Payment options for performance linked funding

Purpose

This document provides an opportunity for sector discussion on options for payment adjustment following the introduction of performance-linked funding.

Background to performance-linked funding

In March 2010, the Government announced it would introduce an element of performance-linked funding to the tertiary education system. This will commence from 2011.

Performance-linked funding is intended to:

• provide incentives for performance improvements for Tertiary Education Organisations
• improve educational outcomes for students and employers
• improve value for taxpayers’ money
• while at the same time minimising any disruption to well performing tertiary providers.

Key features of performance-linked funding

The key features of performance-linked funding have now been agreed and can be read on the performance-linked funding page of the TEC website. These include:

• the percentage of funding at risk
• the timing of the implementation of the performance-linked funding mechanism
• the groupings of New Zealand Qualification Framework (NZQF) levels
• which of the educational performance indicators will be used for each grouping of NZQF levels and the weightings on each indicator
• the adjustment for part time learning to be applied in the SAC performance-linked funding framework, and
• how thresholds will be set.

However, there are several options for managing the impact of performance linked funding on payments to tertiary providers. This document sets out the options and asks for your feedback and views on these options.

Payment options

From 2012, up to five percent of a tertiary providers’ SAC funding or an Industry Training Organisation’s (ITO’s) funding at each grouped qualification level is at risk, based on the organisation’s educational performance in the previous year.

A tertiary provider’s educational performance information is confirmed following verification of the April SDR, or for ITOs through the Industry Training Register, in the year subsequent to the performance.

This means the TEC will need to make adjustments to payments approximately halfway through the year for tertiary providers whose previous year’s performance is below any of the thresholds.

Proposed payment options for funding adjustment

The options outlined below describe how the funding at risk could be paid to tertiary providers and ITOs once funding allocations have been calculated.

The TEC’s starting point is that it is desirable to adjust payments as soon as is practical after allocations are finalised. This provides certainty of funding to tertiary providers and ITOs and would assist with managing cash flow. This is expected to happen in July each year.

It is proposed that the same method of adjusting payments will be applied consistently across the sector. 

Option 1

Each tertiary provider or ITO would receive 100% of its SAC or ITF* 2012 funding allocation in monthly payments from January to June 2012. Funding would then be adjusted according to 2011 performance against the thresholds. 

Any reduction in funding could be applied as an adjustment to payments spread across the remaining payments from July to December.

* ITF includes Modern Apprenticeship STMs 

Option 2

Each tertiary provider or ITO would receive 95% of its SAC or ITF 2012 funding allocation in monthly payments from January to June 2012. Funding would then be adjusted according to their 2011 performance against the thresholds.

Any increase in funding could be applied to the remaining payments from July to December. 

Option 3

Each tertiary provider or ITO would receive 100% of its SAC or ITF 2012 funding allocation in monthly payments from January to November 2012, and a single payment adjustment would be made in December.**

The December payment would need to be adjusted down to between 60% and 100% of the amount of the other monthly payments to account for the annual amount of funding lost.

** If no payment is due to an organisation in December, any payment adjustment would be made in the final 2012 payment period.

Example of the three options

Tertiary provider ABC Ltd receives a funding allocation for 2012 of 24 EFTs at the SAC rate of $5,000 per EFT. This is a total of $120,000. 

Following implementation of the performance-linked funding mechanism, ABC Ltd loses 4% of its funding.

Option	Monthly payments January to June 2012	Monthly payments July to December 2012
1	$10,000 per month	$9,200 per month
2	$9,500 per month	$9,700 per month
3	$10,000 per month	$10,000 per month from July to November, and $5,200 in December

Feedback

The TEC is looking for feedback from tertiary providers and individuals in the tertiary education sector about what option you think is the most effective method for payment.

Please respond by email with your feedback on the options outlined in this document by by 10 December 2010. Emails can be sent to the TEC Service Centre, servicecentre@tec.govt.nz with ‘PLF Feedback’ in the subject line.

The TEC expects to confirm its approach to adjusting payments by the end of March 2011.