Category Archives: funding

May 07

Some Perspective on those Alberta PSE Cuts

So, everyone seems to be getting very upset about the Government of Alberta having cut budgets by 7%. Of course, cuts are always very painful, but I think it’s worth stopping to consider the government’s perspective on this issue, which I think boils down to this specific graph:

Figure 1: Provincial Government Expenditures per FTE Student, Selected Provinces

(Since I know some of you will ask: Data is StatsCan, drawn from the 2012-13 CAUT Almanac: Provincial expenditures are from 2008-09, Table 1.3; Student numbers are from 2009-10, Table 3.2. Yes, the numbers are a bit old – we can only do so much with StatsCan in its given state – and slightly more up-to-date numbers would change specific figures in each province. But they wouldn’t change the basic picture, which is that government $/student in Alberta is about 40% higher than in Quebec, 50% higher than in BC, and close to double what it is in Ontario).

So, if I’m the Government of Alberta, and looking at the fact that the Americans have worked out this shale gas thing, and the main prop of the provincial budget has gone all pear-shaped, and I’m contemplating the question, “where can I save some money”, you’d have to conclude that, in fact, universities – indeed, PSE generally – are one heck of a tempting target, no?

I mean, what’s Alberta buying for that extra money, exactly? Slightly better-paid profs, which allow them to recruit better staff. Somewhat lower teacher-student ratios, which is also good. Lower tuition fees, for sure. But they could probably do all that almost as well with $1300 or $1400 less, per student – especially true since per student funding would have to drop by about 35% before Alberta would find itself anywhere near the national average.

So are Albertans just whiners? Well, no. See, the thing about university finances is that they’re supremely inflexible. Salaries and benefits make-up about 50% of all spending, and dumping salary quickly is damn near impossible; it’s even harder if you’ve just negotiated a contract with staff, guaranteeing raises of 2-3% over the next four years. If you can’t touch that, then a 7% cut quickly becomes a 14% cut in non-salary areas. That’s pretty brutal, even if you are starting from a very high base. And in Ontario, at least institutions can partly offset cuts through tuition – something Alberta institutions were forbidden to do.

There’s no question the Alberta universities are undergoing a wrenching change – the biggest, in fact, since the Bouchard government dropped the boom on Quebec universities in 1997. But at the same time, let’s keep in mind how lucky Alberta universities are to begin with. There isn’t a single Ontario university that wouldn’t beg to switch places with them.

February 20

Some Consequences of Declining Public Funding

Home truth: while total funding for higher education has increased rather substantially over the past couple of decades, an increasing proportion of this funding has come from private sources. If anything, that trend is going to continue for the next decade, at least. Unfortunately, our decision-making structures and mentalities are stuck in the era when institutions could count on governments to bail them out.

I noticed this initially during the St. FX strike. One of the main lines of discourse from the union has been, essentially, that management’s claim of poverty is evidently untrue because of all the money that’s been made available to “non-essential” projects, like new residences. This echoes a line that we’ve heard from Quebec students in their protests, as well: stop putting up new buildings and satellite campuses and we wouldn’t need to have higher tuition.

Partly, this is nonsense: budgets for capital and operating aren’t fungible, and not using donors’ and government’s money for a residence doesn’t make money magically available for salaries. But the sentiment isn’t complete nonsense; when money is scarce, frustration at seeing money spent on non-academic projects is easy to understand.

But when you depend on tuition for more than 50% of your budget, and demographic pressures are reducing demand (as is the case at St. FX), it’s not the faculty who get to decide what’s essential, it’s the students. It’s not like the old days where you could be pickier about your customers and they paid only a small portion of the bill. Now, if you fail to spend on “nonessentials” like residences, you run the risk that the tuition dollars dry up. And then who pays for faculty salaries? That’s a reality that faculty unions have to deal with.

Management, too, needs to change, though. The shift to greater private funding has led to a certain degree of academic entrepreneurialism. Where administrators are thus able to gain resources, that’s to the good; but what happens when money is lost? When that new can’t-miss international branch campus on the other side of the world actually does fail, who’s accountable, and how are the lost funds recouped? Too often, it seems, the answers are “nobody”, and “out of teaching resources”, and that’s not really acceptable.

