Coventry Technical College is being sued over a huge debt which it says it has no chance of repaying. Craig Seton reports. We do not have any money problems," says Janey Rees, principal of Coventry Technical College, "except this miserable Pounds 6.25 million deficit." She is referring to a still disputed debt that has doggedly pursued the institution right through its incorporation.

The 60-year-old college has coped superbly since its incorporation in 1993, insists Mrs Rees, exceeding its growth targets and even running a small surplus on its annual budget, but she admits that the deficit issue and the complex legal wrangle that now surrounds it is like an incubus, creating uncertainty about the future.

The financial crisis at the college was first revealed by Coventry City Council when the institution was under local financial management in the run-up to incorporation. The fall-out was massive. Radical restructuring to rescue the college from its debt - estimated then at Pounds 3 million - led to 180 staff jobs being axed, including many academics and most of the senior management.

A further 28 staff were made redundant at the time of incorporation in 1993 by a new management team which included Mrs Rees, a former principal of Paddington Further Education College. Since then, huge severance payments and accumulating interest charges have pushed the debt beyond Pounds 6 million and the city council is suing the college for repayment.

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The institution's senior management, on legal advice, denies liability and Mrs Rees says there is not a cat in hell's chance of repaying the deficit, which was originally blamed on poor financial control, loss-making activities at the college and diminishing local authority resources.

Mrs Rees says that for all practical purposes the deficit issue has been set aside until it is resolved, claiming that it no longer impacts on the daily running of the college or the tight financial control system that is now in place, although she concedes that morale has inevitably suffered among the staff who remain.

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"We were a college that had been rent from top to bottom by major upheaval and 18 months later we were ready for incorporation and received our grant from the Further Education Funding Council," declares Mrs Rees, who has now been at the college more than three years.

She says there is ample evidence - debt aside - to show the college is successful in running its own affairs. The annual budget of between Pounds 9 million and Pounds 10 million showed a small surplus in the last financial year, achieved, she says, by growth, not more cuts. The institution has improved its position from being the 14th most expensive incorporated further education college to 37th.

The college had 2,845 FTE enrolments in 1993/94 and it achieved a 21 per cent growth in FEFC enrolments in the first year of incorporation - exceeding its growth targets by almost 13 per cent.

Mrs Rees is, however, well aware that a financial report by KPMG Peat Marwick last year warned that if the deficit does have to be repaid, the college would not be in a position to continue to operate as a going concern.

She says the worst scenario is that the FEFC could transfer the college's work elsewhere - which would mean it would cease to exist - buts adds that nobody really knows what might happen when a college goes broke.

She insists there is no hostility from staff, although Mrs Rees admits her academics are as overstressed and as much affected by diminishing resources as others in the sector, while the bitter fall-out from the national contracts dispute does nothing to help the healing process.

The FEFC says the college is not being treated as a special case over the deficit and had not been relieved from the requirements under the rules of incorporation stipulating that colleges had to clear debts within two years. "The situation is being monitored," a FEFC spokeswoman said, pointing out that otherwise the college had become more cost-effective and was meeting growth targets.

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The college appears to accept that the current management has rescued it from the brink of disaster, although the cost has been considerable. Some academics had been made compulsorily redundant during the past culling of staff.

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Art teacher Rod Talbot, branch secretary of Natfhe, the lecturers' union at the college, says morale is fairly low and there is some anger from academics that a smaller staff is working harder with a larger number of students without reward. But he adds: "I would give management their due for managing to turn around a college that appeared to have no financial control to one which is now reasonably solvent."

Margaret Hoare, finance manager, who was in the finance department when the original deficit was revealed, says incorporation has given the college control of its destiny. "Going into surplus gave us the feeling we were all pulling together and achieving something."

The senior management team consists of Mrs Rees, her deputy and four directors. Mrs Hoare has ten full-time staff and reports to the financial controller, running a system of devolved budgets through the college's schools and support teams. A member of staff sits on the college's audit committee.

John Carter, head of business management and continuing studies, believes lack of promotion prospects for staff on ordinary lecture grades is probably the college's biggest problem.

Sadie Moynihan, full-time president of the students' union, says staff made an effort to make sure students were not affected by the turmoil the college has been through. Student complaints were mostly about a lack of non-teaching facilities for their social use and big increases in catering prices.

BTEC student Edward Evans, aged 18, who is doing graphic design, said students complained that not enough was spent on computers and other teaching equipment and the college's poor state of repair.

"You read how big the debt is in the papers, but it might be just rumours."

Mrs Rees intends to stay on as principal at the college, where the outcome of the deficit issue is likely to determine its future. She says: "We have to manage within our resources. A college that cannot manage within its resources has no future."

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