TO: Members of the Joint Committee

FROM: Harvey P. Weingarten, A.L. Darling and A. Harrison

RE: 1999 Faculty Remunerations Negotiation

We begin this statement of our opening position with an expression of hope that we will reach a satisfactory agreement with the McMaster University Faculty Association (MUFA) without having to resort to the use of Final Offer Selection.

The background to the Administration's opening position is shaped by factors relating to the quality of the professoriate, recent remunerations settlements with MUFA, and the University's current and anticipated financial situation.

BACKGROUND

At last year's Premier's Summit on Post-Secondary Education, Ann Dowsett-Johnson, the editor of Maclean's responsible for education and the University issue, indicated that Ontario universities are "in a state of crisis". Her analysis, and that of others, suggests that this crisis is not precipitated by a lack of will, motivation or purpose. Rather, it is a crisis based on the lack of appropriate financial support. Analyses by groups such as COU and CAUT have identified one of the key variables underlying the decrease in financial support of universities: specifically, the Federal government's reduction in transfers to provinces directed to the post-secondary sector. In Ontario, of course, this problem is seriously exacerbated by the precipitous decline in provincial government support of universities. Currently, Ontario ranks lowest among all Canadian provinces in per capita funding of universities. The funding of universities in Ontario is lower than almost all of the fifty states in the U.S.A.

With respect to the current negotiation, a relevant analysis is the rate of change of McMaster faculty salaries compared to other institutions. It is appropriate to note that in the period of the Social Contract McMaster was one of the few universities that provided salary increases to faculty and that these were based on merit. Furthermore, since the end of the Social Contract, we have fully restored the merit program. In this context, we pay tribute to the members of MUFA who, by agreeing to delay some of these back payments, allowed the Administration to restore CP/M in a fiscally responsible manner.

It is also appropriate to review the advances of the July 1 1997 to June 30 1999 remunerations settlement. As described in the Joint Adminstration/Faculty Association Committee report to faculty, that agreement: restored the CP/M profile, including the provision of CP/M that faculty did not receive in previous years; eliminated all unpaid days; provided one-time payments in each year of the settlement; provided an increase in the salary profile at a rate greater than inflation; provided an across-the-board scale increase at the end of the agreement; provided benefits enhancements and support for scholarship through an increase in the Professional Development Allowance (PDA), including a special enhancement of PDA during research leave.

It is in everyone's interest for McMaster to sustain the highest-quality professoriate, and we acknowledge that the level of compensation is relevant to achieve and sustain this goal. However, regardless of a university's aspirations or philosophy, remunerations discussions and agreements must be tempered and bounded by fiscal realities. It is necessary, therefore, to review McMaster's financial situation if we are to establish the range of responsible remuneration discussions.

We have already shared with MUFA the Three-Year Financial Plans for 1998-2001. We refer you, particularly, to page 3 of that document for discussion of our financial state. In summary, though, we note the following: recent government budget cuts reduced our operating revenue by $28.8 million; tuition increases over the same period yielded $22.25 million additional revenue but, of course, government regulations require that $3.25 million be applied to student aid. The net result has been a $9.8 million reduction in operating funds. For additional figures and commentary, we attach to this opening position the Management Discussion and Analysis section of the audited financial statements for the period ending April 30 1998.

The Three-Year Financial Plan also provides the best indicator of our anticipated financial situation. Our budgeting strategy continues to ensure, as a priority, the availability of reallocation funds to promote institutional goals and priorities. The best we have been able to do is to provide a 1% increase to envelopes to fund "inflationary" costs. Our capacity to provide even this 1% adjustment is permitted by increased tuition revenues. "Inflationary" costs include the cost of true inflation and negotiated salary settlements - collectively, these amount to greater than the 1% actually allocated. In this context, we note that the analysis provided by W. Ward (Nov. 30 1998 -- attached), indicates that the CP/M costs for 1999 are 2.38% of the faculty salary line based on 120 par units and 2.18% based on 110 par units. The cost of CP/M is one of the costs that must be accommodated within the inflationary funds made available to envelopes.

