Performance-based funding means more red tape, uncertainty for post-secondary institutions

This post previously appeared on the Parkland Institute Blog.

Last week, the Alberta government announced it will be implementing a performance-based funding model for the province's 26 post-secondary institutions. By 2022/23, 40 percent of institutional operating grants will be “at risk” (i.e., allocated only to the degree that institutions meet certain performance targets).

The government has indicated it will be consulting with institutions about the specific performance measures, and a background document for the consultation is now circulating which suggests there will be about 15 measures tied to funding as well as six other measures that will be reported for transparency purposes.

The document includes examples of each proposed performance measure, but no suggested targets. The targets may be system-wide or may be institution-specific. The metrics tied to funding fall into three broad categories and data sources for these measures have been identified. All of the measures appear to operate at the institutional level. I have summarized the measures below, some of which are a touch unclear.

Labour Market Measures

There are nine measures that assess labour-market outcomes or support for labour-market attachment:

• Percent of graduates employed two years after graduation
• Percent of graduates employed in a job related to their credential two years after graduation
• Percent of graduates employed within six months of graduation
• Median income of graduates one year after graduation
• Percent of current students who accessed career counselling
• Percent of current students who accessed employment services
• Percent of current students who have taken one or more steps to prepare for a career post-graduation
• Percent of current students who participated in a work-placement program
• Percent of employers satisfied that recent graduates were well-prepared across a range of basic skills

These measures frame post-secondary education (PSE) as labour-market training, which is one outcome of PSE. There are no measures of other PSE outcomes (e.g., knowledge creation, critical citizens).

Funding Measures

There are five measures that assess institutional funding:

• Percent of expenses spent on administration
• Percent of institutional expenses funded by government (Campus Alberta Grant)
• Percent of institutional revenue derived from non-mandate-related activity and/or fundraising
• Full-Load Equivalent (FLE) students divided by total expenditures
• Sponsored research revenues (for comprehensive research universities only)

These metrics suggest the government desires institutions to reduce their reliance on government funding (the MacKinnon report suggested a target of about 35 percent of revenue from government). The fourth (FLEs divided by total expenditures) measure doesn’t really make any sense to me; the reverse (i.e., expenditures divided by FLEs) would yield spending per student, so perhaps that is the intent.

Institutional reliance on government grants and their capacity to generate non-mandate related revenue (which is not defined in the document but likely includes continuing education courses, campus recreation, and food services revenue) varies widely. This may be an area where institution-specific targets are appropriate.

Enrollment Measures

There are four measures that assess institutional enrollments:

• Number “domestic” FLE students enrolled
• Number of international FLE students enrolled
• Number of Indigenous learners enrolled
• Number of domestic students enrolled in the 20 highest-demand programs at the institution

Measuring the number of FLEs will require institution-specific targets. The government could use these enrollment targets to pressure institutions to expand enrollments with no additional funding just by changing the targets from one year to the next.

The measure assessing the number of domestic students enrolled in the 20 highest-demand programs is difficult to unpack. The briefing document says a “Post-secondary demand model was developed in 2019 and is currently being finalized. Will be shared with institutions for planning purposes.” This measure may be designed to push institutions to expand access in high-demand programs.

But the definition of high demand is unclear. Is it high demand as defined by student applications? Or is high demand defined by some other group (e.g., employers) or by Alberta labour market forecasts? If high-demand programs vary from year-to-year (which is likely), institutions will struggle to meet targets because most programs span multiple years and expanding and contracting programs is slow and expensive.

Analysis

The most obvious implication of these draft measures is that the government views PSE uni-dimensionally as labour-market training. While PSE does certainly provide labour-market outcomes for graduates, this funding mechanism does not address the many other outcomes for students of a post-secondary education.

The structure of the performance system is penalty based: institutions that fail to meet targets will see their government grant reduced. This structure may introduce significant instability into a system already grappling with significant reductions in government operating grants. Penalizing institutions that fail to meet these targets will hinder improvement efforts (because there is no money to do so) and it may further degrade institutional performance (because now there is even less money).

Compounding the difficulties that will be caused by this punitive approach is that institutions have little meaningful control over many of the outcomes upon which they are being assessed. For example, the labour market outcomes will be largely driven by general economic conditions and/or the behaviours of students and graduates. If institutions can’t meaningfully influence the outcomes upon which their performance is being assessed, it is reasonable to question whether performance-based funding will have any meaningful impact upon institutional behaviour (other than redirected resources from teaching and research to administrative report-writing). This dynamic seems to sit at odds with the government’s stated desire to reduce “red tape.”

Similarly, institutions have little control over who applies to be a student. The proposed international and Indigenous student measures essentially set quotas based on citizenship and/or heritage. While equity group quotas are a valid policy instrument, these measures seem a touch off-brand for the UCP. For example, if institutions don’t meet the international student target and are financial punished for it, the UCP will be in the odd position of punishing institutions for educating Canadians.

Absent an indication of the targets that are being set, it is hard to assess the probable impact of this system. If the targets are easy to meet, then performance-based funding will have little impact (and is thus a waste of effort). If the targets are too hard to meet, institutions will see likely see a significant loss of funding. For institutions that are highly reliant on government funding and/or are in precarious financial situations, a big loss of funding will be profoundly destabilizing.

-- Bob Barnetson