Site Accessibility Statement
Wilfrid Laurier University Communications, Public Affairs & Marketing
October 26, 2014

Canadian Excellence

WLUFA Newsletter, January 6, 2012: Where does all the money go?



Wilfrid Laurier Universitys Clarifications & Corrections webpage is an opportunity for the university to provide comments and corrections to information written and published about it by other sources.

The following paragraphs marked "original story" are excerpts from an article published about Laurier. The bullet points that follow each of these paragraphs are the university's response.

The excerpts represent a selection of key points but may not be an exhaustive list of all erroneous or misleading information contained in the original article.



WHERE DOES ALL THE MONEY GO?

1. Original Story:
In the last newsletter we talked about Lauriers excellent financial performance in a number of areas: record positive surpluses in the General Fund, record cash flows from operations and record cash on deposit as reported in the Audited Financial Statements. This is the real financial situation at Laurier. There is no financial crisis at Laurier and never has been in the last three years. The Administration represents a financial crisis in their budgets where none exists and bases its proposals at the bargaining table on this same ostensible crisis.

Yet, if no financial crisis exists, what is the Administration doing in fact with the record breaking surplus from the General Fund and the record breaking cash flow from operations? Where does all the money go? The details are somewhat technical and we will discuss them below. But first, let us explore the Administrations proceedings through the use of an analogy.


Correction/Clarification:

  • Budgets are resource-allocation tools tied directly to achieving the mission of the university. The university bases its budgets on funds it is relatively certain it will receive, rather than funds it is unlikely to receive, just as an individual budgets for her/his own home based on known salary and other income, rather than income she/he may or may not earn. To do otherwise would be irresponsible.
  • When the university has received unexpected funds beyond the funds included in the budget, it does not mean the University has unrestricted cash surpluses. These funds have been used wisely and prudently to avoid cuts that were anticipated for the future and to fund strategic capital priorities necessary for students and faculty. In cases where an external party gives the university funds designated for an explicit purpose, the university must allocate the funds according to the purpose identified.
  • The note on Page 20 of the audited financial statements of April 30, 2011 shows how all of the Universitys surpluses have been allocated. The highest allocations were for faculty and department carryovers. To allocate these funds to the pension would serve to take essential funds away from the Universitys faculties and departments.
The information presented in the WLUFA newsletter only provides excerpts of the whole financial picture. For complete financial information, see the chart below or click here.


WLU Cash Position per Financial Statements





As at April 30, 2011 (in thousands of dollars)




Item

Description

2011

2010

2009

A

Excess of Revenue over Expenses

$11,275

$9,288

($2,487)

B

Add: Amortization expenses

$8,252

$8,606

$8,548

C

Surplus in General Fund

$19,527

$17,894

$6,061

D

Add: Other Accrual Expenses

$11,797

$10,145

$6,739

E

Cash Inflow from Operations

$31,324

$28,039

$12,800

F

Less: Financing Activities

$696

$861

$1,113

G

Less: Investing Activities

$11,276

$16,886

$9,916

H

Increase in net cash position

$19,352

$10,292

$1,771

I

Add: Net Cash Position - beginning of the year

$41,817

$31,525

$29,754

J

Cash & Deposits at Year-end

$61,169

$41,817

$31,525

K

Add: Other Current Assets

$19,781

$31,408

$21,384

L

Less Current Liabilities

$45,665

$50,866

$39,751

M

Working Capital

$35,285

$22,359

$13,158

N

Less: External Funds




O

Research Grants

$7,333

$5,974

$6,627

P

Scholarships & Bursaries

$5,293

$3,893

$2,158

Q

Donations

$7,882

$6,970

$5,494

R

Other

$3,828

$2,103

$1,096

S

Total External Funds

$24,336

$18,940

$15,375

T

Working Capital less External Funds

$10,949

$3,419

($2,217)

U





V

Less: Internally Restricted Net Assets




W

Capital Expansion & Renovations

$7,413

$4,696

$2,712

X

Departments Carry Forwards

$7,187

$4,756

$4,024

Y

Operating Budget Carry Forwards

$8,227

$10,661

$5,286

Z

Reserves

$12,268

$5,430

$4,620

AA

Unbudgeted Operating Costs

$6,415

$5,436

$2,051

AB

Total Internally Restricted Net Assets

$41,510

$30,979

$18,693






AC

Working Capital less External Funds and Internally Restricted Net Assets

($30,561)

($27,560)

($20,910)




2. Original Story:

Let us suppose you know parents who say they want the best for their children. They decide to buy the biggest house on the biggest lot with the biggest yard in the neighbourhood. They spend lavishly on additions to the house and extensive landscaping to the yard. They explain that all this spending is for the good of the children who will have a comfortable and safe place to live. The parents spend so much buying the house and making improvements that they have no money left to provide adequate food or heat in the house. In order to continue making improvements to the house, water and hydro are severely rationed. The children end up hungry, cold and thirsty as they try to read their books by candlelight. Through all of this their parents insist that they have been careful and prudent and their spending has benefitted the children.

