Policy Brief
Performance-Based Funding
Higher education today has become a target for criticism in recent years by the public because of the “massification” of higher education (the rapid enrollment growth seen over the past few decades) and limited public expenditures available (Alexander, 2000). Legislators and their constituents are concerned with how public funds are being spent and are calling for more accountability in the budget process, including when it comes to spending money on higher education.
Tennessee was the first state to respond to this call for further accountability by implementing performance-based funding (PBF) in 1979. Performance-based funding is a budgetary model that uses performance-outcome measures, instead of, or on top of, the enrollment-based model to determine how much money a state receives in their appropriations. There are now 35 states that either have some form of performance-based funding policy in place, are transitioning to PBF, or are in formal discussions about the idea (National Conference of State Legislatures, 2013). Each state has its own set of measures to assess the performance of institutions. Some examples of performance measures include graduation rates, retention rates, job placement, program assessment, general education assessment, and success of at-risk populations.
PBF 1.0 vs. PBF 2.0
There are two models associated with performance-based funding. PBF 1.0, the first iteration generally had no more than 2-6% of state appropriations awarded based on performance measures. There are some serious issues with this type of model including ineffective success indicators, negative effects on “at-risk” populations, and some opportunities for institutions to game the system. In contrast, PBF 2.0 models institute improvements that include
With the President calling for 10 million college graduates by 2020, PBF will most likely continue to be a popular way to implement more accountability in the higher education system to work towards this goal.
Tennessee’s PBF 2.0 Model
For the 2011-2012 fiscal year, Tennessee implemented the Complete College Tennessee Act (CCTA) and was the first state to put 100% of its funding of higher education into a performance-based funding model, designed by the Tennessee Higher Education Commission. This model focuses on retention rates and graduation rates but also had a built in 40% “premium” that schools could obtain by serving successfully populations of low income and adult students. The hope being that this will protect those students that would be less desirable at institutions who focused solely on increasing retention and graduation rates. Community colleges and 4-year institutions are looked at differently as well and are held to different standards for each measure-acknowledging the differences in institutional mission. There currently is no research reporting on the affects of this model but anecdotal evidence from institutions has been positive (Locker, 2012; Whissemore, 2012).
Empirical Evidence for PBF
PBF Concerns
Conclusions and Recommendations
Increasing accountability is the way that most states are moving and it will most likely continue in this direction with the economy still slow to recover from the Great Recession. Performance-based funding is a way to meet calls for accountability and try to improve higher education systems. When implementing PBF systems like the 2.0 model found in Tennessee it is important for legislators to consider the following:
References
Abdul-Alim, J. (2013). The Price of Performance. Diverse: Issues In Higher Education, 29(26), 14-15.
Alexander, F.K. (2000). The changing face of accountability: Monitoring and assessing institutional performance in higher education. The Journal of Higher Education, 71(4), 411-431.
Banta, T.W., Rudolph, L.B., Van Dyke, J., & Fisher, H.S. (1996) Performance funding comes of age in Tennessee. The Journal of Higher Education, 67(1), 23-45.
Bradford, C. (2008). Significance of institutional factors in the allocation of state appropriations to public research universities. (Doctoral dissertation). Retrieved from EBSCO. UMI 3337342.
Burke, J.C. & Modarresi, S. (2000). To keep or not to keep performance funding. The Journal of Higher Education, 71(4), 432-453.
Dougherty, K.J. & Reddy, V. (2011). The impacts of state performance funding systems on higher education institutions: Research literature review and policy recommendations. Working paper 37. Community College Research Center. http://ccrc.tc.columbia.edu/publications/impacts-state-performance-funding.html
Frolich, N. (2010). Funding systems for higher education and their impacts on institutional strategies and academia. International Journal of Educational Management, 24(1), 7-21.
Kantrowitz, M. (2012). The college completion agenda may sacrifice college access for low-income, minority and other at-risk students. Retrieved from http://www.finaid.org/educators/20120910completionagenda.pdf
Layzell, D. T. (1999). Linking performance to funding outcomes at the state level for public institutions of higher education: Past, present, future. Research in Higher Education, 40(2), 233-246.
Liefner, I. (2003). Funding, resource allocation, and performance in higher education systems. Higher Education, 46, 469-489.
