The 2021-23 funding agreements between universities and the government, the first of the Job-ready Graduates era, were put on the DESE website earlier this year. In this post I compare them to the pre-JRG agreements.

My main concern is that the funding agreements are being used for matters that should be based on clear legal rules, not DESE discretion based on a one-sided ‘agreement’.

My concern reflects both the general political principle that policy decisions should be subject to parliamentary scrutiny and the practical problems caused by lack of certainty. Important funding conditions or criteria are not included in any legal document and DESE is given wide scope to interpret vague terms.

A broader scope

The most immediately obvious change is that the new funding agreements include more content than previously. They contain an overall summary of Higher Education Support Act 2003 institutional funding, including the Commonwealth Grant Scheme (CGS) funding that is the legal purpose of the funding agreements; rules around course closures, professional training, and the provision of information on costs and admissions; research, engagement and equity funding; and some background information and principles. The research, engagement and equity material is new and derives its legal standing from separate legislative instruments.

Putting key information in one place is helpful, and I would encourage the government to collate the summary funding tables combining teaching, research, equity and engagement funding for each university into a publication. But funding agreements with parts of varying legal status are not desirable. A mixed document makes it less clear for universities what they must do according to law and what is just the government/Department taking advantage of the sector’s culture of compliance. With such a large share of their income depending on their funding agreement, universities are reluctant to push back against the government’s demands.

For example statements like ‘The Provider agrees to use this funding as intended to drive quality higher education and research in the public interest’ might sound like harmless marketing spin, such as we might find in a university glossy document. Everything universities do is quality, in the public interest, world class etc.

But the quoted sentence could also be read as an attempt to narrow the scope of CGS spending. Rather than CGS money being available for flexible use across a wide range of purposes, except in cases where HESA 2003 or the funding agreements expressly provide otherwise, it is generally supposed to be for what the government/Department defines as the public interest.

In higher education the idea of the ‘public interest’ is rather loaded. Its antonym is less private interest than intrinsic interest, that knowledge or ideas have value, or are worth exploring, independently of whether or not there is an immediate or obvious public benefit or interest in doing so. A previous minister vetoed ARC grants because the public interest in researching ‘post orientalist arts of the Strait of Gibraltar’ or ‘Soviet cinema in Hollywood before the blacklist, 1917-1950’ was less than clear. A good proportion of the undergraduate curriculum in some faculties could face similar criticisms.

The funding agreements have no direct legal mechanism that controls what subjects are taught, other than specific allocations of funding for medicine and short courses. But as described in more detail below, the government is already stretching its legal authority on allocating money for short courses, national priority and innovative student places.

The attempts to push down demand for some courses via high student contributions also reflect the government’s desire to steer enrolments away from student interest or intrinsic interest and towards the ‘public interest’, as defined by the minister or DESE. The Deloitte studies of teaching and scholarship costs, which found their way into the JRG by-discipline student funding rates, exclude most of the money spent on research, engagement, or other university activities. Some industry engagement funding has been put back via NPILF, but on the government’s terms, and nothing for other forms of engagement.

Course closures

The previous funding agreements imposed restrictions on course closures, requiring permission from the Commonwealth before they could proceed. These covered courses leading to occupations in official skills shortage lists and the nationally strategic languages of Arabic, Indonesian, Mandarin, Japanese and Korean.

In the new funding agreements, restrictions on course closures in areas of ‘skills shortage’ are retained but reference to the official skills shortage lists has been dropped. It’s not clear why. This reduces the clarity of the rules.

The course closure procedures also apply ‘in areas of priority under the Job-ready Graduates package, for example in science, engineering, computing, allied health, education and languages’. Again, this is vague, as the language of ‘priority’ is used in several different ways in higher education policy. There is a precise legal meaning of national priority derived from section 30-20 of HESA 2003, a general whatever the government thinks is currently important meaning of ‘national priority’ in the allocation of new places to universities, and an implied priority in the fields of education with reduced student contributions under Job-ready Graduates.

