There is a fair amount of speculation swirling around Laurentian University and its seemingly precarious financial situation, and certainly that is what Alex Usher has been touching on in his blog posts on the topic.
But there is one thing he is certain of, he told Sudbury.com this week.
“They knew.”
Usher is the president of Higher Education Strategy Associates and is an internationally recognized consultant and expert in post-secondary strategic planning and counselling.
He began writing about Laurentian University’s Companies' Creditors Arrangement Act (CCAA) filing — a federal law allowing insolvent corporations that owe their creditors in excess of $5 million to restructure their business and financial affairs — when it first came to light.
He said while the board of directors, provincial government, administration and union representatives from LUFA (the Laurentian University Faculty Association) may point blaming fingers, the school’s financial challenges were far from secret. Anyone who has looked at the financial statements has seen the accrued deficit carried over year to year, in seven of the last eight years.
“Did people know that there was an accumulated $20-million loss over the years? Of course they did,” Usher said. “They knew.”
And the reason the rest of the world now knows is because the banks pulled the rug out from under them.
The banks are RBC and Desjardins. In early summer of 2020, Desjardins asked for repayment on the outstanding amount on a line of credit issued to the university. Then, in the fall, both banks declined to extend the lines of credit to Laurentian.
The exact reasons are unclear, but Usher said to him it looks like the banks may have been spooked by the financial state of the school and questioned its continued ability to pay.
How Laurentian was operating financially — using loans to cover expenses between influxes of cash from tuition payments — is not unusual, said Livio Di Matteo, an economics professor at Lakehead University.
“It’s a common process amongst schools,” Di Matteo said in an interview with Sudbury.com. “[Laurentian], like all universities, has tuition come in twice a year. So, they use that (lines of credit) to sort of bridge in between, that’s why they get a loan. What’s different this year, apparently, is that the banks wouldn’t give them a loan.”
Again, the question is, why did the banks take the action they took? COVID-19 and the current state of learning in the province didn’t help, but that’s only a contributing factor.
What about student enrolment? Well, that’s at somewhat regular levels, but spread quite thin, the data shows. In his writings about the filing, Usher noted a particular passage from the court filings that points to the enrolment issues LU faces.
“Laurentian offers 132 graduate programs and 43 graduate programs. Approximately 25 per cent of students are enrolled in the top five programs, approximately 62 per cent are enrolled in the top 25 programs and 83 per cent are enrolled in the top 50 programs.”
The document then breaks that number down further.
“Of the 1,902 courses offered by LU in the Winter 2021 semester: (a) 162 courses (eight per cent) have five students or fewer enrolled; (b) 180 courses (nine per cent) have between six and ten students enrolled; (c) 1,018 courses (53 per cent) have between eleven to fourteen students enrolled; and (d) 568 courses (30 per cent) have fifteen or more students enrolled.”
Usher sums up the problem with these numbers.
“This is the point that the university has been making for some time: that it has way too many small-enrolment courses and programs.”
He said, in his view, this a “partly a function of offering programs in both English and French” which raises the school’s per-student costs. It also raises staffing costs, as well as the overhead on the university.
Of particular interest to Usher is Laurentian’s lack of progress in increasing the recruitment of international students, who pay several times more to attend a Canadian university than their domestic colleagues. The relatively low number of international students has a big impact on the school’s revenue. Attracting more would help generate considerably more tuition revenue.
But it’s the combining of restricted and unrestricted accounts into one single account that is going to cause the biggest issues for the school, Usher argued.
Laurentian has an operating account, used to fund the schools overhead and expenses, and it has a restricted account – restricted because it is suppose to awarded to the individual professors and graduate students to fund their work. The restricted account also includes scholarship dollars and donations made to the school, as well as the Retiree Health Benefit.
Laurentian, however, was treating all of its funding as operating funding, Usher said.
“The really dangerous-looking stuff, politically is the amounts owing to various Ottawa research funds: $5.3 million to CFREF (Canada First Research Excellence Fund), $4.6 million to NSERC (Natural Sciences and Engineering Research Council), $1.6 million to SSHRC (Social Sciences and Humanities Research Council), $900,000 to CIHR (Canadian Institutes of Health Research), $650,000 to the Canada Research Continuity Fund and $635,000 to CFI (Canada Foundation for Innovation).”
And because the university had been using all of its funds as operating funds, not only was the money all in one account, it was also all spent, Usher said.
If your parents set up an education account for your child and you took from it to pay the mortgage, it wouldn’t be noticed if you paid it back. But if that loan doesn’t come in, and you can’t pay the fund back, it’s time to tell mom and dad.
As for the next steps, Usher is sure that there will be layoffs — something Laurentian University administration confirmed with a Frequently Asked Questions list posted to their website.
Usher also noted there are some very high salaries among Laurentian staff, saying the average instructor salary at Laurentian is 20-per-cent higher than at some of Canada’s top universities, like McGill University in Montreal.
He is also sure there are board members who will not be returning. Not a clean sweep, he said, so there is some continuity, but not far off.
For now, the university has secured some private funding ($25 million in relief Debtor in Possession (DIP) funding, a form of financing for insolvent debtors while restructuring is ongoing. Laurentian has sought this funding from Firm Capital Corp. out of Toronto).
Usher said Laurentian financial challenges have been rolling over year after year despite the school issuing press releases about balancing budgets, something he called misleading.
The information has been available to anyone who looked. If they did, they would see that in seven of the last eight years, Laurentian reported a loss, despite press releases about balancing the budget.
“[People] can point fingers at the administration for painting a much cheerier picture of the balance budgets, but this idea that no one knew? Everybody knew, if they wanted to.”
