Higher Education Strategy Associates

Category Archives: funding

November 05

World-Class Universities in the Great Recession: Who’s Winning the Funding Game?

Governments always face a choice between access and excellence: does it make more sense to focus resources on a few institutions in order to make them more “world-class”, or does it make sense to build capacity more widely and increase access?  During hard times, these choices become more acute.  In the US, for instance, the 1970s were a time when persistent federal budget deficits as a result of the Vietnam War, combined with a period of slow growth, caused higher education budgets to contract.  Institutions often had to choose between their access function and their research function, and the latter did not always win.

My question today (excerpted from the paper I gave in Shanghai on Monday) is: how are major OECD countries handling that same question in the post-2008 landscape?

Below, I have assembled data on real institutional expenditures per-student in higher education, in ten countries: Canada, the US, the UK, Australia, Sweden, Switzerland, France, Germany, the Netherlands, and Japan.  I use expenditures rather than income because the latter tends to be less consistent, and is prone to sudden swings.  Insofar as is possible, and in order to reduce the potential impact of different reporting methods and definitions of classes of expenditure, I use the most encompassing definition of expenditures given the available data.  The availability of data across countries is uneven; I’ll spare you the details, but it’s reasonably good in the US, the UK, Canada, Australia, and Sweden, decent in Switzerland, below-par in Japan, the Netherlands, and Germany, and godawful in France.  For the first six countries, I can compare with reasonable confidence how “top” universities (as per yesterday, I’m defining “top” as being among the top-100 of the Academic Ranking of World Class Universities, or the ARWU-100 for short).  In the six countries with the best data, I can differentiate between ARWU-100 universities and the rest; in the other four, I have only partial data, which nevertheless leads me to believe that the results for “top” universities is not substantially different from what happened to all institutions.

Figure 1 basically summarizes the findings:

Figure 1: Changes in Real Per-Student Funding Since 2008 for ARWU-100 and All Universities, Selected OECD Countries














Here’s what you can take from that figure:

1)  Since 2008, total per-student expenditures have risen in only three countries: the UK, Sweden, and Japan.  In the UK, the increase comes from the massive new tuition fees introduced in 2012.  In Sweden, a lot of the per-student growth comes from the fact that enrolments are decreasing rapidly (more on that in a future blog).  In Germany, per-student expenditure is down since 2008, but way up since 2007.  The reason?  The federal-länder “higher education pact” raised institutional incomes enormously in 2008, but growth in student numbers (a desired outcome of the pact) meant that this increase was gradually whittled away.

2)  “Top” Institutions do better than the rest of the university sector in the US, Canada, and Switzerland (but for different reasons), but worse in Sweden and Australia.  Some of this has to do with differences in income patterns, but an awful lot has to do with changes in enrolment patterns too, which are going in different directions in different countries.

3)  Australian universities are getting hammered.  Seriously.  Since 2008, their top four universities have seen their per-student income fall by 15% in real terms.  A small portion of that seems to be an issue of some odd accounting that elevated expenditures in 2008, and hence exaggerates expenses in the base year; but even without that, it’s a big drop.  You can see why they want higher fees.

4)  Big swings in funding don’t make much short-term difference in rankings – at least at the top.  Since 2008, top-100 universities in the US have increased their per-student expenditure by 10%, while Australian unis have fallen by 15%.  That’s a 25% swing in total.  And yet there has been almost no relative movement between the two in any major rankings.  When we think about great universities, we need to think more about stocks of assets like professors and laboratories, and less about flows of funds.

So there’s no single story around the world, but there are some interesting national policy choices out there.

If anyone’s interested in the paper, I will probably post it sometime next week after I fix up a couple of graphs: if you can’t wait, just email me (ausher@higheredstrategy.com), and I’ll send you a draft.

November 04

How Canadian Universities Got Both Big and Rich

Earlier this week, I gave a speech in Shanghai on whether countries are choosing to focus higher education spending on top institutions as a response to the scarcity of funds since the start of the global financial crisis.  I thought some of you might be interested in this, so over the next two days I’ll be sharing some of the data from that presentation.  The story I want to tell today is about how exceptional the Canadian story has been among the top countries in higher education.

