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Shaping the Funding Framework - FAQ

Shaping the Funding Framework

Frequently Asked Questions

1. Has the Commission recommended that the government increase its investment in tertiary education?

The Commission believes that while an effective and efficient tertiary education system can be developed largely through the re-allocation of existing funds, some new money will be required to achieve all of the Commission’s goals. Consequently, the Commission has recommended new funding to resource the Performance-Based Research Fund, the Strategic Development Fund, and funds to support Model B Centers/Networks of Research Excellence. The Commission also believes that the question of funding adequacy must be addressed, and has thus proposed a review of cost and funding categories, including a review of academic staff salaries.

2. The current funding arrangements are working well, why change?

While the Commission recognises that existing funding systems do have their specific strengths, it believes that the current arrangements do not contain sufficient incentives for quality in either teaching or research, and inadequately support steering of the tertiary education system. Furthermore, operating multiple funding systems is not compatible with the Commission’s vision of an integrated tertiary education system. The model that has been proposed, with the majority of tuition funding delivered through a single formula, will increase coherency in the system while recognising the differences that exist between varying parts, programmes, and levels of the tertiary education system.

With regards to the funding of research, the Commission does not believe that the current arrangement, with the majority of funding for basic, untargeted research tied to student numbers, is working satisfactorily. This system does not sufficiently reward quality, and delivering funding in this manner has made research overly-vulnerable to fluctuations in the level and pattern of student enrolments

3. What are the basic differences between the current and new funding arrangements?

The primary differences between the current and proposed methods of allocating funding are increased coherence of the Commission’s model; ability to steer funding to achieve desired outcomes; and greater accountability for the tertiary system as a whole. The Commission has developed an integrated framework for funding the tertiary education system, in which the Single Funding Formula (SFF) provides funding for most tuition, and dedicated Funds (the Strategic Development Fund, the Performance-Based Research Fund, two Funds to support Centers/Networks of Research Excellence, and a Fund to support Adult and Community Education) will provide resources in specific areas. This increased coherency will allow the government to direct its expenditure on tertiary education in a more effective and efficient manner and increase transparency.

The integrated framework is also more sophisticated than current funding arrangements. The SFF includes several indices and add-ons that will allow the government to fine-tune the level of subsidies it provides for particular programmes, learners and/or providers, and thus enhance its ability to steer the system. These include:

- The Education Subsidy Index (ESI): This represents the basic proportion of tuition cost that the government wishes to fund for each component of the tertiary education system. For example, under current policy this would be set at approximately 0.7 for provider based programmes, 1.0 for Training Opportunities and Youth Training, and roughly 0.5 for Industry Training.

- The Priority Index (PI): This allows the government to vary funding according to the perceived value of a programme or discipline in meeting national goals (for most programmes this index will equal 1.0).

- The Learner Index (LI) and The Learner Add-on (LA): Both these instruments allow the government to provide increased funding for specific groups of learners, most notably Maori, Pacific peoples and people with disabilities.

- The Statutory Role Add-on (SRA): This Add-on, applied only to subsidies received by public providers and Industry Training Organisations (ITOs), imparts increased funding to recognise the statutory obligations of public providers and ITOs.

In addition, the introduction of a Tertiary Education Price Index (TEPI) and the review of cost and funding categories will ensure that the government provides an appropriate level of public subsidy that can respond to changes in the cost of providing tertiary education.

The final key difference between the current and proposed funding arrangements is the separation of funding for research and tuition in the Commission’s framework. Instead of resourcing basic, untargeted research predominantly through a system tied to student numbers, the Commission has recommended that the majority of such funding be allocated through a Performance-Based Research Fund (PBRF). This will be a more stable and effective method of supporting tertiary-based research, and will deliver funds in a manner that rewards and supports the production of high-quality outputs.

4. How will the new funding framework allow for improved steering while still ensuring provider autonomy?

In this and earlier reports, the Commission has proposed the development of instruments that will enhance the ability of the government to steer the tertiary education system, including the creation of the Tertiary Education Commission, the implementation of charters and profiles, and the desirability test. Measures specifically proposed in Shaping the Funding Framework to improve steering include the quality test, the introduction of indices and add-ons to the SFF, and the use of dedicated Funds to support specific goals.

