Wilfrid Laurier University. Inspiring Lives of Leadership and Purpose. 2014/15 Budget. Board Approved. June 19, 2014 Board of Governors

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1 Wilfrid Laurier University Inspiring Lives of Leadership and Purpose 2014/15 Budget Board Approved June 19, 2014 Board of Governors

2 Wilfrid Laurier University 2014/15 Budget Table of Contents Part A Overview Foreward Executive Summary 3 4 Part B Part C Part D Operating Budget Context Financial Overview 2014/15 Financial Situation Setting the 2014/15 Targets Finalizing the 2014/15 Operating Budget Table B1: 2014/15 Budget By Revenue & Expense Type Table B2: 2014/15 Budget By Responsibility Centre Commentary to 2014/15 Budget by Expense Investments and Anticipated Commitments Table B3: Investments and Anticipated Commitments Budget Targets Multi-Year Operating Budget Model Table B4: Multi-Year Operating Budget Model Capital Plan Overview Table C1: 2014/15 Real Estate Fund Table C2: 3 Year Forecast of Inflows/Outflows Ancillary Budget Summary Table D1: 3 Year Ancillary Fund Projected Budget Summary Table D2: 3 Year Ancillary Fund Projected Budget Detail * Appendix I Acronyms used in Budget Document 46 Legal Disclaimer This Budget Brief is a publicly available document and was not prepared to assist prospective purchasers in making investment decisions regarding any distribution of securities of Wilfrid Laurier University (the University ) under the Securities Act (Ontario). This Budget Brief contains certain forward-looking statements and information from the University relating, but not limited, to its operations, anticipated financial performance, prospects and strategies. The financial results or events predicted in these statements may differ materially from those expressed in the Budget Brief. The University s budget and related information as set out in the Budget Brief are subject to numerous assumptions, inherent risks and uncertainties that could significantly affect anticipated results in the future. The University undertakes no obligation to update, or otherwise revise, the information in the Budget Brief, whether as a result of new information, future events or otherwise. Page 2 of 46

3 Part A Overview Foreward Wilfrid Laurier University 2014/15 Budget The Board of Governors are presented with the annual budget report to approve at the June meeting. Budget forecasts and information regarding the 2014/15 budget have been presented to the Finance and Investment Committee throughout the past fiscal year. This final 2014/15 budget has been prepared based on the best available assumptions concerning revenues and expenditures at this time. As changes in revenue and expenditure drivers occur during the year, updated projections will be presented to the Board of Governors regularly throughout the fiscal year. Prior to the Board of Governors receiving this final budget, the draft budget was presented to the Finance and Investment Committee at their May 27, 2014 meeting which provided the opportunity to review and comment prior to the information being presented in this report. In addition, the draft budget was presented to the Senate Finance Committee on May 26, 2014 and to Senate on May 28, At the Senate meeting, the motion from Senate Finance Committee that Senate recommend the 2014/15 budget for approval by the Board of Governors was passed. Fee information, which is part of the assumptions included in this 2014/15 budget report, has * been included in separate 2014/15 Fee Reports (Part 1 & 2) and presented to the Board of Governors for approval at the April and June meetings respectively. This 2014/15 budget report is prepared annually and in a format consistent with previous years in order to enhance comparability. Included is detailed financial information along with various commentary and analysis. The following information is presented in this report and the expected actions by the Board of Governors: Operating Budget 2014/15 Approval Multi-year operating budget model Information Capital Plan Deferred Maintenance (included in operating budget) Major Equipment Renewal (included in operating budget) Major Capital (separately approved) Real Estate (separately approved) Ancillary Budget Information Approval Questions or further information regarding this report may be directed to the Vice-President, Finance and Administration, Assistant Vice-President, Financial Resources, or the Director, Budgets and Business Office. Page 3 of 46

4 Executive Summary Operating Budget The University is able to present a break-even Operating Budget for 2014/15. The 2014/15 Operating Budget (as presented in Table B1) forecasts that total revenues will be $260,945,000 which is an increase of $8,758,000 or 3% over the previous year. The largest increase in revenue is tuition of $6,671,000 from the rate increases allowed under the tuition framework; and expected increases in international enrolment activity. Total expenditures will be $266,960,000 which is an increase of $7,648,000 or 3% over the previous year. The increase to salary and benefits amounts to $9,124,000 or 5%; departmental expenses decreased by a net of $406,000 or 1% and central expense budgets decreased overall by $1,069,000 or 5%. The improvement of $1,111,000 of excess revenues over expenditures has contributed to reducing the annual structural deficit from the 2013/14 level of $7,126,000 to $6,015,000 for 2014/15. These final results include the 2% target of $4,505,000. The remaining $6,015,000 deficit will be covered with expected appropriations from 2013/14. The ability to maintain a balanced operating position will continue to be a challenge in the foreseeable future. The budget pressures arise from a number of key budget drivers. On the revenue side growth is expected to be constrained by government policy, the current tuition framework and an ever-increasing competitive recruitment environment. With the 3% cap on annual tuition revenue increases for publicly funded programs it has reduced projected revenue streams in the future. The province has also reduced all university base operating grants * by 1% for two consecutive years in addition to implementing an international student recovery fee that claws back a portion of grants related to this group of students. Without any additional government funding and the province s own budgetary challenges, this constrains universities abilities to grow revenues and manage cost pressures. The ability to increase revenues from enrolment has become increasingly challenging given the competitive student recruitment environment as the university-aged population in Ontario has reached a plateau. Laurier and the sector have experienced annual increases in domestic enrolment. A steady decline in undergraduate applications has occurred across the system but the decline for Laurier is trending above the average, especially as it relates to first choice applications. Softening of enrolment projections are likely in the next few years but strategies are being employed to address this decline and hopefully reverse the downward trend. The financial implications of an enrolment decline and the budgeting strategies are further explored in this report. On the expenditure side, the major pressures are from salary and benefits arising from commitments to labour agreements, salary increases and pension benefits. As well, significant pension contributions are required to fund the going concern deficit. Expenditure management will need to be carefully monitored over the future years as agreements with faculty and support staff come up for renewal and as pension funding and deferred maintenance requirements are likely to increase in coming years. After dealing with these major cost pressures, there is little available to address on-going inflationary costs, mission critical projects and maintaining the Page 4 of 46

