Half of all colleges are operating at a loss, the Further Education Funding Council has revealed.
The annual report figures were published this week just as the council called on government to deliver a make-or-break funding bonanza for the full three-year term of its comprehensive spending review.
David Russell, FEFC finance director, speaking this week before the FEFC annual general meeting, said that the Pounds 255 million public spending award for colleges pledged by government for 1999-2000 will go a long way to improve the health of the sector.
But it will not be enough without a similar commitment for years two and three of the spending review, up to 2002.
Details of further education funding for 2000-01 and 2001-02 are expected to be announced by education secretary David Blunkett at the Association of Colleges' annual conference next week.
Mr Russell said: "We are just bumping along at the bottom. Half of colleges are operating at a deficit, and there are still about 20 per cent of colleges in the lowest financial health category.
"The government has pledged Pounds 250 million for next year and colleges will raise Pounds 35 million from employers."
In his speech to the AGM, FEFC chairman and former Labour education spokesman Lord Davies of Oldham said: "The government will deliver real and big money."
He said there were resources for next year to reduce the efficiency squeeze from almost 3 per cent to 1 per cent. This will ease problems, "especially if followed by further years at that level".
But he warned college leaders that the government will want "something for something" and that "FE must deliver".
The annual report said that there was "much to be done" in the drive to widen participation and that principals were not paying enough attention to poor achievement.