The setting of standardised and individual performance indicators, and the introduction of sanctions for failing to meet them, will also enable the government to steer the system more effectively.

The Commission believes, however, that it is critical for providers to possess high levels of operational autonomy. In particular, providers themselves are best placed to make decisions regarding the allocation of resources and any resultant trade-offs between cost and quality. Furthermore, the intrusion of government into the daily operation of providers may have important consequences for the principle of academic freedom.

Consequently, providers will retain autonomy over the use and distribution of the public funding they receive (other than that tied to the achievement of specific aims). To this end, funding for tuition will be delivered in the form of a bulk grant to be used by providers as they see fit (providing performance targets are met), and providers will retain autonomy over curriculum, assessment, enrolment procedures etc. Similarly, the Commission has rejected the notion of implementing centralised fee-setting or salary-setting arrangements - although it has proposed a review of academic staff salaries and conditions.

5. How will the new funding framework support the achievement of equity goals for Maori and the fulfillment of Treaty obligations?

The Commission has recommended that all funding decisions must be made in accordance with the Treaty of Waitangi. In addition, providers will be required to state explicitly in their charters and profiles, how they are meeting the needs of Maori learners. Failure to meet these standards will lead to a reduction in public funding.

Furthermore, the increased ability of the government to steer the tertiary education system will be of benefit to Maori learners and of use in meeting Treaty obligations. For example, the Priority Index within the Single Funding Formula may be used to increase government subsidies for programmes that align with the Treaty-based goals identified in the Tertiary Education Strategy. Similarly, the Learner Index and Learner Add-on may be used to provide higher subsidies for Maori learners.

Although the Commission has recommended that the existing Special Supplementary Grants (SSGs) for Maori learners be merged into the SDF, these funds will be ring-fenced as funds to support equity for Maori.

6. How will the new funding framework support the achievement of equity goals for Pacific learners?

The new funding framework will support equity for Pacific peoples in much the same way as for Maori learners, including through the LA and LI, requiring providers to state how they will meet the needs of Pacific learners in their charters and profiles with sanctions for those who don’t perform, and the ring-fencing of Pacific SSGs within the SDF.

Furthermore, the Commission has recommended that the government should give priority to developing a new institutional form of provider for Pacific peoples, similar in intent to the three wananga for Maori.

7. How will the new funding framework enhance accountability in the tertiary education system?

The Commission has recommended the development of a more coherent system of performance measurement across the entire tertiary education system. The foundation of this will be the notion of “fitness for purpose”. Assessment will include individualised measures, to reflect the stated purpose and functions of individual providers and programmes, as well as universal performance indicators for all components and providers of tertiary education. The use of charters and profiles will be critical in this respect, as providers will be required to explicitly state their role and purpose within the tertiary education system.

This approach allows the different aims and goals of providers and programmes to be accounted for, while still retaining overall coherency. Transparency in the tertiary education system will thus be improved, as both government and the general public will be able to easily determine the success of a provider both in meeting its specific goals and its performance compared to other providers on the standardised indicators.

Similarly, the transparency of the SFF will make the government’s contribution to the various components of the system more visible and comparable between discipline, programme and provider. Finally, the PBRF will explicitly tie funding for basic, untargeted research to the production of quality outputs by researchers and thus enhance accountability for the receipt of research funds.

8. How will the new funding framework promote quality in the tertiary education system?

The quality of teaching will be improved with the introduction of a requirement for new academic staff to undertake some teaching training, and support being made available for those already in the system to improve their teaching skills. Furthermore, the Commission has recommended the amendment of current legislative requirements around under-graduate degrees, to ensure that they are taught by those with the ability to communicate their knowledge effectively.

The proposed increased merit standard for entry to under-graduate degrees will also enhance quality, by providing a more stimulating environment for such learners. At the post-graduate level, academic units will be required to achieve a particular level of research quality on the PBRF’s measure before they are able to offer such programmes. This will ensure that the research environment which underpins teaching at this level will be of sufficient quality.