Shared governance of universities is a lot easier when government’s paying the bill. When universities have to go out and earn money themselves, it’s a different story. But it’s a reality we have to deal with. Faculty need to come to terms with the fact that income is a lot more fragile than it used to be, and administrators need to be held much more accountable for money put at risk.

January 16

Why Don’t we Have More Private Higher Education?

Here’s a puzzle: In many provinces, the law allows for the establishment of new, private, degree-granting institutions. So why don’t they do it?

Why don’t disaffected lawyers set up a cut-price law school in central Toronto to compete against the expensive products offered by U of T and Osgoode? Why doesn’t a brand-name private secondary institution, like the Bishop Strachan School, create its own liberal arts college, a la Bryn Mawr or Wellesley?

In Canada, private higher education is often thought of as “unnatural”, even though it’s a major feature of many higher education systems around the world. For instance, countries like Hungary, Poland, and Romania all have non-trivial private university sectors. In all of them, new universities sprung up as a result of de-regulation following the end of the socialist period, and were able – in law and the social sciences, at least – to compete for students with more established universities, because the latter’s previous Leninist associations left them discredited.

Yet of these countries, only Poland has anything like the dependence on non-state funding that Canada has. Over there, where private funding is limited mostly to private universities (a majority of students in all countries attend tuition-free), we look like the odd-system-out, because our public institutions rake in so much private funding through student fees and other private contributions. From their perspective, our system is much more “privatized” than theirs.

Intriguingly, it’s exactly that tolerance of private funding that has kept public institutions in a monopoly position in Canada. Our use of both private and public funding sources essentially gives us the best-funded system of public higher education in the entire world, a system capable of offering a wide range of high quality programs. And this significantly limits the appeal of private higher education.

Given a choice, students will always prefer a name-brand public institution over a start-up private institution, provided they are offering the same product. Private higher education thus tends to flourish only when public institutions aren’t funded well enough to meet demand (e.g. Korea, Japan), or when the public “brand” has been eroded (e.g. East-central Europe).

The likeliest way for a private system of higher education to evolve in Canada is if governments were to restrict funding from both private and public sources to the point where the range of quality programming offered was curtailed. Only when public institutions can’t cover all the market opportunities will private institutions be able to compete for students, and hence become viable.

And yes, there is one province where that’s on the verge of happening. It’s Quebec. If I were betting on where private institutions were likeliest to emerge, that’s where my money would be.

December 19

Lessons from Quebec

What lessons can we learn from the current mess in Quebec? I think two stand out – one for students, and one for universities.

The lesson for students is this: it’s great that they can mobilize and maintain pressure on government in the ways they have over the past twelve months. But, if you fight a tuition fee hike by telling government that there’s oodles of waste and inefficiency in universities, don’t be surprised if they take you at your word, and slash budgets.

Now, frankly, the student associations are kind of screwed. Can students once again take to the streets to confront this new issue? Likely not – and the total silence emanating from “the usual suspects” regarding a new wave of protests suggests they know they can’t, either. But if students don’t do something, they’ll be giving government the impression that they care more about price than quality. And if this happens, the government really will have carte blanche to do more-or-less whatever it wants to institutional budgets. So, you know, congratulations to students on beating the government at checkers; too bad there’s actually a chess match going on.

At the same time, the lesson for universities – in particular the government relations folks –is this: when a government goes out on a limb for you, you back them loudly and publicly. Period.

Granted, the exiting Charest government was among the least palatable champions a university could wish for. Worn-out, accident prone, and scandal-plagued (joke of the year candidate: “what’s the difference between a Quebec student leader and a Quebec mob boss? The mob boss doesn’t need to forswear violence to get a meeting with the Minister”), there was almost no one less credible than the PLQ to carry the message about the need for greater investment in higher education.

But, Government Relations 101: “Ya dance with the one that brung ya.” Whatever they thought about the Liberals, the Presidents should have backed the plan instead of leaving the PR to the Conseil des Recteurs et Principaux des Universites du Quebec (which was terminally conflicted on the issue), or taking off on foreign trips at the height of the protest. And not because it was a brilliant plan, either, but because failing to back a government when they do you right makes all political parties question your value as an ally. The perception that universities are a constituency with little political loyalty almost certainly played some part in the PQ’s decision to pick a fight with them.

