a review of innovative allocation mechanisms

1. a review of innovative allocation mechanisms Jamil Salmi and Art Hauptman international forum on tertiary education financing Barcelona, 30 Nov-2 Dec 2005

2. the future of tertiary education financing?

3. key financing questions • resource mobilization • how much money for tertiary education? • resource utilization • are available resources used efficiently and effectively? • buffer body or not? • is it more desirable to rely on an intermediary body?

4. outline of the presentation • typology of allocation mechanisms • which mechanism is more effective? • preliminary lessons from international experiences

5. outline of the presentation • typology of allocation mechanisms

6. allocation mechanisms from direct funding to indirect funding & from untied funding to performance-based funding

7. direct funding to institutions: traditional approaches • set guidelines • negotiated budgets • line-item allocation • block grant • categorical / earmarked funds

8. direct funding: innovative approaches • formula funding • input-based • output-based • benchmarking • charge back • competitive funding • performance contracts

9. formula funding • formula linking amount of financing and some measures of inputs and/or outputs • number of teaching staff • number of students • number of graduates • unit costs per level of studies / discipline (actual, average, normative costs)

10. competitive funds • set objectives • competition on the basis of projects • transparent rules & criteria • peer review and selection • independent monitoring committee

11. performance contracts • institutional agreement to achieve certain objectives • additional funding based on meeting agreed objectives • examples: France, Denmark, Austria, Finland, Colorado & Virginia in US

12. indirect funding of institutions / direct funding of students • grants and scholarships • student loans • vouchers • tax credits

13. Colorado funding model Old Model Direct Government Funding Tuition New Model Indirect Gov’t Funding via Stipends Tuition & Stipends

14. Colorado experience • voucher for an undergraduate education at eligible universities; no cash actually touches students’ hands. • $2,400 per year at public institutions • $1,200 per year for low-income students attending private institutions • degree-seeking, non-degree, and teacher licensure undergraduate students eligible • age, income and financial aid eligibility are irrelevant to qualify

15. outline of the presentation • typology of allocation mechanisms • which mechanism is more effective?

16. policy objectives pursued • improving access and equity • improving external efficiency • improving internal efficiency and sustainability

17. improving access and equity • traditional age students • increased cost sharing with more student grants, scholarships and/or loans to offset adverse effects of higher fees • income contingent student loan repayments • input-based formula • disadvantaged students • expanded need-based grants and scholarships • pay institutions premiums for enrolling and graduating disadvantaged students (contracts) • lifelong learning opportunities • grants and scholarships • student loans • tax benefits for workers enrolled in tertiary programs • lifelong learning vouchers • savings accounts

18. improving external efficiency • improving quality • competitive funds • merit-based scholarships • increasing relevance • formula with differential weights for high priority fields • competitive funds • grants and scholarships in priority fields • student loans in priority fields • loan forgiveness for students in public service jobs

19. improving internal efficiency and sustainability • cost containment • funding formula based on normative costs • improving throughput • output-based formula • pay for results • performance contracts

20. outline of the presentation • typology of allocation mechanisms • which mechanism is more effective • preliminary lessons from international experience

21. themes • combination of instruments • adaptation to country circumstances • clear definition of policy objectives sought • link to quality assurance • political economy dimensions • unanticipated consequences

22. principles of an appropriate allocation instrument • linked to performance / policy objectives • transparent • flexibility • compatibility

23. which allocation instrument is better? • local circumstances • reform for what? • time dimension

24. link to quality assurance • pro: powerful incentive • con: punitive, rewards stronger • link at the margin?

25. political economy dimensions • controversial topics • tuition fees instead of “free” education • targeted scholarships instead of universal • student loans instead of scholarships • private institutions alongside public institutions • dealing with the politics • not an excuse to avoid reforms