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2019 report – Effectiveness and appropriate use of federal government’s Higher Education Compact funds at risk

May 15, 2019

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Executive Summary

The “Higher Education Compact” (the Compact) concluded by the federal and state governments will expire in the year 2020. On 3 May 2019, the Joint Science Conference decided on agreements to succeed the Compact. On 6 June 2019, the heads of federal and state governments are to adopt such agreements. The federal government intends to earmark permanent funding of more than €2 billion annually for this purpose. We have decided to report to the parliamentary Budget Committee about our audit findings on the “Programme to increase university access for students” (first pillar of the Compact) and on the “Quality Compact for Teaching” (third pillar of the Compact). The report makes recommendations for put the funds to better use as part of the proposed federal grant extension. The report also takes into account he comments made by the Federal Ministry of Education and Research (the Ministry) on our draft report.

The programme to increase university access has not achieved key objectives: Government funding has not prevented student support from eroding. This raises doubts as to high-quality study programmes. It is also doubtful whether the programme has really helped to increased university access for students. It is not possible to verify whether all state governments have actually paid their share to the overall programme as agreed. In individual states, per-capita expenditure on students decreased.
By their practice of also funding private universities, federal and state government tolerated considerable deadweight effects. The special arrangements of the programme led to study programmes being offered in individual states that would not have been viable without additional government funding and were not justified since they did not constitute a nationwide interest.

The Ministry did not analyse what added value its grants to the states would have as part of the largely flexible higher education funding. Thus, the Ministry failed to get a basic overview of the preconditions to be met to ensure an appropriate and suitable use of federal funds. As a result, the Ministry permitted states to create some considerable unexpended balances in their budgets. Also some higher education institutions built up either reserves or liabilities making up a multiple of their annual grants from the Compact. The Ministry did not analyse the necessity and appropriateness of this practice. In allocating funds, the Ministry did not comply with budgetary law provisions.

The annual implementation reports proved to be non-transparent and did not show consistently whether the federal states and higher education institutions had used the grants appropriately. We were not able to identify what specific actions state governments had taken as part of reciprocal grant funding. Furthermore, the programme evaluation the Ministry had conducted did not encompass all components of a programme results study. So far the Ministry has failed to make the budgetary arrangements needed for a successor programme. A prerequisite for such a further funding programme is that the Ministry states the need, objectives and appropriate instruments for the purpose.

The Ministry has supported permanent tasks of higher education institutions by means of the “Quality Compact for Teaching”. The Ministry did so without demanding a substantial financial share of the federal states. As a result, in the future, full funding of future projects is not ensured. This means that the effectiveness of the Ministry’s grant funding support has been put at risk. The “Quality Compact for Teaching” did not improve student counselling at higher education institutions. Other objectives of the programme remained unclear so that there was no yardstick for accurately assessing the support’s success.

The Ministry still intends to strengthen the strategy and structure of “Innovation in Higher Education” by furnishing temporary project grants. However, the Ministry has so far not justified the need for further federal government support in an adequate and structured way. Nor did the Ministry consider how federal funding fitted within other grant schemes pursuing the same or similar objectives. Furthermore, the Ministry did not conduct any detailed studies to substantiate the need for putting into place a separate body to manage grant funding. 

We warn against using any successor programme of the Compact for purposes of vertical fiscal equalisation, all the more so since such a programme cannot be terminated unilaterally by the federal government. This is a major fact seen in the light of the German fiscal equalisation reform that will impose additional burdens on the federal budget. Our recommendations for a possible successor agreement to the Compact are set down below:

  • Due to the significant amount of federal funds to be earmarked for the Compact, the Ministry should seek the advice of the Budget Committee before concluding new agreements between the federal government and the federal states.
  • The federal government needs to define clear and verifiable objectives for a successor agreement. We advise against giving individual states or group of states a special status purely for financial reasons.
  • We do not see any legal basis or need for the federal government to support a programme and a body designed to foster “Innovation in Higher Education”. Any reasonable successor agreement to the Compact needs to take into account both quality assurance of science and the ability of higher education teaching to renew itself.
  • We consider concluding individual implementation agreements with the federal states a necessary instrument to enable target-oriented and effective support. This approach will help federal government support to better fit into the respective system of contracts concluded between a federal state and the higher education institutions.
  • Given the fact that the federal states and higher education institutions have considerable unexpended balances, we note with concern an annual increase of federal funds for a successor programme. The federal government should make available funds only when they are actually required.
  • We consider it absolutely necessary that in developing any successor agreement of the Compact the federal states provide their funds in a transparent and accountable manner and provide testimony to the relevant budget deliberations.

We welcome that fact that the Ministry has adopted positions on the successor programme of the Compact in line with our recommendations. The Ministry should not abandon its positions. If necessary, the Ministry should postpone concluding the planned successor agreements and launch negotiations with the federal states to develop enhancements.

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© 2019 Bundesrechnungshof