Report: Business Board - January 29, 2025

REPORT NUMBER 282 OF THE BUSINESS  BOARD

WEDNESDAY, JANUARY 29, 2025

To the Governing Council,
University of Toronto,

Your Board reports that it held a meeting in the Council Chamber, Simcoe Hall on January 29, 2025, at 5:00 p.m. with the following members present:

PRESENT: Rajiv Mathur (Chair), Indi Gopinathan (Vice-Chair), Scott Mabury (Vice-President, Operations & Real Estate Partnerships), Kelly Hannah-Moffat (Vice-President, People Strategy, Equity & Culture), Trevor Rodgers (Chief Financial Officer), Sharleen Ahmed, Amanda Bartley, Lindsay Boyce*, Jovan Bursac, Vikram Chadalawada, Janet Anne Cloud*, Samuel Elfassy*, K. Sonu Gaind*, Thomas Hofmann, Paul Huyer*, Kathryn Jenkins, Samantha Kappagoda, Scott MacKendrick, Brian Madden, Adel Melek, Rima Ramchandani*, David Regan, Ian Taylor, Mary-Agnes Wilson*

REGRETS: Glen W Bandiera, Maureen Harquail, Firdaus Sadid

NON-VOTING ASSESSORS: Trevor Young (Vice-President & Provost), Christine Szustaczek (Vice-President, Communications) Ron Saporta (Chief Operating Officer, Property Services & Sustainability), David Lehto (Chief, University Planning, Design & Construction), Jeff Lennon (Assistant Vice-President, Planning & Budget), Nick Rule (Vice-Provost, Academic Programs)

SECRETARIAT: Timothy Harlick (Secretary), Miranda Edwards

IN ATTENDANCE: Susan McCahan (Associate Vice-President and Vice-Provost, Digital Strategies and Vice-Provost, Innovations in Undergraduate Education), Chuck O’Reilly (President & Chief Investment Officer, UTAM), Anthony Tia (Director, Treasury and Investments), Sanish Samuel (Controller & Director of Financial Services), Elizabeth Cragg (Director, Office of the Vice President, Operations & Real Estate Partnerships), Alex Matos (Executive Director, Internal Audit), Flavio Bertolo (Director, Infrastructure Planning & Implementation), Adnaan Bhyat (Senior Manager Business Improvement & Strategic Initiatives)
*attended remotely

Pursuant to section 38 of By-Law Number 2,
consideration of items 17 to 19 took place in camera.

OPEN SESSION

1. Chair’s Remarks
   
   The Chair welcomed members and guests to the meeting.
2. Reports of the Administrative Assessors
   
   Professor Mabury reported on the conclusion of a strategic land acquisition initiative dating from 2017. The University's purchase of the CAMH lands included lease-back provisions through 2058. However, following changes to CAMH's space requirements, an early lease termination was negotiated under which CAMH would immediately vacate most of the 33 Ursula Franklin building, with complete vacation of the  3 Ursula Franklin and 250-252 College buildings within five years. This development allows for a relocation of various administrative offices and the eventual demolition of 215 Huron Street, creating capacity for future academic priorities.
   
   Professor Mabury characterized this as a transformative acquisition for the University's next 100 years of development and concluded his remarks noting that a visioning group will be established to guide the long-term planning for these lands.
   
   Discussion
   
   In the ensuing discussion, members sought clarification on implementation timelines. Professor Mabury indicated relocations would proceed in phases based on required renovations.
3. Revision to the University Funds Investment Policy
   
   Mr. Trevor Rodgers, Chief Financial Officer, provided an overview of proposed changes to the University Funds Investment Policy for the Mid-Term Portfolio (MTP) within the Expendable Funds Investment Pool. He explained that while the MTP was created in 2020 to enhance returns above the Short-Term Portfolio, it experienced unexpected volatility during 2022's rising interest rate environment, resulting in unrealized losses of $80 million that exceeded the University's risk tolerance levels.
   
   Mr. Rodgers discussed the University of Toronto Asset Management’s recommendation to modify the MTP benchmark from its current FTSE Canada BBB Corporate Bond Index to a balanced 50/50 split between this index and its short-term counterpart. Based on extensive analysis, he noted this adjustment would preserve the portfolio's ability to generate enhanced returns while better aligning with the University's risk preferences. The Investment Committee had endorsed this measured approach, which would take effect March 1, 2025, subject to the Business Board's approval. Mr. Rodgers emphasized that this modification represented a prudent refinement of the University's investment strategy rather than a fundamental shift in approach.

   There were no questions from members.
   
   On motion duly moved, seconded, and carried

YOUR BOARD APPROVED

THAT the Business Board approve the University Funds Investment Policy, dated January 29, 2025, attached as Appendix B, replacing the University Funds Investment Policy dated April 25, 2024.  

4. Deferred Maintenance
   1. Annual Report: Deferred Maintenance, 2024
      
      Mr. Ron Saporta, Chief Operating Officer, Property Services & Sustainability, presented the Annual Report on Deferred Maintenance. 
      
