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Telford Rural Polytechnic is considering merging with Canterbury's Lincoln University, as the tertiary shake-up and funding cuts squeeze the Balclutha institution.
Telford council chairman David Yardley said cuts of about $900,000 to short-course funding, due to take effect next year, were enough to "wipe out" the polytechnic's surplus and threaten its viability.
"A large part of what we do is under serious threat of either not being funded or [being] funded at a lower rate."
Mr Yardley emphasised the merger was only a possibility and at an early stage.
Other options included investigating ties with the University of Otago.
However, the benefits of merging with Lincoln were obvious, he said.
Both were agricultural and on a small scale, compared with other tertiary institutions.
Lincoln was the smallest of New Zealand's universities, with about 4000 full-time equivalent students, while Telford had about 1100 full-time equivalent students.
Merging would allow students to move "seamlessly" from Telford to degree-level and postgraduate courses at Lincoln, Mr Yardley said.
Certificate and diploma courses would remain unchanged at Telford.
Telford could become a campus or college of the university as early as next year.
The Telford name would be kept in some form, as it was nationally recognised, Mr Yardley said.
Any changes would need to be approved by both boards and by Tertiary Education Minister Steven Joyce.
Research opportunities would increase, with projects potentially internally driven rather than sponsored by outside organisations, Mr Yardley said.
The loss of short courses was unfortunate for the agricultural sector, as farmers found them particularly useful.
Staff could spend a few days to upskill in a particular area - such as caring for lambs or rearing calves - and head back to the farm armed with the latest research and teaching in the area.
Some short courses could be integrated into certificate- and diploma-level courses.
Otherwise, farmers may have to upskill workers privately, he said.
Some funding had "quietly" disappeared already, he said.
Staff losses under a potential merger appeared "minimal", but a business case would make that clearer, Mr Yardley said.
Deputy chairman Murray Brass said while the board was possibly "voting ourselves out of a job", it would be for the good of Telford.
It was "not a done deal" and could be rejected by the board, which might opt for closer ties with Lincoln rather than merging, Mr Brass said.
As well as benefits for students, staff stood to gain from professional development opportunities.
Mr Brass did not think there was major resistance from board members to the move, but the proposal would be tested "robustly" before a decision was made.
It was crucial Telford did not lose more than it gained through the move.
The main saving would probably be in the Balclutha institution's running costs, he said.
Last month, Prime Minister John Key said there were "urgent problems" with the tertiary sector, and many programmes, particularly those below degree-level, were not good value for money.
Under a governance shake-up of New Zealand polytechnics taking effect in May, the Telford board would be reduced from 13 members to eight.
Four board members would be ministerial appointments, reflecting the tighter rein the Government wants over decision-making.
Lincoln University spokeswoman Charlotte Mayne, in a media release, said the two institutions were "exploring" their future relationship, which could mean a merger.