The UTAS Council meets in Burnie on Tuesday and Wednesday this week (17-18 October).

On 5 September 2023, I wrote to all UTAS Council members about the financial disaster that would result from UTAS’ proposed relocation from the Sandy Bay campus site to the Hobart CBD.

I received a response from Chancellor Alison Watkins on 14 September 2023.

Chancellor Watkin’s response totally failed to address the issues I raised and I believe she has her head firmly ‘in the sand’ about the costs of UTAS’ proposed CBD move. 

In this blog post, I summarise my email to UTAS Council members and provide a critique of Chancellor Watkin’s response.

I urge UTAS Council members to seek substantive briefing on the financial implications of the proposed move to the CBD, including obtaining realistic cost estimates of proposed building works in the CBD and Sandy Bay.

My email to UTAS Council Members

On 5 September 2023 I wrote to all members of the UTAS Council in separate emails. The full text of my correspondence is available here, but key points included: 

  • UTAS’ cost estimates for the building programs associated with its proposed relocation from the Sandy Bay campus site to the Hobart CBD were $677 million (2019) for campus building/refurbishment/demolition in the CBD and $1.65 billion (2021) for commercial development of the Sandy Bay campus site.

  • In UTAS’ plan for relocation, revenue from Sandy Bay development would pay for both the CBD and Sandy Bay building programs, as well as providing a ‘profit’ of $200 million to UTAS over a 30 year period.

  • In order to partly bridge an anticipated gap between expenditure and the time when UTAS starts receiving significant revenue from Sandy Bay, UTAS has borrowed $350 million through the Green Bond. UTAS is also intending to use funds it currently has invested to bridge the gap.

  • UTAS’ relocation plan is deeply flawed and high risk and is starting to come undone.

  • A $200 million surplus would be a ludicrously small ‘margin’ for the massive building program UTAS envisages, even with sound highly developed cost estimates.

  • However, UTAS’ building cost estimates have been unrealistically low from the outset, being early stage (concept) cost estimates. Applying building cost inflation and a reasonable (50%) contingency to UTAS’ cost estimates, rather than producing a ‘profit’ of $200 million, UTAS’ relocation would involve a loss of over $1.5 billion.
    • The loss could well be significantly more, if UTAS’ building program has to compete for construction resources with the building of an AFL stadium at Macquarie Point, and/or rezoning of the Sandy Bay campus site does not produce exactly the results sought by UTAS.

For details and notes on this table, click here.

  • Realistically, UTAS would become insolvent, or seek to adjust its plans before it lost $1.5 billion. This could involve seeking a government bail-out or guarantee to support further borrowings, but any bail-out is likely to be only partial while further debt would ultimately add debt servicing costs to UTAS’ $1.5 billion loss.  UTAS would still be forced to significantly cut its services and there would be an outflow of potential students to other universities – hardly the hallmark of a successful relocation.

  • UTAS has insufficient cash to fund relocation beyond two or three years.

  • The UTAS Council has recognised that it has financial problems and is adopting some short-term (but ultimately damaging) saving expedients to save money, such as staff reductions.  It seems clear that the UTAS Council neither recognises the severity of the financial issues it faces nor the fundamental cause – wasteful expenditure on the financially unsound relocation option.

  • The only sensible and prudent course now is to reverse the CBD relocation and refocus UTAS’ southern campus at Sandy Bay, while – of course – leaving established facilities in the CBD in place. Any expenditure on relocation from now is wasted taxpayers’ money and can be seen as leading to insolvency, creating legal exposure for the UTAS Council.

  • A further complication for UTAS is that the $350 million borrowed through the Green Bond not only lacked a valid Government approval as required under section 7(2) of the University of Tasmania Act 1992 (the UTAS Act) but contravened the terms and conditions of the two approvals on which UTAS purports to have relied.  If UTAS experiences a debt crisis, or the financial difficulties it is now facing become known, it is distinctly possible that its creditors could seek early repayment of their loan of $350 million to UTAS and the matter could easily end in court.

  • UTAS may seek to argue its case for relocation in terms of increased student accessibility, but its own data undermines this argument. It seems increased accessibility was never genuinely a major factor in the thinking of the main proponents of the CBD move; rather it was a marketing tool. 