Compulsory student placements

Previous funding agreements required that students in courses with placements or practicums needed for professional accreditation had access to them. In the latest agreements the wording changes to ‘pathway to professional certification or registration’, with new examples of engineering and social work.

I’m not sure whether this change has any practical significance – have there been problems? – but it is consistent with the Job-ready Graduates focus on students gaining practical work experience.

Performance funding

The funding agreements specify increasing amounts of maximum basic grant amount money through 2021 to 2023 that are contingent on ‘performance’. But there is nothing about the performance criteria. The FAQs on DESE’s website say:

“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.”

However the document outlining the 2020 PBF has no legal standing. It refers to the Commonwealth Grant Scheme Guidelines being amended to implement performance funding for 2021 onwards, but the Guidelines issued last December did not include any such provision.

Universities are left presuming, but not knowing, that the performance criteria will be the same as for 2020. But if so that creates significant problems for them, as at least two of the four performance criteria, graduate employment and student satisfaction, will deteriorate for COVID-19 reasons outside their control. The previous minister guaranteed 2020 performance funding, but as 2020 funding used pre-COVID data there were no sector-level ‘performance’ problems.

While not mentioning performance funding the December CGS Guidelines create problems for it. For example, the Guidelines give QUT a maximum basic grant amount funding floor of $274,919,449 for each of 2021, 2022, and 2023. By contrast QUT’s funding agreement for 2023 gives them a maximum basic grant amount of $280,660,580 with $10,147,234 contingent on meeting (unspecified) performance criteria. It says that if QUT does not meet these criteria its ‘MGBA will be adjusted to remove the performance-based funding specified’, which would take it down to $270,513,346, $4.4 million below its funding floor.

A funding agreement cannot over-ride a legislative instrument, and so the funding agreement provisions on performance funding are unenforceable to the extent of their inconsistency with the Guidelines funding floor.

In any case, this type of performance funding is not what the Act envisages. Under section 33-1(b)(v) performance funding is distinct from the basic grant amount, not a component of it. It was intended (and was in the Gillard era) as a reward for good performance. Under the Tehan funding agreement version, performance funding is a penalty scheme with core teaching funding at risk for not meeting the performance criteria.

Section 33-1(b)(v) also makes specific mention of performance funding being worked out ‘under the Commonwealth Grant Scheme Guidelines’. In other words, Parliament intended, as should be the case, that it should take a look at the detail of this important policy. The CGS Guidelines can be disallowed by either house. Again, the funding agreements are by-passing the intent of HESA 2003.

Short courses

One improvement on the old funding agreements – not everything in Job-ready Graduates is bad! – is that allocation of places to sub-bachelor and postgraduate qualification level courses, and below them to funding clusters, is gone, with the exception of ‘designated courses’. Designation requires specific statutory approval, with medicine the only current designation. Removing specific allocations gives universities more flexibility to move funding to its best use.

But for short courses the funding agreements allocate specific amounts of money to named courses, as well as listing a total amount of short course funding as a component of the ‘maximum basic grant amount’. The funding agreements say the ‘Provider must use the funding in Table 1b to deliver the short courses shown in the table’.

These specifications sit uneasily with the wording of the Act. A note to section 30-10 says that ‘The Minister does not allocate places to Table A providers in relation to higher education courses or demand driven higher education courses.’ In other words, under current designation rules, the minister does not allocate places to any course other than medicine.

The Department side-steps this restriction by allocating dollars in a way that amounts to a de facto allocation of places. By naming the course the Department effectively specifies the funding cluster(s) and by setting the dollars the Department effectively specifies the number of places. For example, the University of Newcastle is allocated $331,350 for a short-course Graduate Certificate of Education. With a per-EFTSL funding cluster rate for education of $13,250 that equals 25 places.

Arguably there is a gap in the legislation around new funding. Designation is intended to control all places in a specified kind of course; it is not intended as a mechanism for distributing new funding. Allowing the government to specify the use of new funding would not deprive universities of the general flexibility of a block grant. But the current wording of the Act does not provide clear authority for de facto allocation of student places in higher education courses.

