Borrowings: La Trobe Uni and the lessons for UTAS

 

La Trobe University (LU) today announced its intention to raise funds via a Green Bond issue following in the footsteps of UTAS Green Bond raising of $350 million in the 2022 year.

The amount to be raised is not known at this stage and is irrelevant for the purpose of this note which is to have a quick look at the requirements/restrictions for LU to raise money in this manner and provide the current Leg Co Committee looking into UTAS with information which may assist their deliberations.

What lessons are there for UTAS?

The term Green Bond is essentially a term from a marketing department designed to pique interest, possibly in the hope that an investor may accept a slightly lower rate of interest as a trade off to saving the planet. A Green Bond is a security just like any other bond. Bonds are alternatives to loans and other borrowing like arrangements.

LU is an entity created by the La Trobe University Act 2009, a Victorian Act. Borrowing powers are covered by Sec 45:

45           Borrowing powers

 (1) Subject to this Act, for the purpose of carrying out or performing any of its powers, authorities, duties or functions, the University may—

(a) borrow money at interest by way of mortgage, overdraft with an ADI or otherwise; or                

(b) without limiting paragraph (a)—        

(i) obtain financial accommodation within the meaning of section 3 of the Borrowing and Investment Powers Act 1987; or

(ii) enter into and perform financial arrangements within the meaning of that section of that Act.

(2) Subsection (1) applies within the limits and upon the conditions as to security and otherwise as the Treasurer, from time to time, approves after consultation with the Minister.

NB ADI means authorized deposit-taking institution, in other words, a bank.

Pretty straightforward. The Treasurer and the responsible Minister have the final say on conditions and security for any proposed borrowings which are undertaken pursuant to the Borrowing and Investment Powers Act 1987. Borrowing powers (including guarantees) are covered by Part 2 of that Act.

Sec 4 sets out the general approach:

4             General borrowing authorisation

An authority may, for the purpose of performing its functions or exercising its powers— 

 (a) exercise any power conferred on it by this Part; and

(b) with the approval of the Governor in Council on the recommendation of the Treasurer, do anything necessary for, or incidental to, the exercise of any power conferred on it by this Part

Financial accommodation is covered by sections 5 to 11. From the definitions in sec 3:

financial accommodation means a financial benefit or assistance to obtain a financial benefit arising from or as a result of—

(a) a loan;

(b) issuing, endorsing or otherwise dealing in promissory notes;

(c) drawing, accepting, endorsing or otherwise dealing in bills of exchange;

(d) issuing, purchasing or otherwise dealing in securities;

 (e) granting or taking a lease of any real or personal property for financing but not for operating purposes; (

f) any other arrangement that the Governor in Council on the recommendation of the Treasurer approves;

financial arrangement covers the more esoteric ways of making and receiving payments to deliver property. It is not necessary to go into detail for the purpose of this note.

Finally, guarantees are covered by sections 12 to 17. Of note is sec 13:

13           Statutory guarantee

(1) This section applies in relation to the provision to an authority to which this section applies (other than Victorian Power Exchange, Generation Victoria or National Electricity) of—

(a) a financial benefit or assistance to obtain a financial benefit referred to in section 5; or

(b) financial accommodation—

                (i) repealed

(ii) to which section 8 or 9 applies, unless the Treasurer executes a guarantee under section 14 in relation to the financial accommodation.

 (2) The due satisfaction of amounts payable by an authority as a result of or in connection with the provision to the authority of financial accommodation including, without limiting the generality of the foregoing, the payment of expenses of enforcing or obtaining or endeavouring to enforce or obtain such satisfaction is guaranteed by the Government of Victoria.

The state of Victoria guarantees the borrowings of LU. That’s it in a nutshell.

The above is not intended to be a recommendation. Rather it’s a demonstration of how LU’s governing act sets out in more detail how the borrowing approval works in Victoria and the explicit guarantee for LU’s borrowings by the State of Victoria.

