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The funding of fachhochschulen in AustriaHans Pechar

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aInstitute for Interdisciplinary Research and Continuing Education, University of Innsbr

Organisation und Didaktik von WissenschaftbInstitute for Interdisciplinary Research and Continuing Education, University of Klage

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Tertiary Education andManagement Vol.3, No.2, 1997, 165-172

The Funding of Fachhochschulenin AustriaHansPecharPolicy backgroundMost O ECD countries established a non-univer-sity sector during the 1960s and 1970s. Austriadid not follow this trend (Lassnigg and Pechar1988). Until recently in this country higher edu-cation was a universities' monopoly. There hadbeen attempts to create an alternative to univer-sities in the early 1970s. Ironically they wererejected by a coalition of conservative and left-wing arguments. Conservatives argued that Aus-tria would need no diversification of highereducation, because they though t they could pre-vent an expansion of universities. From theirpoint of view a more diversified system wouldease access and would encourage more young-sters to enrol than the economy would need.From a left-wing perspective, diversificationwould create a two-class system o f higher educa-tion; it would deprive students of lower socio-economic s t a tu s o f the fu l l r ew ard o fparticipating in higher education.

Eventually, in the late 1980s, there was a changeof opinion. In 1990 the government decided toestablish a Fachhochschul sector. In 1993 the legalbasis for this new sector (FHStG) was passed byparliament. In 19 94 th e first students enrolled onFachhochschul courses. The sector is small andwill only grow slowly. In quantitative terms onecould easily neglect the Fachhochschulen. How-ever, in qualitative terms they are quite remarkableand receive a lot of attention from policy makersand the general public

The most obvious difference to universities is thecurriculum. The whole Fachhochschul sector wasdeliberately founded in order to provide short andvocationally-oriented study courses. But further-more the Fachhochschul sector differs fundamen-tally from the traditional universities in terms oforganization and funding. It is a major step towardsderegulation of Austrian higher education.

There can be no doubt that if Austria hadestablished Fachhochschulen in the late 1960 s orearly 1970s, this sector would basically havebeen a copy of the university sector in terms oforganization and funding. However, in the early1990s, when the new sector was planned andorganized, the policy context had changed. Atthat time, the heavy state regulation of Austrianhigher education came increasingly unde r attack.A reform of university organization, starting in1991, attempted to strengthen the manageriallevel at the universities and to shift d ecision-m ak-ing power from the state to the institutions(BMWF 1991). However, this reform processproved to be very difficult and controversial. Anew organizational act for universities waspassed in 1993, but this was a compromise be-tween the proponents and the opponents of thereform and only a cautious step towards moreinstitutional autonomy. The new organizationalact is still in the early stages of implementationand it remains to be seen whether it will be - atleast partly - a success (Pechar 1996b).

Dr Hans Pecharis atthe n s t i t u t eorInterdisciplinary Research and Continuing Educationofthe UniversitiesofInnsbruck KlagenfurtVienna,AbteilungTheorie,Organisation und Didaktikvo nWissenschaft Westbahnstrasse40/6, A -1070 W ien.Tel: 00 43 1 52696 88.Fax:00 43 1 526 968 818.Email:[email protected]


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16 6 HANS PECHAR

This change in the policy context exercised anenormous influence on the establishment of theFachhochschul sector. It was clear from th e verybeginning th at the n ew sector must not duplicatethe structures of the old universities. The organ-izational concept for Fachhochschulen was evenmore radical than the reform proposals for uni-versities (BMW F/BMU K 1992 ). Of course, it iseasier to build u p new structures than to changeexisting ones. Nevertheless, the new organiza-tional concept for Fachhochschulen was verycontroversial. The re was a lot of resistance againstsuch a fundamental change in the relations be-tween the state and the educational institutions(e.g. Mrkvicka and Kaizar 1994). An examina-tion of the Austrian higher education system bythe OECD with the focus on the new Fach-hochschul concept proved very helpful. In spring1993 the OECD presented its review whichexpressed strong support for this concept1(OECD 1995). Only a few weeks later theFHStG was passed by parliament.

One way to establish a non-university sectorwould have been to upg rade existing institutionseither at the secondary or at the postsecondarylevel. For several reasons this approach was notchosen. Parts of the business community wantedto sustain the technical schools, which wouldhave been candidates for upgrading into Fach-hochschulen. Other candidates would have beenthe academies for teacher training at non-univer-sity level, and the schools for medical assistants.However, policy makers feared that such an up-grading would result in higher salaries for thegraduates of the respective schools and be aburden on the public budget. For those reasons,the Fachhochschul sector was built up with com-pletely new institutions. This has the importantimplication that the new sector can only growslowly and th at it w ill be in short-term and evenmedium-term perspective - much smaller thanthe university sector.

