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Otago University - Return to the Dark Ages

Immediate Release

Otago University - Return to the Dark Ages

Next year, Otago University students will face fee increases of up to 16.9 percent, with an overall average increase of 6 percent across the University.

Student leaders have called the move, which saw most of the councillors ignore a 3000 signature petition as well as numerous letters and emails from students at Otago University a ‘return to the dark ages’.

Student opposition was led by Council student representatives Nick Lanham (OUSA President) and Glenn Goldsmith (OUSA Education and Welfare Vice President), who argued that:

· Despite the claims of the university management, the universities financial position remains healthy, with surpluses over the past 4 years expected to continue despite having lower fees.

· Otago receives more income per EFTS than any other university in the country and in 2002 was 15 percent ahead of its major rival Auckland

· Otago continues to preform in the top of the universities in terms of research and teaching.

“The university management has taken the easy option in choosing to raise fees, but continuing to mine students for fees is not a solution in the long term” said OUSA President Nick Lanham.

“These fee increases represent a tiny proportion of the Universities budget, at a significant cost to students”.

“Despite the fee freeze of the past few years, the university has managed to increase its income consistently through ventures such as the recently announced Advancement Campaign. To take Otago into the future, we need more of that sort of innovative approach to funding and not simply a retreat to the days of old”. said OUSA President Nick Lanham


Attached student presentations to council


Good afternoon members of council

In relation to the recommended budget before us, myself and Mr Goldsmith would like to address some concerns and perceptions that the university management have raised in relation to the past, present and future performance (both financial and qualitative) that might be influencing your decision on the recommendations.

In the preparation of the 2004 budget, university management has painted a particularly negative picture of the universities financial situation in 2004. To quote an extract from the budget.

“It is clear that the University of Otago cannot continue to compete on the basis of quality if this inequality is not remedied. Failure to do so will result in a reduction in teaching and research quality and a rapid erosion of the reputation which the University of Otago has built up over many years” John Pattrick 2003 Budget document, P41.

Quite gloomy stuff huh? Or is it? We acknowledge that the universities financial performance has deteriorated since the heady days of 2001. We also feel that the current and projected performance in 2004 is nowhere near as bad as the university management is implying. We feel that the current money-grabbing attitude, which has seen this university recommend fee rises in all cases to the largest amount possible, is hugely undesirable and will damage the university in the long term. In particular we would like to remind council members of the following points regarding the Universities financial performance:

- The 2004 budget will still easily achieve the university’s 5 year moving average surplus target of 8 million dollars. Even without the fee increase we will still meet our 5 year moving average target. We understand that university management feels that this is not a sufficient surplus for the university. We disagree with this, as we feel 8 million dollars is more than enough to provide a safety net for a university with no long-term borrowings and provides enough funding for university capital expenditure projects.

- The University has a long history of conservative budgeting. In the past 5 years with the exception of 2000 the university has posted a higher surplus than were predicted in both the budget and its forecast. We feel 2004 will be no exception with several very conservative estimates made in the budget. These include the assumption of no growth in the first year role; which when taken into account that the market is set to increase by 2% due to growth in the number of high school leavers is in fact a decrease in our market share, a hall occupancy rate of only 99% and a generous provision for scholarships (underspent by 1 million dollars in 2003)

- The projected group surplus in the 2004 budget of 7.652 million is not small by national standards. Otago has enjoyed surplus levels amongst the highest in the country in the past few years. The projected result in 2004 still compares favourably with the last full year posted surplus by the University of Auckland of 7.147 million in 2002.

- It was stated in the budget document that the low fees “has put the University at a major financial disadvantage, not only compared to it’s natural rival, University of Auckland, but also compared with all the other Universities in the sector”
In fact according to the 2002 Financial comparisons of NZ universities produced by our very own financial services department show that. Despite having the lowest fees in the country, Otago had the highest income per EFTS in 2002. Otago University’s income per EFTS in 2002 was $2608 per EFTS (17.88%) higher than its “natural rival” Auckland. This would indicate that university management’s claim that Otago cannot achieve the highest quality with the lowest fees is simply not accurate. What they are actually claiming that this university cannot achieve the highest quality education with the highest income, which is patently abused.

- Although much discussion has surrounded the close performance of Otago against one of TAMU’s targets. History would lead us to believe that we are potentially overly concerned about these targets. In 2002 half of the universities in New Zealand failed to meet TAMU’s operating surplus percentage of revenue target of 3%. Otago was not one of these. This is the only target that the university will be close to the recommendations in 2004. University management have expressed that they feel that this target is a poor guide for the financial management of the university, as it is a non-profit institution. In 2002 Auckland University only managed to produce an operating surplus of 1.6% of total revenue. Otago’s 2004 projection of 2.3% compares favourably with this and I may be corrected but I do not recall the government threatening to put John Hood’s university under statutory management.

