Shaping the Funding Framework - Russell Marshall

Shaping the Funding Framework

(Russell Marshall speech notes)

Since April 2000 the Tertiary Education Advisory Commission has been considering how the tertiary education system can best assist New Zealand develop a knowledge society and economy. The quality of the knowledge and skills base of New Zealanders and our ability to keep on growing these will largely determine our future success in the global economy and as a cohesive society.

The Commission has concluded that New Zealand needs a tertiary education system which:

- has learners as central to its design and operation;

- encourages providers to co-operate and collaborate to meet the needs of learners and other stakeholders;

- is committed to achieving international standards of quality in teaching and research;

- encourages participation by all including those traditionally disadvantaged by the education system;

- recognises and gives effect to the Treaty of Waitangi;

- supports regional and local communities; and

- is well managed, accountable to stakeholders and sustainable.

The Commission has produced 4 reports that together provide a comprehensive response to fulfilling this vision. Today the Commission is showcasing each of these reports.

Shaping the Funding Framework is the last piece of the jigsaw that, when assembled and implemented, will achieve what may well be a world first - a fully integrated tertiary education system, able to meet the needs of all learners in a lifelong learning environment.

Because of the integrated nature of the Commissions proposals, the proposed funding framework is but one element in the overall picture. The Commission’s recommendations have been made recognising the realities of the environment we operate in. These constraints include the likelihood that there will not be large amounts of new money for the tertiary education system, the need to ensure that tertiary education system remains affordable for learners by keeping fees as low as practicable, and ensuring that loans and allowances systems do not overly penalise learners, and the recognition that maintaining high levels of growth in participation have to be weighed against the need to achieve other priorities such as maintaining and promoting excellence in teaching and research.

The Commission’s proposals have also been designed to support its recommended tertiary education priorities and national strategic goals. The Commission’s priorities are:

- Building the quality of learning;

- Focussing on the learners at the top and bottom of the system; and

- Developing the skills and environment for a distinctive knowledge society.

And our national strategic goals are:

- Innovation;

- Economic development;

- Social development;

- Environmental sustainability; and

- Fulfilling the obligations of the Treaty of Waitangi.

The recommendations made in all of the Commission’s reports would, we believe, lead to the development of a new, distinctive and effective tertiary education system. The key features of this system are:

1. First, a unified and coherent funding framework for the tertiary education system that:

- uses charters and profiles in conjunction with quality and desirability tests to steer the system;

- funds the majority of tuition through a new Single Funding Formula which includes a number of factors to enable different funding rates to recognise the different costs associated with different forms of delivery, differences in learners and disciplines, differences between providers, and different government priorities in relation to funding;

- uses subsidy rates developed from a comprehensive cost and funding category review which includes a review of staff salaries and conditions;

- uses a Tertiary Education Price Index to enable Cost and Funding Categories to be varied in line with inflation; and

- a separate Fund for financing Adult and Community Education.

2. Second, the separation of much of the funding of tuition and research, and the allocation of the funding for research by means of a performance-based assessment system. This would include amending the current legislation to remove the requirement for undergraduate degrees to be taught by people mainly engaged in research.

3. Third, the introduction of a series of funds to support research:

- a Performance-Based Research Fund; and

- two funds to support Centres/Networks of Research Excellence (Models A and B).

4. Fourth, the introduction of a Strategic Development Fund (SDF) to assist in system innovation, collaboration and development, achievement of equity goals, and improvement of the quality of teaching staff. This Fund would partly be funded from funds freed up from the discontinuation of the base grants for Tertiary Education Institutions and would include ring-fenced funds for supporting achievement by Maori and Pacific Peoples generated from the discontinuation of the Maori and Pacific Island Special Supplementary Grants.

5. Fifth, the development of mechanisms to improve the quality, efficiency, and effectiveness of the system including:

- the introduction of a quality test;

- the introduction of a standardised regime of merit entry into undergraduate degrees with a higher standard than currently;

- comprehensive performance measurement across the entire tertiary education system;

- the reduction and removal of funding from poorly performing providers;

- a review of the information available to support learners; and

- a review of governance of Tertiary Education Institutions.

6. Sixth, the implementation of specific measures to support the learning of Maori and Pacific peoples.

7. And finally, a review of policies surrounding student financial support. Specifically the Commission recommends that the policy for writing off interest on loans while students are studying be amended to remove incentives for arbitrage. Savings from this change should be reinvested into the tertiary education system for the benefit of students. In addition the Student Allowances Scheme should be reviewed and other initiatives explored to provide financial support for students such as scholarships, mentoring schemes and bonding would be explored.