The actions of the Administration are comparable to the parents in the story. Here is why: (1) Information discussed below from the Audited Financial Statements, the only reliable source of financial information, demonstrates that the Administration is on a capital asset spending spree. (2) The proposals by the Administration at the bargaining table are an indication to us that the Administration places a very low priority on fair compensation, retiree health benefits or pensions. The implementation of their current proposals to cut back on retiree health benefits, cutback on pension benefits and establish cost savings in the form of a low?cost second?tier teaching stream that will be incapable of any significant research or service contribution to Laurier would result in WLUFA Members paying for the Administrations spending spree in the future.

Correction/Clarification:

(1)

  • The University agrees that the audited financial statements are a reliable source of financial information. The best independent interpretation of this reliable information is through the Dominion Bond Rating Service. To read its Service Rating Report, please click here.
  • Capital expenditures by the university are essential to its students, faculty and the future of the institution.
  • In the past 10 years, the number of full-time faculty (not including LTAs, part-time faculty or deans) has increased by 63 per cent. Staff and student numbers have also increased. The Universitys increase in capital assets have increased less than proportionately to the growth in faculty, students and staff. This does not represent a capital asset spending spree. The University is currently leasing beds for students and leasing office space. The University needs to allocate funds to capital expenditures to meet the teaching space, academic space, research lab and student study space needs that the increased numbers demands.


(2) The University values fair compensation and its compensation proposals reflect this.

  • It is in the best interest of the university, its faculty, staff and students, to have a competitive salary stream, and the universitys proposals reflect this.
  • Nearly every pension plan in Canada is experiencing significant funding issues as a result of broad economic and demographic forces. Given widely accepted expectations for low interest rates, lower investment returns and pensioner longevity, the Laurier Pension Plan design like many other plans is not sustainable in its current form. The university is committed to ensuring the plan is sustainable and its proposals reflect this. See the budget kickoff presentation from January 11, 2012 and an article in the Waterloo Region Record from January 5, 2012 for further details.
  • There is no proposal to reduce retiree health benefits. The proposals deal with funding the benefits so they can be maintained. These proposals only affect new hires; existing retirees will not be affected in any way. It is also important to note that very few employers, and a minimum of universities provide retiree health benefits.
  • The teaching stream being discussed contains expectations and opportunities for service contributions on par with other faculty positions and meets the vast majority of the OCUFA criteria. It is neither low cost nor second-tier. Nor is it an attack on research.

3. Original Story:

Lets look at the information from the Audited Financial Statements, the only reliable financial information available. We can look at the Administrations actions in two ways, from an accrual accounting view and from a strictly cash flow view. The accrual accounting view includes all cash and non?cash transactions. The cash flow view just looks at cash transactions. These two views are standard in accounting analysis. The advantage of looking at both views is that we have greater assurance that our interpretations are accurate.


FROM STATEMENT OF CHANGES IN NET ASSETS (AN ACCRUAL ACCOUNTING VIEW):

Year

Surplus in General Fund


Resources Transferred Out to Capital Fund


Resources Transferred Out to Internally Restricted


Total Amount Remaining in the General Fund

2009

$ 6,061,000

-

$ 7,285,000

-

$ 1,193,000

=

2010

$17,894,000

-

$16,240,000

-

$11,205,000

=

2011

$19,527,000

-

$11,859,000

-

$10,531,000

=









Totals

$43,482,000

-

$35,384,000

-

$22,929,000

=




Correction/Clarification:

The University agrees that the audited financial statements are a reliable source of financial information. The best independent interpretation of this reliable information is through the Dominion Bond Rating Service. The information presented in the WLUFA newsletter only provides excerpts of the whole financial picture and is not in line with the independent review provided by the DBRS. The University encourages a careful review of the DBRS Service Rating Report.



