The recurrent funding for the 2005/06 to 2007/08 triennium was approved by the Legislative Council Finance Committee in February 2005. In May 2006, the planning assumption that the institutions would achieve 5% efficiency savings starting from the 2007/08 academic year was reviewed, and the Finance Committee approved that there should be no reduction in the recurrent grant for that year. For 2005/06 to 2007/08 triennium, the total approved recurrent funding level for the UGC-funded sector amounts to HK$31,266.7 million. Determination of the grants to institutions is largely based on a formula. The amount of grants comprises four elements:

     (1) Teaching - about 68%
     (2) Research - about 20%
     (3) Performance and Role Related - about 10%
     (4) Professional Activity - about 2%

The Teaching element is based on student numbers, their levels (i.e. sub-degree, undergraduate, taught postgraduate and research postgraduate), mode of study (i.e. part-time and full-time) and disciplines of study. Some subjects are more expensive than others because they require special equipment, laboratories, more staff time, etc. Relative cost weightings by broad academic programme categories (APC) have been grouped into three price groups with effect from the 2005/06 to 2007/08 triennium. Details are shown at Table 1.

The Research element is primarily related to the quality and number of active research staff and the cost of research in respective fields. The number of active research staff in each cost centre is identified in the context of a Research Assessment Exercise which assesses the research performance of different cost centres within institutions.

The Performance and Role Related element was introduced to strengthen cognisance of institutions' performance, and their performance against role. For the 2005/06 to 2007/08 triennium it was informed by the result of an assessment undertaken under the Performance and Role-related Funding Scheme by a UGC Assessment Panel in 2004. The Panel conducted an objective peer review exercise based on self-assessment submissions and presentations made by the UGC-funded institutions. Self-suggested indicators, criteria and benchmarks were used for evaluating the institutions' performance.

The Professional Activity element of funding is associated with professional activities which the Research Assessment Exercise is unable to assess or to assess adequately, but should be undertaken by all members of academic staff. These include, for example, community service undertaken and advice rendered on societal or professional issues. It is calculated based on the number of academic staff.

The funding formula is the key parameter used to assess institutions' needs. But in finalising its funding recommendations, the UGC also takes into account the special needs of individual institutions and other factors not captured by the formula and will introduce extra-formulaic adjustments where required.

Once determined, recurrent funding for a triennium will not be adjusted during the period except for adjustments to take into account changes in the indicative tuition fee levels, new initiatives from the Government and any civil service pay adjustment. Following the civil service pay adjustment which took effect from 1 April 2007, the Government has approved supplementary grants for the UGC-funded sector of $107 million and $421.2 million for the 2006/07 and 2007/08 academic years respectively.

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