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Chapter 37 : Recurrent Funding
37.1 The largest single contribution by the Hong Kong taxpayer to the costs of higher education is the annual recurrent grant to the UGC institutions, currently about HK$9,100m. The present chapter considers how that grant is determined and how it is divided between institutions. In the following chapter we shall consider how public accountability for the spending of this large sum is maintained without fettering unduly the institutions' freedom of action (see paragraphs 4.3 and 4.4). In the final paragraph of the present chapter we consider briefly the recurrent funding of other subvented HEIs.

37.2 The starting point for grant allocation is, of course, the level of activity which it is proposed to fund. The UGC's current funding methodology (used for the first time in the 1995-98 triennium) is based upon two major activities: the quantity of teaching, primarily related to numbers of students; and the quantity of research, largely determined by the numbers of academic staff. The Grants Committee calculates these two elements separately, but it is very aware that there is much interaction and support between teaching and research, and that there are in reality shared costs which are imperfectly represented by the divided calculation. The UGC "formula" is, in any case, only the start of the determination of grant. There are many special factors which are not closely related to overall student or staff numbers: the provision of facilities used by the public, such as museums or galleries, or salary changes affecting limited groups of staff, are two examples.

37.3 Overall student numbers, by level, are agreed with government for each year of a triennium. The advice which the UGC gives in this respect follows detailed discussion with its institutions. It also involves arguments of the kind displayed in Chapter 30. By way of example, the numbers for 1995-98 are given in Table 37.1.

Table 37.1 Fte student numbers in UGC Institutions (1995-98)


Level 1995-96 1996-97 1997-98
Sub-degree 9,246 9,450 9,450
Undergraduate 43,490 45,119 44,446
Taught Postgraduate 4,558 4,831 5,110
Research Postgraduate 2,995 3,273 3,595
Total 60,289 62,673 62,601
FYFD 14,500 14,500 14,500

Source: UGC Secretariat


37.4

The division of these numbers into subject areas for the purposes of grant calculation is partly a matter of historical precedent, since institutions cannot readily change the subject balance of existing activities quickly, and partly it is based on expected new needs formulated by government or by the institutions themselves. The weighted student number total can be obtained by scaling students in particular disciplines and at particular levels by the factors shown in paragraphs 36.2 and 36.3. This weighted total then has to be multiplied by the annual cost of a humanities student to obtain the resource needed for teaching. The UGC has considered including within the calculation of the teaching grant a factor to encourage and reward good teaching, but there are many problems of both identification and appropriate action (see Chapter 17) and so far provision for this has been made by other means (see paragraph 29.3). The teaching component of grant T can thus be expressed as

T = [ (student numbers) x (relative unit cost)] x All subjects and levels

unit cost of a humanities student

where ( is a mathematical symbol implying summation )

37.5

The non-specific recurrent grant for non-teaching activities in UGC HEIs is related to academic staff numbers. It is not, however, the Committee's expectation that all staff will be actively engaged in research. The grant is therefore divided into two components. For staff who are research-active, there is a unit cost of research which can be obtained by applying a subject-specific scaling factor to the cost of research by one active member of staff in a reference subject (say, humanities). Because the major cost of research is usually staff time, the subject scaling factors for relative unit costs do not have as wide a spread as those shown for teaching in Table 36.2. For example, taking humanities as 1.0, the relative unit cost in science or engineering is about 1.75. The grant associated with research R1 can be expressed by a similar equation to that in the previous paragraph, as

R1 = [ (research-active staff numbers) x (relative unit cost)] x All subjects and research-active staff

unit cost of research by humanities staff member

The determination of the number of members of staff who are active in research is undertaken by the UGC in a "Research Assessment Exercise" about eighteen months before the beginning of each triennium. The next one is due towards the end of 1996 and its results will be incorporated in the grant calculations for 1998-2001. The funding model which the UGC uses incorporates a factor for the quality of the research activity, but so far this further refinement has not been used.

