EB Academic Staff Correspondence

Dear Colleagues   Tim Battin was on sabbatical leave between March and July. In today's email he has revisited the points that were made in Ian Eddie's paper of 9 May 2000. However, he has not acknowledged, for reasons I am unsure of, the paper that was prepared and presented to the NTEU on the 1st June. This paper addresses every issue that Tim has recycled today and provides evidence of the lack of capacity of the University to pay salary levels demanded by the NTEU. The full paper can be found at the University's EB website, however, for those interested in this debate I have included in this email sections of the paper that counter the arguments that Tim Battin has made. The Financial Capacity of the University of New England to offer salary increases A response to the NTEU's paper of 9 May 2000 Summary · The University understands the concerns of staff regarding the importance of matching salary increases in other Universities. However, a major problem exists in that the NTEU has demanded unconditional salary increases to a level which this University is unable to afford. The impact of such an increase on the quality of this institution would be devastating. · As Andrew Norton, a research fellow at the Sydney based Centre for Independent Studies (a right wing think tank), stated in the Campus Review of 22-28 March, 2000:   'At the very best, the pay deal the NTEU is getting Vice-Chancellors to sign up to mean that standards will drop and universities' financial positions will deteriorate, at worst some universities will become insolvent, exposing the flaws of the current system in the most brutal and unfortunate way.' …. (1) · Despite management providing to the NTEU over the last 6-7 month, evidence of the constraints on the University's finances and despite two independent consultants' reports confirming the University's tight financial position, the NTEU continues to claim that its analysis is superior and that UNE does have the capacity to fund salary increases. This claim is based on cash surpluses that have been achieved over the last four years. The University has pointed out that a substantial proportion of the surpluses has been made up of 'tied' funding, that is, funding not available for salary increases · The NTEU continues to challenge this point and in its paper of 9 May, 2000 provided comments and supporting calculations derived from the University's financial statements to support its position. · This paper will identify a major flaw in the NTEU's argument based on a serious omission in the NTEU's calculations of the level of restricted funding referred to in the 1999 financial statements and other supporting documentation. · The NTEU opinion therefore that the University has the capacity to find its requested salary increases remains unsubstantiated. 'Low Liquidity' The University's position is that it is heavily constrained in identifying funds for salary increases by its low liquidity. The NTEU in its comments on liquidity levels chooses to ignore the fact that the current asset figure used in their calculations include a high level of tied funding i.e. funding that can only be used for specific purposes. When this figure is deducted, it leaves an unacceptably low level of operating funding for an institution of the size of UNE. Concern was expressed regarding this matter by the consulting firm Arthur Andersen in its independent report to the Finance Committee of Council of 23 September 1999. The tightness of UNE's liquidity position has been further emphasised by the release of the recent McKinnon Benchmarking report (independently commissioned by DETYA for the use by all Universities) where it explicitly states in its commentary on liquidity that: 'Commitments (e.g. for tied research, scholarship funds) which are held in current assets should be taken into account, that is, deducted before deriving the ratio.' (2) With respect to a University's quick ratio the report states that: 'A rule of thumb might be that liquid reserves (less commitments such as scholarships, tied research grants) should be a minimum of 6 fortnightly total salary and on-cost commitments'….(3) Once 'tied' funding is deducted from current assets, UNE's current ratio and quick ratio are as follows:- Liquidity UNE - The University 1995 1996 1997 1998 1999 Current Assets/Current liabilities 0.1 0.2 0.5 0.6 0.5 Best practice safety margin: 1.5 to 3.0 Good practice Good practice is a current ratio of more than 1.5 to less than 3.0. Less than 1.5 provides a margin too low to provide safety and results in an overly tight cash flow. Too high a ratio (over 3.0) indicates surplus funds for which some use should be found, either in expanding the range of university activities or in longer-term investments with reasonable yields. Commitments (eg for tied research grants, scholarship funds) which are held in current assets should be taken into account, that is, deducted before deriving the ratio. This ratio is significantly below acceptable levels and require strategies to be put in placed to achieve increases. As the University has consistently stated, this requirement places a heavy constraint on UNE's capacity to fund salary increases in the short term. 'Restricted' Funding' Paragraphs 13, 14 and 15 of the NTEU paper question firstly the University's estimation of restricted funding; secondly, apart from funds held in advance and funds held in trust, whether any other restricted funds actually existed; and thirdly, if they did, why were they not included in the financial statements. The simple response to this issue is that the NTEU and their adviser have either made a mistake or are attempting to mislead their members. Restricted funds are acknowledged in the Financial Statements under Note 10, where it states - 'Restricted Equities represent funds generated by academic activities from external sources and are designed to permit the augmentation of research and academic activities. These funds remain the property of the University. They have been included in general Accumulated Funds…..(4) The NTEU has also been provided with supporting documentation that provides full details of the categories of these restricted funds. The balance of restricted funds as at 31 December 1999 was $14,144,000. Thus adding this figure to the $7,426,000 identified by the NTEU as restricted cash in advance and cash held in trust results in a total restricted funds level of $21,570,000. The ratio of restricted cash to total cash balance at 31 December 1999 was $21,575,00/27,578,000 i.e. 78.2%, substantiating the University's position 'that a significant component of surplus funds are not available for general use'. The lack of acknowledgment by the NTEU of the existence of these restricted academic funds is central to the debate on the University's capacity to fund the salary increases demanded by the NTEU. It is a serious omission. Cash Flows The NTEU paper focuses on cash flows as an indicator of UNE's capacity to fund salary increases. It states that because UNE has achieved surpluses over the last four years, it has the capacity to pay for increases in salaries. The University's position is that a significant component of the surpluses are not available for salary increases because they are restricted for specific purposes. The problem with the position taken by the NTEU is:- i. That it incorrectly calculated the amount of tied funding. (The NTEU calculation relating to the amount of tied funding was fundamentally flawed by excluding the amount referred to in the financial statements and other supporting documentation provided by the University relating to Restricted funds - see earlier paragraph concerning 'Restricted' Funding); and ii that it assumes that surpluses can continue to be achieved in future (This is despite the evidence provided relating to the likely deficit cash position in 2000). The opinion formed by the NTEU therefore cannot be substantiated. The author of the NTEU paper considers his analysis superior to that of:- a. Arthur Andersen, an independent consulting firm that was commissioned by UNE in September 1999 to provide a report to the Finance Committee of Council on the University's liquidity, and b. Deloitte Touche Tohmatsu, an independent consulting firm that was commissioned by DETYA to provide a report on the financial status of Australian Universities. Both of these studies identified concerns with UNE's financial position. In addition, the recent McKinnon Benchmark report highlights clearly the constraints associated with the University's cash flow and validates the University's position that it lacks the capacity to pay the salary increases requested by the NTEU. Graeme Dennehy gdennehy@metz.une.edu.au

Maintained by Industrial Relations & Workplace Change. © 1999 University of New England, Armidale, NSW 2351. Last revised: 18 Aug 2000 Email:rwood@metz.une.edu.au