University of Toronto
New Academic Administrators
Orientation and Leadership Retreat
The Budget Context
June 10, 2009
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Discussion Today

Endowments

Impact of endowment loss on divisions

Budget overview
̶ Financial state of the University
̶ Managing revenues and costs
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Endowments
Sheila Brown
Chief Financial Officer
June 10, 2009
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Endowments
 Original donation held in perpetuity over time.
 Only investment earnings to be spent over
time.
 Purpose specified by the donor.
 Invested in unitized Long Term Capital
Appreciation Pool.
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Endowments – Spending and Preserving
Objective
Balancing between the requirements for current
spending and preserving purchasing power.
Spending Formula
̶ Paid as $ per unit, increasing with inflation.
̶ Target ~4% of opening market value; 3% to 5%
corridor.
̶ Payout for 2008 was $7.65 per unit (~$62 M).
̶ Payout suspended for 2009 due to severe
financial markets resulting in large investment
losses.
Endowments – Investment Policy
Objective
Balancing the total spending and preserving
requirements against the risks involved in attempting
to earn investment returns.
Investment Risk and Return Targets
̶
4% real investment return (after inflation and investment
fees and expenses).
̶
10% risk tolerance (1 standard deviation).
̶
long-term targets over 10-year periods.
Endowments - Investment Policy - Risk Tolerance
Appetite for Return is Infinite
Appetite for Risk is Finite
-6.0%
4.0% (Target)
1 Standard Deviation
14.0%
Endowments at Fair Value
at April 30
(millions of dollars)
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1,171.3
1,176.2
1,199.7
1,062.3
1,287.7
1,422.8
1,628.8
1,822.7
1,754.8
1,286.3
Chairs and professorships
260.4
311.4
324.5
314.4
390.7
434.8
507.6
560.5
554.4
395.5
Student aid
498.0
495.6
486.4
427.3
522.8
599.7
699.4
802.4
768.1
543.9
Matching funds
27.5
25.4
19.2
Academic programs
180.1
151.5
148.0
143.8
170.3
179.0
189.0
205.9
191.8
180.3
Research
205.3
192.3
221.6
176.8
203.9
209.3
232.8
253.9
240.5
166.6
Total endowments
Endowments – Change from 2008 to 2009
2008
2009
Endowment:
$1.75 billion
1700
Endowment:
$1.29 billion
Cushion:
$287.1 million
Inflation Protection:
$256.6 million
Plus: $29.1 million
Inflation
Inflation Protection:
$285.7 million
1200
700
Book Value: $1,211.1
million
Plus: $76.4 million
Donations &
Grants
Book Value: $1,287.6
million
Plus: $0.1 million
transfers
200
Less: $545.0
million
Investment loss
Less: $29.1 million
Inflation
-300
Cushion:
($287.0 million)
Endowments - Spending
Allocation and Investment Income
Investment Income on Endowments
for the year ended April 30
(millions of dollars)
$200
$100
$0
-$100
-$200
-$300
-$400
-$500
-$600
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Reinvested (drawdown)
92.4
(57.6)
(70.9)
(185.5)
170.7
44.4
146.3
153.7
(101.9)
(545.0)
Allocation for spending
45.1
49.6
57.3
43.0
46.5
49.4
54.0
56.5
62.1
-
Endowments - Change Since 2000
Endowment cumulative preservation of capital compared to cumulative inflation with
total return and payout for the year ended April 30
(in millions)
650
Preservation
above
inflation
450
250
Inflation
Protection
Needed
50
(150)
(350)
(550)
2000
2001
2002
Total Return
2003
Payout
2004
2005
2006
Cumulative Preservation of Capital
2007
2008
2009
Cumulative Inflation
Impact of Endowment Loss on
Divisions/Departments
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Endowment Loss

Total endowment payout was slated to be $62M
in 2009

$46M flows through the operating budget to
support chairs and student aid

The remaining $16M stays in restricted funds to
support research and departmental expenses
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Impact of endowment loss on the
operating budget
Endowed
Chairs
($M)
2008-09
12
–
2009-10
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Student Aid
($M)
–
34
UofT approach to managing cancellation
of payout

University committed to honoring all contractual
and moral commitments

Alternative funding sources identified

Endowed chair salaries and needs-based
student aid must be paid

Other commitments – divisional discretion with
full consultation
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UofT approach to managing cancellation
of payout

Collaboration across sectors of university to
ensure all aspects of cancellation considered:
̶ Identification of alternative funding source
̶ Communication with donors
̶ Legal requirements/donor agreements
̶ Student aid requirements
̶ Budget implications for division/department
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2009-10 Approved Operating Deficit

Governing Council has approved a one-year
deficit of $45M. This was set up in a central
fund.

