AUSTRALIA: Huge surplus or massive shortfall?

Australia's public universities have rejected federal government claims that they generated a huge 'profit' last year, arguing that the accounting methods used distort the real situation.

Federal Tertiary Education Minister Chris Evans released the annual financial reports of higher education providers on 13 November, which purport to show that last year's operating surplus for the 39 universities almost reached AUD2 billion (US$2.06 billion).

This was an increase of more than 8% compared with 2009.

Evans said 18 universities had returned surpluses of more than $50 million while revenue for the sector had increased from $19.9 billion in 2009 to $21.5 billion in 2010 - up 8.2%. Federal government funding, including loans to students, increased by 8.9% to $12.4 billion in 2010, although government grants comprised only 42% of the universities' total income.

Moreover, as the National Tertiary Education Union (NTEU) pointed out, the financial reports also revealed that 23 universities - the majority - actually experienced negative cash flows in 2010. That is, they spent more than they earned, with the sector as a whole reducing its cash holding by some $100 million. The result on many campuses is that staffing cuts are being made while student-to-staff ratios continue to climb.

"In 2010, university operating surpluses included $548 million in one-off federal capital grants [that were] desperately needed and greatly welcomed," said NTEU National Assistant Secretary, Matthew McGowan. "However, the data also shows that universities spent approximately $2.7 billion on capital expenditure, the vast bulk of which, for accounting reasons, was not included in the calculation of their operating surplus."

In April, the Group of Eight research-intensive universities said in a submission to the government's base funding review that the present system did not adequately cover university costs. In fact, the Go8 said, there was a funding gap of up to 30% although the amount varied by institution.

"As a result, universities have had to allow student-to-staff ratios to increase and have neglected essential investment in infrastructure and facilities. These and other savings threaten the quality of the student experience. There is already disturbing evidence that Australia has fallen below international benchmarks," the submission stated.

"In an expanding, demand-driven system [to be introduced in 2012] these problems are likely to worsen as the funding gap widens. Growth in demand for university places is likely to be very large - and larger than government projections have allowed."

The report of the base funding review is now with the minister and critics wonder if his claims about the robust financial health of Australia's university system are a likely pointer to unwelcome future government funding decisions.

Surprising, then, was the low-key response from the vice-chancellors' lobby group, Universities Australia, whose Chief Executive Dr Glenn Withers merely observed that "special care needs to be taken when viewing reported surpluses".

"These are not 'profits'. In fact, half or more of the funds referred to relate to future funding commitments, especially for capital works. Much of the recent increase in university funding by government has in fact been in infrastructure, through draw-down of the Higher Education Investment Fund, and this has been very beneficial," Withers said.

"Universities quite prudently hold monies on their books to deal with volatile times and for future committed spending. Indeed, a large share of the 'surpluses' are matching funds raised by universities to meet co-funding requirements set by the government. If the government says the surpluses are evidence the recommendations of its own successive independent inquiries in relation to base funding can be put aside, then this would not be a positive policy development."

A more forthright NTEU said the financial figures did not provide any evidence that per student funding was adequate, "as the government's own inquiries into higher education have shown".

"Nor do they dispute the reality that our university system is approaching breaking point," McGowan said. "Our members repeatedly tell us that their workloads are increasing, casualisation is a major problem, student-to-staff ratios are sky rocketing, and they have less resources to do their jobs."