a lot of commonalities across education sectors.

    In many ways, the challenges were the same ones that people describe as belonging to mass systems, or what others might call mature systems. One significant issue, of course, was the adverse demographic trends.

    Another was the tension between, on the one hand, wanting to broaden access and enhance equity in the system, and on the other, facing enormous pressures toward stratification and elitism, with the system tending to reproduce socioeconomic inequalities.

    There were also issues related to diversity versus isomorphism. On the one hand, people agree that in order for a mass system to function, it needs to be diverse. But there are pressures in the system that tend to push institutions toward mimicking or emulating the more prestigious ones.

    The balance between missions is another challenge. This relates to that issue of isomorphism, because research has become so dominant in defining what higher education institutions do and how they see their mission.

    And, of course, there were issues of cost and relevance: who should pay for higher education, and how can we persuade society to put more resources into a sector that, because it is a mass system, is already absorbing a significant amount of public funding?

    Alex Usher: All right. On that point about demographics, I saw a story in one of the Portuguese newspapers this week saying that applications were down 15% this year. Is that a rapidly evolving situation? That seems like a lot.

    Pedro Teixeira: No. There’s been a downward trend over the last three or four years, but because the number of applicants was bigger than the number of places, it didn’t disturb things much. Most of what we’re seeing now is actually due to the fact that in 2020, with the pandemic, exams for the conclusion of secondary education were suspended.

    They were only reintroduced this year. That decision was taken at the end—actually by the government I was part of—at the beginning of 2023. But in order to give students and schools time to adjust, the change only applied to the students who were starting secondary education then. Those are the students who applied this year for higher education.

    Basically, when you look at the data—we don’t yet have the numbers on how many graduated from secondary education—but the number of applicants is very much in line with what we had in 2019, which was the last year we had exams for the conclusion of secondary education.

    And in fact, if you take into account the declining trend of the last three or four years, I would say it’s not a bad result. It actually means the system managed to compensate for those losses.

    Alex Usher: Managed to absorb.

    Pedro Teixeira: Yeah, yeah. But it’s also a signal for the sector in that respect.

    Alex Usher: So let’s go back to the funding formula issue, because I know that was a big part of your tenure as Secretary of State for Higher Education. What was wrong with the old formula, and what did you hope to achieve with a new one?

    Pedro Teixeira: There are two things. I think there were some issues with the old formula. It was designed in 2006, so 15 years had passed. The sector was very different by then—the situation, the challenges, everything had changed.

    Also, like many formulas of that time, it was quite complicated, with many indicators and many categories for fields of study. That didn’t make the system very transparent. If you introduce too many indicators and variables, in many ways the message you want to convey is lost. A funding formula is supposed to be an instrument to steer the system.

    But the larger problem was that this old formula hadn’t been applied for the last 12 years. When the Great Recession started around 2005–2010, the government suspended its application. Since then, the budgets of all institutions have evolved in the same way—same amount, same direction—regardless of their number of students or their performance.

    So when we came into government in 2022, the situation was, in many cases, very unbalanced. Some institutions that had grown significantly didn’t have funding to match that growth. Others that had declined hadn’t seen any adjustments either.

    The idea of having a new formula was preceded by an OECD review commissioned by the previous government, which we took over. Our idea was to design a simpler and more transparent formula that would form part of the funding system. In addition to the formula, we introduced funding contracts, focused mainly on institutions located in more peripheral regions of the country.

    The idea was also to have a four-year period of gradual implementation of the new model and funding system. At the same time, this would correct some of the imbalances caused by not having applied any formula for 12 years.

    Alex Usher: And how did institutions respond to those proposals? Were they on your side? Were there things they liked, and things they didn’t like? Universities don’t like change, after all.

    Pedro Teixeira: On the other hand, I think a significant part of the sector was very keen to finally have some kind of formula—some set of rules that would be applied to the whole sector. Of course, some institutions were afraid that by reintroducing a formula, given their recent evolution, they might end up on the losing side.

    But one of the key aspects of the process was that this was always seen as a formula, or a new system, that would be introduced within a pattern of growth in funding for the sector—not as a way of redistributing funds from some institutions to others. That made the process easier. It would have been much more difficult if we had been taking money from some institutions to give to others.

    This required political commitment from the government, and it was very important to have the backing of the Prime Minister and the Minister of Finance. That meant we could correct imbalances without creating disruption for institutions.

