Governance and Financing Governance and Financing Reforms:Reforms:

Latest Trends Latest Trends

Jamil Salmi Jamil Salmi

WBI CourseWBI Course

27 February 200827 February 2008

questions for thequestions for the group exercise group exercise

• are there any relevant lessons from the are there any relevant lessons from the comparison between soccer and higher comparison between soccer and higher education?education?

• thinking about your own country, what are thinking about your own country, what are some of the governance / financing barriers some of the governance / financing barriers that prevent tertiary education institutions that prevent tertiary education institutions from being responsive?from being responsive?

• what measures would you recommend to what measures would you recommend to improve the situation?improve the situation?

key governance questionskey governance questions

• responsibilities of the Stateresponsibilities of the State

• buffer bodiesbuffer bodies

• autonomy / accountabilityautonomy / accountability

• university boardsuniversity boards

• appointment of university appointment of university

president/rector/VCpresident/rector/VC

key financing questionskey financing questions

• resource mobilizationresource mobilization

• resource allocationresource allocation

• resource utilizationresource utilization

• equity in resource distributionequity in resource distribution

resource mobilizationresource mobilization

– how much should be spent on tertiary how much should be spent on tertiary

education? (macro-level)education? (macro-level)

– income generation at institutional levelincome generation at institutional level

– who should pay, and what share?who should pay, and what share?

– when and how?when and how?

– is it affordable? (student aid)is it affordable? (student aid)

resource allocation resource allocation

• how should public resources be how should public resources be

allocated?allocated?

resource utilization resource utilization

• how efficiently are available resources how efficiently are available resources

utilized?utilized?

benefits incidencebenefits incidence

• which group receives what share of which group receives what share of

public resources?public resources?

outline of the presentationoutline of the presentation

• governance reformsgovernance reforms

• financing reformsfinancing reforms

– resource mobilizationresource mobilization

– resource allocationresource allocation

outline of the presentationoutline of the presentation

• governance reformsgovernance reforms

autonomyautonomy

how to define autonomy?how to define autonomy?

• total freedom is not realistictotal freedom is not realistic• academic freedom is not negotiableacademic freedom is not negotiable• freedom to deliver whatever programs freedom to deliver whatever programs

one wants and research whatever one one wants and research whatever one wants?wants?

• freedom to spend as one wants within freedom to spend as one wants within a lump sum?a lump sum?

• autonomy has to operate alongside autonomy has to operate alongside accountabilityaccountability

extent of university autonomyextent of university autonomy in 12 OECD countriesin 12 OECD countries

CountryCountryOwnOwn

publicpublicbuildings buildings

Borrow Borrow funds funds

Spend budgets Spend budgets to achieve to achieve objectivesobjectives

Set academicSet academicstructure structure

and coursesand courses

Employ andEmploy and dismiss staffdismiss staff

Set staff Set staff salariessalaries

Decide size ofDecide size ofstudent student

enrolmentenrolment

MexicoMexico YY YY YY YY YY

NetherlandsNetherlands YY YY YY YY YY YY

PolandPoland YY YY YY YY YY YY

AustraliaAustralia YY YY YY YY YY

IrelandIreland YY YY YY YY YY

UKUK YY YY YY YY YY

DenmarkDenmark YY YY YY YY

SwedenSweden YY YY YY YY

NorwayNorway YY YY YY YY

FinlandFinland YY YY YY

AustriaAustria YY YY YY YY

RomaniaRomania YY YY YY YY YY YY

accountabilityaccountability

in return for increased autonomy, in return for increased autonomy, governments expect accountability in:governments expect accountability in:

** adherence to national goals and adherence to national goals and policiespolicies

** maintaining academic qualitymaintaining academic quality

** financial honesty and value for financial honesty and value for moneymoney

** good management and governancegood management and governance

international trendsinternational trends

• general move to granting greater general move to granting greater autonomy (Japan, Thailand, Germany)autonomy (Japan, Thailand, Germany)

• MOEs are surrendering some functions to MOEs are surrendering some functions to buffer bodies or intermediate agenciesbuffer bodies or intermediate agencies

• growth in scale and intrusiveness of growth in scale and intrusiveness of monitoring and reporting by governmentsmonitoring and reporting by governments

• increase in number of monitoring increase in number of monitoring agencies (eg: quality assurance) agencies (eg: quality assurance)

appointment of leaderappointment of leader

• mode of appointmentmode of appointment– democratic election (faculty, administration, democratic election (faculty, administration,

students, alumni)students, alumni)– government appointmentgovernment appointment– competitive appointment (Board, gvt, competitive appointment (Board, gvt,

electorate)electorate)

