REPORT ON THE ANNUAL BUDGET

Transcription

1 REPORT ON THE ANNUAL BUDGET NOVEMBER 2012 QUEEN S UNIVERSITY KINGSTON, ONTARIO, CANADA

2 REPORT ON THE ANNUAL BUDGET QUEEN S UNIVERSITY AT KINGSTON

3 Preface This report is prepared by the Department of Financial Analysis and Budget. The report contains the complete budget as presented to the Board of Trustees in May, 2012 (ivory coloured pages). Following the ivory pages is a collection of appendices that provide updates on a wide variety of resource related issues. This report is circulated widely and serves as a convenient reference document. It is also available on the Queen s University website Several appendices that appeared in previous version of the ROAB are not included in the Requested for information on student enrolment, expenditure per student and cross-teaching adjustments should be directed to the Institution Research and Planning division of the Planning and Budget Office.

4 QUEEN S UNIVERSITY AT KINGSTON Table of Contents PREFACE QUEEN S UNIVERSITY BUDGET REPORT (IVORY COLOURED PAGES) EXECUTIVE SUMMARY... 1 SETTING THE CONTEXT... 3 OPERATING BUDGET... 4 DISCUSSION OF MAJOR REVENUES AND EXPENDITURES... 7 OTHER FACTORS IMPACTING THE BUDGET CAPITAL BUDGET ANCILLARY AND CONSOLIDATED ENTITY BUDGETS CONSOLIDATED BUDGET BEYOND OPERATING BUDGET TABLES TABLE 1: OPERATING REVENUE BUDGET TABLE 2: OPERATING EXPENDITURE BUDGET TABLE 3: PRELIMINARY CONSOLIDATED OPERATING BUDGET APPENDICES APPENDIX A: SCAD ENROLMENT PLAN... APPENDIX B: TUITION FEES... APPENDICES (WHITE PAGES) Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G Appendix H Appendix I Appendix J Budget by Cost Centre Faculty and Staff Complements Government Grants Faculty Salary Career Progression at Queen s (PTR/Merit) The University s Investment Funds Endowment Queen s Sponsored Research Funding Indirect Costs of Research Cost of Space Student Access Guarantee

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6 B U D G E T R E P O R T

7 Queen s University Budget Report Table of Contents Executive Summary 1. Setting the Context 2. The 2012/13 Operating Budget 2.1 Budget Strategy 2.2 Drawdown of Carry-forward Balances/Reserves 2.3 Risks 3. Discussion of Major Revenues and Expenditures 3.1 Revenues Government Grants Federal Grant Tuition Investment Income- Global Financial Market Conditions 3.2 Expenditures Allocations Student Financial Assistance Compensation Queen s Pension Plan (QPP) Deficit 4. Other Factors Impacting the Operating Budget 4.1 Faculty Complement 4.2 Research 4.3 Operating Budget Cumulative Deficit 5. Capital Budget 5.1 Major Capital Projects 5.2 Deferred Maintenance 6. Ancillary and Consolidated Entity Budgets 7. Consolidated Budget 8. Beyond Operating Budget 8.1 Multi-year Projections 8.2 The New Budget Model Tables Table 1: to Operating Revenue Budget Table 2: to Operating Expenditure Budget Table 3: Preliminary Consolidated Operating Budgets Appendices Appendix A: Enrolment Plan Appendix B: Tuition Fees

8 Queen s University Budget Report Executive Summary The budget is being presented as a single year budget. This is to allow for the development of a New Budget Model which will drive the projections for forward. Multi-year projections of major incremental revenues and expenditures are also shown to allow for future high level planning. The University is projecting a balanced budget for fiscal The Board will be asked to approve the budget. The Operating Budget was developed under the direction of the Provost and Vice-Principal (Academic) reflecting the move to the Provost model in June The Provost initiated the budget planning process in September, and budget meetings were held in the late fall. In addition, the Queen s University Planning Committee, a joint Senate/Board committee, met five times during the year to discuss key factors impacting the budget and, most recently, to review the final budget proposal. The most significant budgetary challenge the University has at the moment is the pension plan deficit. Queen s has negotiated changes to the plan with employee groups that will make it sustainable for future service, and has allowed the University to gain solvency relief under the new provincial regulations. This means that solvency special payments that would have been required to commence in can be deferred for three years, and further, that when these payments do commence they can be amortized over ten years rather than five. Despite the solvency relief, Queen s special payments to the pension plan will increase by $9M in and by a further $25M when the solvency payments start in Meeting the increased pension payments in the next three years, during the period of solvency relief, will be challenging. All units contributed an additional 1% of pensionable earnings in , and will be fully absorbing the increased pension costs in Despite this, there is more work to do to meet the looming solvency payments in Significant characteristics of the budget framework include: Extraordinary increases in legislated pension deficit special payments; Elimination of proposed across the board cut; No incremental sharing of tuition and grant revenue with Faculties & Schools; Compensation and benefit increases as negotiated, or assumed, covered within all unit budgets; Limited enrolment growth as per Senate approved plans; Limited increases in Provincial funding, primarily tied to growth; Tuition fees under current framework, including tuition set aside requirements; Significant savings forecast in Utilities and additional revenue contributed by Residences Limited utilization of carry-forward, employee future benefits and cash reserves to balance; The Operating Budget includes a number of identified risks: The continuing volatility of the capital markets and the reliance of the operating budget on returns from investment; The first agreement with United Steel Workers remains outstanding at this time; 1 of 25

