Te Pūkenga was established on 1 January 2023, combining the country's existing 16 polytechnics and nine workplace training providers, but the transition was halted after the election and instead, 8 to 10 tertiary institutions will be set up. Photo: supplied
Most polytechnics will need millions of dollars in extra funding to pay the bills once they are cut free from mega-institute Te Pūkenga.
Documents provided under the Official Information Act show officials advised the government to use profits from Te Pūkenga's workbased learning division to re-establish the polytechnics.
They warned that might not go down well with that division, which consists of former industry training organisations and is in charge of apprenticeships and other forms of workplace education and training.
But they said the other option - returning polytechnics to their pre-Te Pūkenga standing would leave most with too little money to cover their costs and half with no cash reserves at all.
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Minister for Tertiary Education Minister Penny Simmonds would not say whether she had chosen either of the suggested options.
"A consultation document will be released outlining change proposals in the coming weeks. Final decisions will be made following consultation," her office said.
The documents said Te Pūkenga expected to have a redacted sum in non-ring-fenced cash reserves this year, most of which was generated by its workbased learning division.
"These funds will need to be allocated across both re-established ITPs [Institutes of Technology and Polytechnics] and the future work-based learning arrangements, while Te Pūkenga will need to retain some funds as part of winding-up the institution," the documents said.
In addition, the government had allocated a contingency, also redacted, to pay for the cost of establishing a new vocational education and training system, and Te Pūkenga estimated it could sell property worth about $131m.
"There is a key risk to the Crown that further funding will be required, either on re-establishment or in the medium-term to cover ongoing deficits, capital needs, or transformation requirements," officials warned.
"If profitable entities are made standalone ITPs and they take their ring-fenced reserves with them (and are provided with additional working capital), this will leave Te Pūkenga with a highly unprofitable entity with depleted cash reserves."
The documents said polytechnics would need to be "recapitalised" with sufficient money to cover:
- Liabilities transferred to the new entities
- Committed capital/ IT costs as well as deferred capital/ IT expenditure
- Operating deficits to allow changes to be made to improve financial sustainability
- Any transition and transformation costs to a new operating model (e.g. redundancy costs)
- Repayments of Crown loans (including $23m for Unitec, $18m for Otago, and $4m for Ucol)
The documents said the government had two options, the first being to take a historical approach and re-establish polytechnics and workbased learning organisations with the assets and debts they had contributed to Te Pūkenga.
"This approach would see those ITPs that have had to borrow from the network through Te Pūkenga's treasury function (half of all ITPs) requiring additional Crown support as they would have no cash available to fund immediate day to day operations and future funding losses," they said.
"Some other ITPs would have less than desirable liquidity levels, given [their] forecast performance. This approach, however, would see WBL [Work Based Learning] retain its significant cash reserves.
"The second approach is to take a forward-looking approach and for Te Pūkenga to distribute cash (less ring-fenced reserves) through a targeted, needs based approach. This would see more cash being allocated to the ITPs with trading losses and higher capital investment needs... While ring-fenced reserves would be excluded from this process, we consider this approach would require careful stakeholder management with regions as well as industry."
Officials recommended the latter approach.
"While there would be clear winners and losers in a targeted approach, it will significantly reduce the level of Crown investment needed. However, WBL management and industry are likely to consider that its cash reserves should be retained for use going forward as part of a new entity or entities.
"While WBL will need to retain some cash reserves for future investment, we do not consider cash balances of this size are required to operate sustainability [sic] given its low capital needs. Furthermore, the large majority of this cash has (and will be) earnt while it is part of Te Pūkenga and is the result of government initiatives (Apprenticeship Boost, Targeted Training and Apprenticeship Fund) and government policy changes (i.e. a large funding rate increase through the UFS)."
The documents said Te Pūkenga had $113m in ring-fenced reserves at the end of 2023, including $88m from former polytechnics and $25m from former industry training organisations.
The ring-fenced reserves from former polytechnics were $54m for Ara, $12m for SIT, $12m for EIT, $9m for NMIT, and $0.3m for Tai Poutini.