    I would say the main critical points were, first, the differentiation between sectors. We have a diverse education system with universities and vocational institutions. Then there was the question of whether to differentiate between regions. Our decision was to have a formula that applied in the same way to all regions, and then use funding contracts as additional resources targeted for strategic purposes—mainly for institutions located in more deprived or less populated regions.

    Another point raised in discussions was fields of study. Everyone wants their own fields—or the ones in which they are strongest—to be better funded. But we really wanted to simplify the mechanism, and I think that helped.

    Finally, there was the issue of performance indicators. We didn’t propose to introduce them from the start. Because we had gone so many years without a formula, we didn’t have consistent data, and moreover we wanted performance indicators to be developed collaboratively with institutions. The idea was that institutions themselves would decide which areas they wanted to focus on, which areas they wanted to contribute to, and therefore which indicators they wanted to be assessed by.

    Because we decided that performance indicators would come in a second step, some institutions wanted them introduced earlier. That was also a point of discussion.

    Alex Usher: I find that fascinating, because I don’t think I’ve ever heard of universities—maybe “demanding” is the wrong word—but being disappointed that there wasn’t enough performance-based funding in a system. Why do you think that was?

    Pedro Teixeira: I’m not sure I was surprised, but it was significant that some institutions were pressing for it. In some ways, it could have been a strategic approach by certain institutions because they thought they would be on the winning side.

    But I think it also has to do with the fact that this competitive, performance ethos has so deeply permeated higher education. At some point, I even said to some institutions: be careful what you wish for. Because in some cases, this could curtail your autonomy and increase the possibility of government interference in your ability to devise your own strategy.

    Actually, I think that was, in many ways, the only real public criticism that came up. And that was quite interesting, to say the least.

    Alex Usher: I want to shift the ground a little bit from Portugal to Boston. Two months ago, you gave the Philip B. Altbach Lecture at Boston College’s Center for International Higher Education. You devoted a lot of your talk to artificial intelligence and how it’s likely to change higher education. Could you tell us a little bit about your views on this?

    Pedro Teixeira: That’s a fascinating topic. Of course, it’s an important issue for many people around the world and for many education institutions.

    It’s fascinating because, to a certain extent, we’ve been nurtured by a view that has dominated over the last decades—that progress has been skill-biased. In previous waves of technological progress, the labor market tended to favor those with higher skills. Education was often seen as contributing to that, helping people be on the winning side, and the returns to more education and more skills seemed to confirm it.

    My concern is that this wave may be slightly different. I’m not saying it will destroy a lot of jobs, but I am concerned that it may affect skilled and experienced workers in ways that previous waves did not.

    We’ve already seen, and many of us have already experienced in our own jobs, that AI is performing certain tasks we no longer have to do. It’s also changing the way we perform other tasks, because it works as a collaborative tool.

    So I think there is a serious possibility that AI—especially generative AI—will change the tasks associated with many jobs that today require a higher education degree. We need to pay attention to that and respond to it.

    I worry that because education has been such a success story over the last half-century in many countries, there is a degree of complacency. People take a relaxed attitude, saying: “We’ve seen previous changes, and we didn’t experience so many problems, so we’ll be fine this time as well.”

    I think there are quite a few aspects we need to change in our approach.

    Alex Usher: And what might those areas be? Because I have to say, whenever I hear people discussing AI and radical change in the labor market, I think: that’s the stuff that’s actually hardest for higher education to deal with—or for any kind of education to deal with.

    Education is often about teaching a corpus of knowledge, and there is no corpus of knowledge about AI. We’re all flailing blindly here—it’s totally new.

    I think a lot about James Bessen and his book Learning by Doing. He was talking about how education worked during the Industrial Revolution in Manchester, and in other parts of England that were industrializing. Basically, when there’s a totally new technology, who are you going to get to teach new people? There’s no settled corpus of knowledge about it.

    What do you think higher education institutions should be doing in that context?

    Pedro Teixeira: One of the major concerns I have is that we tend to focus so much on the impact of digitalization and technology on science and technology fields. But we should be much more attentive to how it’s changing non-technical fields—health professions, the humanities, and the social sciences. These make up a very large part of higher education, and a very large part of the qualified workforce in many of our countries.

