Canada’s universities face a financial crisis. With a full and normal return to classes in September off the table due to ongoing risk from COVID, funding from tuition sources – particularly, international students – is uncertain. At the same time, governments that have been focused on sustaining healthcare and the economy during the crisis are beginning to look at ways to pay down the debt incurred from an array of emergency worker, business and community support programs. Universities may find themselves in the crosshairs. This would be a mistake.

Cutting funding in the midst of the crisis would risk substantial harm to the contribution universities make to innovation and regional economies in Canada. Adding financial pressure to institutions that will be key partners in the long path to economic and social recovery will not only make that recovery longer than necessary, but also harm the education and employment prospects of students entering the labour market in the coming years. Canada’s governments need to support higher education through the COVID crisis and beyond.

Universities in the innovation ecosystem  

 Universities are agents of innovation. Through basic research conducted at universities, the world’s most cutting-edge and valuable technologies – like the internet, insulin and lithium batteries – have changed the way the world operates, contributing to prosperity and well-being.

As well, universities are important hubs in local and regional economies and communities which benefit immensely from the research, teaching and engagement led by local universities. Institutions such as the University of Waterloo, the University of Windsor and Memorial University in St. John’s are centres for their respective regions. Universities are often the largest local employer and important contributors to social and economic well-being. When universities struggle, the economies and communities in which they are embedded also struggle.

Universities are essential both to the development and diffusion of innovations through their work with local firms, social organizations and governments. A key part of that is the education and graduation of students with advanced skills and knowledge who make major contributions to the economy and society. University graduates will be important to Canada’s long-term recovery, playing central roles in health research and healthcare; entrepreneurship; technology development and diffusion; policy development and implementation; and social service delivery. Limiting the ability of universities to produce these highly skilled and motivated graduates will hamper recovery.

Financial challenges and strategies

Even before the COVID-19 crisis hit, government funding to universities in many provinces was under pressure. In Ontario, for example, the government imposed a funding freeze in 2018 that constrained institutions.

As post-secondary education consultant Alex Usher has noted, this came after years of changes in the mix of programs in which undergraduate students have enrolled. For example, there have been fewer arts, humanities and social science programs whose delivery costs are lower, and more in science, technology, engineering and math programs whose delivery costs are higher. The upshot is that even before COVID, universities were being asked to provide a higher-cost education at effectively the same level of per-student funding. Universities are expected to do more with less.

With the COVID pandemic and economic crisis, universities are confronting new challenges. Uncertainty about enrolments, tuition and revenues from ancillary university services such as housing, food services, and recreational amenities, are complicating planning and budgeting. Adding to mix is the fact that faculty and staff must take on additional work related to the shift to online teaching, public and policy engagement and finding new ways to help institutions operate effectively, even as some worry about whether they will have jobs at all in the months to come.

According to Richard Ekman, president of the non-profit Council of Independent Colleges, a majority of universities have funding reserves for about six months only. In the face of extraordinary uncertainty about how schools will operate, for whom and with what results, that is not much of cushion to work with.

Although early admissions data for Ontario suggest that enrolment might hold steady overall, it remains to be seen how many students – both domestic and international – will actually register and pay tuition in the fall. Even then, the average across institutions hides declining numbers at many individual institutions, including many in smaller communities where they are central economic actors.

Conventional strategies are falling short  

When confronted with financial uncertainty in the past, universities have pursued a variety of strategies. But COVID-19 fundamentally changes the nature and scale of the problem, making the usual strategies less promising as solutions.

In the past, universities have turned to tuition increases to deal with financial shortfalls. This is not a viable strategy in the current context. The appetite for tuition increases is always low and politically fraught, and the recession effectively takes this option off the table. Millions of Canadians have lost their jobs or had their hours and wages reduced. Asking students to contribute more to their education under these circumstances is both impractical and unfair.

Another option that universities use to cover financial shortfalls is the enrolment of international students. International students tend to be charged higher tuition rates than domestic students which generates additional revenues for universities even as costs-per- student only partially rise.

Yet, fewer international students will be able to attend Canadian universities. According to the Pew Research Center, 90 percent of the world’s population is under international travel restrictions due to COVID-19. Even if travel bans are lifted before September, fewer international students will be willing and able to enroll and travel.

Lastly, over the past few decades, universities have turned to industry to support collaborative research which helps with research costs and graduate student support. Some of the world’s top universities, as indicated by the Times Higher Education, fund a large part of their research through industry. Yet, industry sources of funding for university research will likely decline over the next few years. Most industries are suffering similar or worse economic and financial challenges as academic institutions. Many small- to medium-size firms are financially unstable, as are many large firms whose fates are being determined by weakened global demand and supply chains.

New strategies, with drawbacks

Universities are experimenting with new strategies to cope with COVID-19 and its financial implications. Many will offer online rather than in-person instruction. Though not optimal, and difficult to accomplish in physical sciences, engineering and medicine, online instruction allows institutions to continue to enroll students and allocate their tuition to education and institutional sustainability. Arguably, the absence of physical space restrictions in online instructions could allow universities to increase the number of accepted students thereby generating additional revenue to weather the storm.

Yet, online learning has drawbacks. Technology and support requirements on the university side require additional resources which are currently scarce. Moreover, not all students will have access to good, reliable technology and other resources needed for effectively online learning. Online learning risks exacerbating existing geographical and income disparities in higher education participation and attainment.

There is a strong possibility that universities will turn to austerity strategies to balance budgets – including, pay cuts and furloughs for staff, shutting down departments, and/or closing entire schools. Until the provincial government reversed its decision to cut funding, higher education institutions in Manitoba were looking at staff reductions to make up for a shortfall. In the face of real funding cuts in Alberta, the University of Alberta has reportedly eliminated about 1,000 jobs and is looking for additional ways to balance its budget. While this strategy may be inevitable, its negative effects on education, staff support and morale are clear and is unlikely to help institutional sustainability in the long-term.

Public support for the university mission

 To ensure that universities are able to sustain their research mission and contribute to innovation, federal and provincial governments should commit to maintaining or increasing, funding through the research councils and other programs. Funding from the federal and provincial governments for COVID-related research is essential – and the fact that millions were provided signals that governments and the public recognize the essential role university research plays. But research is a long-term activity that requires stable funding to produce new knowledge and innovation to improve social and economic well-being.

Additionally, stable institutional and per-student funding throughout the crisis and beyond is a commitment that all provincial governments should make. Now more than ever, universities need predictable and robust public funding to ensure that universities can continue to educate and graduate highly skilled people.

Graduates are our healthcare workers, teachers, engineers and entrepreneurs – people who will contribute to economic recovery. We owe it to them, and our communities, to see that they are as well-equipped to succeed and contribute as much as possible.

The short-term pressure to ignore or cut from universities is understandable, but long-term innovation performance, economic prosperity and individual and community well-being depend on universities. They must have the resources they need to fulfill their research and education missions. If we want higher education institutions to produce skilled graduates, support regional economic development and ensure education is accessible and equitable for all, we need to fund them in crisis and in prosperity

This article is part of the Building a More Inclusive Innovation Economy After the Pandemic special feature.

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Shiri M. Breznitz
Shiri M. Breznitz is an associate professor at the Munk School of Global Affairs & Public Policy. She is an economic geographer, specializing in innovation, technology commercialization, and regional economic development.
Daniel Munro
Daniel Munro is senior fellow in the Innovation Policy Lab at the Munk School of Global Affairs and Public Policy at the University of Toronto, and co-director of Shift Insights. Twitter @dk_munro, @munkschool and @InnovationPoli1

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