Dear members of the McGill community,
Last week the Principal wrote to the community to outline the rather bleak financial situation that the University is facing. She also outlined a series of measures that will be included in the proposed budget for fiscal year 2014, which begins on 1 May 2013. These actions are deemed necessary to ensure four goals, namely that:
- the University remains compliant with the funding rules and repayment of deficits established by the government of Quebec (e.g., the Ministry of Higher Education),
- we protect our core academic and research mission and fundamental values,
- we act in a fiscally responsible and prudent manner as the steward of funds, public and private, entrusted to McGill,
- and, most importantly, the chosen measures minimize the effects on people and programs due to reductions in the number of employees and reduced spending power.
Subsequent to the Principal’s message, there have been some questions regarding the breadth and scope of the cuts and the measures proposed to deal with them. We take this opportunity to clarify some key elements of the plan for dealing with the cuts to our grant.
1. How much money has the University lost due to the government cuts to McGill’s operating grant and the rescinding of scheduled tuition increases?
The cuts represent a net loss of $38.3 million over the period 1 January 2013 to 30 April 2014. As a result of rescinding scheduled tuition increases, McGill will receive $18 million less in tuition revenues than anticipated. Consequently, total lost revenues over FY2013 and FY2014 add up to a $56.3 million reduction in base funding.
We were later told to expect a small amount of additional income from the government in the amount of $4.4 million for FY2014 and FY2015, and to count on a 3% increase in tuition starting in FY2014. Consequently, as the Principal indicated, we have a net shortfall of approximately $43 million to cover in preparing the budget for FY2014, which will be submitted to the Board of Governors for approval at the end of April 2013.
2. Insofar as the government has proposed to reinstate these amounts over time starting in FY2015, why can’t McGill just include these amounts into its accumulated operating deficit?
Doing this would double our accumulated deficit in less than 5 years, which we will in any case have to repay sooner rather than later. Spreading the pain will make it twice as painful in the long run.
Given the timing of the announcement of the tuition freeze at FY2012 levels in September 2013, and the severe cuts to our government grant in December 2012, the Board of Governors has allowed us to place $25.1 million dollars onto McGill’s accumulated deficit for FY2013. Even so, it is unlikely that we will be able to produce a balanced budget for FY2014, and as a consequence we will probably add another $10 million to our deficit for FY2014.
Further, the government has indicated that it expects a repayment plan over a five- to seven-year period for the amounts that are transferred to the accumulated deficit rather than cut from the budget immediately. Consequently, we will indicate in our budget submission to the Board how we plan to accomplish this repayment. The University will also have to sign an agreement with the Ministry regarding our repayment plan.
To put it simply, the proposed reinvestments starting in FY2015, and which depend on economic conditions at the time, will at best provide some limited funds to help us start repaying the additional deficits we must incur, but no more.
3. The government has also indicated that there will be a three per cent indexation of tuition and that they will compensate for the loss of tuition increases. Shouldn’t that help our finances?
For the average student, indexation of 3% represents an increase of approximately $70 per year. So, McGill can expect to receive around $1.4 million in additional tuition revenues starting in FY2014. This is not sufficient to cover even a small percentage of the revenue losses we are experiencing. As noted above, compensation for the loss of tuition increases will be included in the overall provincial reinvestment promised starting FY2015, but how that promised amount will be distributed among universities is still a subject of debate in Quebec City. McGill will not be compensated directly for the amount of tuition it has lost, and how much of the future funding it will get is uncertain, given economic conditions in Quebec.
4. Are other universities in Quebec taking actions similar to those being considered at McGill?
Each university in Quebec will have to take whatever actions they deem necessary to deal with the cuts based on their own particular circumstances. Each university knows its own situation better than it does those of others. One thing we do know for sure is that McGill operates under a very different, higher-cost model than other universities in the Province. To a greater extent than other institutions, we have full-time students being taught by full-time faculty. This model has built-in quality assurance mechanisms, but it also reduces degrees of freedom available to us to deal with budget cuts of the magnitude we are facing.
