Spending to the moon and back

Universities making staff, students and the public wear the costs.

Recently, Joshua Black at The Australia Institute wrote an excellent report about university spending in Oz.

It includes many jaw-dropping cases of stupid managerial spending, the costs of which are worn by staff and students. One I can’t stop thinking about: in 2023, the Australian National University spent $11 million, just on executive travel. Who are these people - and did one of them go to the moon?

Image: UTS Central viewed from Alumni Green, photography by Andy Roberts from https://commons.wikimedia.org/wiki/File:112_N7A8606_UTS_Central_Andy_Roberts_hr.jpg

Let’s see. There is the Vice-Chancellor of course, two Deputy-VCs, two Vice Presidents, a COO and an ‘office of the Vice-Chancellor’, under which (or whom?) the notoriously profligate Chancellor falls. If we add the College Deans, this is around 15 people, which means approximately $733,000 each - just on their travel. I cannot even imagine the sort of travel that one could do that costs nearly 3/4 million bucks - nor how you could fit in any other actual work that year.¹ It is obscene.

“That $11 million was the equivalent of 95 entry-level lecturers’ annual salary.”, sez Dr Black, which is a very good point considering the cuts that loom for ANU staff.

We could also think about it in research terms. $733K is more than double the very large, very very privileged grant I received - which stretched over three years, not one - which paid my salary and allowed me to do all the work that led to Virtue Capitalists and much more - including a decent amount of international travel. The average Australian research grant - the stuff that props up discovery and innovation in my country - is $50-$500K. That is to say, a lot of research can be done for $11M.

I do kinda hope someone travelled to the moon, because that at least seems like some sort of discovery.

It all shows utter disdain not only to the staff whose careers ANU cuts will likely stymie if not destroy, but also to the very enterprise they are there to pursue: teaching and research. The public, who mostly paid for this travel, deserves a detailed accounting of the value accrued to the university in place of teaching and research for this expenditure - not to mention the rest that Dr Black outlines in his report.

I’m not singling out ANU in particular. Indeed, they are possibly not even the worst.

In the news this week is another university facing massive cuts: the University of Technology Sydney, who spent squillions asking one of the big four consultancies to tell them how to decide who to sack.

Such actual work is beyond the capacity of the excessively well paid managers heading Australian universities, apparently. Perhaps they’re on the moon.

Cheap Credit

But first, a digression. I’m currently reading Edward Chancellor’s Price of Time, which is a history of interest. Which is more - ahem - interesting than perhaps it sounds. In his introduction, he argues that the cheap credit that we have enjoyed since the Global Financial Crisis may have led to a misallocation of capital. It was a bit too easy for managers to access credit. The result was that instead of investing surpluses to the things that make stuff better they spent it on the sort of thing for which one uses large quantities of credit.

For universities that is buildings. UTS has some very, very nice new starchitect-designed buildings. They are hardly alone in this, but it did prompt me to have a look at the finance section of the University of Technology annual reports (I’m not linking to them but all are googlable if you want to see).

I’m not a trained accountant so I might be making mistakes. But to the best of my ability what follows seems to be the story.

In the 2017 annual report, UTS got rid of its $300M revolving debt facility at NAB. Let’s call that the ‘credit card’.

In place of this line of credit, UTS obtained two $75M ‘credit cards’, one with NAB and one with CBA = a potential $150M. That is $150M less than the line of credit they had. Cool, right?

But. At the same time, UTS also obtained a new $300M bond, payable in ten years = 2027, which is coming up soon. This bond was to replace the ‘swap derivatives’, which they got rid of because of terminating the aforementioned $300M thing. That is because the swaps were there to protect the debt.

The swaps were reported in previous annual reports among liabilities (not expenditure). Once the original debt was gone, obviously they didn’t need the swaps anymore because there wasn’t a debt to protect. No debt, no need for swaps.

Let’s think about how you might present these decisions to (say) a governing body. In 2016 those swaps (falling under liabilities) were valued at $275M². That seems pretty close to $300M, so maybe exchanging those swaps for a $300M bond sounded reasonable. Maybe even just a small reshuffle of the ways of financing the university. Indeed, maybe that it all it is.