As Quebec universities regroup to fight this latest battle, it would be good for them to reflect on how they got in this situation in the first place, and perhaps acknowledge that they blew it last spring.

December 12

Islamic Student Loans

As-salaam Alaikum.

Every once in awhile, someone in the student movement hears tell of interest in Islam being prohibited, thinks about student loans for a microsecond, and then comes up with the idea that student loans are “unislamic” and, hence, culturally inappropriate. This, in the past, has led some in Canada to claim that the whole student aid system needs to be revised and made more grant-reliant, all in the name of cultural sensitivity.

This is mostly bilge, for two reasons.

The first is that there are many ways to deal with the no-interest rule. Normally, Islamic banking gets around the problem of interest by having the bank co-own an asset while the loan is being paid down (Islamic mortgages are essentially rent-to-own deals); but, that’s admittedly difficult for a student loan where there’s no hard asset against which to borrow. But a Bai’muajjal, or credit-sale arrangement, is still possible: it’s simply a loan with a fixed installment plan at the end, which gives the lender a profit. With a bit of tinkering, the US Government’s graduated repayment student loan scheme, as well as the Swedish student loan system, would both meet that test – especially since there is no profit involved. Or, one could do as Malaysia’s student loan program does and simply replace “interest” with a “fee” that works exactly the same way as interest, but preserves the form (if not the spirit) of the Sharia.

The second reason is that many muslims simply don’t care whether or not a loan is Sharia-compliant. My colleagues and I at HESA recently saw evidence of this during some work we did related to the introduction of student loans in Indonesia, the world’s largest Islamic country. We asked 2000 students in various parts of the country if they would take a student loan were it offered to them. Just over half said yes; of the remainder, 88% said that loans were a good idea for some students, but not for them personally. The main reason that this group of students did not want a loan was because they did not need one. About a quarter of all students expressed some unease about student borrowing (though the percentage who specifically mentioned Sharia as the reason was much, much smaller) – but even these students expressed little unease about borrowing, per se – and, interestingly, three quarters of those who expressed unease about student loans had no problems with the idea of a mortgage.

Though it is theoretically be possible to create Sharia-compliant student loans, the market for them is tiny, even in Islamic countries. That’s not an argument against their being offered, but it is a reason to dismiss the notion that not offering them actually represents any kind of barrier to access.

November 12

Student Aid Tax Rates

Anyone who thinks taxation is overly complicated and onerous in this country needs to spend a day or two in the shoes of a student. That’s because our tax system has absolutely nothing on our student aid assessment system.

Student aid in Canada is distributed based on something called “assessed need”, which is defined as “assessed costs” minus “assessed resources” (not real costs or real resources, because those are subjective). Essentially, government has to ask students about their resources and then make a call about how much they can spare for education. To the extent government thinks you can spare enough, it won’t give you aid. Thus, the formula for various resource tests acts as a kind of tax rate.

The Canada Student Loans Program recognizes five different types of income and five different types of assets, and – here’s the fun part – uses different tax thresholds and rates for each one. Here are the key ones:

(1) Parental Income. The threshold depends on family size, but for a family of four in Ontario, the threshold is about $50,000. For the first $3,000 in post-tax income, the tax rate is 33%, after that, it’s 50%

(2) Spousal Income. Again, it varies a bit by province, but in practice, 80% of all spousal income over about $1,500/month is considered a resource.

(3) Scholarship income. The first three thousand is exempt; after that, the tax rate is 100%.

(4) Student Summer Income. The threshold varies depending on whether you live with your parents in the summer; if you do, your threshold is about $1,000 per month, if not it’s about $200. Above that, the tax rate is 100%.

(5) In-school income. The first $50/week is yours. After that, the tax rate is 100%.

(Look at the pattern of 100% tax rates on student income over the thresholds: CSLP seems at least as concerned with ensuring students don’t get too comfortable as it does with ensuring that students have a basic income floor).

On top of that, there are various asset tests: on income from RESPs, on any RRSPs held (you keep everything up to $2,000 per year of age over 18 – after that the tax is 100%), on any liquid savings in your name (100% on that), on the value of any vehicle owned, and, in one province at least, on the value of houses as well.

There are many words that come to mind when you lay the program out like this. “Unnecessarily complicated” is one. “Ludicrous” is probably another, though reasonable people can disagree about which bits are the least reasonable. (my money’s on the spousal rate, which I’ll address tomorrow).