5. Some universities are using one-time capital reserves to cover operating costs in the short-run, so why isn’t McGill doing the same thing?
McGill has a very serious and unique deferred maintenance problem that has been well documented. In order to deal with these matters, especially those related to the health and safety of students, faculty, and staff, we have already been borrowing against future fiscal years’ allocations. Therefore, there are no surplus capital funds to transfer to operations. In addition, capital is one-time-only money; it is not recurrent base funding. It may alleviate the problem for a year or two, but then we will still have to find a way to deal with the shortfall in operating grant revenues, while facing an even more serious deferred maintenance issue on our physical plant.
6. In her message, the Principal indicated that the measures being implemented would preserve as many jobs as possible, so does that mean involuntary lay-offs are inevitable?
We expect that between $6 million to $7 million dollars can be cut from various non-personnel line items in next year’s budget. However, as has been stated many times, 75% of all operating expenses are related to people, in the form of wages, pensions, and benefits. Given the magnitude of the cuts that have been imposed on McGill, we must reduce this overall expense. There are several ways in which this can happen.
First, there is a certain level of “natural attrition” that occurs in any large organization, our University included. One measure to reduce positions, therefore, is simply to impose a hiring freeze alongside natural attrition, accompanied by a workforce planning project for minimizing impact. But, this still won’t get us to the level of cuts required.
Second, where possible, and with mutual agreement when necessary, McGill will implement a salary freeze, to which MAUT has already subscribed for FY2014, whereby announced wage increases are foregone to provide relief to the bottom line. If an agreement to postpone wage increases cannot be reached with the relevant employee groups, other actions will have to be taken to achieve the requisite financial targets.
A third measure relates to voluntary retirement. Some members of the University community may be thinking about retirement. Along these lines, a well-crafted, voluntary retirement incentive arrangement may help people make this choice now rather than later. Such a plan is being proposed and will be in place from 2 April to noon on 3 June of this year. This week, eligible individuals will receive details by mail through a personal correspondence.
Finally, and only as a last resort, if attrition, wage freezes, and voluntary retirements do not produce the necessary reduction in the University’s wage bill, then we will have to consider terminations due to financial exigency. It must be clear to the community that this will be considered as a last option to meet the necessary cuts.
If we have to resort to terminations, these will be handled according to the terms and conditions of the collective agreement or an individual’s employment contract, and will respect fully the provisions of the Quebec Labour Code.
7. What about expenditure reductions that are not related to personnel costs?
In addition to personnel-related measures, we must also cut expenditures in targeted areas or as a percentage of overall unit budgets by specified amounts. As noted above, there may be as much as $7 million in potential savings in this regard. In addition, we are exploring with each major unit head (Deans, Vice-Principals, and directors of large units) how the cuts can be made in such a way as to reduce the impact on the academic mission, however every sector of the McGill University community will be affected by one or more of these measures.
It has been our intention to clarify the broad parameters of the approach we are taking to deal with these unprecedented cuts in government funding that have been imposed on McGill, and indeed the entire Quebec university system. We realize that there is still uncertainty in the meaning of these measures for individual members of the McGill community and we are sorry for the inconveniences that this might cause.
Your Deans, Vice-Principals and directors will be working closely with Financial Services and Human Resources to develop unit-level allocations for next year’s budget, and to plan workforce adaptations in light of the funding cuts. We understand that many questions may remain and that others may arise along the way. Please do not hesitate to write us at email@example.com, or on the Red Blog (http://blogs.mcgill.ca/red), or to speak directly with your manager. We will also regularly update our website dedicated to budget cuts (www.mcgill.ca/budgetcuts) with answers to the most frequently asked questions.
The proposed measures should allow the University to address the immediate financial crisis in a way that does not compromise the mission, vision, and longer-term success of McGill. These are not easy times, but McGill has faced tough times before and prevailed. We will do everything we can to help manage these difficult cuts in the least disruptive way possible for our community members.
Prof. Anthony C. Masi Mr. Michael Di Grappa
Provost Vice-Principal (Administration and Finance)
April 4, 2013