University funding in Ontario and the implications of the new performance-based funding model, a discussion

This past spring, faculty from across Ontario gathered in Toronto for the OCUFA Policy Exchange. The conference was organized to help set the groundwork for OCUFA’s policy platform in the lead-up to the 2018 Ontario provincial election.

As part of the conference, Glenn Craney, the Assistant Deputy Minister overseeing the Postsecondary Education Division of Ontario’s Ministry of Advanced Education and Skills Development and Hugh Mackenzie, a Research Associate for the Canadian Centre for Policy Alternatives, joined moderator Peter MacLeod to discuss the history of provincial funding in Ontario and debate the province’s new performance-based funding formula. The following is a transcript of their discussion. It has been edited for print. The audio of the full discussion, including questions and answers with the audience, can be heard here.

Peter:

All right. Gentlemen, lots to talk about here. Glenn, I’m wondering if we can start by asking you to broadly describe the province’s current funding model for universities, how the model has been evolving, and its objectives. There are a lot of assumptions about it, but bring us up to speed on where it’s at now and where you think it’s headed.

Glenn:

Thank you for having me and the introduction. What I want to do today is talk to you about something that’s evolving and changing, even as we speak, around what we’re looking at for funding. So, I’m going to tell you a little bit of a story in terms of how we got to today and what our next steps are for moving forward. For those of us who spend a lot of time thinking about the university funding formula, and I think there’s a shrinking group of people who have history on this, it really hasn’t changed much since the 1960s.

In the 1960s, the basic structure of how we fund universities came into place. You know that we don’t fund based on students; we fund based on weighted students. Those weighted students were all identified in the 1960s. Someone said, upper-year science students should get a weight of two and business students should get a weight of one-point-five and first-year arts and science should get a weight of one. And those things have pretty much been locked in place. Over time, as you move through the ’60s and the ’70s and into the 1980s, there are small tweaks and changes to the funding formula.

There was an evolution in the 1980s, though, where we introduced this thing called a corridor. That corridor mechanism was intended to provide some stability for funding for institutions and said that if your enrolments went up a little bit or down a little bit, you wouldn’t actually see any changes to your funding. It was meant to look at a time when we were actually looking at declining enrolments that were expected through the 1990s. But that actually didn’t happen. I think the thing we all missed was the increase of population, participation rates of women, and there were huge increases in university populants, and we didn’t really have a funding formula that dealt with that.

By the time we hit the 2000s, the province was looking to change its secondary school model, and it got rid of the fifth year of secondary school. As a result, we were looking at a double cohort of students moving forward, and we needed to find something that would actually help the province be responsive to that. So, we added an addition to the funding formula, which was an accessibility fund, which sort of supercharged growth moving forward. I think what we’ve seen over the course of the last 15 years is huge increases in accessibility, huge increases in growth rates of institutions because that’s sort of where our priorities would be moving forward.

The reason I took some time to actually go back to the 1960s and move all the way through is to try and give you a flavour of the sedimentary nature of the funding formula that we have. Our funding formula has not necessarily been principle-based. It reflected the issues of the time. Every time that we made a change, we added another layer on top of that. I think by the time we got to about two years ago, where the story starts to pick up some steam, we really didn’t have a lot of people out there who understood it. I think there were probably about a dozen people who actually fully understood the funding formula and all those tweaks and changes.

So about two years ago, the government announced, as part of the commitment of our strategic mandate process, that we would review the funding formula for both universities and colleges. We brought in Sue Herbert, who is the former Deputy Minister of Education and who wasn’t a partisan. She didn’t have a side. She was coming and collecting information. We did something slightly different in that perspective, that we didn’t actually say that she had to change the funding formula. What she wanted to do was to actually broadly talk to all corners of postsecondary and see what changes needed to be made in the funding formula: What do we actually want to value, what’s working, what’s not working, and how would those changes be put in place?

