Optimizing Ontario: A Closer Look at the Province’s Performance-Based Funding ProposalAlex Usher | President, Higher Education Strategy Associates
By 2025, 60% of funding for public colleges and universities in Ontario will be based on performance. Like the United States, Ontario’s postsecondary funding was historically based on enrollment, but the recent shift to performance-based funding models has prioritized outcomes like completion and graduation. That transition has come with hiccups. In this interview, Alex Usher shares his thoughts on the potential for performance-based funding in Ontario, how it compares to the United States, and where the province currently stands on their model ideas.
The EvoLLLution (Evo): Why is Ontario exploring performance-based funding (PBF)?
Alex Usher (AU): Performance-based funding isn’t new in Ontario. Right now, we have a very small amount of funding in Ontario that’s been performance-based for 20 years now—about 1.5%. The discussion now is about how that model is being expected.
In April’s budget, Ontario’s government introduced a number of changes across a number of different areas, but they didn’t change much in the postsecondary space. They changed student funding quite a bit—with reduced tuition and student aid—but institutional funding remained the same. They essentially froze provincial government funding, but stated that they were going to set aside 60% of the “pot” used to fund higher education and would make it available based on performance.
Was that because they have strong feelings about a performance in public sector entities? Probably, and that’s part of it. There’s some suspicion that the way they’re setting up the process is a disguised cut to institutions.
I’m not convinced that’s why they did it, or if they were even aware of what they were doing. With the way the government has designed the new funding structure, it is possible that some colleges and universities will get a lot less than they get now.
Evo: How could a PBF model benefit colleges, universities and students in Ontario?
AU: The way money is currently distributed in Ontario is almost entirely based on the number of students you get. In response, there’s been a push for increased focus on quality rather than quantity. Equally, there’s been a worry that when there’s a push only to get students in the front end, nobody cares what happens on the back end—whether they’re learning anything, or whether they complete a credential.
In an era where domestic student numbers are starting to fall, despite the fact that enrollment is the factor being incentivized, it’s become clear we have to stop rewarding based on enrollments and do something else.
It’s valuable for institutions to focus on outcomes, and not just putting bums in seats. You can attach performance-based funding to anything you want. People could want more female graduate students, or want to increase enrollments of students with dependents, or of students with disabilities. Money could be attached to all those things on the input side if desired. It doesn’t happen, but it could. Focus can also shift to the backside. For example, money could be given for every graduate student that completes their program—and more could be given if they’re a first-generation student. A number of states across the U.S. do this. It’s important that institutions are managing resources most effectively to reach the goals of the system.
In Canada, we’re not good at articulating goals for the system. Why are we spending over $20 billion in public money on universities and colleges and what do we want to get out of them?
There are very few places in Canada where there’s a solid answer to that. Institutions maintain a status quo but the public sector, which is paying for almost 50% of the system, doesn’t get to say what they want. Nobody puts a number on it and there’s a tendency to drift managerially.
The point of a performance-based funding system is to stop that, put some dollars on the table and force people’s attentions on outcomes rather than just inputs.
Evo: Do you think Ontario will look to the U.S. for an ideal performance-based funding model, or design a completely unique model from the ground up?
AU: If you take the government at their word, my impression is they’re doing it from the ground up. American systems work one of two ways. First of all, they’re almost entirely based on completion, which is what people care about. Can we graduate more students, rather than just enrolling them? They do that one of two ways. One is the bonus system. In this model, the state effectively pays a bounty to the institution once a student graduates. Then there’s the envelope system, where funding is based on a few indicators and awarded on a competitive basis. The legislature sets aside a certain amount of money, and people then compete for that money.
Ontario is doing something totally different. The number of indicators they’re looking at are much wider. They’re looking at research, student graduation, skills and community engagement.
Secondly, they’re not allocating an envelope and letting people compete for it. What they’re doing is taking away 60% of an institution’s funding, with the potential to win it back by hitting targets across 10 areas. If you miss a target, you’re going to lose money. You can never “win” and get more, but you can lose.
