1. 1 Open Forums Prof. Anthony C. Masi, Provost & Mr. Michael Di Grappa, Vice-Principal (Administration and Finance) McGill’s financial situation, Fall 2014: Responding, yet again, to new challenges 27 October 2014

2. 2 Context Compared to September when Principal Fortier said we were not in a crisis, where are we now? How is this setback different from the last major financial shortfall? Will the Ministry require universities to balance their budgets or face consequences? Why doesn’t the university have a ‘rainy day’ envelope to help offset these surprises? How is the University addressing the issue of chronic underfunding with the government of Quebec?

3. 3 Some terminology Operating funds (“unrestricted”; other funds are “restricted”) – operating, capital, endowment, research – expected revenues and expenses in the Budget Book – actual revenues and expenses in the Audit Financial Statements – shortfalls must be financed, some inter-fund transfers required Generally Accepted Accounting Principles (GAAP) – overall financial situation covering total assets and long term liabilities – includes more than operating such as long-term debt (bonds), University responsibility for the pension funds, but not (yet) deferred maintenance Fiscal Year 2014 (FY2014) – last year’s financial period 1 May 2013 to 30 April 2014 Fiscal Year 2014 (FY2015) – this year’s financial period 1 May 2014 to 30 April 2015

4. 4 FY2014 Review: Operating funds and GAAP Budget Book permitted a possible ($10.4M) deficit on operating funds (and therefore to GAAP as well) Audited Financial Statements year-end showed a surplus of $15.7M – surplus on operating funds was $3.2M (one interpretation considers the surplus as $4.3m), reducing the “accumulated operating deficit” to below ($100M) – total GAAP deficit reduced from ($287.2M) to ($271.5M), thanks to a $12.5M positive pension fund adjustment based on market performance Surplus = result of positive variances being greater than negative ones – higher enrolment yielded more tuition and provincial grants – Ministry recalculated of monies owed to McGill from previous years – increased sales of goods and services – GAAP: market performance on investments exceeded expectations

5. 5 FY2015: Operating Funds FY2015 Budget Book tabled in April 2014 anticipated: – $768.8M in “Operating Revenues”, including circa $361M in government of Quebec grants (mostly based on FTEs and WSUs) – $775.8M in “Operating Expenses”, but some were defined as “contingent” on receiving anticipated revenues – estimated potential deficit = ($7.0M) Budget allocations start on 1 May 2014 – prepared on best available information, including a set of “orientations” from the Ministry – formally approved by the Board of Governors

6. 6 FY2015 big picture: Total Operating Revenues estimated at $768.8M 6

7. 7 FY2015 big picture: Total Operating Expenses estimated at $775.8M 7

8. 8 FY2015: Changes announced to government support for universities Formal “budget rules” promulgated by Ministry only on 3 September 2014 – 4 months into FY2015 – grant amount for McGill: only around $345m About $15M less than anticipated – some line item reductions are mandated: 2% admin salary mass, 3% non- instructional expenditures [based on RFA submission to the Ministry] October 2014, universities told to expected additional cuts in the current fiscal year – range of additional reductions to McGill: $4M to $12M Worst case scenarios: operating budget deficit could reach ($34M) Further cuts were pre-announced for FY2016 – $ amounts and specific items (if any) TBD Managing variances due to cuts in the Quebec grant made more difficult when they come late in the fiscal year

9. 9 Priorities “The Mission of McGill University is the advancement of learning through teaching, scholarship and service to society: by offering to outstanding undergraduate and graduate students the best education available; by carrying out scholarly activities judged to be excellent when measured against the highest international standards; and by providing service to society in those ways for which we are well-suited by virtue of our academic strengths.” Strengths and Aspirations, ASAP 2012, SRP, Campuses Master Plan, Advancement plans, the Principal’s Priorities

10. 10 FY2015: Responding to the cuts Have the savings from the voluntary retirement plan (VRP) put McGill in better position to deal with these funding cuts? Need to show constraint and solidify McGill’s (relatively) sound base No immediate claw-backs from units, but no guarantees Maintain promises and meet reasonable expectations Develop a responsible action plan based on McGill’s strategic plans, mission, and aspirations Undertaking detailed analyses of anticipated expenditures – some were defined as “contingent” – others may be postponed in the short-term

11. 11 FY2016: Preparing for another lean year Since 2009 why has McGill chosen to implement budgets that consistently appear to be more austere than those of the other Quebec universities? Why are we starting to plan how to address the cuts now, when we don’t yet know their full scale? Holding on to what we have by positioning our deficits in the middle of the pack Clear that there will be financial implications for Administrative Units, Faculties and Schools, and Departments Development of the budget will require significant reconsideration of both revenue assumptions and anticipated expenditures In addition to regular input from VPs and Deans, additional consultations may be required “Zero growth” in the salary mass for and in the number of administrative and support positions = part of line items in the Ministry’s budget rules

12. 12 Next steps for the remainder of FY2015 and planning for FY2016 How do connect the dots between high level information as presented in various communications about McGill’s financial situation and local realities? Will the processes surrounding decision making about where and when to cut be transparent to all involved? As information becomes available or we have to take actions, the community will receive updates from the Principal, the Provost, and/or the VP (AF) We need to restrict spending, announcements will be made in January in time for planning implementation FY2016 (see next slide) FY2016 primary budget planning objective will be to minimize the effects on academic programs, the source of our reputation, reach, and revenues

13. 13 Measures to be taken immediately In this time of uncertainty – freeze on new searches for external hires (admin and support staff positions) – require secondary review of all requests for job re-classifications – postpone all non-essential equipment purchases (from operating funds – 1As to 1Fs) – limit travel and hospitality spending (1As to 1Fs) to the minimum essential – stop all in-year allocations except for true emergencies and mission-critical urgencies Reconsider the above actions in January, based on where we stand then Need concrete measures now or units with (false) availability – may do the reverse of all of the above and rush to commit funds (hires, re- classifications without secondary review, equipment purchases, etc.) – will create unpleasant consequences with the Ministry at year-end, and – force us to consider an even tougher scenario for FY2016

14. 14 Questions / 1 Many units have barely adapted to the re-organizations triggered by the VRP, so how we can adapt to even fewer staff and resources? Can cuts really be managed simply by not hiring new staff and/or by postponing job reclassifications or are jobs at risk? Would a hiring freeze be limited to administrative and support staff or would academic units be asked to postpone professorial searches as well? Will staff be asked to forego pay increases again?

15. 15 Questions / 2 How will these further cuts affect students? – Will fees (not tuition) go up? – Will services be cut? – Will funding for student organization be reduced or cut? – Will there be classroom implications? – Will cuts affect graduate funding? What are the roles and responsibilities of Deans, Chairs, and Directors in the current situation?

16. 16 Questions / 3 How can we maintain a rather ambitious academic mission with so much less money to spend on growth and innovation compared to our peer institutions? Is McGill’s ability to compete threatened? How much longer can we rely on the reputation of our historical position and past successes? Insofar as only about half of McGill’s annual operating revenues come from the Quebec grant, from where do the rest come and what can we do to increase this income?

17. 17 Feedback and Communication mcgillfinances@mcgill.ca “Budget Corner” in McGill Reporter

18. 18 Questions Comments Suggestions Concerns Criticisms Complaints