Universities increasingly rely on student fees and other alternative funding sources to make up for falling levels of government support, but perhaps these other funding sources aren’t all they’re cracked up to be.
University funding, a primer
In recent decades, many jurisdictions around the world have seen significant drops in government funding for higher education. In some countries, ministries of education impose measures, such as budget cuts and increases in faculty workload, across all institutions. However, in Canada, as in the US, UK, and several other commonwealth countries, the legal structure of public universities is such that each is an autonomous institution that makes budgetary decisions and develops priorities through a governing board.
In Canada, these institutions receive the bulk of their public funding from the provincial government, with additional research funding coming from Ottawa. In each province, the government has an established funding framework and, as part of their annual budget, determines how much money will be allocated to this framework. In Ontario, this funding framework has been largely based on university enrolment, with additional funding allocated to capital projects, strategic initiatives, and other discretionary funding (such as grants matching private donations, special purpose grants, or funding for furthering particular academic programs).
Unfortunately, government grants form an increasingly small share of total university revenue (24 per cent in Ontario, according to the University of Toronto, and likely to fall further under the current Ford government). This chronic underfunding has compelled public universities, as autonomous non-profit corporations, to make critical decisions about how to generate more revenue. At the University of Toronto, this exercise has been an ongoing priority, and the university’s 2018 Alternative Funding Sources Advisory Group Report as well as the “four corners strategy” real estate plan paint a fascinating picture of the institution’s growing focus on non-governmental funding sources.
The University of Toronto is not representative of most Canadian universities. This is not so much due to sheer size (there are other universities of similar size) but rather due to the unusual hegemony of large professionally oriented units within the institution—particularly medicine, engineering, and computer science, and even some of the smaller professional faculties, such as pharmacy, public health, and architecture.
Understanding universities as financial actors
The University of Toronto, where I have been employed for over 25 years, is the site for a collective research project, Understanding university worlds, led by noted anthropologist Tania Li, and recently funded by an SSHRC Insight Development Grant. In this project—which we hope inspires colleagues elsewhere—I am leading the “university as financial actor” component. Other components include the experiences of international students and the university as a site of political struggle, especially student resistance. This project has just begun.
The working hypothesis for my research on the university as a financial actor—developed from earlier research on U of T’s real estate activity—is that, while U of T talks a lot about being more entrepreneurial, the university is in fact not very good at making money. Though much will have to be confirmed with a close reading of financial records, it would seem that the university has mostly offset falling government revenues, not with brilliant business ventures but by raising tuition fees and increasing the enrolment of international students and those in professional programs who are not covered by the provincial tuition fee cap. The Alternative Funding Sources report notes that in early 2018 no less than 63 per cent of U of T’s revenue consisted of “tuition and fees”—this figure was only 40 per cent ten years ago.
While U of T talks a lot about being more entrepreneurial, the university is in fact not very good at making money.
The report does not break down the “Other sources of revenue” category—which seems rather negligent, since recommendations should be based on evidence. However, it does mention Canada Research Chairs (CRC) as a category under “Other income.” U of T always does well securing CRCs, especially in the technical and medical fields prioritized by the administration. However, because CRC revenue only goes to a particular professor, plus maybe a research assistant or post-doctoral student, there is no net financial gain for the collective. There may even be a net loss. When I was a low-level administrator, I heard plenty of complaints from department chairs about CRC’s not paying for themselves. Therefore, a large number of CRC’s may not be very helpful for the overall bottom line.
Investment schemes and real estate deals
Another dubious recommendation in the report is to invest the university’s large endowment fund in private start-up businesses. The advisory group responsible for the report seem to have forgotten the 2008 financial crisis. The zero payout from the endowment in 2008 meant that departmental piggy banks were raided to pay the salaries of endowed chairs, and to ensure that some of the endowed scholarships were still awarded.
Endowed funds are donated for very specific purposes and with strings attached. When those purposes are not discretional, but have been integrated into the university’s regular offerings (as is the case with endowed chairs’ teaching and research), U of T can’t just say, “Sorry, it was a bad year in the stock market,” and not pay certain people.
There are many reasons why the endowment fund, as well as the much larger pension fund, are not currently invested in start-ups (as far as we know at least—there is a concerning lack of transparency around the university’s investments). It is worrisome that the “revenue” advisory group would not recognize the difference between a venture capital fund and an endowment fund.
There is a concerning lack of transparency around the university’s investments.
Another alternative funding source the report mentions is real estate. The downtown U of T campus is particularly well suited for lucrative real estate deals. However, U of T, unlike York and UBC, has not hived off an entrepreneurial real estate subsidiary to sell campus land. Indeed, the university has a strong policy never to sell land. On real estate, the most entrepreneurial U of T gets is the recent “four corners strategy.” This contemplates leasing land “on the edge” of campus to for-profit businesses and potentially building some new non-academic buildings for this purpose. However, as enrolment numbers continue to grow, U of T is already busy filling up many of the campus’ green spaces with new academic buildings, including the construction of several profitable student residences.
I, for one, would be surprised if U of T becomes a successful landlord for anyone other than the ready-made captive audiences of new and international students. The report also intimates that new faculty and staff (who currently get somewhat below-market housing in nice but run-down late Victorian brick houses) should start to pay market rent. However, given the current stratospheric rents in downtown Toronto, a shift to full market rent—even for fixed-up apartments—would be decried by faculty, as well as deans and chairs who would worry about faculty recruitment.
