Regarding budgetary financing there should be some news concerning private institutions of higher education. If these institutions satisfy university standards set up by The Ministry and National Council for Higher Education they could be included in budgetary funding. This is good news because there will be competition between the institutions for higher quality of education and research. Distribution of budgetary funds should also be changed. The budget proposal and its division between teaching and reserach activities of the university should be done by National Council for Higher Education taking into account suggestions made by The Council for Financing Scientific Research and Higher Education. Those bodies are nominated by The Croatian Government but using suggestions coming from academic institutions. There should be 'lump sum' or 'block budget' for financing particular university. When receiving 'lump sum' the university can autonomously decide about distribution of these resources according to adopted policy. Practicaly, it means financial autonomy of the university. With such an autonomy, university as a whole and each member of academic community become completely responsible for their own work. But to make it really efficient, before the application of new legislation, the relations between institutions of higher education who make up university must be thoroughly investigated. The complete new structure of the university should be established as the new way of financing higher education is a radical change to the existing situation. The Board of Governors of the university should decide on: - annual financial report, - investment and purchasing of equipment of higher value at the university, - giving consent for entering contracts for the amounts above those determined by the statute, - complaints and requests for the protection of rights, - other important administrative, financial and operational issues which are determined by the statute of the university. This is also some sort of compromise because The Ministry of Science and Technology did't decide to completely (and formally) abolish the autonomy of institutions within the university. They will be still existing as legal subjects and acting in their own name. They will be able to use own sources of income totally independent, leaving at least 5% of the income coming from tuition fees and entrepreneurial activities to the other members of the university. The usage of this resources is strictly limited for scientific purposes only, namely to cover costs of international seminars and conferences as well as books, periodicals, technical equipment, membership in professional associations and publishing. This is meant as some sort of solidarity among the university members. The rest of own resources income would be used to cover the other costs, except for educational purposes. These costs are again: publishing, scientific conferences, curricula development etc., but within the institution, not at the university level. It is clearly seen from the table 5. and figure 2. that the share of budget funding at University of Split has fallen from 74.2% in the year 1998 to 67.05% in the year 2001, the tendency to be continued in the nearest future. As a conclusion for this part of report, the budgetary funding would be united at university level, thus making functionally integrated university. The income coming from tuition fees and other entrepreneurial activities would be at disposal of the institution member, except from small portion of something like 5%. This is only a partial achievement of the reform of higher education, but The Ministry decided to go step by step, not to make lot of noise. We think it is mainly due to political reasons, because some institutions of higher education who earn lot of money from entrepreneurial activities threatened to go alone, without the university. Universities in Croatia, as it is situation now, are not capable to act within new legislation without radical changes regarding their staff and resources. The examination of the quality and efficacy of education, scientific research and professional work of an institution of higher education and its organisational units is carried out by the National Council on the basis of the following criteria, such as: - the ratio of the number of teaching staff and students, - the students’ ; scholastic ability and the time required to complete a course of studies, - the quality of premises and technical equipment, - the list of published papers, - the students’ ; assessment of the teachers’ ; work and level of satisfaction with the studies, - its reputation in public. The Financial Council determines the criteria for the allocation of government budget funds to institutions of higher education. The Financial Council elaborates a budget proposal for institutions of higher education and passes resolutions on the allocation of budget funds to the institutions of higher education which perform public service on the basis of periodical evaluation carried out by the National Council and the ranking of the quality and efficacy of the institutions of higher education, as well as on the basis of the national special requirements for the education and training in certain professions and the requirements of the institutions of higher education. The Ministry may entrust expert legal entities to carry out independent evaluations of the quality and efficacy of institutions of higher education, which perform public service. As the budgetary situation in Croatia worsens there should be much more emphasis on extra-budgetary resources. Namely, tuition fees should be reasonably higher than it is situation nowadays. The raising of tuition fees is a very sensitive issue in Croatia as it is in the rest of world, and thus not very popular political gesture. Tuition fees have not been changed since several years ago despite rise in expenses in order not to provoke political dissent among students and their relatives. It was done at the expense of institutions of higher education and it was substituted by the increase of the number of students enrolled in higher education. As the consequence, the quality of teaching becomes endangered. Some institutions are 'chasing' students to be enrolled to their particular courses and some are in panic they would not get enough students to survive in the future. In our opinion this situation is going to worsen because there will be less and less young people coming of university age. This is a consequence of severe demographic problems in Croatia. As for example, in the year 1979 there were 69, 299 children born alive, but in the year 2001 there were only 40, 993 born alive, drop of 40.85%, very significant indeed. As it appeared in the newspapers, The Ministry of Science and Education would like to increase the number of students enrolled from present 120, 000 (estimate in 2002/2003 academic year) to 200, 000 in the year 2010. We think it would be impossible to achieve, due to demographic situation. Now we have the situation that 91.36% secondary school leavers enter the university or applied science university (2001/2002 academic year), which is a very high percentage, even when regarding western standards. The percentage of the population aged 18 years who enter the higher education is about 68%, which is also very high. So we think there is no much room to increase the percentage of young people entering the higher education system, but there is much to be done to increase number of graduates. From table 2. it is clearly seen how low is the number of graduates. In the year 2001 only 13, 810 people graduated at universities and applied science universities together. Last year at University of Split we had two students enrolled at the first year mathematics course and two at physics course at The Faculty of Science. When it comes to the way of financing particular institution the main key for the distribution should be the cost of studying according to the scientific field (medicine, science, engineering, technology, humanities and arts) instead of number of academic staff currently employed. With this change universities become more responsible for the efficient use of budgetary resources and thus the process of education more efficient and shortened. The length of study is very painful issue for Croatian universities, since it is much longer than in western universities. The consequence of existing situation is wasting the time and money, both by students and academic staff. There is very high dropout during studies, particularly after the first academic year. This is due to liberalised entrance to the university. Universities are stimulated to get more students enrolled because they can use the bulk of tuition fees for their own purposes. Thus, this change in financing the university would make the percentage of graduates much higher than it is now. The new way of financing requires big change in existing finance departments, both at university and institutions' levels. Finance department of the university should have many more employees, and at the same time financial departments of the institutions would have to lower their number of staff since the bulk of financial activities switches from institutions to university level. Maybe, functionally integrated university would need less non-academic staff thus making some people redundant. The university should be the employer for all members of staff, not the institution within the university. As for beginning of the reform process there should be established The Agency for Science and Higher Education with the initial fund of about 650, 000 US$. The reform of higher education in Croatia as it is supposed by Bologna process would need more academic staff and more facilities available in the process of higher education. It has been estimated that there would be 20% more financial resources needed in the fifth year of implementation of Bologna process. As it is supposed to appoint supervisors for all students, it would be necessary to make students/teacher ratio much lower than it is now. Is is impossible to calculate this additional cost, since it would depend on university decision about number of students to be enrolled at particular course. There will be also great need for reeducation of many academics in order to achieve European standards in higher education. Partially, it will be financed through TEMPUS/CARDS programme, namely 'University Management' and 'Curriculum Development'. The other projects are 'Institution Building' aimed to strengthen the links between academia and non-academic sectors of civil society and 'Mobility' for the inclusion of Croatian institutions of higher education in the European network of institutions of higher education.