• duration of appointmentduration of appointment– one or more mandateone or more mandate– from 4 years to for everfrom 4 years to for ever

governance in the governance in the autonomous university (USA autonomous university (USA

and UK)and UK)functions of the Board:functions of the Board:• appoint the President and monitor appoint the President and monitor

his/her performancehis/her performance• approve the mission and strategic plan, approve the mission and strategic plan,

budget and performance indicatorsbudget and performance indicators• assess performance against the strategy assess performance against the strategy

and planand plan• establish and monitor control and risk establish and monitor control and risk

management systemsmanagement systems

outline of the presentationoutline of the presentation

• governance reformsgovernance reforms

• financing reformsfinancing reforms

funding sources (macro)funding sources (macro)

from

public funding

to

cost sharing

feesfees

for everybody / dual track

undergraduate / postgraduate

national policy / individual institutions

special category students (repeaters, mature, part-time, continuing ed, foreign, out of state)

feesfees

one fee or program-linked?

payment upfront or delayed payment?

ceiling / freedom to set

optimal fees policyoptimal fees policy

universal

associated with student aid

adjusted to cost of living index

political economy

consultation and consensus building

decentralization / autonomy

funding sources (institutional funding sources (institutional level)level)

from

dependence on public funding

to

diversified funding

allocation mechanismsallocation mechanisms

from untied fundingto

performance-based funding

innovative allocation innovative allocation mechanismsmechanisms

– funding formulafunding formula - output measures are - output measures are used to determine all or a portion of used to determine all or a portion of funding formula (Netherlandsfunding formula (Netherlands))

– performance contractsperformance contracts - governments - governments enter into agreements with institutions enter into agreements with institutions which set mutual performance-based which set mutual performance-based objectives (France)objectives (France)

– competitive fundscompetitive funds - support peer-- support peer-reviewed proposals designed to achieve reviewed proposals designed to achieve institutional improvement or national institutional improvement or national policy objectives (Chile)policy objectives (Chile)

– demand-side vouchersdemand-side vouchers - finance the - finance the recurrent expenses of institutions recurrent expenses of institutions indirectly through vouchers provided to indirectly through vouchers provided to students who enroll in the university of students who enroll in the university of their choice their choice

formula fundingformula funding

formula linking amount of financing and some measures of outputsnumber of graduatesresearch productivity (publications,

patents, licences, spinoffs)

unit costs per level of studies / discipline (actual, average, normative costs)

Holland Holland

problem: weak internal efficiency (7.5 years to graduate vs. 4 in theory

formula based on graduation rates 4,5 x cost of 1 student-year for graduate 1,5 x cost of 1 student-year for dropouts

risk: too lenient on grading mitigation: rigorous inspection system

Poland Poland

problem: low enrollment and lack of qualified faculty

formula combining enrollment and proportion of full time professors with a Ph.D

competitive fundscompetitive funds

earmarked for specific objectives

competition on the basis of projects

transparent rules & criteria

peer review and selection

independent monitoring committee

competitive funds:competitive funds:advantages (II)advantages (II)

better designed projects transparent process flexibility to do annual adjustments project with results aligned with strategic goals of institution possibility to channel donor and

government resources• institutionalization of program

competitive funds:competitive funds:limitations (III)limitations (III)

hardware projects without vision

narrow focus, not institution-wide

difficult to address core management problems• LAC: independent faculties

how do you support the weaker ones?

competitive funds:competitive funds:creating a level-playing field creating a level-playing field

(IV)(IV) separate windows (Indonesia)

pre-investment TA funds to help prepare strong proposals (Egypt)

partnership between stronger and weaker universities (China, Egypt)

cap on amount or number of projects (Chile)

competitive funds: competitive funds: lessons learnedlessons learned

• mainstream the fund in the national budgetary so mainstream the fund in the national budgetary so the fund will not disappear with the projectthe fund will not disappear with the project

• independent annual evaluation to propose independent annual evaluation to propose adjustmentadjustment

• competence and transparency in the review competence and transparency in the review process are necessary to ensure legitimacyprocess are necessary to ensure legitimacy

• requesting counterpart funding from the institution requesting counterpart funding from the institution is not a necessityis not a necessity

• link eligibility for second round of funding to link eligibility for second round of funding to implementation performanceimplementation performance

• private institutions should be able to competeprivate institutions should be able to compete• technical support and procurement capacity technical support and procurement capacity

building are essential building are essential

performance contractsperformance contracts

institutional agreement to achieve certain objectives

additional funding based on meeting agreed objectives

examples: France, Denmark, Austria, Finland, Colorado & Virginia in US

example of contract: McGillexample of contract: McGill

increased number of students (and foreign students)

increased number of faculty increased graduation rate with same research productivity renewal of academic programs balanced budget

““contrats d’établissement”contrats d’établissement”(France)(France)

stock taking of university situation and preparation of university project

Ministry team visit (government objectives / project objectives)

contract

intermediary role played by “conseiller d’établissement”

““contrats d’établissement”: contrats d’établissement”: evaluationevaluation

dialogue Ministry / universities within institutions

cumbersome procedures and insufficient follow up

mixed results

the case of Chilethe case of Chile

competitive fund does not address overall institutional issues

• independent faculties / rector’s office

• archaic management methods

• low internal efficiency competition to participate in pilots (4

institutions) contract prepared and agreed with help of

“negotiator”

allocation of research allocation of research fundingfunding

• targeting additional resourcestargeting additional resources to to programs/institutions with potential of programs/institutions with potential of achieving world-class status achieving world-class status

