As discussed in a blog post last week, the revised 2024-25 Commonwealth-university funding agreements add new restrictions on early offers. The revised agreements also rewrite the rules on a novel feature of the original December 2023 2024-25 funding agreements. These rules cover a new policy to spend unused Commonwealth Grant Scheme allocations on activities set out in equity plans.

The May funding agreements improve on their December 2023 versions by potentially making the equity plan requirement optional. However a change to how the equity plan amounts are calculated reduces how much money universities could receive.

The revised funding agreements also include some minor funding increases.

Equity plans for unused Commonwealth Grant Scheme funding

Under the CGS provisions in the Higher Education Support Act 2003 universities are paid the lesser of the Commonwealth contribution value of their students, which is calculated based on enrolments, or their maximum basic grant amount, which is set out in their funding agreements.

Due to soft domestic demand, many universities are expected to earn less than their maximum possible grant amount in 2024. Under this policy, the gap between earned and allocated funding would finance equity plan activities.

My first post on this topic explained why this policy is a bad idea. My objections were that a) the funding amount is uncertain; b) financially strained universities should not have to commit to new expenditures, and c) the funding agreements cannot legally authorise this expenditure.

Clarifying the legal basis of equity plan funding

On the legality issue, the revised funding agreements now state that the money will come from a grant ‘under Part 2-3 of HESA’, i.e. the ‘other grants’ provisions of the Higher Education Support Act 2003 that fund other equity programs. While equity plan grants will match CGS expenditure shortfalls, with the relevant dollar amounts transferred within the Department’s accounts from the CGS to the new program, legally the ‘other grants’ provisions will finance the equity plans.

Despite this the relevant ‘other grants’ legislative instrument remains unamended. The Senate has the power to disallow the required amendments. While this is unlikely, establishing an expenditure program before securing its funding creates risks for universities. They could incur the additional equity expenditure and still have to repay some of their CGS allocation. Not following the required legal processes now also means that the government (or a new government, depending on how the 2025 election goes) could decide not to proceed with the funding. All they need to do is nothing – just not proceed with the legislative instrument and the existing HESA 2003 recovery of unused funding allocations will prevail.

Are the equity plans now optional?

The equity plan policy exposes universities to financial costs and risks at a time when many of them already face serious financial difficulties.

So it seems like good news that the revised funding agreements remove the language of ‘must use any amount equivalent to [the CGS shortfall] for the purposes of supporting equity outcomes’ and replace it with ‘to be eligible for a future [equity activity] program grant’, emphasis added in both cases.

Did the government’s lawyers start to worry about how these funding agreements are being used? Attaching conditions to how CGS-funded Commonwealth student places are allocated is one thing, but using funding agreements to require universities to do things now in exchange for a so far non-existent pot of non-CGS money is quite another.

Whatever the reason, financially-distressed universities may now be able to drop their equity plans and associated expenditure.

Clarifying through complexity – how the equity plan funding will be calculated

The December 2023 funding agreements said that the equity plan spending ‘must be equivalent to any unspent amounts from the MBGA [maximum basic grant amount] allocation for higher education courses’. Under HESA 2003 that means all CSPs other than those in designated courses (medicine) and demand driven courses (Indigenous bachelor degree).

I was confused when the Accord final report recommended holding unused money from the 20,000 equity places over to meet future demand, money I thought had already been diverted to the equity plan activities.

The May 2024 revised funding agreements clarify and add complexity at the same time by stating that the available equity plan money will only be from shortfalls in places delivery from ‘eligible’ MBGA allocations.

The ‘eligible’ brings in designated places and their associated medical student loading, but takes out of the higher education courses amount the now long list of ad hoc micro-allocations: National priority places, 20,000 equity places, Innovative places, and the nuclear-powered submarine places. Together they are worth about $230 million in CGS funding for 2024. The other higher education courses funding, just under $7 billion this year, is what the Department calls ‘base MBGA’.

Doing the sums on equity plan funding

Say university #1 enrols CSPs valued at more than their ‘base’ MBGA but less than their actual MBGA for higher education courses, but fails to deliver places matching its micro-allocations.

As there is no such thing as ‘base MBGA’ in HESA 2003, the Department has no legal choice but to pay university #1 for all places delivered. But the Department could impose a penalty for breaching a condition of the funding agreement, that they deliver places in specified courses and to specified student types. The penalty could be equivalent to taking away the CGS funding for non-micro-allocated places above university #1’s ‘base MBGA’.

Under the revised policy university #1 would get zero funding for their equity plan activities, as they used all their ‘base MBGA’ allocation. Under the previous funding agreement wording, they would have received some equity funding as the total value of delivered CGS places was below the university’s actual MBGA for higher education courses.

Say university #2 has been reasonably successful in recruiting students to its micro-allocated places, but is otherwise having a terrible 2024. Its non-micro-allocated CSPs are valued at far less than the ‘base MBGA’ amount.

The Department has no legal choice but to include the delivered micro-allocated student places when calculating the value of CSPs delivered in higher education courses. However, if the total value of all CSPs delivered is less than its ‘base MBGA’, university #2 should receive the difference between that two figures as funding for its equity plan.

Despite the effort university #2 put into recruiting students for the micro-allocated programs, and all the time its staff spent filling in forms applying for and reporting on these places, it won’t receive any additional CGS funds and it will have reduced its equity plan funding. But unlike university #1, university #2 won’t be left with unfunded student places.

This leaves the question of whether the Department will penalise university #2 for not meeting every detail of the micro-allocated places. I hope not, but it will appear inconsistent if university #1 is penalised for not delivering micro-allocated places and and university #2 is not.

University #2 also has a medical school. As demand for medical courses greatly exceeds medical student places under-enrolment is much less of an issue than it is for other courses. But some unexpected attrition might have caused a shortfall in CSP value delivered compared to allocated. University #2 could get equity plan funding for the gap between places allocated and delivered.

The benefits of following proper processes

In my post on using funding agreements to impose restrictions on early offers I highlighted the benefits of following proper processes in higher education rule-making.

The equity plans changes reinforce this point. If the government had started, as it should have, with an amendment to the ‘other grants’ guidelines, the May 2024 rewrite of the rules may have been unnecessary. The stronger processes around making a legislative instrument compared to drafting funding agreements – involvement of the Office of Parliamentary Counsel, potential review by the Senate – could have identified problems with the original drafting.

This proper process would also have given universities that want to use the equity plan provisions greater confidence that they would receive the money.

Some changes to ‘base’ maximum funding agreement amounts

The May 2024 funding agreements also include ‘base’ MBGA increases for 15 universities, although only for CQU is this more than a 1% increase on the December 2023 allocation. The total increase is $6.5 million. My revised spreadsheet on CSP funding by university is here.