The suspensory loan was approved by the previous government in October, from the Tertiary Education Commission capital fund. But in a statement yesterday, Tertiary Education Minister Anne Tolley said the funding offer was withdrawn after the polytechnic "failed to accept a key condition of last year's offer".
She would not say what the condition was.
"These are tough economic times and they call for tough decisions," she said.
"We have a limited pool of funding in all sectors of the economy and all proposals have to stack up in terms of the current economic climate."
Polytechnic chief executive Phil Ker said last night the key condition was an "unacceptable tag" that the polytechnic agree to the appointment of a Crown manager to oversee its financial transactions.
He said the condition contradicted an earlier verbal agreement with a TEC staff member that the polytechnic would get the money it if agreed to a lower-level Crown observer being appointed to ensure the building project had no negative financial impact on the rest of the polytechnic's operations.
He would not name the TEC staff member.
There was "no way" the polytechnic council would have agreed to the appointment of a Crown manager, and it was not until about a month after the announcement the polytechnic discovered the funding agreement did not match the verbal agreement, Mr Ker said.
"The appointment of a Crown manager tagged to a loan is unprecedented in the polytechnic sector.
"All historical Crown interventions have been around polytechnics' financial difficulties with operational spending.
"To accept a condition like that would have been be a real slight on this polytechnic's management and governance."
Mr Ker said he had been trying since November to get the TEC to adhere to the verbal agreement.
"Unfortunately, there is a belief at TEC that no such verbal agreement existed."
Mr Ker said he was "philosophical" about the withdrawal of the loan, and did not think the money could be raised from elsewhere.
"We are extremely disappointed . . . But we accept the Government's decision gracefully."
While the new building would probably not be constructed, the design institute partnership would continue.
"Collaboration is already happening. It just means the building will have to wait."
Dunedin North MP Pete Hodgson, who brokered last year's deal in his capacity as tertiary education minister and minister for economic development, said last night he had been assured before last year's announcement the polytechnic and TEC had agreed to the level of Crown involvement in the polytechnic's financial affairs.
"I was very well aware of the polytechnic's comfort with the Crown keeping an eye on their books, but also aware of their desire to ensure an appropriate level of financial independence," he said.
"Otago Polytechnic was not, and is not, in a severe financial state . . . but some financial supervision seemed appropriate."
Mr Hodgson said he was "outraged" the funding offer had been withdrawn.
"My suspicion is the Government has simply reopened the dispute over Crown management as an excuse to walk away."
The "magic" of the institute proposal was the unusually close co-operation between two tertiary institutions, the strong support for the project from community and business organisations, and the potential of the project to boost Otago's economy, Mr Hodgson said.
"If the Government thinks that by giving $15 million to a new stadium and taking away $12.5 million for a design institute it is doing Dunedin a service, they ought to stand condemned for their short-sightedness. This decision is materially detrimental to Dunedin's economic future."
He said the withdrawal of funding was a matter of deep concern.
"I won't be letting it go."
University pro-vice-chancellor of science Prof Vernon Squire said last night the university was disappointed by the announcement.
"We value our relationship with Otago Polytechnic and we will continue to collaborate on teaching and research design projects. Despite the $12.5 million funding being withdrawn, the land at the Wickliffe Press site will remain key to the university's future developments."
Otago Institute of Design
• $27 million joint venture between University of Otago and Otago Polytechnic.
• To be sited at former Wickliffe Press property on corner of Albany and Clyde Sts.
• University bought site as its contribution; Government suspensory loan to be used to construct 6000sq m, four-storey building.
• Expected to open in 2011.
• To house 800 design students, plus academic, general and research staff.
• Also to be base for projects such as Sustainable Habitat Challenge, Dunedin fashion incubator, Evolver product development centre, polytechnic prototyping facility.
• Supported by Dunedin City Council, Otago Forward economic development board, Venture Southland economic development board, Otago Chamber of Commerce and others.
- Additional reporting NZPA
