MINISTRY OF EDUCATION

GOVERNMENT ALLOCATIONS TO PUBLIC UNIVERSITIES AND TECHNIKONS

Income sources of public higher education institutions The new funding framework: an overview Division of the government budget for higher education into categories of grants Teaching input grants Teaching output grants Research output grants Institutional factor grants Moving from current to the new funding framework

August 2003

INCOME SOURCES OF PUBLIC HIGHER EDUCATION INSTITUTIONS

The diagram below offers a broad summary of the ways in which funds flow to public universities and technikons in South Africa.

Diagram 1: Sources of funds of public higher education institutions

The proportions reflected in the diagram are averages for the system as a whole. These proportions can differ widely between institutions. For example, the proportion which government grants represent of total income can be as low as 35% if an institution is able to raise large amounts of additional private funds through research contracts, donations and investments. This proportion of government grants can also be as high as 65% in the case of institutions which are not able to generate substantial amounts of private income.

The Ministry of Education has direct control over only government grants to public universities and technikons. The Ministry furthermore takes no account of income raised from student fees and other private sources when distributing government grants to individual institutions. These institutions are however required, as public entities, to submit to the Ministry annual financial statements which reflect all expenditures and all income from all public as well as private sources.

This paper explains how the Ministry of Education distributes the government grants which make up 50% of the income of public universities and technikons. It begins with a broad overview of the new funding framework, and then offers more detailed accounts of aspects of the ways in which the new framework operates.

THE NEW FUNDING FRAMEWORK: AN OVERVIEW

A basic feature of the new framework is that it links the awarding of government higher education grants to national and institutional planning. This funding/planning link makes the new framework essentially a goal-oriented mechanism for the distribution of government grants to individual institutions, in accordance (a) with national planning and policy priorities, (b) with the quantum of funds made available in the national higher education budget, and (c) the approved plans of individual institutions. This section of this report offers brief overviews of the planning/funding processes which have been built into the new framework.

Diagram 2 below lays out the key aspects of the planning processes which have been built into the new framework.

Diagram 2: Planning aspects of the new funding framework

The main features of the planning process are these:

The Ministry of Education analyses and studies the broad higher education environment in South Africa, including the labour market.

The Ministry at the same time interacts with individual higher education institutions, and with the interest groupings which represent these institutions.

Higher education institutions submit, on an annual basis, three-year rolling plans to the Ministry. These rolling plans include projections dealing with student enrolments, as well as indications of how the institution intends improving student equity and the efficiency of student outputs.

The Ministry analyses these institutional three-year rolling plans. In its analyses the Ministry takes account of its readings of the higher education environment, and of the views of higher education interest groups. It also takes account of each institution’s actual student enrolment data, and of its student output performance, relative to national benchmarks and to the overall capacity of the institution.

Planning guidelines, as well as provisional totals of funded FTE student places, are then set for each institution for the following three-year planning period. These are referred back to institutions for comment, before final decisions are taken.

At the end of this iterative process, individually approved institutional plans are consolidated by the Ministry into system-wide totals of FTE student places to be funded by government during the next triennium.

Diagram 3 below shows how the planning processes outlined in Diagram 2 become integral parts of the new framework’s government funding processes.

Diagram 3: Integration of planning and funding in the new framework

The key steps in the integrated planning and funding processes are these:

The Ministry of Education, on the basis of its interactions with the national higher education environment and with the planning of individual higher education institutions, submits Medium Term Expenditure Framework budget proposals, as well as proposals for the final budget for the next year, to the National Treasury.

The National Treasury approves provisional three-year rolling budgets for the higher education system. It also finalises the higher education budget for the next financial year.

The Ministry of Education uses the detailed provisions of the new funding framework, in the context of the total budget approved for higher education and of approved institutional plans, to allocate grants to institutions for the next funding year.

DIVISION OF THE GOVERNMENT BUDGET FOR HIGHER EDUCATION INTO CATEGORIES AND SUB-CATEGORIES OF GRANTS

The government budget for public higher education institutions, which amounts on average to 50% of their annual income, is divided into two main components; one for earmarked grants and one for block grants. Diagram 4 offers an illustration of how these two main components are divided in turn into a number of sub-components.

