Making sense of the funding formula for Ontario 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 current funding formula. This is part four of six. You can also read parts one, two and three on OCUFAs website.

For most people, even those who work in the university sector, the funding formula for Ontario universities is a bit of a mystery. It has been reformed and tweaked so many times in recent decades that it has become complicated and opaque. Its complexity makes it difficult to grasp how government funding is actually allocated among Ontario’s universities. This short piece will attempt to pull back the curtain and leave the reader with a clearer sense of how the current funding formula works.

To begin with, it is important to understand that the funding formula does not determine how much funding is available to support universities’ operating budgets, but rather how funds are distributed among institutions. The level of funding made available for universities is a political decision that is laid out in the Ontario Budget each year. The role of the funding formula is to provide an objective method for distributing those funds among Ontario’s universities.*

This was not always the case. When the first iteration of the current formula was established in the late 1960s, it was designed to determine the level of funding needed to deliver quality education at each institution. The formula estimated the actual cost of educating each student according to their level of study and program. Each university was then provided with an operating grant that reflected the number of students they enrolled and the estimated cost of delivering quality education to those students. This arrangement only lasted a few years. By 1973, the formula had become purely a mechanism for distribution, no longer playing a role in determining the total amount of operating support provided.

Many of the key features of the funding formula, however, are still drawn from the original model. The existing funding formula remains “student-centred” in the sense that the mechanism used to distribute operating grants reflects enrolment numbers. Enrolment is weighted by level of study and program by assigning basic income units (BIUs) that reflect the relative costs of teaching and research. By level of study, for example, more funding is needed to support the smaller class sizes and one-to-one mentoring of graduate students in their education as scholars than introductory course lectures for more junior undergraduates. By program, the cost of maintaining a lab for teaching and research in the physical sciences is more expensive than the parallel activities in the social sciences. More expensive programs are therefore assigned higher BIU weights.

In the current formula, the dollar value of the BIU is determined by the total amount of funding available (determined by the Ontario Budget) divided by the number of BIUs distributed each year. Operating grants are then allocated to each institution based on their share of these eligible BIUs. All of this is pretty straightforward, but the next step is where the formula gets a bit counter-intuitive. A university’s share of BIUs is not simply calculated on a year-to-year basis. Instead, it is based on their historical share of funding as of the 1986-87 school year (an arbitrary date that reflects the introduction of the current policy). This reference date can be changed over time, but has not been updated for many years.

Beginning from this reference date, each institution’s share of available funding remains the same unless their number of BIUs changes substantially (the current threshold is whether a university’s five-year ‘moving-average’ of BIUs has increased or decreased by 3 per cent). This is known as the “corridor model” and was put in place to ensure continuity and stability in funding for the sector. It also protects against institutions taking advantage of the funding regime by expanding enrolments to receive additional funds at the expense of other institutions.

The result is a method for allocating funding that at its core reflects the number of students in the system, but the level of funding is not directly dependent on the actual enrolment in any given year. This model supports a certain degree of consistency and predictability in funding, but in its current iteration provides no mechanism for ensuring that the amount of funding each institution receives is adequate to deliver high-quality education. Stay tuned for the next part in this series, which will explore the strengths and weaknesses of the current funding formula for Ontario universities in more depth.

*Government funding for universities is made up of two components: funding envelopes that have been put in place to provide mission-specific funding (e.g. to support bilingual or northern institutions) and basic operating grants that account for most public funding. It is the basic operating grants that are distributed according to the funding formula at issue here.  

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