On a gloriously sunny day in the summer of 2000, university administrators were digging a ceremonial shovel into a dirt-filled lot beside the Nursing Building. The $111 million Bahen Centre for Information Technology that would come to occupy the space was plenty reason to celebrate. Smiles were abundant, handshakes were exchanged, and optimism was high.
But recent financial statements, covering the 2002-2003 school year, are questioning the fiscal prudence of that optimism. Rising debt, large investment losses and deficits paint a less than rosy picture, and question whether the university is spreading itself too thin in fulfilling its mission “to be one of the best public universities in the world.”
Poor markets have hit the university hard. University investments lost $315 million in market value last year, as well as accumulating a $398 million pension deficit. The endowment, pegged at $1.2 billion on April 30, 2002, dropped $137.4 million to $1.06 billion by April 30, 2003. Harvard, in contrast, posted a 12.5 per cent return in investments over the same period, pushing their endowment to $19.3 billion.
Despite these numbers, university administrators insist it is not a cause for alarm.
“We are in reasonable financial health,” said Sheila Brown, controller and director of Financial Services.
Most troubling of all was a $164 million operating deficit last year. Over the past five years, expense growth has outpaced revenues by 5.2 per cent. A deficit is likely for this year as well.
“Our projections are that expenses will likely exceed revenues by some amount,” said Brown. “It’s a possibility as we continue to absorb the costs associated with taking on enrollment expansion.”
The losses have forced the university to apply a 4.6 per cent budget cut across all academic and administrative divisions, and the future does not look bright, barring increased government support.
According to Vice President Govenrment and Institutional Relations Sheldon Levy, unless the provincial government increases funding, further budget cuts are expected.
At a Sept. 29 Business Board meeting at Simcoe Hall, Levy questioned the financial soundness of a two-year tuition freeze promised by Liberal leader and premier-elect Dalton McGuinty. “Whatever [cap or freeze] it is, inflation at universities is 4 per cent…Where is the funding going to come from?”
The biggest financial drain, and the one which the university is stacking its reputation, is an ambitious capital construction plan that began in 1999 and is expected to run until 2007. Begun in part to meet the surging demands of the double cohort, the plan is also U of T’s attempt to spar financial jabs and academic punches with the best public universities. Considerable expansion of residences, athletic facilities, academic buildings and infrastructure upgrades are expected to cost $899 million.
An estimated $624.6 million in borrowing is needed to finance all the 34 university approved capital projects-the very limit of the university’s borrowing capacity. That figure does not include the approximately 36 projects that have yet to be approved. But even without those projects, some administrators suggest the university is already pushing the financial limits.
“I think, right now, this level of volume is not sustainable,” said Chief Capital Projects Officer John Bisanti. “I see the level of development will, at some point, start to decrease.”
In response to borrowing, the debt has jumped to $216 million, and is expected to rise another $200 million. This is in stark contrast to the late 1990s, when the debt hovered consistently around $60 million, says Brown.
Even with a recently downgraded credit rating by Standard & Poor’s, and a university borrowing strategy largely determined by uncertain market fluctuations, construction is expected to go through.
“[The debt] is too high, but it’s responsible,” said Vice-Provost, Space & Facilities Planning Ron Venter. “We’re comfortable with the cash to make them happen.”
“The plan is to go forward,” echoed Brown.
Looming large is $315 million in deferred maintenance that has accrued over the years. It’s expected to grow another $4-8 million a year until 2005 when, if no new government funding is secured, the operating budget will rise another $10-12 million to begin fixtures.
Budget forecasts for the 2004-2010 operating cycle will become clearer once the university’s White Paper-an articulation of future academic goals-is published in the coming months. A 20 per cent revenue increase is being slotted to cover further operating losses.