      Highlights of the presentation included:
      • The total replacement value of academic and administrative buildings at the University had grown from $6.6B in 2023 to $7.2B in 2024, while the tri-campus deferred maintenance backlog had increased from $1.2B to $1.5B
      • The Facility Condition Index for the University’s property had risen by 2.1% to 20.3%.
      • Persistent inflation since 2020 had significantly impacted operations, with the construction price index rising 31.5 points, the steepest increase in four decades.
      • The University was facing simultaneous renewal requirements for buildings from both the 1960s and 2000s construction periods, creating an unprecedented maintenance demand
      • In the 2024-25 fiscal year, $41M was allocated to the St. George campus maintenance program, though this fell short of the $80.6M needed to match the provincial peer average of 1.45%.
      • The University had implemented an evidence-based model to prioritize projects, successfully reducing risk indices in 8 of 10 maintenance areas between 2019 and 2024
      • Without increased funding, the maintenance backlog was projected to reach $2.0B by 2034, requiring annual budget increases of $2.5M to maintain pace with provincial standards

   2. Debt Financing for the Deferred Maintenance Program
      
      Mr. Saporta then presented a proposal for financing of an expanded deferred maintenance program. Highlights of the second presentation included:

      • A proposed $350M investment to address the University’s mounting deferred maintenance challenges, with $300M allocated to the St. George campus
      • The financing structure included $250M in debt funding, with $200M for St. George and $50M for the University of Toronto Mississauga, University of Toronto Scarborough and other ancillary infrastructure
      • For the St. George portion, one-third would come from existing maintenance budgets and energy savings, while two-thirds would be financed over 25.
      • This addressed the gap between current funding (0.55% of replacement value) and provincial averages (1.45%)
      • Implementation would occur in three phases beginning May 2025, with completion targeted for 2027/28
      • Project selection would follow a risk-based system considering physical condition, academic impact, and failure risks. The program focused exclusively on maintenance rather than new construction, emphasizing climate resilience and energy efficiency.

Discussion

In the ensuing discussions, members inquired about both the scope and strategy behind the $250 million financing component of the proposed deferred maintenance program. Mr. Saporta described the University’s evolution toward data-driven maintenance planning, using risk assessments across 440 critical infrastructure systems to prioritize investments. He further outlined how projects would be implemented in waves to optimize market response and maintain flexibility. This approach would allow them to adjust the scope of later waves based on earlier results.

Several questions also focused on procurement strategy. Professor Mabury and Mr. Saporta explained the University intended to bundle similar projects together rather than tendering 440 separate contracts. The investment would generate operational savings through improved energy efficiency while addressing the growing maintenance backlog.

In response to question regarding the decision to request this level of funding given the growing deferred maintenance projections, Professor Mabury explained that $250 million allowed the University to address the highest-risk items while preserving flexibility for other institutional priorities.

On motion duly moved, seconded, and carried

YOUR BOARD RECOMMENDED

THAT the scope of the Deferred Maintenance Program be approved in principle; and, 

THAT the program be approved in principle to be funded through: Debt Financing and the deferred maintenance budget.

5. Debt Strategy - Annual Review December 31, 2024
   
   Mr. Anthony Tia, Director, Treasury and Investments, provided the Board with a presentation on the Debt Strategy – Annual Review December 31, 2024.
   
   Highlights of the presentation included:

• The University's debt strategy continued to be governed by a debt policy limit based on a 6% debt burden ratio and a 0.8 viability ratio. As of April 30, 2024, the debt policy limit was $2.9B, with a maximum of $1.8B internal and $1.1B external debt, including indirect debt exposure.
• As of December 31, 2024, actual outstanding debt was $1.2B, comprising $0.4B internal and $0.7B external debt.
• The Business Board had approved $1.9B of borrowing room for capital projects, leaving $1.1B available for future projects not yet brought forward for approval
• Future capital projects were projected to require approximately $1.4B of additional borrowing room. Based on projected growth in expenses, the maximum debt policy limit was expected to increase to $3.4B by 2030, sufficient to meet these needs
• The University maintained its 6.0% cost assumption for future borrowing, with sensitivity analysis showing the 2030 debt limit could range between $3.3B and $3.7B based on borrowing costs of 5-7%.
• Benchmarking confirmed the University's debt strategy remained prudent compared to both Canadian and U.S. peer institutions, with lower debt service costs and higher expendable resource ratios than most peers.

Discussion

Members raised concerns about external risks to the university's debt strategy, particularly potential tariffs and inflation driving higher interest rates. Mr. Tia walked through their modeling, which included stress testing for a 100 basis point rate increase and highlighted their use of long-term fixed rate debt to mitigate short-term rate volatility and explained various financial levers available if needed, including the University’s $690 million sinking fund. Members also focused on the relationship between the deferred maintenance program and overall debt capacity and Mr. Rodgers, Chief Financial Officer, confirmed the University maintained strong credit ratings and significant unused debt capacity even after accounting for the planned deferred maintenance project.

