1 Differentiation: Where Are We? GOVERNMENT FUNDING AND DIFFERENTIATION Ian Bunting CHET seminar 10 February 2012 Franschhoek

2 SECTION A: INTRODUCTION 1The purpose of this presentation is to lay the ground for a discussion on the relationship between government funding and differentiation in the HE system. The main question which the discussion will raise is this: Does the funding framework which was introduced in 2003 support the 2012 Green Paper’s conception of a differentiated HE system? 2The discussion begins with a brief account of the role which government funding plays in the overall governance of the public HE system. This account is placed in the context of government steering of the HE system, which the 2012 Green Paper clearly accepts and builds on. 3Although this presentation deals primarily with policy issues related to the financing of the HE system, some empirical data are needed to develop the discussions. These data, which will be limited to income only, are set out in the three graphs and the table which appear in Section C.

3 SECTION B: STEERING THE PUBLIC HIGHER EDUCATION SYSTEM 4The 1997 White Paper places national HE governance in a steering model. It requires government to steer the HE system by: (a) laying down national HE goals, (b) specifying goals for individual HE institutions, and (c) monitoring institutional performance in relation to these sets of goals. 5A 2004 account of these steering mechanisms (which either had been or were expected to be put in place) is summed up in the diagram which follows on the next slide. 6The quality steering mechanism is the responsibility of the CHE, and those of planning and funding the responsibility of the DHET. The discussion which follows deals with funding as a steering mechanism, with the main focus being on the 2003 framework and its implications for differentiation.

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5 7 The basic steering features of the government funding framework introduced in 2003 are these: (a) The framework is supposed to be a goal-oriented mechanism for distributing government grants to the HE system in accordance with national priorities and approved national plans. (b) A key assumption of the pre-2003 formulas for universities and technikons was that government’s primary responsibility was to contribute to institutional costs. This assumption clashes with the 1997 White Paper’s fundamental principle that academic programmes and not individual institutions are the basic elements in a HE system. It was not as a result repeated in the 2003 framework. (c) A further key assumption of the pre-2003 formulas also fell away: student choices and institutional competition could not be the sole determinants of the size and shape of the HE system. The 2003 framework stresses that that the size and shape of the system has to be determined through an integration of planning and funding.

6 8The integration of planning and funding in the 2003 funding framework was interpreted in this way: (a)Government cannot adopt a “hands off” stance as far as HE is concerned. The Minister must approve plans for HE system and plans for individual institutions, and must use the funding framework to implement these plans. (b)Since the primary purposes of HE are those of teaching and research, institutions receive government funds for the rendering of services related to the production of graduates, and the producing of research outputs. 9The overall workings of the 2003 framework can be summed up in this way: The starting point for a national budget is not a calculation of actual unit costs in the HE system. Government decides first what services it requires from the HE sector, what it can afford to spend on HE, and then allocates funds to HE in accordance with national needs and priorities. 10 A picture of how the allocation aspects of the funding framework were expected to function is set out on Slide 7 which follows.

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8 SECTION C: OVERVIEW OF INCOME OF THE HIGHER EDUCATION SYSTEM 11As was indicated in the introduction in Section A, an overview of the total income of the HE system is needed to set the context for the later discussion of key aspects of the flow chart on Slide 7. 12Graph 1, which follows on the next slide, divides the total income of the HE system into three categories: government funds which include all block amounts plus earmarked funds for special purposes; student fees which include tuition and all class fees, as well as accommodation or residence fees; private income which includes donations, investment income, and income from non-government contracts for research or the delivery of other services. 13Graph 2 on Slide 10 shows how the proportions of these income categories changed over the period

9 Graph 1

10 Graph 2

11 14Table 1 on Slide 12 gives a detailed breakdown of the government funds category for the three year period 2009 to The categories employed in the table are these: Block grants: these are the amounts generated by the application of various formulas to the approved input and output data of institutions. These amounts fall into a category of “Council controlled funds”, which implies that their use is determined at the discretion of the institution’s highest governing body. Earmarked transfers to institutions: these are grants which have to be used for the purposes specified by the Minister, and which are reported in the income statements of institutions. Other earmarked grants: these are grants whose use is determined by the Minister, which are not transferred to institutions, and which are not reported in the income statements of institutions. 15Graph 3 on Slide 13 shows how the proportions of government allocations in the categories of block grants and earmarked transfers to institutions changed over the period

12 Table 1

13 Graph 3

14 SECTION D:SUMMING UP OF 2003 FUNDING FRAMEWORK 16As was illustrated in Slide 7, the 2003 funding framework follows the 1997 White Paper and the 2001 National Plan in taking academic programmes to be the basic elements in a HE system. Table 2 below divides the government funding totals for 2009 – 2011 (see Table 1 on Slide 12) into “programme-based” and “institution- focused” proportions: Table 2

15 17Some specific points to note about Table 2 are these: Teaching input grants can placed in the programme-based block because the funding grid of CESM categories and course-levels takes no account of characteristics of institutions. So, for any cell in the grid, university and technikon enrolments are treated in exactly the same way. Furthermore, no special weightings are assigned to the enrolments of any grouping of institutions. Teaching and research output grants also take no account of institutional differences. Graduate and research output units are given the same values irrespective of which institution produced them. The proportion grants described as “institution-focused” appears mainly in the earmarked category. Graph 3 on Slide 13 shows that the proportion of earmarked grants in the government funding total grew from 7% in 2003 to 17% in This implies that an increasing emphasis has been placed on funding which takes account of the specific needs of institutions.

16 SECTION E: 2012 GREEN PAPER AND THE 2003 FUNDING FRAMEWORK 18The introductory section said that a main question which would be raised during the discussion is this: Does the 2003 funding framework support the 2012 Green Paper’s conception of a differentiated HE system? 19The answer to this question must be that the 2003 funding framework is not consistent with the 2012 Green Paper. The Green Paper takes as its analytical starting points the three broad institutional categories of university, university of technology, and comprehensive university. It could not therefore accept a funding framework which is based on assumptions that HE institutions are merely "delivery platforms" which could evolve and change as academic programme structures are developed.

17 20Some of the comments which the 2012 Green Paper makes about the 2003 funding framework are summarised below (this is not intended to be a full summary): There are questions about the adequacy of the instruments within the funding framework to promote inter-institutional equity. It appears that the funding mechanism currently in place may serve to entrench and even accentuate inequalities between previously advantaged and previously disadvantaged institutions. The rigidity of the current funding system may serve to discourage mainstream implementation of a flexible curriculum framework (such as four- year undergraduate degrees) that can cater to the diverse needs of our students. Earmarked funding is an important steering mechanism to ensure that some of the serious problems faced by our university system are addressed. The DHET aims to make greater use of such funding to introduce and develop key infrastructure programmes aimed at achieving greater institutional equity in the system.

18 The affordability of fees must be examined carefully and consideration given to whether there is a need for government regulation of fees charged by universities. This could be done, for example, through a framework for fee- setting by institutions which could provide parameters and processes for fee increases. 21The 2012 Green Paper adds these further points about funding: What is needed is a HE funding regime that does justice to current individual institutional realities, and accepts the need for redress funding in the poorly resourced institutions. Subject to the resources available to government, adequate funding will be provided to each institution to meet the expectations for quality teaching and research, according to its agreed-upon outputs. 22Implementation of the 2012 Green Paper, it should be clear, would require major adjustments to be made to the principles and mechanisms which underpin the current (2003) funding framework.