In January 2024, DBRS and Moody’s rating agencies conducted their annual reviews of the University of Ottawa’s credit rating using their rating scales. The University’s credit rating remains at AA (low) and AA2. The consistency of our credit rating is good news. 

The University’s main assets are its record of good financial health, its revenue generating stream of over $1B, and its solid market and niche position as an educational institution offering bilingual programs.

These assets help offset the operational pressures the University has faced for several years, which include a tuition fee reduction and freeze, a flatlining of provincial operating grants, inflationary pressures and more recently, uncertainty related to international student enrolment.

Over the past few years, the University has taken several measures to ensure its financial sustainability, be it the adoption of a new budgetary model or the implementation of a review of the delivery of administrative services.

The current economic climate is a difficult one for the entire university sector; even so, we can count on the solid financial foundation we have built over the years and look to the future with optimism. 

At first glance, the University of Ottawa’s consolidated financial statements paint a rather positive picture of the University’s financial position. Over the past ten years, only three years have shown a deficit and the cumulative surplus is approximately $317M, as shown in Figure 1. 

The end-of-year financial statement numbers (which cover all the institution’s funds and operations) tend to look better than those in the budget. This is largely due to the fact that capital acquisitions appear as assets in our financial statements but are listed as expenses in our budgets.

Note that in Figure 2, some 207% of the surplus generated over the past ten years is from donations and investment revenues. In short, the University is losing approximately $34M per year in all other sectors of its operations. Hence, the University is increasingly dependent on donors and financial markets to make up the deficits in its budget.

To facilitate internal management and budget tracking, the University’s operations are presented as funds. The University maintains a variety of funds: the Operating Fund; the Ancillary Fund; the Restricted Fund – Research; the Restricted Fund – Other, the Capital Fund and the Sinking Fund.

At this point, many may be asking why the University doesn’t use all its investment revenues to finance the Operating Fund budget. Over the past ten fiscal years, out of a total of $511M in investment revenues, $343M (some 67%) has been used to finance the Operating Fund budget. The other investment revenues appear against funds for specific reasons, such as the holding of long-term investments in the Sinking Fund, transfers to the Restricted Fund – Research and transfers from endowments to the Restricted Fund – Other. 

Although they represent a very small percentage of the University’s total revenues, namely 5.08% in the 2022-2023 financial statements, investment revenues have a major impact on the annual surplus or deficit. Since they do not directly incur any expenses, they are directly assigned from revenues to surplus. In 2022-2023, the University’s deficit was $4.9M; the calculation of this amount included $67.9M in investment income.

The same can be said for revenues from donations. In reality, very little revenue from donations can be assigned to the Operating Fund budget. The main reason is that most of these donations are restricted, i.e., donors tend to impose conditions on their donations, such as to fund specific scholarships, research chairs, etc. This is why most donation revenues are found in the Restricted Fund – Research and Restricted Fund – Other in our financial statements.

In an ideal world, revenues from investments and donations would be used to finance long-term strategic projects, and not to finance, in large part, operations within the scope of the Operating Fund budget. 

The Operating Fund finances the University’s teaching and administrative services; it represents about 70% of the University’s total revenues and expenses. The remaining 30% is spread out among different funds that are reserved for specific, designated purposes, namely for ancillary services, as well as the Restricted Fund – Research, the Restricted Fund – Other, the Capital Fund and the Sinking Fund.

The University’s 2023-2024 budget projects that the Operating Fund deficit will be around $10.5M. This deficit calculation includes some $28.9M in investment revenue, which shows the extent to which our current teaching and administrative operations depend on circumstances beyond our control.

In light of new information received since the initial budget was submitted, we project that Operating Fund deficits for the next three years will continue to grow. These recurring annual deficits are draining the accumulated reserves at an unsustainable rate. This situation is not unique to the University of Ottawa, but we are charged with seeking out and designing solutions that allow us to return to a balanced budget. 

Figure 3 shows how the University’s viability ratio has deteriorated over the past ten years.

The viability ratio is an indicator of an institution’s financial health: it provides an indication of the funds on hand that could be used should the institution need to settle its long-term debts. As of April 30, 2023, the funds available to the University corresponded to 74.24% of its long-term debt.

The Ministry of Colleges and Universities has set the viability ratio thresholds for moderate risk and high risk at 60% and 30%, respectively. 

The University is currently above the risk thresholds. That said, the deficits projected in the coming years will have an adverse effect on this ratio. 

The pressures on the Operating Fund budget have intensified over the past few years. For a start, in 2019-2020, the Ontario government imposed a 10% reduction, and then a freeze, on tuition fees for Canadian students. By 2023, the cumulative financial impact of this new tuition fee framework was estimated at $203M, compared to the former framework. Figure 4 illustrates how the University’s financial position has deteriorated since the adoption of the new tuition fee framework.

Shortly afterwards, we were confronted with the Covid-19 pandemic, which resulted in a reduction in activities on campus, and consequently, a significant loss of revenues, especially in terms of residences and food services. As of April 30, 2022, the total of these losses was estimated at over $62.2M, while the funding from the Ontario government to offset these losses was only $391.2K. 