Together these initiatives will help achieve the following outcomes:

The tertiary education system will be an integrated whole and operate in partnership with stakeholders

Tertiary education encompasses all forms of post-compulsory education as well as research conducted in and by tertiary education providers. To meet the challenges of promoting lifelong learning and effectively supporting a knowledge society, all parts of this system have to work together and be recognised as equally important.

At the same time, the tertiary education system cannot stand apart from the society and economy which it seeks to support. The system needs to be actively engaged with business, industry, communities, hapu, iwi and Maori, local and regional government, Crown Research Institutes, and other groups with a stake in the successful provision of tertiary education.

This does not mean that the system should be “one size fits all”. It does mean that the relationships between the different parts need to be clear so the system works in a co-ordinated fashion.

To this end, the Commission has proposed:

- the establishment of the Tertiary Education Commission to oversee, in partnership with providers and stakeholders, the funding and operation of all elements of the tertiary education system. The Tertiary Education Commission will foster partnership in decision-making particularly in relation to Maori and the Treaty of Waitangi, business, industry and the wider community;

- the introduction of a single integrated funding formula as the basis for funding tuition. The Commission has called this funding formula the Single Funding Formula and proposes that it uses enrolment in New Zealand Register of Quality Assured Qualifications Credits as its currency. The Single Funding Formula would be used to resource all tuition (except Adult and Community education which will be funded via a dedicated Fund); and

- the implementation of standardised, negotiated charters and profiles as a precondition of public funding for all providers and ITOs.

The tertiary education system will embody principles of differentiation and specialisation

While the Commission has taken a holistic view of tertiary education, we also believe it is vital that the distinctive purposes and roles of specific programmes and providers are recognised and supported. Furthermore, the Commission believes that reducing duplication and encouraging specialisation amongst providers and programmes will both ensure more effective allocation of government resources, and promote quality in areas of focus.

Therefore we have proposed:

- the implementation of functional classifications to enable the different functions of providers to be recognised in the profiling system;

- the requirement that charters and profiles specify the providers unique character and areas of specialisation;

- the use of a desirability test to reduce undesirable duplication;

- the inclusion of a Statutory Role Add-on in the Single Funding Formula to enable the statutory roles of TEIs and ITOs to be funded; and

- the funding of two models of Centres/Networks of Research excellence to recognise and reward excellence in research.

These instruments provide a variety of means by which the government would be able to recognise specialisation and differentiation while retaining the principles of transparency and provider autonomy.

The tertiary education system will be learner-focused

The Commission firmly believes that if the tertiary education system is to lead to the development of a knowledge society effectively, then all learners must be given the greatest possible opportunity to succeed and fulfil their potential. Consequently, all those involved in the provision of tertiary education must be responsive to the needs of the learners they serve, provide courses of an appropriate level, scope and quality, and demonstrate a proper degree of cultural sensitivity. The diverse needs of learners, including those in full-time and part-time study, with different learning styles, and in different locations, must also be a central consideration in the operation of the system.

While the proposed Single Funding Formula would fund tuition through bulk grants to providers, it has a range of factors within it to enable differentiation of funding rates to reflect variations in the costs of delivering diverse disciplines, in provider type, in learner characteristics and in learning modes. Adopting this funding formula to fund tuition would enable:

- learner demand to be the key driver of funding levels; and

- different needs of learners to be reflected in differing funding rates. These distinctions would be enabled in the Single Funding Formula through the use of a two factors - a Learner Index and a Learner Add-on. In the first instance, the Commission sees the Learner Index being used to enable higher rates of subsidies to be paid for learners in foundation education programmes in line with its stated priority of supporting the bottom of the system.

In recognition that learners are central to the design of the tertiary education system, the Commission is also recommending

- targeted initiatives to support learners in specific parts of the system, such as lifting the caps from foundation education and Industry Training and a review of funding rates especially at postgraduate levels;

- a review of information and guidance systems to ensure that prospective learners have access to high-quality information regarding their future education;

- the development of the Strategic Development Fund which includes support for the attainment of equity objectives; and

- a more stringent and coherent application of accountability and performance measures across all parts of tertiary education system.

The tertiary education system will support the conduct of high-quality research

In addition to providing tuition, the tertiary education system has a critical role to play in supporting high quality research. Tertiary-based research and scholarship underpins the provision of education and training, and the creation, analysis and application of new knowledge. Furthermore, the tertiary education system is a key provider of research that the private sector cannot or will not undertake, but which is nevertheless important for New Zealand’s social and economic development. For all these reasons, it is vital that the tertiary education system is both supported and encouraged to produce research of a world-class standard.

