It’s a toss up between UTAS and the
State government as to who is in worse financial shape.
UTAS’ 2024 Annual Report has now been
released. It reports on a calendar year basis so it’s only 8 months since the
year ended. Unreasonably slow nevertheless.
The following are some observations about the 2024 financials and some of the slides from a recent PowerPoint presentation to staff titled Our financial context.
It cannot be stressed how crucial it is
for interested parties to understand the earnings challenges confronting UTAS.
Parliament is about to resume consideration
of a Bill that relates to UTAS’ Sandy Bay land which UTAS wishes to sell to
fund its future plans.
It is ludicrous however to assert
that Policy A will have Beneficial Effect B without an adequate understanding
of UTAS’s current position.
But that’s what’s happening.
UTAS’ unique status of being able to
stack its own Board and not have to report to members as does every other
public entity of any significance, has meant it has operated with less
constraints than other public bodies.
As a consequence, the public
understanding of UTAS’s financial position is woeful. Asking UTAS to explain
the mess they’ve created for itself is unlikely to produce full and transparent
disclosure.
An attempt by the Public Accounts
Committee (PAC) to obtain info from UTAS about its financial position via a
short inquiry led to a snow job from UTAS. UTAS took advantage of an under
resourced and overworked committee dominated by party members either
disinterested, unable or unwilling to look at issues other than through a party
political lens and flooded the committee making it difficult for members to distinguish
wood from trees.
UTAS gave PAC a slide show back in August 2024 (posted on the PAC website) which contains much useful information even though a little inaccessible at times. It was essentially a lecture from Rufus, basically telling the committee what he wanted them to hear.
There’s a eerie similarity between
UTAS’s current predicament and that of the State government.
In the case of the latter, it has
been made blindingly obvious by Saul Eslake and others that the State is on an
unsustainable path. The Government’s Strong Plan for 2030 is not simply a smokescreen.
It’s a blatant untruth. There is no possible way the State will be able to run
cash deficits at any stage in the foreseeable future without radical changes. Debt
servicing and paying other past liabilities is taking an increased share of the
stagnant pool of State government revenue leaving less to fund current
services.
The government knows it. So does the
opposition. Although they don’t readily admit it. Both are united by omerta,
the code of silence adopted because neither have a clue what to do.
Fortunately brush fires keep flaring which
distract mug punters. The TTLine debacle for instance diverted attention and
whilst symptomatic of our woes helped everyone avoid discussion of the terminal
diagnosis of the body politic. For a time at least.
Likewise, the Mac Point Stadium debate acts as
a distraction. Although important as a sub-issue it lulls people into thinking
it’s part of the main game. It’s just a side show. There are much more serious
problems which our current head in the sand approach to future sustainability
is helping us avoid.
Likewise, in the case of UTAS the
elephant in the room is the lack of sustainability of its current model. Current attention is focussed on funding a $500
million STEM building as if that is the only thing needed to secure UTAS’s
future.
But just like the $775 million Mac
Point Stadium the cost of STEM hasn’t changed for 8 years. Are we supposed to
take these guys seriously? UTAS has been talking about new STEM facilities for
at least 12 years. Buildings at 62-82
Argyle St Hobart first valued by UTAS in 2013, purchased for STEM purposes for $9.8m
in 2015 are still unused for their intended purpose.
Minister Ferguson lost his job over his failure to deliver Berth 3 on the Mersey River Devonport in time for the new Spirit ferries. STEM is UTAS’ Berth 3.
Tasmanian Labor continues to berate
anyone not supporting the disposal by UTAS of its Sandy Bay land for
residential housing. Liberals, Lambies and Greens are all portrayed as being disinterested
in solving the housing crisis by building 2,000+ new homes and/or helping to
fund a new STEM building.
UTAS’ surrogate spokesperson Dean
Winter has been instagramming images of the proposed development taken from
Deloitte’s two reports into the feasibility of the development of Sandy Bay
dated November 2021 and March 2022. It’s reasonable therefore to conclude the
development plan Dean has been spruiking is the same as described in those
Deloitte reports.
In summary this is what we learnt
from the Deloitte Reports:
·
The
planned development is a 30-year project, mostly for 2,656 new residences, a
combination of 1, 2 and 3 bedroom units with an average area of 88 square
metres to be sold at an average price of $880,000 (2021 prices).
·
The
project will be conducted in stages. Needless to say, outlays will occur before
revenue so funds will be required to fund the deficits in the early years. Peak
project debt of $234 million will occur in year 5, in 2027, but the project is
already 2 years behind schedule. The funds squirrelled away by UTAS to fund the
project’s debt have all but disappeared, due to cost overruns and delays with
the Hobart rebuilding and the increasing losses from core activities of
teaching and research which UTAS is yet to fix. UTAS can’t borrow more without
the Treasurer’s permission.