Divisions have requested approval for deficit
financing from the Provost to assist in managing
endowment and investment losses

Repayment is in equal installments over five
years
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Divisional/departmental approaches

Funds re-directed from:
̶
expendable balances, where permitted by donor agreement
̶
operating fund reserves
̶
research grants to support graduate students

Some donors provided additional expendable funds to
meet shortfall

Certain activities downsized or cancelled

Deficit funding available to divisions
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University of Toronto
Budget Overview
June 10, 2009
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Financial Management at UofT
Operating
Fund
Restricted
Funds
UofT
Capital
Funds
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Ancillary
Operations
20
2009-10 Budget Overview

Per-student Government grants are flat

Some increase in tuition Offset by endowment
and investment revenue loss in the next couple
of years

Extraordinary cost to meet endowment
commitments

A discretionary short-term deficit has been
included in the budget
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Operating Budget — Revenue

We are mostly dependent on government
funding and tuition fees

Other sources include endowments, CRCs,
indirect cost of research
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Increase in Revenue Relative to 2008-09
2009-10
To 2013-14
Grants
11.0
13.4
Tuition
39.9
210.5
Other
(50.4)
15.1
0.5
239.0
Total revenue
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2009-10 Sources of Operating Revenue
Divisional Income
13%
Indirect Costs
2%
CRC
3%
Endowments
0%
Tuition Fees
38%
Provincial Grant
42%
Investment Income
1%
Other Income
1%
Expense

There are two major components:
̶ Shared services
 $ 310M
̶ Academic divisions
 $ 850M

Objective this year is to maximize funding for
academic divisions to maintain quality of the
student experience

Over 70% of the budget is allocated to
compensation costs
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2009-10 University-wide Costs by Cost Bin
UW General
9%
Financial Mgmt
2%
Occupancy
25%
UW Academic
10%
Student
6%
Research Admin
3%
IT
6%
University Mgmt
4%
HR
5%
Library
20%
Advancement
4%
Pension
6%
2007-08 Student Aid

U of T need-based aid
$48.0M

Graduate student funding
$185M

Intl. students, need-based
$ 3.4M
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Revenue vs. Expense, if no cost containment
$1,800
$1,600
$1,400
$1,200
$M
$1,000
$800
$600
$400
$200
$-
98-99
99-00
00-01
01-02
02-03
03-04
Revenue
P/M Staff May 2009
28
04-05
05-06
Expense
06-07
07-08
08-09
09-10
Divisional budgets
Divisional budget consists of two parts:

Revenues less costs
+

University Fund allocation
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Key drivers for managing revenue

Enrolment  grants and fees

Research  indirect costs

Endowments  funding for chairs, student aid

Advancement opportunities  capital, student
aid, chairs

Divisional income  continuing ed., etc.
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Enrolment

Enrolment is our primary source of revenue

Enrolment mix is an important determinant of the
nature of the academic operation

It is also a key factor in determining revenue
̶ Graduate/UG
̶ Doctoral/professional master’s
̶ Domestic/international
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Revenue per Student
Domestic
International
A&Sc, First Year
7,501
19,404
Applied Science
15,645
21,830
Master’s
(Hum., 3 terms)
17,860
13,892
Prof. Master’s
(Biotech., 3 terms)
Ph.D.
(3 terms)
27,672
20,837
33,193
13,892
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Managing costs

Direct expenses

Indirect expenses

Communication with faculty and staff
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Non-discretionary expenses
̶ Compensation
̶ Utilities
̶ Legal
̶ Health and safety
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Arts & Science Budget Strategies

UG program fee

Increase UG international enrolment

Expand summer teaching

Expense reduction
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Service Division Strategies

Re-lamping and chiller replacement estimated to
have reduced consumption by 16 GWh, saving
$1.6M annually

Review of printing costs is underway

Resources Committee

CIO position — integrated approach to IT
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Planning and Budget Contacts
Safwat Zaky, Vice-Provost
978-7116
Managers
Enrolment: Ken DeBaeremaeker
978-4527
Administration: Sandeep Malik
978-8535
LR Planning: Sally Garner
978-2819
Website: http://www.planningandbudget.utoronto.ca
Each division is also assigned a P&B officer
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