5 quality of research and teaching for our students. However, each year some funds have to be identified to deal with these cost pressures. The multi-year budget model indicates the continued need to address a structural deficit. The ability to balance the budget in 2015/16 and subsequent years will need to come from targets that include additional revenues or savings achieved from cost containment strategies, reductions or efficiencies. The Integrated Planning and Resource Management (IPRM) program prioritization currently underway, in conjunction with a new budget model, is expected to be completed during fiscal 2014/15. The program prioritization and the budget model will assist in aligning the university s budget with the strategic priorities of the institution and will entail the explicit setting of both Academic and Administrative priorities. Also, as part of the IPRM process, is a Resource Management committee mandated with the responsibility to recommend a new budget model and a more efficient resource allocation process that best fits Laurier s needs. The IPRM program is not a cost cutting exercise but the development of a framework to ensure that the university is resourcing strategic priorities appropriately and measures how well we are achieving our priorities. Capital Plan Capital spending can incorporate various types of expenditures such as construction projects, repairs and maintenance, property and building acquisitions, and various equipment purchases. Most equipment purchases are covered centrally and within departmental base budgets. Given that deferred maintenance is a cost that will continue to escalate; an additional $1 million will be added to the base budget each and every year until an adequate annual reserve is achieved which is currently estimated at around $7.5 million going * forward. The real estate portfolio is actively under development with regular updates brought forward to the Building and Properties Committee for consideration. All real estate acquisitions and leases are reviewed and approved for funding/financing separately. A task force including Board members is actively evaluating an arm s-length trust structure to hold the real estate assets and related debt. The 3-year capital plan includes projects that have been shared with the Board of Governors through the Building and Properties Committee. The inclusion of this capital plan is provided only for information, as specific major construction projects are approved on a project-by-project basis in accordance with the Board of Governor s approval process. The 3-year plan is summarized by those projects approved and under construction; approved but pre-design; and those pending approval that are conceptual or in the planning phase. The approved projects (e.g. Global Innovation Exchange and the joint YMCA-Laurier facility in Brantford) totals $180,451,000 of which $53,051,000 is expected spending in 2014/15. With the funding inflows of $33,666,000, the net cash outflow of $18,385,000 will be covered with the long-term debt financing that has been secured during 2012/13. The conceptual projects (e.g. Science Building, Faculty of Music and Learning Commons) are estimated at $280,000,000 but will not proceed until funding is secured and the projects are approved by the Board of Governors. Page 5 of 46

6 In addition to the above noted capital plan, Laurier continues to emphasize its desire to develop a new campus in Milton, Ontario, to serve the large suburban GTA student population. In March 2014, the Province released guidelines for a call for proposals for major capacity expansion in the postsecondary education sector. A Notice of Intent was filed by Laurier with the full proposal to follow in September. Ancillary Budget The revenue for the ancillary operations is estimated to decrease from $43.9 million to $40.9 million and the net surplus before appropriations will decrease from $1.2 million in 2013/14 to $810,000 in 2014/15. This is largely due to the change in the Bookstore revenue/expenses and the removal of Laurier Place from our operations. Individually all of the ancillaries are forecasted to be completely self-sustaining over the entire three year forecast with positive results forecasted for each reserve fund. The ancillary area that will continue to have a significant negative reserve is Food Services, with a new contract designed to reduce that consistently on an annual basis. The surplus still allows for an annual contribution to university operations of $520,000 as well as $230,000 contributions to reserves for residence capital improvements in Waterloo and Brantford. Ancillary operations (particularly residence, bookstore and food services) will be impacted by any enrolment decline. Action plans are in development as mitigating strategies. * Page 6 of 46