But what had been a $300M credit card with a liability that is there for the purpose of securing the loan now became $450M made up of $150M potential ‘credit card’ debt + a $300M ticking time bomb.

That bond also came with ongoing borrowing costs. By 2023 those borrowing costs are around $17.6M of annual operational expenditure, which is more than a bit of a step up from $66,000 in 2016 or even the more expensive $508,000 borrowing costs in 2015.

Indeed, in the expenditure section of the university’s annual report (ie not just the liabilities) borrowing costs are around $17M more than the most expensive of the pre-bond era. I think. Geez, I need an auditor for my blog now. Presumably, these are the annual costs of holding the bond.

What is not terribly clear is what exactly the banks wanted in exchange for this extra debt. In addition to the maybe $17M extra per year, that is. The annual report has it as:

The obligations include:

•• not to materially change the nature of the university’s business without the NAB’s or CBA’s consent

•• not to lessen the NAB’s or CBA’s rights, powers or remedies under the loan agreement, or

•• not to issue a security interest over the university’s assets without the prior consent of the NAB or CBA.

I mean sure, but presumably there is some detail in the agreement about the nature of the university’s business and the covenants that demonstrate its continuance - covenants that could just be between university management and its governing body, but which they need to stick to anyway because they promised not to ‘materially change the nature of the university’s business’.

I’m guessing one of those covenants or covenant-like instruments is related to a budget surplus. I don’t know, it is just a guess.

Why? Because things³ have indeed changed (even if the ‘nature of the university’s business’ has not) and UTS seems to be in a bigger hurry than seems reasonable to return to surplus. The $300M ticking time bomb, surely, is part of that.

This also makes me think about all the ways that university vice-chancellors, who are currently doing a pretty terrible job of protecting academic freedom, yell and scream about institutional autonomy when it comes to public accountability - but have likely handed a bunch of that autonomy over to banks in exchange for credit.

Why do uni bosses say things that make no sense?

Why doesn’t the university tell their people that this is what is contributing to the cuts? Maybe it isn’t - that would certainly be one good reason.

UTS is blaming caps on international students (which didn’t happen, in fact their student load grew) and something about Covid and maybe something else government thought about doing but didn’t. This leaves everyone scratching heads over explanations for painful, frightening and disruptive decisions that make no sense.

Again, I can’t be sure why this is the case, but I can imagine a few things:

1. It could be managerial solidarity. Blaming the previous vice-chancellor, who now leads another university, for staff cuts could be a boss taboo.

2. It could be arse covering. Perhaps some of the bosses there now were part of the team eight years ago.

3. It might be about holding trust with the governance body, who could still have many of same members as when they did the $300M swaps-for-bond switcharoo.

4. It could also be just a blanket policy that when management has to do something terrible (staff cuts mostly) it is always someone else’s fault. Government. Covid. The big-four consultancy report.

It might be worth a look through all the other annual reports of universities threatening cuts to have a think about the levels of debt that university bosses have accrued. These annual reports are required for transparency, but when reading them, one is tempted to suggest that transparency is not quite what they are out to achieve.

Certainly, lying about the source of a budget deficit is not transparent management of a public institution. We can’t know for sure, but if that is what university leaders are doing, there needs to be very serious consequences.

F*cking (managerial) capitalism.

1. Much of it likely went on this ridiculous Davos thing (not unlike going to the moon, actually) https://www.afr.com/policy/health-and-education/cash-strapped-anu-splurged-80k-on-davos-party-20250512-p5lyf7 ““Hosting the Australia in Davos reception … [was] to promote the university’s mission, connect with alumni and showcase Australian wine and hospitality,” notes with the FOI said.” Just not the mission to teach, or do research, I suppose.

2. This was edited to 275 to correct from a typo that read 2.985M, which is clearly not actually close to 300. Soz.

3. Changes might include the cost of credit, WFH, global trade and deglobalisation, the international student market and the rewards of higher education.