Budget Highlights for Fiscal Year 2017

Introduction

This document provides a short summary of McGill University’s Budget Book for Fiscal Year 2016-17. It offers a high-level snapshot and breakdown of the University’s revenues and expenditures, as well as a discussion of the deferred maintenance investments planned for the next five years, key budget measures for FY 2017, and an outlook of the University’s overall budget planning through fiscal year 2019.

Those interested in an comprehensive view of the University’s budget for FY 17 are invited to examine the larger Budget Book, available here.

Letter from Principal and Vice-Chancellor Prof. Suzanne Fortier

Dear Members of the McGill Community,

As we set our sights on the next five-year budget planning cycle, I am encouraged by the latest budgets from Quebec City and Ottawa. The 2016 Provincial budget included investments in higher education operating grants as well as in infrastructure spending. Increased funding for university research and a major investment in higher education infrastructure were announced in the Federal budget, in addition to measures to reduce the debt burden of students. We must keep in mind, however, that we are living through a period of high economic volatility worldwide and thus exercised prudence as we planned the budget of our University.

In the coming year, I will be working with other university leaders as the Quebec government undertakes a review of its funding formula for universities and as the Canadian government conducts a comprehensive review of federal support for discovery research.

The Financial Year 2017 budget continues in the tradition of maintaining a strong focus on what makes McGill a unique, world-class institution. Members of our community involved in the thoughtful and collaborative process behind our budget have demonstrated great dedication and an ability to navigate turbulent times with agility and accountably. This has prepared us well to meet emerging challenges facing us and take advantage of new opportunities. We will continue to work towards positioning McGill so that it receives the support it needs to play its role as a university leader in Québec, Canada and worldwide.

I would like to offer my thanks and appreciation to Provost Manfredi and his team for their excellent work in developing this budget and a multi-year financial plan.

Sincerely,

Prof. Suzanne Fortier 
Principal and Vice-Chancellor McGill University

Foreword – Prof. Christopher Manfredi, Provost and Vice-Principal (Academic)

The annual Budget Book is one of McGill University’s key planning documents. Through the budget, the University ensures support of its strategic initiatives as defined by the Principal’s Priorities and ASAP 2012. The budget process allows academic and non-academic units to develop their plans on a rolling, multi-year, multi- fund basis in a way that informs a cohesive University plan and links our academic priorities with our concrete plans for the coming years.

The Government of Quebec, through its grant to the institution as well its regulation of tuition fees, is the single biggest determinant of the University’s annual operating revenues. After several lean years, the budget tabled by the Government of Quebec in March 2016 has signalled a cautious turn toward renewed investment in higher education. Increases to the grant and to tuition levels are modest, however, and revenue projections remain lower than they were a few years ago.

Institutional growth and technological and pedagogical innovation combine uneasily with our aging infrastructure, parts of which are in need of significant repair and restoration. To address this, the University has embarked upon a Deferred Maintenance and IT Renewal project that will span the next several years, with significant financial commitment through the issuance of up to $400 million in bonds between FY2016 and FY2019.

New competitive infrastructure programs announced by both the provincial and federal governments (separate from any operating support) offer the possibility of significant external support to expand and accelerate our own plans for infrastructure renewal. Between 2016-17 and 2018-19, the province will invest an additional $700 million, and the federal government, through its Strategic Investment Fund, has signalled a $2 billion investment in post- secondary infrastructure over the next three years. McGill will do its utmost to ensure that we are able to participate fully in these planned projects.

I am projecting manageable operating deficits of $2.7 million in FY2017 and $4.3 million in FY2018 followed with small, provisional, surpluses in FY2019 and FY2020.

Beginning this year, I am embarking on a multi-year commitment to review the University’s capacity for teaching and research on Indigenous interests and improve recruitment and retention of Indigenous faculty and students. A new School of Public Policy, slated for launch in 2017, a commitment of $2 million annually for five years to support research in sustainability science, and a possible major CFREF grant to support Neuroscience research (pending competition results anticipated this summer) are among our key academic priorities going forward. We will also place renewed emphasis on McGill’s international position with increased attention to international partnership opportunities and more opportunities for faculty and student mobility.

