Hans Vossensteyn

1. Funding in higher educationReflections on:the new Slovene HE funding mechanism+the Dutch HE funding system HansVossensteyn Discussion seminar at the Slovene Ministry of Education … Ljubljana 6 D ·e ·c·e ·m·b ·e ·r 2 · 0 · 1 · 1

2. Governing Tertiary Education • Context • Expansion of/demand for TE • Limits to public budget • Competing priorities for public budget • “Technology” / Unit costs in TE • Goals of tertiary education • Access to and equity in TE • Quality of provision • Relevance of programmes • Internal efficiency of system Funding Tertiary Education Taxpayers Quality Assurance State • Allocation of Public Subsidies to Institutions • Block grants / funding formula • Targeted funds • - Line-item budget • Student Financial Aid System • Loan schemes • Grant schemes R&D and innovation Students and families Private sector “Third mission” activities Institutions • Decisions • Tuition fees • Institutional financial aid • Investments funds / borrowing • Institutional efficiency • Time-to-degree • Completion rates • Student-staff ratios • Programme duplication / underenrolment Labour Market for academics • Constraints • Difficulties in determining ‘need’ • Ability to collect loan repayments • Private capital markets • Income distribution of population Tertiary Education Outcomes - Size - Efficiency - Quality - Innovation - Equity - System responsiveness Framework to analyse the funding of higher education

3. Context: EU Modernization Agenda on funding • States should ensure a sufficient level of funding for HE (reduce funding gap with US & Japan) • States should examine their mix of student fees and support schemes in the light of their actual efficiency and equity • Financial autonomy: Universities should be responsible and accountable for their resources • University funding should be focused on relevant outputs rather than on inputs • States should strike the right balance between core, competitive and outcome-based funding

4. 7 principles of economics • People face trade-offs • The cost of something is what you give up to get it • Rational people think at the margin • People respond to incentives • Trade can make everyone better off • Markets are usually a good way to organise economic activity (‘invisible hand’) • Governments can sometimes improve market outcomes

5. More market forces in public sector (e.g. HE) Introduce connection between budget and performance Introduce some degree of competition (freedom to choose)

6. The evolving role of the state:New modes of coordination From central planning to decentralised decision-making and facilitating self regulation and autonomy

9. Self regulation and autonomy: ‘Don’t overdo it’ !!

10. Funding models for HE

11. traditional state funding: problems features problems line-item budgeting, input control inflexibility, no links between goals & money annual budget „december fever“, no reserve planning annual budget instability, no reliable calculation base

12. traditional state funding: problems features problems incremental budgeting no incentives, no per- formance orientation central state allocation decisions, ex ante low information, inflexibility bottom-up aggregation of financial plans no priorities

13. traditional state funding: problems features problems steering through regulation uniform solutions, university tactics few financial sources high risk, high dependence similar observations in different countries, different timing and degree of change

14. criteria for good funding models incentives competition, demand-steering goal and performance orientation promotion of profiles, innovation stability cost orientation transparency limited reactions, long-term orientation

15. criteria for good funding models autonomy, flexibility flexible internal decisions on expenditures university creates own internal mechanisms discretionary state steering focused legitimization transparency accountability

16. … and … funding without strategy lacks orientation strategy without funding (incentives) is useless goals / strategies are a necessary precondition for new funding systems (and for performance orientation in HE) !

17. general developments: „3-pillars-model“ of state finance stability ratio- nale • cost orientation • ability to fulfill tasks • steering objectives • influence behavior • incentives for performance • finance innovation in advance • control result of innovation incentives basic, task- oriented funding performance – oriented funding innovation – oriented funding pillars + + legitimacy legitimacy different pillars to reconcile different goals

18. Options for the public fundingof HE institutions • Direct funding of HE institutions • Incremental (previous year + Δ ) • Funding formulae • Funding through projects • Funding through contracts • Funding through students (vouchers) • Hardly in use across the world

19. Contracts Mission-based (negotiations with indiv HEI) Project funding (competing proposals) How to make funds available to HEIs? Public budget Discretionary Incremental (previous year’s budget) Formula funding Cost based indicator driven Performance oriented indicator driven Framework agreements Detailed agreements Every country has its own MIX of funding components

20. Almost everywhere lump sum: institutional strategy Move to lump sum budgeting : - more responsibility / accountability -efficiency Move from negotiated line-item funding to formula funding - transparent / rational / simplified / flexible -mainly enrolment driven, but also outputs Specific targeted funding -incentive funds for quality, access and innovations (e.g. accreditation, …) Vouchers / learning entitlements -flexibility, but administrative problems and do students want it?

