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President Summerlee responds to CSA's budget letter

Tuesday, March 15, 2005

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Written by Alastair Summerlee

Dear Jenn,

First let me thank you and the CSA for considering the University's very challenging budget problems. Like the CSA, I too agree that cuts will impact on quality. However, after extensive discussions with deans, directors and managers, and consultations across campus, I cannot see any other alternative to the proposed departmental budget reductions. The fundamental issue is a base-budget problem. Unfortunately the approach offered by the CSA will not address this challenge. Consequently, it does not provide a solution that is fiscally sound or serves the medium and longer-term interests of the University of Guelph's students, faculty, staff, or alumni. What follows is a review of the concepts and information that have been shared previously with the CSA and other members of the community allowing for a comparison with the proposal you have offered. I am writing separately with information on the issue of international student fees which the CSA also raised as a concern.

Fundamental to the budgeting process is the difference between on-going cost commitments versus on-going revenue assumptions: this represents a "base" deficit and is a measure of the financial stability of the University. Most of the on-going costs in the University's MTCU operating budget are for faculty and full-time staff salaries and benefits. As a result, the University's ability to respond to significant shortfalls in base revenue is dependent on reducing the numbers of positions. The implementation of personnel reductions takes time, is very disruptive and stressful for everyone involved, and typically involves one-time (i.e. non-base) expenditures to help ease the impact of the reductions for the individuals affected. To meet these one-time costs associated with early retirements, buy-outs and related severance costs, the University has elected to take on a deficit linked to these one-timecosts. The deficit plan includes a specific set of commitments to pay it off within a fixed period of time.

By comparison, the CSA proposal converts the concept of incurring a deficit for one-time costs into a base deficit by allowing on-going costs to "fall" through as a perpetual and continually growing deficit. There is no plan for its repayment and no plan for adjusting the institution's cost structure so that the result is that this deficit will grow each year. In effect, the CSA proposal pushes the reality of our current base funding shortfall into the future where it is compounded annually. Without assurances of new revenues to match this increase in debt, the overall financial stability of the University will be in peril.

It is proposed that by the end of 2005-2006, the University will have a total deficit of $10.0 million related to one-time costs associated with restructuring the balance between base costs and base revenue with an annual repayment plan. However, the University's approach incorporates a plan for repayment of the deficit over a fixed period of time. This is not an ideal situation but it offers a responsible approach that addresses the immediate and long-term financial stability of the University. To minimize the impact for individuals, the planned deficit is focussed on costs that can facilitate as many voluntary departures(including early retirements) of our faculty and staff as possible.

It has been argued "why not wait for Rae". The University's plans for 2005-2006 already incorporate a $5.0 million increase in base revenue from the province's response to the Rae Report. Given Ontario universities have received no indication of provincial intentions relative to Mr. Rae's recommendations, I feel this is a sufficiently aggressive estimate of the likely outcome of the provincial budget. If the University waited for the provincial budget the University takes the serious risk of being faced with major cuts in the middle of the fiscal year and during semester start-up. This would be a much more disruptive and painful process than moving forward now. It is better to plan as far in advance as possible, balancing what we know and what we project by way of costs and revenue, and taking action as soon as possible while recognizing the difficulties this entails.

In summary, I absolutely share your concern about faculty and staff reductions, the impact this will have on the quality of education, and the implications these decisions have for individuals across the University. This is why I am advocating a planned approach to a deficit with a specific repayment plan and why I am proposing a 2005-2006 budget that includes the provision for a fund of $1.35 million for restructuring and reinvestment in critical areas. This amount is smaller than I would like but is a compromise.

Yours sincerely,

Alastair J.S. Summerlee
President and Vice-Chancellor


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