As a country, we can do better than this. This week, we’ll show you how.

October 17

Incentives

A lot of policy discussions in higher education really just amount to “why don’t universities and colleges just ‘do the right thing?’” It seems to me that these discussions would be a whole lot better if they were informed by an understanding of how incentives work.

For instance, a couple of weeks ago after I was giving a talk on the general intensification of institutions’ overseas recruitment effort, when an audience member asked “why don’t institutions put that kind of effort into recruiting Aboriginal students?” Excellent question. From a public policy point of view, Aboriginal and First Nations students are an important target population. In much of the north and west, these students are the only segment of the youth population which is growing. So why aren’t they sought more assiduously?

The answer, simply, is “incentives.” International students bring in more money than domestic ones and, moreover, Aboriginal/First Nations students often have additional costs associated with them. It may be excellent governmental policy to prioritize First Nations students over international ones, but the actual financial incentives facing institutions make them favour international students. If governments paid institutions per Aboriginal student it would be a whole other story.

(I should add that I think nearly all universities in the north and west of the country are in fact doing a pretty good job of seeking out and accommodating First Nations and Aboriginal students. The question was why they aren’t putting money into the recruitment on the scale they do for international students.)

Similarly, I had a discussion last week about branch campuses abroad, which are much the rage in various parts of the world. My interlocutor thought they were pretty cool: they extended institutional and national brands around the world, they made money for universities (she thought) and generally they were an interesting “soft power” tool. So why doesn’t Canada have more of them?

Again, it’s about incentives. “Canada” doesn’t have those because it is institutions, not the government, that run overseas campuses. And our institutions don’t have them because – unlike their badly-funded Australian and British counterparts – they are not sufficiently desperate for money to deal with the very uncertain risk-reward ratio those kinds of entail (our most successful campus abroad – College of the North Atlantic-Qatar – is nearly risk-free because the Emir is paying all the bills). Canada’s universities are well-enough supported that they don’t need to chase dollars in places like Malaysia – so why bother? Innate conservatism plays a part, too, of course, but the basic issue is a lack of incentive.

If governments want institutions them to behave a certain way, they need to structure incentives accordingly. Too often, they prefer to hector rather than incentivize. Why is that?

September 19

Prizes for Excellence

I wrote recently about using prizes as a way to distribute research money. More generally, though, prizes have a lot of potential as a way for governments to influence institutional behavior and create a more diverse higher education sector, and deserve to be given a lot more thought by policymakers.

The reason for this is that we desperately need a more diverse set of incentives in our system. When politicians moan about how universities “aren’t responsive,” they are getting it precisely backwards; universities are plenty responsive to the financial incentives that are in front of them. At the moment, they only really get rewarded for doing two things: admitting more students and publishing more research (academic norms of behavior reward publications, too, so there’s a built-in second incentive on that front). Ministers can kvetch all they want about other stuff, but unless you change the incentives facing institutions, their behavior won’t change.

The solution, simply, is to set up a different set of incentives. They don’t have to be enormous – a small tail can wag a pretty big dog in academia – but they have to substantial and varied. For instance, why not give $5 million each year to the institution that gets the best teacher ratings from its students (yes, I know they can be gamed, but there are equally ways to control for gaming – see Côté and Allahar on this.). Or $10 million to the institution doing the most to promote local economic development? Or $10 million to the university doing the best job of integrating technology in the classroom? It’s a cheap way to buy change.

A really ambitious version of this was mooted recently in the pages of Policy Options, where former PMO Chief of Staff Ian Brodie suggested creating a $1 billion challenge fund to get one Canadian institution into the Top 10 of one of the major rankings agencies. Under his plan, the institution would get the money up front and pay it back if they didn’t succeed within 10 years.

Now, I’m fairly sure this specific plan wouldn’t work. Apart from the Shanghai rankings, the methodologies change too radically from year to year to make them reliable barometers of excellence, and the gap between U of T, UBC and McGill and the current top 10 of the Shanghai rankings is probably too big to be bridged by $1 billion over ten years. And if I were going to start incentivizing stuff, it probably wouldn’t be in research, because there are already lots of incentives there.

