For example, Brock University has recently announced a review of all administrative and academic programs intended to “put Brock on the road to long-term sustainability by ensuring that its programs and services align with its stated mission and strategic priorities while at the same time addressing Brock’s financial condition.” While on average university income in Canada is rising at twice the rate of inflation, it would appear that Brock has a projected operating deficit despite exponential enrollment growth and program expansion. Moreover, it is apparently not just Brock. Guelph and Wilfrid Laurier are undergoing similar reviews.
So if despite rising enrollment and rising revenues, universities are having trouble making ends meet, what could be the source of the problem. Well, university debt levels could be one possibility. It is not just students who have taken on high debt levels to finance their post-secondary education. Universities in Ontario have also taken on a rather large amount of long-term debt to deal with rising enrolments, infrastructure renewal and program expansion. Government in Ontario allowed its universities to take on rather large amounts of debt over the last decade as a substitute for more government capital funding or additional fees on students. And apparently, it is not just an Ontario or Canadian phenomenon as US universities are facing similar issues. It could be that the costs of carrying this debt are finally coming home to roost.
Is there any evidence from Brock, Wilfrid Laurier or Guelph? Well, I took a quick look at their financial statements and got some recent numbers on their long-term debt, revenues and debt service costs. Long-term debt is probably not a complete measure of all their liabilities but it is a good start. As Figure 1 shows, long-term debt has gone up at all three universities since 2006. Between 2006 and 2012, long-term debt at Brock grew 78 percent, WLU grew 39 percent and Guelph 29 percent. As of 2012, long-term debt stands at 52.7 million dollars at Brock, 227.4 million at WLU and 196.8 million at Guelph. Note that in terms of enrollment (headcount), Guelph is the biggest of the threee universities with about 27,000 students while Brock has about 18,000 and Wilfrid Laurier about 17,000. As of 2012, the long-term debt to revenue ratio was 20 percent at Brock, 28 percent at Guelph and 76 percent at Wilfrid Laurier. Obviously, if Wilfrid Laurier University was a country, the IMF might have some concerns. However, the situation seems relatively better at Guelph and Brock.
What is the cost of carrying this debt? Well, annual interest charges in 2012 were 6.4 million dollars for WLU, 11.4 million for Guelph and 6.2 million dollars for Brock. That is a lot of money. In the case of Brock, its projected deficit for 2013-14 is 7 million dollars - which is almost what it is paying in interest charges on its long-term debt. Have universities bitten off more than they can chew when it comes to their debt financed capital projects? Good question.