I call this a contract method, which is basically the institution having a contract with the government to deliver results across 10 areas. If they miss it, you’re penalized. As far as I know, the only other country that’s ever considered this is North Macedonia.
It’s easy to spot the problem here. In a competition system, if somebody does badly then anyone who’s doing better gets their money. The money stays in the system. What Ontario seems to be talking about is a system where if someone does badly, the money goes back to government. It’s a stealth cut. This is different.
The other thing that’s quite new is this notion of competing for skills. The Higher Education Quality Council of Ontario has been experimenting with how we measure general skills. There’s a lot of debate about whether or not that’s doable, but it is one of the indicators. Again, that’s a third way in which what they’re doing things completely different than what anybody else has ever tried. Ontario is certainly striking on its own.
Evo: How do you ensure everyone in Ontario can have a fair share?
AU: The way France does it is they essentially grade every institution on a curve. Say, every student comes in with a number from 1 to 20 on their back, based on the grade they received in high school. I can calculate for every institution the average entering score of their incoming class. Let’s say your school has an average of 15, while my school has an average of 14. If we have the same completion rate at the end of the degree cohort, I would get more money than you would because I achieved more with a more challenging student group. You can normalize the graduation rate that way.
In the United States, if there are specific populations you want to encourage that might be higher risk, you’d put a higher premium on them. Or you create another indicator and have dueling indicators. One indicator could be completion and the other access. That way you could push institutions to balance the demands of completion against the need to support underserved communities.
Evo: How likely is it that the attainment rate—which includes completion of non-degree credentials—will be factored into any PBF model?
AU: Institutions generally aren’t measured on their attainment rates, because most individual institutions don’t or can’t track it. It’s difficult to make accountability-based funding on that basis.
When they talk about completion rates, they’re thinking about bachelor’s programs. They’re not talking about microcredentials. They’re not talking about things that either upend the transcript or give you new types of credentials. There’s no money to incentivize that at all.
That’s another criticism that tends to get raised about performance-based funding, the fact that it tends not to reward innovation. That’s OK provided, as a government, you have other funds for that purpose. Not every piece of funding has to be about innovations or performance. It has to be viewed in a more balanced way. For example, there could be money for performance. But then, what if 5% of the budget is set aside of people to compete for innovation-based funds to develop these kinds of new approaches to programming and credentialing? That’s the answer there.
Evo: Are there any factors that makes Ontario well-suited—or ill-suited—to a performance-based funding model?
AU: Almost any system works with the performance-based funding model if you’re designing the parameters correctly. Tennessee’s is a complex system. There are a lot of people who sat for a long time looking at spreadsheets trying to figure out how to make it fair, but that will also drag people along slowly. You don’t want to introduce a performance-based funding system and have these wild swings, where suddenly an institution loses 20% of its funding. That’s crazy. You want a system that gradually pulls people in a direction—which is not easy to develop. It does become a little bit more difficult in places like Ontario where you have institutions that scale from very large to very small.
We don’t have many very small institutions, but there’s a few. Even that’s not the end of the world. There are stabilizers and you could establish guarantees where no institution can lose more than X% in one year. But there are different things that can be done. Performance-based funding can work pretty much everywhere. Granted, a little harder work is needed in Ontario because it is a pretty diverse system.
Evo: Do you have any concerns about the creation of the performance-based model for Ontario?
AU: I’m excited that there’s a government that wants to put money behind performance. That’s an unqualified good. However, I’m worried about a system where the measures are badly designed.
There’s one or two indicators where it’s quite clear they have no idea what they’re talking about. One indicator will make funding based on contributions to the community—which would be an institution size divided by community size. The problem, of course, is that some communities are served by multiple institutions. And some institutions serve more than one community. How does this deal with performance?
However, you don’t want it to discredit the notion. If Ontario does this well, it’s something that will work in most of the country. But you have to really sit and learn those lessons. If you don’t, there’s a problem. I think that’s the important thing. I’m less concerned that they do this quickly than that they do it well. I hope they take the time to do it.
This interview has been edited for length and clarity.
Author Perspective: Analyst