Queen's still in the red

University ran a $14.7 million dollar deficit in the 2009-10 fiscal year

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Queen’s highest expense in their 2009-10 Financial Statement is $412 million for salaries and benefits, expected to increase with the the University’s pension obligation.
Queen’s highest expense in their 2009-10 Financial Statement is $412 million for salaries and benefits, expected to increase with the the University’s pension obligation.
Credit: 
Supplied
The University has incurred an operating deficit since 2008, but this year’s $14.7 million deficit shows an improvement over last year’s $50.5 million imbalance.
The University has incurred an operating deficit since 2008, but this year’s $14.7 million deficit shows an improvement over last year’s $50.5 million imbalance.
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Graphic by Tyler Ball

Every April, Queen’s releases a financial statement outlining the revenues and expenditures of the University’s operating budget. The 2009-10 Financial Statement is a seemingly impenetrable 30-page document, so the Journal spoke to Carolyn Davis, vice-principal (finance and administration), to clarify some of its concepts. For the 2009-10 fiscal year, Queen’s totalled a $14.7 million operating deficit.

“There’s a few components in there,” said Davis. “If you go back in time, salaries and benefits have been rising at a faster rate than revenues have. Much of that deficit is due to that.”

The operating deficit is an improvement on last year’s $64.9 million loss, but less stable than $9.7 million in 2008 and healthy surpluses during the three years previous.

The report attributed much of the losses to rising salaries and pensions. Davis said administration is advocating a conservative fiscal strategy to accommodate for the rising salary expenses.

“What we’re doing is budgeting very carefully these days,” Davis said. “We’re asking faculties to find a way to accommodate any increases in salaries from within their budget.”

She said the University budgets for annual salary increases of 2.5 per cent. So far, the administration isn’t sure if they’ll need to cut jobs to meet this expectation.

“That’s really what we’re looking at right now,” Davis said. “We’re partway through the budget exercise for the next fiscal year. Faculties are going to have to see how they’re managing.

“Cutting staff is never your first choice. It’s something you try to avoid if you possibly can because employees are the people who run the university. If you look at our costs, a very large proportion of our costs are salaries and wages. They’re the people doing the jobs.”

Salaries, benefits and pensions currently make up 56 per cent of the Queen’s budget, totalling $412 million. Ultimately, Davis said it’s the responsibility of each faculty to evaluate where to cut costs in their operating budget­—even if it means cutting staff.

“If you eventually come to the situation where you have a continuing and structural deficit it may be that some faculties have to look at that,” Davis said, adding that while salaries make up a large proportion of the operating budget, other factors also contribute to the deficit.

Queen’s brought in $734.8 million in revenue and incurred $739.8 million in expenses plus a $9.6 million loss on derivatives.

In a general sense, a derivative is an agreement between two parties based on future price movements. Queen’s holds funds in British Pounds because of its international expenditures, like the operation of the International Study Centre (ISC) at Herstmonceux Castle. The value of these funds vary with exchange rates.

“Students [at the ISC] pay for their fees in Canadian dollars but the expenses for running that facility are in British Pounds,” Davis said. “What happens with foreign exchange is that it goes up and then it goes down.”

The University holds derivatives based on an estimate of when it needs to convert funds into British Pounds. The recent economic downturn saw the devaluing of the Pound and subsequently, the devaluing of Queen’s derivatives.

“The Pound has actually gone down quite dramatically against the Canadian dollar,” she said. “We bought some contracts before we realized that was going to happen, so we’ve taken some losses on it.”

Davis added that the financial statements are compiled based on current exchange rates, and that the derivatives may improve before the University actually spends the converted cash.

Another large portion of the budget is spent on travel, totalling $20.8 million. Davis said the travel budget is a necessary expense.

“It’s an extremely important part of a professor’s job to stay up to date with what’s emerging,” Davis said. “We encourage faculties to use the travel budget to support that kind of development for their people.

“There are parts of it that are related to the principal and the vice-principal travelling to make contacts that will be useful for the University, for advancement and for relationships with the federal government, with the provincial government [and] with other governments,” she said. “We have the justification for that travel.”

Almost $53 million is allotted to the “amortization of capital assets,” which accounts for the deprecation in the University’s assets. Like a car, assets like software and facilities lose value with time.

Queen’s includes this devaluing into its budget so that when a building, computer or office chair reaches its scrap value, there’s money set aside to replace it.

“For a building the expected useful life is how long it’s going to stay standing without you having to make very big investments in recapitalizing it,” Davis said.

The University places a “useful life” on its assets to account for this. Buildings have an useful life of 40 years, while lab equipment, computers and furniture are expected to last five years.

“We reckon that buildings should last for 40 years,” she said. “Limestone buildings last much longer than that, [but] some of the concrete buildings that were put up in the 70s you have to be more worried about, but by and large 40 years is a good generalization.”

Despite the large allotment to the deprecation of buildings and software, Davis said students shouldn’t be worried about the effect new building initiatives have on the budget.

She said new projects, or “capital expenditures” currently under construction, aren’t solely funded by the Queen’s purse.

“The capital and the operating aspects for those projects have to be carefully planned,” Davis said.

“What has happened with the medical building for instance, is there’s been fundraising and a very generous contribution from the government ... those kinds of projects go ahead without the University having to borrow money, or necessarily having to go to the government cap in hand for it.”

Davis also cites the Isabel Bader Arts Centre as a debt-free project thanks to government grants and a $22 million donation from the Bader family. Construction on the $63 million project is slated to begin in the winter. Queen’s staff projected the construction to be finished by now if not for a lengthy approval process with city council.

“There’s an example of a project that’s properly planned where you can work towards the future in a safe financial way,” she said. “People shouldn’t have to worry about what impact the Isabel Bader Centre is going to have, or what impact the school of business is going to have or the medical school. All that been properly taken care of.”

However, the debts incurred by the Queen’s Centre construction continue to affect the University’s finances. This year the University expensed $6.7 million in long-term debt interest payments, most of which Davies said relates to a loan from the Ontario Infrastructure Projects Corporation (OIPC).

“They provided funding during the construction of the Queen’s Centre and the kinesiology building,” she said. “Typically when you have a project going, you get construction funding. As you build the building you draw down on the loan and then at the end of it you convert into a longer term loan.”

The two loans related to the project were $75 million and $50 million, each with five per cent interest rates.

The University expects to pay over $28 million in long-term debt interest over the next five years and Queen’s has established a policy to secure the money for new projects before breaking ground.

“We have a very stringent policy now that we don’t start building until we have the funding lined up for them,” Davis said.

­—With files from Jake Edmiston

Queen’s full financial statement is available at bit.ly/queensfinance

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