University sector faces funding crisis — HEA

9 Sep 2004

In the wake of the leaked findings of the forthcoming OECD report, which concludes that the third-level educational sector in Ireland is facing a funding crisis, the Higher Education Authority (HEA) today published its own report, which draws similar conclusions.

The report reveals that in the year to 30 September 2003, the seven Irish universities had a combined surplus of €16m or only 1.5pc on a turnover of €1.1bn. According to the study this level of surplus is insufficient to maintain their academic and physical infrastructure at the necessary level.

The report sees the creation of surpluses as essential to allow universities to accumulate cash for strategic investments. The largest financial surpluses achieved by individual universities were approximately €5m in the case of University College Dublin and Trinity College Dublin (TCD) on turnovers of €289m and €222m respectively.

The review, which was conducted against a background of a €50m cut in public expenditure on the university sector in 2004, counters “a perception that this disproportionate reduction in funding for the university sector could be absorbed from reserves available to them,” the report states.

The document makes several recommendations. First, universities should be aiming to create modest surpluses of approximately 3pc of income each year in addition to providing for depreciation — which itself could require a provision of up to 5pc.

Second, the Government must find a way to give a clear and more stable planning horizon to the universities if they are to be in a position to manage and plan its affairs strategically.

Third, the HEA should work with the universities to develop institutional financial strategies. Universities need to be able to manage their finances and assets on a more strategic basis while at the same time be responsive to national needs and accountable to the State in respect of Exchequer funding.

Fourth, universities should plan to hold in the region of 45-60 days’ income in the form of cash (approximately €150m for the sector) to enable them to respond to opportunities, risks and manage their activities efficiently. Only TCD had a positive working capital position with a net cash balance of €31m. However, this amount is not a financial surplus. It is largely determined by the timing of capital and recurrent receipts and payments and for planned expenditures.

Finally, the State needs to maintain funding levels even if universities generate their own income from commercial and philanthropic sources. The report argued that funding cuts from the State would seriously damage private fundraising efforts and “would in fact cause such enterprise by the universities and private donations to cease”.

Commenting on the findings of the report Dr Don Thornhill, chairman of the HEA, says: “The Irish universities are … an essential cornerstone of the knowledge society. They need to be managed and financed in a strategically coherent way, which reflects their critical role in national development. The report of the working group will be most useful to the HEA and to the universities in establishing a sound-planning framework for the future.

The Financial Position of Irish Universities at 30 September 2003 was prepared by a working group chaired by Tom Boland, secretary and chief executive of the HEA. The group comprised three independent advisers: J Donnelly, deputy chairman of Hypo Real Estate Bank International; T O’Higgins, former president of the Institute of Chartered Accountants; and Dr J Port, managing director of JM Consulting UK.

By Brian Skelly