Another important preliminary decision wasnot to follow a top-down, but a bottom-upapproach. The starting point should not be a'master-plan' by the government which decideson a few locations and subjects. Rather th e process should advance by decentralized initiativesThis leads to the implication that students are notconcentrated in a few Fachhochschulen buspread over many institutions. On the other handthose institutions are, at least in the first years,very small, enrolling only a few hundred stu-dents. The first Fachhochschul courses started in199 4. After tw o years, a total of less than 20 00students have enrolled on 20 courses, which arespread over 11 institutions.Differences Between Universities andFachhochschulenThe em phasis of this paper is on funding, b ut tounderstand the new funding mechanism oneneeds the perspective of the whole organiza-tional concept. A good way to give a general viewis to contrast the Fachhochschul sector with theuniversities. In this context this can o nly b e d onevery briefly and rather schematically:

Both sectors are regulated b y federal law.Howev er, the function of this legal basis andthe rang e of the respective acts differ funda-mentally from each other. For the universitysector there is a large num ber of acts, manyof them voluminous; their function is a tightregulation in terms of organisation, person-nel and study courses. For the Fach-hochschul sector one act exists only, consist-ing of a few paragraphs, which provides afairly open legal framework for the activitiesof the single institutions.

A fundamental issue is the maintainance andgovernance of the institution. All universitiesare owned by the federal state and governedby the ministry. For the Fachhochschul sec-tor there are no legal owne rship restrictions.

1 The OECD a lso recommended that the government should commission a series of studies to monitor theimplementation of the new law. This paper is based on the monitoring of funding (Pechar 1996a).


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THE FUNDING OF FACHHOCHSCHULEN IN AUSTRIA 16 7

All institutions are owned by 'quasi-private'2associations or corporations and are gov-erned by a professional management.The university academic staff are employedby th e federal state; faculty m embers are civilservants; professors are appointed by theminister. The staff of Fachhochschulen areemployed and appointed by the institution.An important criterion for the scope of insti-tutional autonomy is the admission of stu-dents. For the university sector, admission isregulated by federal law. Graduates of thesecondary elite track are entitled to enrol atany Austrian university. The re is open accessregardless of means. In the Fachhochschulsector students are admitted by the institu-tion in accordance with available studyplaces.Wh o decides on the curriculum? At the uni-versities there is a hierachical regulation ofstudy courses by four stages: two federallaws, a ministerial decree and finally a 'fine-tuning' by the universityitself At the Fach-hochschulen decisions on the curriculum aremade by the responsible academics in coo p-eration with th e institutional management.An important difference between the twosectors refers to the philosophy of qualitymanagement. In both sectors professionalself-control by academics is crucial. In a ddi-tion, at the un iversity sector anex ntecontrolby federal law is exercised. Universities aresupposed to have equal status and standardsof quality. Th e final respon sibility for qualityin the Fachhochschul sector is in the hand ofan external professional body, the Fach-hochschulrat. The Fachhochschulrat guar-antees minimal standards ofquality.Further-more, Fachhochschulen are expected to varywide ly in terms of profile and q uality of theireducation.

The Funding of Fachhochschulen andUniversitiesBefore dealing with the details of funding theFachhochschulen, I shall give a general overview,which contrasts the principles of funding in thetwo sectors: Universities and Fachhoc hschulen differ inthe funding background philosophy: in bothsectors the federal government plays andominant role. However, for th e universities,the federal government has accepted respon-sibility for covering all costs, whe reas for th eFachhochschulen it has accepted o nly a lim-ited responsibility. One could say that thestate has a rather pa ternalistic relationship tothe universities and a more distant o ne to theFachhochschulen. The government is com-mitted to meet all the financial requirementsofth universities. To make tha t possible, thegovernment insists on defining those re-quirements. The universities can only makeapplications and proposals; it is always theministry which has the last word in decidingwhether or not these claims are legitimate.This requires the government to interfereconstantly in the internal affairs of universi-ties, in order to make proper judgementsabout whethe r or not universities need m oreresources. Once the government has agreedon certain requirements, it is legally obligedto provide all necessary resources. For theFachhochschul sector the federal govern-

ment choose a different approach: it makesno claims to define the financial require-ments of Fachhoch schul courses - rather itstates how much it is willing to pay tosupport them. There is no need for Fach-hochschulen to make applications to theministry. If they choose to offer m ore expe n-sive studies, they are at liberty to do so.However, they must then look for othersources of income. They have complete en-trepreneurial freedom, with one exception:they are not allowed to charge tuition fees.