9 Queen s University Budget Report A significant backlog of deferred maintenance in our physical infrastructure; and The absence of a central contingency fund. The budget reflects no deficit after the drawdown of reserves. Of this drawdown $6.7M is unit spending in excess of budget allocations (see Table 3 attached) and $3.6M related to nonrecurring expenditures. The University will continue to monitor the draw down of carry-forward reserves to ensure units are using these funds to transition to a sustainable budget. Queen s reputation for high quality has been maintained throughout this period of financial challenge. The University continues to attract highly qualified students, faculty and staff, while remaining one of the highest ranking Universities in terms of research intensity in Canada despite our size. Our faculty consistently receives prestigious national teaching and research awards. Our students have some of the highest entering averages and retention rates across the nation. The University will adopt a new activity-based budget model commencing which is intended to be transparent and strongly linked to academic goals and priorities. The change in the resource allocation methodology should position Queen s well to address the current fiscal realities and continue to foster excellence in teaching, learning and research. 2 of 25

10 Queen s University Budget Report 1. Setting the Context Almost 95% of revenue in the Operating Budget is derived from student enrolment in the form of operating grants from the government (base operating grant plus many smaller targeted funding envelopes) and student tuition. The revenue stream is directed and regulated by government, with limited flexibility for universities to increase revenue except through enrolment growth. Queen s has pursued a modest growth strategy and has accumulated an operating deficit over the last few years arising from expenditure growth greater than the incremental growth in revenue compounded by the extraordinary losses in the Pooled Investment Fund (PIF). The mandate for is to balance the budget with no further contribution to the accumulated operating deficit. The Provincial Budget presents a challenging future, but the post-secondary sector has generally fared reasonably well in an austerity budget climate. The Province continues to allocate incremental funding for universities through growth, maintaining their commitment to fund undergraduate growth while slowing down the funding model for graduate expansion. The existing tuition framework has been rolled forward for providing some stability, but there is no tuition framework beyond next year for long-term planning. Several measures will be introduced commencing to reduce base operating grants based on international student recovery and efficiency targets, which are accounted for in the multi-year revenue and expense projections included later in this report. The University is following an integrated planning framework in which the operating and capital financial plans will inform, and be informed by, the Academic Plan, the Strategic Research Plan, the Strategic Enrolment Plan and the Campus Master Plan. The Academic Plan approved by Queen s Senate in 2012 identifies four pillars that promote the vision of Queen s as the Canadian researchintensive university with a transformative student learning experience. The implementation of the academic plan integrated with the developing research and enrolment plans, will influence academic and therefore financial priorities over the next several years. The Planning and Budget portfolio was created in 2012 amalgamating the functions of budget planning and analysis, institutional research and planning and campus planning in order to bring a more integrated approach to university planning. The major priorities for that portfolio in the next year will be to develop and implement the New Budget Model and renew the Campus Master Plan. More information about the new budget model will be included later in this report. 3 of 25

11 Queen s University Budget Report 2. The 2012/13 Operating Budget The allocation of resources within the Operating Budget has evolved over many years to an increasingly decentralized financial model. Incremental revenue from tuition, and more recently government grant, have been shared with the Faculties and Schools that generate the enrolment growth. The current system relies on a complex set of sharing agreements and limits flexibility for the University to respond centrally to opportunities and challenges. The budget will be the last year using this resource allocation system and a new budget model will be introduced in with the objective of providing greater transparency, predictability and a financial structure that encourages and rewards innovation, revenue growth and efficiency. Accordingly the budget is presented as a one-year budget plan, with high level multi-year projections of major incremental revenue and expenditure included to facilitate planning. The proposed budget is balanced and will not structurally contribute to the accumulated deficit. This was achieved by employing a relatively modest planned drawdown of carry-forward reserves to fund onetime expenses over the base operating budget. The resource allocation system will be changed for with the objective of providing greater transparency and stability, encouraging Faculties and School to find ways to meaningfully increase revenue and decrease structural operating costs. The proposed Operating Budget is summarized in Table A below. Detailed summaries of revenue and expenditure forecasts are presented in Tables 1 and 2 at the end of this report. Table 3 provides consolidated expenditure projections by revenue and expense type for all units. 4 of 25

12 Queen s University Budget Report TABLE A- OPERATING BUDGET Queen's University Operating Budget (000,000's) Budget Budget REVENUE Student Fees $ $ Government Grants $ $ Unrestricted Donations $ 1.8 $ 1.8 Other Income $ 4.6 $ 6.0 Research Overhead $ 3.4 $ 3.4 Investment Income $ 17.0 $ 12.0 Total Operating Revenue $ $ EXPENSE Allocations: Principal and Vice-Principals $ 77.7 $ 81.3 Faculties and Schools $ $ Academic Initiatives \ Reinvestment $ 1.4 $ - Indirect Costs of Research to External Entities $ 2.0 $ 2.3 Grant & Tuition Sharing to Faculties & Schools $ 8.8 $ 6.3 Total Allocations $ $ Other Central Expenses: Benefits $ 5.0 $ 5.4 Pension Special Payments (Central Portion) $ 5.2 $ 2.3 Utilities $ 14.4 $ 13.7 Library Acquisitions $ 9.8 $ 9.8 Student Assistance $ 29.4 $ 29.4 Campaign $ - $ 2.0 Other Expenses, net of recoveries $ 20.9 $ 20.5 Total Operating Expenditures $ $ Net Surplus before Capital Expenditures $ 4.2 $ 12.9 Transfer to Capital Budget $ 12.4 $ 16.6 Unit Expenses greater than Budget Allocation $ 6.0 $ 6.7 Net Budget Surplus (Deficit) $ (14.2) $ (10.4) Draw down of Employee Future Benefit or Cash Reserves* $ 5.2 $ 3.6 Draw down of Unit Carryforward balances $ 6.0 $ 6.7 Net Surplus (Deficit) $ (3.0) $ (0.0) *In the drawdown of cash reserves is for one-time only expenditures 5 of 25

