Roger McClure, the funding council's chief executive, has been determined to make one final effort to get rid of the incubus that has dogged FE since incorporation, dominating media coverage of colleges and detracting from the sector's achievements.
In an interview with The TES Scotland, Mr McClure said all 46 college principals had shown "unprecedented willingness" to bring stability to the sector. He called them to a special meeting last November to outline his thinking.
The significance of this week's announcement is the amount of cash: Mr McClure told the principals at that meeting to expect no more than pound;10 million. The other good news is that, from the funding council's analysis of college accounts for 2001-02, three out of five showed an operating surplus.
One of the most significant aspects of the announcement is the new definition of "financial security" which the funding council will apply to college books. It will look purely at the underlying position of income and expenditure, excluding one-off items such as pensions paid to staff who have accepted enhanced payments to retire early.
This has often distorted the size of college deficits and has long been an irritant of FE principals, resulting in headline figures that implied colleges were not being properly managed. "In fact these deficits could have been the product of very good management decisions in the past," Mr McClure said.
But he stressed that the new definition did not mean the council was going to "subvert accounting standards", which require college accounts to show "liabilities that are known".
The time-scale for a clean bill of financial health by July 31, 2006, was revealed in last week's TESS after the Executive slipped it into a little-noticed paper to the Scottish Parliament's audit committee.
The new money is to be used not just to stabilise the financial health of the sector but as investment for colleges to comply with the Special Educational Needs and Disability Act 2001. The legislation is to be phased in by September 2005 and requires schools and colleges to make major building adaptations to ensure they do not discriminate against disabled students.
While the Executive hedged its bets in its paper to the audit committee, saying that the "vast majority" of colleges are expected to be secure in three years' time, the funding council states simply that the sector as a whole should be in that position by July 31, 2006.
Mr McClure says this is because a well managed college with a strong track record should be allowed to finance key developments with a planned deficit in any particular year, provided it can show how it then returns to surplus the following year.
Mr McClure believes this strategy is achievable, despite the council's assessment which indicates that just 29 per cent of colleges are financially stable while only 2 per cent (that is, one college) are classified as being in good health.
The additional money will not, however, be distributed on the basis of the size of deficits but simply on college size. Colleges in a secure position will also have to show that they are able "to generate operating surpluses reliably and as planned and, through that, accumulate a reasonable level of financial reserve".
Mr McClure said it was important that all colleges benefited from the extra funding because many had already taken tough decisions to put themselves on a sound footing and should have support to spend money on priorities which they had to shelve while taking these decisions.
The funding chief suggested that "no more than a handful" of colleges would face tough decisions to reduce staff numbers in order to achieve a surplus.
The funding council plans to set up a working group with the Association of Scottish Colleges to benchmark detailed costs for every college which can then be compared with the average for the sector and with the performance of similar colleges. Mr McClure said this information should help colleges take action where their costs are shown to be out of line.
LEADING THE WAY
Langside College in Glasgow has announced that it has made a financial recovery, three years ahead of schedule. For the year to the end of July it has reported an operating surplus of pound;418,000 against a deficit the previous year of pound;915,000. It forecasts small surpluses for each of the next four years.
Graeme Hyslop, the principal, attributed "this significant turnaround" to savings from restructuring and retirement, cutting costs by reviewing the viability of its operations, increased income from more students, improved funding for students who are asylum-seekers or for whom English is a second language and full compensation for the first time for fees waived for disadvantaged students.
The management accepted a pay freeze for 2001-02 along with the rest of the staff, although there will be increases for all this year.