She did that through a whole bunch of collaborative tables, through a fairly intensive consultation process. In fact, that’s where I met Hugh. I sat on one of the expert panels for the funding formula. Coming out of that, the broad theme was that we basically had a bums-in-seats funding model. So, if you’re enrolled in a course, there’s a dollar amount that gets calculated through this big machine and spits it out to institutions. The way things worked was that if institutions grew government was sort of like the tail of a dog, and would actually then fund it.

What was happening in the policy framework was that the government was always constantly trying to catch up with the total enrolment growth, and find the money to move forward. The discussion between institutions and universities and government was all about “Okay, my enrolment growth is this. How can we actually pay the bill?” And one of the things that Sue said clearly in the report was that we don’t spend enough time on quality. What she really meant by that wasn’t that institutions don’t spend time on quality. All of you spend time on quality. We know that there are things that institutions are doing all the time to provide quality experiences for students, but the funding formula doesn’t recognize that. It doesn’t recognize innovation; it doesn’t recognize change; it was reflective of the 1960s.

If you actually start to think through incentives … So in your bios, I was painted as an economist. I believe incentives matter. If you look at incentives, the incentives really were to bring in students, to put them in large classes. You mentioned that I was a sessional lecturer in the program of economics. One of the things I did when I was actually proctoring one of my exams was, because I knew the funding formula, I had a list of all the students in my class, so I calculated the operating grant and tuition fees for all the students that were there and look at how much revenue was coming in for the class I’m teaching.

Part of that was to say that this really is what that funding formula recommended. What we were seeing when we actually talked to institutions, were a lot of workarounds around that. We’re trying to do this in spite of what the funding formula was. So the intention there is to move to something that actually recognizes the quality student experiences that were being put in place in the sector. That’s actually where I joined. I’m relatively new in my job. I’ve been in this role for about six months. Six months before that, I led the technical work on the development of the new funding formula review. We did that for colleges and for universities.

I had no money, so we were working with an existing envelope, but we wanted to start thinking through a re-envisioned funding formula that would actually start to focus on what matters. It started with, again, a conversation with everyone that was in postsecondary; so with institutions themselves, through the advocacy organizations, COU [Council of Ontario Universities], and we had conversations with OCUFA, with student organizations, OUSA [Ontario Undergraduate Student Alliance], CFS [Canadian Federation of Students], CSA [College Student Alliance]. We said, “Okay, we’re picking up where Sue left off. Here are our broad goals. How does this actually calculate into a technical funding formula piece that gets written?”

Our north star for this was to shift away from a bums-in-seats model into something that starts to focus on other things. And we did that … We went to a broad model that we started calling, for those of you who were part of the consultation process, the blue, the green, and the red box. What the funding model does is it really starts to think through three major sections of how we support institutions. The first section is enrolment; so we need something that’s volume-based. There is a reason, aside from everything else, why you fund a larger institution like York or U of T, more than Algoma. They have more students, more activity.

So we’re not completely breaking the link that rewards enrolments. What we wanted to do was have something that is based on that. But actually weighted in a different light. We also wanted to have a portion of the model that starts to recognize other things that we know institutions do, and that’s what we call our green blocks, which is starting to focus on several priorities that came out of the conversation.

The priorities aren’t anything that should surprise you. The priorities are having high quality student experiences, having quality programs, looking at research for the institutions that are focused on that, looking at access. We didn’t want to lose that link to access as we continue to move forward.

And then also thinking about what institutions need more broadly than just in the classroom. We know that in all locations, institutions mean something to their communities. There are linkages to the communities outside of what happens, and that can be defined in different ways in different institutions. So we created a fund, and we moved through to create a significant portion, in the university sector it’s now about 9% of the funding, that actually are linked to outcomes associated with those things.

A big gap, and this has been a conversation that we’ve been having with OCUFA through the process and I know that it started with Sue and also continued through my process and continues today, is around metrics. So we try to do something different, again, with that. We said that at the mother ship at 900 Bay Street, we don’t actually know everything about metrics and everything about how to measure institutions and that this needs to be a conversation as we start to move forward. We know that on your campuses, it’s the people at institutions that know what is actually working, what’s not working, and what quality means to you; and it doesn’t have to be the same in all institutions. We’re starting that conversation around how we know that there is quality, how we know there is high student experience, and it starts from a place that we know this is there, but asking the question of how we know.

