Chapter 4: supporting quality teaching and learning
4.5 base funding to support infrastructure for quality teaching
associated with managing another separate funding stream or acquittal process (submission no. 138, p. 8).
A number of submissions also noted that the current base funding arrangements allow universities to develop new areas of research specialisation, something which is particularly important for the more recently established universities.
The University of Tasmania and The University of Western Australia advocated a separation between funding for base research capability and funding for teaching and learning. The University of Western Australia argued that the current system where universities receive approximately the same per student level of base funding regardless of actual research activity or the quality of this research, represents a poor use of funds as it does not direct funding to where it will be used most effectively and encourages low-quality research.
Based on the evidence of the costing study and the historical level of the Research Quantum in the original Operating Grant, it could be argued that something in the order of 6 to 10 per cent of base funding could reasonably be associated with activities relating to maintenance of base research capability. This quantum could: (a) continue to be distributed on the basis of weighted student load or (b) be directed according to a measure (or set of measures) of research activity.
The Panel suggests that the Government should consider the relative merits of these two alternative approaches.
4.4.4 adjusting funding for non-university providers not required to
undertake research
The Panel recognises that the Government currently provides funding under the Commonwealth Grant Scheme to support the delivery of approved higher education courses that are delivered by providers that are not publicly funded universities. Such courses are usually funded to alleviate skill shortages in critical areas such as nursing and early childhood education. The Panel supports the use of Commonwealth Grant Scheme funding for such purposes but notes that the institutions providing the courses are not required to engage in research. It would therefore be reasonable for the Government to fund such courses at a discounted rate of up to 10 per cent (in respect of both student and government contributions).
4.5 Base funding to support infrastructure for quality
teaching
In the previous chapter the costs of infrastructure were highlighted as one of the pressures faced by universities. Base funding contains a notional amount per place for infrastructure. However, recently there has been significant government funding for infrastructure through the Education Investment Fund and a number of one-off funding rounds. Despite this, ongoing issues exist around backlog maintenance and refurbishment needs. The growth to meet the attainment target suggests there also needs to be increased expenditure on university infrastructure to accommodate
4.5.1 The capital component of base funding
Since 1994, base funding has included a notional amount to meet the costs of infrastructure. The Capital Roll-in was included in Operating Grants to give responsibility to institutions for determining the appropriate levels of expenditure on maintenance, rehabilitation and refurbishment of existing stock and balance these needs against demand for new capital requirements. In 2004, the last year it was explicitly identified, the Capital Roll-in component of the $4.8 billion of Operating Grants was $277 million, or 5.7 per cent of the total (DEET 1996).14
The roll-in has been treated as a fixed amount per place. From 1995 the funding of additional student places included a fixed per equivalent full-time student load (EFTSL) capital funding component ($611 per EFTSL). The Operating Grant included HECS payments at the time, so this proportion of funding for a student place should be viewed in contemporary terms as the proportion of combined CGS and HECS–HELP payments to universities. The method by which the capital component operates means that every extra funded place has some notional capital funding.
The original intention of the Capital Roll-in was to meet universities’ maintenance, rehabilitation and refurbishment capital needs, and the commitment has been supplemented by the use of periodic allocations of special capital funding. For example, the sector has seen recent capital injections through the Better Universities Renewal Fund (BURF) provided for campus renewal, to improve higher education institutions’ infrastructure for teaching, learning and research and for improved student amenities. This suggests that the sector will not achieve ongoing sustainability for its capital needs and that allocations based on student load alone will always require periodic injections of additional capital funding.
Several submissions provided to the Panel by universities and the sector’s peak bodies supported the continued ‘roll-in’ of funding for capital in base funding. Many of these submissions also argued that the current level of base funding is insufficient to meet capital costs. Universities Australia stated that ‘both the capital costs and the operating costs of general infrastructure need to be accounted for in base funding’ and identified a need for additional capital investment (submission no. 130, p. 18). Similarly, the Group of Eight (2011) argued that ‘base funding should include a more realistic level of capital funding to support infrastructure needs’ (p.17). Submissions from individual universities also supported the continued Capital Roll-in, though Charles Darwin University suggested that funding for infrastructure ‘should be an identified value, as opposed to an unidentified roll-in’ (submission no. 36, p. 10).
4.5.2 Other government funding for infrastructure
The last five years have seen unprecedented amounts of special infrastructure funding for the higher education sector. This was made possible by the Government’s one-off investments of $500 million in 2008 through the BURF, over $1.084 billion from the Education Investment Fund (EIF), as well as $500 million committed to the EIF Regional Priorities Round in 2011. World-class infrastructure is being built across the university sector and there has been some much needed refurbishment of outdated buildings. This funding has been mainly competitive by nature and its focus has been on large ‘transformational’ initiatives.