21. Allocation mechanisms: a balancing act The big question is: A proper balance between centralisation and decentralisation: autonomy / responsibility (degree of autonomy; balancing academic values with market forces; maintaining equity between ‘rich’ and ‘poor’ universities / departments)

22. Advantages of decentralization / autonomy Increased responsibility (vision / profiling / strategy?) Incentive for cost-effective use of resources Increases speed of decision-making Accountability and the transparency it generates Empowers institutions (close to clients) Motivates & encourages innovation

23. Disadvantages of decentralization / autonomy Lack of co-ordination (‘nation of shopkeepers’) Shifting costs to other units (free riders) Can one handle responsibility? Increased administrative burden of accountability

24. instrumental options the instruments make the difference rationale behind differences: priorities for objectives (e.g. incentives vs.stability) cultural differences (e.g. market simulations vs. negotiation) major instruments for allocation: formula – application – contract – lump-sum

25. Formula Funding • Formula ensures transparency; fairness; accountability; stability • Funding rates usually in relation to costs in any subject/HEI (i.e. method of delivery of subjects: classroom-based vs laboratory- based) and degree level • Formula is not prescriptive (does not drive budgets at departmental level) • Formula add-ons (premiums) to reflect additional costs, special circumstances, due to (e.g.): • Student diversity • Location / age of HE provider • Sustaining important subjects • High-cost facilities

26. Interesting example funding of teaching Netherlands

27. Netherlands: performances Since 1983 substantial freedom of spending Teaching funds substantially based on performances: - 50% for graduates (bachelor/master) - 13% for new entrants - 37% fixed amount To increase the completion rate Risk: creative book keeping Now discussion about learning entitlements: - empower students - flexibility (but do students want that? limited budget)

28. National funding model (BaMa)

29. Funding rates in Twente allocation model (formula part) Education- part : • 85 Euro per student credit (ECTS); • 2790 Euro per first year student in engineering; • 1390 Euro per 1st yr student in social sciences Research part: • 30 Euro per Bachelor-ECTS in social sciences; • 40 Euro per Bachelor-ECTS in engineering; • 80 Euro per Master-ECTS in social sciences; • 110 Euro per Master-ECTS in engineering • 44.500 Euro for a researcher on Research council grant in engineering; • 31.800 Euro for a researcher on Research council grant in social sciences • 22.300 Euro for researcher on (some) industry sponsored contract (engineering); 15.900 Euro for researcher on (some) industry sponsored contract (social sc.) • 75.000 Euro for a PhD (all disciplines) • 62.500 Euro for a designer certificate

30. University of Twente allocation model

31. TU Delft allocation model To be replaced by contract

32. Interesting example funding of teaching Slovenia

33. Introduction 2004  lump sum 2004 80 : 20 60 : 40 2010 OLS NLS no. students no. graduates study field factor How much flexibility in 2011 and onwards? The Decree is very historically oriented, few incentives Problem if student number is decreasing

34. variable part ± 3% • Variable part indicators: • efficiency (graduation rate) -±1% • promotion of students from Year 1 to 2 - ±1% • international cooperation - ±1% fixed part (k+1) = TSF (k) + GDP variable part of TSF-Zk = fixed part of TSF-Zk × Factor Factor = fu+ fpr + fm Remark: variable part very limited and how likely it is that one institution would be good or bad at all 3 indicators? Likely they will balance out?

35. Budgetary financing of 1st and 2nd cycle: Variable part  3% public tenders: variety, internationalisation quality social dimension fixed part (k+1) = TSF (k) + GDP primary financing pillar (TSF) development financing pillar (RSF) How big is the RSF pillar? Big enough to stimulate all 4 priority areas? New or old money? If new, sustainable?

36. THANK YOU FOR YOUR ATTENTION ! Contact information: Prof. dr. Hans (J.J.) Vossensteyn University of Twente Center for Higher Education Policy Studies (CHEPS) PO Box 217 7500 AE ENSCHEDE The Netherlands tel: +31 - (0)53 489 3809 e-: j.j.vossensteyn@utwente.nl inet: www.utwente.nl/cheps