Funding axed for further education colleges
April 2009
Government funding lost a degree of reliability when dozens of further education colleges were left with unfinished building projects and bills for millions of pounds after one of its agencies was unable to complete its funding commitments.
The Learning and Skills Council had, according to a report in the Times (20 March 2009) allocated £2.7bn towards development projects at 79 colleges. Over the past 18 months many of them took out loans, employed architects and brought in builders to start work. A further £3bn had been earmarked for 65 colleges that had completed expensive feasibility studies.
The agency says it cannot honour its pledges in the current round of spending allocations. More than £3m will have to be written off at 42 collects if the money is not found and some could go bankrupt. Sion Simon, the Further Education Minister has confirmed that the situation is ‘not acceptable’ and that ‘we shouldn’t be in that position’. The Department for Innovation, Universities and Skills has appointed Sir Andrew Foster, the former head of the Audit Commission to investigate.
Charity specialists from Baker Tilly told Caritas:
‘Colleges, as exempt charities, have a duty to deliver the best outcomes for both current and future beneficiaries. Those beneficiaries can include learners, employers and local communities.
The learning and skills sector as a whole is facing a turbulent period of change and uncertainty in the wake of changes in the machinery of government combined with the virtual freeze on capital funding by the LSC in the wake of the current economic downturn. Rather than bewailing the causes of the current crisis, we need proactively to focus on what we can all do to resolve the issues that the sector faces. At stake is the future development and stability not only of education but also our economy as a whole.
Central government departments will revisit budgets, and will clearly be seeking to avoid the potential economic and political impacts of college collapse, restructuring and short-term cash flow crises. However, this does not liberate colleges to rely solely on the government as their “knight in shining armour”, far from it.
Given the many challenges that colleges currently face, they may decide to delay, refinance or cancel their project. None of these options are ideal and each involves delays, diversion of management time and may even have solvency implications. There is a temptation for the debate on solvency to focus on accounting niceties such as balance sheet insolvency, rather than the real issue of how colleges will meet their cash flow obligations. Colleges should now consider:
· Project re-planning and risk management;
· Re-planning property strategies to take account of reduced access to funding over the short to medium term;
· Seeking new sources of funding;
· Short term solvency issues that arise from writing off capitalised professional fees; and
· Production of comprehensive business plans with sensitivity analysis on a number of possible outcomes.
Given the role that local authorities will be taking after changes in the machinery of government have come into effect, this is an opportunity for them to start liaising with colleges to co-ordinate provision in their areas. We may perhaps expect to see collaborations with local authorities that amount to an early adoption of the 2010 reforms.
Colleges should also begin to explore less traditional funding options such as bonds or equity involvement. Either is possible if structured in the right way. They might also consider approaching other public bodies, including local authorities, or indeed public fundraising. We expect to see college funding streams moving closer to those currently viewed as the preserve of mainstream charities.
The overall message is clear: don’t sit around and wait for someone else to solve this…..it’s down to each and every one of us!’
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from Cass Business School. She has been one of the judges for the non-profit category of the Chartered Institute of Marketing's Excellence in Marketing Awards for the second year running.
She has also acted as clerk to the trustees of a small almshouses charity and as a member nominated trustee to a pension scheme of a multinational publishing company.
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