While the University does still have a financed operating deficit of approximately $100 million, which will need to be paid down over time, we are in a position of cautious financial stability. This relatively favourable position is the result in no small part to the difficult decisions taken by my predecessor, Prof. Anthony Masi, when faced with significant cuts to the provincial grant in 2012, and to the University community for adopting necessary cost-saving budget measures over the last several years. Our decision to meet head-on the difficult financial realities of the recent past has achieved its intended result. While we are certainly not out of the woods yet, we may well be about to turn an important corner. I thank everyone for their prudence and commitment to the well-being of our wonderful institution.

Christopher P. Manfredi
Provost and Vice-Principal (Academic)

McGill University 2016-17 Budget Highlights

McGill’s budget for Fiscal Year 2017 focuses on eight themes critical to the University’s operations:

  1. Slight increase in Quebec operating grants and significant infrastructure funding from both Quebec and Canada. As described below, the majority of any Quebec university’s operating budget is determined by provincial government policies related to operating grants and tuition fees. In its 2016 budget, the Government of Quebec signalled no further cuts to the higher education sector and to provide minimal increases to the operating grants allocated to its universities. At the same time, it committed to invest a significant amount, $620 million, for infrastructure upgrades over three years. In its own budget, the Government of Canada allocated $2 billion for higher education infrastructure projects over a similar timeframe. In total, approximately $1.2 billion in infrastructure funding should be available to Quebec universities and CEGEPs over the next three years.
     
  2. Enrolment forecasts. McGill is planning to increase its full-time equivalent (FTE) enrolment in government-regulated programs by 0.2% in FY 2017 and by 0.7% between FY 2016 and FY 2021, representing an increase of 213 FTEs. These projections are based on individual Faculty admissions targets established during fall 2015. For students in the few programs for which universities may set their own international student tuition fees, McGill plans to increase FTE enrolment by 4.2% in FY 2017 and by 8.3% over five years (133 FTEs).
     
  3. Academic renewal. McGill hired 69 tenure-stream professors in FY 2016, slightly more than planned, and is preparing to hire approximately 62-63 new professors per year going forward. Given that the University anticipates approximately 55 departures per year, the net increase in its tenure-stream complement is expected to be approximately 39 between FY 2017 and FY 2021. McGill’s long-term plan is to settle the complement at approximately 1,710 tenure-stream faculty members. To ensure that hiring is aligned with the University’s strategic objectives, McGill is introducing a Provostial complement in FY 2017, ensuring that hiring occurs in areas of strategic importance and that spousal hiring is simplified.
     
  4. Salary policy. McGill’s authorised salary policies, representing pay increases to academic and administrative/support staff, are budgeted at $21.4 million in FY 2017. This amount includes costs related to pensions and benefits.
     
  5. Deferred maintenance. A significant area of University expenditure over the next several years addresses the issue of deferred maintenance of physical and information technology infrastructure. During FY 2016, McGill embarked on a major initiative to borrow funds for investment in urgent and necessary renovations to its buildings and significant upgrades to its computer systems. The University conducted its first bond issuance, valued at $160 million, in early 2016. Subsequent bond issuances will bring the total amount borrowed to $400 million. In FY 2017, the expenses related to the bond issue are budgeted at $4 million. This amount is forecast to increase to $27 million by FY 2021 as larger amounts are borrowed. The full amount borrowed is expected to be repaid with interest over the course of 40 years. These investments are necessary for McGill to ensure that the University’s infrastructure can continue to support the core activities and new initiatives associated with a world-class university. These are not “behind-the-scenes” outlays, but significant investments in McGill’s teaching, laboratory and research space, as well as the IT systems that serve as the virtual backbone to much of campus life.
     
  6. Significant one-time and ongoing expenses. The University’s annual contribution to its pension shortfall is budgeted at $15 million, though this figure is expected to vary year-to-year as it is highly dependent on market conditions. Expenditures related to pay equity are budgeted at $2 million in FY 2017 and less than $1 million in FY 2018 and beyond.
     
  7. Budget measures. The measures enacted in FY 2016 to address the University’s annual deficit remain in place for the next several years, though they may be revisited in the event that governmental or other sources of revenue increase.
     
