New funding for Ontario universities only a 'stop gap,' credit rating agency says

Ontario's recent post-secondary funding announcement is only a "stop gap" that will still leave universities struggling and may end up hurting the student experience, a global credit rating agency said Wednesday.

DBRS Morningstar wrote in a commentary that the three-year, $1.3-billion package announced this week by Colleges and Universities Minister Jill Dunlop fails to address a "fundamental lack" of revenue flexibility for Ontario universities.

"While these measures may act as a stop-gap in the short term, they fail to address the fundamental lack of revenue flexibility for Ontario universities," DBRS wrote.

"As such, we expect universities will continue to be faced with challenging budget decisions, which could ultimately have negative effects on the quality of higher education and on credit ratings in the sector."

The agency provides credit ratings for about a dozen Ontario universities. The government's announcement affects both colleges and universities. Organizations representing both types of institutions have said the provincial funding falls short of what is required.

The funding Dunlop announced is less than half of what was recommended by a government-commissioned expert panel. The minister also announced a tuition fee freeze will continue for at least three more years, contrary to the panel's recommendations.

The $1.3 billion includes $15 million for third-party reviews to identify "structural issues" and find "long-term cost savings" at institutions, with Dunlop saying financial sustainability is a shared responsibility.

Shortfalls to worsen given lack of revenue, agency says

Efficiencies alone won't cut it, DBRS suggested.

"While the new funding will provide medium-term supports for the more vulnerable universities, the absence of revenue levers will continue to worsen the chronic shortfalls the sector is facing," the agency wrote.

"Universities have consistently made efforts to find operating savings over the past several years, and while efficiency opportunities may still exist, beyond a certain point student experience and overall competitiveness may start feeling the brunt of the shortfalls with limited revenue flexibility to support such initiatives."

Colleges and universities have been sounding the alarm on their finances, with at least 10 universities projecting operating deficits.

Ontario ranks 10th out of 10 in every comparison of interprovincial post-secondary financing, according to a report last year by Higher Education Strategy Associates. International students now give more money to Ontario's institutions than the government does, the report said.

The federal government's decision to cap international student visas will add to universities' woes, DBRS wrote. Ontario will see its allotment cut in half.

Ontario's government-commissioned expert panel and Ontario's auditor general have both said that low levels of provincial funding over several years combined with a 2019 tuition fee cut and freeze are a large part of the reason institutions have turned increasingly to international student tuition fees — which are much higher than what domestic students pay — to stay afloat.