Dramatic pivot to performance-based funding in Ontario will put $2.2 billion at risk for colleges and universities

Lindsay Borthwick
November 20, 2019

Ontario is embarking on an experiment in higher education that is unprecedented in Canada and elsewhere in the world.

Starting in the 2020-2021 academic year, the provincial government will introduce a “Made-in-Ontario“ performance-based funding model that will eventually tie 60 percent of the funding universities and colleges receive from the province to a set of “performance indicators” related to student outcomes and economic impact. When the model is fully implemented in 2024-25, funding at risk under the plan will amount to $2.2 billion annually.

"By tying funding to outcomes, Ontario will help students get the education and skills they need to succeed now and, in the future, while respecting taxpayers’ money. It will also reduce red tape and administrative burden on institutions by requiring them to report on fewer metrics," the Ministry of Training, Colleges and Universities said in a statement to RE$EARCH MONEY.

Though details of the plan have not been finalized and made public, the Ministry has briefed the province’s 45 publicly-funded post-secondary institutions. The new measures will be implemented next fall, following the renewal of the Strategic Mandate Agreements between the province and its colleges and universities.

The plan, as outlined, is controversial. It has quickly been denounced by those who see the policy as a veiled attempt to cut funding.

“Performance-based funding has been brought in to create a crisis in the system. It is simply a ploy to link 60 percent of public funding to arbitrary metrics that have been chosen without consultation by the government,” said Rahul Sapra, President of the Ontario Confederation of University Faculty Associations (OCUFA) in an interview with RE$EARCH MONEY. At the outset of the school year, OCUFA and 10 other organizations broadly representing students, and college and university faculty and staff, issued a statement opposing the plan, calling it “reckless” and stating that it will “fundamentally compromise the integrity of Ontario’s higher-education system.”

Alex Usher, president of Higher Education Strategy Associates and author of a recent paper on performance-based funding published by the C.D. Howe Institute, writes that the government’s proposal is “ambitious, even audacious,” but also that “very real questions” surround its proposed implementation: “The project’s legitimacy depends on it encouraging performance rather than disguising austerity.”

Table 1: 10 Performance Indicators for Universities

Performance Indicator Proposed Measure
Graduate Employment Rate in a related field Proportion of graduates of bachelor or first professional degree programs employed full-time who consider their jobs either “closely” or “somewhat” related to the skills they developed in their university program, two years after graduation
Institutional Strength/Focus Proportion of enrolment (FTEs, domestic and international) in an institution’s program area(s) of strength
Graduation Rate Proportion of all new, full-time, year one undergraduate university students (domestic and international) of bachelors (first-entry), or first professional (second entry) degree programs who commenced their study in a given fall term and graduated from the same institution within 7 years
Graduate Employment Earnings Median employment earnings of university graduates, two years after graduation
Experiential Learning Number and proportion of graduates in programs, who participated in at least one course with required Experiential Learning (EL) component(s)
Skills & Competencies Education and Skills Online: Random sample of undergraduate students (domestic and international)
Community/Local Impact Institutional enrolment share in the population of the city (cities)/town(s) in which the institution is located
Institution-Specific Metric (Economic Impact) Institutions to include definition of their institutional metric. The metric should demonstrate the economic impact of their institution, using ministry established principles.
Research Funding & Capacity: Federal Tri-Agency Funding Secured Amount and proportion of funding received by institution from federal research granting agencies (SSHRC, NSERC, CIHR) in total Tri-Agency funding received by Ontario universities
Innovation: Research Revenue Attracted from Private Sector Sources

Research revenue attracted from private sector sources

The Ministry of Training, Colleges and Universities has proposed 10 metrics to support improved performance at Ontario universities. (The metrics differ in certain categories for colleges.) Two of the performance metrics—graduation rate and graduate employment rate—are already in use. Several of the new metrics, such as skills & competencies, are still under development or will be defined by each institution. Source: Ministry of Training, Colleges and Universities  SMA3 Instrument.

Ontario's road to performance-based funding

Performance-based funding in higher education is on the rise internationally, where it is usually an add-on to enrolment-based funding formulas. It has been tried in various forms in Canada before, specifically in Alberta, Quebec and Ontario, and Alberta’s newly elected government has recently revived the idea.