7 Part B - Operating Budget Context The operating budget comprises the major annual revenues and expenditures of the university s financial operations. Revenues from student tuition and fees and government operating grants account for over 90% of the total operating revenues. Similarly, faculty and staff salaries and benefits account for almost 80% of the total operating expenditures. The operating budget does not include those financial activities that are not available for general operating purposes such as direct sponsored research, trust and endowments and government grants for major capital projects. These financial activities are consolidated and presented annually in the audited financial statements. Forecasts and information regarding the 2014/15 budget has been presented to the Finance & Investment Committee, Senate Finance and the Board of Governors throughout the past fiscal year. Budget updates based on changes in the key drivers that impact the budget projections have been presented at the October 2013, January and March 2014 Finance and Investment Committee meetings. As well, Senate Finance has received the same updates at their November 2013, February and April 2014 meetings. Furthermore a Town Hall presentation on Laurier s Financial Future was provided to the university community in January 2014 at both the Brantford and Waterloo campuses. * Financial Overview The development of projections for the operating budget is informed by key budget drivers. The key drivers impacting the tuition revenue budget include the government s policy on the tuition rate framework, the university s enrolment plan and projections. Operating grants are impacted by government policy and announcements through the provincial budget. The key drivers impacting the salary rate expenditures are influenced by government policy, expectations and negotiated settlements through the collective bargaining process. Another key expenditure driver are the assumptions and expectations of the actuarial pension plan obligations both in terms of going concern deficiency payments and annual current service costs. Further, a key driver is the annual investments that are needed to support strategic initiatives, inflationary costs, regulatory requirements and other growth and quality requirements. As part of the January 2014 Town Hall presentation, these key budget drivers were projected over the next five years based on bestestimate assumptions and no cost-reduction action taken. Assuming the current situation continues, the trajectory of revenues and expenses indicates that the shortfall between revenues and expenses continues to widen over the foreseeable future which is not financial sustainable for the university. Therefore, action needed to be taken in 2014/15. The following chart displays the impact as presented in the Town Hall Presentations with updates to reflect the 2014/15 results: Page 7 of 46

8 2014/15 Financial Situation In June 2013, the 2014/15 spring forecast was first presented in the annual budget report as part of the 3-year operating budget model. At that time, the in-year deficit was projected at just over * $9 million. After utilizing the estimated available surplus from 2013/14, budget cuts were estimated at $7.5 million or 3.3%. In November 2013, after an update of various operating revenues and expenditure pressures, pension plan obligations and deferred maintenance requirements, the projected in-year deficit rose to $11.5 million and the budget cuts climbed to almost 4%. The 2013/14 was updated to include all best possible assumptions that could assist with balancing 2014/15 before any target reductions. The projections for the next few years indicate a growing structural deficit and the annual targets including those if no action is taken. The following chart displays this financial information: Page 8 of 46

9 Setting the 2014/15 Targets A number of options were considered to address the 2014/15 structural deficit and the target required. The following summarizes the main options and the recommended target for 2014/15: 0% Target Delay addressing deficit until after IPRM process is complete Use global appropriations and departmental carry-forwards to balance One-year solution; annual targets will be much larger in 2015/16 and beyond 4% Target Serious implications as it places the University under severe stress Limited time to make structural and sustained changes Decisions not informed by strategic information (e.g. IPRM process) 2% Target - RECOMMENDATION Build-in more liberal budget assumptions (e.g. full undergraduate grant funding and central savings resulting from departmental spending efficiencies). Assumptions add higher risk to forecast process. Allows time for decisions to be informed by strategic information (e.g. IPRM process) With the target being set, guiding principles were developed that would assist in determining and communicating target expectations. The following Target Guiding Principles were approved on February 12, 2014 by Senior Administration: * The target required for 2014/15 is $4,505,000. The target will be allocated to the President and Vice-Presidents. The target percentage is 2% based on departmental budgets. The dollar amount of the target will be determined based on 2% of the 2013/14 base budget (as of January 30, 2014). The President and Vice-Presidents can achieve their target within their unit strategically or as an across- the- board (ATB) cut or a combination thereof. Target can be achieved through base expenditure reductions or on-going revenue enhancements. Ancillary and other for-profit programs will be asked to achieve a 2% target based on the contribution that is currently made to the 2013/14 operating budget. Targets submitted in excess of 2% will be considered by the President and the Vice- Presidents toward future year targets. One-time funds (e.g. departmental carry forwards) can be utilized to bridge to permanent base budget changes that will occur in later years. Expenditure cuts need to be carefully monitored to ensure existing revenues are not adversely impacted. Target strategies that have a net new revenue impact to the university will be considered. All targets are to be approved by the President and the Vice-Presidents and ultimately approved by the Board of Governors. Approved commitments that have previously been approved by President s Group and/or the Board of Governors will be added to departmental budgets in 2014/15. Page 9 of 46

10 Finalizing the 2014/15 Operating Budget A number of assumptions were included in building the 2014/15 budget model and these same assumptions have been confirmed and remain in finalizing the 2014/15 operating budget. The commentary following Table B2 provides a detailed review of the major revenues and expenditures and the key drivers influencing the assumptions in the 2014/15 budget forecast. The following chart visually shows the impact of the key budget pressures on the 2014/15 budget deficit: Key Revenue Budget Drivers & Assumptions Provincial Operating Grants The following summarizes the best assumptions regarding the government operating grants: 1% decrease in provincial base operating grant for two consecutive years as announced in the provincial budget. This has had the compounding impact of reducing base revenues by a further $1 million, after a reduction of $1 million in 2013/14. The reduction has affected all universities and is a result of the government s efficiency targets. Full average funding of undergraduate students. For 2014/15, this assumption is that the province will provide enough funding to accommodate the growth in the entire system which has been the government s practice. This is a shift from prior year budget assumptions for Laurier as discounting has always been assumed until final system-wide enrolments were confirmed. This new assumption has had the impact of increasing base revenues by about $850,000 in 2013/14 and a further $300,000 in 2014/15. Graduate funding for both the PhD and Masters targets are assumed based on the space allocation re-set by the government as requested by Laurier during 2013/14. This re-set resulted in unmet Masters targets being added to PhDs which were over target. This had a positive impact on our expected graduate enrolment funding by about $400,000 for both 2013/14 and 2014/15. Page 10 of 46