2 The y are private in the sense of the Austrian legal traditions, which only recognize s a difference be tweenfederal and private ownership of higher education institutions. However, in m ost instances, public bo dies jointhe associations, or are shareholders of the companies which own the institution. Therefore one cannot speakof strictly private owner ship.


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168 HANS PECHAR

As a conseq uence of those different b ack-ground philosophies, there are importantdifferences in the sources of income for uni-versities and Fachhochschulen. The univer-sities depend entirely on th e federal govern-ment; about 98 % of their income comes fromthis source.3At the Fachhochschul sector wehave a totally different picture. On average,only 5 4% of the total income comes from thefederal government: the rest comes eitherfrom other territorial authorities (i.e. Landerand/or municipalities), or from the privatesector of the economy.

A further poin t refers to the funding mecha-nisms for federal funds. As we have seen,federal funding is basically the sole source ofincom e for universities and it is still the mostimportant one for Fachhochschulen. How-ever, universities get that money in the formof earmarked grants, whereas Fach-hochschulen get a lump sum which is basedon student numbers.

After so man y differences one should alsoemphasize an important characteristic bothsectors have in common: there are no tuitionfees in Austria, neither at universities nor atFachhochschulen. Attempts have been madeto introduce fees for the Fachhochschul sec-tor but the parliament has decided that stu-dents in both sectors have to be treatedequally with respect to that issue. In recentyears a serious debate on fees started inAustria (Pechar and Keber 1996) and thereis a growing tendency that policy-makersand the general public favour some kind offinancial co ntribution by students.

The Role of the Federal Gov ernmentBy Austrian constitutional law, higher educationis the responsibility of the federal government.As we have seen, the federal go vernm ent fulfilsthat responsibility for the Fachhochschul sectorin a very different way from th e university sector.It has limited its role to pro viding a basic fundingfor Fachhochschul courses on the o ne hand, and

to ensuring a overall coordination of the sectoron the other hand.In 1994 the federal government published adevelopment plan for the Fachhochschul sectorwhich determines the size of the sector up to theyear 2000, the amount of money the governmentwill spend per study place, and the conditions onwhich the institutions will receive federal fund-ing. As already mentioned, th e sector will growrather slowly: the government has announcedthat it will fund 10,0 00 study places until theyear 200 0. The reason for this cautious develop-ment is not only a lack of money but also unc er-tainty about how the new model of organizationand funding will stand the test of time.In this first phase (until 2000) the federalgovernment will provide only recurrent expen di-tures - no capital expenditures. Capital expend i-tures must come from other sources This should

guarantee that an institution has substantial sup-port from either regional and local governments,or from the business community. The currentexpenditures are provided on the basis of 'nor-mative costs' per study place. Those normativecosts have been determined on the basis of cal-culations which are also used in the universitysector (Keber 199 2). This should guarantee tha tboth sectors are treated equally. The normativecosts for technical studies are 105,000 ATS, forbusiness studies 88,000 ATS. However, the fed-eral government pays only 90% of these costs -the rest must come from other sources. It isimportant that the normative costs have beencalculated under the assumption that at least1000 students are enrolled in one institution.

Under which conditions are institutions eligi-ble for federal funding? First, a course must beaccredited by the Fachhochschulrat. This guar-antees that the minimum criteria in terms ofacademic quality are met. Second, a course mustfulfill a number of policy criteria established inthe development plan. The federal governmentwill, for example, prefer courses in disadv antagedregions; or part-time courses for students who are

3 Th e only additional source of income are 'third party funds'. However, little is know n about the amount ofthat income; most of it is probably private income of those faculty members who are engaged in contractualresearch and consulting.