The production of high-quality research in the tertiary education system will be promoted through the introduction of the Performance-Based Research Fund, which will deliver funding for much research according to the quality of research outputs. The two models of Centers/Networks of Research Excellence will likewise reward and support the production of high-quality research.

9. How will the new funding framework provide sanctions for poor performance?

The Commission has recommended the introduction of more stringent and coherent systems of accountability and performance measurement, and these will be enforced within the funding framework. Firstly, the Commission has proposed a quality test which a specific programme or provider must pass before accessing public funding. This will involve requiring providers to meet specific quality thresholds, and those who perform at an unacceptable standard will thus not receive government subsidies.

Furthermore, the Commission has recommended that 1 percent of funding delivered through the SFF be withheld from providers and ITOs who do not meet their performance targets (as negotiated with the Tertiary Education Commission). In a similar vein, the Commission has recommended that financial penalties be imposed on providers that cannot demonstrate they are meeting the needs of their Maori and Pacific learners, as specified in their charters and profiles. Finally, the introduction of the PBRF will result in lower research funding for those providers who fail to produce adequate quality outputs.

10. What is the quality test?

The quality test will require that providers meet a specific quality threshold for their re-accreditation and audit cycles before funding will be made available. For example, the Commission has recommended that for PTES to receive public funding they will need to achieve at least a 1-year re-audit cycle for their NZQA standard audit. The Commission believes that other quality assurance bodies should work to set minimum quality thresholds for other providers, and that these should be increased over time.

11. The Commission’s proposals will entail a significant amount of change. How will this be managed?

A key purpose of the Strategic Development Fund is to provide funding that will assist providers in adjusting to the new tertiary education system proposed by the Commission. Furthermore, it is expected that in implementing changes to the tertiary education system, the Tertiary Education Commission will liase closely with stakeholders to ensure minimum possible disruption to the provision of education and conduct of research. To assist with this, the Commission believes that many of its recommendations should be phased in progressively.

12. How will the Commission’s proposals encourage linkages both within the tertiary education system and between providers and other stakeholders?

It is envisaged that the Tertiary Education Commission will work to promote co-operation and collaboration both within and without the tertiary education system, and that this principle will inform all its actions - including the negotiation of profiles and charters, and the application of the desirability test.

A further vehicle for promoting co-operation between providers and those outside the tertiary education system will be the creation of Model B Centers/Networks of Research Excellence. In addition the Commission has recommended that the government explore ways of encouraging private sector investment in scholarships and similar forms of student support, and has noted the potential benefit of mentoring schemes in cultivating links between the tertiary education system and other stakeholders.

The introduction of a staff minimum for accessing the PBRF will encourage providers to form collaborative entities, and one important function of the SDF is to provide funds for developing collaborative arrangements in the system.

13. Won’t the higher merit-standard for entry to under-graduate degrees further disadvantage already disadvantaged learners?

While the Commission believes that raising the entry standard to under-graduate degrees will promote quality, it is also aware that this move may have important equity impacts for disadvantaged learners. The Commission has, however, proposed measures to build stronger bridges into tertiary education, most notably the removal of caps on foundation education. These will enhance the ability of disadvantaged learners to meet the proposed merit standard.

14. Will the new funding framework differentiate between public and private providers?

While the Commission firmly agrees that Tertiary Education Institutions have a special place in the tertiary education system, it also believes that many Private Training Establishments play a valuable role in fulfilling demands that cannot be adequately met by other providers. Furthermore, there are significant practical issues regarding how any differential between providers on the basis of ownership could operate.

The Commission has therefore recommended two relatively light-handed instruments for differentiating between public and private providers. Firstly, private providers will be required to demonstrate that their programmes complement, rather than compete with, public providers. Secondly, the SFF will include an Add-on (the SRA) that will provide additional public funding to reflect the statutory obligations of TEIs and ITOs.