(A brief aside before I get started on this: there is nothing like a quick attempt to find financial information on universities in other countries to put our own gripes – Ok, my gripes – about institutional transparency into some perspective.  Seriously, you could fill the Louvre with what French universities don’t publish about their own activities.)

For the purpose of this exercise, I compare what is happening to universities generally in a country, to what is happening at its “top” universities.  To keep things simple, I define as a “top” university any university that makes the Top 100 of the Shanghai Academic Ranking of World-class Universities (ARWU).  In Canada, that means UBC, Toronto, McGill, and McMaster (yes, it’s an arbitrary criteria, but it happens to work internationally).  I use expenditures rather than income because fluctuations in endowment income make income numbers too noisy.  Figure 1 shows the evolution of funding at Canadian universities in real (i.e. inflation-adjusted) dollars.

Figure 1: Real Change in Expenditures, Canadian Universities 2000-01 to 2012-13, Indexed to 2000-01 (Source: Statistics Canada/CAUBO Financial Information of Universities and Colleges Survey)















So this is actually a big deal.  On aggregate, Canadian universities saw their expenditures grow by nearly 70% in real dollars between 2000 and 2010.  For “top” universities, the figure was a little over 80%  (the gap, for the most part, is explained by more research dollars).  Very few countries in the developed world saw this kind of growth.  It’s really quite extraordinary.

But a lot of that money went not to “improvement”, per se, but rather to expanding access.  Here are the same figures, adjusted for growth in student numbers.

Figure 2: Real Change in Per-Student Expenditures, Canadian Universities 2000-01 to 2012-13, Indexed to 2000-01















Once you account for the big increase in student numbers, the picture looks a little bit different.  At the “top” universities, real per-student income is up 20% since 2000, but about even since the start of the financial crisis; universities as a whole are up about 8% since 2000, but down by nearly 10% since the start of the financial crisis.

This tells us a couple of things.  First, Canadians have put a ton of money, both collectively and as individuals, into higher education over the past 15 years.  Anyone who says we under-invest in higher education deserves hours of ridicule.  But second, it’s also indicative of just how much Canadian universities – including the big prestigious ones – have grown over the past decade.  Figure 3 provides a quick look at changes in total enrolment at those top universities.

Figure 3: Changes in enrolments at highly-ranked Canadian universities, 2000-2001 to 2012-13, indexed to 2000-2001















In China, the top 40 or so universities were told not to grow during the country’s massive expansion of access, because they thought it would affect quality.  US private universities have mostly kept enrolment growth quite minimal.  But chez nous, McGill’s increase – the most modest of the bunch – is 30%.  Toronto’s increase is 65%, and McMaster’s is a mind-boggling 80%.

Michael Crow, the iconoclastic President of Arizona State University, often says that where American research universities get it wrong is in not growing more, and offering more spaces to more students – especially disadvantaged students.  Well, Canadian universities, even our research universities, have been doing exactly that.  What we’ve bought with our money is not just access, and not just excellence, but accessible excellence.

That’s pretty impressive. We might consider tooting our own horn a bit for things like that.

November 03

Scientists vs. Universities: Does War Lie Ahead?

Because universities lobby for science money, there is often a naïve assumption that the interests of scientists (academic ones, anyway) and those of universities are aligned.  But they are not.  In Canada, there is sometimes broad agreement about what to push for (the Canada Foundation for Innovation in the late 1990s was an example), but I would argue that today the interests of scientists and those of universities are about as far apart as they have been at any time in my adult life.

There are two major flashpoints in this fight.  The first has to do with the changing characteristics of science in this country.  Under the Harper Conservatives, there was an ever-increasing tendency for the granting councils to add increasing amounts of “applied” elements to basic research funding.  I wrote about this yesterday so I won’t belabour the point, except to say this: the main university lobbies – Universities Canada and the U-15 – were very, very quiet about this drift.  I can’t say they never raised the issue with government; my guess is that they did so behind closed doors.  But they were never seen to put any public pressure on government on this file, presumably because they fretted about the Conservatives’ reaction to any public discourse that wasn’t uniformly positive.  But that angered and alienated a lot of researchers.