    I think there are several things we need to do. The first is to rethink the balance between the different missions of higher education. At the moment, so much of the pressure and so many of the rewards are focused on missions other than education, teaching, and learning. We need to rebalance that. If institutions don’t commit themselves to education, it will be much more difficult for anything significant to happen at the basic level—among professors, programs, and so on.

    If AI does affect more experienced workers, that means many people will need more support in terms of lifelong learning. They will need support in reskilling, and in some cases, in changing their professional trajectories. This is an area where many higher education institutions preach much more than they practice.

    So I think we need to rethink how we allocate our efforts in education portfolios, moving more attention toward lifelong learning. So far, the focus has been overwhelmingly on initial training, which has been the core of the sector in many systems.

    Finally, we would need to rethink—or at least introduce—changes at the level of initial training: the way we teach, the way we assess students, the way we train and retrain academic staff. None of this will be obvious. But in the end, it will all come down to how much institutions are committed to education as the prime mission of higher education.

    Alex Usher: So even if AI is not a mass job killer—either now or in the future—we are seeing declining rates of return on higher education around the world. There’s massive graduate unemployment in China, quite a bit in India, and in the United States, for the first time, young graduates are less likely to be employed than non-graduates of the same age.

    What does it mean for the higher education sector globally if rates of return decline? Are we heading for a smaller global higher education sector?

    Pedro Teixeira: I tend to be cautious with some of these conclusions. We may be extracting too much from what could be transitional situations. We’ve seen in the past moments where there were problems adjusting supply and demand for graduates, and those didn’t necessarily lead to a permanent or structural situation where education became less relevant.

    In countries like China and India, higher education systems have expanded tremendously in recent years. In some ways, what we’re seeing now is similar to what other countries experienced when they went through massive expansions and the economy couldn’t absorb the rising number of graduates as quickly as the education system was producing them.

    It’s also not surprising that in many countries we’re seeing lower relevance of initial training—bachelor’s or first-cycle degrees. That’s a supply-and-demand issue. As systems move from elite to mass, that’s normal. But in many cases, we’ve seen a growing premium for postgraduate degrees and for continuing education. So I’d be cautious about concluding that education will become less and less relevant.

    That said, I would repeat my concern about complacency. I don’t necessarily expect a decline in the sector, but perhaps a slower pattern of growth. That will be a challenge, because we’re coming out of decades of relentless growth in many education systems.

    I also think we’ll see a broader scope in how we approach education and differences in higher education portfolios. It’s not that there aren’t many things we can do, but it will probably require us to rethink what we expect from professors and where institutions should focus their attention.

    Alex Usher: Right. Pedro, thank you so much for being with us today.

    Pedro Teixeira: My pleasure.

    Alex Usher: And it just remains for me to thank our excellent producers, Sam Pufek and Tiffany MacLennan, and you, our listeners and readers, for joining us. If you have any questions or comments about today’s episode, or suggestions for future episodes, don’t hesitate to get in touch with us at [email protected].

    Join us next week when our guest will be the University of Melbourne’s Andrew Norton. He’ll be talking about what lies ahead for Australian higher education under a second Labor government. Bye for now.

    *This podcast transcript was generated using an AI transcription service with limited editing. Please forgive any errors made through this service. Please note, the views and opinions expressed in each episode are those of the individual contributors, and do not necessarily reflect those of the podcast host and team, or our sponsors.

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  • Five Rules for 2025-26 | HESA

    Five Rules for 2025-26 | HESA

    Morning all. 

    It’s been a busy summer at HESA Towers. We’ve been developing Boardwise, our new suite of governance products with our partners at Balsam Advisory, and exploring new ideas on data governance and analytics with our friends at Plaid Analytics. We’ve also been touring the country with the Royal Bank of Canada (RBC) Thought Leadership Office and the Business +  Higher Education Roundtable (BHER) to talk about higher education, economic growth and productivity. The “what we heard” document from those sessions will be out in mid-September, and there are several follow-up events scheduled, including a leaders’ summit hosted by RBC later this month. This event will focus mainly on how higher education and business can work together to tackle some of the country’s most pressing challenges, such as clean energy and technology, artificial intelligence, and defence. Further insights from this work will also be explored at the BHER Executive Summit in February 2026.

    And, of course, our own Re: University conference – where we will be presenting some of the most interesting ideas out there to improve and inspire the quality, effectiveness and experience of postsecondary education in Canada – is coming up in late January in Ottawa. (Tickets are going fast – reserve your spot!)