15. What effects will the Commission’s recommendations have on various providers?

An in-depth discussion of the implications of the Commission’s recommendations is contained in the Executive Summary and Summary Report of Shaping the Funding Framework. In brief, research at universities will benefit from the introduction of the PBRF and Centers of Research Excellence, while the Commission’s recommendations regarding under-graduate and post-graduate teaching will enhance the quality of tuition provided at universities. Polytechnics will be encouraged to merge and form “hub-and-spoke’ arrangements, which will enhance the viability of small providers while preserving the provision of tertiary education in the regions. Colleges of Education and Wananga will both be encouraged to develop co-operative relationships with other providers. PTEs will be required to demonstrate that their programmes either complement those offered by public providers, or fulfil a niche demand that is not currently satisfied, before they are able to access public funding. Finally, the role of Industry Training Organisations as education brokers will be preserved.

16. Why is the Commission reviewing student financial support? Won’t the Commission’s proposals in this area unfairly penalise disadvantaged students?

The Commission is both aware of significant public dissatisfaction with existing systems of student financial support, and concerned that current arrangements do not represent the effective use of limited government resources. It recognises, however, that changes to these schemes can have significant effects on the ability of students to enter tertiary education. This is particularly the case for students from lower socio-economic groups, as well as Maori and Pacific learners. Consequently, the Commission’s proposals in this area have been made in the firm belief that any savings accrued, as a result should be reinvested in the tertiary education system for the benefit of students.

17. Will fees come down?

The Commission has recommended that providers retain autonomy over fee-setting. Importantly, however, changes in fees charged by providers are closely tied to changes in government investment - from 1991 to 1999, decreases in average government subsidy per EFTS was matched almost exactly by increase in average student fees at public providers. The recommended review of cost and funding categories will thus likely have a significant effect on fee levels.

18. What is in the Report for learners?

The proposed cost and funding category review, and the indexing of these categories, will ensure that providers receive funding at a level where they will remain able to charge affordable fees.

The removal of caps on Industry Training, Youth Training and Training Opportunities will make these programmes more accessible, and will build stronger bridges into other parts of the tertiary education system.

Post-graduate learners will strongly benefit from the increased support for research in the tertiary education system, along with the requirement that academic units must reach a specific quality threshold before being funded for programmes at this level.

The Single Funding Formula will be driven by learner demand, and thus the tertiary education system will be responsive to the needs and desires of learners.

The introduction of improved incentives for quality and sanctions for poor performance, along with more coherent systems of performance measurement throughout the tertiary education system, will ensure that providers deliver quality tuition.

The Commission’s recommendations regarding student financial support will ensure that the government’s investment in this area represents the most effect method of enhancing access to and equity within, the tertiary education system.

In general, all the Commission’s recommendations will ultimately be of benefit for learners. The development of a funding framework that provides suitable support for tertiary education and tertiary-based research will ensure that learners’ receive their education within a high-quality environment.

19. Why has the Commission recommended that the legislative requirements regarding the teaching of under-graduate degrees be amended?

The Commission believes that requiring under-graduate degrees to be taught mainly by people engaged in research is not vital to the functioning of a quality tertiary education system. Research both in New Zealand and internationally has consistently failed to demonstrate any significant benefits from linking research and teaching at this level, and requiring academic staff to undertake both activities may actually cause a deterioration in the quality of each.

Far more critical to the provision of quality under-graduate education is that teaching staff possess a comprehensive knowledge of their discipline, and the ability to communicate this knowledge effectively. Making this requirement explicit in legislation will be a powerful stimulus for ensuring that under-graduate teaching is of a high standard. Furthermore, the Commission has heard repeated claims that the legislative requirements are not being properly observed in practice.

It is also worth noting that the overwhelming majority of countries, including Canada, the United States and the United Kingdom, have no such legislative requirement. The dominant model is to instead require “scholarship’ to underpin such degrees, which allows staff the flexibility to specialise primarily as either research or teaching staff.

In making this recommendation, however, the Commission re-affirms the pivotal role of research in underpinning post-graduate education, and wishes to stress that the legislation will be amended only with regard to under-graduate education.

