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2012 February 20 - 12:00 am

COVER STORY: Get Results, Get Paid

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California Gov. Jerry Brown, shown at the California State Capitol in Sacramento, is among governors who have called for college funding to be based on academic outcomes. 

C O V E R   S T O R Y

Get Results, Get Paid
More States Warm To Outcome-Based Funding Formulas
By Paul Bradley

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When President Obama stood before an enthusiastic throng of students at the University of Michigan the day after his State of the Union address and declared that colleges must rein in tuition and produce more graduates, he was doing more than striking a populist chord during an important election year.

By unveiling a list of proposals that would steer more money to states and institutions that are able to graduate more students and prepare them for the workforce, the president marked a significant shift in educational policymaking. An administration that once emphasized access above all else was now talking about something else: how to best get better results from colleges in an austere economic environment.

“We should steer federal campus-based aid to those colleges that keep tuition affordable, provide good value, serve their students well,” Obama said.

“We should push colleges to do better. We should hold them accountable if they don’t.”

His remarks gave voice to a trend that is gathering momentum in states across the country: funding colleges based not on enrollments, but on measurable educational outcomes.

The trend being driven by two converging trends: the need to produce more college graduates for a 21st Century economy as state support for higher education continues to recede at historic levels.

“We are seeing a growing emphasis on outcomes-based funding,” said John Curtis, policy analyst for the American Association of University Professors. “It’s a result of the economic environment, but it’s also being seen as a way to measure what colleges are doing.”

While Obama and federal officials are now taking notice of outcomes-based funding, it has already been taking hold in the states. In California, home of the country’s largest community college system, Gov. Jerry Brown’s new budget ties community college financing to meeting performance goals, such as preparing students for transfer to four-year colleges. The budget would nudge the system away from its historic open access mission toward goal-oriented education, targeting some state financing to those goals.

The changes being contemplated in California are embodied in the “Student Success Act of 2012,” which aims to put into law the recommendations of a task force that studied community colleges.

Comprehensive Plan

“This is a comprehensive plan that will result in more students completing certificates and degrees and transferring to four-year institutions,” system Chancellor Jack Scott told state legislators during a hearing. “Completion matters. It matters for students – whose earnings increase as they become more educated – and for our state as a whole.”

California is just the latest state that wants to devote at least a portion of higher- education funding based on what is variously termed performance-based funding, outcomes-based funding or student success funding. According to the National Conference of State Legislatures, six states approved such measures in 2011.

Around the country, the initiatives and approaches adopted by states last year and before are as diverse as the states themselves:

  • In 2007, Indiana launched a performance set-aside system for the state, rewarding colleges based on benchmarks shared by all state institutions.

  • In Louisiana, lawmakers approved a measure in 2010 that when fully implemented, will base 25 percent of institutional funding on performance measures. Colleges will be allowed to increase tuition by up to 10 percent in return for meeting outcomes benchmarks.

  • In Pennsylvania, an outcomes-based system approved last year will evaluate all state colleges on five common measures (two in student success, two in access and one in institutional stewardship) and five additional measures selected by the colleges themselves.

  • The Washington State Board for Community and Technical Colleges has developed a performance set-aside system under which colleges are measured on their ability to build college-level skills, boost first-year retention rates, improve completion rates for college-level math and award more degrees and certificates.

The move toward outcomes-based funding is not new, and has had a mixed record of success, according to a report by the American Association of Colleges and Universities. Between 1979 and 2007, 26 states enacted performance-based funding, while 14 states abandoned their programs. Most of the programs were set up in the 1990s when state coffers were flush and dropped when revenues declined.

Now, the trend has taken on new life amid the wreckage of the economic downturn and more sophisticated data collection and analysis.

“Advances in state student data systems and policy refinements acquired from years of…state experiments have allowed the postsecondary financing strategy to re-emerge as a core component of the productivity and college completion agenda,” the AACU report said. “The Lumina Foundation, the Bill & Melinda Gates Foundation, College Board, National Conference of State Legislatures, National Governors’ Association and Education Commission of the States have promoted (performance-based funding) as a policy option for improving campus productivity and boosting college completion.”

Not everyone believes that states are on the right path. The AAUP’s Curtis believes the trend “represents a fundamental debate about what higher education is all about.”

“The public policy debate has become much too narrow,” he said. “I find that disturbing. Is the purpose of college to go, to finish and to get a job? That’s a narrow way of looking at it. It has implications that a lot of people have not thought through.”

“We want people to think for themselves and be able to make decisions. We should be preparing people for a future and a career, not just a job.”

Such concerns have done little to slow the trend, and nowhere has the embrace of outcome-based finding been more aggressive than in Tennessee. There, under the 2010 Complete College Tennessee Act — championed by former Democratic Gov. Phil Bredesen with bipartisan support — nearly every dollar given to colleges eventually will be based on an outcomes formula. The state has scrapped the enrollment-based funding model used in most states; enrollments play no role in college funding.

In higher education circles, Tennessee and its aggressive approach is being seen as something of a Petri dish for reform. The state has an ambitious goal of boosting the number of college graduates by 3.5 percent a year, yielding 210,000 more associate and bachelor’s degrees by 2015.

“What we are doing is well beyond the tinkering some other states are doing,” said Russ Deaton, director of fiscal policy and facilities analysis for the Tennessee Higher Education Commission. “It is completely new.”

Tennessee had strong incentives for a top-to-bottom reform. It ranks near the bottom of national rankings of educational achievement. Only 31 percent of adults aged 25-34 have a college degree. At the same time, the state estimates that 54 percent of all jobs in Tennessee will require some kind of postsecondary credential by 2018.

The legislation spells out specific goals for colleges, such as increases in graduation rates or retention of first-year students. The goals are weighted by institutional mission, and the weights can be adjusted over time. For community colleges, the measures include degree production, job placements and student transfers with at least
12 credit hours. Colleges earn points each time a student achieves a measure and
funding is based on a school’s overall score.

“There are no targets,” Deaton said. “There is a performance element. The better you do on the outcomes, the better the funding.”

Allocations can go up or down based on how a college does, but a gradual phase-out of the program means that changes in funding can’t vary by more than 2 percent a year. Still, all state funding is up for grabs every year, Deaton said. Based on the outcomes-based model, community college funding in 2011-12 was slightly less (.2 percent) than it would have been if funding had been based on enrollment, according to the THEC.

Deaton believes that Tennessee’s reform approach can work in good economic times and bad. States around the country are calling on Tennessee to learn details of its approach.

“I think this is the way state policy should go, no matter what financial shape you’re in,” he said. “It’s more important now, in tough economic times. You have to make sure you’re spending money in places where you get results.”

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