The Budget Primer
Understanding the University’s Budget
Each year the University of Alberta spends approximately $1.8 billion in support of its teaching, research and community services mission. The funds for this spending come from numerous sources and go toward thousands of costs, from salaries to software.
This is a guide to where the university's money comes from, where it is spent, who decides where it is spent and what rules are applied to guide these decisions.
Sources of revenue
- The university is a public institution, so its largest investor is the Alberta taxpayer. Approximately 50 percent of the university’s funding comes from the provincial government.
- Tuition and fees—the revenue from students—represents the second largest source of revenue, at approximately 18 percent. This includes non-instructional fees for things such as athletics and health services.
- Revenue from the sale of services and products represents 11 percent of the institution's revenue. This revenue comes from such things as parking, residence fees and the bookstore, as well as cost-recovery programs within faculties, such as summer camps.
- Other revenue comes from the federal government and other funding agencies (such as research funding), grants and donations, and investment income.
Not quite as simple as it might seem: restricted funds
One might imagine that the budget is a single pot of money that the university can simply draw upon to apply to the priority of the day. It’s not that simple, however: many millions of those dollars can only be used for specific purposes that are spelled out by the individuals and organizations that provide the money. Those dollars are referred to as “restricted funds.” Around 43 percent of the university’s total revenue is restricted funding. Examples of restricted funds include:
- New university buildings: Individual buildings, which can cost up to hundreds of millions of dollars, are paid for primarily by the province. Funds provided for a specific building must only be used for the construction of that particular building.
- Research revenue: Governments and other agencies provide money to the university to carry out research in specific areas. A grant is typically provided to a particular researcher to carry out particular research. That money shows up as university revenue, but it cannot be used, for example, to fund a new academic program or to repair an aging building.
- Philanthropic donations: The institution benefits from thousands of individuals and organizations that make philanthropic gifts to the university and members of its community. In most cases, such as those involving student scholarships and research grants, the giver of the gift specifies how the money can be used.
Unrestricted operating budgets
As shown, 43 percent of the university’s consolidated budget is restricted. The unrestricted portion, 57 percent, constitutes the general operating budget, which the university can deploy as required. Note, however, that even among the general operating budget there are “non-discretionary” costs, such as the costs of electricity, heating and cooling, and insurance.
Where the money is spent
The consolidated budget of $1.8 billion is spent in several primary areas.
- Salaries and benefits represent the most significant expenditure. Of the $1.8 billion, just over 60 percent goes toward salaries and benefits.
- The next most significant expenditure, at around 16 percent, is for materials, supplies and services. These provide essential support across the university, from information technology to insurance, from libraries to teaching lab supplies.
- The remaining areas of expenditure include amortization of capital assets (the gradual expensing of an asset over a fixed number of years), utilities (heating, lighting and cooling), and scholarships and bursaries.
Building the budget
Imagine having to reinvent the whole $1.8 billion budget from scratch each year. To do so would be overwhelming. Thanks to practices such as incremental budgeting, and guiding documents such as Dare to Discover and Dare to Deliver (which are due to be replaced with new strategic planning documents), planning the budget is manageable.
In incremental budgeting, managers use their budgets from last year as a starting point, which they then adjust to meet the conditions of the current year. The people who prepare unit budgets, ranging from the manager of grounds services to the deans and vice-presidents, each refer to the incremental changes in the amount of money available from last year to this year. They use this information to help decide which specific things they can do this year. It is not always easy, but at least they have a starting point. In times of budget pressures, instead of an increase to the unit’s operating budget, managers may be faced with a reduction in their budget through the implementation of differential or across-the-board cuts.
The university’s vision and planning documents, currently Dare to Discover and Dare to Deliver, are also referred to during the budgeting process. In these documents, which were generated with extensive community input, the university presents its picture of why it exists, what it stands for, and where it is going. Together these documents inform budget decisions made across the university. Everyone, including academic chairs, unit directors and deans, is required to make budget decisions that align with the vision, strategies and goals of the university as contained in these documents.
Deciding where the money goes
The University of Alberta is a public entity with thousands of stakeholders. This includes taxpayers, students, researchers, professional associations, philanthropists, corporations and community neighbours. They all influence how the university deploys its resources. As outlined in the Post-Secondary Learning Act, it is the university’s Board of Governors that approves the budget before submitting it to the province—but much has to happen before final approval.
The annual generation of the university’s budget is a complex and lengthy process. It includes a series of steps that take place at specific times throughout the year.
The process is coordinated through the President’s Executive Committee (the president and vice-presidents) while relying on input and consultation from a variety of other committees across the university. Consultations also occur through the president’s open forums and town halls, as well as the provost’s attendance at various council and committee meetings.
The process is driven by the academic needs of the individual faculties, as defined and described by faculty deans. Deans have overall responsibility for how money is spent within their faculties.
The annual budget process begins with information gathering. Units in the Finance and Administration (F & A) portfolio gather information from numerous sources about the factors that will affect the budget from one year to the next. This includes such things as economic growth and inflation forecasts, the price of oil and gas, salary trends within and outside Alberta and the expected amount of the annual provincial grant. University leaders meet with a range of experts, including government officials, economists, demographers and others to discuss every kind of trend and risk. The provost and the VP (F & A) then advise senior administration on the expected implications of these trends on their budgets. The provost consults with the faculties and academic administrative units within his portfolio while the other vice-presidents consult with their administrative units. Faculties and units then respond with their budget proposals. It is up to the provost and each vice-president to then assemble the budgets from their various portfolios.
All of this information is then put together and incorporated into the Comprehensive Institutional Plan (CIP). The President’s Executive Committee approves the CIP (including the proposed consolidated budget) for recommendation to the university’s governance committees.
The provost and vice-presidents then present the CIP to the university’s academic and board governance committees. These are detailed briefings that occur prior to the committees being asked to vote to recommend the document for approval.
The CIP then proceeds through three governance steps.
- It is presented to the General Faculties Council's Academic Planning Committee (APC), who recommend to the Board Finance and Property Committee (BFPC) and the Board Learning and Discovery Committee (BLDC).
- The BFPC and BLDC in turn recommend the CIP to the Board of Governors for approval.
- The Board of Governors is responsible for final approval.
Once the final document is approved, it is sent to the minister under the board chair’s signature.
The budget pressures facing the university today
The budget challenge faced by the university is the same as it has been for years; in fact it is the same pressure faced by universities everywhere. Because costs are rising faster than revenues, there is not enough money for the university to do the things it wants to do in support of its goals and vision. Each year, therefore, the university, including every faculty and service unit, must come together and try to agree on the best possible way to achieve its goals with the resources it has. The following graph illustrates the rate of growth in university expenditures versus the rate of growth in university revenue based on current assumptions and forecasts.