8 Jun 2023

The university funding shortfall with no easy fix

From The Detail, 5:00 am on 8 June 2023

Universities across the country are grappling with how they'll balance their books. Facing shortfalls of tens of millions of dollars, many are proposing significant cuts to staff numbers. But as The Detail finds out, philanthropy is unlikely to help fill the funding gap.

Vic Uni sign

Photo: RNZ / Samuel Rillstone

Nic Smith knew he was inheriting financial problems when he started as Victoria University vice chancellor in January.

But what hit him on day two of the job was unexpected: figures showing a 12 percent slump in student numbers.

"That 12 percent is a confronting number," says Smith. 

"It's confronting in terms of where we are going to find the savings to match our income."

Faced with a $33 million deficit, the university is looking at cutting 260 staff. The Tertiary Education Union has called the proposed cuts at Victoria - and other universities, due to shortfalls of tens of millions of dollars - a shock, and says they put the standard of the public education sector at risk.

At Otago University last week, students and staff marched in the streets against proposals to slash several hundred jobs in a bid to save $60 million; Waikato University this week announced plans to cut jobs in its IT and maths departments; and Massey is also looking at disestablishing positions. 

"A number of universities in New Zealand are on similar trajectories," Smith tells The Detail. The last three years have been tough, but he says there are some reasons particular to Victoria, including a buoyant economy in Wellington where jobs are abundant.

"People seek to study and reskill and develop their talents in times when employment is more difficult."

But the university's focus on the humanities has added to its financial difficulties, because the government puts less money into those areas, he says.

"It means that because the government has funded the sector at about half the rate of inflation over a decade, that squeeze comes into institutions such as ours a little more quickly than others."

Smith breaks down the sources of funding for the university: 80 percent government money, mostly made up of per student allocations, with some research grants; student fees which are capped by regulations; an endowment fund; and research income from industry. Foreign students were an important buffer for the universities, which had been feeling the financial squeeze for many years, until Covid-19 hit.

Smith argues that universities should not have to rely on foreign students - "especially given the geopolitical risks that we face now" - to subsidise a high-quality university system. 

Smith explains to The Detail how he sees the future of Victoria University and why he doesn't believe that tapping into private money is the solution to the $33 million budget hole.

Victoria University's endowment of $85 million is puny compared with overseas institutions, with Harvard at the top of the pile at $80 billion.

And it would take a change in attitude and change in law to substantially increase the level of philanthropy, says Emeritus Professor of Public Policy at Victoria University Jonathan Boston.

"We haven't had a strong philanthropic tradition. Wealthy New Zealanders have not traditionally given large sums of money to our universities."

Boston was the inaugural director of the Institute of Governance and Policy Studies, when it received grants totalling $10 million from Grant and Marilyn Nelson through their Gama Foundation. 

The money propped up the institute for about a decade, but that support is gone and the institute is on the shelf after disagreements over how the money was being spent. The Nelsons have shifted their money to more specific funds.

Boston says tighter rules are required in New Zealand to ensure that universities can secure donations, but maintain academic freedom.

"One of the really significant issues here, from a policy point of view, is what kinds of strings and how many strings is it legitimate to attach to a philanthropic gift before that gift ceases to be a gift and becomes a fee for service."

New Zealand could look to the US and its rule on "completed gifts", says Boston, which stipulates that for a charitable gift to qualify as tax deductible, the donor must relinquish control and trust that the institution will follow the stipulations in the agreement.

"We need to have clarity in this area because otherwise there is this risk that philanthropists can impose all manner of strings," he says.

Find out more about the funding situation facing universities by listening to the full podcast episode.

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