But Brodie’s basic idea is an excellent one. We need more and varied incentives. Bring’em on.

September 04

Too Much Peer Review?

One way in which Canada stands out internationally in higher education is our ultra-reliance on individual peer review as a means of allocating research funding. While peer review is in many ways the “gold standard” of research assessment mechanisms, it has the drawback of being incredibly time-consuming, both for the applicant and for the assessors.

What’s the alternative, though? Well, as Paula Stephan points out in her quite excellent book How Economics Shape Science, there are a number of ways that are in use in other countries.

The most common is block grants and assessments. This system plays a role in the funding of many European systems of education as well as Australia and New Zealand. Under this system, money is awarded based on assessments not of individual but of departmental performance. This is usually done through some mix of peer review with a heavy dose of bibliometric analysis.

This system doesn’t completely supplant individual peer review in those countries – they have granting councils like ours, too, though they tend to be smaller. Rather, these block grants cover some portion of materials costs as well as supporting that portion of professors’ salaries which pay for research time. In Canada, we don’t even think of these monies as “research funding” because of the way they are built into the grants universities receive from provinces. By international standards, the Canadian equivalent of the European/Antipodean “block grant and assessment” system should really be called “block grant and no assessment.”

Another approach which has gained favour recently is the use of prizes, where institutions compete to achieve a major scientific task. Though the most famous of these (e.g., the Google Lunar X Prize, the Archon X Prize) usually involve philanthropic money, various agencies of the U.S. government have established over 50 such prizes to spur scientific efforts. Using prizes is obviously only effective in limited circumstances, but they have their uses.

Perhaps none of these methods is as good as peer review, but they do all require professors to spend a lot less time writing grant applications. Given how big a concern that is among Canadian scientists these days, maybe we ought to consider adopting a few of these methods to simplify life. For instance, if a researcher is a demonstrably excellent one – say, if they are one of 12-13% or so whose H-index score is twice the average for their field (data suitably age-adjusted, etc.), why not just give them $100,000 a year and eliminate the hassle of applications? In NSERC disciplines the likelihood is they’d get that much anyway.

Bibliometrics aren’t just for nerds. They can save a lot of time and money, too, if we let them.

June 19

Europe’s Latent Strengths

I spent part of last week at the European University Association’s Funding Forum in Salzburg. Though it’s getting harder to see how you keep a European-wide conversation going when different countries are heading off in such different directions (small increases in funding in Germany and some Nordic countries, versus cuts of 35-45% in Ukraine and Greece), it was nevertheless a pleasant and productive event.

My job there was to give delegates a bit of a pep talk about European higher education, and why it may see better days soon. Sure, they have very big demographic and fiscal challenges, but these days, who doesn’t?

European universities have two big latent advantages over North American ones. The first is their cost structure. As we’ve seen before, European universities have done well to keep their labour costs relatively low. They also have room to squeeze a bit more productivity out of the teaching function by reducing the number of contact hours per degree. Though the numbers differ a bit from country to country, it seems that German and Austrian students, at least, have about 15% more contact hours on the way to a degree than do North American students. Close that gap, and that’s a lot of labour costs potentially saved.

Can this be done without reducing standards? Well, unlike universities here, European universities actually have some objective standards to uphold, thanks the widespread adoption of learning outcomes statements. As a result, I’d back their universities over ours every day of the week to engineer those kinds of efficiencies in a sensible way.

Public and Private Expenditures on Tertiary Education as a % of GDP, 2009

Then there’s the issue of income. European universities have an enormous untapped asset; namely, students. Even if EU members could close half the tuition revenue gap with non-EU OECD members, they would suddenly have enormous new pots of income which they can use to revitalize themselves. Almost instantly, they could go from having systems that are poor (if efficient), to having systems that are genuinely well-funded. The back half of this decade could be an exciting time in Europe, if governments and institutions have the will to grasp this nettle.

Of course, introducing tuition fees is a delicate thing, especially in countries where high unemployment is reducing the obvious payoff to higher education. Not surprisingly, I spent a lot of time there explaining what was going on in Quebec (most were shocked to find out how generous the Quebec government’s package really was). The lesson seems to be that introducing big changes in fee policy requires careful timing and – more importantly – governments with a lot of popular credibility. We might be waiting a while for that in Europe – and in Quebec, too, for that matter.

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