A new funding model for Latvian HE: Criteria, current challenges, proposals and scenarios World Bank Team Stakeholder workshop July 8, 2014 Riga, Latvia

A new funding model for Latvian HE: Criteria, current challenges, proposals

and scenarios

World Bank TeamStakeholder workshop July 8, 2014Riga, Latvia

Contents of the presentation

• The process

• Criteria for assessing funding models

• Main challenges of current financing model and requirements for new model

• Proposals for a new funding model

• Scenarios for implementation

The process so far

criteria for good funding models

analysis of strengths and weaknesses of existing model

strategic fit analysis of existing model

proposals for a new model


• The process





Criteria for assessing funding models

• Teams’ work in developing financing model builds on confirmed criteria for “good” funding models mainly derived from European trends and international practice

• Criteria were applied to Latvia’s current higher education funding model to determine its strengths and weaknesses

• Criteria will be applied to the overall assessment of the proposed funding model

Higher Education Funding Assessment - Stakeholder Feedback on Initial Findings |

March 12, 20146

Strategic Orientation Promote national strategies

Promote institutional profiles

Create performance rewards and sanctions

Create a competitive environment

Incentive Orientation Provide clear, non-fragmented incentives

Avoid undesired effects

Balance ex post and ex ante performance orientation*

Sustainability Stability*

Guarantee continuity in funding mechanisms

Allow long-term planning*

Take into account cost differences

Promote risk-spreading and management*

Legitimization Provide unambiguous and balanced funding structures

Make funding transparent

Support the perception of fairness

Allocate lump sums*

Guarantee academic freedom

Autonomy and freedom Implement an adequate level of regulation

Guarantee autonomy of internal resource allocation*

Promote accessibility of diverse income sources*

Practical feasibility Use available data

Ensure administrative efficiency

Respect methodological standards

Ensure coherence with funding levels and steering approaches


• The process





Main challenges of current financing model and requirements for new model • The Team has identified 8 main challenges associated with Latvia’s

current approach to financing higher education and research according to– Analysis of strengths and weaknesses of higher education financing in

Latvia: (Report 1)– Assessment of current funding model’s ‘Strategic Fit’ with Latvian higher

education policy objectives (Report 2)

• Identified challenges were reinterpreted as 8 requirements for the new funding model

• Consistent with the organizing structure of the prior reports, identified challenges and requirements were organized by the four topics:

1) State funding2) Diversification of financial sources3) Financial autonomy4) Student funding and support

Challenges and Requirements: State funding

9

THEME Main Challenges for Current Model Requirements for New Model

(I) FUNDING LEVEL

• Latvian higher education is underfunded, especially in terms of public funding• Underfunding leads to restrictions in performance and quality problems as well as to problems with international competitiveness of the sector

• To create added value in terms of stimulating working towards more strategic orientation and national objectives in order to justify the possible increase of public funds

(II)PERFORMANCE

INCENTIVES

• Study place model and state research funding model are not creating appropriate performance incentives for HEIs to improve of teaching and research quality, employability of graduates, research productivity and internationalization

•To introduce teaching and research related performance-based funding elements in order to create financial incentives for higher education institutions to produce desired outputs and outcomes

(III)ALIGNMENT OF

INCENTIVES AND OBJECTIVES

• Study place model and research funding streams (incl. EU structural funds) can be administratively burdensome and do not contain clear and transparent incentives for diversification of institutional profiles, consolidation activities between HEIs, collaboration between research organizations or with external partners

• To offer clear and transparent incentives for diversifying institutional profiles, consolidation activities, incentives to promote collaboration between HEIs, research organizations and external partners

Challenges and Requirements: State funding

10


(IV)ALIGNMENT

OF TEACHING AND RESEARCH

FUNDING STREAMS

• Funding model lacks alignment of basic funding of teaching and research• Divided funding streams for teaching and research impede an alignment of the HEIs core missions of teaching and research

•To lead to a closer alignment of teaching and research streams in overall architecture of state funding.