13 Queen s University Budget Report 2.1 Budget Strategy As mandated by the Board, Queen s is projecting a balanced budget in The University went through an extensive Budget Planning process to determine a strategy to achieve a balanced budget. The budget relies on the drawdown of central reserves as well as reserves in Faculties/Schools, the latter conservatively forecast at $6.7M (the projection for 2011/12 was $6M but the actual requirement was approximately $2.6M). The central reserve drawdown is required to fund commitments that are not continuing obligations. A number of factors were employed to achieve a balance budget, including: No sharing of incremental tuition and grant revenues, paired with the elimination of the previously planned across the board budget reduction; Reduction in pension special payments resulting from negotiated plan changes and lower interest rates, generating significant savings on solvency interest and going concern payments (the low interest rates produce a short-term benefit but have a negative long-term impact on the pension deficit); Tuition increases within the Province s regulated framework; Modest enrolment increase, graduate and undergraduate; Additional revenues from Residences; Utilities savings achieved through forward contract gas purchases and additional revenue from Ontario Power Authority from the Co-Generation plant. These positive contributions were partially offset by two major factors: Reduced income from the Pooled Investment Fund Pension Benefit Guarantee Fund payment of $2.3M required by the Ministry of Finance (increased from $350K in 2011/12) The budget makes provision for very limited re-investment directed to fulfilling the recommendations in the Human Resources review and adopting a client-service model, funding a Director position for the Isabel Bader Centre for the Performing Arts, ensuring maintenance budgets accommodate capital growth, and supporting the internal audit plan. 2.2 Drawdown of Carry-forward Balances/Reserves The budget reflects a deficit of $10.4M reduced to $0M through the drawdown of reserves. $6.7M of this is unit spending in excess of budget allocations (see Table 3 attached). The reliance on soft-funding (e.g., cash from carry-forward reserves) was added to the budget projections in and provides greater clarity on total expenses over the operating base-funding. The projected carryforward draw-downs have been included in the operating budget projections as Unit Expenses Greater than Budget Allocation, and then offset by the carry-forward draw down. Some units are using cash reserves to fund transition measures to move towards balanced budgets. It is not unreasonable that units will build and reduce carry forward reserves to meet operational and strategic opportunities and challenges. However, we must ensure ongoing base funding requirements are not vulnerable to 6 of 25

14 Queen s University Budget Report available cash. Those portfolios with structural deficits will be expected to continue to reduce expenditures or increase revenues to bring their operations into balance with their annual budget envelope. The University will continue to monitor the drawdown of carry-forward reserves to ensure units are using these funds to transition to a sustainable budget. The following table shows the consolidated carry-forward positions of all units after projected draw down of reserves. Budget * Projected Actual Budget * Unit Opening Carryforward $ 47.8 $ 47.8 $ 45.2 Projected Drawdown* $ (6.0) $ (2.6) $ (6.7) Projected Unit Closing Carryforward $ 41.8 $ 45.2 $ 38.5 *These are based on initial budget submissions in the fall that may change The remainder of the University drawdown is from the employee future benefits and cash reserves. The drawdown is for expenditures that are one-time only expenditures and hence do not represent a base budget commitment moving forward. 2.3 Risks The Operating Budget includes a number of identified risks: The continuing volatility of the capital markets and the reliance of the operating budget on returns from investment pose a significant risk. The Pooled Investment Fund is budgeted to contribute only $4.2M in versus $9M in ; Assumptions have been included in the budget about the outcome of first agreement negotiations with United Steel Workers but the agreement remains outstanding at this time; As noted later in the report, there is a significant backlog of deferred maintenance in our physical infrastructure, with no identifiable funding source; and The absence of a central contingency fund puts the University at risk of not being able to respond to challenges and/or opportunities as they arise. 3. Discussion of Major Revenues and Expenditures 3.1 Revenues The Enrolment Plan recently approved by Queen s Senate is included as Appendix A of this report. The majority of the operating revenue is enrolment driven and made up of tuition fees and provincial grants. Therefore enrolment planning has a significant impact on Queen s financial projections. The 7 of 25

