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Performance-Based Funding for Higher Ed on Rise in Wake of Funding Cuts

December 05, 2012

Performance-based funding for higher education has emerged as a top policy recommendation for addressing concerns ranging from accountability and affordability to helping keep states economically competitive. In states that already have performance-based funding in place, such as Pennsylvania and Ohio, efforts to revise and expand the programs are underway. Ahead of the upcoming legislative sessions, governors in Texas and Wisconsin called for education reform tied to outcomes, including how well colleges and universities are meeting the states' workforce needs, especially for high-skilled, in-demand jobs.

Most states currently award funding based on enrollment, and although more than half of U.S. states have experimented with performance-based funding since the 1970s, only ten states currently have a formula in place that provides some amount of funding based on performance indicators, according to the National Conference of State Legislators. Five states are transitioning to some type of performance-based funding and several others have had formal discussions on the topic. A recent report from the Center for American Progress looked at case studies from six states and found that after an initial wave of ineffective models, including states failing to allocate enough funding to create genuine incentives for colleges to improve, performance-based funding again has begun to gain popularity, but this time with an emphasis on rewarding progress over completion. The author refers to the new policies as “performance-based funding 2.0.”

Pennsylvania and Ohio Commissions Outline Plans to Revise Current Models
Often looked to as a model for its successful incorporation of performance-based funding and rise in graduation rates, Pennsylvania is the latest of several states to consider linking future funding increases to performance. Rewarding institutions through a performance fund on top of base funding is one of several recommendations to come from the Governor's Advisory Commission for Postsecondary Education established earlier this year. Currently, the Pennsylvania State System of Higher Education sets aside 8 percent of its state appropriation to reward schools for meeting certain targets — an approach that was adopted in 2000 and has since evolved.

Under the commission's plan, the state would develop scorecards with outcomes including: increasing access to underserved populations, measuring responsiveness to workforce needs, attracting research funds, and decreasing time to completion, among others. In the first year, funding would remain level at $1.7 billion, but in the following two years, an additional $256 million would be allocated through a separate fund established to incentivize institutions that adapt their programs to meet the prescribed benchmarks. The targets would be jointly developed by the Department of Education and the colleges to reflect the individual missions of each institution. Read the report: http://teampa.com/wp-content/uploads/2012/11/ACPE-Final-Recommendations-11-14.pdf.

In Ohio, half of all state funding awarded to colleges and universities would be tied to degree completion under the recommendations of a task force charged with formulating a revised funding plan for higher education in the next state budget. In the current formula, 20 percent of state funding for higher education is based on degree attainment. The new plan also calls for removing the separate funding formula for regional campuses, awarding universities that attract out-of-state students and keep them in Ohio following graduation, and removing historical set-asides and earmarks. Changes would be implemented in an “aggressive phase-in approach” with the move to completion-based state funding beginning in year one while some of the other steps would happen in year two to allow for additional refinement.

Govs Call for Education Reform Tied to Performance in Texas and Wisconsin
Texas Gov. Rick Perry outlined his higher education initiatives for the upcoming session in an October speech to lawmakers and higher education officials. Among the proposals, the governor wants to tie 10 percent of an institution's state funding to the number of students it graduates. Gov. Perry cited concerns over current figures, which indicate less than 30 percent of students at four-year institutions graduate in four years, and only 58 percent graduate in six years. The governor also advocated for a four-year tuition freeze and renewed his call for more institutions to create $10,000 bachelor degrees. Currently, nine institutions have announced or implemented the new degree options following Gov. Perry's 2011 challenge. Read the news release: http://governor.state.tx.us/news/press-release/17697/.

Broad policy recommendations for the upcoming session, including tying funding for technical colleges and the University of Wisconsin System to outcomes, were delivered by Gov. Scott Walker during a speech last month. Although sparse on specifics, Gov. Walker said his proposals for education reform will tie funding to outcomes, including how well the education system meets the state's need for trained workers, reports the Wisconsin State Journal.

Texas, Wisconsinhigher ed, workforce