Coleman's Campus blog: The second wave of financial bad news is about to hit universities

The Great Recession is effecting post-secondary institutions right across the country and is forcing higher education to make tough choices. McMaster University, in my hometown of Hamilton, is no exception. Recent events at this university are illustrating the current reality and behind-the-scenes preparations for more financial constraints that are occurring at every Canadian university.

The planned end of McMaster's Art History program is a good example of the complexity of decision making within academia. In short, the Dean of Humanities at McMaster, Dr. Suzanne Crosta, has proposed a realignment of programs within the university's School of The Arts, which will result in the end of Art History as a major at McMaster.

The funding that is required to continue Art History as a major will instead by used to create a program offering both a bachelor's- and master's-level fine arts degree as part of an expansion of McMaster's studio arts program.

(The Hamilton Spectator has a good article summarizing the situation.)

On the surface, there are no budgetary cutbacks involved in this decision. Scratch beneath the surface and financial considerations are clearly visible - McMaster's Dean of Humanities is strengthening her faculty in preparation for the coming fiscal restraint that will determine the direction of the sector for the next five years.

There will be financial cutbacks coming at most universities in Canada and McMaster is no exception. However, the causes will not simply be government funding restraint, nor the decline in endowments played up in the media (as these aren't used for operating funds, anyway). Instead, it will be fiscal problems caused by the financing habits of the past that are going to be the primary drivers of the coming austerity.

Pension plan deficits, heavy debt loads from decade of borrowing, and severe drops in the size of endowments are creating the "perfect storm" that is about to hit universities.

Another future potential danger is a drop in universities' credit ratings. As endowments have dropped with the markets, they have become smaller assets, which can make universities look like greater risks for loans. This could affect the credit rating of institutions as measured by Dominion Bond Rating Service and Standard and Poors. Any decrease in credit rating will increase interest charge cost for an institution - charges which will have significantly more impact on budgets than the temporary stop of interest payouts from endowments (in other words, universities with lower credit ratings might have to spend more paying off interest costs on loans and less on operating budgets).

This brings us back to our example: McMaster Art History.

Last year, McMaster's AA credit rating was confirmed by DBRS but not without the university having its trend classification listed as "negative." Noting the downturn in the financial markets will both decrease endowment assets and increase pension deficits, DBRS was not optimistic about the university's future credit rating. Combined with other financial concerns the report states "DBRS expects the downward pressure on the University's rating to continue to intensify over the coming year." 

McMaster's credit rating report for 2010 will be released by DBRS in late March or early April. If McMaster's credit rating drops, it will create serious financial problems for the university.

The closure of the standalone Art History degree at McMaster must be seen in the overall financial context of the university. For decades, Canadian universities have been allowed to be unfocused and offer a wide range of degrees - in short, to be all things to all people. With fiscal constraint now the theme, universities have started closing down small programs that do not fit into the interdisciplinary areas that institutions are starting to focus themselves on. Programs that cannot be justified based upon enrolment or contribution to the research focus of the institution will be cut by central administrations during the next few years.

Instead of waiting for the central administration at McMaster to cut Art History due to its low enrolment and lack of fit within the health science focus that McMaster is adopting, the Dean of Humanities sees the writing on the wall and is acting proactively in preparation for the coming financial cuts. By reallocating the faculty's current School of the Arts budget into high demand studio arts programs, the School of the Arts will be spared the worst of coming budget cuts by no longer being the low-hanging fruit on the budget tree.

While student politicians are upset at the Dean and accusing her of betraying the humanities, they are failing to see the storm just over the horizon. She is moving her faculty into the future model that will have to be adopted by all Canadian universities - they have to be focused and cannot offer every possible niche program.

Emotions are high at McMaster and the current Art History students are naturally upset to see a good program which they love being shut down due to forces outside their control - finances and low enrolment. The Dean is guaranteeing every current Art History student will be able to graduate and receive the courses they need to continue into graduate programs; even three years from now, when enrolment in the program will be down to a handful of fourth-year students.

Universities across the country will be forced by fiscal reality to cut programs and this story will be repeated many times over the next few years.

What is most concerning about the McMaster example is that the institution's financial fundamentals - while bad - are in better shape than most other institutions. According to my sources, McMaster's long-term debt per full-time student is only in the $6,600 range and the AA credit rating the university has held is the second highest possible rating and the highest level achieved by universities in Canada.

What will happen at other universities?

Dalton McGuinty's Throne Speech promises a lot for Ontario post-secondary education but doesn't say where the money for these promises will come from.

Mr. McGuinty promises the addition of another 20,000 places at Ontario's university and colleges this September, a 50% increase in the number of international students over the next few years, and the creation of an online post-secondary institute.

The addition of 20,000 students to Ontario's already overcrowded post-secondary institutions is not the good news that it appears to be. With less than six months until the start of the new academic year, these students are only going to be adding to overcrowded classrooms or will be taught by sessional faculty. A first-year class of 350 can easily be expanded to 400 with the additional tuition revenue from the 50 additional students more than compensating for the hire of one or - if students are lucky - two teaching assistants to conduct seminars.