  • If UTAS wishes to contest my analysis, it should immediately place all recent material on its business case, particularly research undertaken by Deloitte Access Economics in 2021-22, in the public domain instead of contesting my Right to Information application for that research.

Chancellor Watkins’ response

Chancellor Watkins replied to my email on 14 September 2023.

Ms Watkins failed to address any of the key points in my email. In particular, she did not attempt to address my claim that relocation costs, particularly building costs, would far exceed the income to be derived from relocation.  Instead, she references, in turn, statements by the Treasurer (Michael Ferguson), Moody’s credit rating of UTAS and UTAS’ 2022 Annual Report, as if they should somehow be sources of reassurance of UTAS’ financial capacity and management. They are not.

In the following I will quote the text of Ms Watkins’ email to me in bolded italicised text with my comments under each section of text.  This will include taking a more detailed look at the use of the Treasuer’s statements, Moody’s UTAS rating and UTAS’ 2022 Annual Report as ‘evidence’.

  • For those who wish to view it in the form it was sent, a copy of Ms Watkin’s email is here.

I believe Ms Watkins and – by extension the rest of the UTAS Council – have their ‘heads in the sand’, and I remain firm in my view that, if UTAS continues with its proposed CBD relocation, it will lead to financial disaster and diminishment of UTAS.

“Dear Mr Hogan

Thank you for your email which I understand was received by all our University Council members.”  

My comment

UTAS Council member Karina Groenewoud also replied to me on 14 September 2023 and we had a short email exchange.  A copy of that exchange is here.

“I have reviewed your analysis and views regarding the University of Tasmania’s financial position and various other matters. I can assure you the University Council is very focused on delivering our mission to do great work for Tasmania and for the world from Tasmania. We understand that financial sustainability is an essential enabler for us to achieve this mission. I am confident in our risk management processes, including the framework that ensures we are mindful of the many legal requirements under which we operate.  We recognise the desire for us to provide greater clarity and transparency around University decision making processes and outcomes and have been acting on this front, including by publishing University Council Minutes.”

My comments

There is a lot I could say about this paragraph, but I will restrict myself to three main points.

First, there is no indication here that Ms Watkins or the UTAS Council have seriously engaged with my analysis. She does not, for example, say “We have considered the issue of building costs in great detail and…”.  She certainly provides no reassurance that UTAS could complete the CBD relocation within UTAS’ budgeted costs. Instead, the paragraph largely reads as a series of management speak cliches.  

Second, while indicating the contrary, Ms Watkins provides no evidence that the UTAS Council is mindful of its legal obligations.  She does not, for example, refer to UTAS’ breach of section 7(2) of the UTAS Act and lack of a valid approval for the $350 million Green Bond, perhaps because she thinks the problem will just go away (I urge UTAS and the Tasmanian Government to just admit their error and fix this problem with a retrospective approval, rather than running needless risks with UTAS’ and the State’s finances and reputations). 

Further, by virtue of the fact that the letter provides no evidence that the UTAS Council has seriously considered the costs of relocation, Ms Watkins does nothing to refute my view that further expenditure on relocation would move UTAS closer to insolvency and place the UTAS Council in legal jeopardy. 

Third, when it comes to transparency, UTAS’ performance until recently was truly awful reflecting a culture of habitual secrecy that I can only assume derived from the top down.  While UTAS’ transparency has improved significantly in recent months, I believe that this has largely been due to pressure from the Ombudsman deriving from my requests for review of UTAS’ handling of my RTI applications. 

Even so, UTAS continues to fight me on release on the critical Deloitte Access Economics research, which according to UTAS, updated its 2019 business case for relocation and which should have long since been placed in the public domain.

The documentation that Ms Watkins vaunts as reflecting UTAS’ newfound transparency is spread diffusely across UTAS’ website and frequently poorly organised and labelled, with no systematic indexing.  For instance, the UTAS Council Minutes, and other relevant material, can be found at UTAS Public Reporting page here, while other critical material, such as the many consultants’ reports in UTAS’ 2021 Sandy Bay masterplan, can be found with difficulty here. (If you are interested in the masterplan, see my blog post UTAS’ Masterplan for Sandy Bay 2021 – don’t expect much change. This provides an index to the 1935 pages of the document – a feature UTAS should have provided).

