UTAS:Things must be bad -- Part 2

 

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 any surplus cash from the development won’t occur until at least year 17, that’s 2042 at the earliest, the redevelopment proposal has nothing whatsoever to do with funding a new STEM building. For the Labor Party to suggest otherwise reveals a wilful ignorance of reality.

·        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.

 

UTAS: Things must be bad when Labor is asked to assist

 

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 sells hotels?

 

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.

UTAS' deception.

 

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.

UTAS: The Rufus years

 

Summary:

The first five years of Prof Black’s tenure has delivered $117 million in losses from the core activities of teaching and research including the relentless pattern of restructuring costs as UTAS struggles with declining real revenues and increasing costs. Capital grants of $227 million included as revenue help hide the losses.

Declining cash flows have accompanied the reduced profits to such an extent that 2023 saw UTAS with negative cash earnings for the first time in 2023, with no discernible plan to rectify the mess.

This means operations are unable to service the current level of borrowings.  Servicing existing borrowings as well as all new capex requires running down existing cash and investments until there’s no option but to start selling the family jewels, parts of the Sandy Bay campus.

At the rate of capex spending undertaken in 2023, UTAS only has another two years before the cash tin runs dry, which will not be enough time to make core activities sustainable once again.

The primary focus should be on arresting the decline in earnings from core operations. Moving to Hobart will only defer and exacerbate the problem. Building STEM facilities with a sale and leaseback arrangement won’t fix negative earnings from the core activities of teaching and research.It’ll make it worse as any investor/lessor will want a rate of return well in excess of the rate at which UTAS could borrow, if only Treasurer Ferguson will approve an increase in UTAS’ borrowing limit. UTAS knows this but sheer bloody mindedness has led it to deliberately pursue the reckless course of taking UTAS to the brink of insolvency, by trying to force the hand of the Parliament and the government to allow it to sell parts of Sandy Bay so that it can continue with its vanity project whilst ignoring the wishes of most other stakeholders.

Prof Black has recently railed against the inadequacies of Tasmanian schools’ performances notably the numbers who make it to Year 12. It may be a heart felt concern, but in part is likely to have been a reflection on the lack of students moving on to UTAS. Prof Black called for an inquiry into Tasmania's education system. Any inquiry should require a closer look at UTAS.

However less than expected numbers of Tasmanians wishing to study at UTAS must be in part due to mainland universities being able to attract the best and brightest, those who can afford it and those wishing more face-to-face learning and/or a more communal/collegiate setting than lesser quality offerings in a traffic congested city.

If the edu-migration international student Ponzi scheme was virtually over even before it started, no doubt ably assisted by the Covid virus, how long will the current plan last?

Even the mildly sceptic would question if UTAS racks up $117 million in losses from core activities over five years what are the odds of it pulling off a much riskier project like the Hobart move? If it doesn’t who’ll be left holding the can?

Isn’t it time to take a deep breath.

The government and the Parliament need to show who’s boss. Prof Black or the people of Tasmania?

What the 2023 Annual report revealed:

The 2023 year was by far the worst of the five years since Professor Black assumed the role of Vice Chancellor of UTAS.

STT's desecration continues

 

The desecration continues. Another 20 hectares, this time in the iconic Dial Range on Tasmania’s Central Coast has been earmarked for clear-felling by Sustainable Timber Tasmania STT later this year.

Tasmania's debt: Should we worry?

 

Viewing problems facing State governments through the same lens used to look at Federal budgets run the very real risk of erroneous conclusions.

The Australia Institute wrote an opinion piece titled Tasmania's fear of Government debt is hurting the State published in The Mercury on 22^nd March reassuring Tasmanians that deficit spending was fine because our assets are growing. “That does not sound like a government about to go broke“, it was said, ignoring the fact  insolvency isn’t triggered by a lack of assets, rather an inability to service liabilities.

There followed an assertion because our per capita net debt was lower than other States, despite other financial liabilities such as the much larger unfunded defined benefit scheme for government employees, Tasmania was sitting pretty. Our biggest challenge is to unshackle ourselves from a restrictive self-imposed borrowing constraint.

The pro-forma response to the Tony Abbott-Joe Hockey debt and deficit doomsday scenario was trotted out. Most economists agree with this knowing the Australian government is not revenue constrained and more significantly, controls its own currency, neither of which are true in the case of state governments.

The weeties choking moment came when it was stated: “Tasmania currently is able to meet its spending commitment to pay teachers, nurses and other public sector workers. The “cash flow” of the government is actually in surplus “.

That statement shows a complete misunderstanding of Tasmanian government financials. The suggestion that operating revenue is enough to cover operating spending is simply wrong.

This blog will pinpoint the errors whilst also having a look at the way State governments report their budget outcomes compared to the way the Federal government does.