Financial meltdown at new merged mega polytech

Leaderless, well behind schedule, and sinking into a $110 million black hole: The fortunes of Te Pu¯ kenga, the new merged mega polytechnic, are in dire straits before the organisation has even properly begun functioning.

A damning memo sent from Tertiary Education Commission deputy chief executive Gillian Dudgeon to Education Minister Chris Hipkins paints a black picture of Te Pu¯ kenga’s fortunes – and illuminates the possible reason for the recent mysterious departure of chief executive Stephen Town.

Based at the Wintec campus in Hamilton, Te Pu¯ kenga is the result of the Government’s reform of vocational education and involves the 16 institutes of technology and polytechnics and four industry training organisations becoming one entity. It is envisaged to be critical in resolving the skills shortage. But it is Te Pu¯ kenga’s own situation that appears to be critical. On Friday, chairperson Murray Strong announced Town had ‘‘requested personal leave and the council has agreed to it’’. A Te Pu¯ kenga spokesperson said no other information was being made available on how long Town was expected to be on leave, or why.

Te Pu¯ kenga council member Peter Winder would be acting chief executive, Strong’s email said.

Dudgeon’s grim memo to Hipkins – which is dated May 16 but was published on the commission’s website late last week – sets out the details of Te Pu¯ kenga’s troubles. Its financial situation was a ‘‘significant concern’’, with the Te Pu¯ kenga group forecasting an at-least $110m full-year deficit.

‘‘This is $53.5m worse than budget ($56.5m deficit) and is predominantly due to lower provider-based enrolments,’’ she said.

These enrolments were down by 12% on the previous year.

‘‘This decline is in strong contrast to Te Pu¯ kenga’s 2022 budget,

which assumed a 4% increase in enrolments.’’ Dudgeon did not hold back on her misgivings. ‘‘We continue to be concerned that little work has been undertaken by Te Pu¯ kenga to improve its financial position while a strategy to improve its long-term sustainability has yet to be put in place.

‘‘This work urgently needs to be undertaken to support Te Pu¯ kenga’s bid for Crown funding and to provide assurance to ministers that its planned transformation programme is affordable.’’ Some parts of the memo were censored, including mention of a figure that the $110m deficit could further balloon to, due to ‘‘rising cost pressures’’.

Hipkins’ own handwritten notes on the memo revealed he shared Dudgeon’s trepidation over Te Pukenga’s management and ability to get itself out of its financial hole – particularly with what was termed the ‘‘minimum viable product (MVP)’’. ‘‘I am concerned the MVP doesn’t have enough emphasis on immediate financial sustainability issues,’’ he wrote. ‘‘I’d like an urgent update on what Te Pu¯ kenga is doing to trim costs now in response to lower enrolments. I’d like to see a plan for some early wins re: network efficiencies ASAP.’’

Dudgeon also lamented the apparent lag in progress to get the new organisation up and running.

‘‘With Te Pu¯ kenga still very much in the design phase, the tight timelines continue to be of concern to the TEC,’’ she said, later noting ‘‘there appears to be minimal rationalisation/transformation planned as part of the organisation changes, which will see financial performance remain poor’’.

In reply Hipkins wrote: ‘‘This is my number one area of concern.’’

The TEC findings belie Te Pu¯ kenga’s 2021 annual report, released on June 23, in which Town hailed a $7.6m surplus.

As Dudgeon noted, ‘‘while Te Pu¯ kenga’s 2021 result showed improved performance, it is increasingly looking like this was a temporary effect from increased domestic volume and a decision to delay spending’’. The 2021 annual report showed one employee – evidently the chief executive – was earning $670,000 to $679,999. A further five employees were earning $380,000 to $451,000.

Hipkins said he had ‘‘made my expectations on Te Pu¯ kenga clear and I know they are working hard to achieve the outcomes we all want. It is a large and complex transition, and TEC and the Ministry of Education have been keeping a very close eye on it.’’