U of A ends fiscal year with $40.2 million operating deficit

The University of Alberta is facing a deficit to its expected budget for the fiscal year ending March 31, 2020.

In its internal budget set last year, the U of A expected to run a $38 million surplus. At the Board of Governors meeting on May 25, it was revealed the university incurred a $40.2 million deficit to its annual operating budget — an approximately $78 million variance in budgeting.

In the previous fiscal year ending in March of 2019, the U of A posted a $123.3 million surplus.

According to documents and a presentation to the board — the highest governing body at the university — the nearly $78 million variance was due to three negative factors: the provincial government’s decrease in funding to the university through the Campus Alberta Grant, lower investment income than expected, and higher pension expenses.

Revenue to the university was lower than budgeted by 6.2 per cent — translating to $122.1 million.

Campus Alberta Grant funding cut by UCP-led government impacts U of A bottom line

The single largest source of funding for the University of Alberta is the provincial government grants, which provided 46 per cent of entire revenue. Both Budget 2019 and Budget 2020 cut this figure significantly.

U of A fiscal year-end statements said Government of Alberta grant revenue of $872 million was $74.6 million lower than the prior fiscal year and $111.1 million lower than what the U of A budgeted for. One of the largest cuts included two cuts to the Campus Alberta Grant. Budget 2020 cut 11 per cent after a 6.9 per cent or $44.4 million cut in Budget 2019.

COVID-19 market instability adversely affects U of A fiscal year

Expected returns from investments were lower than what the university expected to receive due to market volatility caused by the onset of the COVID-19 pandemic in March of 2020.

Endowment assets — restricted trust fund assets the university holds — also declined from $1.4 billion to $1.2 billion.

Martin Coutts, associate vice-president (finance and supply management services), said the U of A’s endowments did not earn enough investment income through the year to fund their specific endowment spending allocations.

“Basically what happened is we didn’t earn enough investment income in the year to fund our endowment spending allocation, but of course endowment holders went ahead and spent those funds,” Coutts said.

According to him, because of this the U of A is short $30.5 million short of budgeted endowment income.

Coutts said while COVID-19 creates “significant” budgetary implications to the U of A “on multiple fronts,” some positive bounce back is expected in the next fiscal year.

“There were a lot of unrealized losses in the markets,” he said. “That number is down significantly from last year.”

“The short-term market crash at the end of March, although significant is not enough to change long-term [investment] assumptions,” Coutts added.

The market crash also negatively affected the University of Alberta Pension Plan. $175 million was lost and will need to be amortized in future years, resulting in expenses of $16.5 million over the next 10 to 11 years.

“So we are going to see the impact of that decline in value of the pension plan assets going forward,” Coutts explained.

The university’s pension plan was also impacted by the $2.1 billion loss incurred by the Alberta Investment Management Corporation (AIMco) — the province’s operated pension management fund. AIMco manages some of the university’s pension plan.

Coutts said that while the U of A had approximately 1,000 layoffs — 400 in 2019-20 and 635 in 2020-21 — the revenue saved by the cuts was not enough to make up for other losses.

“The [overall] salary decrease is a positive in terms of the actual versus budget, but not necessarily a good news story.”

According to Coutts, government cuts to research financing also adversely affected the U of A’s research output and its bottom line. Researcher salaries provided by the government have dropped “dramatically.”

“The largest item in that salary decrease is lower salaries in our research area. This is primarily because of reduced research funding from the Alberta government from Alberta Innovates.”

The Board of Governors unanimously approved the financial statements.