20. How has the Commission addressed the issues of academic staff recruitment, retention, capability and quality?

The recruitment and retention of high-quality staff is a key prerequisite of developing a well-functioning tertiary education system. The Commission has recommended that the capability and capacity of Maori and Pacific peoples in the tertiary education system be developed and nurtured, and a key element of this is ensuring that greater numbers of appropriately qualified staff from these groups are employed at all levels and in all disciplines.

In keeping with its desire to preserve the greatest possible level of provider autonomy, however, the Commission does not advocate any centralised control of remuneration and conditions for staff. Instead, a review of academic staff salaries and conditions has been recommended.

21. What measures has the Commission suggested to support learners in areas of national priority?

The key instrument proposed by the Commission to support learners in areas of national priority is the Priority Index within the Single Funding Formula. This will allow the government to provide a higher rate of tuition subsidy for programmes and disciplines that are deemed to be of national priority. National goals and priorities will also be considered in the application of the desirability test.

22. What has the Commission recommended to support learners at lower levels of the tertiary education system?

The removal of caps on foundation education programmes will be of great benefit to learners at this level, as it greatly improves access to such education. This will also, along with improved portability of learning and the development of a fully integrated tertiary education system, build improved bridges into higher levels of tertiary education. The LA and LI may also be used to support specific groups of learners at this level.

23. Won’t the transferal of the post-graduate research top-ups to the PBRF disadvantage students and providers?

No, as the Commission firmly believes that funding for post-graduate education should be increased as a result of the recommended review of cost and funding categories. Furthermore, the Commission has noted that the government should examine the extension of scholarship schemes to support post-graduate students.

In addition, while the Commission has proposed that the post-graduate research top-ups largely be transferred into the PBRF, it has also recommended that this fund be used to partly subsidise research-based post-graduate programmes. As the PBRF will allocate funding partly on the basis of research degree completions, providers with larger numbers of such students will receive correspondingly greater funding. As the Commission has recommended that access to the PBRF and attainment of a specific quality threshold on this measure be a prerequisite of accessing funding for post-graduate tuition, this will not unduly disadvantage either students or providers. Instead, both students and providers will benefit from the increased incentives for excellence and appropriate distribution of research funding that will be created by the PBRF.

24. How will the PBRF operate?

The Commission proposes that the PBRF use a mixed model to allocate funding. The components of this proposed mixed model are:

- The ranking of research staff in terms of their standing as researchers. Staff will be classified according to a four-step performance scale: research inactive, research active, research active at a national level of excellence, and research active at an international level of excellence. The assessment of such status will be undertaken by, or in close consultation with, departmental/school heads, and be subject to internal review and moderation by each participating provider. It is proposed that research active status be conferred on the basis of a minimum number of equivalent publications in line with the Australian IGS, while assessment panels will have the responsibility for defining national and international levels of quality in their respective disciplinary areas;

- The amount of external research revenue generated; and

- The number of completions in research-based degrees, such as Masters by thesis and Ph.Ds.

The balance between these three components in determining the allocation of funds to a provider from the PBRF will be: 50% quality rating of academic staff, 25% external research income, and 25% research degree completions.

25. Will the ACE Fund cover all parts of Community Education?

Yes. The Commission proposes that all funds currently allocated via the various methods be bought together in the adult and Community Education Fund. This will include the funding currently allocated through the EFTS system.

This will not necessary mean that the funding of Adult and Community Education will be capped as the level of the fund would be determined from usage of the funding over that past few years. A unit within the Tertiary Education Commission with responsibility for ACE will determine the way in which this funding will be allocated.

26. What consultation has the Commission engaged in?

The Commission has engaged in consultation throughout the formulation of all four of its reports. This has included: receiving public submissions on its work, holding a series of national hui and fono to obtain feedback from Maori and Pacific peoples, roadshowing its second report throughout New Zealand, and directly meeting with stakeholders in the tertiary education system. Following the release of Shaping the Funding Framework, the Commission will hold a series of roadshows to obtain feedback and answer questions regarding its reports.


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