The claim by the Northern Ireland Colleges' Consultative Forum follows the decision by Secretary of State Sir Patrick Mayhew to make sharp cuts in adult training, university funding, new school buildings, libraries, the youth service and other education services.
A Department of Education working group proposed the funding formula, based on systems now operating in England and Wales. Instead of basing college budgets on equivalent full-time students, after incorporation in August 1997, they would be paid according to a formula based on "student powered units of resource".
Around 5 to 10 per cent would be given for the recruitment phase, with extra funds available for recruiting adult students or people with special needs; 80 per cent of SPURs would be earned from the learning phase, weighted to reflect the differing lengths and course costs.
Another 5 to 10 per cent is proposed for the outcome phase, the amount earned being based on the success and attendance rates of students. Each college would also receive Pounds 250,000 to reflect its central core costs.
The report, which has been circulated for consultation, argues that the present system does not encourage colleges to ensure students remain for the whole course and gain qualifications.
A formula based on SPURs should increase participation by adults, boost and reward retention, give a higher premium to courses contributing to the national education and training targets and give recognition to colleges recruiting students from recognised social need backgrounds, it says.
The colleges' forum, representing the 17 FE colleges, accepts that the proposed formula has many positive and welcome features, but claims that growth can be achieved only by driving down the unit of resource unless there is a substantial increase in funding each year.
It adds that the new system will be onerous and expensive in information gathering, processing, managing and auditing. "The proposed mechanism could require an average of four additional clerical staff per college just to maintain the data on the computer system.
"At an average cost of Pounds 12,000 per college the annual increase in costs could be about Pounds 816,000 across the sector. With costs such as software maintenance and auditing, this would rise to more than Pounds 1 million a year," said a spokesman.
The forum argues that the cash targeted at social needs should be four times higher; more encouragement should be given to recruiting students with learning difficulties; it is unfair that colleges should lose all funding of a student who fails to attend for two-thirds of the course; partial exam success should be rewarded; and allowance should be made for the costs of rural colleges and those with several sites.
NATFHE criticises the assumption that the overall level of funding for further education will not increase. It says this is disappointing as an earlier Department of Education committee pointed to the historic under-funding of the sector.
The union rejects the notion of output-related funding, claiming that it will damage quality. It agrees with the colleges' forum that the funding mechanism should reflect better the costs of individual colleges and that the targeting social need element should be increased.