Whose intellectual property is it anyway?
The third “alternative funding source” mentioned in the report is far more promising. Inventions and intellectual property (IP) could be a huge boon for U of T. Computer science and engineering researchers have produced a large number of patents and inventions in recent years, and U of T and its affiliated hospitals have been generating a stream of pharmaceutical inventions since insulin was discovered in 1921.
Currently, faculty are given complete ownership over intellectual property developed at U of T. If the university were to amend its policies and require a share of future revenues, this could add a substantial new revenue stream. In return for providing faculty with facilities and graduate student assistants, U of T would further benefit from its strengths in medical, pharmaceutical, and computer-related sciences.
When probing this issue, I was given the university’s policy on inventions and commercialization—tellingly entitled “inventor’s choice.” This financially irrational U of T policy is likely the reason why world-famous young engineer Raquel Urtasun is currently an engineering professor at U of T while simultaneously serving as Uber’s chief engineer for driverless vehicles. It is her choice whether to let the university license the patents and inventions developed with university and government funding or whether to sell her work directly to a US behemoth and pocket the money. One might as well tell people that it is their choice whether to pay taxes or not.
My working hypothesis about why the university leaves so much money on the intellectual property table is that administrators prioritize hiring and retaining top inventors for the sake of tech-heavy university rankings like the Shanghai Ranking of world universities (which reportedly plays a major role in bringing in large numbers of foreign, especially Chinese, students). U of T’s rankings seem to get more publicity in the university’s internal communications than any other single issue.
Outside the pharmaceutical field, which I have yet to seriously probe, Google seems to have been the main recent beneficiary of U of T’s inventor’s choice policy. A tech expert told me that a patent sold to Google by a U of T professor a few years ago for $2 million is now worth about $3 billion. Whether this figure is correct or not, a recent large donation of $100 million by Gerry Schwartz and Heather Reisman is not going into U of T’s coffers, but to an independent artificial intelligence (AI) institute to which Google will contribute—wait for it—a measly $5 million. No doubt, university computer specialists will benefit from research and career opportunities at the new Vector Institute, but a close look at Vector’s own website and the considerable media coverage of U of T’s AI developments suggest that the university’s finances will not.
The inventor’s choice approach may not last: Doug Ford’s government has recently put Google enemy and ardent tech nationalist Jim Balsillie in charge of developing a policy to ensure the province and its universities get more financial benefits from inventions. If that happens, it won’t be because U of T finally realized that shovelling intellectual property into the maw of Silicon Valley companies is an irrational way to manage the university’s resources.
How can we move forward together?
Given the continued erosion of public funding for Ontario’s universities and the likely cuts coming under the Ford government, faculty should focus attention on the alternative revenue sources our universities are pursuing and demand more transparency and accountability. We should research our institutions and find out how money is made and spent on an everyday basis and not just in the case of particular scandals. It helps to have a SSHRC grant, as I and my colleagues do, and I recommend others apply for funding to study their institutions. Having acquired information on how money flows in and out of our institution, we can then collectively work on developing alternatives.
To do this, campus groups would need to elect representatives to a broad-based coalition including staff (unionized and not), students (including international students), and faculty. Once formed, this coalition could, for example, strike a small committee on real estate, one on medical and drug patents, and so on. Another committee could find out how investment decisions are made and suggest ethical investment alternatives that are also financially wise.
Given the lack of transparency on matters you would think we have a legal right to know about, such as how our pension fund is invested, the research needed to suggest equity-enhancing alternatives to the current financial system will not be easy. However, academics are particularly good at making a fuss about access to data.
Will our U of T research project be useful elsewhere? Yes and no. In Ontario and throughout Canada, each university has a distinct financial ecosystem. Some issues recur across institutions, but do not affect all: for example, it is likely that the wasted opportunities in intellectual property revenues are more relevant to Waterloo and U of T than to less research-intensive institutions. But, that is not to say that intellectual property policies are irrelevant elsewhere.
My proposal for campus-wide representative coalitions with working subcommittees may be greeted with a nod followed by a tired yawn. In recent years, faculty and staff have been assigned piles of new administrative tasks, even as vice-deans, assistant deans, and special advisors proliferate. For their part, students are working far too many hours off campus to pay their increasingly burdensome tuition bills. There is definitely an energy deficit. But, as happens in the broader civic arena and as Plato warned, if we don’t make our voices heard the “rulers” will continue to wield their power as they see fit.
As a final motivator, I will end with an excerpt from the Alternative Funding Sources Advisory Group Report mentioned at the outset. I assure you the quote is not a parody.
The ability to seize opportunities in the rapidly changing global and local environment requires a constantly refreshed pipeline of ideas. U of T must actively create these pipelines, continually renewing and assessing their relevancy. This is consistent with the University’s core mission and at the same time will maximize opportunities for investment by industry, donors and governments. U of T’s … excellence … and world-class reputation provide an ideal platform for sustaining the pipeline. Divisions should be encouraged to contribute to the pipeline through the appropriate alignment of incentives and assignment of risk. Pipelines should be overseen and promoted through a cohort of expertly trained staff such as industrial liaison officers or business development professionals… [Emphases added]
Who knew U of T was so in favour of pipelines? And, if there is one “pipeline of ideas,” what are all the other pipelines for? And what would industrial liaison officers do in a history or philosophy department?