Diagram 4: Example of division of government budget between grant categories

It is important to note that the actual proportions reflected in the different boxes in Diagram 4 are examples only, which were based on historical divisions of funds into similar categories. The actual proportions for a given year are determined by the Ministers of Education and of Finance, and can be changed at their discretion.

3.1	Earmarked grants

Diagram 4 shows that most of the earmarked budget is set aside for funds for the National Student Financial Aid Scheme (NSFAS) and for institutional restructuring. A small proportion of earmarked funds (2%) are available for other specific purposes, such as community development projects.

NSFAS is a statutory body which receives an annual allocation of funds from the National Treasury through the Ministry of Education. NSFAS also raises funds from South African and international donors. The amounts available for student financial aid are allocated to institutions by the NSFAS board.

Institutional restructuring grants are special earmarked amounts used to assist institutions which will be merging in either 2004 or 2005. These grants are allocated by the Ministry of Education, after consideration has been given to the business and academic plans of merging institutions.

Other earmarked funds require specific applications from institutions, and are allocated by the Ministry of Education after consideration has been given to all applications received.

3.2	Block grants

The boxes at the bottom of Diagram 4 summarise the relationship between institutional data and the different sub-components of block grants. The sections which follow offer explanations and examples of how an institution’s shares of the various parts of the overall block grant are generated by its data.

4	TEACHING INPUT GRANTS

4.1	Determining an institution’s teaching input grant

The diagram below summarises the processes involved in the calculation of the teaching input grant for any institution in any funding year n.

Diagram 5: Flow chart for the calculation of teaching input grants

The key steps involved in the calculation of any institution’s teaching input grant are these:

4.1.1	The institution’s total of FTE enrolled students for year n-2 is taken to be a proxy for its approved total of FTE student places for year n, subject to adjustments being made (a) to correct data errors, and (b) to make the n-2 total consistent with three-year rolling plans approved by the Minister of Education.

4.1.2	The adjusted FTE total for year n-2 is passed through a grid, (a) which places FTE enrolments into four categories according to course material, (b) which gives different weightings to these course-material categories, (c) which gives further weightings by course level to the FTE enrolments in each category, and (d) which gives finally different weightings to FTE contact and FTE distance students. The resulting grid has 32 cells which can be represented in the two tables below. Table 1 shows which CESM categories have been included in each funding group, and Table 2 gives weightings by contact/distance, by funding group and by course level.

Table 1

Funding groups by CESM categories
Funding group	CESM categories included in funding group
1	07 education, 13 law, 14 librarianship, 20 psychology, 21 social services/public administration
2	04 business/commerce, 05 communication, 06 computer science, 12 languages, 18 philosophy/religion, 22 social sciences
3	02 architecture/planning, 08 engineering, 10 home economics, 11 industrial arts, 16 mathematical sciences, 19 physical education
4	01 agriculture, 03 fine and performing arts, 09 health sciences, 15 life and physical sciences

Table 2

Weighting factors for teaching inputs by funding group and course level
Funding group	Undergraduate & equivalent	Honours & equivalent	Masters & equivalent	Doctoral & equivalent
Contact	Distance	Contact	Distance	Contact	Distance	Contact	Distance
1	1.0	0.5	2.0	1.0	3.0	1.5	4.0	2.0
2	1.5	0.75	3.0	1.5	4.5	2.25	6.0	3.0
3	2.5	1.25	5.0	2.5	7.5	3.75	10.0	5.0
4	3.5	1.75	7.0	3.5	10.5	5.25	14.0	7.0

4.1.3	Suppose that the result of passing any institution’s adjusted FTE enrolled student total through the funding grid is a weighted teaching input total a. Suppose also that the sum of all adjusted and weighted teaching inputs for the public higher education system (a ) = A. If the sum allocated in the national budget for teaching inputs = I, then any institution’s teaching input grant i will simply be the proportion its weighted input units have of the total for the system, multiplied by the total amount allocated for teaching inputs in the national budget. The formal representation of these calculations is:

i = [a/A] * I

Example of the calculation of an institutional teaching input grant for 2004

A straightforward example of the calculation of a teaching input grant for the 2004 funding year would be this:

Suppose that institution X had an (adjusted) total of 10 000 FTE enrolled students in 2002, and suppose further that these are distributed, in the way shown in Table 3 below, between the various cells in the teaching input funding grid. If the FTE students included in the table are all enrolled in contact courses, then the weighted total of teaching input units generated by Table 3 for X for the 2004 funding year would be 24 650.