The last piece is just looking at things that we don’t expect people to compete over: mental health, campus safety, deferred maintenance. So we have another pot that looks at that. I know I spent a lot of time on the background explanation, but I’ll just say, in conclusion, this is a work in progress. We saw the funding formula review as something that had three phases to it. The first phase was Sue’s phase. The second phase was the technical component. The third phase was actually round two of the SMAs, which is underway now.

What we’ve done is appointed negotiators. On the university side, it is Bonnie Patterson, the former president of Trent and COU. On the college side, it’s Brian Tamblyn, the former president of Georgian. They’re having individual conversations with institutions, and these conversations are intended to be both with senior administration of those institutions, but also the university communities, to actually understand what this looks like and actually fully implement the funding as we move forward. So this is a work in progress, and I’m happy to talk about this because it’s not set in stone; it’s not changed; it is evolving as we work forward. The message that I have is that we want to work with everyone to make sure that it’s doing what we want it to do.

Peter:

You’ve done a great job of probably condensing an hour-long presentation in 40 slides into a few minutes now. Hugh, I’m going to turn to you and say what concerns do you have regarding the shift that Glenn’s been describing and, perhaps a bit overall, the funding levels at universities?

Hugh:

Well, I’m going to come at this from the opposite end of the telescope. Rather than looking at it at the granular level of the allocation, look at it from a broader, sort of 10,000-foot level. Those of you who know me, know that I’m a bit of a data geek. So I went back and looked at, province by province, very broad data on funding for postsecondary institutions in Canada. I have to say, it was a sobering experience because the data is actually garbage. Stats Can changed the way it accounts for government revenue and expenditures in 2009. The post-2009 data are not comparable to the pre-2009 data. When you actually do some calculations that allow you to do some reality checks, you really see the impact of the cuts in the funding for StatsCan [Statistics Canada] in the quality of the data.

For example, one of the datasets, one of the numbers I generated was the percentage of university operating expenditures that are covered by tuition. In a couple of provinces, you see a ten-point jump and then a ten-point drop. There’s obviously something wrong with the years with the data in the middle, and this is data from the ’90s. So nobody’s ever looked at it, which is a bit scary given how much we rely on this data. I looked at those data, and when you look at it from a 10,000-foot level, you see two events that matter in the evolution of postsecondary education funding in Ontario, in particular, and across Canada in some jurisdictions but not others.

One is in the mid-1990s, and the way I describe what happened in the mid-1990s is that Michael Harris went into a wormhole and conducted a raid on the economic security of a couple generations later. The way he did that was he introduced a massive cut in personal income taxes and paid for it in part by significantly increasing tuition, cutting back on the funding to college and university institutions and forcing an increase in tuition on those institutions. That just comes out crystal clear in the data. You can also see which provinces jumped on to tax cut breaks and which ones didn’t, because in Ontario and in Nova Scotia and New Brunswick, you see actually five to ten point jumps in the share of operating expenditures that are covered by tuition in that period. In other provinces, you don’t see that.

The second big event that took place was in 2008-2009, and again, if you look at the data, one of the reasons why I’ve picked these two numbers, in addition to everything else, is that the current data actually had been back-dated back to 2000 and the previous dataset ends in 2009. So you can actually draw some conclusions about each of the individual datasets, without worrying about the fact that they really don’t speak with each other very well. What you find is that in 2009, again, there was a big jump in the percentage of university operating expenditures that were covered by tuition, a big drop in the percentage that was covered by provincial grants.

Why is that? Well, it’s because provincial governments came under fiscal stress as a result of the financial services sector meltdown in 2008 and 2009. And then looked for the path of least resistance. In both the mid-90s and the latter part of the 2000s, the path of least resistance were grant receiving institutions that had an alternative source of revenue. So they picked the path of least resistance, and they also took advantage of an illusion, that for some reason people have politically, that there’s this hard distinguishment drawn between the increase in what you pay for something that the government provides and what you pay in taxes to provide it.

