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. 

The current crew of university administrators found a way round the Section 7(2) roadblock. Rather than borrow to build purpose-built student accommodation (PSBAs) needed to participate in the edu-migration scam to bring foreign riches to our shores, UTAS used its available cash to develop PSBAs and then forward sold 30 years rent to willing investors, who paid a lump sum to UTAS in return for 30 years of rents from the buildings. From an accounting perspective it’s the same as borrowing for a building but crucially it avoided the need for the government to approve the arrangement because it wasn’t a borrowing per se.

Forward selling 30 years of rents raised $133 million in 2017 and a further $71 million in 2017. UTAS bought two more hotels, the Mid City and the Fountainside with a view to continuing the pattern. But the best laid plans of mice and men often go awry.

UTAS thought it had another card to play, another way of circumventing the pesky requirement to ask the Treasurer‘s permission before borrowing, and that was a sale and leaseback arrangement. Build a building using existing resources and then sell it to an investor with a leaseback arrangement. Cash balances are restored thus enabling UTAS to keep operating, or if the experience of the last two years is any guide, to keep funding trading losses.

The sale and leaseback boodgoggle was discussed at Council’s meeting of 5^th April 2019 the day approval was given to impose UTAS’ plan on Hobart City. This was one of Professor Black’s first meetings as Vice Chancellor. The discussion on the Southern Infrastructure Funding Strategy was noted in the minutes:

“The sale and leaseback option has been recommended on the basis that the University does not have the financial capacity to borrow all the funds for this investment while also retaining the financial flexibility to manage potential financial shocks. This option involves a lower level of financial risk for the University.”

If in April 2019 UTAS didn’t have the financial capacity to borrow to build a new $500 million facility, surely if Council was remotely interested in lowering the financial risk, it would have explored the option of updating existing facilities. Who made the recommendations? People independent of the property lobby?

The minutes continued:

“The sale and leaseback option enables the University’s capital to be applied to other activities with a potentially higher rate of return than a property investment……”.

What absolute nonsense. What are the other activities with potentially higher rates of return?  The functions of UTAS are clearly set out in Section 6 of its governing Act. Essentially, they are to promote education and research and to engage in activities which promote the social, cultural and economic welfare of the community and to make available for those purposes the resources of UTAS. So what was Council thinking back in April 2019? Too much property lobby Kool Aid possibly? If UTAS had to pay to lease buildings rather than operate from buildings funded by grants built on gifted land, it would have gone broke years ago.

Back when Tascorp provided funds for UTAS a borrowing limit of $400 million was set by the Treasurer. That limit is still in place. UTAS relied on the limit when it borrowed $350 million via a Green bond issue to investors. It paid out Tascorp loans and had a bit left over. It thought it would be able to complete its expansion plans with the leftover funds plus funds raised via the PSBA deals and sale and leaseback arrangements for STEM and possibly new library facilities.

But it miscalculated badly.

UTAS can’t service current borrowings from current income. With delays, cost blowouts, and losses from core activities, at the current rate of spending it will run out of cash in two years. Borrowing more will be difficult because it will need the Treasurer’s permission plus a willing lender. Neither is likely.

What to do? When all other avenues are exhausted then maybe calling Dean Winter is all that’s left.

It’s a little comical however that the leader of a political party which just secured 29 per cent of the vote in the recent State election slags off about noisy minorities, taking a leaf out of Donald Trump’s playbook to accuse one’s opponents of the very thing that makes one vulnerable. A pre-emptive Trumpian slag-off. Good one Dean.

But it’s totally disingenuous for the Labor Party to label people asking for UTAS to be more accountable for its stewardship of public assets as “reckless”, when it’s the Labor Party who are reckless in being all too willing to turn a blind eye to the appalling actions of a Council in thrall to a few developers.

Everyone supports the need to continually update STEM facilities. But that’s the very thing UTAS has failed to do preferring instead to follow the dictates of a self-interested property cabal. Updating existing facilities will be far cheaper.

That may even leave enough funds to establish a new state-of-the-art School of Governance and Risk Management. With such a rich vein of first hand experiences members of Council would make first class tutors. Perhaps a summer school for Interpreting Financial Statements could also be organised. There’s a few politicians and university administrators who need lessons.