"Their concept of the closure was the students weren't here so you don't need to work," said Joey Farrell, president of the Lakehead University Faculty Association. "There's no way people would be up-to-date with their research and ready to teach if they took two weeks off."

The faculty union, upset the university did not try to negotiate other options before making the cost-saving decision, has taken the school to arbitration and staged a protest. Fred Gilbert, president of Lakehead, and Michael Pawlowski, the university's vice-president, administration and finance, declined interviews. However, in a prepared statement, Mr. Pawlowski said that Lakehead lowered its budget by 6% for the year and instituted a hiring freeze, but has avoided any layoffs. "No other bargaining unit at Lakehead has grieved the four-day closure," Mr. Pawlowski said.

Considering the rocky time Canada's universities have had navigating the recession, union tussles may be the least of their worries. Whether it is plunging endowment funds, skyrocketing debt or tightrope budgets, the list of financial problems is long and not particularly distinguished.

There are a few bright spots, including foreign students, who a recent study reveals contribute more than $6.5-billion to the Canadian economy in money spent on tuition, accommodation and other expenses. This is more than Canada gets from exporting lumber ($5.1-billion) or coal ($6.07-billion).

But higher revenue efforts are clearly in order for Canada's universities because the status quo is not working.

A major problem, exacerbated by the recent market meltdown, has been shrinking endowment funds, on which universities depend.

The University of British Columbia, which held the second-largest university endowment fund in the country (slightly more than $1-billion just before the recession), saw its value slide 20% by last February, forcing a $15-million cut in endowment spending. Queen's University, whose endowment fund dropped 22% as markets bottomed in 2008, faces a reported $8.3-million operating deficit in next year's budget. The school asked its faculty late last year to accept a 2% reduction in salary increases for 2010-2011, but the proposal was shot down.

The University of Toronto, with the largest fund in the country, saw its pension and endowment funds lose 29% in value in 2008 alone, forcing the university to suspend its annual $62-million endowment payout to departments last March.

Meanwhile, Ryerson University in downtown Toronto only lost 15%, but that was from a base of about $80-million. "We weren't spending money we didn't have," said Sheldon Levy, president at Ryerson.

But many universities have done just that.

Livio Di Matteo, an economics professor at Lakehead, published a report last year noting the massive debts that Ontario universities have collected in the past decade, fuelled by irresponsible capital spending.

"Government wanted expansion and accessibility but is not eager to pay for it," Mr. Di Matteo said. "So, many universities expanded via debt. Just as businesses had a debt bubble, so did universities."

In Ontario, arguably the post-secondary education centre of Canada with 18 universities, long-term debt was more than $2.6-billion in 2008, the report said. This works out to average debt of $147-million per university. Considering the large gaps in school size - U of T has more than 72,000 students while there are fewer than 8,000 students at Lakehead - the debt load is staggering.

Put another way, the debt amounts to an average of $8,150 per student in Ontario. The worst offender is the relatively new University of Ontario Institute of Technology in Oshawa, which opened in 2002 and now has about 6,500 students. It managed to accumulate more than $211-million in debt by 2008 - a hefty $47,222 per student (based on 2008 enrolment). Lakehead is second, at $13,528 per student, while Wilfrid Laurier University carried $11,100 per student on debt of more than $163-million, the report said.

The University of Ottawa has also seen its debt soar 1,800% to $214-million ($6,233 per student) since 2000.

Mr. Di Matteo said the situation at Lakehead was aggravated by the fact that while the university saw its debt grow 608% to $103.4-million in 2008 from $14.6-million in 2000, it also embarked on an ambitious expansion plan for a new campus in Orillia, Ont., hundreds of kilometres away. The first phase alone will cost between $40-million and $50-million. There's no provincial money for this satellite campus, so Lakehead has to pay for it, he said.

Lakehead's administration disputes the report's numbers. Mr. Pawlowski said the university's debt is actually $98.7-million and has not risen since 2005, when it issued a $100-million debenture to refinance its debt.

Beyond quibbling over numbers, what are the options for schools?