We acknowledge that the pension expense holiday has provided the University with approximately $3.9 million per year. Some may regard this as a "windfall". In the past two years these funds have been applied to help eliminate the university debt. Since we expect to retire the debt by April 30 1999, some may suggest the re-direction of these funds to faculty salaries. But, in contrast to faculty salaries, which represent continuing expenses, pension expense savings are one-time and it is fiscally irresponsible to suggest funding continuing costs with one-time funds. Also, there are one-time projects, relevant to the maintenance of an appropriate scholarly environment, that require serious attention - the most notable, perhaps, being our deteriorating physical plant, its deferred maintenance and the need for renewal of some facilities.

In sum, our Three-Year Financial Plan indicates, at best, a balanced fiscal budget in 2000-01 and, perhaps, a small fiscal deficit - assuming that we maintain inflationary increases at 1% or less. As we have noted in the Plan, and in presentations to the Budget Committee, the Finance Committee and the Board, this is a severe challenge. There are some who suggest that our precarious financial state reflects to some extent that we have been too aggressive in our pursuit of faculty renewal. These individuals point to the fact that when funds were available for re-allocation they have been allocated preferentially to the Faculty envelopes. For example, from 1997-98 to 1998-99, the Faculty envelopes were increased from $81.3 million to $84.7 million - a greater percentage increase than other sectors of the University.

Is the financial picture more rosy than this? Or, put another way, are we being too conservative in our financial projections? We think not. Over 90% of the University's revenue comes from the combination of government grants (58%) and student fees (35%). There has been talk of a 1% increase in government grant in 1999-2000. But, there has been no confirmation of this - in fact, the government states repeatedly that if government support is to increase it will be via targeted programs, and not an across-the-board grant increase. Furthermore, the government's bundling of university grants with OSAP further reinforces the view that grants will be stable at best, and may decline, in light of the steadily-increasing OSAP burden on government. We do not expect, nor should we plan on the basis of a significant increase in government transfers to universities.

As identified in the Three-Year Plan, the University will see some additional revenue resulting from the Access to Opportunity Program (ATOP) but, also as indicated, these funds are offset completely by the costs of the necessary to mount these ATOP programs. By their nature, targeted funding programs, such as ATOP, do not improve the general financial health of universities.

In terms of the other significant revenue source, tuition, we note that even this Government has responded with some sensitivity to the political heat resulting from increased tuition, deregulated tuition, concerns over accessibility and the increasing student debt burden. The rapid escalation of tuition and its consequences, and the attention these have garnered, suggest to us that a significant tuition increase in the near future is unlikely. The additional tuition revenue resulting from our two-year announcement last year has been incorporated into our Three-Year Financial Plan.

PROPOSAL

1. We seek a multi-year agreement, preferably three years. We live in dynamic times; the external forces are strong and sometimes volatile. Our ability to plan in such an environment is compromised seriously by uncertainty in a variable as significant as faculty remuneration (approximately 40% of our operating budget). Sound academic planning in the current environment is abetted by a multi-year understanding of the course of faculty remuneration. We believe that our successes in the area of faculty renewal have been greatly assisted by our ability to predict faculty salary costs over a two-year period, as was permitted by the last negotiated agreement. For academic planning purposes, we have been seeking multi-year agreements with other employee groups, such as sessional lecturers, and will seek the same in the current faculty negotiation.
2. We, like MUFA, remain committed to the CP/M scheme. One of the distinguishing and defining features of McMaster is our joint commitment to salary adjustments based on the annual performance evaluation. As noted before, we continue to share with MUFA the view that CP/M should have priority in remuneration negotiations.
3. We are mindful that another committee is conducting a comprehensive review of the McMaster Salaried Staff Pension Plan coincident with these negotiations. The outcome of those pension negotiations may, in the long term, be as significant as, if not more so than, our remuneration negotiation. We expect that committee to report in late February and its recommendations may well influence our remuneration discussion. In light of this, we feel it premature for us to offer specific pension proposals at this time.
4. Some substantial changes and improvements in the faculty benefits package were implemented in the last 2-3 years. We believe it is important to have a stable period of data collection to assess the human and financial impact of these changes. Therefore, we are not inclined to substantive changes in faculty benefits in order to allow the opportunity to evaluate the outcomes and consequences of the many recently-negotiated changes.
5. Consistent with our goal of maintaining high-quality scholarship, we are always prepared to consider items, such as the $20,000 annual fund to support access to the self-funding modem pool, that support or enhance the scholarly activities of faculty.

SUMMARY

Attachments (available from the Provost's Office):