Moreover, recent geopolitical upheavals have also had a negative impact on the University of Ottawa: in 2022-2023, our international students were unable to attend courses due to delays in the issuing of study permits. More recently, we have had to face unprecedented levels of inflation. 

During all this time, operating grants from the government of Ontario have remained the same and the losses due to the underfunding of our Francophone mission, estimated at $50M annually, continue to accrue. The methodology used to calculate losses due to the underfunding of our Francophone mission was approved in 1989.

Figure 5 illustrates how the University’s financial position has deteriorated since the adoption of the new tuition fee framework.

Revenues from operating grants and tuition fees have increased by $168M over the past five years, but expenses have increased by $335M over the same period. Salaries and employee benefits alone account for 55% of this increase.

It goes without saying that the current situation is worrisome and is unsustainable in the long term. The University is actively working to find solutions to return to a balanced budget.

The Ministry of Colleges and Universities framework for financial accountability for universities, designed in partnership with the Council of Ontario Universities, evaluates an institution’s credit rating and eight financial health indicators:

• Primary reserve ratio (days)

• Working capital ratio

• Viability ratio

• Debt ratio

• Net income/loss ratio

• Interest burden ratio

• Surplus ratio

• Net operating revenues ratio

These indicators are grouped into four categories: (i) liquidity, (ii) viability, (iii) performance and (iv) credit rating.

The audited financial statements and related notes are the only accepted sources of data for calculating these indicators.

The University’s credit rating is reviewed annually by DBRS and Moody’s. A consistently good credit rating makes it easier to obtain long-term financing when necessary.

The framework is designed to evaluate the performance of each indicator against a moderate threshold and a high threshold. Points are assigned to each indicator based on whether or not they exceed the defined thresholds. The number of points in each category of financial health is then calculated.

The results of the analysis based on the financial accountability framework determines the action plan to take given the financial risk to which the institution is exposed.

The MCU’s review of the University’s 2023 financial statements places uOttawa in the moderate action plan category. According to the framework, once the MCU officially assigns this action plan, the University will need to present an internal recovery plan within three months, and then report on its progress relative to this plan every six months for three years or until none of the categories related to its financial health fall within “moderate” or “high” action plan levels.

The University’s Review of Financial Results includes a section that deals with the financial ratios in greater detail and describes how they have been trending over the past ten years. 

The net assets are the assets minus liabilities. As of April 30, 2023, the University’s total net assets were $2.1B.

The available net assets are calculated using specific elements of the total net assets. Among other elements, available net assets include the unrestricted surplus (deficit), as well as internally restricted net assets, internal endowments, and the Sinking Fund.

Capital investments, future employee benefits and external endowments are excluded from available net assets.

Hence, as of April 30, 2023, the University’s available net assets for the purpose of calculating MCU ratios was $487M.

Although this sum is considered available for the purposes of calculating the ratios, we must note that these funds cannot be used to fund day-to-day operations since they have already been restricted for use in internal projects, activities or liabilities.

Note 12 of the consolidated financial statements provides details on these internally restricted net assets. They include, among other assets, reserves for capital and infrastructure projects, reserves for pension plans and other unfunded benefits, stabilization reserves, accumulated surpluses from restricted funds (i.e., Restricted Fund – Research and the Restricted Fund – Other), the accumulated deficit for ancillary services, the balance of the internal debts linked to capital projects, as well as the funding reserved to finance operational contingencies.

As of April 30, 2023, international student tuition fees, minus partial tuition fee exemption scholarships for international Francophone students and international scholarships for international Anglophone students, totaled $207M. 

It goes without saying that setting a ceiling on study permits granted to international students will have an impact on the University of Ottawa and on all other Ontario universities.

It is too early to determine the extent of this impact. The University is already taking concrete measures to counter the consequences of this decision while awaiting further information from the various levels of government.

The audited consolidated financial statements present a financial picture of the University that takes into account all its financial activities. They are prepared in accordance with Canadian accounting standards for not-for-profit organizations (Part III of the CPA Canada Handbook) and are audited by an independent auditor at the end of each fiscal year.

The University’s budget is compiled by fund: we separate the University’s various activities to improve financial accountability and related budget tracking measures.

Budgets are prepared using cash accounting and exclude elements that are not subject to withdrawals, such as accrued liabilities and actuarial adjustments.

Capital acquisitions are entered as expenses since they represent a withdrawal of funds.

In contrast, the consolidated financial statements are prepared using accrual reporting, which means that accruals and actuarial adjustments are included. Capital acquisitions are considered assets in the statement of financial position.

Yes, these differences are easy to see. There are two and they are the subject of two separate notes in the audited financial statements. They are:

• Actuarial adjustments, found in Note 6; and

• Change in net assets invested in capital assets, which is in Note 14.

To summarize, we can easily arrive at the figures in the consolidated financial statements from the budget figures, and vice versa.

The budget includes a section that reconciles the budget and the financial statements.

The University’s financial statements must present their short- and long-term investments at fair value, in accordance with Canadian accounting standards for not-for-profit organizations (Part III of the CPA Canada Handbook). The difference between the fair value on a specific date and the cost to acquire the investment is the variance in fair value.