One obvious move is to draw more foreign students. Roslyn Kunin, of Vancouver-based Roslyn Kunin & Associates, authors of the study on foreign students as a growing export business, said Canada falls into the middle of the pack when it comes to taking advantage of this market and that the dollars could easily be doubled.

"Our universities could do a lot more to take advantage," said Ms. Kunin. "It would help them from a financial side and help Canada as it will help our growing knowledge shortage."

Mr. Di Matteo agrees. He said Canadian universities have missed the boat because there is no additional government funding to universities for international students. No funding means no incentive. For example, international students need a letter of funding support to get a student visa. If universities invested some money into providing this assistance, they could attract more international students, charge more tuition and potentially turn a profit.

"You can charge more for international students and they're willing to come," he said. "But they're not making the offer and making no money. You're losing thousands in foregone revenue."

Some criticize this approach as exploiting students. "What is a university really for? [This] is reducing students to revenue units," said Howard Woodhouse, a professor at the University of Saskatchewan in Saskatoon, who specializes in post-secondary education. "Universities can make plenty of money for society, but they should not profit themselves. In an ideal world, the government should always be there to ensure adequate funding, allowing universities to maintain their integrity," he said.

Mr. Woodhouse said some of the university funding problems can be traced back to Paul Martin's tenure as finance minister, when he added restrictions to money funnelled towards the provinces. Because federal funding is primarily research- and innovation-based, universities needed to create new growth projects through new degree programs and new buildings to take advantage of that funding.

"You have money going to universities for innovation, but operating costs are starved. Hence universities are starved for money," Mr. Woodhouse said.

"University of Saskatchewan is a prime example of it," he said. He regularly walks by a large hole in the ground on campus with a sign that says the construction is paid for by stimulus spending.

Robert Campbell, president of Mount Allison University in Sackville, N.B., said not every university wants to be, or is even meant to be, as large or as diversified as the University of Toronto. But the lure of innovation money was too much to ignore, so many grew beyond their means.

"When you have a budget problem you try to grow your way out," he said. "It's tough turning down [money], especially when your neighbours are doing it. I understand what they're doing, but they are short-term solutions."

Instead of getting bigger, Mount Allison got smaller ahead of the recession, and carries no long-term debt. It recently got a chunk of $60-million in infrastructure funding from the provincial government, although this cash must be used for existing facilities.

Arguably, the best way to grow then, is to get more creative - or get better funding partners.

Ryerson recently scored a major coup by getting both the federal government and Loblaw Cos. Ltd. to shell out cash to help the school develop a new athletic centre-supermarket in historic Maple Leaf Gardens.

Of the $60-million cost of the project, $20-million will come from Ottawa and $5-million from Loblaw, which first bought the arena. The grocery giant has also committed to a $15-million joint fundraising campaign with Ryerson. The remaining $20-million will come from a new student levy, so the deal is cost-neutral for the school.

The situation at the Gardens is unique, but Ryerson pulled off a similar deal to get its Ted Rogers School of Management building built by partnering with the Cadillac Fairview Corp. The school occupies the top three floors of the nine-floor building, while Cadillac Fairview owns two retail floors that house a Canadian Tire and Mark's Work Wearhouse.

"It's a very good example of not a nickel coming out of the operating budget," Mr. Levy said.

Mr. Di Matteo said the key is for universities find a balance between their role as a public institution and the pressure to behave as a business.

"Universities have turned into entrepreneurs with public money," he said. "They're very good at setting up business plans, but they don't know how to make money."

Mr. Levy, who is also chairman of the Council of Ontario Universities, disputes that assertion. "The challenge of building a budget is you have a better sense of your expenses than your income," said the Ryerson president.

This is especially true when much of that revenue comes from provincial governments, which can change priorities with every election, making it difficult to have any confidence in revenue continuity.

That just may be the biggest problem for universities. The amount of cash may rise and fall, politicians may change directions on a whim, but there will always be a government presence. Universities do not have the incentive to learn from their mistakes.

"You have universities embarking on business ventures to make money and yet if they don't make money, nothing really happens," Mr. Di Matteo said. "So, you have to decide what you want. Do you want a publicly funded university system or don't you? If you do, the government has to assert some policy leadership."

Financial Post

erlam@nationalpost.com