You see this happening over and over again across the country, in the funding of postsecondary education. You also see it at the local level with municipal services, where we have a mayor who runs around proudly talking about keeping property taxes to inflation. Meanwhile, sewer and water charges have been going up by an average of about 10% a year. The garbage collection charges have been going up 15 or 20% a year. Parks and recreation fees have been going up by about 20% a year and so on. Somehow, these lines aren’t connected.

At that highest level, I would argue that we have actually not had a postsecondary education funding policy in Ontario. We’ve had fiscal policies. The most dramatic impacts on the resources available for postsecondary education in Ontario have been triggered, not to some change in educational philosophy or in the sort of philosophical demeanour of government as to how education should be funded, but by these fiscal events. The need to generate fiscal room to pay for a very large tax cut in the 1990s. The need to generate fiscal room to pay down the deficit after 2008-2009.

The debate hasn’t been framed that way because there’s a lot of ex-post rationalization that takes place. We had a whole theory emerge about, for example, why it was a good idea to raise tuition. Bob Rae came out with this wonderful rationale that somehow this was incoming redistribution to double tuition in Ontario universities, and somehow that was going to solve the income distribution problem in Ontario. We see other kind of ex-post rationalizations.

I’m not going to sit here and say that a funding formula that was devised probably on the back of an envelope with a calculator that you couldn’t buy anymore in the 1960s is necessarily the right way to allocate, but what I worry about is that we’re being sucked into a debate about allocation without engaging in the debate about what the level of resources that we, as a society, want to put into postsecondary education. How does that level of investment square with the popular perception that the future of the Canadian economy has to do with the quality of our workforce and the quality of our education system? So we’re having a debate about allocation without engaging or even, in some respects, acknowledging the existence of this broader issue of what the overall level of commitment is.

As I said, I’m not going to sit here and say that the funding formula shouldn’t be changed. What I’m saying is that we’re missing part of the debate. The other thing that I would say, and I’m a bit of a broken record on this as well, that I think it’s really important that we not go from bums in seats to metrics without having a conversation about objectives. I think that the funding formula review … And this is no fault to the people who are writing the funding formula review; it has to do with the way the questions are being asked by the political leaders. But we’re having a conversation about the allocation of the resources and how to measure the effectiveness of the allocation of those resources without having a conversation about objectives.

This is not just a problem in the postsecondary education sector. It’s the exact same problem in the funding of elementary and secondary education. We have been sucked into a rabbit hole, and we’ve been in the rabbit hole now since 1996. We’ve been in this rabbit hole for over 20 years in which we are invited to have a pitched battle about allocation without ever talking about how much we should actually be allocating to this system and what the overall objectives of the system are. Is it a goal of the elementary and secondary education system to promote the educational basis of citizenship, for example?

Well, if it is, then, a funding formula that’s based on the Leave It To Beaver idea that the purpose of education is to put bums in seats and parade reading, writing, and arithmetic in front of them, and then send them out the door, it doesn’t work. But we’re not asking those questions, and I worry that the government is going to get a pass on the overall allocation that it shouldn’t be getting and that we are going to, as I said, plunge straight into metrics with respect to performance, without asking the fundamental question of what the purpose of the system is.

Peter:

Very helpful context, and I don’t want to lose track of this question about objectives, but I think one of the consequences of this fiscal policy has been to shift the allocation of resources being directed from the province to the institution, now from the student through tuition to the institution. We’ve seen this government make some major moves with regards to low income waivers around tuition. I’m wondering if you can say a little bit about its impact and how that weaves into the story that both of you have been describing.

