Appendix 1: Governance and funding arrangements
Governance arrangements
Tertiary education institutions (TEIs) are Crown entities, independently governed by councils with functions that are set out in the Education Act 1989. The Act supports and preserves TEIs' academic freedom and autonomy. TEIs need to balance operating autonomously with being accountable to the public and to the Crown. The Crown monitors the performance and viability of TEIs through the activities of the Ministry of Education, the Tertiary Education Commission (TEC), and the New Zealand Qualifications Authority (NZQA).
A university or wānanga council can have between eight and 12 members, and the required number or range is set out in its constitution. In councils of eight or nine members, three of those members are appointed by the Minister of Education (the Minister). The Minister appoints four members in larger university and wānanga councils, and four of the eight council members (including the chairperson) in institutes of technology and polytechnics (ITPs). Appointments are usually for four years. Council members who are appointed by the Minister are not directly accountable to the Minister.
In certain circumstances, the Crown may actively support TEI councils to govern their TEIs. Sections 195A to 195D and 222A to 222F of the Act set out formal intervention powers for the Crown that allow for different levels of support, according to the TEIs' individual situations. The powers range from requiring a TEI to provide specified information about its operation, management, or financial position at a given time, to dissolving the TEI council and appointing a commissioner to govern the TEI.
TEI councils employ only one staff member: the chief executive. Unlike almost all other public organisations, the State Services Commissioner does not have powers to set minimum standards of integrity and conduct for TEIs. Therefore, it is important that councils diligently oversee chief executives, and understand that it is the council's responsibility to set the tone and culture at the top of the organisation. This matters because New Zealanders expect integrity from their public servants. Public trust in government and the public sector can be easily lost.
Roles and responsibilities of tertiary education institutions
Section 159ABA of the Act sets out the planning, funding, and monitoring framework of the tertiary education sector. This framework requires TEIs to prepare plans (currently called investment plans) that set out their responses to the Government's tertiary education priorities and to stakeholder needs. The TEC uses these investment plans to determine the amount of Crown funding for TEIs. TEIs are also required to prepare an annual report that includes, among other information, financial statements and a statement of service performance, which we audit.
How tertiary education institutions are funded by the Crown
Most funding is distributed through a bulk funding arrangement, involving a few separate but closely related funds. These funds are mostly based on TEIs' investment plans and have a three-year baseline that is updated at each budget.
The Student Achievement Component (SAC) funding is the largest source of revenue for TEIs (about $2 billion in 2017/18). It provides subsidies for teaching and learning for approved tertiary qualifications. Most students pay some tuition or other course-related fees.
SAC funding allocations are based on projected total student enrolments agreed in the TEIs' investment plans. The unit of funding allocation is an "equivalent full-time student" or EFTS. We use the term full-time student when talking about EFTS. The full-time student value is calculated using a formula with funding rates that vary significantly by the type of qualification and its level and duration.
Other funds support a range of core roles, capability needs, and innovation not directly related to student enrolments. The largest of these is the Performance-based research fund ($309 million for 2017/18).The Performance-based research fund is used to allocate the bulk of the Crown's research funding to TEIs. The TEC allocates this fund based on assessments of research quality. It aims to raise the quality of research done and to help ensure that teaching at the degree level and above is supported by research.
Other sources of revenue for tertiary education institutions
TEIs also receive revenue from research, contracts, fees, and other sources. Student fees are a considerable source of revenue for universities and polytechnics, but make up only a small proportion of revenue for wānanga. International students and other full-fee-paying students bring in additional revenue from fees, but not SAC funding.