The second flashpoint was the creation of Canada First Research Excellence Fund (CFREF).  This was a new pool of research money presented in the 2014 budget, which was designed to give whacking huge loads of cash to individual research universities on a particular research theme.  The first round of awards, which wrapped up just before the election, saw money go to five universities: $114 million to U of T for regenerative medicine, $66 million to UBC for quantum materials, $33 million to Sherbrooke for quantum science and quantum technologies, $37 million to Saskatchewan  for Global Food Security, and $98 million to Laval for something called Sentinel North, which I can’t begin to explain, but sounds pretty cool (all figures are over 7 years).

Now, CFREF makes tons of sense from the point of view of individual universities.  Getting a big hunk of cash for a single project is a great way to give a university an enhanced and more focused profile, and to find ways to leverage money from other sources.  Basically, it’s a way of getting the federal government to act like a transformational donor.

But there are two big problems with CFREF; first, it’s new money for research at a time when the value of granting council dollars are slowly falling, and second, it’s desperately unclear that spending money this way makes any sense for the country as a whole.  If you really thought it was important for the country to spend $66 million on quantum materials, is dropping all of it at one university likely to be the most productive way to use it?  (Hint: no.)  Researchers understand this problem, and are deeply annoyed that university presidents don’t seem to.

And so, I think, we have a recipe for a real struggle.  An increasing number of academic scientists are coming to believe that university presidents do not represent their interests.  But they have almost no means with which to get their opinion across in Ottawa.  Neither CAUT nor the disciplinary federations have anything like the power and access of the U-15 or Universities Canada in the capital.

So what could happen?  I am starting to think this fight may get played out on Senate floors across the country.  Academics can’t defeat university presidents in Ottawa, but they can pass motions in Senate directing the university to, for instance, support money for granting councils over money for CFREF, or to turn up the volume on criticism of the applied research drift.  It probably wouldn’t take more than 2 or 3 such motions at major universities to get Presidents scrambling to start a better internal dialogue about funding priorities.

That said, such exercises are hard to organize, and I kind of doubt anybody’s going to organize this in time to change the U-15 or Universities Canada pre-budget statements, which are already being drafted.  But I do think there is trouble ahead, and Senates are the likeliest forum for this to play out.  It could get ugly. Watch this space.

November 02

Pure vs. Applied Science and an Easy Win for the Liberals

OK, y’all probably know that I’m not particularly a fan of the terms “pure” and “applied” science (outside of physics and cosmology, most science is applied, to some extent), with “pure” science being a post-World War II political construct. Long-time readers will also know that I am generally unimpressed with the whole “any move away from ‘pure’ science is a step towards barbarism” cant: major science powers can and do spend a heck of a lot of money on applied research (Fraunhofer institute, anyone?).  But that doesn’t mean something isn’t seriously out of whack in Canadian science.

For arguments’ sake, let’s say there are two buckets, one called “100% pure science” and one called “100% applied science”.  What’s the right amount of money for a government to put into each of them?  No one knows.  The answer presumably differs somewhat by country, and is based on the nature of other elements in the innovation ecosystem: business, venture capital, supply chains, etc.  But in Canada, at the granting council level at least, the “pure science” bucket is and always has been way, way, way larger than the applied bucket.

What’s gone wrong with Canadian Science is not that we’ve been taking money out of the pure bucket and putting it into the applied bucket – I know that’s more or less the media narrative on this, but it doesn’t actually describe what’s happened.  No, the issue is that little by little, the entire pure research bucket is getting dragged towards the applied bucket.  Every time the government demands a business co-funder, every time they ask for more “real-world applications” of a potential project, they pollute the pure science bucket.  The 100% applied bucket did get marginally bigger during the Harper years.  But of far more importance is that the 100% pure bucket gradually became an 80% pure bucket, and then a 70% pure bucket, etc., etc.

(I suppose we could argue percentages here, but that’s not really the point – you get the idea.)

To be fair, the start of this shift actually pre-dates the Tories; certainly some of this was underway by the time Chretien left office.   But virtually all reasonable observers now think this shift has gone too far.  Yes, doing “translational” research is important, but moving to the point where the translational aspect of research is the centre, and the basic research just an add-on – as CIHR recently did – is simply ass-backwards.

