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Dive Brief:
University of Arizona released a fiscal 2026 plan that would balance its budget by reducing it 3.2% from current levels, though officials noted federal policy changes, state budgeting and enrollment could force adjustments.
The preliminary budget plan would make the deepest cuts to university support and administration, reducing those areas by 7.5% overall.Student support would be cut by 2.8%, and the aggregate budget for the university’s colleges would be reduced by 2.2%. It would also decrease facility and utility spending by 1.1%while increasing community outreach by 0.7%.
At the same time, the framework funds employee raises, faculty promotions, investments in the university’s colleges and other spending areas, officials said Thursday in a community message.
Dive Insight:
The University of Arizona has been scrambling for more than a year to put its fiscal house in order.
In early 2024, the university faced a budget shortfall reaching $177 million. The situation became so severe as to draw an open rebuke from the state’s governor, Katie Hobbs,who in a statement last February derided a “university leadership that was clueless as to their own finances.”
Since that time, then-President Robert Robbins stepped down and the university has made major cutbacks to its budget.
Helping lead that work is John Arnold, who has taken on the chief operating and financial officer roles at University of Arizona after previously serving as executive director of the state board of regents.
For fiscal 2025, the university reduced its budget by over $110 million, centralizing its fiscal planning,“rebalancing” undergraduate aid for nonresident students,delaying raises, and reorganizing administrative units including information technology, human resources and marketing.
Arnold informed the state regents in November that the university was on track to wipe the remaining $65 million deficit from its budget and end fiscal 2025 with 76 days cash on hand — well above the nine days’ worth of cash that was projected last June. The regents require state universities to have 140 days of cash on hand, a target the University of Arizona hasn’t hit since 2022.
By the fall, cuts took the university’s employee headcounts and payroll expenses back to early fiscal 2023 levels.
While making numerous reductions across the university’s operations, officials also announced salary increases and a raised minimum wage earlier this year.
Arnold and Ronald Marx, the university’s interim provost and senior vice president for academic affairs, said in their message Thursday that the new budget framework “prioritizes academic excellence, faculty and staff support, and student success across colleges.”
They added the caveat that possible changes in federal policy, state budgeting, changing demographics and enrollment could all sway the final fiscal 2026 budget.
“We are actively monitoring these developments and evaluating the financial implications of the changing external environment,” Arnold and Marx said.
Arizona lawmakers last year threw a wrench into budget plans with multimillion dollar funding reductions, which came as University of Arizona sought to reduce its deficit by tens of millions of dollars.
The latest report from the Office for Students (OfS) paints a stark picture of mounting financial pressures across the higher education sector.
The analysis suggests that 43% of institutions now forecast a deficit for 2024/25, in contrast with optimistic projections made by institutions that had looked to an improvement in financial performance for the year.
The key driver is lower-than-expected international student recruitment, according to Philippa Pickford, director of regulation at the OfS.
“Our independent analysis, drawn from data institutions have submitted, once again starkly sets out the challenges facing the sector. The sector is forecasting a third consecutive year of decline in financial performance, with more than four in ten institutions expecting a deficit this year,” she said.
“We remain concerned that predictions of future growth are often based on ambitious student recruitment that cannot be achieved for every institution. Our analysis shows that if the number of student entrants is lower than forecast in the coming years, the sector’s financial performance could continue to deteriorate, leaving more institutions facing significant financial challenges,” said Pickford.
We remain concerned that predictions of future growth are often based on ambitious student recruitment that cannot be achieved for every institution Philippa Pickford, Office for Students
Total forecasts continue to predict growth of 26% in UK student entrants and 19.5% in international student entrants between 2023/24 and 2027/28. However, in its report, the OfS said that “at an aggregate level, providers’ forecasts for recruitment growth continue to be too ambitious”.
Speaking to The PIENews on the topic, David Pilsbury, secretary to the International Higher Education Commission (IHEC), said that university target setting is, and has been for many years, “disconnected from reality”.
“There are not enough people that really know what their recruitment potential really is and how to deliver it, not enough people who push back on finance directors and university executive groups that see overseas recruitment as a tap that can simply be turned on to fill the funding gap, and not enough people developing the compelling business cases that put in place the infrastructure necessary to deliver outcomes,” he said.
IHEC recently released a landmark report urging action across several areas of UK higher education, including international student recruitment.
Pilsbury described the need to build “coalitions of the willing” between universities and with private providers – of data, admissions services, recruitment and beyond – to drive innovation, execute new models and establish different outcomes for the UK sector. The IHEC report warned that “failing to secure the future of international higher education in the UK would be an act of national self-harm”.
Total international student enrolment in the UK fell from 760,000 in 2022/23 to 730,000 last year. Currency devaluations in markets such as Nigeria and Ghana contributed to the decline, with Nigerian student levels dropping most dramatically by 23%.
Pickford does not expect to see multiple university closures in the short-term, but said that the “medium-term pressures are significant, complex and ongoing”.
“Many institutions are working hard to reduce costs. This often requires taking difficult decisions, but doing so now will help secure institutions’ financial health for the long term. This work should continue to be done in a way that maintains course quality and ensures effective support for students,” she said.
“Universities and colleges should also continue to explore opportunities for growth to achieve long-term sustainability. But some superficially attractive options, such as rapid growth in subcontractual partnerships, require caution,” Pickford warned.
Against a challenging operating environment, the OfS said it welcomes the work of Universities UK’s taskforce on efficiency and transformation.
The taskforce was announced earlier this year and was set up to drive efficiency and cost-saving across universities in England through collaborative solutions, including the exploration of mergers and acquisitions.
The report comes as UK stakeholders brace for the government’s imminent immigration white paper which is expected to include restrictions on visas from some countries and also changes to the Graduate Route.
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.
The South Lawn of the University of Melbourne. Picture: iStock
Analysis from The Australia Institute said 10 universities together spent more than $390m on travel in 2023 and 27 institutions spent $410m on consultants amid executive pay and wage underpayment scandals.
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