    A couple of other small programming notes: 

    • The State of Post-Secondary Education in Canada 2025 will be released tomorrow. 
    • The World of Higher Educationpodcast will still come out every Thursday, but we’re back to an audio-only format because editing is a hassle and apparently very few of you are videophiles. 
    • The Fifteen will continue to bring you the top global higher education stories every other week. 
    • Next Friday will mark the debut of a new biweekly webinar series, Friday Focus, to be hosted by Tiffany MacLennan, surfacing the most interesting shifts and innovations in Canadian higher education – from AI & technology, cutting-edge programming, and the everchanging student experience – through the voices of those leading the change. We hope you can join us. 
    • Our University Vice Presidents Network (UVPN) is going strong and is scheduled to convene in Victoria in November, Quebec City in February, and then internationally for a May 2026 Study Tour in Germany. 
    • Finally, we are targeting the first week of December for the launch of the World of Higher Education Annual Review 2025, a new year-in-review publication which tries to document the year’s shifts across the whole of our crazy sector, right around the globe, using statistics, stories and strategic planning documents.

    Now, on to the year ahead.

    In most places, I think the hard part for colleges is over.  2025-26 isn’t going to be an easy year, by any means, but the big decisions have mostly been made, future directions have been set and the floor on institutional income has either been reached or is in sight. 

    Universities, on the other hand, are a different story.  They have – not everywhere, but in the main – been more hesitant to act. It’s a conservative sector that is resistant to change, be it financial, organizational or cultural. And the financial problems the sector faces – again, not everywhere but in the main – are going to drag on for quite awhile mainly because international student numbers aren’t bouncing back the way they might have (more on that next week) and because an imminent recession is the opposite of helpful when it comes to provincial finances.

    So, it’s going to be a tough year ahead.  In my mind, I think there are 5 rules for success.

    Rule 1 – Act like Universities are a Means to an End, not an End in Themselves.  Literally the worst thing universities can say right now is “universities are crucial, give us more money”. It’s an utterly tone-deaf approach, even if you give it an “elbows up” spin.  The sector has been saying it for years and it clearly hasn’t worked, so continuing with this approach is the literal definition of insanity. And the reason it doesn’t work is because Canadians (or at least Canadian politicians) simply don’t believe that universities are crucial because they don’t believe that knowledge and science is useful. Rather, they far prefer a Canada where the construction and natural resources industries continue to call the shots (if there is a Deep State in Canada, it is surely comprised of these two sectors and their watercarriers). The case we need to make is not “spend on universities”, it’s “a knowledge-driven Canada is a better Canada”.  And more importantly, it’s not a case institutions can make on their own – they need to make it with lots of other actors, particularly from industry.  Alliances, people. Form alliances.  Downsize your government relations team, build up your community relations efforts.

    Rule 2 – Stop with the Tri-Council Fundamentalism.  Federal budgets for research are going to get hammered in the coming months. This will make a lot of people argue that we should ditch all research funds except the tri-councils because inquiry-driven research is sacred etc. I understand the instinct here because so many institutions make council success a key part of the tenure/promotion process. But it’s a bad instinct. No one in Ottawa cares about your tenure processes. You can argue all you want about how basic research is more cost-efficient in terms of driving long-term discovery, but i) the public likes some short-term wins mixed in with the long-term ones and b) nobody outside universities is buying that one story about NSERC funding Geoffrey Hinton’s AI research 30 year ago as a business case for science. Like, nobody. Get over it. Understand that if there is to be growth in Canadian research funding in future, it’s going to look a lot more like Horizon Europe or the Biden Administration’s Chips and Science Act, both of which were widely hailed as being good for science despite – or perhaps because – they are largely mission-driven rather than inquiry-driven. If this is the hill the community chooses to die on, God help us all. 

    Rule 3 – Focus on what you can control, not what you can’t. Yes, things are bad.  You can spend time complaining about it – government is short-sighted, we’re always getting shafted by the granting councils, etc. – or you can get busy. Fire up your friend-raising and fund-raising. Ramp up your spend/effort on international recruitment (more on this next week). Make a big bang with some new programs that stand out. Go big on one theme. Stand out. Please.

