Fourth Report of the Tertiary Education Advisory Commission - full report 17/58

Shaping the Funding Framework
Fourth Report
of the Tertiary Education Advisory Commission

Chapter 5: Integration of the Tertiary Funding System (Cont...)

5.5 Adult and Community Education

The one exception to the arguments in favour of a fully integrated funding
formula is ACE, which differs from the other parts of the system in that it is
not required to be formal, certified, assessed and quality-assured learning. It
is substantially different in nature from all other tertiary education sectors
and it includes a range of costs, delivery methods, and outcomes that could not
be adequately reflected in a single funding approach. The Commission therefore
recommends that ACE be funded through a separate fund, with funding being
allocated by the TEC with advice from the sector itself.

Having said that, the Commission notes that the recent report on the ACE
sector⁹⁰ includes a commitment to develop
quality-assurance systems and arrangements that enable learners to have their
learning assessed if so desired. There may be future opportunities, once such
systems have been developed, to review the funding of ACE with the aim of
integrating it into the SFF.

Recommendation 11

The Commission recommends that Adult and Community Education be funded by the
TEC through a separate ring-fenced fund.

5.6 Supporting the Required Structural Change
for an Integrated System

Change to the tertiary education system is needed to ensure the needs of
learners (in a world where knowledge is a key resource) are met.

Some restructuring of the tertiary education system is already under way.
There have been a number of mergers between ITOs and, since 2000, the government
has found it necessary to invest over $50 million to foster mergers and assist
with cashflow problems in the polytechnic sector. Three TEIs⁹¹ have been disestablished and recently merged with
other institutions. More restructuring is likely to occur in the near future,
driven in part by the poor financial position of some providers. The Commission
envisages that the thrust of this restructuring will lead to a tertiary
education system with less wasted resource.

New Zealand's geography and demography are significant factors that influence
and to some extent constrain the operation of its tertiary education system. New
Zealand has a population of under four million people; and whether it can
continue to support the current number of TEIs and ITOs and the current
proliferation of private providers is a moot point. Rationalisation of the
number of providers and ITOs would lead to efficiencies of scale: it is
necessary to recognise that our small population may have difficulty in
developing the high level of human capability needed to manage tertiary
education delivery effectively, if a large number of providers and ITOs remain.

The development of new forms of provider and delivery systems also needs to
be encouraged. Universities, in their mission of generating new knowledge,
should focus on developing national and international strategic alliances,
stronger relationships with industry and the professions, active pursuit of
alternative sources of funding, and mergers to build stronger capacity.

A strong and integrated polytechnic sector is vital for the promotion of
applied technological, and vocational learning that is an essential part of the
knowledge society. The effective delivery of polytechnic-based vocational
education will need to recognise the following realities:⁹²

• Individual workers will move from job to job and from career to career
  throughout their lives.
• Personal portfolios of skills will continue to be important for individuals'
  employability.
• Learning requires learners to challenge, question, and fail - and these are
  activities that do not at every stage easily co-exist with the employee/employer
  relationship.
• New Zealand is a country of predominantly small to medium enterprises with
  high levels of specialisation.
• There is a need to develop strong partnerships between polytechnics and
  industry, employers, and the professions - and a need for strong linkages
  between polytechnics and the workplace.
• Employers and industry need vocational qualifications at all levels of the
  NQF that meet present and future learning and training needs. These may include
  associate, foundation, and professional degrees.

These factors imply that polytechnic education must be accessible in the
regions and that new methods of organising and supporting this delivery need to
be considered. A 'hub and spoke' model may be one method of ensuring access at
an affordable cost. If a large polytechnic operates as a hub, smaller regional
outposts can link to the central hub like the spokes of a wheel. A model with
the 'hub' in Palmerston North and the 'spokes' in Wanganui, Levin and Masterton
is one possible example. By building on a central administration, costly
duplication will be avoided. Economies of scale⁹³ will enable more efficient delivery of services.
Larger polytechnics are more likely to benefit from stronger senior management
capability, not only at CEO level but also at senior management level. Having
said that, the Commission acknowledges that very small polytechnics have
different infrastructure needs to larger polytechnics, and may well remain
viable while they operate with the low infrastructure costs associated with
their size.

A 'hub and spoke' arrangement would mitigate the waste of resources that
results from smaller polytechnics having to compete outside of their region
simply to survive, and from large urban polytechnics competing in provincial
cities (to the detriment of regional polytechnics).

Colleges of education could foster their missions by developing appropriate
strategic relationships or merging with universities. Although the proliferation
of teacher education providers has led to some recent innovation, the Commission
concludes that consolidation of teacher education in fewer providers is
preferable to the dissipation of scarce resources, and will improve the quality
of teaching.

The three wananga are still at an early stage of development, although their
rapid growth indicates they are increasingly meeting the needs of Maori. A
proliferation, however, of iwi-based wananga raises issues of diseconomies of
scale that may have to be balanced against iwi aspirations. The challenge for
the future is how the wananga sector should expand while at the same time,
building research capability and strengthening the quality of degrees, given
that many PTEs are offering courses targeted to Maori.