11 Tuition Framework The current tuition framework came into effect for 2013/14 and will be in place for the next 3 years. It caps all universities at an average 3% overall tuition revenue increase. 2014/15 tuition rates have been set to ensure that the maximum 3% requirement is achieved. Under the previous tuition framework (cap set at 5%) and the mix of Laurier programs, an average increase of approximately 4.5% was achieved. Previous multi-year projections would have included this revenue growth and so the financial impact has been to reduce base revenues by about $1.5 million starting in 2013/14 and compounding in each subsequent year. Enrolment Projections Projections for budget purposes are virtually unchanged for domestic undergraduate and graduate enrolments over 2013/14. Some moderate increases are planned at the Brantford campus and in specific programs (e.g. Bachelor of Social work). Most of the growth is expected from international students. Overall, total tuition revenue projections are relatively conservative to the 2013/14 actual level, so we are maintaining this assumption for budget projections. However, at the time of writing, we are aware that the June 2014 confirmations are down by 442 from target which would translate to a drop of 400 FTEs by the November 1 count date. There are a number of various efforts and enrolment strategies currently underway intended to mitigate this loss and could result in additional confirmations by September. However, a drop of 400 undergraduate FTE is material and would mean a reduction to tuition revenue of $2,200,000 and the undergraduate accessibility grant of $990,000 for a total decrease in revenue of $3,190,000. In addition, a 40% drop in MBA enrolment from 2013 actual is currently estimated. With the government s 2013/14 reset * of our funded MBA and PhD targets, our grant will be minimally impacted (about $80,000 decrease) as we are over on the PhD. So the primary impact will be a decrease to graduate tuition by $450,000. If these reductions did occur without other increases to enrolment (e.g. better than expected upper year retention) or additional confirmations by September, this would require a mid-year adjustment of about $3,700,000. The operating budget has limited flexibility and a mid-year budget cut is not currently feasible given the budget reductions already planned for 2015/16. As a result, a number of revenue and expenditure budgets have now been identified that would be adjusted if this outcome happens. They are as follows: Conservative Revenue budgets: (13/14 year end final enrolment increases not built into base budget) Tuition revenue $750,000 Undergraduate grant 750,000 Expenditures variable to enrolment: Reduction to student faculty ratio provision 300,000 Merit scholarships/fellowships 400,000 Delayed commitments on global budgets: Salary related 400,000 Non-salary related 500,000 Global contingencies 600,000 Total $3,700,000 Page 11 of 46

12 Key Expenditure Budget Drivers & Assumptions Salary and Benefits The salary and benefit assumptions assume that increases will continue, on average, as per previous years experience. This assumption is not financially sustainable given current revenue projections. These inflationary rates (on an expenditure budget representing 80% of total operating costs) outpace annual revenue increases. At this time, the previous years experience is the estimated assumption, subject to negotiations currently underway with WLUSA/OSSTF and upcoming negotiations with WLUFA. Pension Plan Obligations Projections include the results of the December 31, 2012 valuation which had a going-concern shortfall of $86.2 million and a solvency shortfall of $76.5 million and related expectations on the pension deficiency payment and the current service costs. Pension costs continue to be a major cost driver to the university s expenses as they represent 12.5% of personnel costs and 10% of the total operating costs. Pension payments for 2014/15 will be $26.1 million which is an increase over 2013/14 of $3.4 million or a 15% increase. The annual special payment is $9.3 million to address the Plan deficit. With the approval for entering Stage 2 Broader Public Sector Funding Relief, this special payment is based on a 10 year amortization of solvency deficit versus the previous 5 year requirement. As allowed with the fall 2013 additional pension relief measures the next valuation will be filed in three years or December 31, The new mortality tables will be recognized with the 2015 valuation and are expected to have a significant impact in increasing the Plan liabilities and shortfalls and this is factored into the 2015/16 and future year s assumptions. * Deferred Maintenance Deferred maintenance expenditures for all universities continue to be a major challenge as buildings and the infrastructure continue to deteriorate. The amount of annual funding through the government is less than $500,000 annually. With the latest provincial budget this is expected to increase in 2015/16 but until the result of the provincial election is known this is uncertain. Regardless, the amount needed for deferred maintenance projects far exceeds the current allocation and so universities are left to manage this major expenditure through debt, annual operating budget allocations and/or accumulated reserves. Given that deferred maintenance is a cost that will continue to escalate; an additional $1 million will be added to the base budget each and every year until an adequate annual reserve is achieved which is currently estimated at around $7.5 million. With this additional $1 million, the 2014/15 operating budget is now at $2.4 million. Page 12 of 46