Moreover, as the major RTI applicant to UTAS since March 2022, I consider UTAS’ statements on, and representation of, its RTI performance and processing both in its Annual Report for 2022 (page 26) and on the RTI section of its Public Reporting webpage, misleading.

I will shortly publish a blog post on UTAS’ highly questionable “transparency”, among other things fully documenting its objectively woeful RTI performance.

“I noted the State Treasurer’s recent advice to the Tasmanian Parliament that he has no evidence or advice from the Tasmanian Treasury that would give him any cause to be concerned about the University of Tasmania’s financial management nor its level of borrowings.”

My comments

I consider it extraordinary that Ms Watkins believes the Treasurer’s statements to, in any way, be an indicator of UTAS’ financial health, let alone its capacity to carry through the massive building program involved in its proposed CBD relocation. I make the following four points.

First, the Treasurer’s recent assertions of UTAS’ financial health both in Parliament (see the Hansard of 16 August 2023, pages 11-12) and in his evidence to Legislative Council Select Committee Inquiry into the Provisions of the University of Tasmania Act 1992 on 6 July 2023, stand in stark contrast to the UTAS’ Council’s own Minutes of its meeting of 27 April 2023 (Item 3.4), in which it is clear that the UTAS Council had, at least, recognised that UTAS was facing a funding crisis of some kind.

Second, among all the material I have received under RTI from the Departments of Premier and Cabinet, Treasury and Finance (Treasury; release 1; release 2), State Growth and Education, there is no indication that the Departments have provided detailed briefing to Government on UTAS’ finances and certainly no indication that they have provided any critical analysis of the financial viability of UTAS’ proposed relocation, despite me specifically requesting any relevant documents.

  • My initial RTI application to Treasury covered the period up to 22 November 2022. I have another RTI application with Treasury covering the period up to 18 August 2023. Treasury’s response is due shortly, and I will report when I receive Treasury’s response.

Third, given its total lack of familiarity with UTAS’ finances (due to the poor state of accountability arrangements), Tasmanian government agencies are heavily reliant on information from UTAS to provide briefing to Government on UTAS, particularly at short notice. In effect, UTAS will have been the briefer of Treasurer Ferguson, if he had one, and thus Ms Watkins argument here is, at best, circular – “the Treasurer says there are no issues with our finances because we have told him so (via Treasury)”.

Fourth, and bearing in mind my first point, there must be a real question whether Treasurer Ferguson has sought briefing on UTAS’ finances and in what terms.  Has he, for example, asked Treasury to critically assess UTAS’ building cost estimates? Why does he not appear to know about the UTAS Council Minutes of April 2023, if nothing else?

“I would also draw your attention to the international ratings agency Moody’s recent credit opinion that confirms the University of Tasmania is in a sound financial position and affirms the University’s Aa2 credit rating and forecasts a stable outlook. This credit opinion is given following a rigorous process. In the opinion, Moody’s highlight the University’s success in delivering projects in recent years and in establishing frameworks to manage the various complexities of project monitoring and delivery, whilst preserving underlying educational offerings to students.“

My comments

Again, Ms Watkins has sought to hide behind another organisation’s assessment of UTAS rather than address the issues I raised and again, like Mr Ferguson (if he has actually received briefing), this organisation is dependent on information provided by UTAS.

Beyond this, the Moody’s rating documents on UTAS that I have obtained contain numerous errors, misleading and/or contentious statements and major omissions (‘flaws’). This is hardly suggestive of “a rigorous process.”

I have written about these ‘flaws’ a number of times, including in my blog post Are UTAS/Government using Moody’s as a fig leaf? of 14 September 2023. I have now undertaken further detailed analysis of Moody’s documents in light of recent developments, particularly including the documents most recently released by UTAS in response to my RTIs. Moody’s ratings documents are more flawed than even I thought, and I will shortly publish a detailed critique of Moody’s ratings documents. 

To mention one particular example, in its rating update for UTAS of 14 September 2022, Moody’s made only a passing reference to the costs of UTAS’ proposed relocation to the Hobart CBD (“AUD550 million”) and made no reference at all to the costs of UTAS’ proposed redevelopment of the Sandy Bay campus site (a small matter of $1.65 billion on UTAS’ own December 2021 cost estimate; $2.78 billion on mine). In other words, Moody’s did not seriously attempt to come to grips with the financial viability of UTAS’ proposed relocation and, by extension, made no serious attempt to consider UTAS’ future capacity to service its debt, the fundamental requirement for a rating document.