National priority places and innovative places

The funding agreements also contain amounts for national priority places and innovative places. The national priority places are a once-off COVID-rationale allocation providing additional commencing places in 2021, with their total funding declining over time as students drop out or complete.

The innovative places are on-going and so increase over time as new cohorts start while older cohorts continue. Only a handful have been allocated. Of the funding agreements I examined only one (Deakin) included innovative places, with increasing funding through 2022 and 2023.

As with the short courses, universities applied for the national priority places and the innovative places at the course level. The Department is telling universities, in communication separate to the funding agreements, that although they must show they have delivered on their overall short course, national priority and innovative places funding allocations, this does not necessarily have to be at the detailed course level. For example, if Newcastle could not fill all its places (technically, could not use all its funding) in its Graduate Certificate of Education the money could go to another short course on its list.

However, unlike for the short courses, the funding agreements don’t say which courses are funded by the national priority or innovative places pools of money. I think this gives DESE weaker legal grounds for insisting on any particular use of the money. As with the performance funding, the detail comes from another document that is not specifically named and has no independent legal standing (in this case, communication between DESE and each university receiving places).

With the ‘national priority’ places another complication comes from the several ways in which that phrase is currently used. Section 36.7 of the funding agreements says that where a word is not specifically defined in the funding agreement and it occurs in HESA 2003 the HESA 2003 meaning is used. Is the reference to ‘areas of priority’ in the course closure provisions sufficiently specific? It’s not exactly the same wording and there are grey areas around what is and isn’t a priority under JRG. If not specific enough, we need to use the Commonwealth Grant Scheme Guidelines definition via section 30-20 of HESA 2003, which except in the case of the University of Notre Dame would restrict national priorities to teaching and nursing.

This uncertainty does not invalidate the funding. Because the national priority funding is included in the stated maximum basic grant amount there is no legal obstacle to the money flowing. The issue is how much of the detail of delivery DESE can insist upon.

Conclusion – the rule of law in higher education

The funding agreement system needs reforming to bring it into line with rule-of-law principles.

The Department should strictly comply with the legal arrangements set out in HESA 2003. It should not make base teaching funding dependent on performance when the Act clearly envisages that base teaching funding depends on places, with performance funding a separate pot of money.

Workarounds such as allocating dollars that are in effect the same as allocating places should be avoided. HESA 2003 could be amended to authorise specifying the use of new funding or places. Any required detail of delivery should go into the funding agreements rather than being communicated via documents with no independent legal status.

All provisions of a general policy/regulatory nature, such as performance funding, course closures, student placements, or requirements to provide statistical information should go into the statute or a legislative instrument. That way there can be proper parliamentary scrutiny. A rule-of-thumb: if a substantive requirement is identical in every funding agreement it belongs elsewhere.

The funding agreements should contain only content expected to differ between universities along with reasonably incidental conditions. For example, universities have differing total funding allocations. Given their varying strategies, capacities, and levels of local demand it will often be better to negotiate changes to allocated places or funding, rather than have them driven by a formula written into law.

Under the current system of designated places, if the designation was broad (such as sub-bachelor previously) specifying funding clusters, courses, campuses, etc would be reasonably incidental. A general requirement to offer higher education or conduct research in the public interest would not be reasonably incidental. Section 30-25(2) of HESA 2003, which creates a broad power to insert requirements in funding agreements, should be removed.

Rules must be clear and prospective. Those affected by the rules need to be able to understand them and adjust future behaviour if necessary. Making millions of dollars contingent on unspecified performance indicators breaches this requirement. General wording of rules is sometimes desirable when the detail of future circumstances is hard to predict, but the revised course closure rules seem unnecessarily vague.

Both as a general principle of our legal and political system, and for its specific benefits in allowing universities to plan confidently knowing the policy opportunities and limits, we should make greater use of the rule of law in higher education.