15 Queen s University Budget Report operating budget and the to tuition and grant projections incorporate the projected enrolments outlined in the Enrolment Plan. The New Budget Model and the Campus Master Plan will require multi-year enrolment planning to be undertaken by Faculties and Schools commencing this summer. The Provost s Strategic Enrolment Group will oversee the University s overall enrolment strategy at the undergraduate and graduate levels Government Grants The Government has indicated that the Undergraduate Accessibility Grant will fully fund actual growth, but has not yet released the projections they have used in budgeting. Further, they plan to fund only 600 graduate places but have not yet determined the allocation, or allocation process, for those spaces in Queen s Operating Budget plans for only modest growth at the undergraduate level and conservatively holds growth funding at the level for graduate enrolment. As the government is only funding growth there are no significant changes expected in other provincial grants in , as indicated in the table below. Provincial Government Grant Revenue (000,000's) Y/Y Budget Actuals Budget Budget Change Operating Grants Basic Operating Grant (BOG) $ $ $ $ 2.8 Performance Fund Grant $ 2.0 $ 2.0 $ 2.0 $ - U/G Accessibility Funding $ 5.8 $ 5.6 $ 4.0 $ (1.8) Graduate Accessibility Funding $ 6.0 $ 6.5 $ 6.5 $ 0.5 Quality Improvement Fund $ 6.9 $ 6.8 $ 6.8 $ (0.1) Research Infrastructure $ 2.0 $ 1.9 $ 1.9 $ (0.1) Ontario Operating Grants $ $ $ $ 1.4 Earmarked Grants Tax Grant $ 1.4 $ 1.4 $ 1.4 $ - Special Accessibility $ 0.4 $ 0.5 $ 0.4 $ - Regional Assessment Resource Centre $ 0.8 $ 1.0 $ - $ (0.8) Targetted programs* $ 7.1 $ 7.5 $ 8.0 $ 0.9 Research Performance Provincial $ 0.3 $ 0.3 $ 0.2 $ (0.1) Clinical Education Funding $ 0.6 $ 0.6 $ 0.6 $ - Total Earmarked Grants $ 10.6 $ 11.3 $ 10.6 $ 0.0 Total Provincial Grants $ $ $ $ 1.4 * includes funding for Enhanced Medicine, Enhanced Medical Post Grad Interns and Residents, and Seond Entry Nursing 8 of 25

16 Queen s University Budget Report Federal Grant The only Federal grant Queen s receives in the operating budget is for the Federal Indirect Costs of Research (FICR), a significant grant that supports University operations. Queen s has been extremely successful in securing research grants, but this comes at a cost. It is widely accepted that the indirect costs of research are approximately 40% of the direct costs. The FICR grant is calculated at 16.85% of direct research costs. For , the total FICR grant has been budgeted at $10.1 M consistent with actuals Tuition In March 2006 the Province announced a multi-year tuition policy framework scheduled to end in fiscal , extended to and recently extended again for Universities are permitted to increase tuition for first-year students by up to 4.5% in most programs and up to 8% in the first year of professional and graduate programs. In-program and subsequent upper year increases have been limited to 4% annually. Overall, aggregate tuition fee increases across the institution must not exceed 5%. Fee increases are tied to both the Student Access Guarantee and improvement in quality, for which institutions are accountable. With the extension, there is a continued requirement that 10% of fee increases must be set aside for student assistance. The budget projections assume tuition fee increases as outlined in Appendix B. The recommendation is that domestic tuition fees be set to the maximum allowable for most undergraduate and professional programs. In order to ensure that our tuition fees and related student support packages for graduate students remain competitive, research based graduate program fees, domestic and international, have been frozen in the budget projections. Tuition fees for international students in most undergraduate and some professional graduate programs have been budgeted to increase by 8% in first-year and 4% in upper years, a lower rate of increase for international fees than the past couple of years Investment Income- Global Financial Market Conditions While the markets continue to improve, they still have a long way to go to make up for value lost during the decline. The University has two investment portfolios, the Pooled Endowment Fund and the Pooled Investment Fund. The Pooled Endowment Fund ("PEF") is an investment pool of funds that has been designated to University Endowment accounts. Donations received by the University are invested in the PEF to earn capital growth and each year amounts are withdrawn according to the spending policy. At the March 2012 meeting, the Board of Trustees approved an adjustment to the modified Yale formula for the PEF payout for the next two years that will reduce annual payouts and result in payouts close to the target rate of 4%. The Pooled Investment Fund ( PIF ) comprises the investment of monies in reserve and other unspent balances, primarily unspent research funds and Faculty carry-forward funds. Amounts withdrawn from the PIF each year will be reviewed annually and decisions will be made based on market conditions by the University and reviewed by the Investment Committee of the Board of Trustees. 9 of 25

17 Queen s University Budget Report The year-end market value of these funds from April 30, 2009 to the projected value at April 30, 2012 is shown below: Investment Portfolios (000's) Market Value Market Value Market Value Proj Mrkt Val April 30, 2009 April 30, 2010 Apr 30, 2011 April 30,2012 Pooled Investment Fund (PIF) 126, , , ,000 Pooled Endowment Fund (PEF)* 472, , , ,500 Total 599, , , ,500 *Market value is reduced by year end payout The table below shows the current and projected income from the PEF based on the continued use of the Yale formula. The income from the PEF supports the operating fund (approximately $3.5M annually) and other operations, including financial aid and departmental chairs. Projected Endowment Income ($Millions) General Operating Income Student Assistance Chairs, Departmental and other funds Total Projected Endowment Income Projected Payout rate per Yale Formula (dollars) Reliance on income from the PIF in the operating budget has been reduced from budgeted revenue of $9M in to $4.2M in This is more realistic in light of recent market returns and our intention not to further erode capital in the PIF. 3.2 Expenditures Allocations More than two-thirds of the Operating Budget is allocated directly to support the academic enterprise. Many expenses included in Principal and Vice-Principles and Other Central Expenses as presented in Table A are directly attributable to supporting academic programs and initiatives in the Faculties, Schools and Library, the full allocation as illustrated in Figure 1. A further 20% of the Operating Budget is allocated to supporting the academic enterprise through shared central services such as Student Affairs, Human Resources, Physical Plant Services and expenses related directly to faculty support and renewal. As noted, Faculties and Schools had to budget for without relying on incremental revenue previously planned for. Although they were all able to plan responsibly without compromising their academic programs and delivery, this budget position is not sustainable. 10 of 25

