Thursday, August 22, 2013

Calling A Clean Pot Black

A few days ago Thomas Lukaszuk, Minister of Enterprise and Advanced Education, announced that private consultants were being called in to assist the University of Alberta in balancing its budget by 2014-2015.  Doug Goss, chair of the university’s board of governors, is confident that the financial management of the university will stand up to this external scrutiny.  Edmonton Journal columnist Paula Simons accuses the minister of micromanaging the University of Alberta’s decisions on how specifically it should spend its revenue.

I took a few moments to glance through some recent University of Alberta annual financial statements which are provided here.  Basically, I was interested in the difference between revenues and operating expenses.  My results are presented in the table below.  It shows that the University reported operating deficits (which occurred when expenses exceeded revenue) in only two years (2008 and 2009).  It should be noted that for accounting reasons these numbers do not include an accumulating debt related to maintenance costs.  As well, it does not include the University’s plan to operate with a deficit for the next three years as it implements a plan to balance its budget.  The minister is apparently unhappy with this three year plan, desires the university budget to be balanced earlier, and is spending $70,000 on external consultants to help achieve this goal.

Report Year
Revenue Minus Expenses
Revenue and expense information from recent financial statements available from the University of Alberta website.  All values are in millions of dollars.

  The two years of deficit reported in the table reflect the results of a worldwide financial crisis.  For instance, the University’s 2009 financial statement notes: “The 2009 deficiency is mainly due to investment losses.  The global economic crisis has continued to have an unfavorable impact on investment returns.”

The table suggests that the University was able to rebound from this unfavorable impact relatively quickly; its ability to adapt was due to its ability to find ‘administrative efficiencies’.  It is still doing so in light of the March budget’s surprise cut in postsecondary funding.  For example, the 2013 financial statement states: “The $25.4 million operating surplus is mainly due to savings at the unit level which have occurred as units reduce spending to assist in meeting their 2013-14 operating budget reductions.”  Given this kind of information, it is perhaps not too surprising that the chair of the board of governors is confident of the result of external scrutiny.
Of course, the provincial government has not been as successful in dealing with the financial upheaval of 2008.  As obvious in the image below, which the Calgary Herald included as part of a story on the 2013-14 provincial budget, 2008 marked the start of an unbroken string of provincial deficits.  A nice synopsis this string is provided in this story by CTV News.  The cost of recent flooding in the province will hardly help this situation. It seems to me that hiring the consultants is a case of an encrusted kettle calling a clean pot black.

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