Table 3

Example of distribution of adjusted 2002 FTE enrolled student total in funding grid
Funding group	Undergraduate	Honours & equivalent	Masters	Doctoral	Total
1	3 500	200	600	100	4 400
2	2 500	100	500	200	3 300
3	1 000	150	300	100	1 550
4	500	50	100	100	750
Total	7 500	500	1 500	500	10 000

4.2.2	Suppose now that the total of weighted teaching inputs for the public system for 2004 is 878 000, and that the government allocation for teaching inputs for 2004 is R5 500 million. X’s teaching input allocation for 2004 would then be:

[24650/878000] *5500 million = R154 million.

5	TEACHING OUTPUT GRANTS

Determining an institution’s teaching output grant

An institution’s teaching output grant for any funding year n is dependent on (a) an actual total of non-research graduates and diplomates for the year n-2, and (b) a normative total of non-research graduates and diplomates which it should have produced in terms of national benchmarks. These totals produce different grants for an institution, as is shown in the flow diagram below.

Diagram 6: Flow chart for the calculation of teaching outputs

The key steps involved in the calculation of any institution’s teaching output grants are these:

5.1.1	The institution’s output of non-research graduates and diplomates for year n-2 are weighted in accordance with the grid set out below. The resulting total is the institution’s actual weighted total of teaching outputs for funding year n-2

Table 4

Weighting factors for teaching outputs
1st certificates and diplomas of 2-years or less	0.5
1st diplomas and bachelors degrees: 3 years	1.0
Professional 1st bachelor’s degree: 4 years and more	1.5
Postgraduate and postdiploma diplomas	0.5
Postgraduate bachelors degrees	1.0
Honours degrees/higher diplomas	0.5
Non-research masters degrees and diplomas	0.5

5.1.2	A normative total of teaching outputs for the institution is then calculated. This normative total is based on the institution’s head count student enrolments for year n-2 and the benchmarks contained in Table 5 below. The outcome of the benchmark calculation is a normative total of graduates/diplomates, which must be passed through the weighting grid in Table 4 above.

Table 5

Graduation benchmarks for contact and distance programmes
Graduates/diplomates as % of head count enrolments
Contact	Distance
1st certificates and diplomas of 2-years or less	22.5%	13.5%
1st diplomas and bachelors degrees: 3 years	22.5%	13.5%
Professional 1st bachelor’s degree: 4 years and more	18%	9%
Postgraduate and postdiploma diplomas	54%	27%
Postgraduate bachelors degrees	54%	27%
Honours degrees/higher diplomas	54%	27%
Non-research masters degrees and diplomas	30%	22.5%

5.1.3	Suppose that the result of passing any institution’s total of actual graduates/diplomates for year n-2 through the grid in Table 4 is a weighted teaching output total c. Suppose also that normative total of graduates/diplomates (generated by applying the benchmarks in Table 5 and the weighting grid in Table 4 to the same institution’s head count student enrolment for year n-2) produces a normative weighted teaching output total of d. Suppose that the sum of all actual weighted teaching outputs for the system (c ) = C, and that the sum of all weighted normative teaching outputs for the system (d ) = D. If the sum allocated in the national budget for teaching outputs = O, then any institution’s teaching output grant o will be the proportion its actual weighted output units have of the weighted normative total for the system, multiplied by the total amount allocated for teaching outputs in the national budget. The formal representation of these calculations is:

o = [c/D] * O

5.1.4	At present the normative total of weighted teaching outputs for the system (D) exceeds the actual total (C). It follows from the calculations in 5.1.3 that the actual amount disbursed in the form of teaching output grants (o) will be less than the sum provided in the national budget (O). Suppose now that the budget allocation for teaching outputs less the actual amount dispersed = S. This “surplus” S will be distributed as a teaching development grant, in the way described in 5.1.5 below, to institutions whose actual totals of teaching outputs are less than their normative totals. An institution’s eligibility for a teaching development grant will be determined in the following way:

