McMaster Budget Strategy Update

March 1, 2007

Dear members of the McMaster community,

This letter is to update everyone in the McMaster community on the status of the University's budget. The fundamental problem is that the University is currently spending more money than it receives in operating funds to support the day-to-day operations of the University.

We have been exploring a number of options to solve the problems but budget projections developed late last year means this work has become even more difficult. Based on current knowledge of enrolment, government funding, tuition income, and spending forecasts the projected ongoing structural operating budget deficit has grown and is currently estimated at $17 million. This structural deficit is offset to some degree by carry-forwards but this is one-time money and does not alleviate the fundamental structural problem.

Many universities in Ontario face a similar financial challenge. At McMaster the deficit in 2006/07 has grown as a result of a number of issues: lower than expected enrolment of visa students, a lower than anticipated grant from the province's Quality Investment Fund, implementing the third year of the increase to the pension service costs, and increases in costs such as salaries and benefits, and utilities.

A management plan has now been developed to address the budget challenges and includes strategies focused on increasing revenue and reducing expenses to achieve a truly balanced budget within a multi-year framework. The strategies are grounded within the principles of our strategic plan, Refining Directions. Difficult operational decisions will need to be made and we must make those decisions in a manner that provides the University with the greatest opportunities to continue to meet its goals to provide the best possible undergraduate and graduate education experience, to advance the research priorities, and to build an inclusive community with a shared purpose.

Strategies for balancing the budget

1. Budget Reductions

In 2007/08, every budget envelope will be required to reduce its 2006/07 operating budget by 1%. This can be done either through expense reductions or through net new increases in revenue income where possible. Inflationary costs must also be absorbed within the budget envelopes over the next three years. This means that each envelope will have to look for between 5 – 7% budget reductions in 2007/08.

Decisions on how to achieve these savings must be based on Refining Directions objectives and will be reviewed by the Budget Committee and the University Planning Committee.

2. Reallocations and Revenue Sharing

There are structural operating deficits in the base budgets of many areas. The severe deficits in academic areas cannot be eliminated on an ongoing basis without either decreasing quality or reallocating of resources. To ensure that quality does not suffer, a total of approximately $9 million is being reallocated to the Faculties of Humanities, Science and Social Sciences along with the Library acquisitions to ensure these areas of the University can continue to address student needs, faculty renewal and implementation of their strategic plans. Providing a higher amount of incremental income generated by Faculties on an ongoing basis will be a priority and an analysis of all units across campus will take place and will include a review of McMaster's revenue sharing policy and distribution of funds.

3. Faculty Retirement Incentive

A faculty voluntary retirement plan is being developed for faculty members who qualify under the rule of 80. This program will assist Faculties to meet the financial challenge and will also allow for better long-term planning and faculty renewal and development. Faculty renewal will continue to be a priority and the Deans will review strategic hiring opportunities with the Acting Provost.

4. Alternative Work Arrangements

Full-time faculty and staff will be encouraged to apply for reduced workloads where appropriate. Four-day workweeks, 8-9-or a 10 month continuing appointment where work is seasonal may be options to consider when the workload reduction would not require the hiring of replacements. The existing Reduced Work Load Policy for faculty is available here.

New Revenue Generation

One of the primary sources of revenue for the University is tuition and the corresponding student grant provided by the province. Tuition fees are approved by the Board of Governors and must fall within the provincial framework for tuition increases. The current Ontario framework was implemented in 2006 after a three-year tuition freeze.

1. Domestic Undergraduate Enrolment

In the past McMaster has responded positively to Ministry requests to increase undergraduate domestic enrolment as a means to help Ontario meet its accessibility goals. These increases in student numbers also increased revenue to the University. The University has now grown to the point where accepting additional undergraduate domestic students is not possible without significant additional investments to support these students beyond the income they provide.

Domestic undergraduate enrolment targets have now been received by Senate for both the University and the Faculty levels. Increasing a Faculty's domestic undergraduate enrolment beyond the Faculty target is not an acceptable way of increasing revenue. There may be opportunities for enrolment adjustments where they do not alter the overall Faculty targets. Faculties may also decide to close programs with low student interest in order to allow for new program development.

2. Increase Undergraduate Visa Student Numbers

The University will increase the number of visa students at the undergraduate level. Increasing the proportion of McMaster's international student cohort provides both economic advantages and also benefits the McMaster community by increasing the international exposure of the overall student population, faculty and staff.

3. Continue Graduate Expansion

A goal of McMaster's Refining Directions is to see continued growth in the University's graduate enrolment and we have an agreement with the MTCU to grow significantly. Most of the income will go to support the graduate students so this is not necessarily a revenue generator. However, if we meet our target growth the University will receive $35m for capital expansion to accommodate graduate growth.

4. Other Revenue Generation

The University encourages other revenue generation that has a clear and appropriately approved business plan indicating that this is new net revenue to the University and that all costs associated with the program are fully covered by the revenue generated.

Moving Forward

There are many other considerations that need to be taken into account as we make the short- and long-term steps required to restore the University's financial stability. In the past we have risen to similar economic challenges created during the Social Contract and the Common Sense Revolution. Each time McMaster has found a way to generate the savings and more importantly has emerged as a more focused and vital university.

McMaster's academic and non-academic programs, structures and processes need to be reviewed and prioritized to allow McMaster to move forward academically while increasing efficiency and reducing costs. To that end the Acting-Provost invited Dr. Robert Dickeson, author of the book Prioritizing Academic Programs and Services, to visit campus. He met with many people across the University including the Deans and Chairs to help us ensure we're asking ourselves the right questions in order to find the best, McMaster solutions.

The current fiscal challenge involves every area at the University. We will be hosting an open town hall meeting on March 21st to answer questions and hear your comments and suggestions. We will provide more details on this session over the next few weeks.

Each Faculty, department and unit will be developing plans to make the required changes and we encourage you to become involved with the process in your area. We also encourage you to review material on a new budget website that provides background information and relevant links. It also includes an email address (budget@mcmaster.ca) for any thoughts or suggestions you would like to forward to us. We need your input and ideas. We need your ongoing support and focus to ensure that McMaster continues to be a community of learning where students can explore and expand their potential in an innovative research community of teachers and learners.

Peter George, President

Bob McNutt, Acting Provost and Vice-President Academic