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THE FUNDING OF FACHHOCHSCHULEN IN AUSTRIA 16 9

Table 1 Total expenditures and different income sources for Fachhochschulenduring the contract period of 5 years

BKNOO 5SStVWTotal

Total inMillionAT S

2 103 1 44 1 757 215953 02 4 02 1 8

2,660B = BurgenlandK = KarntenNO = NiederosterriechOO = Obeiosterreich

FederalstateM14 09 6

2 9 8329

8 92 1 511 115 9

1,437

673172585641467354

LandM5414 27 22 0 45326712 94 89 6 9

%264517363350542236

MunicipalitiesM16614 738337

2 0 2S = SaltburgSt = SteiermarkV = VorarlbergW = Wien

%81911727

8

EnterprisesM

15

14111151

%

5

9252

already employed; or courses with internationalcooperation. It is not necessary that a coursefulfills all of these c riteria, but a certain minimumis required. The se policy criteria aim at an overallcoordination of the sector and are an instrumentfor the federal government to set priorities.If an application for federal funding is ap-proved, the ministry and the institution make a

contract which determines the num ber of studyplaces which will be funded by the federal gov-ernment for a period of 5 years. A drop-out rateof 10% is tolerated. If the drop -out is higher, thefederal funds are reduced proportionally.In the first two years the government made 20contracts. Based on the calculations of the insti-tutions, the total expenditures for these 20courses over a period of 5 years will be about 2.7billion ATS. Fifty-four per cen t of this sum comesfrom the federal government.

The Role of the Lander and MunicipalitiesIt is no surprise that the Lander have not beenpleased by the federal government's decision tolimit its financial responsibility for the Fach-hochschul sector. It was easy to forsee that itwould be primarily the Lander and municipalities

which would have to pay for the rest. In theorythe Lander still oppose this policy of mixedfunding, on the grounds that it is the federalgovernment which has constitutional responsi-bility for all types of higher education. In prac-tice, however, the Lander and municipalitiescontribute to the funding of Fachhochschulenand they spend much more money than wasoriginally expected.We can distinguish three types of costs Landerand municipalities have to cover. First, capitalexpend iture (which in most cases is not very highat present, as the institutions are small and theyusually manage with ex isting building s). Second,the 10% of the normative costs which the federalgovernment refuses t o pay. Third, th ose e xpen di-tures which surpass the normative costs deter-mined by the federal government (see below).

On average, Lander and municipalities meettogether 4 4% of the total expenditure (see Table1). However, the funding patterns between theLander differ enormously. The share met by theLander varies between 17% and 54%. In someLander the municipalities contribute nothing atall;in one case they pay 19% of the total expen-diture. Therefore, the share of the federal govern-ment varies between 3 1 % and 73 % . It is


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important to note that the federal governmentspends the same sum for each study place. Thedifferences in the contributions of Lander andmunicipalities are mainly due to the differencesin the spen ding p atterns of the institutions. Thereare wide variations in the expenditures per studyplace. Some institutions live within the normativecosts determined by the federal government; oth-ers spend more, in extreme cases even more thantwice as much.There are also interesting differences in therelationship between the Lander governmentsand the institutions. All Lander endorse 'their'Fachhochschulen in one way or another. Whatmatters is the way they do it. Some Landerexercise a similar style of normative funding tothe federal government. Others have adopted arather paternalistic relationship to their Fach-hochschulen, similar to the one the federal gov-

ernment has with the universities. Finally, someLander have a very liberal attitude, allowing theFachhochschulen to spend virtually as much asthey w ant. It is no surprise that these Lander haveto accept the h ighest share of the overall expen-ditures.

Are the Norm ative Costs Sufficient?The new funding arrangements give the Fach-hochschulen much more institutional autonomythan the universities can dream of. This bringsthem many advantages, but at the same timerequires qualifications which have no roots andtraditions in Austrian higher education. Only aprofessional management can master the chal-lenges which arise when higher education insti-tutions have t o act lik e enterprises. Evidence fromthe first two years suggests that the Fach-hochschulen have been quite successful in devel-oping professional skills and competences.

The crucial issue is whether or not the Fach-hochschulen can survive with only the normativecosts determined by the federal state. It is a factthat most institutions do spend significantlymore, but the reasons for this are less clear. Doesit show that the normative costs are unrealisti-cally low, not allowing a high enough quality ofeducational services? Or does it show that some

