Te Pūkenga's managers have warned MPs the government will have to bail out struggling polytechnics despite its reforms.
Meanwhile, Nelson's mayor Nick Smith appealed to the government to save the region's polytechnic from inclusion in a federation of weak institutions.
Appearing before the Education and Workforce Select Committee the mega-institute's chief financial officer James Smith said the changes, which included disestablishing Te Pūkenga, would leave in place a volume-based funding system.
He said that would lead to the institutes making the same poor investment decisions that prompted the creation of Te Pūkenga as a means of ensuring their long-term viability.
"The system remains a simplistic, inefficient volumetric system with no ability to adjust price based on scale. We expect that these issues will persist under the structural changes enabled under the bill. We also expect because of this that the government will be relied upon for further ad hoc financial support for ITPs (Institutes of Technology and Polytechnics) in the future," he said.
Smith said "unhealthy race to the bottom behaviour" was likely to re-emerge and polytechnics needed stronger incentives to collaborate with one another.
He said the government's Education and Training (Vocational Education and Training System) Amendment Bill also watered down institutions' obligations to underserved learners such as Māori and Pacific communities.
"This tempering of obligations, along with reductions in targeted funding for these learner groups from 2026 will maintain or worsen the current education disparities that exist in the tertiary education system," he said.
Drew Mayhem from the Tertiary Education Union also cast doubt on the long-term viability of the government's plan.
"Splitting out the work-based learning component and putting it in direct competition with the polytechnics that you're trying to stand alone, that's not sustainable," he said.
Nelson mayor Nick Smith told the committee the creation of Te Pūkenga had been bad for the region's local polytechnic, the Nelson Marlborough Institute of Technology (NMIT).
He said his greatest fear was that NMIT would be among the former polytechnics placed into a federation rather than being allowed to stand-alone after Te Pūkenga was disestablished.
Smith said he had heard that NMIT was "on the margins" of inclusion in the federation and wanted government to consult with mayors and iwi before making that decision.
He said he was not expecting NMIT would emerge with all of the $20 million in cash reserves that it took into Te Pūkenga, but understood about $9m remained.
Smith said that money should be transferred to the re-established institution.
