Laurentian University ran deficits dating back to 2014, government adviser says in report

Click to play video: 'Laurentian University files for creditor protection'
Laurentian University files for creditor protection
WATCH ABOVE: (Feb. 5) Laurentian University faculty association president Fabrice Colin shares details on the institution filing for creditor protection after suffering from financial woes due to the pandemic – Feb 5, 2021

A northern Ontario university seeking creditor protection ran deficits dating back to at least 2014, a government adviser probing the school’s financial troubles says in an interim report obtained by The Canadian Press.

In a Jan. 29 letter to the province’s minister of colleges and universities, Alan Harrison writes that a review of documents and presentations from the school suggests Laurentian University’s financial woes are “long-standing.”

Harrison, who has 40 years of experience working at post-secondary schools, including 13 years in senior leadership roles, penned the letter a few days before Laurentian, a mid-size university located in Sudbury, Ont., filed for creditor protection.

“Laurentian University cannot even state precisely how long it has been in the zone of insolvency … (which) does not reflect well on the university,” Harrison writes. “I have never seen anything remotely similar to, or as serious as, this state of affairs.”

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On Feb. 2, university president Robert Hache said the institution was insolvent after a decade of financial strain from issues that predate the pandemic, like population decline in the region.

He said court proceedings under the federal Companies’ Creditors Arrangement Act were underway, but they would not affect day-to-day operations at the school.

Harrison, who was appointed on Jan. 22 to probe the matter and provide advice to the government, says the school reported deficit projections of $5.6 million in 2020-2021, which would rise to $22 million by 2025-2026.

The school, Harrison writes, attributed those “flat revenues and increasing expenses” with a reference to “excessive faculty costs.”

Click to play video: 'Laurentian University facing ‘unprecedented financial challenges’, files for court protection'
Laurentian University facing ‘unprecedented financial challenges’, files for court protection

“LU was routinely taking deficits budgets to its board, without, it would appear, the board ever instructing (the university) to deal with this issue,” he writes.

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According to Harrison’s report, the school has been using a line of credit, and is $90 million in debt to banks, but its deficits were actually higher than reported because of $38 million in deferred contributions – liabilities in the form of research grants, restricted donations, and other third-party funds.

That money had been spent, but the research and work it was to be put toward had not yet been completed.

Harrison notes the school’s board was not aware of this liability until mid-December 2020 and then ordered the funds to be segregated in the budget to address the issue.

“This still leaves the university seeking to find cash of $38 million to cover obligations remaining in respect of these funds that were previously spent inappropriately,” writes Harrison.

He also notes that the current president, who was hired in 2019, has taken corrective action to address the financial issues and is not to blame for the situation.

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Harrison’s report outlines the school’s discussions with the province for financial help starting in late 2020.

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On Dec. 10, Laurentian asked the province for $100 million, suggesting it would spend half to fund ongoing operations and the other half for “termination and severance payments.”

The university said it could accept $30 million to $40 million, but would still need to file for creditor protection.

The government said it could not provide the $100 million in funding without an independent third-party review of the school’s finances.

It instead offered the school a $12-million grant to cover operations until the end of March.

“In other words, (Laurentian) and the provincial government were, and are still at, an impasse,” Harrison says in his report.

He urged the government to support the school’s application for creditor protection while publicly endorsing its long-term importance to the province.

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Harrison is expected to file a final report in six to eight weeks. The government has not said if the final report will be made public.

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A spokeswoman for Laurentian said the school had not seen Harrison’s report.

“Laurentian has been open, transparent and co-operative with the government adviser and welcomed his appointment by the minister,” Isabelle Bourgeault-Tasse said in a statement.

Asked to respond to Harrison’s letter, a spokesman for the minister of colleges and universities, Ross Romano, said the situation is “deeply concerning and unprecedented.”

“Laurentian University students remain the government’s priority and we are focused on ensuring they can continue their studies without interruption,” Cameron Wood said in a statement.

The government has said it is considering introducing legislation to give it greater oversight of all university budgets because of the situation.

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NDP legislator Jamie West, who represents a riding in Sudbury and is a Laurentian graduate, said the community has been caught off-guard by the schools’ financial woes.

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“I think (the letter) reflects how people in the community are feeling,” he said. “I think a lot of people just had no idea how rough of shape the school was in. It came out of the blue.”

West said while the government needs to address the situation at Laurentian, it must also look at the impact budget cuts to all post-secondary schools have had on the sector.

“The reality across the board when I talk to universities and colleges from across Ontario…I consistently hear from all of those groups, ‘we don’t have enough money and we’re not being funded enough to make ends meet.'”

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