18 Queen s University Budget Report Figure 1 represents the breakdown of the allocation of resources among major expenditure areas, breaking out expenditures consolidated in the Principal and Vice-Principals portfolios. Figure 1 Budget Allocations to Major Expenditure Areas Transfer to Capital 4% Student Assistance 7% Shared Services 20% P & VPs 8% Academic (Faculties, Schools & Library) 61% Student Financial Assistance As part of the Tuition Policy Framework, all universities must commit to the Student Access Guarantee (SAG), which guarantees that all Ontario students in need will have access to resources from their university to cover tuition, books and mandatory fees. The Framework also stipulates that universities are required to ensure that their total student assistance funding is equivalent to the cumulative annual set aside of a share of domestic tuition revenue, currently set at 10%. The Provincial Budget continues the `30% Off` Ontario Tuition Grant and has cut several student support programs to support it (e.g., QEII Aiming for the Top scholarships, OTSS, textbook & technology grant, and other small OSAP and other grant programs). Queen`s has had a long-standing commitment to addressing both quality and accessibility at the undergraduate and graduate level through a well-funded student assistance strategy. The student assistance operating budget allocation has increased from $17M in to $29.4M in The Operating Budget does not include an allocation to increase overall student support funding but the University will be able to meet its regulatory and strategic objectives. Income from the University s endowments enhance the support to Queen s students by providing an additional $10.5M annually in student assistance, the reduction in the planned endowment payout will further constrain available student assistance. With continuing growth in enrolment and costs of attendance for students, it is expected that increases to the student assistance budget will be required in the future. 11 of 25

19 Queen s University Budget Report Compensation As introduced in the fiscal year, all Units are responsible for covering salary and benefit increases. Most employees compensation increases are driven by collective agreements and all known and assumed agreements have been factored into the budgets of the Faculties and Administrative Units. The contract expiry dates for employee groups with agreements are as follows: Employee Group Unit / Assoc Contract Effective until Kingston Heating & Maintenance Workers CUPE 229 Jun 30, 2014 Kingston Technicians CUPE 254 Jun 30, 2014 Library Technicians CUPE 1302 Jun 30, 2014 Queen's University Staff Association QUSA Jun 30, 2014 Queen's University Faculty Association QUFA April 30, 2015 Registered Nurses & Nurse Practioners ONA 67 Mar 31, 2014 Graduate TA's / TF's PSAC 901 April 30,2013 The following groups are engaged in ongoing contract negotiations: Employee Group Unit / Assoc Status Academic Assistants USW Ongoing General Support Staff USW 2010 Ongoing Allied Health Care Professional FHT OPSEU Ongoing Post Doctoral Fellows PSAC Ongoing Queen s Pension Plan (QPP) Deficit The pension plan unfunded liability is the most significant financial issue facing Queen s at present. The most recent QPP valuation was August 31, 2011, and the next required valuation is effective August 31, The draft Mercer valuation as of August 31, 2011 (final to be filed by May 31, 2012) establishes the liability as follows: Going-Concern Deficit*: $151.6M ($86M Aug. 31, 2008) Solvency Shortfall: $332.3M ($69M Aug. 31, 2008) *Market basis. The valuation has been filed on a smoothed basis of $126.4M ($44.6M Aug. 31, 2008), thus reducing the required special payments. The going-concern financial position of the plan has improved since August 31, 2010 (the data presented in the May 2010 budget report), primarily due to negotiated plan changes and assumption changes. Effective September 1, 2012, additional going-concern special payments will start. The University will be required to file another valuation effective August 31, 2014, and increased payments for the solvency shortfall are forecast to commence September 1, Increased payments per the August 31, 2011 valuation are as follows: 12 of 25

20 Queen s University Budget Report Sept Sept Sept $7.2M for one year (solvency interest) $9.4M for three years $34M for 10 years It is important to note that 2015 projections are based on a number of actuarial estimates, and will change depending on conditions at the date of the August 31, 2014 valuation. All units will be responsible for covering the additional pension expense, which have been incorporated into the budget projections. University contribution will increase from approximately 10.4% of pensionable earnings before the valuation, to about 13.25% commencing September Noted above, at the end of the Stage 1 solvency relief, Sept. 2015, additional solvency special payments of $25M annually will be required assuming Stage 2 solvency relief or amortization of the solvency payments over 10 years rather than five. The University is looking at all options to reduce the on-going operating budget impact of these significant pension contribution increases. The three-year solvency relief period gives some time to develop a strategy. Some of the options being explored are: Letter of credit Early lump sum payments Debt paid over a longer time-frame Sale of assets 4. Other Factors Impacting the Operating Budget 4.1 Faculty Complement The graph below shows Queen s significant investment in full-time faculty positions (excluding Continuing Adjuncts) in the last five years. However, many Faculties are planning on meeting the current financial pressures through the elimination of faculty positions as they become vacant. The elimination of mandatory retirement has made this harder to predict and therefore budget planning more challenging. The student to faculty ratio is a metric often used as a proxy to demonstrate the quality of the learning experience. This ratio has been steadily increasing across almost all disciplines for the past decade. The modest increases in enrolment over the same period have mitigated the University s financial challenges but have not provided sufficient funding to materially increase the faculty complement and improve this quality measure. 13 of 25

