VC Desk: Austerity measures at UCT
Released: 10h30, 14 March 2016

14 March 2016

Dear colleagues,

I am writing to inform you about a series of austerity measures that we will begin implementing between now and 2018. I appreciate that this has been a very challenging period for all of us, and so it is particularly unfortunate and difficult for us to have to deal with this at this time. However, you will be well aware that there has been a growing problem in the funding of higher education nationally, which has reached critical proportions. The University of Cape Town is equally affected by this and must take action now in the interests of our longer-term sustainability.

The specifics of the austerity measures for each faculty and professional and support services (PASS) department, and how these will be achieved, are being deliberated and agreed with the Special Budget Task Team (SBTT) and the executive. A series of meetings has been held with the Deans of our Faculties, the Graduate School of Business and the Centre for Higher Education Development, as well as with Executive Directors of PASS departments and other affected groups, to ensure that the process is approached in the spirit of transparency and fairness. They support our approach to these austerity measures. We will, wherever possible, rely on natural attrition – retirements, resignations or incentivised retirements, and stopping of non-essential activities. This might not always be possible and where it becomes necessary to restructure to achieve efficiency and meaningful savings, we will follow due Human Resources process in consultation with the unions.

South African higher education institutions are not alone in facing austerity measures – this has been a pattern across the globe over the last decade – frequently far more severe than we are facing. But in South Africa, these come at a time when higher education institutions also face the challenges of increased enrolments, fee complexities, transformation, growing student expectations of support services, insourcing and a compromised national economy.

This is the challenge ahead of us. This is about the future of our university and we need to tackle this challenge as a collective and not allow the austerity interventions to create internal divisions. We need to balance the imperatives of austerity with ensuring that we maintain our cutting-edge contribution to global, continental and national development through our research, teaching and social responsiveness, while at the same time accelerating the transformation of the University.

I have no doubt that we can succeed in this and that our collective efforts will ensure that UCT is well stewarded and its future is secured.

UCT has weathered such storms before and demonstrated its resilience. With these proactive measures, we will do so again.

Please scroll down to see FAQ below.

Sincerely

Dr Max Price
Vice-Chancellor

Frequently Asked Questions

1. Why do we need these austerity measures?

   The essential problem is that for the last five years, government subsidy to UCT has increased at only 3,5% per annum. This was about 2,5 percentage points behind inflation and 4 percentage points behind UCT's cost increases (largely due to our growing salary budget), which amounts to a 20% smaller budget over five years. In the past, we compensated for some of this decline through fee increases that were well above inflation. But there remained an annual shortfall, and with fees in the future unlikely to increase at the rates they did in the past, this deficit will grow if we do not tackle it now. The Minister of Finance's recent budget speech commitments compensate for National Student Financial Aid Scheme shortfalls and for the zero fee increase of 2016, but do not indicate a growth in subsidy that will keep up with growing student numbers and with inflation. Given the general economic and fiscal performance of our economy, it would be irresponsible in terms of the future sustainability of UCT simply to carry on at our current spending level in the hope that government funding will come to the rescue in the next  three years. And by then it will be a far more difficult and painful task to turn the university's finances around.

2. Why does Council specify a 3% surplus and can't we achieve sustainability by having a breakeven budget?

   Council sets the 3% surplus target for two purposes. First, it is to protect UCT against unanticipated setbacks that may occur, by ensuring adequate free-cash reserves. Second, the accumulated savings of annual surpluses is the main source of capital for new buildings and capital expenditure (information technology, classroom renewal, research equipment). For example, our plans to build a new residence have been hamstrung by the lack of accumulated savings due to shortfalls in the annual surplus.

   This saving still does not achieve the required 3% surplus as set by Council policy, but brings the budget close to the required target. Council would have ideally expected us to save R160 million, but we deem this a bridge too far at present.

3. Why don't we generate revenue from other sources?

   We do put enormous energy into this and have been very successful at generating external funds, but these are generally dedicated and restricted to specific activities, such as research projects, outreach or bursaries, which we would not undertake if those external funds were not available. This does not relieve our core budget. We have also embarked on new revenue-generating initiatives such as on-line courses. Some of these have made profits, others losses, and we cannot be confident at this stage, in a very competitive global market, that they will deliver significant revenue – certainly not at the levels we are seeking.

4. Why don't we use the large reserves reflected in our published financial statements?

   These reserves are misleading: most are either research budgets from external agencies that are paid in advance of the research being undertaken, but are obviously restricted for the contracted purpose; or they are endowments – for example for an endowed Chair – and the capital may not be drawn at all, while the earnings on the capital may only be used for the specific purpose of the endowment.  The remainder of our reserves, the so-called “free cash reserves”, constitute about a fifth of the total and would be entirely used up in a few years if we operated at a deficit, and there would be no capital expenditure whatsoever.

5. If we knew about this a few years ago, why are we only acting now?

   We identified this medium-term challenge to our sustainability several years ago. I appointed the SBTT in 2014 to interrogate the financial issues we face as an institution, to consult widely and to propose solutions to bring us back to a steady, sustainable financial trajectory. After two years, with most faculties and departments already implementing modest austerity measures, we have a better understanding of what is required.

6. Why is it mostly the staffing budget that is being targeted?

   At an institutional level we estimate that a minimum of R120 million needs to be saved by 2018 to avoid entering a serious deficit budget scenario. As most of our R2.6 billion budget comprises staffing, about 80% of the savings will need to be made on the staffing bill and an estimated 20% from operating budget cuts.