In May, the Learning and Skills Council will finalise its funding to colleges for the 2004-5 academic year. The total college budget is just under pound;4.5 billion, but this is not enough to deliver government targets. Although spending is on the rise - up by pound;1.2bn between 2002 and 2006 - this still leaves a funding gap. The Association of Colleges costed this gap at pound;1.9bn up to 2008. There are only a few weeks left to influence the Government's decision, which is due to be announced in July.
A more pressing problem for most colleges is the funding gaps in this year's budget. Local LSCs are putting pressure on most colleges to close courses for 2004-5. A strong challenge is being made to "other provision" - courses for adults which fall outside the national qualification framework.
The pressure is also on to reduce franchising. Anything which cannot be nailed to the Government's basic skills or level 2 targets is under scrutiny. The exercise may well reinforce the college claim that much other provision is valuable - work-related evening classes, return to study lessons for adults, that sort of thing. But the process illustrates the risks to college budgets. A more decentralised LSC system means that more decisions will be taken locally but the overall picture points in one direction. The LSC cannot deliver its targets without getting more money from the Government or cutting adult learning and skills.
The overall financial situation overshadows the various reforms that the LSC is introducing in 2004-5. The LSC's new business cycle and its plan-led funding system promise more transparency, stability and certainty for colleges. If this happens, it will be welcome.
The system of funding-claim audits and end-of-year clawback inherited by the LSC from its predecessor is so bad that there's a fairly low threshold for improvement. Nevertheless, there appears to be a genuine wish in the LSC to create a new relationship between local offices and colleges, to delegate decision-making and to plan co-operatively with partners.
Possibly, the problem with the reform is in the timing. In a "what if" world, it would have happened in 2001-2 on a rising budget and given LSCs and colleges the chance to work together on shared goals using the growth money that was available.
As it is, the growth money is earmarked to non-negotiable targets, meaning that the main certainty in 2004-5 is that there will be reductions in adult learning and skills. Meanwhile, the stability that plan-led funding introduces comes at a time of 16-19 expansion. If growth is anticipated, there won't be a problem. If government policies such as education maintenance allowances work better than expected, then this will add to the overheating in the LSC's budget.
Although the LSC is doing several things right, one of its policies is very wrong. Performance-related funding takes effect in 2004-5 and will divide the college world into three unhelpful categories. About 50 colleges will get 1 per cent extra premium funding while a smaller number of larger colleges will get 2.5 per cent less than everyone else.
This divisive policy was invented in 2002 as part of "Success for All" and might have a contribution to make if there was lots of money to go around and a broad consensus on measures of success. Neither applies. LSC staff have worked long and hard to define excellence but the result still isn't satisfactory. Despite the hundreds of millions spent on Ofsted inspections, qualification systems and college data collection, the performance data used to identify those eligible for premium data is flawed.
At each stage of the process over the past 18 months, the LSC has listened to views and tweaked the rules. This is welcome but has had another damaging effect on college budgets. Colleges with a reasonable expectation that they might get premium funding now find they won't because of some technicality.
In a world that genuinely rewarded excellence, you might allow more than 10 per cent to qualify. But the whole notion of rewarding excellence and punishing failure sits oddly in a college sector which is encouraged to take risks and where the Government has had a long-standing commitment to various national standards.
After years in which the LSC has striven to put a set of national rates in place, it now has to introduce a system in which there are three. And what happens in 2005-6? The differences in funding levels will widen or the complexity will get worse.
Performance-related funding is a policy with various parents but few people who care to look after it now. Officials may defend it publicly but few do privately. Orphan policies generally get reversed and, in this case, the sooner the better.
The short-term effect will be to compound the pressure on the colleges, which lose 2.5 per cent. The longer-term effect if the policy stays will be to make things much worse. It doesn't give the Association of Colleges any pleasure to say "we told you so". But we did.
Julian Gravatt is director of funding and development at the Association of Colleges