(V)FUNDING MODEL

ARCHITECTURE

• State funding model is rather “one-dimensional” and static as it is lacking two important pillars of funding, namely performance-oriented funding and innovation-/profile-oriented funding

To make a transition towards “3-pillar model” consisting of pillars of (1) basic funding, (2) performance-oriented funding, and (3) and innovation-/profile-oriented funding for achieving greater balance between stability, performance-orientation, ex-post and ex-ante incentives

Challenges and Requirements:Diversification of financial resources

11


(VI)FUNDING DIVERSITY

AND SUSTAINABILITY

• High reliance on tuition revenues (education) and EU structural funds (research) harms the long-term financial viability of HEIs• Income from private sources like industry or community services appears to be relatively underdeveloped

• To support further and more balanced resource diversification (both public and private resources) to reduce too high and potentially harmful HEI resource dependencies• To provide long-term funding for long-term activities

Challenges and Requirements:Financial autonomy

12


(VII)FINANCIAL

AUTONOMY AND ACCOUNTABILITY

• Latvian HEIs enjoy significant financial autonomy and, as such, can flexibly, efficiently and effectively spend their resources and act as competitive organizations• HEIs do not always use the autonomy they have.• Great level of autonomy is not always accompanied with a high level of accountability towards external stakeholders (both public and private).

• To enable state and institutional decision-makers to make full use of the potentials of autonomy• To support greater accountability by emphasizing performance measurement with regard to the volume and quality of teaching and research without affecting negatively the level and scope of HEI financial autonomy

Challenges and Requirements: Student financing

13


(VIII)STUDENT SUPPORT

• Dual track tuition fee system with merit-based selection of students for state-funded study places is likely to subsidize full-time students from better-off socioeconomic backgrounds• Current student support system is highly decentralized, and its strong merit-based emphasis is likely to have negative impact on access and participation in higher education (students from disadvantaged backgrounds, part-time students)

• To ensure accessibility and participation by introducing more need-based elements in student funding system (state supported study places, scholarships, loans, and other subsidies) as a whole• To increase centralized coordination of allocation of student support needs to be increased


• The process





Again: the 4 topics

1) State funding

2) Diversification of financial sources

3) Financial autonomy

4) Student funding and support

But before: two basic ideas

• no additional public funds without changing the system – changes as good reason for more investment (additional funds make changes possible)

• orientation for change: strategic fit, performance-orientation• mixed funding of the mixed good higher education• turn down major access obstacles

the reform should be a package of more public funding + strategy/ performance-orientation + public/private cost-sharing + access promotion

But before: two basic ideasan important feature of the funding model is „balance“. One-sided models are dangerous, the model has to deal with trade-offs. The current model is

not sufficiently balanced.

stability, input-orientation incentives, output-orientation

ex ante funding ex post rewards

national objectives institutional profiles

teaching criteria research criteria

broad research funding focused research funding

public sources private sources

needs-based student funding merit-based student funding

autonomy accountability

State funding: 3-pillar-model instead of 1 pillar

teaching

pillar 1: basic funding

pillar 2: performance –

oriented funding

pillar 3: innovation –

oriented funding

• numbers of studyplaces (per field)

• cost oriented weight

• number of graduates

• number of incomingand outgoingstudents

profile-orientedtarget agreements

teaching + research +third mission

institutional indicators

research • numbers ofprofessors (per field)

• cost-orientedweight

• bibliometricindicator

• third party funds

• number of PhDs

institutional indicators

funding of centers of excellence

What does this mean for the study place model?

• still in place, but not to cover all cost, stable basic funding (in the end funding per student will vary according to performance)

• continue field-specific cost factors (check, update), but now with the character of relative prices

• continue planning process, demand-orientation (but without performance criteria, they are now directly relevant through other pillars)

The process of planning study places should be gradually changed

• stakeholder consultations (labor market needs, development of demand), interministerial committee (if not integration)

• MoES/line ministries: overall target numbers for fields (incremental with planned +/-), target numbers for innovative programs

• universities: proposals how to contribute to +/- and for innovative programs (the latter: open for private universities)

• panel to review proposals, MoES to decide (last period’s demand relevant if more than e.g. 5% deviation from plans)

• part-time study places allowed• deeper field evaluations from time to time

intentions: planning element, high stability, but reallocations possible (questions: Further ideas? Timelines, still every year?)