  8. Risk factors. The University’s five-year budgetary outlook is based on a set of assumptions:
  • No further cuts from the provincial government and no changes to the funding formula that are detrimental to McGill;
  • Interest rates remain low;
  • Currency exchange rates remain at or above $0.75 USD;
  • No significant changes to one-time payments (e.g., pension funds, pay equity);
  • No unplanned spend-down of carry-forwards;
  • Willingness and ability to effect the required budget measures.

In the event that any of these assumptions no longer holds, the impact on the University’s budget plan would be significant.

Understanding McGill's Budget

McGill University’s finances are structured into four funds: the operating fund, which covers the University’s day-to-day expenses, including salaries and benefits for faculty members and staff; the restricted fund, which covers money associated with research grants or philanthropic gifts (and cannot be used to cover general operating expenses); the endowment fund, which includes money derived from gifts to the University, though earnings from the endowment are recorded in the operating and restricted funds, as appropriate; and the capital fund, which includes money associated with buildings or renovations.

In total, in the fiscal year ending April 30, 2016, McGill University forecasted revenues of $1,225.8 million; it has budgeted $1,254.1 million for Fiscal Year 2017. Just under two-thirds of the University’s revenue comes in the form of operating funds, and these are controlled tightly by provincial government policy.

Breakdown of overall revenues for McGill's four funds

McGill's main funds

The bulk of McGill’s operating revenue is determined by student enrolment, which generates funding in two forms: (1) tuition/student fees, and (2) provincial operating grants. With a few exceptions, the amount of funding per enrolled student is strictly regulated by the provincial government. Quebec universities may only set tuition rates for certain students in programs specified by the government (e.g., some international students in a handful of disciplines). Given that enrolment patterns do not vary greatly from year to year the operating revenue that covers McGill’s academic and non-academic expenditures is largely constrained by provincial public policy.

Operating revenues financial year 2017 budget: 795.6 million dollars

Beyond government-regulated support, the University is expecting to generate 16.7% of its total revenue from the sales of goods and services (including residence rentals, parking, food services, etc.) in FY 2017. The remaining 5.6% of its operating revenues comes from federal government grants, investment and interest income, foreign exchange, and gifts and bequests.

University revenues are allocated via a consultative budgeting approach. Each major academic or administrative unit works with the Provost and Vice-Principal (Academic) to develop a budget agreement that captures its core activities and major new initiatives on a multi-year basis. The unit’s agreement, which documents revenues and expenditures across all of the unit’s funds (not just its operating fund), ensures alignment between an individual unit’s activity and McGill’s major strategic goals, as outlined in the Principal’s Priority Projects, the ASAP 2012 academic strategic plan and the Strategic Research Plan. The agreement articulates the operational and financial plans that the Faculty or unit is undertaking to achieve its objectives, and serves as the basis for the Financial Budget Model (FBM), which indicates the specific dollar amounts associated with the unit’s major areas of activity. Taken together, all the units’ financial budget models supply the information necessary to create the University’s budget.

The outcome of the budgeting process is captured in the budgeted academic and administrative expenses described below. Academic units, including the University’s Faculties, Schools and Libraries, account for 57% of all University operating expenditures. Salaries (60.2%) and benefits (9.2%) paid to academic and administrative/support staff account for the majority of the University’s operating expenditures. In FY 2017, the University has budgeted $29.1 million from its operating fund for student assistance.

 

Operating expenses financial year 2017 budget: 798.2 million dollars

Student assistance from operating fund

Operating budget, academic unit expenses, financial year 2017: 456.4 million dollars

Operating budget, administrative unit expenses, financial year 2017: 341.9 million dollars

Five-Year Outlook

McGill University finished Fiscal Year 2015 with a $2.3 million deficit. It has forecast a $4.5 million deficit for FY 2016 and is budgeting a $2.7 million deficit for FY 2017, the current fiscal year. The University’s five-year outlook includes a deficit of $4.3 million in FY 2018, followed by surpluses of $1.2 million and $1.5 million in FY 2019 and FY 2020, respectively, and a $1 million deficit in FY 2021. The total financed accumulated operating deficit (the University’s debt) stood at $100.8 million in FY 2015. It is budgeted to reach $108 million in FY 17 and is expected to be $110.6 million by FY 2021.

Surplus deficit forecast

Total financed accumulated deficit (debt)