    Rule 4 – Faster Collegiality is a Must. Part of regaining public confidence is going to involve being able to make changes at the institutional level with much more speed and determination than is historically the case. That means being able to deliver on promises and priority in the immediate term, not in some far-off future, to be able to act as an institution and not just as a sack full of cats fighting over research priorities and teaching schedules. The way this normally happens is to concentrate power in the hands of the upper administration. This is how it works in most of Asia, most of the United States, and increasingly in Europe as well (though crucially, senior admin tends to be elected in Europe). But it doesn’t have to be like that. There’s no obvious reason why collegial governance needs to be slow: it’s just custom and practice. I’ve been saying for a while that better, faster governance is key to institutions in rough times and while too few have heeded that advice, it’s never too late to start.

    Rule 5 – Do less, but do it better. Universities are ridiculously strung out. Many forces are at work here, but I will single out two. At a system level, we have governance systems that are great at approving new programs and initiatives but absolutely rotten at pruning them once they have outlived their purpose. Result: institutions do too much, but do it badly, thus leading to enshittifcation. But it works at the level of individual faculty too, since departments tend to hire the biggest keeners in the system, the kind of people who won’t say no to more research, or extra teaching, or whatever. Result: burnout. In a normal organization, a manager would come along and try to make workloads manageable. But since Canadian academia long ago decided that the main purpose of department chairs is to protect staff from unwanted Decanal or Provostial schemes rather than to manage academics’ workloads, there is no one in the system who can actually make the problem go away (high-sounding talk about “wellness” doesn’t do the trick either). So, seriously, do less.

    It’s going to be a hard year (or let’s face it, a hard few years), but if everyone gets the basics right, we can come out of this better and stronger. 

    Good luck everyone. Back to work!

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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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  • That Was the Quarter That Was

    That Was the Quarter That Was

    What’s been going on around the world since the end of March, you ask? 

    Well, unsurprisingly, the biggest stories have come from the United States.  There are in effect four fronts to the Trump administration’s attacks on the world of higher education.  First of all, the government’s new budget is going to reduce student eligibility for student loans and grants, meaning there will be less opportunity available to American students.  Second, the budget also proposes to radically slash the budgets of the National Science Foundation (NSF) and the National Institutes of Health (NIH) (the cuts you heard about in the early months of the Trump administration were cuts to existing and in-progress grants – the new budget is about slashing expenditures going forward).   Third, it had decided to get itself into an enormous spat with Harvard, starting with issuing a bizarre set of demands on April 11th, followed by an admission that the letter had been sent in error, followed by enraged bellicosity that Harvard wasn’t submitting to a letter the administration had not meant to send.  Things escalated: the Trump administration impounded more billions of dollars, Harvard responded by shrugging and raising a few hundred million on the bond market, and Trump escalated by, eventually, banning Harvard from accepting or hosting any international students.  And fourth, shortly after a court granted Harvard an injunction on the international students matter, the Trump administration began delaying all student visas and aggressively cancelling Chinese student visas.

    (Whew.)

    This is of course a massive own goal with dangerous implications, as commentators such as Holden Thorp and William Kirby have pointed out.  But it is not simply about Americans losing scientific/technological supremacy.  As the Economist has pointed out, the entire world has a stake in what happens to American science; its hobbling will have consequences not just for global science but for the global economy as well.

    It has been fascinating over the past few weeks watching how the American debacle had grabbed the attention of the rest of the world as well.  It has been very difficult this past month or so to be somewhere where the papers weren’t obsessing about what was happening to students at Harvard (check out a representative smattering from Ethiopia, Iceland, Vietnam, Malaysia, India and Kazakhstan).   At the policy level, almost every OECD government is revving up plans to poach US-based researchers even in places which genuinely don’t have the scientific infrastructure to poach anyone (Ireland?  Czechia?  C’mon).  In other words, you have basically the entire world looking at how the American debacle in a massively self-centred way.  Basically, it’s all: “Yeah, yeah, death of the American research university, how does this affect me/how can I profit?”

    But the world has yet to grapple in any kind of serious way is how to maintain growth and innovation in a world where the largest spender on research is reducing expenditures by 50%.  This has implications for absolutely everybody and at the moment there are no serious discussions about how the world gets by without it.  Obviously, other countries can’t replace what used to come out of NSF and NIH.  But they can, as Billy Beane from Moneyball might say, recreate it “in the aggregate” by working together.  Unfortunately, that’s not quite what they are doing.  That would require Australia, Canada, Japan and Korea to be working actively with the European Union; not only is that not happening, but these days the EU can’t even get it’s own act together on research.