- In 2004 Otago’s closest geographical rival, The University of Canterbury has increased fees by only 1.4%. This has given them a projected surplus of 4.69 million in 2004. With the inclusion of the advancement fund we feel Otago could also increase fees by only 1.4% and still record a larger surplus than this institution.

- Despite producing deficits for the last four months the university is still reporting a surplus of 7.344 million (.49 million ahead of budget) in the October accounts. We feel, like the financial controller, that timing has largely caused these deficits.

- The forecast deficit in the 2003 accounts is largely the result of two large non-cash adjustments. Had it not been for the adjustment in employee entitlements and the write down in the value of BLIS technology shares the university would be forecasting a surplus in line with budget in 2003. As these are one off transactions they do not reflect a serious decline in the university’s financial health as the posting of a deficit may suggest.

- The University of Otago’s cashflow position remains strong. In 2004 the university is projecting a large and increasing positive cashflow from operations and will easily exceed the TAMU guideline on operating cash inflow to operating cash outflow. Many accounting academics believe that this is a better measure of an entity’s financial health than a surplus figure, particularly in the non-profit sector.

- The University’s balance sheet remains exceptional strong. The 2003 forecast shows that the university is expecting to have no term liabilities other than employee entitlements at the end of the 2003 financial year. In 2002 Otago’s debt to equity ratio was only 12%, the lowest of all the universities in New Zealand. If worst did come to the worst, the university is in an exceptionally strong position to withstand a year of poor financial performance.

- Otago University has emerged for a period of rapid capital expansion and growth over the past few years. Very few major capital projects seem to be in the pipeline and as a result the University does not need to run surpluses as high as they have in the past. We are particularly fortunate, as many other universities around the country, especially Auckland and AUT, have heavy commitments in this area in the next financial year. .

In conclusion we feel that the above points show that the University of Otago remains in an acceptable financial position. We feel university management’s attitude of increasing fees by as much as they can, where ever they can is unjustified and could be damaging to the University. Otago has been fortunate to be in an incredibly strong financial position in the past and rather than the recent deterioration showing that the university is in trouble, we feel that it reflects Otago moving into line with what would be considered normal for a university in New Zealand.


N R Lanham


The false dichotomy of cost vs. quality.

Mr. Chancellor, my colleague has talked to you about this University’s financial position and why we do not think that it justifies the increase in fees suggested in the budget document. I support him in his observations. However, I wish to take a slightly different approach to this issue, Mr. Chancellor. I wish to talk about quality.

The Budget document perpetuates the notion that inequality in student fees is the primary driver of quality, and that raising student fees is the only solution to what seems to be a growing perception that the quality of degrees and course offered at this University is declining. In short: that we need to increase student fees in order to maintain quality.

There is no doubt that quality is important. However, higher fees are not the answer. Especially given that this view was largely echoed in this morning’s ODT, I think it is important to counter this mentality. While it may be appealing in the short-term, in the long term, if allowed to take root, I think it could be incredibly damaging to this University. In the long term, fee rises are not what will carry Otago forward into the future as a University of “high international repute.” And we cannot face the challenges we need to face as a University, simply by raising fees.

I will expand on this in a moment, but first I wish briefly to deal with the perception that the quality of courses Otago has fallen.
[The quality of courses or degree offered at Otago has fallen]

- Although we have yet to see the results of the PBRF, I think it’s incredibly difficult to make a case that the quality of Otago courses has declined at the Undergraduate level: either in terms of the range of courses offered, the flexibility of our degrees, or their substantive content.

- The annual reports show that in fact, since 1999 we have improved against our performance targets in a number of teaching areas such as fostering independent judgement and written and oral communication skills, exactly the things that employers are placing more and more emphasis on in terms of the graduates we produce.

- A quick glance at the Student and Graduate Opinion Surveys show a somewhat mixed record, with improvements in a many areas, some declines, but certainly far from anything resembling a downward trend.

- Finally, I think it’s fair to say that the wider learning experience offered by an Otago education remains as important as ever and continues to be valued by students and employers alike.

- In terms of research

- This University’s performance in the recent Marsden grants was, not only our best ever, but also only a sliver off Auckland’s despite their being a much larger University. To quote the VC (Notes for Council Meeting Sep 23) “Clearly the University of Otago is one fo the most successful research institutions in New Zealand.”

- In addition, we’ve just had announced what will eventually amount to a $50M increase in funding for our groundbreaking Leading Thinkers Programme, which is touted as likely to bring about a “quantum shift for Otago”.
As something of an aside, it was interesting for me talking to people about the effect of this on the budget. The accountant’s response to that is that it’s fiscally neutral. Well yes, that’s true. But if you’re basing your case for fee increases on the need to improve quality, then the logical extension of this is that quality increases independent of fee income, should decrease the pressure for fee rises. But no, the response comes, that’s fiscally neutral. As is every other piece of additional income, be it the higher MBA fees, not yet included in the budget, income from the advancement campaign not yet included in the budget, exceeding he AFML, not yet included in the budget, or likely extra accommodation income, not included in the budget.