13 2013/14 Anticipated Year End Surplus The appropriations from 2013/14 in the amount of $6,015,000 are required to assist in balancing 2014/15. As reported in the 2013/14 Budget to Actual reports throughout the year, this has increased by $4,260,000 from the original approved budget of $1,755,000 due to the following: Original 2012/13 year end surplus $1,755,000 Improved 2012/13 year end results 900,000 2,655,000 Additional Assumptions: Full funding for undergraduate enrolment 860,000 Under spending of departmental budgets 2,500,000 $6,015, /15 Summary Financial Information The 2014/15 Operating Budget presented in this report is consistent with the forecasts presented to the Finance & Investment Committee in March In summary, total revenues are expected to increase by $8.8 million or 3%. Total expenses are expected to increase by $7.6 million or 3% after $4.5 million of budget cuts. This improvement of $1.1 million of excess revenues over expenditures has contributed to reducing the annual structural deficit from the 2013/14 level of $7.1 million to $6 million for 2014/15. The following chart summarizes the high level overview of the final 2014/15 budget as compared to the previous two years (in 000 s): The 2014/15 operating budget detailed information is presented in the following several pages as follows: Table B1 summarizes the operating budget in detail, by major revenue and expense type. The 2014/15 budget is compared to the 2013/14 budget noting the major changes year-overyear. Further, the impact of the budget targets is highlighted separately. Table B2 summarizes the operating budget by the President and the Vice-Presidents responsibility centres. The 2014/15 budget is compared to the 2013/14 adjusted budget noting the major changes year-over-year. Page 13 of 46

14 Table B1 2014/15 Budget by Revenue & Expense Type In $000 s Original Budget Adjusted Budget Budget 2013/ /2015 Targets 2014/2015 Change % Chg Revenue Tuition Fees 131, , ,742 6,671 5% Government Grants 104, , ,460 (478) (0%) Other Income & Fees 16,177 18, ,743 2,566 16% Revenue Total 252, , ,945 8,758 3% Salary & Benefit Expenses Full/Part Time Faculty Costs 90,550 96,004 (1,082) 94,922 4,373 5% Full/Part Time Staff Costs 58,853 62,363 (790) 61,573 2,720 5% Statutory & Fringe Benefits 31,552 32,074 (269) 31, % Pension Plan Deficiency 8,083 9,270 9,270 1,187 15% Retirees, Maternity, Tuition Exemptions 4,422 4,263 4,263 (159) (4%) Post Employment - Non Cash 5,250 6,000 6, % Salary & Benefit Expenses Total 198, ,974 (2,141) 207,833 9,124 5% Departmental Expenses Equipment 3,269 3,903 (113) 3, % Library Acquisitions 3,094 3,241 3, % Scholarships & Bursaries 12,818 13,317 13, % Travel Expenses 2,424 2,448 (59) 2,389 (35) (1%) Facility Rentals 1,961 2,271 (10) 2, % Supplies & General Expense 16,756 16,056 (1,137) 14,919 (1,837) (11%) * Departmental Expenses Total 40,322 41,235 (1,319) 39,916 (406) (1%) Central Expenses Debt Service 4,176 4,176 (72) 4,104 (72) (2%) Capital and Deferred Maintenance 3,675 4,702 (35) 4, % Equipment Renewal 2,405 2,685 2, % Utilities, Insurance & Taxes 6,143 6,289 6, % Other Committed 3,882 2,134 (668) 1,466 (2,416) Central Expenses Total 20,280 19,986 (775) 19,211 (1,069) (5%) Expense Total 259, ,195 (4,235) 266,960 7,648 3% (Deficit)/Surplus before Appropriations (7,126) (10,520) 4,505 (6,015) 1,111 Appropriations Operating Budget Year end 8,881 6,015 6,015 Appropriations 8,881 6, ,015 Surplus/(Deficit) 1,755 (4,505) 4,505 0 Page 14 of 46

