Hold on to your hats: Budget 2004-05

The point hit home at last week's Board of Governors meeting during a marathon tuition debate over administration's proposal for a 5.3 per cent increase. The discussion turned, inevitably, to the bottom line of the University of Alberta's operating budget. Dr. Gurston Dacks, professor of political science and board academic staff representative, asked the size of the shortfall for 2004-05.

"Hold on to your hats," said Phyllis Clark, vice-president, finance and administration. "We're now looking at a revenue gap of $28 million."

It was disturbing news to many. It wasn't news to the Executive Planning Committee (the five vice-presidents and deputy provost), who had been wrestling with the numbers for two months. It wasn't news to deans or chairs, who had, just days before, received a briefing from Carl Amrhein, provost and vice president (academic).

But where did this number come from? And how does it relate to the balanced budget originally projected in the four-year plan? First, costs, particularly utility costs, have escalated beyond expectations and revenues, such as endowment incomes, have been below target.

"But this number represents a way of looking at the total picture that we haven't presented to the community in the past," says Clark. "In the actual budget we plug in targets on revenue we think we can find, but aren't clear yet on where they will come from. We also plug in reductions on spending that we're implementing." Once this is done to the budget proposal, the overall budget deficit we're asking the Board of Governors and the Minister of Learning to approve will be about $3.7 million. "It's just that when we express it that way, people assume we have a $3.7-million problem when in fact, the gap between current spending and expected revenue is $28.7 million for 2004-05. We have a $28.7-million problem," she says.

Why isn't there enough?

The revenue gap is primarily due to costs for essential expenditures such as salaries, benefits and utilities outpacing increases in revenue. In just four years utility costs alone have doubled, from $16 million in 2000-01 to a budgeted $33 million in 2004-05.

In context, Amrhein says a one-per-cent increase in operating grant from the province equals $3 million. A one-per-cent reduction in our spending equals $3 million. A $1 increase per gigajoule in the cost of natural gas costs us $3 million. "This means a two-per-cent increase in government funding can literally go up the smokestack with a $2 increase in the price of natural gas," says Amrhein.

How will we manage?

"These can only be described as coping strategies," says Clark. First, we will include revenue improvements in the budget of $6.2 million. The Funding Solutions Task Force will be charged with finding $2.5 million of this. The source for the rest is not yet identified. "Clearly it's critical to achieve these revenue targets," says Clark. "If we fail, it increases the magnitude of the problem next year."

The second step is to add an additional three per cent in spending reallocations to the one per cent academic units were already building into their budgets and the 1.5 per cent administrative units had planned. Total budget reallocations will total just over $13 million.

So why aren't we saying we're instituting budget cuts of $9.6 million on top of the $3 million planned for 2004-05? "Because it's not true," says Amrhein. "Our operating budget is increasing. Government sees they are contributing more money each year. They have not cut our budget. We have more money. Unfortunately our increase in expenses is greater.

"We have difficult decisions to make, and it may mean we can't continue to do everything we have been doing," says Amrhein. "But it's an exercise in redirecting blood flow to the heart." Every dollar possible needs to be directed toward the faculties for the core teaching and research function," says Amrhein. "That means the dollars we need to keep people - salaries and benefits. Unfortunately, it also means scarce resources must be redirected to pay the energy bill."

Budget by the numbers

Budget facts