Fachhochschulen waste money, because they canafford to do so?Some objections from the Fachhochschulenabout the funding practices of the federal gov-ernment are quite justified. O ne argum ent is thatthe normative costs are not protected againstdepreciation by inflation; the real value of federalfunding decreases year by year. Another argu-ment points out the unfair competition betweenuniversities and Fachhochschulen. The formerare part of the protected sector with academicsbeing civil servants and having the right tounlimited extra income. The latter cannot offersuch fringe benefits and must therefore payhigher salaries in order to recruit equally well-qualified academicstaffJustified as these arguments are, they cannotexplain the full disparity between the normativecosts and the actual expenditures by most insti-

tutions. Two other points are more important.Firstly, the small size of most institutions (seeTable 2). As mentioned, the normative costs havebeen calculated on the assumption that at least1000 students are enrolled in each institution.Even in the fifth year, only one institution willmeet that number, another one will come close.All other Fachhochschulen have only a few hun-dred students and are therefore saddled withextremely high fixed costs per study place. Thefederal government does not compensate forthose high fixed costs: it wants to force theinstitutions to overcome their small size and tocreate a critical mass as soon as possible. How-ever, some Lander protect their Fachhochschulenagainst this economic pressure by compensatingTable 2 Enrolments of Fachhochschulcourses s tart ing in 19 94 /95 and 19 95 /9 6

Enrolments1-100101-2002 0 1 - 3 0 0301^1004 0 1 - 5 0 05 0 1 - 6 0 06 0 1 - 7 0 0

1994/95313-11

1995/96181----


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THE FUNDING O F FACHHOCHSCHULEN IN AUSTRIA 17 1

them generously. Some Fachhochschulen there-fore feel quite comfortable with their 'cosy' sizeand do not make every effort to reach a criticalmass of at least 10 00 students.The second point refers to the didactical fea-tures of Fachhochschul courses. They deliber-

ately create a pedagogical cl imate whichcontrasts sharply with that of the universities.Whereas teaching at the universities is dominatedby mass lectures, Fachhochschulen usually havelectures and seminars for groups of only 20, 15,or sometimes even 10 students. It is impossibleto afford this intimate pedagog ical climate, whichis reminiscent of elite colleges, with the norma-tive costs paid by the federal government. If theFachhochschulen want to manage within norma-tive costs, they must find a balance between biglectures and small seminars. It is again the fund-ing practice of some Lander and municipalitieswhich shield these institutions from economicrea l i t ies . Some representa t ives of Fach-hochschulen even argue that their institutions areentitled to much higherpe rc pit expendituresthan the universities. In their view the Fach-hochschulen will be the elite sector of Austrianhigher education, whereas the universities willrepresent the mass sector. It is, however, veryunlikely that such a vision will become a realityfor Austrian higher education.

ConclusionsBy and large, the new funding model for Fach-hochschulen has been implemented successfully.Although there are no role models in Austria forthe high degree of insti tutional autonomygranted to Fachhochschulen, institutions havequickly developed the skills and techniques re-quired to deal with lump sum budgets and fullfinancial responsibility. A new pattern of interac-tions betwee n governments at different re-gional levels and institutions of higher education- has developed . However, one can also observesome problems.A weak point of the present funding pattern isa lack of sufficient overall coordination by thefederal governmen t. Obviously the ministry hasno intention o f continuing in the new sector withthe paternalistic and overprotective attitude

which characterizes the relationship betw een th egovernment and the universities. This new policystyle is welcomed by most players in highereducation and has, by and large, been successful.However, there remains a need for a m ore proac-tive coordination of the Fachhochschul sector,and the federal government has not yet found th eproper instruments to cope with this task. Itseems that the policy criteria established in thedevelopment plan are not sufficient. The govern-ment should set stronger priorities; it must find abalance between a 'bottom-up' and a ' top-dow n'approach.

It should be a top priority for the nex t years tosupport the growth of the existing institutions,instead of spreading th e resources over even moresmall institutions. Fachhochschulen with only afew hund red students are often weak in academicterms, but they are even more problematic interms of funding. The high fixed costs make itunlikely that they can offer a high quality edu-cation, with expenditures that match the norma-tive costs of the federal governm ent. At the sametime it is hard to believe that, in the lo ng run, theLander and municipalities will continue to fundtheir institutions as generously as they did in theprevious years.A final point refers to th e relationship betweenuniversities and Fachhochschulen. One couldlook to the reform in the Fachhochschul sectoras a kind of experiment, to test new and innova-

tive ways of organization and funding whichcould in future be implemented in the muchlarger university sector. There are different waysin which the Fachhochschulen could influenceand change the behaviour of universities. It islikely that universities will soon ask for some ofthe attractive features of Fachhochschulen, suchas lump sum budgets or the right to select theirow n stude nts. It is also possible that at least som euniversities will even adopt voluntarily some ofthe less attractive features of Fachhochschulen,such as normative costs. Finally, if the Fach-hochschul sector continues to be successful, it islikely that the political pressure for reforms atuniversities will increase. Fachh ochsch ulen couldthen serve as a role model.


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