UW forecasts $75-million deficit

Internal staff emails show university may limit hiring as part of several cost-cutting measures

The University of Waterloo is forecasting a deficit of $75 million for the upcoming fiscal year and will institute a variety of cost-cutting measures, including a limited hiring program for all faculty and staff, internal staff emails show.

This early projection — which was higher before the provincial government announced about $1 billion in new funding for the sector earlier this month — comes as the university is in the middle of negotiating new contract agreements with faculty and staff groups, and faces compounding financial constraints largely stemming from a provincial decision to cut and freeze domestic tuition in 2019.

The university has not been immune to inflationary pressures across all its services, but the tuition freeze in particular has been a compounding drag on its revenues. Since 2019, inflation in Canada has increased costs by about 18.5 per cent, according to the latest Bank of Canada inflation calculator reading.

The tuition freeze is expected to stay in place until at least 2027.

Increasing international enrolment has been a priority for schools like Waterloo to offset losses, but international growth has been flat or negative over the last five years at the school due to issues stemming from the COVID-19 pandemic and general global insecurity.

Now, with the province weeks away from announcing how it intends to implement a 50 per cent cap on international students in Ontario, the school stands to lose even more revenue in the years ahead.

“Even with the new provincial money, it is clear that without significant constraints on our spending, we are forecasting a deficit of approximately $75 million in the 2024/2025 operating budget,” an email from Waterloo provost James Rush reads.

Rush has submitted a variety of cost-cutting measures to try and get a handle on the deficit, and those suggestions are now in the hands of the school’s board of governors.

The cuts include:

■ A four per cent reduction to the base ongoing budget of all units (saving approximately $24 million).

■ A 28 per cent budget reduction for central University budgets such as the University Fund (approximate saving of $15 million).

■ Additional $3.5 million targeted ongoing budget reductions in areas where budget rightsizing opportunities have been identified through historic underspends.

■ An additional one-time reduction of all unit budgets by two per cent in the 2024/2025 fiscal year (saving approximately $12 million).

■ A one-time contribution from central reserves to cover any remaining deficit once the above measures have been implemented.

“Reducing costs to this extent will be a significant challenge but is necessary, as we expect that expenses will continue to increase in the next several fiscal years, while projections of revenue growth remain flat with significant areas of uncertainty,” writes Rush.

He also suggests implementing a “limited hiring program, with few exceptions that will require enhanced approval processes, as well as reducing our non-salary spending, including discretionary spending” in areas such as travel and internal events.

The limited hiring program will effectively work like a hiring freeze, which allows organizations to realize savings through restructuring and eliminating positions as employees leave.

However, in this case, exceptions will be made when departments can prove that certain positions are essential. However, this will only be done in “exceptional” situations.

“In practice, our limited hiring program means that every effort should be made to realign work or find efficiencies instead of hiring when roles become vacant. To assist with this, Human Resources (HR) will be providing guidance that will help units re-evaluate priorities and find new ways of working.”

In an interview with The Record on Thursday, Rush called Waterloo’s financial situation a story of both declining revenues and increasing expenditures.

“We’re projecting both a drop in tuition revenue due to continual decline projections in international enrolment projections primarily, and we’re going to have a fairly steep rise in costs because of having come out of our last three-year period with our compensation agreements with our employee groups,” Rush said.

In both situations, Rush and his team is working off projections on what might happen in negotiations with its employees, as well as what the province will decide on international enrolment.

It is possible the deficit could be larger and require further cost-cutting measures.

Rush stressed that while this is the “transformational year” where many of the financial challenges are coming to a head, this has already been a five-year story since the implementation of the tuition freeze, and the issues will undoubtedly compound in the years ahead.

“The challenge is going to be a big challenge and probably a multiple-year challenge unless there are other transformational things that happen,” Rush said.

The measures suggested are only the first of what will be a longer discussion about the university’s longer-term plans, which could get better or worse.

He would not commit to any concrete plans — like the possibility of having to outright cut positions in the future — and said the university is developing multiple contingency plans to deal with the challenges ahead.

If left unfettered, the issues would “completely continue to compound,” said Rush.

“It would be really silly to not appreciate that the quality of what is done, the reputation from what is done, and the contributions that the university makes to the region, province, country and the world — including the massive economic contributions — would be compromised in the long run if some changes in the ways certain constraints are forcing us to move aren’t removed.”