DBRS Comments on New Ontario University Tuition Framework

DBRS notes that on March 28, 2013, the Province of Ontario (the Province) announced a much-awaited change to its university tuition fee framework. Starting with the 2013-14 academic year, the cap on annual undergraduate tuition fee increases will be reduced from an average 5% to 3% for the next four years. Ontario universities are among the most reliant on tuition fees in the Canadian provinces. According to Statistics Canada, the average undergraduate tuition in Ontario in 2012-13 is $7,180, almost 29% above the national average. As a result, with no offsetting relief from the Province, the revised framework may constrain the ability of Ontario universities to address cost pressures and maintain quality of service. However, it also adds an element of predictability to annual university budget planning over the medium term.

For most universities, budget preparations are well underway for the upcoming fiscal year. DBRS notes that, while some institutions had planned more conservatively for a reduction in the tuition fee cap, others had assumed the continuation of the average 5% increases. As such, this change will undoubtedly cause some to rework plans to ensure budget balance, or sustain an erosion in operating performance. Additionally, under the previous framework, tuition fees for graduate and professional programs were allowed to increase by 8% for the first year of study. These increases will now be capped at 5%. Other provinces have been experiencing similar tuition constraints, including Québec, where tuition fees were recently indexed to the average increase in personal disposable income (roughly 3%), and British Columbia, where a 2% tuition increase limit has been in place since 2005-06.

This move comes at a time when growth in operating grants remains minimal, and expenses continue to be pressured by salary and benefit costs. Keen focus on cost containment and prudent management practices will once again be the order of the day, as the operating environment remains decidedly tight and the Province continues to focus on deficit reduction.

Overall, DBRS views this action as slightly negative for Ontario universities but expects that most institutions will be able to adequately absorb these reductions without undermining their financial profile. However, any further tightening in the operating environment caused by, for example, operating grant reductions could further erode flexibility within certain credit profiles as cost pressures are expected to persist.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Public Universities, which can be found on our website under Methodologies.

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