  • Moody’s states in its September 2022 ratings update for UTAS that “The AUD550 million Southern Campus Transformation (SCT) program will be staged over ten years and funded via from [sic] a blend of investments and reserves, surplus operating cashflows and AUD350 million in a dual tranche green bond issued in March 2022.” (page 5)

  • Quite apart from the fact that this is different to UTAS’ own 2019 estimate of $673 million for the CBD move component of relocation, which may be due to expenditures already incurred, this is a massive cost underestimate (my estimate is $1.25 billion). Moody’s cavalier use of such a figure, I believe, represents gross incompetence, as does its total silence on the costs of developing Sandy Bay.  

In making these comments, I should point out that I do not have a copy of Moody’s rating document of 4 September 2023, because Moody’s has refused to provide me with a copy (see my correspondence with Moody’s principal analyst, John Manning).   It is open to Moody’s to release the document to show that it has addressed its previous errors and omissions. However, I note that on study of the quotes and paraphrases of Moody’s 4 September 2023 update used in UTAS’ media release of 14 September 2023, this update reads as very similar, if not identical, to the September 2022 rating update.

Moody’s may think it is just dealing with me in refusing to release its September 2023 ratings update for UTAS. As Ms Watkins has chosen to hide behind the Moody’s rating document of 4 September 2023, I believe the case for the document being made available to the public is overwhelming. UTAS is a public institution not a private company.

I will make one final comment on Moody’s.  In its September 2022 rating update (page 6), Moody’s notes that UTAS’ arrangement to sell future rents on student accommodation to Spark Living for over $200 million “are included as debt in our calculation of total adjusted debt”.  On one hand, Moody’s recognises the Sparking Living arrangement as a borrowing. On the other, it has failed to observe that as a borrowing it should have required the Treasurer’s approval under section 7(2) of the UTAS Act, just as it has failed to make any comment on illegitimacy of UTAS’ Green Bond borrowing.  I would have expected Moody’s, as a matter of course, to consider whether UTAS was operating within the legal boundaries of the UTAS Act in undertaking its rating.

I leave it to others to comment on the accuracy of Moody’s’/Ms Watkin’s claim that UTAS has preserved “underlying educational offerings to students”.

“The University’s financial position is transparently presented in the financial statements of the University’s 2022 Annual Report which was tabled in the Tasmanian Parliament earlier this year and I would highlight for you the wealth of other publicly available information on many aspects of the University’s decision making on the Public Reporting Page.“

My comments

UTAS’ 2022 Annual Report provides financial statements at a moment in time (30 December 2022). It is not its role to provide an assessment of the viability of UTAS’ relocation project. The 2022 Report does, however, provide some insight into UTAS’ capacity to fund its future plans, and consequently public policy analyst John Lawrence and I have questioned UTAS’ ability to fund relocation beyond the next two to three years. 

Mr Lawrence has also raised questions about the transparency of the financial statements in the Report.

Consistent with her failure to address UTAS’ lack of a valid legal borrowing approval for the Green Bond, I also note that Ms Watkins has failed to address this specific comment in my email to UTAS Council members:

“There are other legal issues that UTAS Council members might reasonably need to consider [besides the breach of section 7(2) of the UTAS Act].  For example, I believe that the description of UTAS’ borrowings on page 29 of UTAS’ Annual Financial Statements – 31 December 2022 submitted to the ACNC, which is repeated at the bottom of page 71 of UTAS Annual Report/2022, constitutes a material error within the terms of Section 60-65(1)(b) of the ACNC Act.  UTAS’ borrowings have been approved under certain conditions and, as I have indicated, borrowing through the Green Bond constitutes a clear breach of those conditions.” 

This mistake in the financial statements in UTAS’ 2022 Annual Report reflects extremely poorly both on UTAS and the Tasmanian Audit Office. The Report should have been recalled and pulped and a corrected Report issued (with the issue having been fixed by UTAS and the State Government).

I have commented on UTAS’ transparency and the Public Reporting Page above. As indicated there, I will have more to say about UTAS’ transparency in a future blog post.

“Thank you for taking the time to write to me and to our Council.

Yours sincerely

Alison“

By : Robert Hogan