Tertiary Education Advisory Commission Shaping the Funding Framework 17/17

Implications of the New Funding Framework

The Affordability of the Commission's Proposals

The Commission has been concerned to ensure that the proposed package of
reforms is affordable and realistic, and has identified where additional
expenditure is required and where compensatory savings are achievable. The
overall package is potentially self-funding, but with important caveats. The
Commission recommends that some current expenditure be re-allocated as
compensatory savings for its recommended additional expenditure: it believes
this is a better way for the government to achieve its goals and priorities. The
Commission also believes a strong case can be made for additional resources.
While the identified compensatory savings potentially could fund most of the
Commission's proposals, there would be ongoing risks to quality if additional
resources were not made available.

Transitional Arrangements for
Implementation

The Commission has not attempted to design a funding framework that will
reinforce existing provider structures, although it appreciates the difficult
financial position currently faced by many providers. Nevertheless, the
Commission is aware that, if implementation of its recommendations occurred
without transitional arrangements, certain providers would be disproportionately
affected. In particular, the following proposals may have significant financial
redistributive effects:

the cost and funding category review; the establishment of the PBRF
(including the incorporation of current research top-ups); the introduction of
a higher merit-based entry standard to all under-graduate degrees; and the
removal of base grants.

There are various transitional arrangements that would mitigate such
redistributive effects, but these arrangements should be as short-lived as
possible because there is an associated risk of maintaining existing system
inefficiencies and inequities. The Commission recommends that the new funding
framework be phased in to facilitate a timely and smooth transition process. The
SDF is envisaged as a means of mitigating short-term adjustment costs and
impacts. New Zealand is a small, elongated country, and its tertiary education
system is constrained by its geography and a small, dispersed population.
Whether a country of fewer than 4 million people can support 36 TEIs, 46 ITOs,
and about 450 government-funded PTEs is questionable. The Commission believes
some re-configuration of the tertiary education system is desirable and this
re-configuration is as much about recognising and planning for realistic
capacity as it is about creating efficiencies of scope and scale. While funding
is important, the issue is not simply the adequacy of public funding; it is also
the need to improve quality, effectiveness, equity, responsiveness, and provider
governance and management.

Providers The Commission understands that
many providers are currently facing financial difficulties and that these
problems must be addressed in a forward-looking fashion. But rather than
designing a new funding framework to support the status quo or protect existing
provider structures, the aim has been to facilitate pro-active change in the
interests of building a sustainable and robust network of provision over the
longer term. The key is for providers to demonstrate the particular contribution
they can make and how they can do that in an ongoing way. To achieve this
objective, some funding redistribution and structural adjustment is inevitable.
The proposed SDF is designed to assist the changemanagement process, while
minimising the costs of adjustment.

Specific proposals are likely to affect different stakeholders in different
ways. Universities will need to find more effective ways of achieving their
mission as institutions of advanced learning that develop intellectual
independence. The quality of learning in universities would be strengthened by
the introduction of higher merit-based entry requirements to under-graduate
degrees, the Commission's proposal that under-graduate degrees be taught by
people with the skills to communicate their comprehensive and current knowledge
of their discipline, and by tighter restrictions on the provision of
post-graduate education. The quality of research in universities will be
enhanced by the separation of much of the funding of tuition and research, by
greater predictability of research funding, by the establishment of
Centres/Networks of Research Excellence (Model A and Model B), and by the
provision of additional resources.

With the greater concentration of research effort and post-graduate teaching
in the universities, there is an argument that sub-degree programmes should be
offered mainly by other providers, particularly polytechnics. The TEC may use
profiles to encourage greater collaboration between universities and
polytechnics at the sub-degree level.

Polytechnics currently face significant challenges. The changing geographic
distribution of regional populations throughout New Zealand requires many
polytechnics to plan for static or declining rolls. Ensuring the continuing
regional delivery of professional and vocational education by polytechnics
requires substantial reconfiguration of the polytechnic sector. The Commission
envisages a polytechnic sector characterised by a small number of strong 'hubs'
that support outlying capacity along smaller regional 'spokes'. This arrangement
would result in enhanced quality at lower cost. Larger polytechnics are more
likely to benefit from stronger management capability, not only at chief
executive level but also at senior management level, while 'spoke' campuses
would not be required to bear the financial burden of a large central
administration. This transformation offers the promise of polytechnics that
perform strongly and deliver on their distinctive mission. Although the number
of separate entities would decrease, a strengthened vocational education system
would evolve. The SDF is intended to support this reconfiguration.

