How will performance funding work under Job-ready Graduates? (I don’t know, but here are some possibilities)

How performance funding will work under Job-ready Graduates remains unclear, to me at least. Some recently published FAQs on Job-ready Graduates, which are a cut-and-paste from a previous statement, indicate that performance funding will continue:

From 2021, the PBF scheme will be adjusted to make approximately $80 million amount of growth funding per year contingent on performance requirements. Performance funding will grow each year to a total equivalent to 7.5 per cent of funding for domestic, non‑medical bachelor places to incentivise university performance. This measure is in line with the PBF model implemented in 2020. [emphasis added]

Is performance funding a condition of other announced CGS increases?

Job-ready Graduates has two general sources of Commonwealth Grant Scheme maximum university grant increases (each from the new lower base created by cutting Commonwealth contributions; initially they are more adjusted decreases than increases). These are (i) pre-COVID estimated CPI of 2.3 per cent for 2022 and 2023 and real CPI from 2024 and (ii) additional funding of 1 per cent for campuses in low-growth metro areas, 2.5 per cent for campuses in high-growth metro areas, and 3.5 per cent for regional campuses.

I am not clear on whether (a) CPI increments are conditional on performance targets or (b) growth places are conditional on meeting performance targets, or (c) whether performance funding is in addition to CPI and growth places.

The FAQ asks the CPI conditionality question, but only impliedly answers it in the negative by referring to growth funding being contingent. I take it that CPI on maximum grants is not growth funding. Because Commonwealth contributions are indexed under the statute, not indexing the maximum grant would mean that it delivered fewer student places over time.

Adding in the context of pre-COVID CPI appearing, albeit in a confusing way, in draft Commonwealth Grant Scheme Guidelines, a connection between CPI indexation of grant amounts and performance funding seems unlikely.

This leaves the question of whether performance funding is a condition of the announced growth places, or is in addition to these places.

My best guess is that performance funding is linked to the 1/2.5/3.5 per cent money. This seems consistent with the conceptual basis of performance funding in 2020, and with its absence as a separate line item in published financial statements or what I have seen of material sent direct to universities.

How much growth funding is at stake?

The 2020 iteration of PBF virtually guaranteed at least 60 per cent of the available performance funding, with further steps at 80 per cent and 100 per cent of available funding, depending on performance indicator outcomes. I assume that this will remain the case, given the statement that Job-ready Graduates performance funding will be ‘in line with’ the 2020 model.

In the original PBF this 60/80/100 per cent was of the 18-64 year old population increase, a flat percentage across all universities. Under Job-ready Graduates, as noted above, the rate of increase from the new lower base CGS funding varies by campus location.

Does this mean that the higher-growth campuses have more at stake? If they are quasi-guaranteed 60 per cent of funding, the low-growth metro campuses have 0.4 per cent growth at stake, the high-growth metros have 1 per cent growth at stake, and the regionals 1.4 per cent.

Or do all universities have the original national population based funding at stake, which on 2020 figures would be 0.5 per cent growth (40 per cent contingent of 1.36 per cent population growth)?

Can performance funding still grow to 7.5 per cent of nominal bachelor-degree funding?

The quotation above from the FAQs suggest that the government still wants performance funding to grow over time to 7.5 per cent of nominal bachelor degree funding (still using a funding category that Job-ready Graduates abolishes, adding another layer of unnecessary complexity).

That would have been possible under the original Job-ready Graduates draft legislation. In theory, every Commonwealth Grant Scheme dollar except the small regional Indigenous demand driven component was contingent. The minister could award it and withdraw it based on any criteria he or she chose.

But the legislation as passed has a funding floor from 2025. This means that once a university is awarded growth funding for a year it is built into its maximum basic grant amount for higher education courses. The growth funding cannot be withdrawn for subsequently not meeting the government’s metrics.

The government could, however, decline to increase the maximum basic grant amount until performance improves.

Reward performance funding

The government could put a larger amount of money at stake by making it a reward performance funding scheme – awarding additional discretionary funding, rather than adding it to base funding for student places. This is the type of performance funding envisaged in the legislation (section 33-1(1)(v)). This is not built into the maximum basic grant amount. It is a separate pot of money allocated according to criteria set out in the Commonwealth Grant Scheme Guidelines.

Reward performance funding would create strong incentives for universities. Universities that miss out on reward funding lose discretionary revenue, the critical money that enables universities to maintain activities that they choose and which are not self-financing.

The 2020 performance funding scheme was not a reward scheme. It was one of the criteria for deciding how to allocate base funding. With Commonwealth supported student funding rates stripped back to the costs of teaching and scholarship under Job-ready Graduates, additional maximum grant funding will be spent teaching additional students.

Universities that don’t get base funding linked to performance might be slightly less successful in achieving their mission. But they aren’t likely to be much worse off in net financial terms.

The people who are penalised when universities don’t meet growth-funding performance metrics are their would-be students, more of whom will be denied a place because there is no Commonwealth funding for them.

The growth imperative

Although a reward performance funding scheme would have a greater chance of influencing university decisions than a base funding performance scheme, this is not the time for either.

CGS funding is forecast to be below current levels just prior to the Costello baby boom students applying for higher education. These young people’s prospects are more important than how universities are going on metrics that are questionable measures of performance in normal years and will be very unreliable during COVID-19 turbulence.

Policies that make universities doubt how much base funding they will receive in future years will make them more cautious about expanding student places. Due to performance funding, universities run the risk of taking students who will not bring in Commonwealth contributions.

The best measure of university performance is not any of the indicators in performance funding schemes. It is that students enrol in the courses a university offers. Base funding already has that performance test, as from 2024 universities will not be paid their maximum grant unless they deliver student places worth that much or more.

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