UTAS : The road ahead

 

The financial overview in UTAS’s recently released annual report for the calendar year 2022, although much more extensive than in past years, did little to explain UTAS’s current financial position.

Detailing what went up and what went down is a mind-numbing exercise, which does little to explain the financial challenges or “how we will approach the years ahead as we enter ever more variations of the new normal”, as UTAS noted in its report.

At a guess that’s “PR speak’’ for “We’re not sure where we’re going, but we’ll give it a go.”

Blessed with gifted land, funded by capital grants for buildings and endowed with bequests and other amounts for education and research purposes, UTAS has gradually built its net assets position.

Apart from capital grants and investment income, UTAS makes losses every year, losses from the core activities of teaching and research, and losses caused by a relentless pattern of what is described as restructuring costs. We aren’t told what these are, whether they’re consultants’ fees, or whether they relate to the Hobart relocation. All we know is, at $55m over the past eight years, they’re much greater than the deficits from teaching and research.

Paradoxically, investment income will fall as investments are redeemed to fund the Hobart CDB move. If, as UTAS has suggested, the prize at the end of the day is only $200m once the Sandy Bay assets are monetised (as consultants term it) and the development costs in the Hobart CDB paid for, how will UTAS fund deficits from core activities?

Over the past eight years UTAS’s liabilities have grown by 350 per cent, almost twice as fast as its assets, despite more than $300m million in capital grants and revaluations of its land, buildings and investment assets.

As more cash is needed to service liabilities, less cash is available for other needs.

Historically UTAS has had a low level of liabilities. Required borrowings were from the Tasmanian Public Finance Corporation (Tascorp), the government’s finance arm. UTAS’s Governing Act requires the treasurer to approve borrowings.

To assemble more funds for the Hobart expansion, UTAS sold future rental rights of some of the purpose-built student accommodation to Spark Living for $203m. It retained the buildings, but handed over the rights to receive the rents for 30 years in exchange for a lump sum.

It was on track to raise more money by this method, but Covid intervened and student numbers plummeted. It had to revert to the more traditional form of finance – borrowings.

However, Tascorp’s pesky demands, wanting more details of business plans and possibly more security for any loans, was an unfamiliar intrusion for UTAS.

Instead, it bought a credit rating from Moody’s, coincidentally the same as for the state of Tasmania, and raised $350m in 2022 by issuing bonds to large investors. It paid off Tascorp’s loans and put the balance in its war chest.

At one stage it looked like UTAS might have enough to pay for the Hobart CDB move, which it said would cost $600m. Yet with building works barely under way, the Mercury has reported (on January 20) that there have already been significant cost blowouts.

The 2022 financials also revealed a blowout in payables, wage underpayments of $14m still owing, and capital commitments of $130m in the pipeline. That will see most of the existing cash disappear.

If UTAS is to continue its mission to rearrange Hobart, there’s only about $300m of its investment portfolio available to keep the dream alive. UTAS needs to hold at least $200m in restricted assets either because it’s a strict requirement (for trust funds) or because prudent management leaves no alternative (say for short-term contract liabilities).

Any extra borrowings will require the treasurer’s approval, and will require security, particularly if Tascorp obliges. This will put bondholders in a riskier position as they get shuffled down the queue. The value of their investment will fall. They won’t be happy. They were led to believe their investments would be sufficient.

At one stage, Premier Jeremy Rockliff claimed UTAS was a private company. A Freudian slip maybe, but it does suggest a concerning lack of understanding of UTAS’s legal status and the government’s role.

Vice-Chancellor Rufus Black told the current Legislative Council inquiry UTAS is ultimately a state entity, implying the state government will come to the rescue if needed.

If that’s the case UTAS’s Governing Act needs changing.

Will the state bail out UTAS so it can move to the Hobart CDB, which many Hobartians do not want? As well as build a stadium? And subsidise an AFL side at greater cost than it would take to help UTAS remain in Sandy Bay?

UTAS’s 2022 financial statements have certainly brought into sharp focus the problems ahead.

Published in The Mercury on 8th July 2023 as IT MAKES A LOT OF CENTS TO HAVE A CLEARER OVERVIEW OF UNIVERSITY’S FINANCIAL POSITION