6. Forecast of University Financial Results to April 30, 2025, prepared as at January 15, 2025
   
   Mr. Trevor Rodgers, Chief Financial Officer, presented the Financial Forecast to April 30, 2025, prepared as of January 15, 2025.
   
   The forecast projected a net income of $143M for 2024-25 fiscal year, representing a decrease of $365M from the previous year's net income of $508M. This decline primarily reflected expense growth due to inflation, including significant salary increases, while revenue growth remained modest due to the Provincial tuition freeze and federal caps on international enrolment.
   
   Total revenues were expected to increase by $57M year-over-year, while total expenses were forecasted to grow by $422M to $4.6B. The net income projection assumed a 10% return on long-term investments. Under different investment return scenarios ranging from 2% to 10%, net income was projected to vary between $38M and $143M.
   
   Net assets were forecasted to increase from $10.0B to $10.3B by April 30, 2025. This $332M increase resulted from projected net income of $143M, endowed contributions of $74M, investment income net of spending from externally restricted endowments of $203M, partially offset by an $88M decrease from employee benefit remeasurements.
   
   The forecasted net income represented an unfavorable variance of $91M compared to budget, as strong investment returns were offset by expense growth and lower-than-planned tuition revenue. These results reflected a challenging environment of constrained revenue growth amid increasing cost pressures.
   
   Discussion
   
   The discussion focused on the sustainability of the university's financial model given revenue growth constraints. Members expressed concern about the gap between 1% revenue growth and 10% expense growth. The administrative assessors outlined various initiatives being explored including operational efficiencies, strategic enrolment growth particularly from out-of-province students, and new revenue opportunities. They noted that while the 3% projected margin was lower than recent years, it remained healthy by sector standards.

CONSENT AGENDA
 

On motion duly moved, seconded, and carried

YOUR BOARD APPROVED

THAT the consent agenda be adopted and that Items 7 (a), (b) & (c) and Item 12, the Report of the Previous Meeting, be approved.

7. Annual Review of Policies:
   1. University of Toronto Health and Safety Policy
      
      On motion duly moved, seconded, and carried,
      
      YOUR BOARD APPROVED
      
      THAT the on-going application of the University of Toronto Health and Safety Policy, a copy of which is attached, be confirmed in its current form without amendments.
       
   2. Policy with Respect to Workplace Harassment
      
      On motion duly moved, seconded, and carried,
      
      YOUR BOARD APPROVED
      
      THAT the University of Toronto Policy with Respect to Workplace Harassment, a copy of which is attached, be confirmed in its current form without amendments.
       
   3. Policy with Respect to Workplace Violence
      
      On motion duly moved, seconded, and carried,
      
      YOUR BOARD APPROVED
      
      THAT the University of Toronto Policy with Respect to Workplace Violence, a copy of which is attached, be confirmed in its current form without amendments.
8. Status Report on Debt to December 31, 2024
   
   Members received the Status Report on Debt to December 31, 2024, for information.
9. S&P Credit Rating Report (for information)*
   
   Members received the S&P Credit Rating Report, for information.
10. Quarterly List of Donations of $250,000 or more to the University of Toronto: August 1 - October 31, 2024 (for information)*
    
    The Quarterly List of Donations of $250,000 or more to the University of Toronto: August 1 - October 31, 2024, was received for information.
11. Health and Safety Requirements: Quarterly Report on Compliance
    
    The Health and Safety Requirements – Quarterly Report on Compliance for October 1, 2024 to December 31, 2024, was received for information.
12. Report of the Previous Meeting: Report Number 281, November 27, 2024
    
    Report Number 281, from the meeting of November 27, 2024, was approved.

13. Business Arising from the Report of the Previous Meeting
    
    There was no business arising from the report of the previous meeting.

14. Report Number 160 of the Audit Committee, November 20, 2024
    
    Report number 160 of the Audit Committee, November 20, 2024, was received for information.

15. Date of Next Meeting – Wednesday, March 12, 2025, at 5:00 p.m.
    
    The Board was informed that the next meeting was scheduled for Wednesday, March 12, 2025, at 5:00 p.m.

16. Other Business
    
    No other business was raised by members.

The Board moved In-Camera.

IN CAMERA SESSION

17. In Camera Reports of the Administrative Assessors
    
    No in camera reports were provided.

18. Report on Capital Projects as of December 31, 2024
    
    The Board received the Report on Capital Projects as of December 31, 2024, for information.
    
    Professor Mabury and David Lehto, Chief, University Planning, Design & Construction, provided a summary overview and update of the capital projects underway this academic year.

19. Debt Financing for Deferred Maintenance Program – Financing
    
    The Board approved a motion that the recommendation of the Vice-President, Operations and Real Estate Partnerships, as outlined in the memorandum dated January 22, 2025, be approved.

The Board returned to Open Session.

The meeting adjourned at 7:04 p.m.

February 10, 2025