Academic Price Index is a joke, and here’s why

Picture this: you’re living your life. You’ve been spending outside of your means lately. You’ve had a few too many nights out. You’re shopping at Safeway instead of Superstore. You realize that your income isn’t covering your expenses. You go deeper into debt. You need to squeeze your employer for more money. You get a quick formula together and create your own inflation index. You call it the (Insert your name here) Price Index, and take it to your boss. You argue that normal wage increases shouldn’t apply to you because your costs are higher and unavoidable.

Does this seem ridiculous? That’s because it is. This very thing just happened at the University of Alberta.

Picture this: you’re the University of Alberta’s administration. You’ve been spending outside of your means lately. You’ve struck too many binding salary deals that are increasing rapidly, and you’ve been building too many new buildings at too high a cost. You’ve hired a few too many high-paid administrators to push your strategic plan. You’re spending more money. You’ve spent your reserves and gone into debt. There’s no way you can cut your expenses significantly. The other universities will think you’re the lame kid on the block if you can’t maintain your rankings. You need to squeeze students for more money. You pull a quick formula together and create the Academic Price Index (API). You take the costs that apply to the rest of the province, the Alberta Consumer Price Index (ACPI), and add your own costs. You apply this increase to international student tuition, jack rent prices, and put forward a meal plan that all its users detest. You take it to your boss, the U of A’s Board of Governors.

The story takes a different turn for the U of A because it all works. In fact, you mention to your colleagues in all of your meetings that these proposals will pass, long before the vote. Hell, you are even bold enough to omit the student protest against your ideas in your board’s media report. The students fight it, but it doesn’t matter. The increases pass with flying colours, and you get to keep spending. Happy days!

Unlike the average student (or any other human, company, organization, government), there really aren’t any consequences for the U of A’s administration for spending outside of their means. Yeah sure, they cut four per cent across all departments. This doesn’t mitigate the overspending in salaries that have been years in the making.

Don’t be fooled by the U of A’s scare tactics, because they are not cutting four per cent across the board. Three-quarters of the U of A’s expenses are in salaries, and are relatively tied. It is more like a four per cent cut to, at most, 30 per cent of their overall budget. This also does not address the disparity in pay between tenured and sessional professors, despite sessionals vastly outnumbering tenure and picking up the majority of the instruction load. Provost Steven Dew was recently quoted saying that this will equate to approximately a $30-million reduction. That number seems big, but with an operating budget of $1.2 billion, that is a small cut. It’s like choosing to pregame instead of spending all your money at the bar — you’re still going to be spending. Might I add, I am not the only one that thinks the U of A needs to find more savings.

Instead of taking real steps to cut spending, the U of A has just entered into a vicious self-imposed circle. The U of A has spent over inflation rates for years, so it created its own inflation rate, API, to justify overspending. This inflation rate has been validated by the Board of Governors through its acceptance of price rates that are created by it. Now the university can continue to spend over inflation. Rinse and repeat.

This is not normal. API is based loosely on the Higher Education Price Index (HEPI) and the Higher Education Cost Adjustment (HECA), which are used by some American institutions as a measure of inflation in post-secondary institutions. The U of A is false in assuming this can apply in the Canadian context, as the funding models and expenses for American and Canadian universities are completely different, and will inflate differently.

The largest and most gaping hole in the usage of either of these indexes is the fact that they are not verified by a third party and/or widely accepted. Commonfund determines HEPI, an American not-for-profit that is devoted to the management of college and university endowment funds. HECA has had long-lasting criticisms of its calculations. HEPI has been widely disregarded in American institutions because it is self-referential. One study has said that “organizations and institutions need to ensure that they are using the appropriate price index for the issue they are examining. For most purposes (including indexing college tuition for inflation), the use of HEPI or HECA is simply inappropriate”.  

The U of A is the only institution using API, as it was created by the U of A administration for their own purposes. No organization should ever be creating their own inflation index, especially one that is publicly funded. An organization creating their own inflation index is inherently biased, as that organization has an obvious incentive to use the index to inflate revenues to cover its own costs.

Friday’s verdict at the Board was not only damaging for students, it was damaging for the entire university community. Staff, faculty, students, and alumni should be ashamed of their administration for creating a false inflation index to increase costs to students to make up for their poor financial management. It is understandable that the university must cover its costs, but creating is own inflation index is not the fiscally responsible way to do that. Students should not be paying for administration’s bad decisions.

I don’t know about you, but I think if the U of A took API to your old manager to get a raise, they’d get fired on the spot.

For more reading on this topic, I highly encourage readers (especially any U of A administrators that may be reading this) to read this report.

Correction: Three-quarters of the U of A’s operational expenses are in salaries, and are relatively tied. It is more like a four per cent cut to, at most, 30 per cent of their overall operational budget.

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