    Meanwhile, in large parts of the world, the main higher education story we hear about is one of “cutbacks”, “austerity” and the like.  But there are, I think, some fundamentally different issues at work in different countries.  In the rich Anglosphere, which happens to be where most of the big producers of higher education are located, mature higher education systems highly reliant on market fees are being forced into big cuts as governments remove their ability to attract funds, usually by changing their student visa regimes.  (An aside here: many people ask: where will international students go if not Canada/US/Australia/wherever?  To which the answer is usually: to a great extent, they will just stay home. But a few countries do seem to be doing better on international students as of late, mostly in Asia.  Turkey, Dubai and Uzbekistan in particular seem to be the big winners, though the growth in their intakes is lower than the drop in the intakes of the big anglophone countries).

    But in other countries, the fundamental financial tension is that demand for higher education is far outstripping the ability of either public or private funding to keep the system afloat (government could choose not to meet so much demand, but political needs must).   Kenya, with its widespread university financial problems comes into this category, and Nigeria, where funding new universities seems to come at the expense of funding existing ones clearly come under this category. Intermediate cases here include France (increasing demand, flat funding), Brazil (which has done a series of policy U-turns on transfers to federal universities and whose overall policy might best be described as “confused”), and perhaps Colombia (promises of money co-existing with widespread institutional precarity, even in the public sector).  What is common here is that a lot of countries seem to have built systems which are too big/expensive for what the public – collectively or individually – is willing to pay. 

    A common response to the problem of inadequate public funding is the expansion of private higher education.  Almost unbelievably, private higher education now makes up about 20% of total provision in Spain, France and Germany (in two of those countries, tuition is free, and in the third it is minimal – under 1000 euros per year in most cases).  In many cases, the expansion is in relatively cheap classroom-heavy courses (often in business) but in many cases these universities are moving into other areas such health care provision.  This explosion has led to a significant tightening of regulations on private universities in Spain and a “tri” (meaning triage”) on France’s Parcoursup system, meaning that certain types of private college will have a harder time advertising themselves to prospective students.  This phenomenon is not constrained to Europe: Tunisia is also currently pre-occupied with how to regulate private institutions.  An alternative to letting domestic private universities rip is to invite foreign institutions into the country.  India is the country most in the news for attempting this at the moment but places like Saudi Arabia, Uzbekistan and Vietnam are also eagerly heading down this route.

    Tuition fees are always an issue, and at public universities we see evidence both for and against the idea that fees are rising.  On the one hand, we have Namibia introducing free tuition (though – note – without fully announcing its operational details), and a Labor government in Australian winning on a promise to – in effect – shorten graduate repayment periods by cancelling debt.  On the other hand, Korea and Russia – both countries with abysmal youth demographics – are allowing their institutions to raise fees after years of both falling enrolments and largely frozen tuition.  Finland may be introducing fees for certain forms of continuing education.  But higher tuition isn’t the only way governments deal with crashing demographics; in Pennsylvania, the solution is outright campus closures.

    In terms of student activism, the main story so far this year is Serbia, which is now in the seventh month of student-led anti-government protests. At this point, it’s very hard to see how the students obtain their maximalist demands of regiment change.  After six months of protests, students are starting to go back to school and finish their academic year.  Recent evidence from North America suggests the movement will have trouble maintaining itself over the summer months and into next year.

    War continues to re-shape universities around the world.  Ukraine has announced changes to its system of conscription which will lower its university attendance rate (particularly for graduate studies).  Something similar has happened in Ethiopia, where new rules have been introduced requiring students to do a year of national service before graduation.  Russian universities continue to atrophy in different ways, partly due to government policy but also due to the exodus of many scholars who have fled the regime.

    Among other things from this quarter that bear watching going forward: Greece is continuing the modification of its university system at a furious pace both in terms of altering curricula and in terms of changing the post-dictatorship convention that campuses are police-free zones.  Algeria is moving its entire university system from French to English instruction, which may not have a huge effect in higher education, but certainly tells you which way global linguistic politics are going.  Hong Kong is experimenting with a new institutional type, and a billionaire in China is putting some serious coin behind a new university. 

    My tip for the story this summer?  Watch graduate unemployment rates around the world, particularly in India and China (where the situation is so bad the government has just announced a kind of emergency blitz on graduate hiring which sure seems like it is set up for failure).  I think the push to align higher education more with the labour market is about to go into overdrive.

    All caught up now!  See you back here in September.