However, the Capital Roll-in will again become the main source of capital funding from government in the next few years as the Capital Development Pool (CDP) program will cease from January 2012. While the Government has announced it will allocate a further $500 million from EIF over the next
five years to the tertiary sector via the Regional Priorities Round, it has not announced its intentions beyond this point. The termination of the CDP will also result in the sector having to rely more heavily on operating revenues to fund significant refurbishments and other moderately sized capital works. Several submissions expressed concern about the termination of the CDP, and the Panel notes that the Bradley Review recommended its continuation. The Tertiary Education Facilities Management Association (TEFMA) notes that the EIF has addressed a number of immediate infrastructure needs. However, the majority of EIF funding has been directed towards the creation of new infrastructure rather than towards the renewal of existing facilities, and this was a major concern of universities in the Panel’s consultations. Much of the need is for refurbishing existing buildings so as to allow ongoing use and make them ‘fit for purpose’. Consequently ‘a program of ongoing investment is necessary to progressively renew the aging infrastructure to more effectively support the academic enterprise in the 21st century’ (TEFMA 2011, p.3).
The recent injections of capital funding have predominantly focused on renewing infrastructure and meeting current capital needs. Some universities continue to have high levels of backlog maintenance and much of the building stock requires refurbishment or technology and equipment upgrades. The maintenance backlog is estimated to be $2 billion to $3 billion across the sector, although there is significant variation among universities.
4.5.3 The level of capital funding for a growing system
The demand driven system for undergraduate student places is expected to put increasing pressure on university infrastructure. While there will be some existing capacity in the sector to absorb the increase, if government targets are to be met a significant investment in infrastructure will be needed over the next 10 to 15 years. Under current policy settings, the only funding available to the growing system will be the Capital Roll-in component of base funding, which, using the notional 5.7 per cent from 2004, would be valued at approximately $450 million in 2010.
In its submission to the Panel, Universities Australia (quoting Somogyi 2011) suggested an additional capital investment of $35 billion will be required by 2025 to meet participation requirements. This figure appears excessive as it is roughly equivalent to the current total assets replacement value of infrastructure across the sector. The estimate also makes no allowance for more efficient use of existing space and appears to effectively include the construction of new space for every additional enrolment.
Some universities will be able to increase in size using existing capital. However, the adequacy of capital funding should be judged from the perspective of universities’ long-term capital needs. Generally, around the world the floor area per EFTSL is tending to fall and changes in patterns of use of buildings may allow enrolment growth without a pro rata change in useable floor area. Existing building stock may not be located in areas of demand but more efficient use of infrastructure is possible.
There is no doubt that universities will need additional infrastructure over the next decade. However, if funding from the Government is needed for new infrastructure, it is not clear that this could or should be through base funding and the Capital Roll-in. Increasing the Capital Roll-in would lock the additional funding into recurrent funding, which might be somewhat inflexible if it proved unnecessary in the long term. For these reasons the Panel concluded that an increase in the Capital Roll-in in base funding is not the right mechanisms for funding additional infrastructure needed to meet attainment targets.
The Panel recognises that there may be a timing issue in using existing levels of Capital Roll-in to support growth where it is occurring. The new infrastructure needs to be built now, but the aggregate Capital Roll-in amount only grows with the additional students enrolled in the future. This may not necessarily be a problem. Borrowing to fund capital expenditure is a standard business practice. Traditionally universities have low levels of borrowings and have instead used retained profits to pay for new infrastructure. The solution to funding new infrastructure may be to increase borrowings that will be repaid through the Capital Roll-in amounts from future additional places.
4.5.4 additional capital funding
The additional funding for growth being identified by universities is beyond any reasonable expectation of government investment in the short term, and in any case is clearly outside the capacity of base funding. The Panel believed that the most compelling case for support was made regarding the dramatic change in appearance of contemporary universities and the patchy nature of these improvements in Australia.
The issue of the unprecedented changes in patterns of use and design within universities over the last two decades seems indisputable. The Panel was persuaded of the pressure for contemporary learning spaces, and noted the extended operating hours within libraries and learning areas, the ubiquity of wireless internet access, and the trend towards collaborative group learning spaces and hubs. The Panel believes that the current level of the Capital Roll-in is insufficient to allow universities to make these changes.
The Panel also believes that a focus on refurbishment has the potential to lessen the need for additional infrastructure by making better use of existing stock. TEFMA notes that:
The renewal of the capital infrastructure would improve the functionality and utilisation of existing space, enabling its alignment with the changing expectations of students and new methods of learning, as well as enhancing the environmental efficiency of the buildings and the indoor environmental quality, all of which will potentially lead to enhanced productivity and improved academic outcomes (TEFMA 2011).
Refurbishment is a targeted and effective way to address the need for additional space. Therefore, the Government should provide infrastructure funding to universities to ensure their facilities are fit for 21st century teaching and learning and are used more efficiently. An amount equivalent to 2 per cent of the CGS base allocation should be provided for this purpose. The additional funding will provide ongoing capital support and greater capacity to develop contemporary learning spaces and more efficient use of existing infrastructure. The Government should allocate additional funding for this purpose.
BURF funding was allocated on the basis of student load and universities nominated projects for approval by the Government. The Panel believes that allocation based on student load would remove the uncertainty and burden of contestable funding and reinforce university autonomy. However, it would be important to ensure that the additional funding was focused on maintenance, refurbishment and contemporary learning spaces.