University budgets for 'tight ship' as incomes shrink by $8 million

The University of Otago has revised its 2009 operating surplus downwards by 40%.

It had planned for an operating surplus of $19.5 million, but the revised figure was almost $8 million lower at $11.5 million, financial services director Grant McKenzie said at this week's university council meeting.

The major contributors were a predicted 50% drop in income from investments from $6.6 million to $3.2 million, an 8.7% drop in predicted income for externally-funded research from $91.8 million to $83.8 million, and a 1.6% rise in consumables and general expenses from $202.4 million to $205.6 million.

The expected decline in income from investments and research had already been signalled earlier in the year.

Mr McKenzie said the initial budget for investment income in 2009 had been written before the worldwide recession hit, and at a time banks were offering interest rates of about 8%.

The initial budget for research income was based on last year's income, which he said was an "exceptional year".

As this year had progressed, it was thought last year's total would not be matched.

"So we are running a pretty pretty tight ship with the budget now?" council member Michael Sidey asked.

"Yes we are," Mr McKenzie said, saying he believed the budget was achievable, although it would be a challenge.

The university recorded an operating surplus of $24.6 million last year - $9.2 million or almost 60% higher than expected.

Mr McKenzie said yesterday it seemed reasonable that a year in which the operating surplus exceeded budget by a wide margin should be followed by a year in which the operating surplus was significantly lower.

"We are comfortable that this [operating surplus] is the best outcome that can be achieved without resorting to major cost-cutting."

The university uses operating surpluses to fund its capital expenditure programme.

The revised 2009 budget said $74.4 million would be available for capital expenditure, while the amount needed was $91.9 million, leaving a shortfall of $17.5 million.

The majority of projects had been approved before the amount available for capital expenditure was confirmed.

Approached after the meeting, Mr McKenzie said the university would fund the shortfall from working capital and had not budgeted to borrow in this financial year.