21 $ Millions Queen s University Budget Report Full-Time Tenure and Tenure-track Faculty excluding Clinical Medicine Fiscal Year Source: Institutional Research and Planning 4.2 Research Queen s continues to be successful in securing research grants and contracts. In a national ranking prepared by Research Infosource Inc., Queen s ranks 6 th in Canada in research intensity (sponsored research per faculty member) and 11 th for total research income in The graph below shows the increase in research revenue at Queen s over the last decade per the audited financial statements. Research revenue is only recognized in the financial statements as expended, with the balance deferred. The dip in relates to the timing of expenditures only, as there was a $30M increase in deferred research revenue. In the deferred revenue was $12M less than in which explains the upturn in the graph. Research Revenue* Source: Consolidated Statement of Operations by Fund * Research revenue received but not expended during the year is deferred and therefore not reflected in these numbers. 14 of 25

22 Queen s University Budget Report Queen s research productivity is a great asset in faculty recruitment, in attracting graduate students with awards, and, ultimately in securing even higher levels of funding. This success does come at a cost, not only in the indirect costs required to support the research, including financial management, contract administration, health and safety and IT and other physical infrastructure requirements, but also in human capital. 4.3 Operating Budget Cumulative Deficit The operating budget deficit at April 30, 2011 was $78.7M, the majority of which relates to non-cash employee future benefits, with an operating fund deficit of $18.8M. Current operating budget projections are for an increase in the deficit of $1M. Fluctuations in the Pooled Investment Fund market value at fiscal year-end will impact these projections. While the University has had small operating budget deficits for the last three years, the bulk of the deficit is a result of the market downturn, with significant realized losses in the Pooled Investment Fund. Future budget plans will include measures to recover these losses. Steps have already been taken to lower the operating budget reliance on the Pooled Investment Fund income. 5. Capital Budget Capital expenditures funded from the Operating Budget are shown as Transfer to Capital Budget in the operating budget and are itemized in Table B below. Internal capital loans reflect the use of committed cash reserves for payment of capital projects and are being amortized over a number of years. To help bolster the University budget through very challenging fiscal realities, a decision was made to temporarily suspend the funding of some internal loans (approximately 15%) for three years. These loans are highlighted for which was the final year of the deferral of the payment. This expenditure has been reinstated into the operating budget for The Ontario Budget made little provision for new capital, indicating only that `capital allocations for unannounced projects would be reduced and there was no funding provided for deferred maintenance, which represents a risk to Queen`s and virtually all other Ontario universities. More detail about the University`s capital planning and deferred maintenance is summarized later in this report. 15 of 25

23 Queen s University Budget Report TABLE B: CAPITAL BUDGET ALLOCATION Queen's University & Capital Budget Allocations from Operating Budget Budget Grant Revenue MTCU Facilities Renewal Fund $ 1,046 $ 1,046 MTCU Graduate Capital $ 1,700 $ 1,700 Total Revenue $ 2,746 $ 2, Budget Allocations 0 0 Capital Projects Financing 0 0 School of Kinesiology & Queen's Centre $ 6,015 $ 6,015 QUASR $ 3,000 $ 3,000 BISC $ 250 $ 250 Biosciences Complex $ 223 $ 223 Chernoff Hall $ 900 $ 900 ILC $ 125 $ - Goodes Hall Expansion $ - $ 895 Electrical Substation $ 900 $ 900 CoGeneration Facility $ 1,064 $ 1,064 Richardson Hall & University Ave $ 1,500 $ 1,500 Tools for Research Administration at Queen's (TRAQ) $ - $ 640 Boiler #8 $ - $ 167 Deferred Maintenance $ - $ - MTCU Facilities Renewal Fund $ 1,046 $ 1,046 Deferred Maintenance $ 2,710 $ 2,710 $ - $ - Total Expenses $ 17,733 $ 19,309 $ - $ - Budget Surplus (Deficit) $ (14,987) $ (16,563) Transfer from Operating Budget $ 12,425 $ 16,563 Net Budget Surplus (Deficit) $ (2,562) $ - Deferal of Internal Loans (Highlighted above) $ 2,562 $ - Surplus (Deficit) $ - $ Major Capital Projects Queen s has embarked on a number of significant capital projects over the last few years. The following table shows the capital expenditure plan for approved projects and the projected expenditures by fiscal year. 16 of 25

