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A briefing shows the government was told in February that the country's largest tertiary institute, Te Pūkenga, must make savings urgently.
The Tertiary Education Commission document said the cuts were needed in the institute's polytechnics because of falling enrolments and because the government's new funding system for diplomas and certificates had reduced subsidies for on-campus and distance education courses.
"Te Pūkenga need to urgently implement a range of actions to reduce overall expenditure. These will need to be targeted towards provider-based delivery given that is where the largest enrolment declines have continued to occur over the past two years and given the unified funding system now funds on-campus and extramural delivery at a lower rate (with work-based learning funded at a higher rate)," the report said.
But the document warned finding savings could be difficult.
"However, reducing costs across the former ITPs brings challenges given many parts of the network have already removed considerable expense over recent years, including the 3 percent savings made over late 2022... There is minimal discretionary spending that can be stopped," the document said.
"High inflation and associated cost pressures will also negatively impact Te Pūkenga's ability to achieve its budgeted deficit and ultimately move towards financial sustainability," the report said.
It warned though Te Pūkenga must cut spending, it must also retain key staff.
"Related to the resourcing challenges is that Te Pūkenga will need to continue to manage staff retention issues. There remain key person risks across Te Pūkenga, with a small team of individuals driving the work programme and making the majority of decisions. There is also a risk that during the transition phase there may be a loss of key institutional knowledge (particularly around systems and in-flight projects) that will need to be managed carefully," the briefing said.
It said the number of full-time equivalent students in the institute's polytechnics dropped by 10 percent of 6972 last year, including 5211 fewer domestic FTE students and 2861 fewer international students.
On the other hand, the number of people enrolled in the institute's work-based learning programmes run by former industry training organisations rose seven percent.
The document redacted some information about the institute's financial result for 2022 but said it was "driven by a large deficit across the former ITP [institutes of technology and polytechnics] subsidiaries".
However, the briefing said Te Pūkenga had a strong cash balance and no commercial bank debt.
"Given Te Pūkenga's access to cash, we have no concerns around its liquidity or short-term viability. Our concerns primarily relate to Te Pūkenga's medium to long-term sustainability and the need for these cash reserves to help fund Te Pūkenga's transformation and other capital expenditure needs rather than to fund deficits."
The briefing said the institute cut spending by three percent last year and in the middle of last year forecast a full-year deficit of $63.6 million for 2022.
Earlier this month, the institute's chief executive Peter Winder outraged many staff when he told RNZ's Nine to Noon programme it would have to cut hundreds of jobs.
