The Budget Process – An Overview
Developing and managing the University of Toronto operating budget is a huge annual task. It is an iterative process, dependent on consultation and communication. The planning cycle includes many opportunities for input by all members of the University community throughout the year.
The U of T Budget Model is a rather decentralized one. Key to the budget’s success in an environment of declining government support are three main principles:
- Transparency (clear delineation of revenue and expense by division)
- Incentives (local decision-making and allocations linked to performance indicators, revenues, and costs)
- Engagement (consultation and review processes)
When we say “The Budget,” we are speaking about the funding to support the core teaching and administrative activities of the University. There are other budgets for restricted, ancillary, and capital accounts – which you can read about each year in the annual Financial Report.
Planning begins in the divisions through a bottom-up process. Deans and their teams in Faculties and departments, and Principals and their teams at UTM and UTSC, look at their own revenue and expense budgets to make decisions and plans locally, based on academic priorities. Combined, all of these local decisions are rolled up for institutional review and approval by the administration and by governance bodies.
Whether divisionally or across the institution, all planning is driven by academic and service priorities identified in the academic divisions each year and informed by a range of factors, including:
- Global, Canadian, and provincial economic and political environments
- Ministry of Colleges and Universities (MCU) policy and the current Strategic Mandate Agreement (SMA) with U of T
- U of T policies
- Collective agreements
Example – Preparing the 2021-22 Budget
July – August 2020 – Environmental Scan
A new fiscal year begins every May 1. Over the summer, the Planning and Budget Office conducts preliminary environmental scans to update assumptions in the budget models, including:
- Government funding changes (tuition, capital grant, operating grants)
- Actual enrolment results
- Pension deficit liabilities, interest rates, and other market-based factors
- Compensation requirements
Based on this review, the Planning and Budget Office provides budget planning templates to all academic (19) and shared service (10) divisions, incorporating new information and requesting divisional input on areas such as operational requirements, staffing, funding priorities, etc.
September – December 2020 – Planning and Review Processes
Throughout the fall term, all divisions prepare a five-year financial plan and narrative text. Even though we work on five-year plans, this exercise occurs annually to allow for any necessary updates based on the results of the scan during the summer. This allows the budget process to be nimble to change with shifting circumstances.
Key date: The November 1 fall enrolment count is the annual enrolment census date that drives many decisions related to revenue and expenditure plans for future years.
Figure 1: Annual Budget Planning Discussions
Deans and their staff members consult at the local level in determining and thinking through academic priorities. Following these discussions, each Dean meets with the Vice-President and Provost in what is called the Academic Budget Review (ABR) process. These meetings probe assumptions, look for areas of opportunity, and identify potential challenges for the year ahead.
ABR topics include:
- Enrolment and academic programs
- Tuition fees and student aid
- Faculty complement plans
- Space and capital plans
- Operating reserves
- Cost containments and surplus/deficit plans
- Advancement and government relations
The second major budget process at this time of year is the “DAC” – Divisional Advisory Committee – process. This Committee is chaired by the President and is advisory to the President. It is made up of Deans, Campus Principals, and other senior academic administrators. The role of this Committee is to ensure that the shared services budgets of the institutional divisions reflect the priorities of the academic divisions, where U of T’s mission of research and teaching takes place. The DAC process also ensures that any requests for additional resources in University administration are contained and reviewed.
DAC topics include:
- Student experience
- Service levels to academic divisions
- Regulatory and compliance needs
- New technology requirements
- Institutional expenses: libraries, pension, audit, legal, etc.
January 2021 – Consolidation and Financial Modelling
The winter term kicks off an active phase of the budget process – January is perhaps the busiest time for the Planning and Budget Office. The first step is data collection to inform updates to the budget assumptions in the current five-year plan. Figures 2 indicates some key stakeholders, input, and approval items that were just completed.
Figure 2: Key Budget Data Inputs
February 2021 – Draft Budget Consultation
By the end of January, all of the inputs and data will have generated a draft budget. The draft budget is then ready to begin the extensive process of administrative consultation and governance review. The Budget is presented and deliberated with the following administrative committees:
- President’s Tri-Campus Vice-Presidents Committee (TVP)
- Provost’s Executive Committee (regarding University Fund* proposals)
- Principals & Deans Committee (P&D)
- Principals, Deans, Academic Directors, and Chairs Committee (PDAD&C)
- Divisional Finance Officers Committee (DFO)
*University Fund allocations are made by the Provost based on the information shared at the 19 ABR meetings. The University Fund is the primary budgetary mechanism for redistribution of operating funds. . The University Fund is set each year as 14% of incremental unrestricted operating revenues. The University Fund is allocated according to the University’s multi-year academic plans and academic priorities. It is intended to maintain and strengthen academic quality and to ensure the viability and stability of academic programs, consistent with the University’s academic plans.
February – April 2021 – The Budget Goes to Governance
The budget report (including detailed allocations for 2021-22 and long-range budget guidelines for the five-year cycle, accompanied by tuition, enrolment, student aid, and ancillary fee reports) begins its journey through governance in cycle 4. The timeline for the 2021-22 budget is depicted in Figure 3.
Figure 3: Timeline for Administrative and Governance Review of the 21-22 Budget
March – April 2021 – Communication
After the Planning and Budget Committee governance meeting, draft budgets for 2021-22 are communicated to divisions – pending final approval by Governing Council in April. Tuition fees are posted online after Business Board approval, again pending final approval by Governing Council.
All of this information allows divisions and departments to begin preparing detailed spending plans and upload them into the financial system during March and April.
May – June 2021 – Operationalizing
The cycle concludes as the new fiscal year starts on May 1. Detailed 2021-22 budgets are set up in the financial system as per approved budgets. In June, Business Board approves financial statements for 2020-21, including information on any revenue and expense variances to the prior year operating budget. Resulting from this information, divisions are assigned a positive/negative year-end variance (primarily enrolment related).
The U of T budget model is unique and complex. Its core premise of decentralized decision-making allows for innovation, evolving priorities, and increased opportunities for collegial governance. The budget model lays the groundwork for what President Gertler calls “defying gravity”. The University’s achievements far outreach the resources and funding available and “our ability to achieve these incredible results … is nothing short of remarkable.”