One of the initiatives that did not receive funding was the operating costs for the Health Sciences building. That means the university must cover the estimated $3-million expense in its 2012-13 budget.
In addition, the university is facing a change in how the provincial government is financing capital projects like Health Sciences, explained Florizone. Instead of providing cash, the province has asked the university to secure debt to cover the cost, but has committed to pay principle and interest in 2012-13. While debt "is a legitimate tool to finance projects," Florizone pointed out it does affect the university's overall debt capacity. "You lose a little bit of flexibility, and if future opportunities come along, you might not have access to that debt capacity."
Fairbairn then explained how the provincial funding affects projections laid out in the multi-year budget framework that was approved along with the third integrated plan, which is entitled Promise and Potential. He pointed out the framework is a planning tool "that shows potential outcomes, and not our desired outcomes or intentions. It's about estimates and pressures, and not about exact numbers."
With the provincial grant, capital and initiative funding numbers plugged into the framework, there is a projected deficit of $12-15 million in 2012-13, and shortfall between expenses and revenue over the four-year planning cycle of $20-40 million per year by 2016 if no action is taken.
Detailing the specific financial pressures facing the university, Fairbairn said the lower than expected provincial grant reflects "a new environment for public funding of post-secondary education" where two per cent increases are the rule rather than the exception. He cited examples from the across the country of provinces reining in spending on universities and even reducing grants.
The reduction in provincial funding contributes to what Fairbairn termed "a potential mismatch and emerging mismatch" between revenues and the university's single largest operating expense—salaries and benefits. Those costs, he said, are expected to rise by more than four per cent in each year of the four-year planning cycle. That, combined with having to absorb operating costs for capital projects like Health Sciences, puts additional strain on the U of S budget.
"But spending on people, on our people and facilities, are strategic choices that we make. These aren't just things that happen to us. These are things that we have chosen to pursue because they're important to our plans and goals."
Another budget challenge relates to pensions. Fairbairn explained the university is required to ensure its pension plans remain solvent. To do that, it could be facing, "in the best case scenario," annual payments into the plans of $10 million per year for 10 years, and in the worst case, as much as $30 million annually over the next 10 years. This situation, he pointed out, is not a strategic choice but a legal obligation.
The final point Fairbairn made about budget pressures related to deferred maintenance, "the wear and tear on our facilities." The U of S has spent less than its peer institutions on infrastructure maintenance and renewal, he said, but strategic investment in key capital projects is necessary to attract students, faculty and researchers.
Having outlined the financial situation and pressures, Fairbairn said work will begin on developing an action plan to address the projected shortfall.
"We know that we need to narrow the gap between our revenue and expenditures while still supporting the priorities that we've identified as a university. We need to recognize we have limited scope to increase revenue and therefore will need to make budget adjustments of some kind in order to lower the expenditures we make as a university."
The institution has dealt with similar situations in the past and while those experiences are helpful to recall, "I also want to signal that we won't necessarily do exactly the same thing next time. It's clear in the context of what we know about the coming four years that focusing on our priorities more than ever is going to mean making choices." He said there will be an active effort to encourage faculty, staff and students to contribute ideas, suggestions and creative solutions for ensuring the long-term sustainability of the university budget.
"We're working on the best way to address the financial challenges the university faces and that best way is going to involve a collective effort and determination from all members of our university community."
Fairbairn said information about the university's financial position, including a video of the complete town hall presentation, is available online at www.usask.ca/finances. That site will be updated regularly as the budget adjustment plan takes shape. Ideas and suggestions can be submitted to firstname.lastname@example.org
The question and answer period following the financial town hall raised a number of issues and ideas.
Ajay Dalai, professor in chemical engineering, wondered where the university might focus its adjustment efforts in the 2012-13 budget.
Fairbairn responded that senior administrators will talk to the Board of Governors about strategies not for just 2012-13 but for the entire four years to achieve long term sustainability in the university budget. "I'm really open at this point to all sorts of ideas and suggestions."
A student asked if tuition will be affected, to which Fairbairn referenced the board policy that considers comparability, affordability and quality in setting tuition, but "I don't think we are in a position to say that there will be no impact on students, there will of course be changes of some kind, but at this point we don't know what those will be."
Dave Hannah, associate vice-president, student affairs, asked about the timing of adjustments for 2012-13. Fairbairn said that a few weeks are needed to put a plan together before acting.
Margret Asmuss, sustainability co-ordinator, suggested that optimizing energy and water efficiency may contribute to a long-term solution reduction in operating expenses. She also suggested giving employees the option of a shorter work week with reduced income but unchanged pension contributions.
Vice-President Finance and Resources Richard Florizone acknowledged that there is certainly more the U of S could do in the area of sustainability.
Peter Stoicheff, dean of arts and science, asked if the gap between the funding request and the province's response sends an implicit message to the U of S and the post-secondary education sector in the province.
"Obviously finances are tight in the public sector," said Fairbairn. "They are tighter in some places than others, but all governments are making adjustments (and) many governments are still prioritizing higher education relatively highly among their priorities."