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University balance sheets tell us only some are right to cry poor

Some universities are doing okay, some are operating at losses. AAP

With all but one exception, the vice-chancellors of Australia’s universities came out in support of fee deregulation, or removing the government’s caps on university fees, because they said current funding was unsustainable.

So with the release of some universities’ annual reports over the last few weeks we’re able to see how the universities are really faring. Vice-chancellors have already come out telling us not to be fooled by surpluses on the balance sheet. So is the financial situation really as dire as they say, as rosy as their detractors say, or somewhere in between?

Australia’s universities – where are we at?

In February, the University of South Australia’s David Lloyd bemoaned the policy and funding chaos he has found since moving to Australia from Ireland. However, the University of Canberra’s Stephen Parker sees the funding system as pretty good.

An opportunity is emerging to better reflect on the state of Australia’s universities, as they release their (calendar year) annual reports. They have been coming in dribs and drabs, dictated by an anomaly that requires their tabling in state parliaments on various dates. Some interesting patterns are emerging.

First was Western Australia – whose mixed bag of results set the trend that has been repeated in Queensland and Victoria. In Western Australia, Murdoch’s organisational woes coincided with a steep decline in its financial fortunes.

Digging a little deeper, Murdoch’s results were primarily driven by higher costs, static revenues and lower investment returns.

Later came Queensland and Victoria. Griffith, focused on two main campuses that span the south-east corner of Queensland, provides an insight into the emerging pressure the sector is confronting.

Its Commonwealth grant payments (essentially that part of the revenue stream contributed by the Commonwealth to pay for undergraduate education) increased from A$498 million to A$519 million between 2013 and 2014, while employee and other expenses increased from A$728 million to A$753 million during the same period.

All universities make up the difference primarily from student fees. Much of this comes from international students and domestic postgraduates – the majority of whom study in the increasingly contested business, commerce and economics fields.

In many ways, Murdoch and Griffith are exemplars in a sector under strain. During the last few years, the sector’s primary union, the National Tertiary Education Union, has had much success in “pattern bargaining” – achieving similar income increases across various universities, while also seeing pathways established for academic casuals into more secure “teaching focused” roles.

Both of these successes come with financial costs, and there was little concomitant increase in revenue for many universities in 2014. At Murdoch, student numbers were down, while costs were up in line with inflation and awarded salary increases.

Investment returns in 2014 (important as universities hold financial assets to offset long-term employee liabilities like long service leave) were down, both as ASX returns reduced from 2013 and also as interest rates halved. In organisations running on very tight margins, the impact on notional returns has been acute.

Winners and losers?

Australia’s universities are often considered somewhat tribal groups – the Australian Technology Network (or ATN - technology universities like UTS and RMIT), the Group of Eight (Australia’s most prestigious universities including the Universities of Sydney and Melbourne) and the regionals, for example. Is there evidence that any are riding out the current uncertainty better than others?

What is clear from the above table is that generalisations are hard to make. No one grouping of universities seems to doing better than any other.

It is clear that those most impacted by the problems in Victoria’s vocational education and training system, dual-sector institutions Victoria University and Swinburne, are struggling.

Monash is doing well – but much of its surplus is driven by one-off investment gains. Its annual report stated::

While $52 million of this [operating result] was due to the restructure of our investment portfolio and had no cash impact, the remainder still speaks to university-wide effort and wise financial management.

Curiously, some of the lower-ranked universities (in terms of global rankings) are doing the best financially. Toowoomba’s USQ, for example, was the most profitable university among those reporting. It has had good student growth, with limited increases in staffing costs.

It will be important to monitor if such financial success comes at a longer-term cost to research performance and community engagement.

While it’s not really justified for all vice-chancellors to be crying poor, there are certainly some universities operating at losses, and many with very slim profit margins relying heavily on unpredictable investment returns.

Whether or not universities should be allowed to set their own fees and charge students what they like is a question for another person, another day, but it does appear that some of our institutions of higher learning need a more stable funding arrangement than what they have currently - one that relies heavily on international students enrolments and uncertain future funding arrangements.

The competitive environment that the government seeks comes with serious duplication and waste. Universities are spending vast sums competing for students and spending large amounts of much-needed cash on marketing and advertising.

The system as a whole would perform far better if these resources were directed to teaching, research and community engagement. Surely that is what we want of our universities.

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