2012 tight spending year for Otago University

The University of Otago has forecast it will struggle to meet a minimum requirement for its operating surplus target in 2012, as set by the Tertiary Education Commission.

The TEC asks for a 3% return on revenue, but a combination of increasing costs and the poor likelihood of any significant increase in Government investment for the tertiary sector has made it difficult to achieve such a surplus, university financial services director Grant McKenzie says.

The university's budget for 2012 reports a forecast total income of $591.45 million and expenditure of $574.66 million, which is expected to deliver an operating surplus of about $16.78 million.

The university expects to meet its own operating surplus of 2% of its return on revenue, Mr McKenzie said.

The budgeted surplus for 2012 is down from a forecast surplus of $16.81 million this year.

University vice-chancellor Prof Harlene Hayne said delivering on the budget next year would mean all staff had "to work together".

"This university has been extraordinarily well-managed over the last decade or more and I can say we are one of the best positions we could be as we face a period of fiscal abstemiousness," Prof Hayne said.

The global financial crisis and rising costs, some such as insurance premiums related to the Christchurch quakes, affected the university, she said.

University chief operating officer John Patrick said preparing the university's 2012 budget had been "one of the most difficult ones to do".

The university had experienced a number of years where it has delivered surpluses, but it was "inevitable" the situation would change at some time, he said.

"Revenue growth has slowed quite dramatically. We have a significant challenge to deliver an operating surplus," Mr Patrick said.

The university was in an environment where income growth was limited, mainly because of a continuing decline of Government funding for research and teaching alongside "relatively small" increases in student numbers, he said.

The universities service divisions had been asked to make significant cost cuts to keep their respective budgets low, he said.

Academic divisions were contributing to an annual surplus, but a "carry forwards" policy has left the four departments holding a balance, which is expected to total $53.323 million at the end of 2012, he said.

The university was reluctant to appropriate any of the balance given the academic divisions had "earned the right to spend those funds themselves," Mr Patrick said.

Pressure to provide a surplus was expected to continue, given the university wanting to implement its campus master plan and priority plan - building and capital developments projects for the next 25 years.

Mr Patrick said he expected 2012 to be a year of consolidation and planning, with some prioritised projects hopefully scheduled to begin in 2013.

The university has an approved capital works budget of $57.133 million for 2012, about $3 million more than forecast this year, although extra funding of $23.16 million remains available.

Total capital expenditure at the university is budgeted at about $87 million, of which, about $64 million has been allocated to approved projects.


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