So here’s a simple thing the Liberals can do to win massive acclaim, without spending an extra dime: call the granting councils in, and tell them to unbundle their pure and applied research efforts.  You could probably even cut a little bit off the “pure” budget and throw it into the “applied” bucket – so long as the “pure” budget gets dragged from the 70% mark back towards the 100% mark.

(Again, we could argue percentages, but life’s too short.)

The point is, there isn’t a scientist in the country that thinks putting everything in a hybrid pure/applied system has worked.  It can be changed for the better, at no cost.  This should make it a no-brainer for the new government – provided the higher education community can get its act together to advocate loudly, consistently, and quickly.

August 27

Theories of Change

One of the easiest things to do in policy is to advocate for policy X, so as to change effect Y.  One of the hardest things to do is to get people to explain clearly their theory of change.  That is, what are the steps by which changing X actually affects Y?

Take performance-based funding.  It’s easy to get hot for the idea that organizations can be steered by offering incentives: if you pay schools for students, they’ll raise enrolment.  If you pay them for graduates, they might spend a bit more effort and money on academic support service.  And so on.  By this theory, all you need to do to get universities to change their behaviour is to offer the right financial incentives.

But here’s the problem: that theory works a lot better for individuals than for organizations.  If what you are trying to do is force a change in organizational culture (e.g. get them to shift to a more student-centred focus), you have to remember that individuals inside an organization aren’t necessarily going to face the same incentives as the institution.  Just because an organization is incentivized doesn’t mean everyone in it is incentivized.

In extremely hierarchical organizations, it’s possible for management to pass incentives on to staff in various ways.  But universities are not particularly hierarchical institutions.  Outside of terrorist cells, universities are about the most loosely-coupled organizations on earth.  Some of the larger among them, to quote Kevin Carey, are more like holding companies for a group of departments, which are themselves holding companies for professors’ research interests.

So let’s get back to the example of a government that hopes to get universities to pay more attention to student success.  Say the government comes up with a funding formula that potentially allows an institution to access a couple million dollars more if it increases its graduation rate.  What happens?

Well, it’s certain that university leadership will try to grab the money.  That’s their job.  Then they’ll think about how to achieve the goal.  Pretty much every authority on retention will tell you that it is a institution-wide exercise.  The key is identifying students that are having trouble, and then making sure they get appropriate assistance, either from instructor(s), or from some kind of centralized suite of academic services.  But while it’s easy enough to invest money in new centralized services, the key to such an approach still rests on professors (some more than others) altering the way they behave in class, so as to spend more time/effort identifying strugglers early, and then doing something about it (talking to the students themselves, sending their name to a counsellor who can then contact the student and offer assistance, etc.)

The question is: how do you get the professor to make those changes?  The promise of more money to the institution is a pretty weak one.  First, while many people’s behaviour will need to change in order to get the money, not everyone’s does, so there’s a rational reason to try to free ride on the process.  Second, even if the institution does get the money, it doesn’t follow that the money will be distributed in such a way that all individual profs  benefit.  A prof’s behaviour is not incentivized in the same way as the institution’s.  And if that’s so, why would we expect the prof to alter his or her behaviour?

I’m not saying it’s impossible steer universities by using money as an incentive; I’m saying that success in doing so requires the incentives to be aligned in such a way that everyone’s behaviour down the chain is incentivized.  And in a university, where every professor is, to an extent, a free agent, that’s really hard to do.  It works where the incentive aligns with career goals or professional norms (e.g. do more research).  But when it pushes against professional norms, it’s a lot more difficult.

Fundamentally, people trying to steer system reforms need to ask themselves: how will this incentive alter what individuals on the ground actually do on a day-to-day basis?  If there’s no good answer to that question, chances are the incentive isn’t likely to work.

June 05

Random Crazy Thoughts About Funding Formulas

A few days ago, I attended a meeting of an advisory group on the review of the Ontario University Funding Formula. I can’t of course tell you what went on inside the meeting, but I thought I would share with you some of the (creative? crazy?) ideas that I had while inside them.