• preferably on competitive basispreferably on competitive basis– project-fundingproject-funding

– demonstrated institutional capacity (RAE)demonstrated institutional capacity (RAE)

– centers of excellencecenters of excellence

principles of an appropriate principles of an appropriate allocation instrumentallocation instrument

• linked to performance / policy linked to performance / policy objectivesobjectives

• transparent (objective criteria, transparent (objective criteria, openness)openness)

• compatibilitycompatibility

allocation mechanismsallocation mechanisms

from direct funding to

indirect funding

indirect fundingindirect funding

• grants and scholarshipsgrants and scholarships

• student loansstudent loans

• vouchersvouchers

student aid optionsstudent aid options

from

mortgage loans for students

to

income-contingent loans for graduates

Colorado funding modelColorado funding modelOld ModelOld Model

Indirect Gov’t Funding via

Stipends

New ModelNew Model

Tuition

Direct Government

Funding

Tuition & Stipends

Colorado experience:Colorado experience:the theorythe theory

• voucher for an undergraduate education at voucher for an undergraduate education at eligible universities; no cash in students’ handseligible universities; no cash in students’ hands

• $2,400 per year at public institutions$2,400 per year at public institutions

• $1,200 per year for low-income students $1,200 per year for low-income students attending private institutionsattending private institutions

• degree-seeking, non-degree, and teacher degree-seeking, non-degree, and teacher licensure undergraduate students eligiblelicensure undergraduate students eligible

• age, income and financial aid eligibility are age, income and financial aid eligibility are irrelevant to qualifyirrelevant to qualify

Colorado experience:Colorado experience: the reality the reality

• insufficient funding overallinsufficient funding overall

• $2,400 not enough to influence either demand $2,400 not enough to influence either demand or supply or supply

• complementary financial aid did not complementary financial aid did not materializematerialize

• lack of political support lack of political support

• champions “expiring”champions “expiring”

Kazakhstan experienceKazakhstan experience

• 20% best qualified secondary school 20% best qualified secondary school graduatesgraduates

• choose universitychoose university

– $1,200 for public university$1,200 for public university

– up to $4,000 for private universityup to $4,000 for private university

• must maintain top academic gradesmust maintain top academic grades

Kazakhstan experience (II)Kazakhstan experience (II)

• increased competition generallyincreased competition generally

• some private institutions have been some private institutions have been able to attract a growing number of able to attract a growing number of voucher beneficiariesvoucher beneficiaries

• but insufficient resources to finance but insufficient resources to finance all studentsall students

other performance-based other performance-based schemesschemes

• salary of VC/rector/president salary of VC/rector/president (rankings)(rankings)

• salary of researchers (Mexico)salary of researchers (Mexico)

• students (scholarships, tuition, loans, students (scholarships, tuition, loans, vouchers) vouchers)

conclusionconclusion

which mechanism is more which mechanism is more effective?effective?

Negotiated Allocations

Competitive Mechanisms

Performance-Based Criteria

No Performance

Criteria

Funding Formulas (output-based) (I) Performance Contracts (I) Performance Set Asides (I)

Need-based Grants and Scholarships* (S) Student Loans* (S) Universal Tuition Fees (I) Donations (I) Bank Loans (I)

Merit-based Grants and Scholarships (S) Merit-based Student Loans (S) Merit-based Vouchers (S) Dual-Track Tuition Fees (I) Competitive Funds (I) Sale of Products and Services (I)

Entitlements (I) Earmarked Funds (I) Funding Formulas (input-based) (I) Vouchers (S) Tax Benefits (F & I) Savings Accounts (F)

Resource Allocation and Capitation Matrix: Dimensions of Performance and Competitiveness

I=Institutions; S=Students; F=Families

Q1 Q2

Q3 Q4

policy objectives pursuedpolicy objectives pursued

• improving access and equityimproving access and equity

• improving quality and external improving quality and external efficiencyefficiency

• improving internal efficiency and improving internal efficiency and sustainabilitysustainability

country contextcountry context

• local circumstances (culture, history)local circumstances (culture, history)

• reform for what?reform for what?

• dilemma: rewarding the strong or dilemma: rewarding the strong or equalizing the field?equalizing the field?

• time dimension (flexibility)time dimension (flexibility)

link to quality assurancelink to quality assurance

• pro: powerful incentivepro: powerful incentive

• con: punitive, rewards stronger con: punitive, rewards stronger institutionsinstitutions

• link at the margin?link at the margin?

political economy political economy dimensionsdimensions

• move to performance-based can be move to performance-based can be controversial controversial

• dealing with the politics (winners and dealing with the politics (winners and losers)losers)

• not an excuse to avoid reformsnot an excuse to avoid reforms