A calculation will be made, using only institutions where c < d, of a total E of teaching output shortfalls. If the output shortfall of a specific institution = e, then the teaching development grant for which the institution is eligible will be the proportion its shortfall total e represents of the shortfall total E, multiplied by the “surplus” S on teaching output grant allocations. The formal representation of these calculations is:

possible teaching development grant = [e/E] * S

5.1.5	Institutions which are eligible for teaching development grants will be required to submit formal applications for these amounts. If an applications is approved for year n, then the institution will receive, without having to submit further applications, the teaching development allocations for which it is eligible in year n+1 and n+2. Allocations for further three-year periods will be dependent on assessments of (a) new applications and (b) institutional achievements in teaching development during the previous triennium.

5.3	Example of the calculation of an institutional teaching output grant for 2004

Suppose that institution X had in 2002 a total of 3 300 graduates and diplomates, which were divided into the qualification categories in the table below. Suppose too that X had in 2002 the head count student enrolments set out in Table 7.

Table 6

Institution X’s non-research graduates and diplomates by qualification category in 2002
1st certificates and diplomas of 2-years or less	0
1st diplomas and bachelors degrees: 3 years	1 600
Professional 1st bachelor’s degree: 4 years and more	750
Postgraduate diplomas	200
Postgraduate bachelors degrees	350
Honours degrees/higher diplomas	200
Non-research masters degrees and diplomas	200
TOTAL	3 300

Table 7

Institution X’s head count enrolments by qualification category in 2002
Contact	Distance	Total
1st certificates and diplomas of 2-years or less	0	0	0
3-year diplomas and bachelors degrees:	8 000	3 000	11 000
4-year professional 1st bachelor’s degrees	4 000	1 500	5 500
Postgraduate diplomas	1 000	0	1 000
Postgraduate bachelors degrees	500	500	1 000
Honours degrees	500	0	500
Non-research masters degrees	1 000	0	1 000
TOTAL	15 000	5 000	20 000

The institution’s actual weighted teaching output total is determined by applying weightings contained in Table 4 to the graduate/diplomate totals in Table 6. This actual weighted teaching output total for 2004 = 3 175. The institution’s normative weighted teaching output total is determined by applying the benchmarks contained in Table 5 to the headcount enrolment totals Table 7. The normative output total for the institution for 2004 is 4 575.

Suppose now that the following system-wide totals hold for teaching outputs for 2004:

normative total of weighted teaching outputs for the system = 121 000

actual total of weighted teaching outputs = 90 000

shortfall counting only those institutions whose actual totals are less than their normative totals = 29 500

budget allocation for teaching outputs = R1 378 million

These totals would generate an unallocated teaching output surplus for 2004 of:

[(121000-90000)/121000] * 1378 million = R353 million.

5.3.4	Institution X’s teaching output grant for 2004 would, on these figures, be:

[Actual weighted teaching output total/ normative total for system] * total budgetary allocation for teaching outputs = [3 175/121 000] * 1378 million = R36 million.

5.3.5	Because Institution X’s actual weighted total of teaching outputs is below its normative total, it would in 2004 be eligible for a teaching development grant. This would be calculated in this way:

[Shortfall between X’s normative and actual totals and total shortfall of institutions with shortfalls] * unallocated national teaching output surplus =[1400/29500] * 353 million = R17 million.

5.3.6	If Institution X wishes to make use of the R17 million teaching development grant for which it is eligible, it would have to submit an application to the Department of Education.

RESEARCH OUTPUT GRANTS

6.1	Determining an institution’s research output grant

An institution’s research output grant for any funding year n is dependent on (a) actual totals of research graduates and research publication units for the year n-2, and (b) a normative total which it should have produced in terms of national benchmarks. These totals produce different grants for an institution, as is shown in Diagram 7 below.

Diagram 7: Flow chart for the calculation of research outputs

The key steps involved in the calculation of any institution’s research output grants are these:

The institution’s output of research graduates and publications for year n-2 are weighted in accordance with the grid set out in Table 8 below. The resulting total is the institution’s actual weighted total of research outputs for funding year n-2.

