Expenses

Ontario Tech has historically implemented a hybrid or two-step approach to budget modelling. In the first step, an incremental budgeting approach is used to address mandated year-over-year increases in known expenses (e.g. contractual salary increases, licensing agreements). Simply put, these increases are automatically factored into the preceding year’s base budget on an annual basis and updated. In the second step, a strategic incentive allocation mechanism is used to distribute discretionary resources (when available) to support new initiatives that align with the priorities of our Integrated Academic-Research Plan (IARP).

Activity-based budgeting (ABB) model

Over the past decade, Ontario Tech has used an activity-based budgeting (ABB) model in the background to simply inform strategic budget allocations. This is a method of budgeting where revenues and expenses are attributed to the areas that generate them. When fully implemented to inform budget allocations, this approach deliberately sets aside funds through revenue-based levies, thus creating a dedicated resource pool to fund strategic priorities and to construct clear incentives for faculties and departments to generate revenue and manage their expenses more consciously.

To create greater transparency, budget understanding and incentives to support differentiated growth during the 2023-2024 fiscal year, the Budget Working Group in collaboration with senior leadership and the deans began to move intentionally toward implementing an ABB model. This model will be shared in the forthcoming budget-setting paper.

The implementation of an ABB model has been necessitated by the fiscal challenges created by the current provincial government’s policies (e.g. frozen domestic tuition fees, no additional funding for domestic growth). Simply put, this means that 68 per cent of our total revenues (i.e. 29 per cent regulated tuition and 39 per cent grant revenue) are frozen and subject to no annual increases. 

Budget dynamics and enrolment growth requirement

As stated earlier, without further enrolment growth, our revenues are growing at the rate of about 1 per cent on an annual basis. In contrast, using very conservative expense assumptions, our expenses are growing at an average annual rate of 3.6 per cent. This includes a 5 per cent increase attributable to annual mandated salary increases, which encompass across-the-board adjustments and annual progression factors (e.g. promotion increments).

Reallocation of existing budget dollars

To limit the growth in expenses, academic and administrative units are being asked to cover inflationary and contract increases through the reallocation of existing budget dollars. Stated another way, the university is faced with a budget that is contingent upon continuous enrolment growth to fund base operating expenses (Figure 3). To provide some context, salary increases are expected to grow above $6.5 million in each of the next few years. Given that grant and tuition revenues remain stagnant for the foreseeable future, we must enrol about 500 additional students annually to merely cover the mandated salary costs.

Factors that influence operating expenses

Operating expenses are influenced by several factors including, but not limited to, inflation, the rising costs of key goods and services (e.g. software licenses, library subscriptions), and the cost of maintaining and servicing aging facilities. Prior to the pandemic, the Ontario university system typically saw an annual increase in expenses of about 4 per cent. However, between 2021 and 2023, many of these essential expenditures skyrocketed, reaching double-digit percentages. Utility costs and software licensing fees, moreover, continue to increase at these rates. Given that these and other expenses continue to rise, restraining operational expense growth will be required and units may need to reallocate funds from their existing budgets to cover these costs. This will require each and every unit on campus, in alignment with the IARP, to determine if there are activities that must be continued versus others that must be discontinued.

In 2023-2024, our expenses were higher than our revenues as a result of spending commitments and project expenses from prior years. This required reserves to be used to cover the difference. Understanding this context is important as we look forward to the 2024-2025 budget where, compared to the previous year, there is a projected $8.9 million increase in overall expenses (i.e. $236 million compared to $227 million).