Michael (2002) phrases the first debate in terms of political funding strategy versus formula funding strategy. The political funding strategies, Michael pointed out, were “characterised by negotiation and responses to critical stakeholders’ wishes” and
allocations were made according to an institutional political base, institutional negotiating strength and unpredictable circumstances. Ziderman and Albrecht (1995) classified all situations “where transfers are not related to objective institutional criteria as ‘negotiated’ allocations procedures.” According to them, in that process “decision making does not depend on specific institutional characteristics (such as the number of students enrolled) but much more so on political relationships between actors”. Three types of negotiated systems identified were:
i. Incremental budgeting – Institutions receive a flat increment on their previous budget.
body.
iii. Fixed revenue agreement – agreement to release to institutions a fixed percentage of revenue.
The common feature among the three was that there was little relationship between the activity of the HEI and the funding that was received. “Changes in activities, such as enrolment increases, do not necessarily translate into funding increases, nor do funding increases necessarily imply taking on new activities” (Ziderman and Albrecht 1995, p. 112). It is difficult to classify incremental budgeting and fixed revenue agreement as negotiated RAM because they are mathematically derived and not subject to regular changes. The original basis could have resulted from negotiations but so do the
components of any formula. This study therefore views negotiated funding as that which results from bilateral agreements between the state and the institution, is for a specific period and has no rational structure.
The point was also made that negotiated funding “enables the government to maintain a high degree of political control over the university system as a whole as well as over individual institutions” (ibid. p.108). Such a system provides no incentive for efficiency and does not enable HEIs to be adaptive to the labour market or students’ demand. In Brazil for example, between 1983 and 1988 the Federal Government’s contribution to HEI remained constant while the enrolment fell by 7%. Ziderman and Albrecth (1995, p.114) therefore concluded that “while negotiated funding has been the dominant form of funding for universities in the developing world, it has not served higher education well”. They also expressed the view that many of the problems encountered did not stem from the funding approach per se, but from restrictions on the receiving institution’s ability to control its operations. In some cases restrictions were placed on enrolment and ability to seek additional funds to supplement declining government income and to redeploy resources to be efficient and responsive to changing external demands.
Michael (2002) opined that the Political Funding Strategy violated the principle of predictability because allocations are subjected to political wind and there may be little or no logic between institution’s allocations. He also thought that the approach was attractive to ambitious politicians and institutional leaders with a large political power base.
In addressing the issue of predictability and objectivity in funding, the formulaic
to be based on quantitative factors. Formulaic funding “is simply an algebraic expression of the relationships among quantifiable factors for the purpose of apportioning funds among different institutions” (Michael 2002). Based on this definition, Ziderman and Albrecht’s three-fold classification of negotiated funding was rejected and incremental funding and fixed revenue agreement were determined to be formulaic funding models. With incremental funding the expression is as follows:
TA1 = Y0* r (2.1)
Where TA1 = Total allocation for year 1
Y0 = Previous year’s allocation
r = Rate of increase
The expression for fixed income agreement may be written as follows:
TA = NI * p (2.2)
Where NI = National income p = Percentage contribution
Weiler (2000) pointed out that formulaic funding was focussed initially on input factors but increasingly have moved in the direction of output indicators. Other examples of formulaic RAM from the opposite viewpoint of input and output are given below. i. Based on inputs (The Australian Relative Funding Model)
P1 = B/S * G1 (2.3)
TA = ����(P *S) (2.4)
Where P1 = Price per student in cluster 1
B = Pre-determined macro-budget S = The number of weighted students G1 = The weight of students in cluster 1
ii. Based on outputs (Denmark’s Taximeter Model)
TAa = ����
{
Ss(Ts + Os +Ps )}
(2.5)
Where TAa = Total allocation for institution A
Ss = Successful students per field of study
Ts = Tariff for teaching per field of study
Os = Tariff for joint costs per field of study
Orr (2002) believed that formulaic funding “replaces politicised decision-making
concerning the higher-education budget with programmed decision-making determined by an agreed data input.” As such, he concluded that it resulted in a stable, reliable and transparent procedure for allocating funding. On the negative side, however, Orr (2002) opined that it offered little flexibility and proved difficult to implement in places where there was the absence of reliable data. Michael (2002) also observed favourable and unfavourable consequences of formulaic funding. Advantages included the fact that it enabled uniformity in the institutional variables, it led to budget simplification, it could be used for bench-marking and it reduced funding conflicts, politicking and budgetary uncertainties. The disadvantages included rigidity, over-reliance on quantitative factors, and maintenance of historical inequity, linear interpretations and homogenisation of the HEI. Weiler (2002) adds that formulaic funding serves as a communication tool as its structure conveys governments’ priorities. The characteristics and consequences of the initial debate on resource allocation are summarised in Table 2.4.
Table 2.4 - Negotiated Funding versus Formulaic Funding
Characteristics Consequences Examples
N eg o ti a te d F u n d in g � Results of bilateral agreement � No consistency
from year to year � No discernable
quantitative basis for allocation
� High level of political control � No incentive for efficiency � Not adaptive to students’ needs � Unstable - Arbitrary allotment � No predictability
� Input funding not based on any set quantifiable factors � Guyana where
proposals for expenditure have to be submitted annually for approval F o rm u la ic F u n d in g � Algebraic expression based on quantitative factors
� Political control is limited to the manipulation of the initial factors � Could by its structure offer
incentives for efficiency � Stable
� Reliable � Transparent � Predictable
� Fixed income funding � Incremental budgeting � Input funding based
on quantitative factors � Output funding
Formulaic funding by itself does not address all the issues related to the funding of HE. This is illustrated in the example of Honduras where the constitution provided for 6% of the total expenditure of the country to be allocated to the National Autonomous University of Honduras (UNAH). The university continued to offer courses that were not relevant to the labour market or students’ demands, its administrative staff ratio to total expenditure was 50% while 0.1% of its budget was used for purchasing books. The result was that the middle class was attracted to the expensive private institutions.