Table 8

Weightings for research outputs
Publication units	1
Research masters graduates	1
Doctoral graduates	3

6.1.2	A normative total of research outputs for the institution is then calculated. This normative total is based on the institution’s total of permanently appointed instruction/research staff for year n-2 and the benchmarks contained in Table 9 below.

Table 9

Ratios of weighted publication units to permanently appointed instruction/research staff
Universities	1.25
Technikons	0.5

6.1.3	Suppose that the result of passing any institution’s total of research graduates and publication units for year n-2 through the grid in Table 8 is an actual weighted research output total f. Suppose also that the normative total of weighted research outputs (generated by applying the benchmarks in Table 9 to the same institution’s total of permanently appointed instruction/research staff for year n-2) is g. Suppose that the sum of all weighted normative research outputs for the system (g ) = G. If the sum allocated in the national budget for research outputs = Q, then any institution’s research output grant r will be the proportion its actual total of weighted output units has of the weighted normative total for the system, multiplied by the total amount allocated for research outputs in the national budget. The formal representation of these calculations is:

r = [f/G] * Q

6.1.4	At present the normative total of weighted research outputs for the system exceeds the actual weighted total produced. It follows from the calculations in 6.1.3 that the actual amount disbursed in the form of research output grants (r) will be less than the sum provided in the national budget (Q). Suppose now that the budget allocation for research outputs less the actual amount dispersed = U. This “surplus” U will be distributed as a research development grant, in the way described in 6.1.5 below, to institutions whose actual total of research outputs are less than their normative totals. An institution’s eligibility for a research development grant will be determined in the following way:

A calculation will be made, using only institutions where f < g, of a total H of research output shortfalls. If the output shortfall of a specific institution = h, then the research development grant for which the institution is eligible will be the proportion its shortfall total h represents of the shortfall total H, multiplied by the “surplus” Q on research output grant allocations. The formal representation of these calculations is:

possible research development grant = [h/H] * Q

5.1.5	Institutions which are eligible for research development grants will be required to submit formal applications for these amounts. If an application is approved for year n, then the institution will receive, without having to submit further applications, the research development allocations for which it is eligible in year n+1 and n+2. Allocations for further three-year periods will be dependent on assessments of (a) new applications and (b) institutional achievements in research development during the previous triennium.

6.2	Example of the calculation of an institutional research output grant for 2004

Suppose that University Y had in 2002 the totals of research outputs set out in the table below. The totals in this table, using the weightings in Table 8, generate a weighted research output total of 180 for the 2004 funding year.

Table 10

Research output totals in 2002
Research masters graduates	80
Doctoral graduates	10
Publication units	70

Suppose also that University Y had in 2002 a total of 200 permanently appointed instruction/research staff. On the benchmark contained in Table 10, these staff members should have produced a total of 200 * 1.25 = 250 weighted research outputs. Y’s shortfall between its normative and actual totals is therefore 250-180 = 70

6.2.3	Suppose now that the following system-wide totals hold for research outputs for 2004:

normative total of weighted research outputs for the system = 15 500

actual total of weighted research outputs = 11 700

shortfall counting only those institutions whose actual weighted totals are less than their normative weighted totals = 2 000

budget allocation for research outputs = R1 123 million

These totals would generate an unallocated research output surplus for 2004 of:

[(15 500-11700)/15500] * 1123 million = R275 million.

6.2.4	University Y’s research output grant for 2004 would, on these figures, be:

[Actual weighted research output total/ normative total for system] * total budgetary allocation for research outputs = [180/15500] * 1123 million = R13 million.

6.2.5	Because University Y’s actual weighted total of research outputs is below its normative total, it would in 2004 be eligible for a research development grant. This would be calculated in this way:

[Shortfall between Y’s normative and actual totals divided by total shortfall of institutions with shortfalls] * unallocated national research output surplus =

[70/200] * 275 million = R10 million.

6.2.6	If Institution Y wishes to make use of the R10 million research development grant for which it is eligible, it would have to submit an application to the Department of Education.