4. Original Story:

The schedule above shows the surplus in the General Fund, the amounts transferred out of the general fund to both the Capital Fund and to the Internally Restricted Fund and, the amounts remaining in the General Fund after the surplus has been transferred out of the General Fund. Lets look at the three?year totals. The total surplus generated in the General Fund, $43,482,000, was generated from the dedication and hard work of the employees of Laurier, including the dedication and hard work of WLUFA members. Of the $43,482,000 surplus in the General Fund, $35,384,000 or 81 percent of the surplus was transferred out to the Capital Fund. This is generally regarded as a one?way street; once a surplus is transferred to the Capital fund it rarely, if ever, comes back out.


Correction/Clarification:
Directing funds to the capital fund is critical to meet life safety requirements, regulatory requirements such as accessibility compliance and deferred maintenance costs, as well as to meet evolving faculty, student and staff facility and space needs such as classrooms.

When the University re-finances, as it intends to do, transferring funds to the capital fund becomes a two-way street rather than a one-way street.



5. Original Story:

In addition, $22,929,000 was transferred out to the Internally Restricted fund. The name Internally Restricted is a standard accounting name, which is used frequently in accounting reports, but its meaning is somewhat confusing. Internally Restricted means that the Administration has made their own plans for this money. The Administration is restricting the use of this money for their own discretionary projects. There is no legal restriction or requirements regarding the use of this money. So, it is perfectly possible for that money to be moved in and out of the Internally Restricted fund at the discretion of the Administration.

Correction/Clarification:
An explanation of the universitys internally restricted funds, along with dollar amounts, was provided in a chart in response to WLUFAs January 4 newsletter, item 5.

As previously noted, internally restricted net assets of the university are funding commitments that have been made but not yet spent. A detailed listing of the internally restricted net assets is contained within a note to the financial statements. For example, capital expansion and renovations are specific capital projects that are planned for but expenses have not yet been incurred. Department Carry Forwards include the surpluses faculties retain at year-end then use to pay for faculty related one-time expenses in the following year (labs, equipment replacement, etc). The operating budget carry forwards helped the university avoid budget cuts as these funds are applied to the following budget year. A Reserve is a fund set aside for a specific purpose. The university has increased the amount of funds in reserve in order to better maintain its capital assets and manage less predictable expenses. The new reserves include funds to support IT hardware and software renewal, which will allow the university to keep its IT infrastructure up to date. Unbudgeted operating costs are high-priority, one-time expenses that occur after the financial statement year-end, for example funds for the 2012 Congress of Humanities and Social Sciences and Centennial Scholarships.



6. Original Story:

The above schedule shows that more was transferred out of the General Fund than was generated in surplus, leaving a negative effect on the General Fund of . The bulk of the transfers, $35,384,000, or 81 percent of the General Fund surplus, was to the Capital Fund to fund the purchase of Capital Assets.

Now lets look at the capital asset spending of the Administration from a cash flow view:

FROM STATEMENT OF CASH FLOWS (A STRICTLY CASH FLOW VIEW):

Year

Cash Inflowfrom Operations


Purchase of Capital Assets


Excess of Purchases of Capital Assets Over Cash flows from Operations

2009

$12,800,000

-

$13,083,000

=

2010

$28,039,000

-

$32,282,000

=

2011

$31,324,000

-

$28,337,000

=

$ 2,987,000







Totals

$72,163,000

-

$73,702,000

=

Over the last three years the dedication and hard work of the employees of Laurier, including the dedication and hard work of WLUFA members has generated cash inflow to Laurier of $72,163,000. The Administration has managed to spend an amount equal to the Cash Inflow from Operations and more on buying capital assets, a total spending of $73,702,000 on Capital Assets over the last three years.

What are the implications of this? Regardless of how the information in the Audited Financial Statements is analyzed, the inescapable conclusion is that during the past three years the Administration has been on a Capital Asset spending spree. The Administration now wants WLUFA members to fund this spending spree through the proposals discussed above: cutbacks in retiree health benefits, cutbacks in pension benefits and additional cuts to Member compensation via extra pension payments. In addition, the Administration has proposed cost savings in the form of a low?cost second?tier teaching stream. These proposals are ostensibly justified by the financial crisis portrayed in the Administrations budgets. However, no financial crisis exists or has existed at Laurier over the past three years.

Correction/Clarification:
The Universitys proposals with regard to retiree health benefits, pensions and teaching stream are not in response to a capital spending spree. Each of these items has been addressed in detail in responses above and in previous corrections and clarifications.

All original article excerpts: 2012 Wilfrid Laurier University Faculty Association (WLUFA)