To this end, the Commission has proposed:

- that the funding of research be largely separated from the funding of tuition;

- that much of the funding for research in the tertiary education system be provided through a Performance-Based Research Fund; and

- that there be separate Funds to support Model A and B Centres/Networks of Research Excellence.

The government will be able to effectively steer the education system in a strategic manner and ensure effective use of Government funding

The Commission believes that developing a strategic direction for tertiary education is essential if the system is to respond to the challenges facing it. In an environment of limited resources and rapid social, economic and technological change, it is necessary that appropriate goals are identified to guide funding and gauge the performance of the system. The government will need to make decisions regarding the purpose and function of the tertiary education system, its direction, and the effective means to pursue these aims. It must be stressed, however, that this Government process should not impinge unduly upon the autonomy of providers and learners.

To this end, the Commission has proposed:

- the development of the Tertiary Education Strategy including the specification of national strategic goals and tertiary education priorities to guide strategic decision-making;

- the development of a Tertiary Education Scorecard to measure the performance of the system as a whole in working towards achieving this strategy and the goals and priorities within it; and

- the introduction of a desirability test to assess providers charters and profiles in relation to making decisions to fund or not fund.

The Commission has also recommended specific changes to the way in which funding is allocated including:

- a review of cost/funding categories to ensure that tuition subsidy rates are based on the actual costs of delivery and that there is a clear relationship between the costs of delivery and the funding rates. The Education Subsidy Index will determine the proportion of the cost of delivery the government will fund. This may vary for different types of provision, for example foundation education may be subsidised at 100% while the majority of institutional-based delivery is funded at 70%. A suitable rate of subsidy would also need to be determined for Industry Training;

- the introduction of a Tertiary Education Price Index to ensure that funding levels accurately reflect changes in the cost of provision;

- inclusion of the Priority Index within the Single Funding Formula, thus allowing subsidy levels to be varied for some disciplines to reflect national priorities;

- the revision of policies regarding student financial support to ensure expenditure in this area is effectively targeted at meeting the needs of learners;

- the improvement of accountability and performance measures; and

- the creation of the Strategic Development Fund to support innovation and strategic alignment within the tertiary education system.

The Priority Index is a factor within the proposed Single Funding Formula which will enable the subsidy rates associated with specific programmes to be varied in line with policy decisions made from time to time by the government and/or the TEC. The Priority Index has a scaling influence on the Funding Categories. It will enable subsidy rates to be varied without compromising the integrity of the cost and funding categories.

The tertiary education system will be responsive and flexible

The world is currently experiencing a period of major social, economic and technological change. The tertiary education system must be able to respond effectively to these shifts, as well as to changing patterns of learner demand for particular disciplines and programmes. This is as true for small-scale local shifts as it is for such national and global phenomena as the development of new technologies and demographic change.

To this end, the Commission has proposed:

- that the autonomy of tertiary education providers be preserved as much as is practicable. To that end, for instance, we recommend that providers retain the right to set their own fees and to determine which courses, programmes or activities they offer;

- the use of charters and profiles to identify the unique characteristics and target communities of providers and ITOs and the initiatives they use to respond to them; and

- the introduction of system-wide performance indicators to be used to assess the performance of providers and ITOs with one percent of funding being removed from providers that fail to meet performance targets.

In addition, the Commission is recommending the introduction of a quality test to ensure that providers are of sufficiently high quality before being able to access public funding. While this test will be based on existing accreditation and audit processes, it will set a quality threshold that providers must pass to access funds. This threshold may be varied for provider type. For example, the Commission is recommending that PTEs must have passed their quality audit and have at least a one-year period before re-audit in order to access such funds. Polytechnics and universities will have to meet similar thresholds for quality and such thresholds should be progressively raised.

The needs of Maori will be reflected in the tertiary education system

The Commission is concerned at the continuing generally low levels of participation and achievement by Maori in the tertiary education system. Not only does this represent an issue with regard to social equity, but the special place of Maori as tangata whenua means that the government has an obligation to ensure that the specific requirements of Maori learners are reflected in all parts of the tertiary education system and that capacity and capability development of Maori is supported.

Measures proposed by the Commission to support this include:

- the formulation of national strategic goals and priorities for the tertiary education system that reflect the place of Maori as tangata whenua;

- the inclusion of specific targets for Maori learners in the proposed Tertiary Education Scorecard;

- the development within the Tertiary Education Commission of a body specifically concerned with the educational needs of Maori;

- the ring-fencing of part of the Strategic Development Fund to support initiatives for Maori learners;

- penalties on providers for poor performance; and

- legislative protection for the term “whare wananga’.

