Unpacking the misconceptions around Ontario’s university funding formula

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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 six of six. You can also read parts one, two, three, four and five on OCUFAs website.

Last week, we looked at the strengths and weaknesses of Ontario’s university funding formula.  As Ontario approaches a government review of the university funding formula, we need to know what works – and what doesn’t – about our current distribution mechanism. We also need to critically examine some of the misconceptions about the current funding formula to make sure we approach the review with a clear understanding of the real issues.

This article looks at the two most common misconceptions about the current funding formula: that enrolment-based funding formulas encourage unsustainable growth in the university sector; and that the current funding formula does not promote educational quality.

The current funding formula – on its own – does not encourage unsustainable university growth
Ontario’s university funding formula is sensitive to enrolment. That is, it distributes a certain amount of funding based on the number of students attending a particular institution, and the programs in which those students are enrolled. Some have suggested that this enrolment sensitivity creates an incentive for institutions to ramp up enrolment in order to generate more revenue. The more students through the door, the more money received by the university.

If no checks were imposed on enrolment increases, this might well be true. However, the current formula also contains a “corridor model” which prevents against institutions taking advantage of the funding regime by expanding enrolments to receive additional funds at the expense of other institutions. Any increase beyond three per cent of the university’s five-year moving enrolment average will not be automatically funded, so there is little reason for an institution to admit huge numbers of new students.

Nevertheless, enrolment has increased substantially over the past decade. Since 2005, the number of students enrolled at Ontario universities has increased by 24 per cent, or nearly 100,000 students. So what’s the reason for the increase, if not incentives created by the funding formula?

Simple: enrolment increased because it was explicit government policy to increase enrolment. In 2011, the Liberal government committed to adding 60,000 new spaces at Ontario’s colleges and universities, on top of the growth permitted by the funding formula. This had the effect of removing the brakes on enrolment, which was already trending up due to the need to accommodate the Double Cohort (the large bubble of applicants created by the elimination of the OAC year), the “echo boom” increase in university-aged individuals, and rising participation rates. There was money to increase enrolment, so universities dutifully enrolled more students. After years of under-funding (Ontario currently has the lowest level of per-student public funding for universities in Canada), universities have become very good at chasing revenue.

What this demonstrates is that the current funding formula, on its own, does not encourage unsustainable or unwise enrolment growth. Growth has occurred because of government policies that encourage growth, often created for largely political reasons. This is not to say that expanding enrolment is a bad idea; quite the contrary, increasing access to higher education is a desirable thing. But governments that complain about growth in the university sector should examine the effect of their own policies, and then work with universities and university stakeholders to develop a multi-year enrolment plan free from short-term political considerations.

In OCUFA’s principles for the funding formula, we highlight the need for funding to remain student centred. That is, it should be responsive to the number of students in the system and the true cost of educating those students. Enrolment sensitivity should be preserved and improved in any new formula, alongside increases to the per-student funding amount.

Resources, not funding formulae, determine educational quality
Some observers have suggested that the current funding formula does not promote educational quality. For these critics, the lack of systematic performance measurement and reporting in the formula means that money is not spent effectively.

While it is true that quality is strained at Ontario’s universities, blaming it on the funding formula is somewhat of a red herring. The quality of education provided by Ontario’s universities is, first and foremost, a function of the resources that are put in to support teaching and learning. By this measure, Ontario is not doing well. We currently have the lowest level of per-student funding in Canada, lagging 34 per cent behind the national average. This has predictable results: class sizes go up (Ontario has the worst student-to-faculty ratio in Canada); tuition fees rise (we also have the highest fees in Canada); and infrastructure crumbles (the Council of Ontario Universities estimates deferred maintenance at Ontario’s universities now amounts to $2.49 billion).

The university funding formula is a mechanism for distributing financial resources. If the amount of money to be distributed is inadequate, then quality will suffer. This is not a question of inadequate oversight or performance measurement. There are already a variety of accountability and reporting systems in place. Ontario universities are not, for the most part, spending money in an ineffective way. They simply do not have the resources they need to improve quality.

It is true that the Government of Ontario made significant investments in higher educations as part of the Reaching Higher plan, which ran from 2005 to 2010. However, these investments were not large enough to fill the funding gap created by deep cuts in the mid-1990s, and creeping underfunding throughout the late 1990s and early 2000s. Much of the new funding was also eaten up by rising enrolment driven by changing demographics, an increasing university participation rate, and government policies. The lack of clear quality dividends from Reaching Higher was not the fault of the funding formula. It occurred because of a variety of longstanding financial, political, and social factors.

Some observers claim that a move to outcomes or performance-based funding – where a portion of funding is distributed according to how universities perform against particular targets – will help improve quality. There is virtually no evidence to support this claim. Moreover, any system that allocates or withholds funding on the basis of institutional performance or output measures will result in the creation of “winners” and “losers” and will penalize students at institutions that fail to reach their targets. OCUFA believes that university funding should be equitable and aimed at improving educational quality, not punishing institutions that under-perform on simplistic metrics.

As we enter the funding formula review, it is important that government and all stakeholders recognize that policies do not exist in a vacuum. They interact with other policies in often unforeseen ways, sometimes producing undesirable or negative consequences. The funding formula alone did not promote rapid growth in university sector, nor did it undermine quality improvements. As we examine new options for distributing funding to universities, we must recognize the role government policy plays in driving university behavior, often in unpredictable ways. We must also recognize that even a perfect funding formula cannot make a positive impact on educational quality if the overall level of resources remains inadequate.

One Response to “Unpacking the misconceptions around Ontario’s university funding formula”

  1. Thad Harroun

    I have greatly appreciated these columns, and the position OCUFA has taken against changing funding formulas to outcome-based models. Reading through these articles in the series, the authors point out several times that Ontario is last in per-student public funding, but at the same time also points a few times to the high impact of Ontario universities.

    The next instalment needs to address specifically these contradictory data points. Our funding benefactors are already aware of them and may use them against the universities. HEQCO’s March 11, 2015, Canadian Postsecondary Performance: IMPACT 2015 report has the remarkable Figure 2a, which shows a _negative_ correlation between funding and ‘Total Performance’. I hope that OCUFA can rebut this soon in the next instalment in this series before someone seriously argues from causation that we can improve Ontario unis by funding even less! (Which, by the way, outcome based funding could helpfully provide.)

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