Further, the additional students will be plucked from the students who were not going to be admitted to university or college - meaning students with lower academic averages coming out of high school. With universities and colleges making cutbacks to student services, society is setting these students up for failure. These are the very students who will require academic and student life supports the most. The addition of more students needing student services at a time when those very services are being cut back is a recipe for disaster.

While the addition of 20,000 student spaces makes it look like the government is "investing" in higher education, unless there is a massive infusion of funds for these higher-need students, it is actually a disservice to both the higher education sector and society as a whole.

The addition of more foreign students to Ontario's universities is possible. It will require a large investment in overseas recruitment and a strategy that can compete against other countries like Australia, and other provinces. During a recent trip to Qatar, I had the opportunity to witness first-hand the effective recruitment strategy of EduNova. Ontario has a long way to go if the province is to achieve their lofty 50% enrolment goal.

The creation of an online institute sounds good and is overdue. The recently published book Academic Transformation offers a good road map for the province to start with. The Ontario government should serious consider partnering with Athabasca University, which has forged ahead in this direction, instead of re-inventing the wheel.

Overall, the promises in the Throne Speech sound good but until we know the details, it is premature to call it a commitment to post-secondary education. Already, the official opposition is noting that McGuinty has broken post-secondary promises before.

Is the budget scare over or merely delayed? That is the question I find myself asking following the release of the federal budget.

A couple of weeks ago, Alberta sent shock waves throughout higher education with massive cuts to student financial aid and higher education.

With massive cuts to post-secondary education in the United States and memories of funding cuts during the 1990s, the Canadian higher education landscape has good reason for concern. Seen in this context, it is not surprising that the Alberta provincial budget was seen as good reason for institutions and students in other provinces to be concerned about their own provincial budgets.

However, the British Columbia provincial and federal budgets released this week did not slash-and-burn higher education. Both budgets imposed freezes on higher education funding - B.C. in the form of a hard freeze and the federal government in the form of inflationary increases to the granting councils with minimal new initiatives.

They did not make cuts - this year - to post-secondary education.

The federal budget did include some new programs with very small budgets. Most promising is the $20 million for Pathways to Education - a successful early intervention program which assists those facing socio-economic challenges to graduating high school and continuing to higher education.

The British Columbia budget does include one interesting sentence that could indicate the early stages of an eventual deregulation of tuition fees in the province: "The legislation that government intends to develop will reflect the principles whereby universities would be free from government control while recognizing that accountability for public funds will continue to be a key area of interest." (Emphasis mine.)

The statement is ominous and could indicate cuts still to come in British Columbia. The federal budget allowed the sector to breathe a sigh of relief, but it is widely known that the federal deficit will eventually need to be tackled and health care is off limits.

We'll have to wait and see what the upcoming Ontario and Quebec budgets hold for higher education before passing judgment on Canadian budget trends. The sector's not out of the woods yet.

(GlobeCampus editor: You may also be interested in Eye on Higher Ed: Reading between the lines of Ottawa's budget.) 

The Alberta government unveiled its long-promised provincial post-secondary application website last week to great fanfare.

ApplyAlberta.ca  allows potential students to complete one application for admission to any of the province's publicly funded colleges and universities. Alberta follows British Columbia in combining applications for both colleges and universities on one website. (Ontario has one site for universities and another site for colleges.)

The one-stop application service should prove to be convenient for anyone applying to more than one Alberta institution and will attract more out-of-province applicants by streamlining the process. 

ApplyAlberta.ca does have one fundamental flaw: It followed the British Columbia model too closely. It took the good part - combining college and university applications. But it kept the bad part - allowing institutions to charge their own fees. 

What does this mean for potential students?

If they decide to apply to the three largest universities in Alberta, it will cost them the following: $115 for the University of Alberta, $115 for the University of Calgary, and $75 for the University of Lethbridge - a total of $305. A student applying to three Ontario universities will pay the grand sum of $115. A student applying to British Columbia's big three will pay $165.  (UBC - $60, SFU - $45, and UVic - $60)

Applying to university in Alberta remains more expensive than applying in any other province - not a distinction any government looking to encourage people to apply for post-secondary education should be proud of.

As a political studies student, I cannot help but think of this as another example of why the Alberta provincial Conservatives are on their way to opposition status - they've abandoned middle-class families by allowing institutions to continue lining their pockets. The new streamlined website will save universities money - they no longer have to run their own application websites - but those savings are not being passed on to Alberta families.

Considering those same families are already facing massive fee increases for such things as "common space security and sustainability" (yes, hallways) at the province's flagship university, ApplyAlberta is just another example of a government unwilling to confront an out-of-control university sector.

ApplyAlberta is a step in the right direction. Now that the government has cut excessive red tape, it needs to stomp out excessive fees and bring its universities back under true public control.

(GlobeCampus editor: You may also be interested in Eye on Higher Ed on how students in need got stiffed in the Alberta budget.)