McMaster economic update

Over the last six months the changes in the world economy have been dramatic and Canada and Canadian universities have been wrestling with the impact of the financial downturns and what these changes mean to university budgets and forecasts.

The uncertainty is not subsiding and there is tremendous lack of clarity as to how our traditional funding sources might change. All Ontario universities are feeling the economic pressure and a number have issued plans that include hiring freezes and budget cuts.

While McMaster faces the same uncertainties, we do not want to make precipitous decisions based on unknown information. We are continuing to implement a cautious budgeting process based on what we know or believe to be highly likely. We continue to place faculty renewal as a top priority and are working to ensure that the University is able to take advantage of opportunities through research and capital renewal programs.

In the absence of finalized information particularly on provincial operating funds the Budget Committee has been working to create a balanced budget framework for 2009/10. The framework makes a number of assumptions. While these assumptions are prudent and based on current information, many of these variables are largely out of the control of the University so predictions for the next fiscal year are less assured than in past years.

The University budget framework for 2009/10 is based on the following assumptions:

– Continuation of the existing funding formula to calculate provincial operating funding

– Student enrolment targets for level one as provided to Senate by the Enrolment Management Team are met

– Trust and endowment funds do not lose any additional value

If these assumptions are met, the Budget Committee has determined that the University's operating budget can be balanced over the next fiscal year. This does not mean, however, that our budgetary problems are resolved.

– The budget framework only includes the operating budget which represents about 50% of the University's overall consolidated budget

– We must make sure that ongoing spending in all areas is kept in line with incoming revenue.

– There is still a major challenge ahead and the hard work within individual units and departments to prioritize spending and projects and reduce costs has to continue

Units and departments have already had to make some difficult decisions. The inflationary costs of compensation and other operating expenses have had to be absorbed by area budgets for the past several years and this will again be the case in 2009/10. On average, units will need to find savings of about 6% to cover these higher expenses. Finding funds within existing budgets to cover these costs will not be easy especially considering that 63% of our total expenses are compensation related.

We cannot continue to spend above our means. Units should continue to take a conservative approach to spending and not add new discretionary operational expenses at this time. To assist with these measures the president and the vice-presidents have all voluntarily agreed to freeze their total 2009 compensation at 2008 levels.

In addition to the ongoing uncertainty about provincial funding and investment income from the trust and endowment funds, we must continue to make financial plans to cover the mounting costs of post-retirement benefits and the additional payments that will be required to make up for losses in the investment value of the pension plan. We continue to work with governments for legislative changes to reduce the pension burden being felt by defined-benefit pension plans. While these plans are under pressure, McMaster pensioners will continue to receive their pensions regardless of the funded state of the plan.

The President's Advisory Committee on the Impact of the Current Economic Situation has begun its meetings and will be sharing information and consulting with the campus community as it develops its recommendations.

The recent federal budget announced $2 billion in funding for deferred maintenance at Canadian universities and colleges. McMaster's deferred maintenance has increased to approximately $125 million and these new, one-time capital funds will be a welcome infusion of support for a number of priority projects, many of which can begin very quickly if the funding is in place. We are anxious to hear more details from Ottawa on the program and look forward to working with provincial, municipal and other partners to help stimulate the local economy through new projects that meet McMaster's strategic objectives.

We hope you find this additional budget information useful. We will provide more concrete information when it becomes available but until then we will continue to make decisions based on the best available information.

We will continue to keep the University community informed through regular communications including the monthly McMaster Update publication.

Peter George
President and Vice-Chancellor

Ilene Busch-Vishniac
Provost and VP Academic