24 Queen s University Budget Report Capital Projects Budget $M Forecasted Expenditures to April '12 Budget Remaining Projected Expenditure Projected Expenditure School of Kinesiology & Queen's Centre Phase Medical Building Goodes Hall Expansion QUASR Electrical Substation Stuart Street Underground Parking Isabel Bader Centre for Performing Arts* Reactor Materials Testing Laboratory West Campus Fields Nixon Field Total * plus Tett Centre The following table lists projects for which planning funds have been approved by the Board. Under the Board approved capital planning process, none of these projects will move forward without a full business case and committed funding. Projects with Approved Planning Funds ($000): Planned Projects- budget approved ($000's) Planning funds approved to Apr. '12 Expenditures to Apr. '12 Funding to Apr. '12 Net Cash Position Teaching Space Complex 2, ,585 2,285 Engineering & Applied Science New Building Total 2, ,885 2,385 A process for approving Major Capital Projects was introduced a couple of years ago to add structure to the capital project planning process. This process is currently under review and refinement to ensure it meets our fiscal planning requirements without over-burdening the process. The Campus Master Plan Advisory Committee will review capital project requests to ensure alignment with the University`s plan and regularly review and revise the Campus Master Plan as necessary and appropriate. The University will also develop a capital asset management plan to support any government capital investment requests. 5.2 Deferred Maintenance MTCU funded a Facilities Condition Audit for all Ontario Universities in and the data is stored in a common software system. The results are $248M of deferred maintenance broken down as follows: 17 of 25

25 Queen s University Budget Report Facilities Condition Audit Deferred Maintenance $000's Campus 199,400 Residences 48, ,187 In the table above, Campus includes University houses that are occupied by departments and underground infrastructure. The audit broke down the deferred maintenance into priorities, with priority 1 as things that are critical totaling $1.1M and will be addressed in Priority 2 that should be dealt with within the next few years totals $39M. The University receives $1M of annual provincial funding for deferred maintenance under the Facilities Renewal Program, reduced from $1.8M a few years ago. Queen s also allocates operating budget funds for required maintenance. The operating budget allocation is $4.2M of which $1.5M is being used annually to fund two completed capital projects, University Avenue and Richardson Hall. This leaves a balance of only $3.7M to deal with all identified deferred maintenance in , with no funding allocated for classroom upgrades including technology beyond the maintenance funding included in IT Services budget. 6. Ancillary and Consolidated Entity Budgets These units provide goods and services to the University. Ancillaries are not supported by central University revenues and are expected to run as break-even operations after contributing overhead to the Operating Budget. Many Ancillaries pay an overhead charge to Queen s which, after a review, will be increased over the next couple of years. Residences, Community Housing and Event Services were charged the new overhead rate in , resulting in over $500K in additional overhead contributions. There are also additional contributions made by these units to support the operating budget as shown in the budget projections below. These contributions from ancillaries will continue in the fiscal year. In addition, Residences is providing additional contributions to help directly support the Student Affairs portfolio. The following table shows the Budgets for Ancillary Operations. All Ancillaries are projecting profits with the exception of Parking. The parking deficit is due to the debt financing of the underground parking garages as planned in the capital business case for the garages. 18 of 25

26 Queen s University Budget Report The figures shown for the U/G Parking structure (shared 50/50 with Kingston General Hospital) represent Queen s share ANCILLARY BUDGET (000's) Residence Event Services Community Housing Parking Marketing & Communications Computer Store QEDC Donald Gordon Centre Stuart St. Underground Parking REVENUE 45,880 4,345 5,983 2, ,860 11,025 4,074 1,069 EXPENDITURE Salaries & Benefits 7,177 1,308 1, ,102 1, External Contracts 18,829 2, Utilities 3, , Repairs & Alter. 3, Debt Servicing 5, , , Supplies & Misc. 3, ,181 4, Total Exp excl Overhead 42,073 3,961 4,564 4, ,786 9,052 3, Overhead 2, Additional Contributions Total Expenditures 45,595 4,205 5,428 4, ,860 9,436 4, SURPLUS (DEFICIT) (2,344) 220-1, The Consolidated Entities are composed of PARTEQ Innovations, Bader International Study Centre (BISC) and Queen s Centre Enterprise Development (QCED) Consolidated Entities BUDGET (000's) PARTEQ Consolidated BISC QCED Inc. REVENUE 11,203 7, EXPENDITURE Salaries & Benefits 4,441 3, External Contracts Utilities Repairs & Alter Debt Servicing Supplies & Misc. 5,456 2, Total Expenditures 10,783 6, SURPLUS (DEFICIT) of 25

27 Queen s University Budget Report 7. Consolidated Budget The operating budget represents approximately 55% to 60% of total university expenditures depending on annual levels of research funding and donations. Consistent with many other universities, the Board approves the Operating Budget. The consolidated budget is made up of the following components: Operating; Ancillary; Research; Consolidated Entities; Trust; and Capital. The expenditures in Research and Trust are substantially dictated by the grantors and donors. Therefore, the flexibility that Queen s has in managing its operations is within the Operating Budget. The Consolidated Entities are composed primarily of PARTEQ Innovations, Bader International Study Centre and QCED (Queen s Centre Enterprise Development). The following chart is for illustrative purposes only and shows the approximate percentage of University expenditures that occur in each fund. The percentages are based on the expenditures for all other funds. Illustration of Approximate Percentage Breakdown of Expenditures by Fund Consolidated Expenditures by Fund 2.5% 4.8% 8.8% 21.0% 52.7% Operating Ancillary Trust Capital Cons Entities Research 10.1% 20 of 25