The distinctive needs of other minority groups, including Pacific peoples,
may require new forms of institutional delivery specific to Pacific peoples. The
unique attributes of wananga may be sought by other providers in collaborative
ventures.

5.7 Strategic Development Fund

To support innovation and change within the tertiary education system, the
Commission proposes that a Strategic Development Fund (SDF) be developed. The
SDF would be a contestable fund with multiple objectives. These include
assisting co-operation and collaboration across the tertiary education system,
developing capability both across the system and within specific parts of it
(including supporting academic staff training in teaching and assessment and
development), and supporting differentiation. The SDF would be designed to
facilitate system change, both as a result of the implementation of the new
funding framework and on an ongoing basis. It would be used to support
proactively any restructuring that may be needed, in as efficient a way as
possible. The TEC would assess proposals from providers and would have
responsibility for ensuring that the SDF assisted the strategic development of
the tertiary education system as a whole.

The government has injected substantial funds (both capital and operating)
into the system to assist in steering the system to achieve desired outcomes.
These funds have included:

• a $34.7 million Strategic Change Fund in the 2002/03 financial year ($18.1
  million operational; $16.6 million capital);
• $200,000 per annum for three years, for e-learning initiatives;
• $500,000 per annum for three years, for adult literacy initiatives; and
• $500,000 as a one-off in the 2002/03 financial year, for an efficiency
  review.

In addition, loans and capital injections ($58 million since 2000/01) have
also been provided to assist TEIs to merge or refocus their activities.
Combining some of these funds into a single SDF formalises the role of the
government in steering the tertiary education system to achieve desired
behaviours.

The Commission believes that there is also a critical need for specific
funding that can be targeted to achieve clear equity goals. It is proposed that
providers would be able to access the SDF to assist in the achievement of equity
objectives.

It is likely that additional new funding will be required to ensure that the
Fund is of a sufficient size. The Commission does not wish to predetermine the
size of the SDF, but believes it should be sufficiently large to ensure that any
transaction costs are not overwhelming compared to the funding available. If the
Fund is effective, it will likely lead to some compensatory savings, as it
should remove the need for the government to make large capital contributions in
order to rescue TEIs that have experienced cashflow problems. In time, the size
of the SDF may decrease as the need for restructuring diminishes.

The Commission has also reviewed funding for research, and is recommending
(see Chapter 10) that new dedicated research funds are included in the new
funding framework. These are:

• a Performance-Based Research Fund;
• a Fund for Model A Centres/Networks of Research Excellence (CoREs); and
• a Fund for Model B Centres/Networks of Research Excellence.

Recommendation 12

The Commission recommends that in addition to the bulk-funded, learner
demand-driven component of the overall funding framework, separate Funds be set
aside to achieve desired goals and behaviours within the tertiary education
system. The separate Funds are for:

• research through a performance-based system;
  
• Centres/Networks of Research Excellence (Model A);
  
• Centres/Networks of Research Excellence (Model B);
  
• strategic development; and
  
• Adult and Community Education.

Recommendation 13

The Commission recommends the establishment of a Strategic Development Fund
to support differentiation, the quality of teaching and research, equity,
co-operation, innovation and strategic development of the tertiary education
system as a whole.

Minority View

One Commissioner is of the view that there should be no SDF and that the
funds should be allocated instead (based on the number of enrolments a provider
attracts) to:

1. Learner Index supplements or Learner Add-ons,⁹⁴ where equity issues are being pursued;

2. Priority Index⁹⁵ supplements where the
   government is complementing work force nudging (either in association with
   enterprises or unilaterally); and

3. increasing the base level of the Education Subsidy Index⁹⁶, in recognition that all providers need to be
   innovative, to make strategic change, and to improve teaching and assessment.

This Commissioner believes that formulaic applications are more transparent
and have materially lower transaction costs for both the government and
providers. In addition, this Commissioner points to dedicated funds as
historically creating 'moral hazards': such funds have been spent on failing
institutions and their problems rather than on successful ones and their
opportunities.

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Footnote(s):

90

Ministry of Education (2001b).

91

Wellington Polytechnic merged with Massey University (1999); Wairarapa
Community Polytechnic merged with the Universal College of Learning (2001);
Central Institute of Technology merged with Hutt Valley Polytechnic to become
the Wellington Institute of Technology (2001).

92

These realities apply for all providers of vocational education, but are
especially important for the core business of the polytechnics.

93

For instance, development of programmes once only, rather than duplicating
the process in several institutions, will reduce staff costs. A single quality
management system that operates across a large polytechnic (even if
multi-campus) is likely to be more effective than several systems spread across
separate smaller polytechnics.

94

The Learner Index and Learner Add-on are discussed in Chapter 6.

95

The Priority Index is discussed in Chapter 6.

96

The Education Subsidy Index is discussed in Chapter 6.