The Financial capacity of the University of New England to offer salary increases

This paper has been prepared in response to the information provided to the NTEU by Associate Professor Eddie on the University’s capacity to pay salary increases. This paper’s specific focus is on the issue that is most critical to the current enterprise bargaining discussions, that is, the recommendation from Associate Professor Eddie that the NTEU continue its claim for a salary increase as per its log of claims.
 

Associate Professor Eddie appears to have based this recommendation on the following opinions he has formed after examining the material provided to the NTEU by the University:

  1. That there is no evidence that UNE is a financially distressed entity, and
  2. That the evidence does not support the proposition that UNE does not have the capacity to pay salary increases in the log of claims lodged by the NTEU.
The University refutes these opinions expressed by Associate Professor Eddie for the following reasons:-

1. ‘There is no evidence that UNE is a financially distressed entity.’

This is an inaccurate and misleading statement. The correct position with respect to the University’s financial health is that over the past few years the University has moved from a financially unstable position to one of stability, however, the University is still heavily constrained due to the high level of debt, low liquidity, unfunded provisions OH&S and Environmental obligations and the lack of Government salary supplementation. Saying that there is no evidence that UNE is a financially distressed entity, implies that it is financially robust and therefore has the capacity to fund salary increases demanded by the NTEU. Evidence provided to NTEU clearly indicates that this is not the case.

A further concern with this statement by Associate Professor Eddie is that the judgment of the University’s financial health has been made by analysis of only one financial performance measure ie the cash flow management. It is simplistic to suggest that the financial health of an entity can be judged on cash flow alone. Associate Professor Eddie in making this statement makes no reference to the substantial evidence forwarded relating to the unsatisfactory situation associated with other financial and financial related performance indicators. He also makes no reference to the evidence provided by the University of the serious concerns expressed by the financial consultant, Arthur Andersen and DETYA’s financial consultant, Deloitte Touche Tohmatsu about the University’s financial position if the present situation changes, ie via salary increases.

Without reference to this evidence Associate Professor Eddie’s opinions cannot be taken seriously.
 
 
  1. ‘The evidence does not support the proposition that UNE does not have the capacity to pay the salary increases in the log of claims lodged by the NTEU.’
Associate Professor Eddie’s based this opinion on his analysis of the University’s cash flow position over the last few years. He states that:

‘During 1996-1999 UNE has returned a sound financial position from the perspective of cash flow management…...’

‘If UNE maintains its current financial policies and procedures then it can be expected that UNE would have the capacity to pay salary increases in line with those sought by NTEU.’

The opinion formed by Associate Professor Eddie’s analysis of the University’s cash flow management is flawed for two reasons.

Firstly, the implication is that the generation of surplus funds and the resultant increase in cash holdings provide an opportunity to use this funding for salary increases. This is not the case as a significant component of the surplus funds generated are not available for general use. That is, it is funding that is either:-
 
 
    1. held by UNE on behalf of non UNE entities for specific purposes e.g. National Marine Science Centre, the New England Conservatorium of Music etc.
    2. Special Purpose Funding e.g. IT Infrastructure Funding, Rationalisation and Restructuring Funding, Energy Project Funding etc.
    3. funding received in advance i.e. (for the following year’s teaching load)
A good example of how these restricted funds influence the University’s cash flow is the response to Associate Professor Eddie’s question of what factors contributed to the underestimate of its cash flow from operating activities in 1999. The answer is that very late in the year, the University received two allocations of funding that were not foreseeable when the cash flow estimates were prepared. They were the $2million funding for the National Marine Science Centre that the University is holding in trust and the $3.5million received from DETYA for the Energy Management initiative. These additional funds are one-off and restricted for use for their specific purposes and therefore not available for salary increases.

This significant omission in Associate Professor Eddie’s analysis of available cash may mislead interested parties into believing that the entire cash holdings are available for the general operation of the University which is clearly not the case. As table 1 illustrates the cash available for general operating use was $0.6million in 1997, ($2.9million) in 1998 and ($2.8million) in 1999.

Table 1
 
 

Cash Available

Comprises of:
1996

$m

11.4
1997

$m

19.1
1998

$m

26.1
1999

$m

27.6
         
Scholarships & Prizes  
1.6
2.3
2.6
Research & Special Purpose  
7.5
11.6
10.6
Revenue in Advance  
9.4
6.1
7.7
National Marine Science Centre  
-
-
2.0
Specific Purpose Reserves  
-
5.0
7.5
General Operating Funds  
0.6
-2.9
-2.8
TOTAL  
19.1
26.1
27.6

 
 
 
  The second flaw in Associate Professor Eddie’s analysis is that there is an assumption that because there has been an increase in cash holdings over the past four years, then subject to the University maintaining its current policies and procedures, the University would continue to generate these surpluses.

There is no justification for that assumption and in fact, evidence has been provided that clearly illustrates that the University’s attempts to continue to generate surpluses have been eroded by the government’s cuts in revenue over the period of 1996-2000.

Further evidence is provided at attachment A on the University’s lack of capacity to generate cash surpluses. At the last UNE Council it was reported that the budgeted cash flow surplus for 2000 of $2.4million would be reduced to a deficit which would be largely responsible for a reduction in cash holdings from $27.6million to $18.7million as a result of two recent decisions. The first to transfer the $2.0million from the National Marine Science Centre to its own account and the second to utilise the $3.5million for the purposes for which it was provided.

Thus as a result of the omissions in the analysis undertaken by Associate Professor Eddie, the NTEU needs to acknowledge the University’s current lack of capacity to fund salary increases as per its log of claims and work with the University in achieving a level of salary increases that will not impact severely on staff employment, staff working conditions and the quality of UNE offerings to students.