One issue which has popped up both in Ontario and in some meetings I had in DC last week, was the problems created by having money automatically fund enrolments. Now obviously money has to track enrolments to some degree – big universities need more money than little ones, expensive programs need more money than cheap programs, etc, etc. But on the other hand making the relationship direct creates an institutional incentive to deal with every cost problem by just chasing more students, which may not be socially optimal. Indeed, it leaves institutions open to the charge (not always entirely fairly) that they care more about getting people in the door than making sure they graduate.

So here’s an idea: since tuition fees rise directly with enrolment, institutions already have an incentive to chase bodies. Why not switch the funding formula incentive entirely to completion as Denmark does with its “taximeter” system? Completions are probably correlated about .75 or .8 with enrolments, which means that it wouldn’t cause a massive dislocation; you could probably up that to .9 or so if you funded based on an “expected completion metric” which took into account the quality of the incoming students (so, for instance, Queen’s would have to show much higher completion rates than Algoma to get the same money because the entrance averages of its students is higher).

Compounding the money-follows-enrolment problem is the fact that no formula I’ve ever been able to locate ever makes a distinction between the cost of an average student and the cost of a marginal student. This is on the face of it ridiculous: the 15,000th student at any institution is a heck of a lot cheaper to educate than the first or even the 5000th. And while yes, actually calculating marginal costs is a mug’s game and you certainly wouldn’t want to try to work that out in a funding formula, it’s not impossible to include a taper in the funding mechanism. That is, the first 100 in a particular field of study might be worth X, the next 100 might be worth .9x, the next 100 .8x, and so on and so forth. Easy enough. Why not do it?

One other interesting discussion to be had around funding models is the extent to which they can make systems “sustainable” (by which government means “not cost too much”). The Government of Ontario is very keen on the idea of using the funding formula to promote “sustainability” in Ontario universities. My first thought was that this was kind of nutty since a) the funding formula discussion is entirely allocative (ie. it is about how to divide the money not how much to give) and b) as I understand it, this funding formula review is not allowed to touch i) tuition, ii) collective agreements and iii) pensions. Frankly it’s pretty difficult to address sustainability if the formula can’t really take into account the largest components of revenue or costs. And yet, the central problem in institutions is getting cost increases back in line with revenue increases (see here and here).

As I’ve argued previously, there are good reasons why we might want to link total compensation to a particular percentage of total income, in much the same way that teams in professional sports do: it keeps the lid on costs when times are tight and it gives everyone in the institution an incentive to raise net revenues. Now, this particular provincial government won’t countenance doing that by interfering with collective bargaining (a problem since universities on their own don’t seem to be able to control costs very well) or by implementing the “BC solution”  where the government sets out sector-wide guidelines about the extent to which aggregate pay can rise.

But then I thought of a way around this: what if the funding formula actually fixed the proportion of compensation costs to non-compensation costs? What if the formula contained a dollar-for-dollar clawback as compensation rises above 75% of total income? Of course, there’d be all sorts of screaming, and the devil would be in the details as to how to define compensation (circumventing the limit by hiring people as contractors would be the obvious loophole to close), but I think it might actually be a very effective tool for to help institutions become more sustainable.

Food for thought, anyway.

June 04

University Endowments in a Global Context

Every once in awhile, when politicians of a certain mindset get going on the subject of how much money is being wasted in higher education, they fall back on a line about “why can’t universities be more self-sufficient”, or better yet, “why can’t they just fundraise more, like American universities do”?

Easier said than done. Here are the top ten Canadian universities, by endowment.

Top ten Canadian Universities by Endowment (in C$ Billion)

So you’ve got Toronto at about $2 billion in total endowments, McGill and UBC hovering at about $1.5 billion and Alberta just scraping $1 billion. After that it starts to fall off quickly. Queen’s clocks in at three-quarters of a billion while Calgary, McMaster and Western at just over half a billion (which, for comparative purposes, is somewhat less than U of T’s medical faculties alone) and then on down from there. Only twenty universities in Canada have endowments as large as $100 million. To put that another way, given the way endowments work, that means there are only 20 institutions in the country which receive as much as $4 million annually from endowment returns. Spread $4 million over, say 20,000 students and you’re looking at a grand total of about $200 per student in endowment income, which at most universities is basically a rounding error.

