Over the past 24 years there have been dramatic changes in the funding of Canadian universities. In 1978, government funding accounted for 84 per cent of Canadian universities' operating budgets. By 2002, that funding had declined to about 60 per cent.

The 1995 federal budget created a new block transfer program called the Canada Health and Social Transfer (CHST) that replaced the combined transfer for health and post-secondary education made under the1977 Established Programs Financing (EPF) and social transfers formerly made under the Canada Assistance Plan. In 1996 and 1997 cuts were imposed through CHST that reduced the total transfers by $6 billion.

For almost 20 years EPF had provided money and tax transfers to the provinces to fund health services and post-secondary education, areas for which the provinces have direct constitutional responsibility. At the outset, 32 per cent of the total EPF transfer was allocated for the support of post-secondary education but Ottawa left it to the provinces to determine how much should be spent in each area.

The figure of 32 per cent was determined as a national average. It did not exist in any province at the time EPF was created and it was anticipated the EPF transfer would allow many provinces to allocate more to health care than to post-secondary education. This was desirable because the transfer was created at the very moment the bust following the baby boom was reaching the age at which they would normally begin post-secondary studies.

The widespread expectation was that enrolment in higher education would decline, but the policy makers did not take growing participation rates into consideration. The expected declines did not arise and enrolments grew rapidly during the 1980s.

In the last few years Ottawa has begun to restore the $6 billion through the CHST. Transfers under this program do not have an amount earmarked for post-secondary education and, since that restoration began, all the provinces have directed far more of this money to health care than they did prior to 1995, and correspondingly less to the other sectors.

The combined result is that in the 20-year period when enrolments have grown by more than 60 per cent government support for the core operating budgets of universities has declined by 30 per cent on a per student basis. By contrast, in the United States during the same period governments substantially increased the level of support they provided per student.

Through the late 1990s the federal government began to invest large additional sums in post-secondary education, especially in fields where it had a stronger constitutional claim to be directly involved than it did in the funding of core operations.

Chiefly these have been in student assistance tax measures, in grant programs like the Millennium Scholarships ($2.5 billion) and the Canada Education Savings Grant, and in the form of targeted funding for research in areas specified by the federal government. The bulk of these funds is directed towards applied sciences such as health, natural and computer sciences, and engineering.

Ottawa is in the process of creating 2000 fully-funded Canada Research Chairs ($900 million). And, through the Canada Foundation for Innovation ($3.15 billion ), is seeking to provide 40 per cent of the costs of the necessary infrastructure without which meaningful research cannot take place.

The stated aim is to have Canada move to fifth place in the world - from its position as 14th - in research support. This is an important goal, but the increase in federal research funding coupled with the decrease in provincial funding of core operations is having a number of serious consequences.

What is at stake is not a question of whether universities should focus on education or research. Both are necessary and each contributes to the other. Nor is it doubted that by the mid-1990s spending on university research was at dangerously low levels. The question is what will happen as the research activities of the university receive more than $4 billion in new funding at the same time as core operations struggle to manage with the steep decline in government funding per student.

An example of these difficulties is found in the requirement of the CFI that the provinces, the private sector and the universities come up with 60 cents to add to every 40 cents provided by the CFI. This amounts to a demand to come up with more than $4.7 billion in new money, in addition to what the universities were already relying on from the private sector and provincial governments.

This is a tall order in a country whose entire economy is smaller than that of California. And, to the extent that matching funds are found from the provinces and the private sector, to the same extent the university, provincial governments and the private donors will have aligned themselves (or been co-opted) by the federal research agenda.

The indirect costs of research are recognized in the 2001 federal budget which allocated a one-time sum of $200 million, without matching requirements, to help universities and research hospitals with the financial pressures associated with the federal research agenda. These costs are ongoing, but the funding is not, at least not yet.

This combination of constant and longstanding decreases in government funding, with continually increasing student enrolment (which is expected to increase by another 25 per cent over the next decade) to which are added the indirect pressures and benefits of a vastly increased research agenda, have created a new environment in which undergraduate education must now make its way.

This raises the question about whether we are in the midst of an irreversible "sea change." If so, this would be of great importance to Canada inasmuch as undergraduate education constitutes more than 85 per cent of what universities do in terms of the students they serve.

The "privatization" of some smaller universities, or of the undergraduate enterprise of others, appears inevitable and is actually underway. There are already some universities, especially in Atlantic Canada, where only about a third of their annual operating budget comes from government funding.

Privatization in this context does not mean renouncing all government support, but simply a dramatic increase in tuition at some institutions, thus creating a Canadian university system that would look and act much more like that in the U.S.

At present most provinces insist on some form of tuition fee regulation. Will provincial governments be able to prevent large tuition increases if doing so is seen to condemn their universities to mediocrity? Universities that believe they are able - in terms of reputation, size, endowment, or other factors - may determine to provide an improved level of undergraduate education by doubling their fees or more.

What of the others, especially those that will never be able to tap into federal research monies? Will they face a drift towards mediocrity rather like the long slow decline that has led to the current $3.6 billion accumulated deferred maintenance problem identified by the Canadian Association of University Business Officers? Can this be prevented? Should we try to prevent it?

All of these factors argue for a shift in our thinking about how undergraduate education will be provided, and to whom, and for what cost. There are important implications here for both individual students and their parents who may have to pay more or accept less. It has implications for Canada as a whole insofar as it may limit those who have access to a quality undergraduate education. Traditionally this has been the primary means by which young people learn to distinguish between knowledge and opinion.

Can we sustain a knowledge economy in a complex modern democracy with fewer rather than more who are able to make these distinctions? Wealthier provinces may be able to provide support for the undergraduate enterprise of their universities, but what of the others? What will be the effect of very high tuition in some institutions on those which don't, or can't, raise them so much? A rising tide? Sharply divided classes of institutions in the public perception?

The shift also implies a whole new set of problems that universities will have to address. These will turn in part around questions of accessibility and quality. In a tuition zone of $10,000 or more, scholarships based on merit and need will become crucial. But at present we have little ability to assess accurately a family's financial situation in the manner of the big student aid offices of the American universities.

How will sharply rising tuition affect the relationship between undergraduate education and big research in the large universities that do both? How will it affect the relation between larger universities and smaller and middle-sized undergraduate universities? Will faculty positions become more entrepreneurial where more resources are at stake? Will a more stratified system of universities lead to greater levels of giving from individuals, like the American pattern where it is a lifelong interest of graduates to support and improve the standing of their university in a context of competitive rankings?

Such questions seem to be lurking just beneath the surface. Perhaps we should begin by considering the question of whether a sea change is actually underway.

Colin Starnes is president and vice-chancellor of University of King's College in Halifax, Nova Scotia.

The views expressed are those of the author and not necessarily those of CAUT.