28 Queen s University Budget Report 8. Beyond Operating Budget 8.1 Multi-year Projections While the budget is being presented as a single year budget only, the following table illustrates high level revenue and expense projections to for information. The first year that special pension solvency payments will be required is The projection reflects the pension plan changes adopted in 2011 which met the requirements for Stage 2 solvency relief, enabling the University to allocate the projected special payments over 10 years instead of five. The 2012 Provincial Budget announced various grant reduction measures that will become effective in and are reflected in the projections, including: - International Student Recovery the Province eliminated funding for international students in Commencing in , the universities base operating grants will be reduced by $750 per full-time international student (excluding doctoral students), beginning with new students and gradually including all registered students. Also effective in , the Province will eliminate funding for all registered international students (excluding doctoral students) in the grant in lieu of taxes paid by universities to their local municipalities; the universities will remain responsible for the full grant. - Efficiency Targets - significant reductions to base operating grant funding will be introduced in and increasing in ; Queen s projected share of the reductions is included in the multi-year forecast below. Queen's University to Projected Increases in Major Revenues and Expenses over ($ Millions) $ $ $ Revenue (1) Expenditures (2) Net Gain/(Loss) (3.2) (6.1) (8.6) Pension Solvency Payment Net Gain/(Loss) (3.2) (6.1) (25.0) (1)Includes increasing tuition and grant revenues due to enrolment and fee changes Also includes decreases in grant related to "Policy Levers" in Provincial Government Budget (2)Includes increases in salary and benefits largely based on collective agreement terms, increased utilties and building operating costs due to inflation or the addition of new buildings, funding for Innovation Park and TRAQ implementation &sustainment, additional student assistance 21 of 25

29 Queen s University Budget Report 8.2 The New Budget Model The University will adopt a new budget model commencing which will be an activity-based model attributing revenue and expense to the academic Faculties and Schools who generate the revenue. The new budget model is intended to be transparent and strongly linked to academic goals and priorities. Increased revenue and cost savings will remain in the academic unit that generates the change providing a strong incentive to be innovative in programming and enrolment planning. Planning and development is well underway in consultation with the academic and shared service units across campus. The attribution of expenses will include space occupancy costs, highlighting the cost and value of space as an expensive and scarce resource. This change is expected to have a positive impact on space utilization and accountability. The budget model is a tool to help facilitate planning and enhance accountability in the budget process, but it is not intended to replace policy or discretionary investment in institutional priorities. Multi-year enrolment plans will inform projections and effective the planning horizon will include three-year budget projections. Priorities for the budget commencing in will be include a deficit reduction plan to eliminate the accumulated operating deficit and the development of a reserve for future capital requirements. The new budget model will not in and of itself increase net revenue for the University, it is a different method of allocating the pie. It will be designed, however, to encourage Faculties and Schools to increase the total pie, enhancing financial opportunities within their academic units and to the University as a whole. 22 of 25

30 Queen s University Budget Report Queen's University at Kingston TABLE Revenue Budget Budget Budget Changes % Changes $'s from Tuition $ 143,533,501 $ 156,814,423 $ 13,280, % MBA Tuition $ 25,591,754 $ 26,917,799 $ 1,326, % Student Assistance Levy $ 2,059,784 $ 2,199,379 $ 139, % Other fees $ 5,541,177 $ 6,287,529 $ 746, % Total Fees $ 176,726,216 $ 192,219,130 15,492, % Operating Grants Basic Operating Grant $ 151,169,740 $ 154,003,661 $ 2,833, % Performance Fund Grant $ 1,997,651 $ 2,013,185 $ 15, % U/G Accessibility Funding $ 5,797,007 $ 4,017,383 $ (1,779,624) % Graduate Accessibility Funding $ 6,025,707 $ 6,538,079 $ 512, % Quality Improvement Fund $ 6,945,201 $ 6,837,692 $ (107,509) -1.55% Research Infrastructure $ 2,008,842 $ 1,886,515 $ (122,327) -6.09% Ontario Operating Grants $ 173,944,148 $ 175,296,515 $ 1,352, % Earmarked Grants Tax Grant $ 1,404,975 $ 1,448,250 $ 43, % Special Accessibility $ 357,657 $ 357,657 $ % Regional Assessment Resource Centre $ 810,000 $ - $ (810,000) % Targetted programs $ 7,124,627 $ 8,003,318 $ 878, % Research Performance Provincial $ 264,655 $ 248,655 $ (16,000) -6.05% Clinical Education Funding $ 623,751 $ 623,751 $ % Total Earmarked Grants $ 10,585,665 $ 10,681,631 $ 95, % Total Provincial Grants $ 184,529,813 $ 185,978,145 $ 1,448, % Federal Grant $ 9,813,667 $ 10,161,429 $ 347, % Other Revenue Unrestricted Donations and Bequests $ 1,750,000 $ 1,750,000 $ % Other Income $ 4,588,336 $ 5,996,059 $ 1,407, % Research Overhead $ 3,400,000 $ 3,400,000 $ % Investment Income $ 17,042,413 $ 12,040,796 $ (5,001,617) % Total Other Revenue $ 26,780,749 $ 23,186,855 $ (3,593,894) % Total Revenues: 397,850, ,545,559 13,695, % 23 of 25