New Zealand university finances ‘worse than they look’

Paper gains on investments and property deals saved New Zealand’s universities from their first sector-wide deficit last year, but their luck has now run out, according to the Tertiary Education Commission (TEC).

A confidential March briefing says the sector’s then unaudited NZ$138 million (£65 million) surprise surplus masked a considerable shortfall in “performance from core operations”.

Putting aside one-off gains and a NZ$115 million improvement in “net trust income” – mostly unrealised gains on investment portfolios – the sector registered a NZ$66 million deficit.

“This…is notably worse than the NZ$5 million underlying deficit that had been budgeted,” the TEC told tertiary education minister Penny Simmonds. “We do not consider there are immediate risks to the financial viability of any university [but] medium-term risks to…several universities…need consideration now.”

The partially redacted memo was released to media following a Radio New Zealand request under the Official Information Act. The contents underline fears that years of sub-inflation funding increases, soaring costs and declining enrolments have left universities financially vulnerable.

In a briefing to Ms Simmonds shortly after last October’s election, the TEC warned that the sector had forecasted collective deficits in 2023 and 2024 “for the first time on record”.

Audited 2023 financial accounts subsequently published by all eight institutions presented a more positive picture, with the sector registering an overall NZ$113 million surplus. But this was entirely due to an “exceedingly strong” result from the University of Auckland, which finished the year NZ$152 million ahead.

The memo notes that domestic and international enrolments are tracking above expectations this year, but the increase is uneven, maintaining a recent pattern of “changes in market share”. Most affected is Massey University, where domestic student load declined by 21 per cent between 2019 and 2023 and new student numbers are down 16 per cent this year.

“Further declines are likely in coming years due to the negative pipeline effects. Massey [needs] to identify…why domestic enrolments continue to fall and other universities are growing at their expense.”

Massey said it was “working to address the TEC’s concerns. We are focused on increasing our domestic enrolments, particularly on-campus learners, and to ensuring that our academic offer is attractive, relevant and sustainable. This is part of the university’s plan to return to a surplus position by 2026.”

The memo says the TEC rates two universities – including Massey – as high risk and three others as medium risk. It questions institutional predictions of future surpluses, noting “optimism bias” in enrolment forecasts and underestimates of inflation.

The sector has budgeted for a NZ$42 million deficit this year, it says. And while surpluses of NZ$44 million and NZ$129 million have been forecasted over the next two years, they are “predicated” on assumptions of increased enrolments and constrained spending.

“This will be a difficult equation to manage,” the memo says. Expenses increased by 50 per cent more than expected in 2023, the memo notes, while an anticipated 1 per cent increase in domestic enrolments turned into a 3.5 per cent decline.

Tuition subsidy rates and fee increases fell by 13 per cent in real terms between 2019 and 2023, the memo observes. A 9 per cent funding rate boost last year “will close some of the gap”, but it included a 4 per cent increase that expires next year. “This decline is not currently assumed in university forecasts.”

john.ross@timeshighereducation.com