15 Table B2 2014/15 Budget by Responsibility Centre In $000 s Original Budget Adjusted Budget Final Budget 2013/ /2015 Targets 2014/2015 Change % Chg Revenue Revenue - Central 237, , ,982 10,152 4% Revenue - Departmental (included in Resp. Centres) 14,356 12, ,963 (1,394) Revenue Total 252, , ,945 8,758 3% President President's Area 1,213 1,201 (23) 1,178 (35) (3%) Secretariat (13) % University Relations 1,035 1,049 (17) 1,032 (3) (0%) Institutional Analysis (14) 672 (3) (0%) CPAM 2,151 2,511 (43) 2, % SEO - Brantford (9) % President - Total 6,156 6,814 (119) 6, % VP Academic Faculty of Arts 33,457 34,120 (669) 33,451 (6) (0%) Faculty of Business and Economics 28,315 29,025 (560) 28, % Faculty of Education 1,914 1,909 (40) 1,869 (45) (2%) Faculty of Graduate Studies 6,382 6,424 (18) 6, % Faculty of Human Social Sciences 4,678 4,881 (49) 4, % Faculty of Liberal Arts 6,852 6,919 (136) 6,783 (69) (1%) Faculty of Music 6,740 6,784 (135) 6,649 (91) (1%) Faculty of Science 24,388 24,763 (488) 24,275 (112) (0%) Faculty of Social Work 5,584 5,837 (112) 5, % Library 9,736 10,144 (195) 9, % Information Technology 7,715 8,288 (136) 8, % Laurier International 1,165 1,441 (33) 1, % Recruitment & Admissions 1,941 2,297 (51) 2, % Registrar & Academic Services 14,400 15,418 (73) 15, % Brantford Foundations 207 * 357 (50) % Teaching & Learning 6,214 6,311 (103) 6,208 (7) (0%) Aboriginal Initiatives (4) % VP - Academic 7,578 7,766 (102) 7, % VP Academic Total 167, ,919 (2,954) 169,965 2,473 1% VP Development and Alumni Relations VP University Advancement 4,048 4,033 (81) 3,952 (97) (2%) VP Development and Alumni Relations Total 4,048 4,033 (81) 3,952 (97) (2%) VP Finance & Administration Physical Plant and Planning 7,962 8,544 (175) 8, % Mechanical Maintenance 3,424 3,601 (15) 3, % Financial Resources 2,889 2,894 (58) 2,836 (53) (2%) Human Resources 2,259 2,369 (44) 2, % Special Constable & Campus Operations 2,493 2,480 (50) 2,430 (63) (3%) Administration & Internal Audit 1,350 1,494 (37) 1, % VP - Fin & Admin 996 1,061 (20) 1, % Health & Safety (17) % VP Finance & Administration Total 22,213 23,301 (416) 22, % VP Research Research 1,559 1,661 (39) 1, % WLU Press (102) (25%) VP Research Total 1,968 1,969 (39) 1,930 (38) (2%) VP Student Affairs Athletics & Recreation 2,706 2,817 (25) 2, % Student Services 7,882 7,983 (101) 7,882 0 (0%) VP Student Affairs Total 10,587 10,800 (126) 10, % Total Responsibility Centre Expenses 212, ,836 (3,735) 216,101 3,636 2% Central Expenses Benefits - Early Retirement 1,275 1,075 1,075 (200) (16%) Benefits - Retirees, Maternity, Tuition 3,149 3,184 3, % Benefits - Post Employment - Non Cash 5,250 6,000 6, % Benefits - Other Expenses % Institutional Expenses 22,368 27,448 (668) 26,780 4,413 20% Central Expenses Total 32,492 38,564 (668) 37,896 5,405 17% Total Expenses including Departmental Revenue 259, ,195 (4,235) 266,960 7,648 3% (Deficit)/Surplus before Appropriations & Transfers (7,126) (10,520) 4,505 (6,015) 1,111 Appropriations 8,881 6,015 6,015 Surplus/(Deficit) 1,755 (4,505) 4,505 0 Page 15 of 46

16 Commentary to 2014/15 Budget by Expense (Table B1) This section will provide commentary to Table B1, highlighting the major variances to revenues and expenditures and the key drivers influencing the assumptions in the 2014/15 budget forecast. The comparison of 2014/15 is to the approved 2013/14 approved budget. Revenue Increase of $8.8 million The tuition fee increases continue to be a major component of the total revenues as well as the only major source of revenue growth. The follow chart depicts that tuition revenue has grown steadily over the past six years. Undergraduate domestic revenue has increased by 63%; Undergraduate international revenue increased by 412% with the greatest growth deriving from the last three years; and Graduate revenue has increased by 65%. * Tuition Fees Increase of $6.7 million Total tuition revenues for 2014/15 are expected to be $137,742,000 which is an increase of $6,671,000 or 5% comprising of the following major components: Tuition Revenue (in 000 s) 2013/ /15 Change Undergraduate 114, ,650 7,500 Graduate 10,800 11, LEAF - Undergraduate 2,580 2, LEAF Pre MBA Toronto MBA 3,300 2, Exemptions/Cross Registration Total 131, ,742 6,671 Page 16 of 46

17 The increase of $6.7 million is explained by two major factors, i) the rate increases from the government s tuition framework and ii) the expected changes in enrolment and tuition activity in 2014/15. i. Tuition Rate Increase of $3.8 million The government s tuition policy that was announced on March 28, 2013 provided for an overall cap of 3% on annual tuition fee increases for the next four years. Within the tuition framework, the maximum increases for graduate and professional undergraduate programs are 5% and 4% for students continuing from 2012/13. The tuition rates have been set to ensure that the maximum 3% requirement is achieved and are outlined in the 2014/15 Fee Report Part 1 submitted to the Finance & Investment Committee and approved by the Board of Governors in April. The 3% average increase on base tuition revenue of about $125 million will generate approximately $3.8 million. ii. Activity Changes Net increase of $2.9 million Projections are virtually unchanged for domestic undergraduate and graduate enrolments over 2013/14. Some moderate increases are planned at the Brantford campus and in specific programs (e.g. Bachelor of Social work). Most of the growth, estimated at $3.2 million, is expected from international students. Overall, total tuition revenue projections are relatively conservative to the 2013/14 actual level so, we are maintaining this assumption at this time. The financial impact of the potential softening of enrolment applications is explored in the following section. This graph shows the FTE enrolment from 2008/09 to 2014/15 including undergraduate domestic, undergraduate international and graduate. As enrolment has increased over the six years for all enrolment categories, undergraduate international enrolment has increased from 2% to 4% of total enrolment. Page 17 of 46