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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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  • Student Aid in Canada: The Long View

    Student Aid in Canada: The Long View

    Note: this is a short version of a paper which has just appeared in issue 72:4 the Canadian Tax Journal. How short? I’m trying for under 1000 words. Let’s see how I do.

    Canadian student aid programs existed in scattered forms since just after World War I but became a “national program” when the Dominion-Canadian Student Aid Program (DCSAP) was created in 1939. Under this program, the Government of Canada provided block cash grants to provinces who administered their own scholarship programs which provided aid based on some combination of need and merit. The actual details of the program varied significantly from one province to another; at the time, the government of Canada did not place much importance on “national programs” with common elements.

    In 1964, this DCSAP was replaced by the Canada Student Loans Program (CSLP)—recently re-named the Canada Student Financial Assistance Program (CSFAP). This has always been a joint federal-provincial enterprise. But where the earlier program was a block grant, this program would be a single national entity run more or less consistently across all provinces, albeit with provincial governments still in place as responsible administrative agencies able to supplement the plan as they wished. Some provinces would opt out of this program and received compensation to run their own solo programs (Quebec at the program’s birth, the Northwest Territories in 1984 and Nunavut in 1999). The others, for the most part, built grant programs that kicked in once a student had exhausted their Canada Student Loan eligibility.

    Meanwhile, a complimentary student aid program grew up in the tax system, mainly because it was a way to give money to students that didn’t involve negotiations with provinces. Tuition fees plus a monthly education amount were made into a tax deduction in 1961 and then converted to a tax credit in 1987. Registered Education Savings Plans (RESPs), which are basically tax-free growth savings accounts, showed up in 1971.

    Although the CSLP was made somewhat more generous over time in order to keep up with rising student costs, program rules went largely unchanged between 1964 and 1993. Then, during the extremely short Kim Campbell government, a new system came into being. The federal government decided to make loans much larger, but also to force provinces in participating provinces to start cost-sharing in a different manner—basically, they had to step up from a student’s first dollar of need instead of just taking students with high need. Since this was the era of stupidly high deficits, provinces responded to these additional responsibilities by cutting the generosity of their programs, transforming from pure grants to forgivable loans. For the rest of the decade, student debt rose—in some cases quite quickly: in total loans issued doubled between 1993 and 1997.

    And then, everything went into reverse.

    In a series of federal budgets between 1996 and 2000, billions of dollars were thrown into grants, tax credits and a new program called “Canada Education Savings Grants,” which were a form of matching grant for contributions to RESPs. Grants and total aid rose; loans issued fell by a third, mainly between 1997 and 2001 (a recovering economy helped quite a bit). Tax expenditures soared, which due to a rule change allowing tax credits to be carried forward meant either students got to keep more of their work income or got to reduce their taxes once they started working.

    Since this period of rapid change at the turn of the century, student aid has doubled in real terms. And nearly all of that has been an increase in non-repayable aid. Institutional scholarships? Tripled. Education scholarships? Quadrupled. Loans? They are up, too, but there the story is a bit more complicated.

    Figure 1: Student Aid by Source, Canada, 1993-94 to 2022-23, in thousands of constant $2022

    For the period from about 2000 to 2015, all forms of aid were increasing at about inflation plus 3%. Then, in 2016, we entered another period of rapid change. The Governments of Canada and Ontario eliminated a bunch of tax credits and re-invested the money into grants. Briefly, this led to targeted free tuition in Ontario, before the Ford government took an axe to the system. Then, COVID hit and the CSFAP doubled grants. Briefly, in 2020-21, total student aid exceeded $23 billion/year (the figure above does not include the $4 billion per year paid out through the Canada Emergency Student Benefit), with less than 30% of it made up of loans.

    One important thing to understand about all this is that while the system became much larger and much less loan-based, something else was going on, too. It was becoming much more federal. Over the past three decades, provincial outlays have risen about 30% in real terms; meanwhile, federal ones have quadrupled. In the early 1990s, the system was about 45-55 federal-provincial; now, it’s about 70-30 federal. It’s a stunning example of “uploading” of responsibilities in an area of shared-jurisdiction.

    Figure 2: Government Student Aid by Source, Figure 1: Student Aid by Source, Canada, 1993-94 to 2022-23, in thousands of constant $2022

    So there you go: a century of Canadian student aid in less than 850 words. Hope you enjoyed it.

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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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