Yesterday, I explained how the distribution of funds might occur in a single-envelope PBF system (that is, the dominant system in North America, where indicators generate scores for each institution which then govern the distribution of a pre-set amount of money).  And while that is the likely way a PBF system will work in Ontario, it’s not the only possible way and indeed the government has left some hints that it is thinking about an alternative method. 

The way the notion of performance funding was introduced seemed to tie the whole thing to Strategic Mandate Agreements (SMAs), which currently require institutions to report performance for different indicators (an example of which you can see here).  And this ties in with the notion, which some of the political staff kept pushing at the briefing, that universities and colleges wouldn’t be competing with each other, they’d be competing against themselves: SMAs, after all, use common indicators, but the standards each institution is asked to achieve is different.  So in a sense, the idea would be: $X if you hit a given level of achievement on each indicators, and less if you don’t.

This is a perfectly sensible idea.  When Quebec premier Francois Legault was Minister of Education in Quebec about 20 years ago, he introduced a similar idea called “contrats de performance” (the Liberals dropped the scheme when they took power in 2003).  Denmark and Austria also have institutional performance contracts as part of their funding systems (though to be fair, these seem to work more along the lines of the current SMAs than what the Ontario government is talking about).  There are examples out there that could serve as workable models.

Except.

Except performance contracts by design are meant to give institutions targets they can hit fairly easily, if they are paying attention, which does not really line up well with the budget commitment that “60% of funding will be delivered through performance contracts”.  They also tend to be designed as ways to introduce “new” money into the system.  In the event that institutions don’t “earn” all the money to which they are theoretically eligible, they still don’t find themselves in a weaker funding position.

Plus, there’s also the issue of what happens if an institution doesn’t hit its targets.  In an envelope system (the kind I described yesterday), the government has to spend all the money in the envelope – the formula just tells you how the envelope gets divided.   Some people view this as bad because institutions are “competing against one another” but the good news is the money stays within the system because someone gets the money.  Under a contract-based system, if an institution misses its targets then the money goes back to government – and in this case, where aggregate system funding is emphatically frozen for the next couple of years, that means system-wide funding will be cut.  Possibly by quite a lot, though again it depends on the targets and how easy they are to hit.

(Small technical aside: given that the government seems to prefer indicators with an economic focus, an envelope system makes way more sense than a contract system.  Under a contract system, if a recession hits and brings down employment rates and salaries, every institution risks losing money because their targets may suddenly become unhittable.  Under an envelope system, everyone will “lose points” in the scoring system, but as long as everyone loses at more or less the same rate, no one really loses because what matters is everyone’s share of points.  Another reason to be wary of the contract approach, and another reason to think that even if this is what government has in mind right now, it’s not where it may necessarily end up.) 

Basically: you can genuinely have 60% be performance-based, you can have contract-based performance funding, and you can have stable system financing.  Pick two.

Now hopefully this tour d’horizon over the last few days gives you a sense of the possible ways this performance-based funding initiative could play out (i.e. almost infinite). It is a bit ridiculous that the scheme has been announced with literally no explanation on the key elements.  Here, to my mind are the key questions to which we need answers most urgently:

1. Is this meant to a contract-based performance system or an envelope-based system?
2. If the answer is a contract-based system, what happens to money “at risk” which is “lost” by institutions?  Does it go back to treasury?  All of it, no matter what?  And could institutions really lose *60%* of their funding this way, or are you going to rig it so they will never lose more than a couple of percent while still pretending the 60% number is real?
3. If we are going to use a contract system and we are going to keep employment-related metrics, can the government credibly explain how institutions will not end up financially penalized in the event of a recession?
4. Can we get rid of the thick-as-two-short-planks indicators for “community engagement” and “area of focus” and replace them with indicators that encourage widening participation?
5. Can we get rid of them NOW? 
6. How does the government intend to ensure that the sampling strategy used to test for skill gain at institutions will be done in a manner that produces results which are valid and credible?

A final note here.  I am, in the main, a fan of performance-based funding; my snarkiness on details should be taken as frustration with a poor roll-out rather than opposition to the concept.  But it has occurred to me over the past few days that one thing that feels like it’s missing from this proposal is a conception of future direction for the system.  PBFs are fine for focussing institution’s attention on tasks they are already supposed to be doing.  But to drive a system to new places, you still need some funding to actually take it there.  Want to facilitate access in the North?  Want more microcredentials, or whatever type of tech degrees happen to be hot this year?  You need money for that.  I think this is where the goofy ideas around community engagement and “areas of strength” come in; I think they wanted to find ways to funnel some special money to northern institutions and to institutions like Waterloo (respectively).  But just because a policy goal is valuable, doesn’t mean it is performance-related.  You can fund worthy goals without conceptually shoe-horning them into a category where they don’t belong. 

My advice to the Government is therefore: take a step back.  Breathe.  Think about what you want to accomplish.  A PBF system can work and work well as part of a healthy funding system.  Don’t make everything about performance; you can and should steer the system in other ways as well.

And get rid of those two damn silly indicators.  Seriously, they are embarrassing.

Have a good weekend, all.