Universities New Zealand chief executive Chris Whelan said there was "a finite number of levers" that universities could pull to keep themselves out of the red, and without continued funding, every university council would be weighing up all its options for saving money.
For the past couple of years, many universities have been having significant financial challenges, including Otago.
In April last year, the university announced its intention to cut up to several hundred staff as part of its bid to fill a $60 million deficit.
But last June, the Labour government announced a tertiary funding boost of $128m over 2023 and 2024 — about $21m of which went to the University of Otago.
Following the funding boost, acting vice-chancellor Prof Helen Nicholson said the increase meant the institution would not have to "cut as deep as we thought we may have to".
Mr Whelan said there was no doubt the top-up had been helpful and kept universities going while the government reviewed what it called an "unsustainable" funding system.
"The problem was, the funding boost wasn’t actually announced as fixed-term funding — it was put into the government’s budget process as ‘not continuing’ after December next year.
"So the sector has a lot of financial uncertainty at this stage."
He could not comment on individual universities around the country, but said four of the country’s eight universities were forecasting losses this year and four were forecasting surpluses.
"Every university is in a different situation because they are having different recovery speeds around international [fee-paying] students coming back after Covid-19.
"If a university is planning a deficit right now, it will be making continual decisions around how it will reduce that deficit.
"When the majority of their costs are in people, they have to consider some very difficult choices around letting go what are usually extremely good people."
This included what universities would teach, whether they could attract more international or domestic students, and if they could reduce spending on buildings and maintenance.
There was a long-term issue with maintaining the core capability of New Zealand’s universities, and it could have wider repercussions for the country’s economy.
"We know that about 45% of graduates stay and keep working in the regions where they graduated.
"Once you lose your young people, it’s very hard to get them back."
Without the funding, it may also impact a university’s ability to attract and retain world class researchers.
"The ability for a university to work with its region, its employers, its industries, to be able to help solve their problems — that’s the sort of stuff that will be at risk.
"There’s a finite number of levers they can pull and every university council will be weighing up all those different options at the moment."
Tertiary Education and Skills Minister Penny Simmonds said the additional 4% increase to tuition subsidies for 2024 and 2025 was intended to provide universities with time-limited support as they managed their way through these challenging issues.
"There has been no decision to extend this increase, which would need to be considered alongside competing budget pressures in what is a challenging fiscal environment."
However, a University of Otago spokeswoman said the 4% increase amounted to a little over $10m per annum for the university, which represented about 1% of its annual turnover.
"Given that the 4% helped address the fact that government funding had not kept pace with inflation for several years prior, we believe there is a very strong case for it to be locked in as a permanent adjustment post-2025."
The University Council’s 2024 budget was expected to have a $28.9m deficit as part of its "medium term plan" to return to surplus.
Tertiary tuition subsidies would be increased by 2.5% next year, in line with forecast inflation, Ms Simmonds said.
She had proposed allowing tertiary providers to increase tuition fees by up to 6% to make up for previous increases that did not keep pace with inflation.
The Ministry of Education had appointed a university advisory group, chaired by Sir Peter Gluckman, to examine the challenges facing the university sector and look at the design of the funding system for ways to improve its overall efficiency.
The group was expected to deliver its final report at the end of February.