INSTITUTIONAL FACTOR GRANTS

7.1	Grants for institutions with large proportions of disadvantaged students

7.1.1	For the purposes of this grant, disadvantaged students are deemed to be African and coloured students who are South African citizens, and who are enrolled in contact education programmes. For funding year n, calculations are made of the proportions which these students have of the total unweighted FTE contact student enrolment in year n-2.

7.1.2	The institutional factor operates by adding an amount to the teaching input grants of institutions, depending on what their proportions are of disadvantaged students. A calculation is made of the teaching input grant generated by an institution’s contact students, and a proportion is then added to this contact teaching grant. Examples of the additional amounts generated by this factor can be seen in Table 11 below. It is important to stress that this factor operates as a linear and not a step function. So the factor for an institution with a proportion of (say) 48% disadvantaged students would be 1.33%, and for one with (say) 72% disadvantaged students would be 7.7%.

Table 11

Institutional factor grants for disadvantaged students
Proportion of African + coloured students in contact FTE student enrolment (SA citizens only)	Additional amount added to contact teaching input grant
80% and above	10%
75%	8.75%
70%	7.5%
65%	6.25%
60%	5%
55%	3.75%
50%	2.5%
45%	1.25%
40% and below	0

7.1.3	Examples of the application of the disadvantage factor can be seen in the table below:

Table 12

Examples of application of institutional factor for disadvantage
Institution	Proportion of African + coloured students in contact FTE student enrolment	Contact teaching input grant (Rands millions)	Additional grant for disadvantage (Rands millions)
A	90%	200	20
B	70%	200	15
C	60%	200	10
D	25%	200	0

7.2	Grants related to the size of institutions

7.2.1	These size factors take account of economies of scale as the FTE enrolment size of an institution increases. The institutional size factor operates by giving additional teaching input grants to small institutions, depending on the size of their FTE student enrolments. Examples of the additional amounts generated for small institutions by the size factor can be seen in Table 13 which follows. It is important to stress that this factor operates as a linear and not a step function. So the factor for an institution of (say) 7 000 FTE would be 11.2%, and for one with (say) 17 000 would be 3.6%.

Table 13

Institutional factor grants for institutional size
Total FTE student enrolment: contact plus distance	Additional amount added to teaching input grant
4 000 and less	15%
6 000	13.1%
8 000	11.3%
10 000	9.4%
12 000	7.5%
14 000	5.6%
16 000	3.8%
18 000	1.9%
20 000 and more	0

Examples of the application of the size factor can be seen in Table 14

Table 14

Examples of application of institutional factor for size
Institution	Total of contact + distance FTE enrolled students	Teaching input grant (Rands millions)	Additional grant for size (Rands millions)
E	6 000	80	10.4
F	10 000	150	14
G	16 000	250	9.5
H	26 000	400	0

8	MOVING FROM THE CURRENT TO THE NEW FUNDING FRAMEWORK

8.1	The migration strategy

The 2004/05 funding year will be the first in which the new funding framework is implemented. An appropriate strategy to assist institutions in the move from the old formulas is essential to the implementation of the new funding framework. This migration strategy will have to deal with institutions which will be merging into new institutions in 2004 and 2005 as well as with all others which will not be involved in mergers.

The key features of the migration strategy to be adopted are set out in Diagrams 8 and 9 below.

Diagram 8: Implementation of strategy for move from current to new funding framework

The main steps illustrated in flow Diagram 8 are these:

For the first year of the operation of the migration strategy (say 2004/05), the following calculations will have to be made:

(a)	the total, for each institution, of its subsidy income plus ad hoc grants for rates taxes and medical car schemes for the previous year (say 2003/04);

(b) the increase in the national budget’s provisions for block grants in the next year;

(c) the amount each institution would receive if its subsidy income plus ad hoc grants for the previous year (2003/04) total were increased by the percentage calculated in (b) above;

(d) the total which each institution would receive if the block grant total for the first year of operation of the funding framework (2004/05) were to be distributed according to (a) the provisions of the current formula and (b) appropriate institutional data for 2001 and 2002.

A baseline grant B for each institution for the first funding year (2004/05) is then determined as the average of the totals in 8.1.1(c) and 8.1.1(d) above.

Calculations are made for each institution of the grant N, which the new framework generates for it for the next funding year.