Now, let’s look at the top ten in the United States.

Top ten US Universities by Endowment (in C$ Billion)


Clearly, the US is a whole different ballgame here. All of the top six institutions in the US have larger endowments than all Canadian institutions combined: Harvard’s endowment alone is over three times Canada’s. (In fact, this week Harvard got its largest ever single donation, worth $400M US – which is almost exactly equal to Dalhousie’s endowment. One Donation. Seriously.)

Though the US list is mostly made up of private institutions, two publics make the top ten: Michigan and Texas-Austin. The Texas endowment story is frankly insane and too long to recount here: suffice to say that technically UT Austin doesn’t specifically have a $11.5 billion in endowments; however, the UT system as a whole has about $26 billion (not counting another $13 billion or so for Texas A&M) thanks to various funds setup by the state, and Austin seems to end up getting about 45% of that, the $11.5 figure seems like a decent estimate of Austin’s implicit claim on funds.

In some ways, it’s not even the big-endowment schools that are the craziest. The US has five Liberal Arts colleges (Pomona, Swarthmore, Amherst, Grinnell and Williams) with 2,000 students or less which have per-student endowments of over $1 million. That means these schools have per student endowment income of over $40,000 – or, about twice what a school like Bishop’s has per student from all income sources. These schools actually don’t need to charge tuition – they do so only because to do otherwise would make their programs look cheap and common.

What about the rest of the world? Well, once you get outside North America, the data on endowments gets pretty thin. Wikipedia claims to list endowment values of major universities in Europe, Asia and Australia, but for reasons that are quite baffling, on closer inspection these figures often turn out represent the institution’s annual budgets. Plus the meaning of terms like “university foundation” and “endowments” seem to mean slightly different things in different places. Top three Australian universities have Foundations which manage $1 billion or more in “long-term funds”, but not all of these funds appear to be externally endowed in the way we think of the term (the balance would appear to be funds invested by the universities themselves). Similarly, Tokyo University Foundation lists $24.8 billion yen ($250 million) in cash “and pledges” which could mean just about anything.

European universities seem not to advertise or explain their endowments, possibly because they haven’t got many of them. ETH Zurich is described on a number of websites as have a billion euros in endowments, but the most recent ETH Foundation annual report puts the figure at closer to 400 million euros. The only other continental university with a major endowment is the Central European University in Budapest, which apparently has an endowment of roughly $1 billion thanks mostly to its principal benefactor, George Soros. The UK, of course, is a different story. Oxford and Cambridge are handsomely funded but the gap between these two and everyone else is enormous – the third-best endowed school has less than a tenth of what the second-best school has.

The only two Asian universities where we have definite evidence of serious wealth are The King Abdullah University of Science and Technology (KAUST) and the National University of Singapore (NUS). The former, of course, was famously endowed to the tune of USD $20 Billion by its founder; the latter seems to have built up its formidable $2.3 Billion (Cdn) endowment in a more traditional (from a North American perspective) way, though gifts of many individual benefactors.

Major University Endowments, Selected non-North American Institutions (in C$ Billion)


Not shown: KAUST and its $20 Billion US endowment because that would make the graph look ridiculous.

All of which is to say that Canada actually does well compared to most of the world in terms of private funding raising. Our top three schools are probably in the top ten in the world outside the US in terms of total endowment size, and in terms of total university endowments, we probably come fourth in the world after the US, the UK and Saudi Arabia. The problem is simply that due to proximity we compare ourselves to the US, which is sui generis in so many ways. KAUST aside, there simply isn’t a university in the world which can support itself through donations the way American schools can. We need to stop using them as a yardstick.

June 02

Funding Formulas 201

The last time we  talked about funding formulas, we discussed the difference between determinative and allocative formulas.  When we talk about Ontario, which is currently undergoing a funding formula review, we’re definitely talking about the latter.  The formula isn’t going to drive total spending (this remains the legislature’s prerogative), what it is going to do is decide how the total amount will be split up.

The question is: how best to do this?

