Volume 26, No. 17 Editor: Mark Langer April, 1996. CARLETON'S FINANCIAL SITUATION (or what we know about the 8% solution) As you know, the employer wants an 8% across the board rollback in the compensation paid to the CUASA bargaining unit. To respond effectively to this position taken by the employer, the CUASA bargaining team has raised numerous questions about the financial situation of the University. Bargaining began on January 22. Until March 12, the employer had no representative at the table competently able to answer financial questions. Until March 12 the data put forward by the employer was by their own admission not accurate. On March 12, the Vice President of Finance and Administration delivered at the bargaining table what has become his "canned" presentation on the state of the University's finances. During the presentation he repeatedly confused deficit with debt, and expenditures with cash spent. Attached is a spreadsheet: Employer's Financial Projections 96 03 18 which the employer's team brought to the bargaining table on March 18. The spreadsheet presents the employer's view of the state of the University's finances and their rationale for asking for an 8% compensation rollback. Before we review the spreadsheet in detail, let us first make a general comment. The information contained in the spreadsheet only references the operating budget of the University. It does not contain directly information pertaining to ancillary operations (like the residences, book store, the CUDC, etc), the capital budget (buildings and grounds, etc.) or the University's fund raising campaign. Now to the spreadsheet: 1. Income: lines 1-6 The employer states that operating grant income from the province will drop in 1996/97 by 16.0%, and forecasts another 4.5% drop in 1997/98. They assume that grant income will remain flat after that into the year 2001/02. Fee income is assumed to drop by 4% in 1996/97 - a combination of student fee increases and further decreases in enrolment. Subsequently, fee income is assumed to remain basically flat. Thus total income is forecast to drop next year by 11.5% and the following year by 4.1%. The question that the CUASA bargaining team naturally posed when reviewing these projections was: what is the vision or strategy for the University which underlies these projections? The employer response, incredibly, was that there was no vision. Rather, they seem to regard their role as limited to accepting the decrease in income as inevitable and passing it on to us. 2. Expenditures: lines 7-11 The employer wants major decreases in compensation (salaries and benefits) paid to its employees - down 15.2% in 1996/97 and 6.8% in 1997/98. They also plan to decrease total discretionary budgets by 23.4% in 1996/97. The proposed decrease of 15.2% in employee compensation in 1996/97 is a combination of voluntary separations and compensation rollbacks - 7% overall, 8% for CUASA. In other words, CUASA members are expected to absorb a larger portion of the rollbacks than other employees. Line 7, employee compensation, is the focus for the employer. They restrict their management role to calculating how low this item must be. When asked by the CUASA bargaining team whether an 8% compensation rollback for management had been included in the projections, the response has been that academic management would likely be subject to the same rollback as CUASA members. 3. Restructuring Expenditures: line 12 When questioned about what "restructuring" meant, the employer representatives admitted at the bargaining table that "restructuring" only meant layoffs, including layoffs of CUASA members, and voluntary separations. Nothing more constructive was implied. The $10.9 million "restructuring" expenditure (rounded to the nearest $100,000) for 1995/96 is an accounting allocation NOT a cash charge. The $10.9 million is the total amount of money that the University will pay out to employees that are laid off or take voluntary separation before July 1. Much of this money will NOT be paid in the 1995/96 fiscal year. Most will be paid out over the next two or three years. This is a point that the Vice President (Finance and Administration) conveniently misunderstood in his presentation at the bargaining table on March 12, as he has many times in public presentations. Fallacy: an expenditure means cash spent The employer anticipates an expenditure during the 1995/96 fiscal year of $7.5 million (of the $10.9 million total) due to "restructuring" through voluntary separations by CUASA members. The cash payouts to CUASA members who take voluntary separations this year will NOT be incurred in the 1995/96 fiscal year, but will be spread out well into the 1997/98 fiscal year. An 8% compensation rollback for CUASA members would, according to the employer's calculations, save about $4.5 million per year. This would cover the $7.5 million tab for "restructuring" faster than the actual payout. Fact: an expenditure is NOT cash From a general perspective, the employer's view of voluntary separation is odd. The employer regards a voluntary separation as a financial drain on the University. They seem to ignore the equation which prompted them to ask some of our members to take voluntary separation this year. The equation is as follows. On the negative side for the University is the cash payout to the retiree under the terms of the current collective agreement, and the loss of his or her services in the future. On the positive side for the University is the elimination of the retiree from the University payroll. To ask someone to take voluntary separation, the employer must conclude that the positive outweighs the negative. This is not their view now, however. It is as though the greater the number of voluntary separations, the worse the financial situation for the University becomes. They regard the cash payouts to retirees under voluntary separation as a financial drain on the University with no compensating positives. They insist that these payouts be financed by those employees who remain. Under this approach, the employer plans to have at the end of their six year planning period fewer employees working for less money. Note the significant accounting allocations for "restructuring" in the years 1997/98 to 2001/02 (line 12). 4. Net Transfers: line 13 Line 13 deals with transfers to the operating budget from the other University budgets. The numbers here are negative, so they are transfers from the operating budget. Line 13 deals with the relationship between the University operating budget and ancillary operations (like the residences, book store, the CUDC, etc), the capital budget (buildings and grounds, etc.) and the University's fund raising campaign. A whole variety of questions pertaining to line 13 have yet to be answered by the employer bargaining team. These questions centre on issues like the CUDC, the ground water project, and the moribund state of the University's fund raising campaign. Why, for example, do transfers from the operating budget increase substantially over the years covered in the spreadsheet. 5. Surplus after Restructuring and Transfers: line 14 Because of the sizable operating surpluses that the employer projects, at our expense, positive surpluses after restructuring and transfers are forecast from 1997/98 on. 6. Deficits: lines 15-17 The thing to keep in mind when reading lines 15-17 is that a deficit is not a debt. Consider the following: Fallacy: a deficit is a debt The employer maintains that the University deficit at the start of the 1995/96 fiscal year was $3.2 million, and at the end of the 1995/96 fiscal year on April 30 it will be $14.4. The employer also anticipates net interest income during the 1995/96 fiscal year of $1.2 million. If a deficit was a debt, net interest income for the period would be negative. Fact: a deficit is NOT a debt The closing deficit for 1995/96 includes the non-cash expenditure item for "restructuring" expenditures, the $10.9 million figure discussed earlier. As we have stated, these expenditures will be paid out over the next two or three years. In fact, the employer plans to finance these payouts with reductions in compensation. The closing deficit for 1995/96 is NOT a debt. Summary 1. Fewer employees working for less money The employer estimates that 50 of our members will take voluntary separation in 1995/96. They estimate that the payout over the next two or three years to these members will be $7.5 million. They insist on an 8% across the board reduction in compensation to remaining members - a reduction of about $4.5 million per year. They plan to finance the $7.5 million payout with a permanent reduction of $4.5 million per year. The result is fewer members making less money, and no financial strain on the University. 2. A deficit is NOT a debt The University will not be in debt to the tune of $14.4 million at the end of this fiscal year. 3. No leadership Management shows neither leadership nor imagination. To accept passively decreases in operating income with no strategy as they are doing is to threaten the future of the institution.