The massive cuts last week to jobs and programs at Laurentian University will likely have a $100-million or more impact on Greater Sudbury’s economy, says a Northern Ontario economist.
That’s about a two-per-cent hit to the city’s GDP.
“You’re probably looking at $30 to $40 million in direct wages,” said Livio Di Matteo, an economist in Thunder Bay who teaches at Lakehead University. “You apply a multiplier to that, and you start to get up to $100 million in impacts through direct and indirect effects.”
But beyond those direct wage impacts, there are the impacts from the impact the restructuring will have on the student population that comes to Sudbury to study at Laurentian.
“There’s also the foregone economic activity from students coming to the community,” Di Matteo said. “Not all the students going to Laurentian are from Sudbury. They’re from around the region. Those students may decide not to come to Sudbury.
“If they don’t come, that’s going to have spillover effects into the community’s economy, because students rent accommodation, they shop, they do things.”
Laurentian University announced earlier this year it is insolvent, and is undergoing restructuring under the Companies’ Creditors Protection Act (CCAA), a situation unprecedented in the post-secondary sector. The university has until April 30 to come up with a restructuring plan.
Di Matteo called the CCAA restructuring process a “blunt instrument” meant for private-sector companies that have fallen into financial trouble.
“Basically it’s a process to resolve what’s owed, to satisfy the creditors, the people the money is owed to,” he said. “The emphasis tends to be on reducing costs over any long-term plan to restore viability. That’s part of it. But they’re really focused on getting their money.”
So, while the CCAA process can help restore solvency by cutting costs, it is less concerned with the overall, long-term impact of what those cut costs will mean, he said.
“In the short run, the best way to do that is by cutting costs immediately to restore solvency,” said Di Matteo. “What’s most important in the case of Laurentian, if they’re going to restructure, to use that term, is going forward, what is the plan? And there doesn’t seem to be any plan aside from cutting costs right now and plan later. It’s difficult to do.
“Universities are much more complicated than pulp mills in terms of their programs and what they do in communities.”
Now that one public institution has tried a CCAA restructuring, others may be tempted as a precedent has been set, even if it is botched and doesn’t go well, said Di Matteo. As well, the restructuring lowers public confidence in the university as an institution, which has its own consequences. The hit to the university’s reputation will take a long time to heal, he added.
“A lot of universities’ recruiting is based on reputation and their environment,” Di Matteo said. “Going forward, I’m not certain what the plan is, in the sense that you now have a university that is, to use the vernacular, just about gone belly-up. If you were a parent with children who had to go to university, would you want your children to go there?”
He said it’s curious that neither the provincial or federal government, which have been throwing around a lot of money lately, stepped up to loan Laurentian University the money it owed, with tight conditions tied to restructuring goals.
“If you look at the bailout yesterday with Air Canada, it’s $6 billion,” Di Matteo said. “That’s an awful lot of Laurentians, if you start to divide by $30-, $40-, $50 million, which is all it would have taken probably to buy some time.”
Di Matteo said it’s unfortunate that the university’s management waited so long to deal with its financial problems. The big question, he said, is why.
“The question is, why wasn’t this picked up earlier?” he asked. “Why did the board not pick up on this?”
Asked if Laurentian can recover from the situation, Di Matteo said it depends on what you mean by recover.
“Well, life goes on, no matter what happens, but it’s going to be a much smaller institution,” he said. “The university will obviously remain open and continue to function and offer the programs it has left, if you consider that a recovery.
“It will be a smaller institution. It will contribute probably less to the economic activity and intellectual activity of the region for the immediate future. And 10 years from now, who can predict? Ten years from now they might recover fully and be larger than they were today, but there’s really no way to project that.”
Sudbury.com also reached out to the Greater Sudbury Chamber of Commerce for comment. We received a written statement.
“Laurentian University is a key economic pillar of our community, and has contributed immeasurably to Sudbury's growth, research, economic well-being and quality of life; it is one of the many reasons Sudburians are proud to call Sudbury home and why Sudbury remains an attractive option for international students,” said Cora DeMarco, chair of the Sudbury chamber’s board of directors.
“We acknowledge the university is undergoing a challenging and difficult restructuring process, and our thoughts are with those impacted. We are optimistic the institution will emerge out of this process to remain a key economic contributor and employer within our community.”