McGill stuck on deferred maintenance treadmill

Part three of a four-part series: admin using outside investments to pay for new property

Click the graph above to access the University’s budget from the past four years

Of the roughly $1 billion McGill is projected to spend this fiscal year (FY), over $100 million is to be dedicated to infrastructure projects, according to the University budget.

The money is funnelled into the Plant fund, which comprises all revenue specifically earmarked for the acquisition, construction, or renovation of McGill’s infrastructure assets.

“There are a hundred different construction projects on as we speak,” said SSMU President Zach Newburgh.

Jim Nicell, Associate VP (University Services), said that McGill currently has $142 million invested in renovation projects across campus. The provincial government has given the university $15 million this FY2010-2011 for the specific purpose of renovation and repurposing of existing space, such as the new Service Point on McTavish.

However, the Plant fund’s major investments for the foreseeable future concern deferred maintenance. In 2007 McGill carried out a study that revealed $647 million worth of accumulated deferred maintenance. Other universities in Quebec discovered similar problems, and the provincial government responded for FY2008-2009 by initiating a 15-year program to catch up on deferred maintenance. McGill now receives $25 million annually from the provincial government to address deferred maintenance.

“Some [renovations] get left undone, and we end up deferring things to a later date. … Deferred maintenance is a huge problem for universities,” said Nicell.

With so many deferred projects building up, the issue for the University has become how to prioritize certain projects over others. Nicell said the top priority for deferred maintenance spending was to address health and safety issues, such as bringing decades-old buildings up to modern building codes. He identified the second highest priority as maintaining the proper running of facilities. Last was maintenance that halts the general degradation of buildings and facilities.

However, while McGill pours money into fixing decades-old maintenance issues, less immediate issues are deferred and degrade to dangerous levels over the years. Pierre Moreau, Senior Advisor (Policy Development), told a legislative committee in the National Assembly last Tuesday that 80 per cent of McGill buildings were built before 1940.

The federal government stepped in last year to try and bump Canada’s universities off the deferred maintenance treadmill by launching a massive stimulus package called the Knowledge Infrastructure Program (KIP). The federal government gave $1 billion, which the ten provincial governments then collectively matched. McGill received $81 million as their share of the package, and has until March 31, 2011 to spend all the money.

“The University is having trouble doing everything to finish before the deadline,” said Newburgh.

The three major KIP projects involve renovating the Macdonald Engineering, McIntyre Medical, and Otto Maass Chemistry buildings. However, as the stimulus is a limited federal project, Nicell doesn’t believe it will go far enough in completely solving deferred maintenance issues.

“It was a one-time thing. The federal government went into important debt to create the stimulus package,” said Nicell. “It’s part of the fundamental argument of the underfunding of universities. Hospitals are the same way, everything’s over-taxed.”

Nicell said that universities at present don’t have the financial resources to completely erase deferred maintenance, and that with current funding models, he was doubtful that all of McGill’s pending maintenance work could be tackled.

“That’s the trillion dollar question across the country,” said Nicell. “Capital funding wasn’t sufficient [in the past], and it created deferred maintenance. …. If we haven’t corrected the base cause of deferred maintenance, we won’t solve the problem.”

With so much of the Plant fund devoted to renovation and maintenance, McGill has to use other outside resources to buy new buildings. For the $12.3 million purchase of the Courtyard Marriott Hotel this past spring, McGill took out a bond to raise money. Such investments in stocks, bonds, and mutual funds are common for many post-secondary institutions.

“These [investments] are short-term instruments that allow us to get income in those periods when our cash-flow is positive,” wrote Provost Anthony Masi in an email.

The Budget conservatively forecasts investment income to amount to approximately $42 million in FY2011.

“The University invests in wide array of stocks, bonds, mutual funds, like most private citizens,” said Newburgh, who also admitted that McGill is “taking risks in a volatile market.”

Other installments in this series:
Part 1 – Administration releases landmark budget; deficit to be eliminated by end of fiscal year
Part 2 – Budget forecasts severe tuition increases; student aid still inaccessible
Part 4 – McGill cycling out tenured professors to cut costs; Admin staff, salaries, on the rise