Cash will be so tight that colleges will have only enough at any one time to guarantee solvency for 10 days, the College Finance Directors' Group predicts in a study of projected Government spending patterns and inflation.
Further education has shown an operating deficit for four of the five years since colleges were made independent of local education authorities. Only this year have they shown a slight surplus of pound;2m - following a pound;100m package from the Government to reverse Conservative cuts.
But a study by the group - a network of 18 of the largest colleges - has forecast a steep and rapid decline over the next three years. Current Government spending intentions suggest a pound;74m deficit for 1998-99, rising to pound;308m by 2001, the group warns.
Kevin O'Hara, head of finance for Sheffield College and chair of the group, said: "These figures show the fragile state of further education and lend weight to the recent recommendations in the report of the Commons education and employment committee."
The committee made 50 recommendations costing pound;500m over four years to expand FE.
The group's predictions appear to be the most optimistic possible as they are based on pay increases and inflation rising no more than 3 per cent over the next three years.
Other assumptions are that Further Education Funding Council spending will remain at current cash levels and investment in higher education (of which FE is providing a growing proportion) will lag 1 per cent below inflation.
The report concludes that the sector needs at least pound;1 billion over the next three years just to maintain the status quo.