07.06.2010
 
Budgeting for higher education in Israel
 
This following is a summary of an issue discussed in Economic Developments in Recent Months no. 127, January to May 2010, to appear shortly.
 
  The high rating of the quality of research in Israel is the result of investments made in the past.
  The cuts in the budget for higher education and the lowering of tuition fees, contrary to the worldwide trend of increasing them, are expected to lower Israel's international rating.
  The rapid expansion of higher education and the erosion of public financing make it necessary to increase the budgets for higher education and to introduce significant changes in the way they are allocated.
  It is especially important to increase competition between universities and colleges, and to enhance the incentives offered by the Planning and Budgeting Committee of the Council for Higher Education for the improvement of the quality of teaching and research.
In the last two decades Israel's higher education system underwent many changes: (1) with the establishment of colleges, most of which are financed mainly by state funds, the number of students trebled, twice the rate of population growth, (2) the spread of colleges country-wide considerably increased the accessibility of higher education, particularly in outlying areas; (3) the budget for higher education has eroded in real terms in the last ten years--tuition fees for a first (Bachelor's) degree were reduced gradually by 26 percent, as a result of the implementation of the Winograd Committee (2001), and the state's contribution to the budgets of the institutions for higher education was cut. In recent years independent income of the institutions from donations also fell, due to the global economic crisis.
As a result of the many changes in the number of students and the composition of the student body, alongside the real reduction in public financing, the existing model of budget allocation, used since the beginning of the 1990s, has many drawbacks, which are reflected in the quality of research and tuition in the higher learning institutions:
  a) the existing model does not encourage competition between the institutions in the quality of research. As research is the end product specific to the sphere of higher education, allocating the research budget on a university basis (block grants) does not motivate researchers to maximize their research efforts. The current method of allocation cancels the direct link between the budget received by the university on the one hand, and research and its quality on the other.
b) The model does not encourage improvement in the quality of teaching either. Allocating money on the basis of the number of full-time-equivalent students without regard to the quality of teaching encourages the institutions to increase the number of students who complete their studies within the specified time, occasionally at the expense of the level of the studies.
c) The tariffs paid by the government to the universities for teaching were set according to the average costs in two universities in 1990, and reflect the situation prevailing in those universities in that year; it is not clear if they should still be maintained. They have not been re-evaluated since the base year, but have just been updated in line with price changes.
d) The model does not relate to the need to ensure appropriate teaching and research in fields of unique national importance (such as Judaism, Jewish history, Hebrew literature and Hebrew language, and other Jewish languages).
The economic literature has been examining methods of effectively stimulating higher education, and it suggests several principles for its efficient budgeting. These should be implemented in Israel too. They are discussed in greater detail in the forthcoming Recent Economic Developments.
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