How to Fund (3)

Alex Usher. Posted on February 16, 2017 by Paul

You all may remember that in early 2015, the province of Ontario announced it was going to review its university funding formula. There was no particular urgency to do so, and many were puzzled as to “why now”? The answer, we were told, was that the Liberal government thought it could make improvements in the system by changing the funding structure. Specifically, they said in their consultation document that they thought they could use a new formula to improve i) improve quality/student experience, ii) support differentiation, iii) enhance sustainability, iv) increase transparency and accountability.

Within the group of maybe 100 people who genuinely understand this stuff, I think the scoffing over points iii) and iv) were audible as far as the Maritimes. Transparency and accountability are nice, but you don’t need a new funding formula to get them. The Government of Ontario could compel institutions to provide data any time it wants to (and often does). If institutions are “insufficiently transparent” it means government isn’t asking for the right data.

As for enhancing sustainability? HA! At a system-level, sustainability means keeping costs and income in some kind of balance. Once it became clear that there was no extra government money on the table for this exercise, and that tuition fees were off the table, and they would not use the formula to in any way rein in staff salaries or pensions (as I suggested back here) , everybody said “ok, guess nothing’s happening on that front” (we were wrong, as it turned out, as we’ll see in a second). But the bit about quality, student experience and differentiation got people’s attention. That sounded like incentivizing certain things. Output-like things, which would need to be measured and quantified. So the government was clearly entertaining the idea of some output-based measures, even as late as December 2015 when the report on the consultation went out (see that report here). Indeed, the number one recommendation was, essentially, “the ministry should apply an outcomes-based lens to all of its investments).

One year later, the Deputy Minister for Advanced Education sent out a note to all institutions which included the following passage:

The funding formulas are meant to support stability in funding at a time when the sector is facing demographic challenges while strengthening government’s stewardship role in the sector. The formulas also look to create accountable outcomes, beyond enrollment, that reflect the Strategic Mandate Agreements (SMAs) of each institution.

As you know, our goal is to will focus our sector on high-quality student outcomes and away from a focus on growth. As such, the funding formula models are corridors which give protection on the downside and do not automatically commit funds for growth on the upside.

Some of that may require translation but the key point does not: all of a sudden, funding formulas were not about applying an outcome based lens on investment, they were about “stability”. Outcomes, yes, but only as they apply to each institution’s SMA, and no one I know in the sector thinks that the funding envelope that will be devoted to promoting SMAs is going to be over five percent. Which, given that tuition is over 50% of income, means that maybe, at best, we’re looking to about 2% of total funding might be outcome-based. As I’ve said before, this is not even vaguely enough to affect institutional behaviour.

What happened? My guess is it’s a mix of four things. First, there was a change of both Minister and Deputy Minister and that’s always a crap shoot. Priorities change, sometimes radically. Second, the university sector made its displeasure known. They didn’t do it very publicly, and I have no insider knowledge of what kind of lobbying occurred, but clearly, a number of people argued very strenuously that this was a Bad Idea. One that gored oxes. Very Bad. Third, it finally dawned on some people at the top of the food chain that a funding formula change, in the absence of any new revenue tools, meant some institutions would win, and others would lose. And as the provincial government’s recent 180 on Toronto toll roads has shown, this low-in-the-polls government is prepared to go a long way to avoid making any new “losers”.

Finally, that “sustainability” thing came back in a new form. But now it was no longer about making the system sustainable, but about finding ways to make sure that a few specific small institutions with precarious finances (mostly but not exclusively in northern Ontario) didn’t lose out as adverse demographics and falling student numbers began to eat into their incomes. Hence the language about corridors “giving protection on the downside”. It’s ridiculous for three reasons. One, it’s a half-solution because institutions vulnerable to demographic decline lose at least as much from lost tuition revenue as they do in lost government grant. Two, it’s a departing horse/open barn door issue: the bulk of the demographic shift has already happened and so to some extent previous losses are just going to be locked in. Three – and this is most important – the vulnerable institutions make up maybe 8% of total enrolments. Building an entire new funding system just to solve a problem that affects 8% of students is…I don’t know. I’m kind of lost for words. But I bet if you looked it up in the dictionary it would be under “ass backwards”.

And that, my friends, is how Ontario blew a perfectly good chance to introduce a sensible, modern performance-based funding system. A real shame. Perhaps others can learn from it.