In Ontario, experiments with performance-based funding began with Mike Harris’s Progressive Conservatives in 1998. The current proposal traces its origins back to the Liberals, who commissioned a broad university funding model review in 2015, led by former Deputy Minister Suzanne Hebert. It recommended the province transition to a new funding model based on outcomes.

A more recent report, published just after the Ford government’s budget in April, similarly argued for the introduction of performance-based funding in Ontario. The Higher Education Quality Council of Ontario, the independent agency that advises the Ministry of Training, Colleges and Universities, envisioned a measurement system “focused on impact and outcomes rather than inputs, based on the best available data, and motivated by a desire for continuous improvement rather than accountability.” It recommended using data that is available today to measure and drive improvements in programming, graduation outcomes, core transferable skills, participation in higher education and economic lift, as well as institutional financial sustainability and differentiation.

What sets the Ontario plan apart is its size: Dollar for dollar, it will be the largest performance-based funding system in North America. Its scope is even grander: 10 indicators will be used to measure performance—six related to skills and jobs outcomes, and another four to community and economic impact. This approach is much broader than what has been tried before in the United States or Europe, where indicators are usually focused on completion rates and research outcomes. Furthermore, one of Ontario's indicators aims to measure "skills and competencies"—something that has never been linked to institutional funding before and may be difficult to measure at the institutional level.

Experts predict limited results 

The evidence in support of performance-based funding is mixed at best.

In an interview with RE$EARCH MONEY, Daniel Lang, professor emeritus at the Ontario Institute for Studies in Education at the University of Toronto, said he does not expect Ontario’s new model to have a substantial impact on universities. “Part of the reason for that is that no additional money has been allocated. And if we look at track records of this kind of funding anywhere else in the world, it almost always works if there's some new money. It does not work if there's no new money, and it's disastrous if it's a smoke screen for a cut,“ he said.

As Lang's comment highlights, the Ontario budget has committed no new funding to universities and colleges. Operating grants are frozen, while the government has cut $670-million to student aid (while also cutting domestic tuition fees by 10 percent).

Another factor, Lang said, is the size of the incentives. By and large, funding tied to performance metrics in the U.S. has been small, and the results have mirrored that. The Ontario government’s proposal of 60 percent by 2024-2025 is a dramatic shift from the 1.4 percent of funding linked to performance indicators today. Still, it may not be big enough to drive deep institutional change, according to Lang.

As of 2016-17, Ministry of Training, Colleges and Universities (MTCU) funding represented 35% of total annual operating revenues at the system level, though there are considerable differences in the revenue composition between individual universities. Source: Council of Finance Officers - Universities of Ontario (COFO-UO)

As of 2016-17, Ministry of Training, Colleges and Universities (MTCU) funding represented 35% of total annual operating revenues at the system level, though there are considerable differences in the revenue composition between individual universities.

Source: Council of Finance Officers - Universities of Ontario (COFO-UO)

On average, operating grants from the province account for 35 percent of a university’s budget. Other important sources of funding are tuition fees from domestic and, increasingly, international students, endowments, as well as sponsored research. Ontario also provides special grants to northern universities and northern and regional colleges, which will not be tied to performance.

“The case of colleges and universities is different, but I think the net effect isn't that different. That is, if you've got these amounts of revenue unaffected by the new performance funding formula, no matter how it finally works, you will pay less attention to it than the government expects you to, which is why I don't think it's going to change the shape of the system very much,” said Lang. For example, the University of Toronto has estimated that 13 percent of its total budget will be impacted by the new plan.

But one of the biggest obstacles to success may be the lack of transparency surrounding the new model. As Usher writes, "Public policy suffers when it is developed in the dark; greater transparency and public participation in the development of policy governing more than $2 billion in public funds is a must."

In a statement, the Ministry said it has engaged with college and university stakeholders and held technical sessions and regular touchpoints with colleges and universities to seek input and share information.

But Sapra said the plan was developed without consultation with the post-secondary sector, adding, “With this fixation on metrics, it’s diverting attention from the real problem in the post-secondary system. Ontario has the lowest per student capital funding and the highest student to faculty ratio in Canada. But the government has refused to address any of these problems and is instead focused on performance-based funding.”


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