At this point, it’s worth going into some history about funding formulas.  Back in the day – say, the 1960s – universities would come cap-in-hand to government asking for money for various sundry purposes (usually, there were a couple of new “wow” proposals in there to justify a big increase), and government, in-turn, would cut cheques to individual institutions for any old amount.  Eventually, governments got tired of that shtick, and decided to come up with a way to allocate funds automatically – but fairly – to avoid going through that rigamarole every year.

Over time, however, global thinking about funding formulas changed – due mainly to work done at the OECD.  It’s now no longer just about divvying up money, it’s about using money to create a set of incentives to steer the system.  Now, admittedly, when the OECD talks about using money to steer a system, it does so because it thinks it’s better for governments to set goals for institutions, and then get out of the way.  In other words, governments “should steer, not row”.

(An interesting question in Ontario, of course, is how formula spending power can be made to steer the system, when the government of the day has a predilection not just to row, but to flail around like a five year-old on a boogie board.  Should be interesting.)

Anyhow, the idea is that you can get universities to do stuff by rewarding them via the funding formula.  The question then, from a practical point of view, is: how big a carrot do you need to get an institution to do something it may not want to do (e.g. pay more attention to teaching, get research institutions to reach out more to poorer kids, etc.)?  The answer here is: “nobody knows”.  And this is a bit of a problem, especially if you’re trying to incentivize something.  Thanks to the work of Nicholas Hillman and David Tandberg, we can be pretty sure that small nudges – say, nudges that account for 2-3% of the budget, or so – aren’t going to work.  If you’re going to try something like this, you need to go big.  As in, “at least 10% of an institutional budget” big.

Now, here’s the thing: in Ontario, the government only accounts for about 40% of university funding, with the rest coming from tuition or commercial activities.  So something that puts 10% of the institutional budget at risk actually has to put 25% of government funding at risk.  And logically speaking, this means you probably can only pick one, or at most two goals for your funding formula to target.   So what should the government pick: completion rates?  Research commercialization?

It’s hard, in fact, to see how you can steer competently in a way that makes sense for all institutions, in a jurisdiction where so little institutional funding comes from government.  There is the possibility of creating individual goals for each institution based on individual missions, but now you’re getting a long way from the idea of a “formula”, something where everyone pumps the same numbers into the system, and a global result for all institutions pops out.

Basically, system steering gets a lot tougher for governments if they’ve already allowed institutions to become mostly student-funded.  This is something Ontario is about to discover in a big way.

May 19


One of the favourite terms being bandied about on campuses these days is “mismanagement”.  According to some, everything would be fine if it weren’t for “mismanagement” – if weren’t for “mismanagement”, there would be no money problems, and life would be simply swimming.

The problem is that it’s not 100% clear what people mean by “mismanagement”.  It seems that, in fact, there are a few possible definitions:

1)      Malfeasance: This does happen occasionally, more often than not in areas related to construction and facilities management.  This is mismanagement, if not in the overt sense, then at least in the sense of not having adequate controls.

2)      Slip-ups/errors in judgement: To err is human.  In every big organization, mistakes are made every day.  These things tend to be fairly minor in scope, but intensely annoying if for some reason the mistake affects one’s own work.  Still, it’s unlikely that universities and colleges are more afflicted with these than any other large complex organization.  There’s a reason Dilbert is set in the private sector, for instance.  

3)      Paperwork: Judging by the whinging that goes on, many academic staff seem to equate paperwork with over-management, which by definition (to some) is “mismanagement”.  As with slip-ups, this kind of stuff is pretty routine in large organizations, and is not specific to post-secondary education.  Try working in government.

But actual mismanagement is none of these things.  Mismanagement is where people are systematically prioritizing, or spending money, on the wrong things (e.g. spending millions on a lazy river, for instance, or where resources are being over-committed to a particular project or line-item to no good effect – e.g. paying your President twice in the same year).  This does happen of course, but on the whole the amounts of resources involved are trivial compared to overall institutional spending.