Glenn:

I completely agree with that point that we need to have a conversation about objectives. I think one of the challenges – and I don’t disagree with you about allocation versus efficiency – I think one of the issues is the construct under which we’ve been having conversations with both institutions and with the sector has been only about bums in seats and only about volume. So if you look at what’s happened over the course of the last decade, it’s because of that. The major achievement since 2000 has been a huge number of people going to postsecondary, which is a fabulous thing, but we’re not having conversations about other objectives. I think I would see what we’re currently doing in the light of changing that.

I think we want to make sure that, as we’re looking to change that focus away from bums in seats, that access is still a priority moving forward. For the first time ever, and I see OUSA representatives in front of us and others who have provided advice to say that we should be reforming the way that we provide funding to students and taking away from back-end grants and upfronting those. Lots of debate has been had about how you actually describe this, but if you look at everyone who’s in postsecondary, 210,000 people in 2017 will not be paying for tuition. And we can say that clearly and it’s around offering upfront grants as we start to move forward. And what’s going to happen as we continue to evolve and move into a place where this is more seamless, and it’s going to take a little bit of time to get there, is that people will not have to worry about how they get a tuition check in order to get into postsecondary. So that has been our focus, and there are more announcements in the 2017 budget about expanding that out and looking at the ability to pay for students. I think now the conversation is starting to turn, and I mentioned access as part of the SMAs, to those non-financial barriers.

The question then is, how do you make sure that people who need to go can find access to those resources and can also find other mentors as they continue to focus? And that’s been a priority for us. As we think through priorities in the system, that’s something that we want to continue to have a conversation on so that the doors are open, not just for people who don’t have two thoughts about how big the check is, but for people who see education not as a point in their future, but have the ability to go. We want to make sure that those people find the pathways to get there.

Peter:

Hugh, other provinces have taken different approaches on the affordability question. I’m wondering if you can comment on whether there are better approaches out there and what Ontario should still be mindful of as it continues to develop these policies.

Hugh:

I’m not sure if I’d be brave enough to say that they’re better, but they’re different. British Columbia was one of the earliest provinces to start to squeeze students. Then they backed off a lot and then post-2008-’09, they ratcheted it up again. Manitoba had for years been one of the provinces that articulated specifically a strategy of keeping tuition low. Saskatchewan and Alberta kind of backed into it because they were benefiting from the resource revenue boom, and I think they probably decided that in the light of booming resource revenue, it would be unseemly to start going after students in postsecondary institutions for funding cuts at that time.

Probably, one of the more interesting examples is Newfoundland and Labrador, in which they’ve actually driven down the percentage of their operating revenue that’s accounted for by tuition. But, again, you can’t abstract these things from the economic strategies of those provinces. That was part of their strategy, just as it was in Manitoba. It was a strategy designed to try to keep people home, to try to drive more academically relevant development within their home provinces.

So I don’t know that there’s anybody out there that’s really doing it right, and I’m not sure that there’s an off-the-shelf model that you could say, “This is the model that ought to apply to Ontario.” But I think it would be nice if we could have some discussions about things like what should be the allocation of financial responsibilities between taxpayers in general and students and their families in particular, as opposed to backing into it as a result of a series of fiscal policies.

It would be nice if we abandoned some of the, frankly, illusionary arguments that have been made in support of, for example, increasing tuition – the notion that somehow you’re doing something positive for the distribution of income by raising tuition and providing some money to support poor people.

It might be nice if we actually started to ask some of the difficult questions that are raised by not so much the general undergraduate education level but what is $30,000-a-year medical school tuition doing to participation in medical schools? What is $25,000-a-year tuition doing both to participation in law schools and to the career choices that are made post-law school?

What is $40,000-a-year tuition for business schools doing for who ends up in that kind of economic elite in Canada? What are we doing to the way our society is operating? What’s shocking about this is that we have had an enormous increase in tuition in those areas and almost no study of its impact.

The only comprehensive study that I know of, of the impact of high tuition on participation, is one that was done by the epidemiology department at the medical school at Western. They unleashed some students on the demographic data on what happened to the student population between 1994 and 1998. It’s often terribly depressing to see what you expect actually happen.

