Strengths and weaknesses of Ontario’s funding formula for universities

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In anticipation of a government-led review of Ontario’s university funding formula, OCUFA Report is hosting a special series of articles examining the issues around the funding formula. This is part five of six. You can also read parts one, two, three and four on OCUFAs website.

Now that we have a handle on the origins of the funding formula and how it actually works, it is clear that as it currently exists, the funding formula for Ontario’s universities has some important strengths that ought to be preserved as well as some problematic weaknesses that must be addressed. This installment of OCUFA Report’s funding formula series will highlight the aspects of the current funding formula that aren’t working and need to be corrected as well as those aspects that are working well and should be protected or enhanced in the upcoming funding formula review.

There are two key weaknesses of the current funding formula that should be addressed in the funding formula review. First, the formula no longer estimates the true cost of educating a student. Second, the current formula is overly complex and opaque.

The funding formula, as originally conceived, provided an estimate of the actual cost of educating a student in a given program or at a given level of study, and then multiplied this number by the number of students enrolled. In the current model, the government determines the overall amount of funding available for universities, and uses the number of students enrolled in a given year to divide that predetermined amount of funding among institutions. It is a distribution mechanism only, with little relationship to the true cost of education.  When the real cost of educating a student ceases to be a factor that determines the levels of funding that government provides to our universities, then the funding formula is no longer responsive to the financial realities faced by universities and faculty. This shift away from a funding model that is based on real costs contributes significantly to the biggest challenge currently facing the university sector: underfunding. The lack of financial resources underpins a variety of problems, from high tuition fees to the rise of contract faculty employment to billions of dollars of deferred maintenance on Ontario’s campuses.

In a previous column, OCUFA attempted to demystify the logic of the current funding formula. This is not a simple task, as decades of tweaks and add-ons have modified the original core formula in such a way as to make the overall funding regime complicated and difficult to understand – even to those in the sector. For example, in addition to the core logic of distributing funding on the basis of enrolment, the formula also uses the 1986-87 year as a baseline for funding. This was originally done to ensure some stability for institutions, a “floor” below which funding could not fall. Now, this provisions strikes many as arbitrary and increasingly irrelevant. There are also additional calculations/allocations for a variety of special purpose funding envelopes, for everything from accessibility to supporting Northern institutions. These are obviously important areas of investment, but the continual layering of new envelope funds makes the formula even more complex. It would be much simpler to include these priorities in base operating fund calculations.

Thus despite a clear and logical foundation, the complexity of the funding formula works against transparency, accountability and comprehension. The funding formula review is an opportunity to simplify the formula, and restore its ability to account for the true cost of a high-quality university education.

There are three key strengths of the current formula that are worthy of being protected even as changes to the funding formula are being considered. First, the funding formula is student-centred. Second, it ensures relatively stable levels of funding. And third, it ensures equity across universities throughout the province.

While the current funding formula doesn’t reflect the actual cost of educating students and conducting research, it is nonetheless student-centred, insofar as the calculation for distributing funding is responsive to enrolment and provides funding to institutions on a per-student basis. Ensuring that funding for universities is tied to both the number of students in the system and the programs in which those students are enrolled is central to ensuring that universities are able to provide a high quality education to every student and is one of OCUFA’s key funding formula principles.

Another key principle seeks to ensure that funding is stable and predictable through mechanisms that guard against extreme fluctuations in institutional revenue, which allows universities to make well-informed long-term plans. The stability of funding is currently protected through the corridor model, whereby the variation in an institution’s allocation of funding is limited to a predetermined range based on a five-year moving average of an institution’s enrolment level. To the extent that it ensures stable levels of funding over time, the corridor model – or something similar to it – should be preserved in the upcoming funding formula review.

Finally, the current funding formula distributes funding equitably across institutions – that is to say that the same rules for how funding is distributed apply equally to every institution in the province. This model prevents wide variations in quality across the province and ensures that students can access a comprehensive range of university programs relatively close to home. While some funding is allocated on the basis of institutional performance on Key Performance Indicators (KPIs), as a proportion of total funding, this amount is relatively limited and should not be increased. As the funding formula is reviewed, the equitable distribution of operating funding across universities must be preserved in order to support student success throughout Ontario.

Within the current formula there are strengths that are aligned with OCUFA’s funding formula principles. These aspects – funding tied to students, stability, and equity – should be preserved, while the weaknesses must be addressed and corrected.

Stay tuned for the next part in this series, which will examine some of the myths about Ontario’s university funding formula.

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