18 Enrolment Projections The largest key driver in tuition revenue is the enrolment projections for domestic and visa undergraduate and graduate students. The two main assumptions in projecting undergraduate enrolment include intake targets in year 1 and the flow through (retention) of current students as they move through the upper years. Obviously, the impact of retention on enrolment projections can be difficult to predict. When building the original projections for 2014/15, the budget was virtually unchanged for domestic undergraduate and graduate enrolments over the 2013/14 level. Some moderate increases are still planned at the Brantford campus and in specific programs (e.g. Bachelor of Social work) but most of the growth is expected from international students. However, at the time of writing this report, we are aware that the June 2014 confirmations are down by 442 from target which would translate to a drop of 400 FTEs by the November 1 count date. There are a number of various efforts and enrolment strategies currently underway intended to mitigate this loss and could result in additional confirmations by September. However, a drop of 400 undergraduate FTE is material and would mean a reduction to tuition revenue of $2,200,000 and the undergraduate accessibility grant of $990,000 for a total decrease in revenue of $3,190,000. In addition, a 40% drop in MBA enrolment from 2013 actual is currently estimated. With the government s 2013/14 reset of our funded MBA and PhD targets, our grant will be minimally impacted (about $80,000 decrease) as we are over on the PhD. So the primary impact will be a decrease to graduate tuition by $450,000. If these reductions did occur without other increases to enrolment (e.g. better than expected upper year retention) or additional confirmations by September, this would require a mid-year adjustment of about $3,700,000. The operating budget has limited flexibility and a mid-year budget cut is not currently feasible given the budget reductions already planned for 2015/16. As a result, a number of revenue and expenditure budgets have now been identified that would be adjusted if this outcome happens. They are as follows: Conservative Revenue budgets: (13/14 year end final enrolment increases not built into base budget) Tuition revenue $750,000 Undergraduate grant 750,000 Expenditures variable to enrolment: Reduction to student faculty ratio provision 300,000 Merit scholarships/fellowships 400,000 Delayed commitments on global budgets: Salary related 400,000 Non-salary related 500,000 Global contingencies 600,000 Total $3,700,000. Page 18 of 46

19 The basis of the enrolment projections begins with the projected head count enrolment. In order to estimate tuition, the head count enrolments are translated into FFTEs (fiscal full-time equivalents). The following chart shows the change in fall full-time head count by both first year intake as well as total enrolment since 2011 that have been factored into the tuition revenue projections for i) Undergraduate Students: This graph shows the first year undergraduate intake for both domestic and international students. As first year intake has increased over the six years for both domestic and international students, UG international has increased from 1% to 6% of the 1 st year undergraduate intake total Page 19 of 46

20 The following graphs visually show the composition of the full-time head count for both first year intake and total enrolment originally projected for This information is displayed by campus; type of student and academic faculty. Page 20 of 46

21 ii) Graduate Students: The main assumption in projecting graduate enrolment include new entering and continuing students in the various program levels. The chart below shows the change in fall full-time head count by program category. Government Grants Decrease of $0.5 million Total grant revenues for 2014/15 are expected to be $104,460,000 which is a net decrease of $478,000 with the following major components: Government Grants (in 000 s) 2013/ /15 Change Basic Operating Grant 87,000 87,000 0 U/G Accessibility 8,670 9,675 1,005 㓰 Grad Accessibility 2,500 2, Quality Grant 4,200 4,200 0 Efficiency Reduction and ISR ,454-1,472 Other Grants 3,550 3, Total 104, , The changes in government grants are influenced by the provincial budget. In the 2012 provincial budget a number of policy drivers were included that would see base operating grants reduced by $750 per International Student (non PhD) or in total by about $200,000 as well as Efficiency Targets or base grant reductions of about 1%. These policy drivers were reconfirmed in the 2013 provincial budget announced on May 2, It was the expectation of MTCU that the International Student Recovery (ISR) would be recovered through increased tuition fees to international students and this has been accomplished in setting the 2014/15 tuition rates. The efficiency targets approximate about 1% of the base operating grants and will result in $1 million less funding in 2013/14 as well as a further 1% decrease in 2014/15 with a compounding $2 million impact. The government continues to be able to fund undergraduate enrolment growth for the sector albeit, not in base but in one-time only. However, there is no guarantee or commitment by the government that full funding for the sector will continue. Annually MTCU waits to confirm the sector growth to their funding available to determine if full funding or discounting will occur. In Page 21 of 46

22 past budget assumptions the uncertainty of government funding resulted in discounting. For 2014/15 we are assuming full average funding. This is a shift from prior year budget assumptions for Laurier as discounting has always been assumed until final system-wide enrolments were confirmed. This new assumption has had the impact of increasing base revenues by about $850,000 in 2013/14 and a further $300,000 in 2014/15. Grant funding for undergraduate students is based on a weighted enrolment measure called the Basic Income Unit (or BIU). Academic programs are assigned specific BIU weights which, when multiplied with enrolments, generate a total BIU count for the institution. Continuing enrolments growth in academic programs with higher BIU weights has resulted in increased BIU counts. The following graph illustrates how operating grant funding, based on actual BIU counts, has increased since relative to the BIU count calculated using the average BIU weight in The increase in actual BIU counts has generated an additional $5.3 million over this period. 㓰 Other Income & Fees Increase of $2.5 million This category includes other general fees and program revenues such as transcript fees, coop/internship fees, application fees, athletic, financing income, student interest, and teaching support services. New this year is the inclusion of the treatment of contributions from a few ancillary and other revenue generating areas. In the past, these were treated as appropriations, but this year they are being treated as other income. Changes in these budgets can fluctuate, by their nature, but many increases are due to adjusting the budget to previous year actual experience. Consistent with other revenue assumptions we have built in this expected revenue now which will result in less variances at the end of the fiscal year. This was the case with the CSS (Comprehensive Student Services) fee where the actual revenues were distributed in accordance with the agreement to support expenses however; a variance existed on the revenue budget. This is simply a budget correction and will not result in additional spending as the Page 22 of 46