What you would expect in the abstract is that people from very poor families were completely dependent on grants before, and they’re still completely dependent on grants now. So there wasn’t that much difference in the level … It was poor. It was low, but it didn’t change that much. The big change was that there was a significant increase in participation in medical school training at Western from high-income families and a drop in participation from people in middle-income families.

When you think about it, it’s not hard to understand why. It’s because as you go up the income scale, you become less diverse. You become more confident in the future.

For a family that’s earning an average income, the idea of taking on 2- or $300,000 in debt to cover a medical school education is just not even worth thinking about.

Peter:

I’m going to ask a concluding question to both of you. The purpose of these two days is to put together a platform to make some recommendations that we hope will be taken up by all parties at the time of the next election. Inevitably, Glenn, you’re going to be reading this document, and Hugh, you have been part of crafting many policy reports that try and urge government to do different sorts of things. I’m interested in what you think would be most helpful to learn from an exercise like this and how it might best influence or shape policy. And, Hugh, similar question: In your experience, how can you most effectively develop this kind of platform in a way that has impact. Glenn and then Hugh.

Glenn:

So, briefly, thinking of the theme of the conversation we had before. When I told a long story at the beginning, what I want you to take away from this is an idea of shifting the dial away from just volume to the other things that you do as part of an institution. I completely agree with Hugh’s comment that we need to talk about what’s important, what is our policy framework for moving forward with institutions, and start to reward those things. I take all the comments that whenever you start to measure something, that’s what becomes important. That’s why we want to be careful around what that looks like. So advice on what’s important at your institutions, advice around how we can measure that, and advice on how we can actually change the conversation about funding institutions away from just volume to volume plus other things.

Hugh:

I guess it partly depends on who your audience is. If your audience is the government, if the audience is the process of rethinking the allocation mechanism, then that implies a certain set of strategies. I think a lot of the comments that have come out are of some significance. I think that the one observation I would make, and I’m actually involved in a discussion not unlike this with people who care about elementary and secondary education, is that if the government isn’t prepared to sponsor and articulate a consultative mechanism around how you think the funding formula should work. You should think about doing it yourselves. There’s nothing to prevent conversations from taking place.

Ultimately, this is a big P political process. I mean it’s a small P process in the sense that the government is running the show right now, but there’s an election coming up and what I take out of some of the comments that have been made is that, for whatever reason, the consultative process has missed one of the fundamental characteristics of the university sector, particularly, that people who work in the university sector make a distinction between the administration and the university, and they think of themselves as part of the university, and they think of the administration as the people that are running it.

So if the consultant process if focused on the administrations, they’re actually not talking to the university as the people who work in it think of it. That would be one observation. The second one is that, and this is more of a big P political, focused-on-the-election campaign and the election period strategy, I think that somebody needs to be asking the big-picture questions about what’s the priority that we’re actually giving as a society to postsecondary education? What do we actually want to do? How do we go beyond lip service to the idea that the future of the Canadian economy lies in the level of education and training of its citizens? How do we square the level of commitment reflected in the overall funding with the claims that we make about Ontario as an open, multi-cultural society that gives opportunity to everybody who lives here? I think things like, what’s Ontario going to look like 30 years from now if we’ve had 30 years of people graduating from medical school who only got to medical school because their parents felt comfortable taking out a loan for $200,000? What’s Ontario’s business community going to look like if all of its leaders were funded at the rate of $40,000 a year by somebody to go to business school?

Those are the kinds of questions I think we need to be asking because I don’t think access is a simple question. Access, to me, is not a simple question of, well, you put up an enormously high number for tuition and then you flow money through to the people who really find that hard to get at, because what that misses is that not everybody calculates the present value of what they’re anticipated differential in earnings based on their university degree and not everybody takes into account the fact that there’s a great deal of variability around that.

There are barriers that economists think of as barriers, and then there are barriers that real people think of as barriers. Right now, we’re thinking about things the way economists do rather than the way real people do, and I think that’s part of the conversation that we need to try to move forward.