·
The
project will reach cash break even in Year 17, after which time the project
will start to rebuild UTAS’ equity. Over the ensuing 13 years cash profits of
$800 million are predicted. That’s $800 million in future $s, which roughly
translates to possibly $400 million in current $ terms. Not a great deal seeing
UTAS’s current equity stands at $1,341 million.
·
UTAS
initially hoped to run the project itself but due to its deteriorating
financial position is now looking at ways to take on a joint venture JV partner
and/or selling properties on a leasehold rather than freehold basis. The latter
may result from restrictions that may be placed on UTAS by the recently tabled
Bill in State parliament.
·
The
Deloitte Reports stress that the project is currently only at the 5% design
concept stage. To listen to politicians spruiking the deal one could easily
start believing they’re ready to turn the first sod.
·
The
project doesn’t even manage to meet the minimum target return if land and
buildings to be redeveloped are given a zero value. For the project to achieve
the target rate of return UTAS will have to pay the developer to take the land
off its hands. This won’t occur of course, but what it means is that UTAS will
have to accept a lower rate of return if a JV partner wishes to achieve a
target rate.
·
If
the project proceeds and the project land is given a value whatever that may
be, whether it’s zero or $26 million, it will likely be far less than the
current book value of the land and buildings. In which case UTAS will suffer a
large drop in its equity position, which won’t start to be recovered until Year
17. Sceptics of the redevelopment have been labelled reckless if they don’t sign
up as UTAS cheerleaders. It’s much easier to establish recklessness where
existing assets are trashed in the hope of getting some back 17 years later.
Its craziness on steroids.
·
Given
that the existing land and buildings obviously have a value as part of a
continuing institution for learning and research, it is that value that needs
to be plugged into any model when trying to assess a rate of return on a
project to convert a valuable asset to an above ground cemetery for cashed up
baby boomers. It will certainly paint a different picture than the misinformed messaging
from the Labor Party.
One has to overlook lots of
evidence on the public record to pretend as the Labor Party has that UTAS can
be trusted to embark on the largest housing development in Tasmania’s history just
so it might be able to fund a new $500 million STEM facility in Hobart City.
A memory refresh is needed.
UTAS, like a lot of
universities, has accumulated lots of assets over the years thanks to land
gifts, land revaluations, bequests and endowments, and capital grants for
building.
Historically any losses from
core operations of teaching and research were covered by income from
investments mostly bequests and endowments entrusted to UTAS to be spent as per
the wishes of the donors.
Universities are mostly publicly
owned and have had the freedom to operate without restrictions that are normally
applied to public bodies, like say, reporting and being answerable to Parliament.
The one restriction that was
imposed on UTAS was via Section 7(2) of its governing Act which required the permission
of the State Treasurer if it wished to borrow money. Ivory tower academics who
used to run universities were presumably thought to need a fail-safe mechanism.
Paradoxically the fail-safe mechanism failed when it was most needed.
UTAS may have sold the Mid City Hotel to the Singaporean owned Fragrance
Group and the Fountainside Hotel to the State government for housing if the
grapevine is correct. The sale prices aren’t known at this stage.
If true it will be a deft way for the government to inject funds
into UTAS without poor old UTAS having to come begging to the government to
allow it to borrow more.
Not that lenders are queuing at the door given UTAS can’t service existing
borrowings from its core operations.
The ructions at UTAS continue
unabated.
The release of UTAS’s 2023 Annual
Report was accompanied by an email to colleagues, presumably staff, from the
Deputy Vice Chancellor (Student Services and Operations) explaining what the report
meant, together with assurances that management are attending to addressing
problems confronting UTAS.
A copy of the email is reproduced
below.
Staff members are part of the
university as defined by Section 5(1) of UTAS’ governing Act. For an outsider
it was jaw dropping to see the tenor of the email to members of the university,
replete with misleading statements, half truths and unsubstantiated assertions
when commenting on the 2023 financials. It is little wonder relations with
staff are strained particularly COBE staff who must have a better grasp of financial
matters than the Deputy Vice Chancellor obviously assumes others must have.
Quite incredibly there was no mention
of how the Hobart rebuild was impacting UTAS’s finances.
There are four paragraphs where the
financial performance of UTAS was discussed where the writer obviously didn’t
understand UTAS’ financial statements and/or was quite happy to provide a
misleading interpretation.
Comments plus suggested amendments for the four paragraphs plus the introductory paragraph are set out below should the Deputy Vice Chancellor wish to issue an amended circular in the interest of truth and full transparency amongst colleagues and members of the university.
