University foundations lacked success
The transformation of universities into a foundation system has sparked much debate. Significant assets have been successfully removed from direct state control and entrusted to foundations.
With the ongoing model change at the Budapest University of Technology and Economics (BME), as of writing, the number of public interest endowment foundations (PIEFs) operating in higher education and performing public duties has risen to 21 since its launch in 2021.
At the start, the goal, according to news at the time, was to outsource 1,630 billion forints worth of state assets.
The essence, however, remains unchanged: foundations can use the entrusted assets without having to issue public procurement contracts, and it is impossible to track who they entrust with what work.
Universities are removed from the state public procurement system – whether it be for cleaning or research contracts – even though they ultimately continue to operate at the expense of state resources.
The 21 foundations’ annual reports revealed that they managed 1,559 billion forints in 2022 and 1,709 billion forints in 2023. This is eight percent of the state’s assets.
By 2023, state assets amounted to 21.8 trillion forints, equivalent to a quarter of GDP. This is a huge mass of assets, and its management would require transparency.
The 2023 data thus showed that the initial plans were exceeded, with the value of the transferred assets already well over 1,600 billion forints. The components of the total 1,709 billion forints of assets were as follows:1,437 billion forints were invested financial assets, 57 billion forints were securities, 112 billion forints were cash, the amount in bank accounts, and a further 104 billion forints were the foundations’ tangible and intangible assets.
If these foundations sell the shares, stakes, and real estate they receive, for example, we will not even be informed about it.
In addition to the size of the assets, it can be established how inefficient organizations the foundations are.
The 21 foundations spent a total of 4.3 billion forints on wages, of which 2 billion forints were for the remuneration of senior executives. It cannot be revealed exactly who earns what in the system, and exactly how many senior executives receive salaries in the individual foundations.
Wages annually take 0.25 percent of the value of the managed assets, which does not seem very efficient. As a further 12 billion forints are spent on material expenses, depreciation and financial expenses, a total of 0.7 percent of the assets are spent each year just for these foundations to manage the assets donated to them.
In total, 113 billion forints appear in the statements as support granted for scholarship programs or other activities – more details about this cannot be precisely learned from the reports. The state directly supports the foundations with 103 billion forints.
Although the total value of the assets is 1,700 billion forints, the foundations spend only 11 billion forints more annually on universities than the amount of state support they receive directly.
Despite the gigantic assets, it is unlikely that the foundations will be able to maintain the universities without state support, solely from their own resources.
The foundations achieved a profit of 38 billion forints in 2023, but we can only hope that they will later use this for higher education.
The entire foundation model was sold by the leadership with the idea that the foundations, by managing the transferred assets, would maintain the universities with the dividends from the shares and the interest. In contrast, it is the state’s direct subsidies that have increased.
In terms of the proportion of budgetary expenditure, a virtual stagnation can be seen. However, budgetary expenditures towards the institutions are much higher than originally planned. Comparing the data of the law on these with the budgetary facts, it can be seen that
Since 2021, 439 billion forints more have been spent on the foundation universities than the law prescribes.
The reason for the large difference may be that no costs were counted for 2021, but they still arose in significant amounts. In 2022, 20 percent more had to be spent, and in 2023, 34 percent more than the law prescribes – in other words, the planning was not realistic.
The foundations will not become financially independent for a long time to come; until 2026, they planned nearly 340 billion forints in support annually. However, as we have seen, only 100 billion forints of the subsidies came to the foundations, the rest could have been received by the universities themselves.
If we add the approximately ten billion forints of additional support provided by the foundations to the above state support, it does not significantly improve the overall picture. Based on these, it seems today that the university model change has not had much to do with improving financing so far.