Aspects of the 2nd pillar

• calculation: X € of total budget for indicator, university with Y% od indicator value gets Y% of the indicator budget

• final decision about indicators and weights: political, strategic fit

• up to 3 institution-specific indicators (calculation options: premium for targets reached, reward according to rate of increase of indicators)

Aspects of the 3rd pillar

• clarify priorities for next 3 years in promoting institutional profile (within framework of national goals)

• define institution-specific performance indicators

• ex-ante funding of innovative activities (e.g. establish joint Dr. schools with non-university research, post doc programs, international accreditation...)

• funding of research centers of excellence

Diversification: requirements for the EU structural funds

• parallel process going on, we recommend to include goals that are not covered by 3-pillar-model (and which have short-term character)

• incentives to generate other income streams (e.g. knowledge vouchers for SME)

• sector consolidation incentive program (reference to Denmark)

Autonomy: a strength of the Latvian system

• formal rules of autonomy are a European best practice

• but the other side of the coin is transparency/accountability (financial statement, report on target agreement)

• plus financial management training, make more use of the financial autonomy

Student funding: cost-sharing + access

• enlarge number of state-subsidized study places (full need of the country)

• private cost-share from all students• differentiated system (cost, labor-market perspectives, political

preferences such as STEM) – or advantages of flat fee?• needs-based scholarship to refinance private cost-share

(continuation based on merit)• student loans with state guarantee (and merit-based debt

remission)

Funding model is not isolated, needs favorable framework conditions

• strategic planning on both sides

• informed study choices

• quality assurance

• inter-ministerial coordination (MoES, line ministries, MoF)

• alignment of mechanisms for universities, colleges, research institutions


• The process





The realization of the model depends on the funding level – 3 scenarios

DEVELOP THE KNOWLEDGE SOCIETY:full implementation of the model

LIMITED EXPANSION:partial implementation of the model

OPTIMIZING SCARCITY:some basic improvements

post-pone-ment of ele-ments

in-crea-sing

achievements in ”optimizing scarcity” model are very limited• basic revision of study place allocation system, more inter-

ministerial coordination• target agreements to make profiles more transparent without

financial support and incentives• small no. of graduates-allocation OR small innovation pool

(generated by lowering price per student below current level)• self-initiated peer learning/benchmarking on financial management• turn merit-based scholarship into needs-based one (small volume)• financially neutral cost-sharing instead of dual track, high cost-

shares to create some funds for needs-based fee waivers

none of the challenges mentioned above addressed on the full scale, most very partially

much more could only be done with additional funding

• funding of research (broad) • funding of research (focused, centers of excellence)• performance-oriented formula, incentive system• institution-specific indicator component• better access to loans (solve guarantor problem)• target agreements incl. financial incentives• financial support of institutional profiles• promotion of third mission activities• promotion of innovative developments• set free potentials for new programs with EU funds (e.g. sector

consolidation incentives)

only additional funding is able to induce significant changes

Implementation could of course be done in steps with adequate packages (some thoughts)

Roadmap for models with budget increases• Consider requirements for EU funds in current parallel process• Quick and transparent wins: formula, basic research funding and

loan guarantee first (pragmatic start, direct effects, no negotiations, state and student funding immediately addressed, teaching and research)? Iincrease formula volume step by step (multi-year plan)?

• Second step optimization of study place system and implementation of target agreement with all its implications?

• Third step full implementation of cost-sharing + needs-based elements?

Other suggestions how to move forward?

To be discussed

• Questions

• comments on conceptual level

• Further suggestions

• Questions of feasibility, how realistic are components, operative issues

• Suggestions for implementation process

Documents

A new funding model for Latvian HE: Criteria, current challenges, proposals and scenarios World Bank Team Stakeholder workshop July 8, 2014 Riga, Latvia