The problem is that “wrong things” are in the eye of the beholder.  Thus, there is a noticeable tendency these days for academics with a grudge to assign the term “mismanagement” to activities with which they disagree (and that, by definition, means less money available for one’s own pet projects).  Spending “too much” on internationalization, prioritizing field of study A over field of study B or – god forbid – constructing a new building?  Obviously, the institution is being run by cretins or saboteurs who “mismanage” funds!  In some cases, this might be mismanagement; more often, it’s simply a difference of opinion about how to achieve institutional goals.

This would all be fairly harmless were it not for the fact that students’ and academics’ increasing use of the term “mismanagement” is coming at a time when it is increasingly difficult for institutions to obtain funds.  Blaming institutional financial woes on “mismanagement” is tactical ineptitude of the highest magnitude because it gives government license to freeze or cut payments, and thus exacerbate the problem.  “Really?” says the Government, “It’s management ineptitude that’s causing all the funding problems, not frozen tuition or stagnant government transfers?  Gosh, I guess you don’t need this $X million in operating grants, then – just manage yourselves better and it’ll be all right.” 

Obviously, true mismanagement and malfeasance needs to be called out.  There’s never an excuse for wasting resources.  But labelling political disagreements as “mismanagement” is both wrong and harmful.  It needs to stop.

May 07

Funding Formulas 101

So I’ve been asked to act as a member of the “reference group” (that is, a group of individuals from whom advice may be sought, but which is not technically an advisory group – yeah, I know, it’s a bit odd) for the government of Ontario’s funding formula review.  Since everyone’s about open government these days, I thought I’d make public some of my views on the subject of funding formulae so you can get a sense of what I’m contributing to the discussion behind the scenes.

So, first off: does Ontario actually need a change to its funding formula?  For purely housekeeping reasons, yes.  It’s been about 40 years since the formula was last re-written, and it looks increasingly jerry-rigged (I can’t find a completely up-to-date version of the Ontario formula online, but here’s an ungated 2009 version that, minus some jiggery-pokery around education students, is still pretty much what’s in the system today).

But we need to be clear about what a funding formula amendment can achieve.  The government seems to be under the impression that a new funding system can help institutions better contain costs (it can’t), or support differentiation (it can, but only if you stretch the term “formula” to include a lot of stuff that isn’t particularly algebraic).  Other stakeholders seem to think that a funding formula change might improve financing for institutions.  This it can do in theory, but not – in Ontario at least – in practice.

At a very broad level, funding formulas come in two types: determinative and allocative.  In a determinative formula, the government plugs all the relevant numbers into a formula, and out the other end comes a number that tells the government how much to spend.  These are pretty rare: Australia has a system like this, as does the United Arab Emirates.  Governments tend to dislike these formulas because they hand control of overall spending to bodies outside of government: as long as universities keep admitting people, governments have to keep spending (in the UAE’s case, it also led to Treasury trying to meddle in the admissions process as a way to keep expenditures under control). Instead, most formulas are allocative: government determines how much it wants to spend, and then uses a formula to divide that amount between all the institutions.  That’s very definitely how Ontario’s formula works right now, and I think it is safe to say the current review isn’t going to change that.

Tinkering with an allocative formula will certainly make some universities better off, but by definition it can’t make them all better off.  Indeed, winners and losers tend to be more or less equally balanced.  You can tweak the formula to help institutions that are more research-focused, but small institutions will pay; you can put more money to fund Fine Arts programs, but other fields of study will have to lose money to balance it out.

Another thing about funding formulas: the amount of difference they make to institutional behaviour is basically proportional to the percentage of the total bill that government foots.  In Quebec, where institutions are dependent on government for 80% of their money, changes to funding formulas matter a heck of a lot more than they do in Ontario, where the government share of operating expenditures is closer to 40%.

All of which is to say: let’s not kid ourselves that this funding formula review is going to change very much.  This is a risk-averse government, which dislikes seeing too many losers.  For some reason, they have initiated a process that has the potential to create a lot of losers.  My best guess is there will be a lot of interesting ideas thrown around, which will cause a lot of angst; in the end we’ll have a model that may have a very different set of indicators and coefficients, but will leave the actual distribution of money across institutions more or less unchanged.  Think of it as a policy process as written by Giueseppi de Lampedusa: everything will change, so that everything may stay the same

Regardless, I’m looking forward to the process, and to writing more about funding formulas.  More later.

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