U of T’s financial statements reported a net income of $508 million in the 2023–2024 school year at the Business Board meeting on June 19.

Although the university maintained that it is in a “strong financial position” in their financial statements , this year’s net income marks a roughly eight per cent decrease from the 2022–2023 school year. U of T’s financial statements reveal that this decrease is due to rapidly increasing expenses relative to revenue growth, with the key factors being high inflation and new compensation agreements with U of T employees.

Here is a breakdown of U of T’s reported net income for the 2023–2024 school year and what it means for the university in the upcoming year.

How a university’s net income is calculated 

Canadian universities’ revenues typically consist of tuition fees, government grants, donations, and investment income. On the other hand, university expenses generally include employees’ salaries and benefits, maintenance fees, and scholarships. A university’s net income demonstrates its financial stability to the government, research sponsors, and donors, who can influence the university’s ability to fund its programs and research projects.

U of T’s revenue and expenses are divided into four categories: the operating fund, ancillary operations, the capital fund, and restricted funds. 

The operating fund primarily concerns teaching and administrative activities, including facilitating student enrollment growth and employees’ salaries and benefits. 

Ancillary operations include providing residential housing, food and beverage services, and real estate services, among others.

The capital fund includes capital assets — university properties such as land, buildings, computers, and furnishings — that are not already included in ancillary operations. 

Restricted funds include endowments, research grants, and contracts.

Investment earnings appear in all funds, but are predominantly seen in the operating fund and restricted funds.

U of T’s report 

For the 2023–2024 school year, U of T reported $4.6 billion in revenue and $4.1 billion in expenses. The vast majority of the revenue comes from the operating fund, with student fees alone contributing over $2.2 billion to it. This indicates strong student enrollment, which increased by 7.7 per cent over the past five years.

Government grants for general operations, which support the activities of the operating fund, totalled $726 million. Government and other grants for restricted purposes, such as for capital infrastructure and research, brought in $510 million.

The remainder of the revenue came from $453 million in sales, services, and miscellaneous income, $506 million in investment income, and $155 million in donations.

Although this $4.6 billion in revenue marks an 8.5 per cent increase in revenue over the past year, U of T’s expenses increased by approximately 11 per cent. The operating fund accounted for the largest portion of expenses, with salaries and employee benefits costing the university approximately $2.5 billion alone. Next were $456 million in employee benefits, $364 million in scholarships, fellowships and bursaries, and $311 million in materials, supplies and services, among other expenses. 

The financial statements attribute this drastic increase in expenses to “a recent period of high inflation” and, importantly, “significant post-Bill 124 compensation increases negotiated with many of the University’s bargaining units.” Bill 124 was an attempt by the provincial government to limit wage increases for all public sector workers’ to one per cent per year for three years, before being deemed unconstitutional by the Ontario Superior Court in 2022.

Why the university’s expenses have been taking a hit

Inflation is increasing the deferred and pending building maintenance from $961 million in the 2022–2023 school year to $1.2 billion in the 2023–2024 school year. The report explains that this is due to “the cost of non-residential building construction in the City of Toronto [growing] at the fastest rate in the last 40 years.” 

As supply chains — systems that convert raw materials to finished products — continue to recover from the recent COVID-19 pandemic, a 2023 RBC report stated that Toronto is facing higher prices in raw materials, labour, and municipal development fees. 

Furthermore, the increasing demand for construction in Toronto driven by a surging population has greatly exceeded the supply of construction workers, resulting in an even higher increase in construction costs. 

More importantly, employee salaries and benefits have significantly increased in the past year. The financial statements explain that “salaries and benefits increased from $1.6 billion to $2.1 billion” from 2020 to 2024. This increase is due to the post-Bill 124 compensation negotiations, alongside “an increase of 16.7% in the total number of faculty and staff over that time period.” 

The five units of Canadian Union of Public Employees (CUPE) Locals 3261 of service workers and CUPE 3902 of academic staff and the U of T administration reached a tentative agreement in early March, which drove the compensation increases. After months of dispute, the parties reached an agreement by March 16, which included terms such as increasing salaries to a living wage for service workers, raising pay for course instructors and post-doctoral staff, and improving health coverage.

Going forward

Due to this outpace of revenue growth, the report states that the budgets of all 18 academic divisions including the Faculty of Arts & Science will be put under pressure. 

In an email to The Varsity, U of T Chief Financial Officer Trevor Rodgers wrote that due to the university’s decentralized budget model, each division will have to independently decide on how to cover increased expenses, including implementing “a careful review of hiring and capital plans.” Additionally, overall funding to all divisions will be limited since it will likely take “several years for divisions to fully absorb the impact of these cost increases.”

However, during the Business Board meeting, Rodgers stated that an eight per cent decrease is “relatively flat on a net income basis.” 

He also explained that this net income decrease is not reflected in the university’s investment returns. He noted that the university has seen “strong returns on short-term” investment deposits due to “persistently high interest rates,” resulting in investment income being “60 per cent higher than in prior years.” 

This decrease is also not reflected in the university’s capital spending, as $305 million of the school’s $508 million net income was allocated to capital assets.

Editor’s Note (September 11, 12:13pm): A previous version of this article incorrectly conflated university endowments with donations and stated that the university’s ability to fund its programs is influenced by investors. The article has been edited to reflect that the university’s revenue consists of donations and investment income, and that the government, research sponsors, and donors can influence the school’s ability to fund projects. 

This article has also been edited to reflect that $305 million of the school’s net income was allocated to capital assets, not debt repayments. The following explanation of the university’s debt-burden ratio has thus been removed.