37.6

The second component of the non-teaching grant is associated with professional (but non-research) activities which should be undertaken by all members of academic staff. It is defined by a single sum per head and is calculated as

R2 = total number of academic staff x unit cost of professional activity

The total non-teaching grant is R = R1 + R2

37.7 In calculating the whole freely disposable grant for which submission should be made to government, namely T+R, the UGC has a number of fixed parameters - student numbers by subject and level, staff numbers, research-active staff numbers by subject, relative unit costs between subjects for both teaching and research - and a number of variables - the unit cost of teaching a humanities student, the unit cost of research by a number of staff in a humanities department, and the unit cost of professional activity. The Committee's choice of values for these variables affects both the total grant and the T/R ratio - essentially the relative importance assigned to teaching and research. In practice the overall grant is decided by dialogue with government, and the choice of variables must satisfy whatever total is eventually agreed. The determination of the T/R ratio, however, is largely a matter of Committee policy after consulting both government and the institutions.

37.8 In addition to the non-selective components described by T and R, but given by government to the UGC as a single sum, the recurrent grant includes items intended for specific purposes. There are substantial sums for earmarked research grants for disbursement by the RGC. There are sums for special projects, mainly concerned with quality improvement, and there is money for additional staff-related benefits. The UGC retains a small central reserve for new ventures and for inter-institutional initiatives and links. There may sometimes be earmarked grants of the kind described in paragraph 35.7. The make-up of the current total grant is shown in Table 37.2. For simplicity, the figures given here and in paragraph 37.11 are shown for a single year, but it should be remembered that grant is given on a triennial basis.

Table 37.2 Make-up of the Total Grant (1995-96)


 

HK$m

Calculated T+R

10,900

deduct fees/other income

-2,400

 

8,500

Research projects

300

Quality improvements

100

Staff benefits

100

Central reserve

100

 

9,100


Source: UGC Secretariat


37.9 Once the total grant has been agreed, its distribution between individual institutions is based upon calculations similar to those already described. The UGC does not assume that the costs of teaching a particular subject will be the same in all of its institutions, or even that relative unit costs will lie within the ranges shown in Table 36.2. Institutions tackle subjects in many differing ways, and the resultant cost may be substantially above or below average. What the Grants Committee does assume is that each institution will have a mixture of relatively expensive and relatively cheap courses, and that a block grant based upon average costs will in total be appropriate to its needs. How that block grant is divided is a matter for internal decision by each institution.

37.10 There has been some suggestion that formula funding may lead to a uniform mediocrity. The Grants Committee believes that this will not happen. There is ample opportunity both within the formula and outside it for higher level activity to attract higher level resource, but the criterion will be performance, not historical expectation.

37.11 There are some small restrictions placed by the UGC on the use of the block grant. From the HK$8,500m shown in Table 37.2, about HK$300m was deducted, mainly to be given to the RGC for the competitive distribution of some of the research postgraduate numbers shown in Table 37.1, but also for some other small earmarked purposes. The remaining HK$8,200m was distributed between the institutions as follows:

Table 37.3 Block Grant (1995-96)


Institution(1) HK$m
CityU 1,100
HKBU 500
LC 200(2)
CUHK 1,900
PolyU 1,400
HKUST 1,200
HKU 1,900
Total 8,200
Notes: (1) excluding HKIEd which did not join the UGC until 1996
(2) earmarked
Source: UGC Secretariat


Lingnan College did not have a block grant in 1995-96 : all expenditure was earmarked. Within the block grant, the UGC has until recently "indicated" sums for equipment (a much weaker directive than "earmarking"), but that practice has now been discontinued.

37.12 Recurrent funding for subvented but non-UGC institutions is determined by the heads of appropriate branches of government on an annual basis as part of the government Resource Allocation Exercise. New initiatives have to be bid for as part of this exercise, unless they can be funded by savings elsewhere in the branch. The APA, TCs and HKIEd had recurrent grants totalling HK$1,100m in 1995-96.



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