1. Original story: Budgets are like weather forecasts: both are just estimates or guesses about what may happen in the future. In contrast, financial statements are like actual observed weather, the real experienced weather of the day. Keeping in mind, the analogy to budgets and financial statements, let’s take a look at the following weather forecasts and actual weather observations.
- Correction/Clarification: This analogy is flawed in numerous ways and presents information in a highly misleading way. An accurate explanation is outlined below, but it is important to note that term “budget crisis” is WLUFA’s term — it is not one used by the University.
2. Original story: This is very similar to what has happened in the last three years at Laurier. Every year the budgets show a financial “crisis.” But, the real financial outcomes in the financial statements show a tremendously positive financial result, with over $43 million in surplus generated in the general fund. Plus, the surpluses generated in the last two years are record positive surpluses for Laurier. Thus, no financial “crisis” exists at Laurier. In fact, the opposite is true. Laurier has experienced fantastic financial success.
- Correction/Clarification: The University’s budget is a plan for the upcoming year that incorporates assumptions based on the best information available at the time the budget is prepared. Budgets are essential financial tools for guiding any organization. They are entirely different from year-end financial statements, but both play vital roles in the financial health of an organization.
- Over the past several years, the University has actively communicated key budget assumptions to the Laurier community regarding government funding and pension-plan deficiency payments. The government-funding assumptions have turned out to be better than predicted, which has contributed to surpluses in the operating fund. While this outcome is most welcome, it does not change the fact that the University must still set its budget each year with the best available information at the time of budget preparation.
- It is also important to note that the university’s operating budget model is intended to produce a year-end surplus, and this surplus has pre-planned uses — many of which directly benefit faculty and students.
- Over the past few years, budgeted expenses have been greater than budgeted revenues and the University has used some of the previous year’s surplus to fund the difference. This is known as an “operating budget carry forward.” For example, the operating fund surplus of $46 million over the past three years consists of: Operating Budget Carry Forwards ($15.0 million), Unbudgeted Operating Expenses ($10.9 million), Department/Faculty Carry Forwards ($7.9 million), Capital Expansion and Maintenance ($8.2 million), Fund Repayments ($2.6 million) and Reserves (1.8 million). The operating budget carry forwards helped the university avoid budget cuts; the unbudgeted operating expenses and department/faculty carry forwards have allowed the university pay for important initiatives; and the capital expansion/maintenance was used for needed space and repairs.
- The university has maintained its credit rating over the past few years due to its proactive approach to our pension deficiency costs and continuing to pay down debt obligations. As recently as 2005, Laurier had one of the highest Debt per FTE ratios in the province. The university’s Debt per FTE is still above the average for Ontario universities (debt per FTE of 9.06 vs. an 8.48 average for 2010).
- The following is an excerpt from the Dominion Bond Rating Service’s (DBRS) most recent review of Laurier: “Conservative fiscal management and limited funding needs also support the rating. Laurier’s greatest single item of financial concern remains its pension plan deficiency. The University also shares the same challenges as other Ontario universities with regard to uncertainty surrounding future tuition and provincial government funding policies.” The university has recently been informed by DBRS that they will be doing a special review of pension liabilities which could result in a rating downgrade.
3. Original story: Financial statements are prepared according to strict rules and show economic reality because they are used by third parties to evaluate the financial management of managers of organizations, including Universities. For example, Dominion Bond Rating Service (DBRS) examines the financial statements of Laurier along with other information to determine the risk of Laurier’s bonds. Their rating of Laurier bonds has been high and stable for the past 5 years. In the current international economic environment, if any hint of a financial “crisis” existed at Laurier the bond rating would have declined. No such decline in bond rating has been observed because no financial “crisis” exists at Laurier. Thus, the financial reality at Laurier is fantastic financial success. No financial “crisis” exists.
- Correction/Clarification: Laurier has indeed managed its finances very well in recent years, and it is due in large part to its prudent and professional approach to the budget process.
All original article excerpts: © 2011 Wilfrid Laurier University Faculty Association (WLUFA)