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And at home,

November 20, 2008

the following sober message from our president went out this morning:

PRESIDENT’S UPDATE ON ECONOMIC CLIMATE AND IMPACTS TO UNB

Every day we see more media coverage about the global economic climate and its impact on organizations across multiple sectors, including universities. I would like to provide you with information about the impact this situation is having on UNB.

The economic downturn has affected the investment returns of UNB’s endowment and pension funds. This has reduced the level of funds available for spending from our endowment and trust accounts, and this could impact future pension costs. We have also heard financial forecasts of slowed growth from the federal and provincial governments, whom universities rely upon for research, capital and general operating budget funding. It is too early to tell how this may affect UNB. Finance and Corporate Services, under the leadership of Vice-President Dan Murray, and the Finance and Investment Committees of the Board continue to monitor all of this closely.

Impact to UNB’s endowment

UNB’s endowment was about $170 million at the beginning of 2008. It is the second-largest university endowment in Atlantic Canada. Our endowment is a long-term fund made up of gifts to UNB, donated generously by friends, alumni, corporations and foundations over decades. Endowment funds are invested, allowing the university to use the growth to fund important initiatives, such as the creation of scholarships and bursaries, research chairs and library acquisitions.

Given the typical profile of Canadian university endowment investments, universities on average are likely experiencing market losses of between 15% and 20% as of Oct. 31, 2008. UNB expects to be about the same.

With all investments there is an element of risk, and we have always managed our endowment fund cautiously. Our long-term objective has been to earn a real rate of return, after inflation, of 4.5%. Any returns in excess of our annual targets are placed in reserve for use in years when our investments might be adversely affected by market trends. Unfortunately, the scale of today’s downward market trends has placed heavy pressure on our current reserves. We don’t think there will be sufficient levels of reserves to support regular spending patterns in 2009. We are currently exploring options to help make up for the shortfall, so that we can continue to sustain the level of scholarships and bursaries for our students, in particular.

Impact to UNB’s pension plans

Like endowment investments, pension plan investments in general have experienced recent losses of between 15% and 20%. UNB has two pension plans. Faculty and professional librarians are members of the Pension Plan for Academic Employees of the University of New Brunswick, and other employees are members of the New Brunswick Public Service Superannuation Plan (PSSA). The trustees of the academic pension plan and the co-sponsors — UNB and the Association of University of New Brunswick teachers, representing plan members — are monitoring the pension plan and have recently advised all active and retired members of this monitoring process. UNB and staff members of the PSSA make contributions to the provincial plan. We have not received any communications that the contribution rates to the provincial plan are changing at this time.

Impact to budgets & plans

In 2006, I commissioned an external review of UNB finances and made public the results through the “MacDonald Betts” report. The report found that ongoing expenses were in excess of ongoing revenues, and it projected the gap to likely increase in future years. In our budgets of 2007-08 and 2008-09, UNB took action to generate additional revenues and reduce overall expenses. However, the underlying gap between revenues and expenses remains. The added pressures of declining enrolment and the impacts of the global economic downturn have made the challenges even more daunting.

UNB’s 2008-09 operating budget is about $163 million and our capital budget is $7.9 million. We are not cutting our operating or capital budgets at this time, but it will be important that we direct our spending to the areas of highest priority to the University.

We ask all units to be cautious in their approach to all University finances. I have also asked all Vice-Presidents, at this time, to seek the approval of the President before their units hire any continuing faculty or staff. We are evaluating capital spending priorities, discretionary spending budgets, and reviewing all vacant budgeted positions to assess next steps.

We are also exploring opportunities to increase revenues, and we remain committed to investing in efforts to recruit and retain students to ensure our enrolment numbers are healthy.

UNB has been through challenging financial times before and we have never stopped delivering on our mission of education and research. There is no question we will have to be both cautious and deliberate in our collective decision-making, to ensure we can continue to fulfill our mandate in teaching and research excellence, and also move forward with important new initiatives. Some of our priorities continue to be the total student experience on both main campuses, the Richard J. CURRIE CENTER in Fredericton, the expansion of our health research agenda in Saint John, among others.

Next steps

Over the next several weeks, budget committees on both campuses will be formed and will begin to undertake the full planning and budgeting exercise for 2009-10. Campus Vice-Presidents will issue further communications as these committees review matters and assess options.

We will continue to keep you posted on the overall state of UNB’s finances. Please contact me or any member of the University Management Committee if you have any questions.

Sincerely,
John McLaughlin, President

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