New opportunities for polytechnics would be provided by the removal of caps
currently in place for foundation education and Industry Training, and the
introduction of the SFF for courses at this level, encouraging re-entry by
polytechnics into foundation education and Industry Training. Colleges of
education would be able to develop appropriate strategic relationships with
universities. Although the proliferation of teacher education providers has led
to some recent innovation, the Commission believes that the consolidation of
teacher education is preferable to the dissipation of scarce resources. It would
also 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. The challenges facing these providers
are in building research capability and in strengthening the quality of their
degree programmes. The Commission's commitment to supporting a Model A Maori
Centre/Network of Research Excellence would benefit wananga that are prepared to
collaborate with strong research partners.

The distinctive needs of Pacific peoples may require new forms of delivery,
and accordingly the Commission recommends that the government give priority to
developing a new institutional form for Pacific peoples within the tertiary
education system. The Commission believes that PTEs have a role in meeting niche
demand for specific types of education. A strong TEC would use charters,
profiles, and the desirability test to ensure that government-funded private
provision of tertiary education would complement rather than compete with the
offerings of TEIs, while at the same time offering learners a viable
alternative. ITOs will continue to have an important role in supporting and
developing their industries. The Commission recommends that they retain their
role of brokering training for trainees and supporting on-job training and
assessment. The Commission acknowledges that the current configuration of the
industry training sector requires adjustment. It is likely that, over time, some
ITOs will merge and this would achieve greater economies of scale and better
coverage for the industries served by those ITOs. It is possible that the SDF
would be used to facilitate such mergers.

Learners

Learners as a group would benefit from the Commission's proposals,
particularly the increased coherence of the tertiary education system, improved
portability of credits, and strengthened performance measures. The proposed cost
and funding category review is intended to ensure that providers receive funding
at levels where student fees are affordable.

The Commission recommends that the caps on Industry Training, Youth Training,
and Training Opportunities be progressively removed. The uncapping of foundation
education courses would increase access to tertiary education for those learners
who have had little success in compulsory education. This would build pathways
into employment and to higher levels of the tertiary education system, and would
also assist in skill development. The Commission's proposals

to increase the merit standard for entry to under-graduate degrees would make
it necessary for many learners to undertake foundation-level study before
undertaking degree courses.

The SFF would fund providers on the basis of learner choice, irrespective of
where learners choose to study, and this would help learners move through
appropriate pathways to improve their skills and knowledge. Opportunities for
recognition of prior learning would assist mature learners by recognising their
prior accomplishments. Improved portability and transferability of credits would
facilitate learner mobility, and would assist in better meeting the needs of
individual learners. Improved performance measures and enhanced accountability
of providers would furnish better information for learners, thereby enabling
superior choices over where and what to study.

Although there could be fewer places in under-graduate degree programmes, a
higher merit-based entry standard for under-graduate degrees would send a very
important signal about excellence to learners and degree providers, and would
improve the quality of under-graduate learning by offering a more stimulating
learning environment. The Commission's recommendations would also result in
initiatives that support top students. In particular, the introduction of the
PBRF would enhance the capacity of providers to maintain and develop the quality
of the research training environment.

The Government and Taxpayers

The various components of the new funding framework give the government
significant flexibility in how it targets its expenditure. For instance, the
government could use the Priority Index to provide a higher level of tuition
subsidy for programmes it considers are in the national interest, or it could
target more resources to research through the PBRF and be assured of strong
accountability for that investment.

The new framework would provide comprehensive, consistent, and timely
information on inputs to the tertiary education system and on its diverse
outputs, enabling the government to target its investment in tertiary education
for maximum economic, environmental, and social benefit.

If the government is to increase its investment in tertiary education with
confidence, it needs to know the anticipated outcomes and to be assured of an
adequate return. The Commission believes that the national strategic goals and
tertiary education priorities are an appropriate basis for steering future
public expenditure. It also believes that the new funding framework would
provide the government and taxpayers with greater confidence that any additional
investment of public funds in tertiary education will be well spent and will
deliver beneficial outcomes.

Overall, the Commission believes that its proposals would enhance the quality
of the learning environment for all learners, furnish a more secure and
predictable funding framework for providers, and give the government the
instruments to steer the tertiary education system in directions that build a
dynamic and progressive knowledge society.