The needs of Pacific Peoples will be reflected in the tertiary education system

Pacific People are one of fastest growing groups within the New Zealand population. This group is also characterised by low levels of participation and achievement in the tertiary education system. This represents an issue with regard to social equity and the future economic and social development of New Zealand as a Pacific nation. The tertiary education system has an obligation to ensure that the specific requirements of Pacific learners are reflected in all parts of the tertiary education system and that New Zealand’s place within the Pacific is developed.

Measures proposed by the Commission to support this include:

- the ring-fencing of part of the Strategic Development Fund to support initiatives for Pacific learners;

- penalties on providers for poor performance; and

- investigation of the possibility of a recognised Pacific provider entity within the tertiary education system.

The Link to a National Strategy

In our third report, Shaping the Strategy, we identified National Strategic Goals to guide the formulation of tertiary education policy. Three important priorities for the tertiary education system were also identified in this report, each of which is addressed by specific proposals in this report Shaping the Funding Framework. Specifically, we are proposing:

Improving quality through:

- increased incentives for quality, such as the Performance Based Research Fund and Centres/Networks of Research Excellence;

- higher merit-entry to under-graduate degrees; and

- the implementation of the quality test and improved accountability measures.

Supporting the two ends of the tertiary education system, through:

- removing caps on foundation education and Industry Training;

- developing an integrated funding framework for the tertiary education system and enhancing tertiary research quality, capacity and linkages by:

- reviewing scholarship arrangements;

- review of funding for research degrees;

- requiring any provider offering post-graduate degrees to meet a minimum threshold rating for quality in the PBRF; and

- supporting Centres/Networks of Research Excellence to enhance the capacity and capability of providers.

Creating the skills and attributes for a knowledge society, through:

- the introduction of the Priority Index to enable higher funding subsidies for priority programmes and activities;

- the introduction of the Strategic Development Fund to incentivise strategic initiatives within the tertiary education system; and

- the implementation of the desirability test.

Implications of the New Funding Framework

The Commission has been concerned to ensure that the proposed package of reforms is both affordable and realistic, and we have identified where additional expenditure is required and where we believe compensatory savings are achievable. The overall package is potentially self-funding, but with important caveats.

The Commission recommends that some current expenditure be re-allocated as compensatory savings for its recommended additional expenditure: it believes this is a better way for the government to achieve its goals and priorities. Not withstanding our attempts to improve the system within current funding levels, the Commission believes a strong case can be made for additional resources. While the identified compensatory savings could potentially fund most of the Commission’s proposals, there would be ongoing risks to quality if additional resources were not made available.

Transitional Arrangements for Implementation

The Commission has not attempted to design a funding framework that will reinforce existing provider structures, although it appreciates the difficult financial position currently faced by many providers. Nevertheless, we are aware that, if implementation of our recommendations occurred without transitional arrangements, certain providers would be disproportionately adversely affected.

There are various transitional arrangements that would mitigate such redistributive effects, but these arrangements should be as short-lived as possible to avoid the associated risk of maintaining existing system inefficiencies and inequities. The Commission recommends that the new funding framework be phased in to facilitate a timely and smooth transition process. The Strategic Development Fund is envisaged as a means of mitigating short-term adjustment costs and impacts.

Conclusion

During its life the Commission has invested considerable time and commitment to its task of developing a strategic vision for a future tertiary education system for this country. I believe we have succeeded in recommending changes that if implemented, would enable New Zealand to be a world leader in developing a tertiary education system to support lifelong learning for all.

I am grateful for the passion and commitment the Commission members and its secretariat have brought to the task and I would like to thank all the Commission members, past and present, for their contribution. Others have also made huge commitments in ensuring that the Commission has been successful in it task and I would like to thank the staff of the Ministers office and Ministry of Education for their support of the Commission.

I would also like to recognise the huge contribution made by the stakeholders of tertiary education. Many of you have prepared submissions, attended hui and working groups, sat on formal working parties or have just come and talked to us about your concerns. Thank you for your contributions - they were always very welcome, though you will not all see your arguments supported by us.

To our working groups I would like to give a final heartfelt vote of thanks. The Commission established a number of these to assist in developing it proposals including groups to consider funding of tuition, research, Maori issues and, of course, our International Reference Group.

Once again thank you everyone for your involvement. The challenge is now for the Government to consider, and we hope, to implement the Commission’s proposals.

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