- To return to my point: Before we start jumping up and down claiming that we cannot compete with other Universities on quality unless we continue to raise student fees, I think we need to be very careful about our underlying factual assumptions. Too much, I think, has been based upon speculation and hunches, and especially when we’re talking about potentially pricing some students out of the market for tertiary education – which is what we are doing here, make no mistake (I know some councilors have received letters to this effect from students) – I don’t think that’s good enough.

In any event, I think the key point is that, as much as this budget seems to paint a picture that fees rises are engine of quality, I think the true analogy is much closer to training wheels: if you’re doing it right, you don’t need them, and in fact, they’ll just slow you down.
[An inability to charge higher fees has been responsible for this]

You’ve all heard this before, but to refresh your memory:
- Fee income makes up only about 15% of the University’s income. When you start talking about 5% of 15%, you’re dealing with about 1% of the University’s budget. 1%. In the overall scheme of things, that’s miniscule.
- As can be seen from the table below, Otago has in fact, a higher income per EFTS than any other New Zealand University.
- 15.2% higher than Auckland
- and between 30-50% higher than just about everybody else.
- What these fact underscore is the relative unimportance of student fee income to this University’s ultimate success or failure. Far more important is the income brought in from external sources and on that score Otago performs very well compared with other Universities. To claim that we cannot compete with them, to me, seems ludicrous.

[Higher fees may be the easy option, but it is not the smartest option]

- If student fees make up such a minimal part of the University’s budget, why is it that they are seen as the key to maintaining Otago’s reputation? A big part of the answer, I think is because, in the short term, it seems like the easiest option. It doesn’t take a great deal of ingenuity to hike student fees, it doesn’t take a great deal of vision, or a great deal of courage to say: “hey, let’s whack up the course costs.”

- But those solutions that, in the short term, seem the easiest, are unlikely, in the long term, to be the best, or even adequate responses to the challenges we face as a University. The sort of money needed to create a “step change” in quality dwarfs that we are likely to be able to generate via fees in the foreseeable future. This is possibly most clearly illustrated by the fact that the extra income to be brought in through the recently announced Advancement Programme alone is 50 times the that which would be generated by exceeding the 5% Annual Fee Movement Limit (AFML).

- The government has clearly signaled that, in the long term, it does not intend to allow Universities to increase fees beyond inflation. If the exemption is taken in medicine, we will already be sitting on the maximum. That means no more than inflation increases from now on. If we need more funding here, fees are not the answer.

- I understand that the marketing data the University currently has suggests that fees are not a major factor in determining many students choice to come to Otago University. I don’t know whether that is still likely to be the case following the 17% fee increases being touted on the front page of the ODT this morning, but even if this remains true in the short term, I doubt that we will be able to continue to rely on this in the future. I think increasingly, government is realizing that the amount of information available to those deciding whether to go into tertiary study is inadequate: this is part of what is driving initiatives such as the StudyLink sponsored tertiary web portal. For those who don’t know – this is intended to provide access to almost everything you could ever want to know about getting in to tertiary education: pass rates of particular courses, employment rates, cost of courses, etc. This sort of thing is likely to dramatically impact on our ability to mine students for fees in the future:

- Part of the reason why cost does not appear to be a major factor is likely to be a signaling effect. Because students lack meaningful information about quality, they may be inclined to use fees as a proxy. Initiatives such as this web portal, and indeed the soon to be announced PBRF rankings will remedy this information deficit, such that students will able to weigh up cost against quality, rather than conflating the two as has been the case in the past.

- Moreover, ready access to comparative data across institutions will make these sorts of comparisons easier. Coupled with the fact they’re looking at pushing this thing on students from around fifth form, I think we’re likely to see a far more sophisticated group of consumers coming out of high schools than probably was the case when I came to University, a group of consumers who make very calculated decisions. Especially with the decline in Otago’s traditional “captured” market of Otago-Southland, this suggests that attempting to fund future quality improvements through fee increases, is likely to become increasingly dangerous.

More creative solutions

In my opinion, rather than seeing these diminishing opportunities as a constraint, the University should see them as an opportunity. Every other University in this country, all of which have higher fee income than us according to the table presented to us in the budget, have worse financial performance, with one exception: Massey returned a surplus of $16.4M in 2002. But turn to the table presented in the budget, and they have a worse fee position than we do. This suggests that there’s a strong case that Otago may have benefited from having been forced to look elsewhere for income. Necessity, as they say is the mother of invention. It would be a shame for us, now that the pressure of free freeze has been removed, to fall back into the easy way, to lose our innovative edge and to hurt our students not only through their pockets, but also through failing to look for the other opportunities that would make this University truly great in terms of the quality of the research and the graduates it produces.

I will be voting against this budget, because I think that it signals a return to a defeatist mentality, which is not what Otago is about. Our forebears were pioneers, who didn’t stick to the well-trodden paths and we should be too.

G F Goldsmith


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