23 expenditure budgets were built on actual fees not the revenue budget. In sum, the other income and fees increase of $2,600,000 over 2013/14 budget is accounted for as follows (in millions): Student Fees (CSS/Co-op/Other) $1.2 Revenue Contributions.5 Interest Income.5 Fees for service revenue.3 Total $2.5 Expenses Increase of $6.8 million Salary & Benefit Expenses Increase of $9.1 million Salaries and benefits for faculty and staff (full and part-time) make up the largest portion ($207,833,000 or 80%) of the university s operating expenditure budget. The following graph depicts that salary and benefit costs have risen continually over the past 10 years. 㓰 Total Faculty and staff salaries and benefits budget is comprised of the many labour and salary groups. The following graph depicts the composition of the labour and salary groups to the total salary costs. Page 23 of 46

24 The increase of $9.1 million or 5% is a result of the following major budget components: Full/Part Time Faculty Costs Net increase of $4.4 million Increases from known and expected salary rate increases, as per collective agreements, are the largest cost driver of this budget category. Departmental budgets are adjusted based on settlements that are known from current collective agreements (e.g. CAS) and until settlements are known (e.g. WLUFA); estimates are retained in global committed expenses. An increase of about $750,000 for growth in faculty positions is a requirement under the collective agreement, Student Faculty Ratio (SFR). The amount includes five new full-time faculty positions in Brantford and Waterloo, as well as funds for additional part time faculty stipends and teaching assistant salaries to accommodate enrolment projections. Currently the SFR is committed for three faculty positions approved for the Bachelor of Social Work, Brantford Foundations, Bachelor Science, Criminology, Master s Program & Psychology. Other increases include various approved increases to full-time and part-time budgets. Decreases of $1,082,000 have resulted from budget reductions as part of the budget targets submitted. Full/Part Time Staff Costs Increase of $2.7 million Increases from known and expected salary rate increases and as per collective agreements is the largest cost driver of this budget category. Departmental budgets are adjusted based on settlements that are known from current collective agreements 弐 Ϭ (e.g. CUPE) and until settlements are known (e.g. WLUSA/OSSTF) or approved (management & executive staff), estimates are retained in global committed expenses. From time to time increases are experienced based on job positions being reevaluated. The annual estimated cost based on past experiences has been budgeted this year. Increases from other approved increases to staffing complements either for base (e.g. Sciquest procurement position) or one-time only funding (e.g. website renewal). Decreases of $790,000 have resulted from budget reductions as part of the budget targets submitted. Statutory & Fringe Benefits Increase of $253,000 This amount is based on the current and projected increase in the faculty and staff complement. This budget is estimated on an average percentage rate. Actual experience for 2013/14 is indicating that the 2014/15 budget will be virtually unchanged. The current service cost for the pension is budgeted within this benefit percentage. Based on actuarial estimates the current service cost is projected to increase to 4.7% from 4.57% of pensionable earnings. It is expected that this increase can be accommodated within the existing percentage benefit and this budget. Corresponding to salary decreases from budget targets are reductions to benefits of $269,000. Pension Plan Deficiency Increase of $1.2 million The amount is based on the December 31, 2012 actuarial valuation which had a goingconcern shortfall of $86.2 million and a solvency shortfall of $76.5 million. The annual Page 24 of 46

25 special payment to address the funding shortfall is $9.3 million, and with the approval for entering Stage 2 Broader Public Sector Funding Relief, this special payment is based on a 10 year amortization of solvency deficit versus the previous 5 year requirement. As allowed with the fall 2013 additional pension relief measures, the next valuation will be filed in three years or December 31, The new mortality tables will be recognized with the 2015 valuation and are expected to have a significant impact in increasing the Plan liabilities and shortfalls and this is factored into the 2015/16 and future year s assumptions. The following chart displays the trend of employer pension costs since 2008/09 and estimated to 2018/19 in terms of dollars and as a percentage of estimated payroll for pension contributions. It is expected that mortality adjustments will continue to be a major component. Retirees, Maternity, Tuition Exemptions Decrease of $159,000 A portion of the increase relates to an additional $44,000 for retiree, maternity leave and tuition benefits. This increase is offset by a $200,000 decrease in early retirement benefits. These adjustments were made to the benefits to reflect actual experience. Post-Employment Benefits Non-Cash Increase of $750,000 To minimize the difference between the financial statements versus budget expenditures, an annual amount for post-retirement benefits has been increased by $750,000. This has been a practice for many years as the total budget is now at $6,000,000. Page 25 of 46