The final grant F which an institution will receive in the new funding year (2004/05) will be dependent on the ratio between its new framework grant N (for 2004/05) and its baseline grant B ( also for 2004/05) The three cases illustrated in the flow diagram are these:

Case 1: Suppose that the increase between the national budget for block grants in the new compared to the current funding year is 8%. If N/B < 96%, then the final grant F received by the institution will be 96% of B.

Case 2: Suppose again that the increase between the national budget for block grants in the new compared to the current funding year is 8%. If N/B > 104%, the final grant F received by the institution will be 104% of B.

Case 3: Suppose again that the increase between the national budget for block grants in the new compared to the current funding year is 8%. If N/B falls in the range of 96% to 104%, then the institution’s final grant F will be its new framework grant N.

8.1.5	In second and subsequent years of the operation of the migration strategy, the baseline for the new year (say 2005/06) becomes the final grant for the previous year (2004/05) plus the increase in the national budgetary provision for block grants (in say 2005/06 compared to 2004/05).

Diagram 9 illustrates the operation of the migration strategy in the case of institutions involved in mergers. Once the data of the merging institutions are combined, the procedure operates in the ways outlined in Diagram 8, except for the final steps in each year. These indicate that the Minister can, in certain special circumstances, make adjustments to the final grant of a newly merged institution.

Diagram 9:	Implementation of strategy for move from current to new funding framework: merging institutions

8.2	Further illustrations of implementation of migration strategy

Table 15 which follow give examples of how the migration strategy will work in the next three funding years. Table 15 below deals with actual examples of a range of historically white and historically black institutions.

Table 15

Example of application of migration strategy in next two funding years

(Rands millions)

2003/4 block grant	2003/4 block grant + 8%	2004/05 on old formula	2004/05 funding year	2005/06 funding year	2006/07 funding year
B1	N1	F1	B2	N2	F2	B3	N3	F3
V	157	170	220	195	231	203	219	249	228	246	269	256
W	208	225	185	205	223	214	231	241	240	259	260	260
X	445	483	465	474	442	455	492	477	477	515	515	515
Y	114	123	195	159	158	158	170	170	170	184	184	184
Z	161	174	180	177	142	170	184	153	177	191	165	183

Notes:	(1)	The 2003/04 block grant = subsidy formula totals plus ad hoc earmarked grants.

(2)	B1 = baseline grant for first year, derived by taking average of 2003/04 block grant + 8% and 2004/5 on old formula

N1 = new formula block grant for 2004/05, based on input and output data for 2002

F1 = final block grant, based on migration strategy outlined in section 8.1

B2 for 2005/06 = F1 for 2004/05 + 8%

N2 = new formula block grant for 2005/06, based on N for 2004/05 + 8%

F2 = final block grant for 2005/06, based on migration strategy outlined in section 8.1

B3 for 2004/07 = F2, for 2005/06 + 8%

N3 = new formula block grant for 2006/07, based on N for 2005/06 + 8%

F3 = final block grant for 2006/07, based on migration strategy outlined in section 8.1

The key points to note about the examples in Table 15 are these:

8.2.1	In the case of institutions V and W, their new formula block grants are expected to exceed their baseline grants in each year of the triennium 2004/05 to 2006/07. The migration strategy has the effect of dampening their final grants to their baseline plus half of the expected increase in total block grants = half of 8% = 4%.

8.2.2	In the case of institution X, the new formula block grant is expected to be less than the new formula grant in 2 of the 3 years. In 2004/05, N for institution X is 93% of B. X’s final grant for 2004/05 is therefore 100 – half increase in block grants = 96% of N. In 2005/06 N is 97% of B and in 2006/07 N = B. Therefore X’s final grants F in these years = N.

In the case of institution Y, its new formula block grant in 2004/05 is 99% of its baseline grant, and in both 2005/06 and 2006/07 = its baseline grant. So F for institution Y = N for all three years.

8.2.4	In the final case of institution Z, the new formula grant N is 80% of the baseline grant B in 2004/05, 83% of B in 2005/06 and 87% of B in 2006/07. The final grant F for institution Z in each of these 3 years will = 96% of B.

Gov HE allocations 12 August 03