Last week's Budget delivered a significant reduction in funding for the tertiary sector, most of it impacting from 2011.
In addition, the Government scrapped the contestable capital expenditure fund which most institutions relied on for new buildings and deferred maintenance.
Otago Polytechnic would lose about 10% of its Tertiary Education Commission (TEC) funding in 2011, Mr Ker said yesterday.
"It is a worry. It will be a challenge of the highest order . . . But we have already embarked on the process of reshaping the organisation so we can cope."
The polytechnic had only 18 months to adjust to the cut, he said.
"If we were facing a three-year challenge, I wouldn't blink, but an 18-month lead-in is an exceptionally short time-frame."
One of the unexpected cuts for Otago Polytechnic will be the annual grant of $1.1 million to provide a regional service, including a campus at Cromwell.
However, Mr Ker said he "felt confident" the Cromwell campus would remain open.
Central Otago had the fastest-growing population in New Zealand and staff there were "leading lights" in mixing classroom learning with distance learning to achieve efficiencies.
Senior polytechnic managers spent much of yesterday crunching the numbers with two TEC staff, investment manager Lewis Weatherall and tertiary network director David Nicholson.
The men later met the polytechnic council, outlining the details of what Mr Weatherall said was "very firmly a savings Budget" which would see $545 million removed from the tertiary sector over the next four years.
They fielded questions from council members concerned about how polytechnics were expected to maintain their rolls, staff, buildings and programmes on less money.
Council chairman Graham Crombie asked if there was a perception the polytechnic sector was inefficient and had been receiving too much money.
Mr Nicholson said there was no such perception.
Student Association representative Meegan Cloughley said students did not appear to have been considered in the Budget at all.