Given financial market volatility, these amounts cannot be considered expendable until the investments are sold. This explains why the University presents the variance in fair market value of investments separately in the consolidated financial statements.

The capital projects that are currently underway or planned are financed primarily with funds other than the Operating Fund, such as debentures issued in previous fiscal years, donations, government grants, and funds from ancillary services. 

Consequently, suspending or postponing these projects would not decrease pressure on the Operating Fund budget.

It is well known that governments underfund capital expenditures. As a result, year in and year out, funds are transferred from the Operating Fund to the Capital Fund. These transfers are known as the Facilities Renewal Improvement Program (FRIP). The FRIP is divided into three categories:

1. Optimization of space for faculties and services

2. Improvement of public spaces

3. Management of buildings and infrastructure

Although the University has embarked on the construction of modern new buildings in recent years, the campus still houses several aging buildings that require either major renovations or redevelopment.

Deferred maintenance of University facilities is supported by annual funding ($25.0M) from the Operating Fund, through the Facilities Renewal Improvement Program (FRIP), and by a grant from the Ministry of Colleges and Universities for facility renewal ($6.9M). 

As of April 2023, the University’s total deferred maintenance was estimated at $730.2M. Deferred maintenance refers to infrastructure or asset repairs that have been delayed or postponed. The University expects that in the coming years, the cost of deferred maintenance will increase as the systems and buildings in the University’s portfolio reach the end of their useful life. In light of this data, and given the underfunding by governments, the University has no choice but to continue to internally fund the maintenance of its facilities. Although suspending or reducing these transfers might temporarily reduce pressure on the Operating Fund budget, the deferred maintenance problem would still remain completely unresolved and would only be postponed.

In these uncertain times, and in light of Immigration, Refugees and Citizenship Canada’s recent announcement on setting a ceiling for the number of study permits granted to international students, the University may consider suspending or reducing these transfers in its 2024-2025 budget.

A debenture is a long-term financial instrument used mainly by companies that enjoy a reliable source of income. It is considered an acknowledgement of unsecured debt that is only issued and insured based on the reputation and solvency of the issuer, and not by a security.

Its main purpose is to increase the funds available to develop and manage the company’s financial activities over the long term. With respect to the University, the debentures were issued to ensure funding for capital projects.

The interest rate of a debenture is directly related to the credit rating of the issuer and to financial market demand.

The University holds three debentures totalling $650M that mature in 2043, 2056 and 2060, respectively. Each debenture is issued for a 40-year term, and every year the Operating Fund only pays out the interest, which is set at a fixed rate. The principal is reimbursed only at the end of the 40-year term.

The University uses its Sinking Fund to accrue the funds needed to reimburse the debentures when they mature.

A sinking fund is a fund in which money is regularly set aside for a specific purpose. 

The University created its Sinking Fund to accumulate the amounts required to reimburse its long-term debts (debentures) that total $650M as of April 30, 2023, and that will mature in 2043, 2056 and 2060, respectively. 

These amounts are invested in segregated investment portfolios. Annual variances in the Sinking Fund correspond to the accrued income on long-term investments plus any contributions made to the fund. 

An annual review is conducted and submitted to the Finance and Treasury Committee to determine the contribution that is annually required from the Operating Fund.

According to the projected future returns on long-term investments earmarked to repay the debt, the current balance of the Sinking Fund should be sufficient to retire the $150M debenture that is due in 2043.

During the 2023 fiscal year, a total of $4.9M was contributed to the Sinking Fund for the $200M debenture. The Sinking Fund balance stood at $110.6M as of April 30, 2023, and the University holds restricted long-term investments equal to that amount.

The University’s long-term debt is composed of three debentures, totalling $650M, plus an $8M loan for a student residence, for a total of $658M.

The interest paid on the debentures is not affected by financial market volatility because this interest rate is fixed for the duration of the debenture’s term, namely 40 years. The interest rates for the debentures are: 6.28% for the $150M debenture due in 2026; 3.256% for the $200M debenture due in 2056; and 2.635% for the $300M debenture due in 2060.

The loan for the student residence was acquired at a variable rate that was converted (through an interest rate swap) to a fixed rate of 7.065% until the loan matures in 2026.

Therefore, interest rate increases do not affect the cost of interest on the University’s long-term debt that appears in the financial statements.

Here are the financial statements of the University of Ottawa’s retirement pension plan, as approved by the Board of Governors.

• 2022 (PDF, 699 KB)
• 2021 (PDF, 832 KB)
• 2020 (PDF, 785 KB)
• 2019 (PDF, 671 KB)
• 2018 (PDF, 739 KB)
• 2017 (PDF, 166 KB)
• 2016 (PDF, 315 KB)
• 2015 (PDF, 96 KB)

• 2022 (PDF, 336 KB)
• 2021 (PDF, 778 KB)
• 2020 (PDF, 749 KB)
• 2019 (PDF, 643 KB)
• 2018 (PDF, 702 KB)
• 2017 (PDF, 127 KB)
• 2016 (PDF, 248 KB)
• 2015 (PDF, 58 KB)