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‘Performance funding’ making its way into higher education

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Posted: Wednesday, June 20, 2012 9:00 am

First their budgets came under the knife. And now, the nation’s colleges and universities are facing new scrutiny from legislators and governors who want assurances that scarce tax dollars aren’t being wasted.

The message to higher education leaders is simple: “If you want more money, prove you deserve it.”

In the jargon of policymakers, it’s called performance funding.

And little by little, it’s making its way into higher education budgets across the nation, with schools getting more or less money based on their graduation rates and a host of other variables.

Nationwide, the movement is driven by a combination of factors, including the widely held belief that higher education funding levels, which have fallen dramatically in recent years, won’t recover for many years. That’s got budget-minded legislators and governors fretting over how to get the most out of dwindling resources and what they see as inefficient campuses, said Julie Davis Bell, education group director for the National Conference of State Legislatures.

“They’re frustrated about completions. They’re frustrated about transfers. They’re frustrated that students are taking six or seven years to graduate,” Bell said.

The more aggressive states are looking to award significant chunks, 25 percent or more, of higher education funding through these performance systems, she said. They see it as the best way to convince campuses that the status quo isn’t good enough.

“That system has created terrible completion rates,” Bell said. “Our dollars are too precious now to fund schools the way we’ve always funded them.”

Missouri became the latest state to embrace performance funding earlier this month when the Coordinating Board for Higher Education accepted the recommendations of a task force that’s been studying the issue for several months.

The governor and legislature will have the final say on the matter. But as proposed, the system would use performance funding to distribute portions of future increases in higher education funding. Existing budgets would not be affected.

Each school would be graded in five categories. They could vary from school to school, but would include things like the number of degrees awarded, graduation rates and freshmen to sophomore retention rates. An improvement of one-tenth of a percent in a given category would be worth 20 percent of the school’s performance funding budget.

“They’re only judged against their own previous performances,” said Paul Wagner, deputy commissioner for the Missouri Department of Higher Education.

It’s still early in the game, with next year being the first in which performance funding could be included in the state’s budget process. So far, schools appear supportive.

Among other things, the approach offers guidance in terms of what the state wants from higher education, said Troy Paino, president of Truman State University.

“It gives us some direction on what these priorities are and where we need to invest our resources,” Paino said.

Others see it as a chance to demonstrate to a skeptical public that much already is being done on state campuses.

“It will show the public that we are serious about quality higher education,” said Kenneth Dobbins, president of Southeast Missouri State University. “More people will appreciate what higher education does.”

Illinois has taken a decidedly different approach with its system, setting aside a portion of its higher education budget and letting the schools fight over it.

For the 2013 fiscal year, the pot of performance money is $6.5 million. That’s only half a percent of the state’s $1.3 billion higher education budget. But the percentage could grow in future years, said Alan Phillips, deputy director of fiscal affairs for the Illinois Board of Higher Education.

Schools are scored on a variety of variables, including degree completions and the amount of money spent on each degree produced. Schools receive bonuses for low-income and minority students, and for producing degrees in the critical science, technology, engineering and math fields. Community colleges also have a system, but theirs is based more on enrollment numbers.

The final results in the first year provided little drama, with no school gaining more than an extra one-tenth of a percent of funding, and no school losing more than one-fifth of a percent of its funding.

“That was a first go-round. We had a limited amount of time to get something that was workable. We were trying to get enough of an incentive to get it started,” Phillips said.

This isn’t the first time performance funding has caught the attention of policymakers.

States went down this road in the 1990s when their coffers were flush with surplus revenue. Missouri created a system in 1993, while Illinois established one for community colleges a few years later.

As in many states, both programs were considered separate from the base funding received by schools. That made them easily expendable when recession hit in the early 2000s. They died when legislators stopped funding them.

What’s different this time is that the movement is driven by tight budgets and the need to develop stronger skilled labor pools. That’s forcing states to rethink the way they allocate funding, said Travis Reindl, a higher education researcher with the National Governors Association.

“There’s been this assumption that the way we’ve structured higher education is the only possible way we can do it,” Reindl said. “There’s a real interest in trying a different strategy.”

But thus far, there’s been little to suggest that performance funding actually makes schools better, said Kevin Dougherty, a researcher at the Teachers College at Columbia University who has studied the subject extensively.

“One would hope that states will go about this very thoughtfully and carefully,” he said. “If people think it’s an easy magic bullet, they are missing the point.”

Still, he stops well short of dismissing performance funding as a potential tool. Too often, such programs have involved only a small portion of higher education dollars, as is the case in Illinois and Missouri. But bringing more money into play, he said, could make a difference.

For now, that doesn’t appear to be something the region’s schools will have to worry about. The Missouri plan, in particular, recommends that no more than three percent of a school’s budget should be awarded based on performance.

But after being hit by several years of flat or declining state support, administrators say even a modest performance pool will have an impact.

“You don’t have to put a lot of funding at risk to change behavior,” said Nikki Krawitz, the vice president of finance for the University of Missouri.

There could also be unintended consequences of making too much funding subject to performance measures.

George Wasson, president of the St. Louis Community College Meramec campus, cautioned that it could put too much emphasis on those few areas of performance, prompting schools to neglect things — community service activities, for example — that don’t have a direct impact on their grades.

“If these were the only things that were important to colleges, maybe it would work,” Wasson said. “But there are other things that are important.”

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