To digress slightly the La Trobe University Act 2009 also contains a clause relating to the disposal of land:

37           Disposal of land

(1) Without the prior approval of the Minister, the University must not alienate any land granted in fee simple under section 36(6)(a) whether—

 (a) the alienation of the land is in fee simple or for a lesser estate or interest; or

(b) the alienation of the land is—

(i) total or partial; or

(ii) subject to conditions.

(2) Subsection (1) does not apply to a leasehold interest not exceeding 21 years

That’s just the first part of the section. It stipulates ministerial approval is needed to before alienating land. It doesn’t apply to leases less than 21 years. What about service concession deals like the Spark Living arrangement for 30 years? Would that be covered? Is that an alienation of land?  Perhaps it can be picked up as a financial arrangement that requires the Minister’s approval? Rather than it being the Minister’s prerogative, perhaps certain dealings could be subject to the approval of Parliament.

The UTAS Act contains a specific clause sec 12 requiring UTAS to furnish the Minister with an Annual Report which is then tabled in parliament, shortly before being binned.

It’s even less onerous for LU. There is no equivalent clause in LU’s Act. There are clauses which give the Minister powers to stipulate what reports he/she requires.   Parliament currently gets to see an Annual Report each year, but it doesn’t appear to be a statutory requirement. When the Chancellor sends the Annual Report to the Minister it is accompanied with a polite note expressing his pleasure at being able “ to submit for your information and presentation to Parliament the La Trobe University Annual Report for the year ending 31 December xxxx.” It’s all a bit quaint.

Quaint is the only way of describing who constitutes LU. It’s not dissimilar to UTAS.

Sec 4 (3) spells it out:

The University consists of—

(a) the Council; and

(b) the staff, other than staff of any class that is designated from time to time by the Council not to be staff for the purposes of this section; and

(c) the graduates; and

(d) the students; and

(e) the emeritus professors of the University

Thereafter persons in categories (b), (c), (d), (e) and (f) don’t get a mention in the Act. They’re just token members. Just like UTAS. Perhaps they’re only there to prevent universities from being swallowed up by the second tier of government for government accounting and reporting purposes.

No-one wants more bureaucratic entanglements. It’s the issue of transparent control and meaningful reporting to the owners of public assets which needs to be addressed.

As the Committee is no doubt aware, there is a Bill, the Tasmanian Public Finance Corporation Amendment Bill 2023, currently before the Lower House which seeks to amend the Tasmanian Public Finance Corporation Act 1985 to provide an enduring guarantee by the Government of borrowings from Tascorp by relevant organisations that include:

·        Government Business Enterprises;

·        State-owned Companies; and

·        other Government entities with the current power to borrow.

The Bill provides that the guarantee provided to a relevant organisation:

·        is subject to individual entity limits established by the Treasurer;

·        only applies to borrowings sourced from Tascorp;

·        will only be called upon after all other options in relation to security held in respect of guaranteed borrowings have been exhausted; and

·        commences from 1 July 2023 and applies to all borrowings from Tascorp already in place and all future borrowings from Tascorp.

It appears this will achieve a similar result to the Victorian Borrowing and Investment Powers Act 1987.

It certainly pre-empts the question that if Ministers are required to approve UTAS borrowing limits then why the same rules shouldn’t apply as contemplated by Tascorp amendments. Borrow through Tascorp and you’ll be guaranteed.

When the Treasurer appeared before the Committee he acted like an equivocating parent, not sure whether his role in respect of one of his offspring was one of care or responsibility or both. Whereas UTAS has a more mercenary view and is banking on Dad opening his wallet if things go bad.

But if it’s true that the Tascorp amendments are even partly in response to UTAS current position, arguably the Treasurer should have been more helpful to the Committee than his brief appearance which he used to downplay the government’s role in this critical public policy issue.

Universities throughout Australia are coming under increasing scrutiny. Here in Tasmania the Committee has a unique opportunity to set down a few guidelines for a sensible way forward.