Locker, R. (November 11, 2012). Tennessee’s outcomes-based college funding model already “changing the way our postsecondary institutions do business,” says Haslam. Retrieved from http://www.politifact.com/tennessee/statements/2012/nov/11/bill-haslam/tennessees-outcomes-based-college-funding-model-al/
National Conference of State Legislatures. (February, 2013). Performance Funding for Higher Education. Retrieved from: http://www.ncsl.org/issues-research/educ/performance-funding.aspx)
Sanford, T. & Hunter, J. M. (2011) Impact of Performance-funding on Retention and Graduation Rates Education Policy Analysis Archives, 19(33). Retrieved May 26, 2013, from http://epaa.asu.edu/ojs/article/view/949
Shin, J.C. (2010) Impacts of performance-based accountability on institutional performance in the U.S. Higher Education, 60(1). 47-68.
Whissemore, T. (June 26, 2012). The ups and downs of performance funding. Community College Times, Retrieved from http://www.communitycollegetimes.com/Pages/Funding/The-ups-and-downs-of-performance-funding.aspx
Higher education today has become a target for criticism in recent years by the public because of the “massification” of higher education (the rapid enrollment growth seen over the past few decades) and limited public expenditures available (Alexander, 2000). Legislators and their constituents are concerned with how public funds are being spent and are calling for more accountability in the budget process, including when it comes to spending money on higher education.
Tennessee was the first state to respond to this call for further accountability by implementing performance-based funding (PBF) in 1979. Performance-based funding is a budgetary model that uses performance-outcome measures, instead of, or on top of, the enrollment-based model to determine how much money a state receives in their appropriations. There are now 35 states that either have some form of performance-based funding policy in place, are transitioning to PBF, or are in formal discussions about the idea (National Conference of State Legislatures, 2013). Each state has its own set of measures to assess the performance of institutions. Some examples of performance measures include graduation rates, retention rates, job placement, program assessment, general education assessment, and success of at-risk populations.
PBF 1.0 vs. PBF 2.0
There are two models associated with performance-based funding. PBF 1.0, the first iteration generally had no more than 2-6% of state appropriations awarded based on performance measures. There are some serious issues with this type of model including ineffective success indicators, negative effects on “at-risk” populations, and some opportunities for institutions to game the system. In contrast, PBF 2.0 models institute improvements that include
- Close to 100% of state higher education appropriations dispersed based on outcome criteria
- Improved performance indicators that more accurately reflect the success of students
- Elements that insulate the funding from state revenue cycle
- Resistance to gaming of the system
- Reduction/elimination of negative impacts
- Lower compliance costs
- Protection of academic standards and safeguards to combat the narrowing of the institutional mission (Dougherty, 2011).
With the President calling for 10 million college graduates by 2020, PBF will most likely continue to be a popular way to implement more accountability in the higher education system to work towards this goal.
Tennessee’s PBF 2.0 Model
For the 2011-2012 fiscal year, Tennessee implemented the Complete College Tennessee Act (CCTA) and was the first state to put 100% of its funding of higher education into a performance-based funding model, designed by the Tennessee Higher Education Commission. This model focuses on retention rates and graduation rates but also had a built in 40% “premium” that schools could obtain by serving successfully populations of low income and adult students. The hope being that this will protect those students that would be less desirable at institutions who focused solely on increasing retention and graduation rates. Community colleges and 4-year institutions are looked at differently as well and are held to different standards for each measure-acknowledging the differences in institutional mission. There currently is no research reporting on the affects of this model but anecdotal evidence from institutions has been positive (Locker, 2012; Whissemore, 2012).
Empirical Evidence for PBF
- Studies that have looked at the impact of performance-based funding 1.0 models and its impact on graduation rates, retention, and overall student learning impacts have reported little to no effect in these areas (Banta,1996; Bradford, 2008; Frolich, 2010; Sanford& Hunter,2011; Shin, 2010).
- Faculty are not convinced that performance-based funding 1.0 models have any effect on the behaviors at their institutions, with many saying that only those less talented faculty will be swayed by PBF and become more productive (Liefner, 2003).
- PBF 1.0 does not have a lot of empirical support and there is no real research on PBF 2.0 models because of its recent inception.
PBF Concerns
- There are many who are concerned about the effects of this type of focus on outcomes that are easily measured, but may not actually measure the quality of the education that is produced (Burke & Modarresi, 2000; Dougherty, 2011).
- Institutions will “game the system” to try to receive as much of the public funding as possible for their schools. If a school wants to improve their retention rates and graduation rates, they can look for the type of population that is usually successful at college. This provides an incentive for institutions to stop serving students of low socioeconomic status, students who are racially diverse, part-time students, and first generation students-all populations that would be considered “at-risk” (Abdul-Alim, 2013; Kantrowitz, 2012).
- Lack of institutional involvement in setting performance measures has also been cited as a concern in the effectiveness of PBF models. The upper-administration is involved at times but rarely are faculty consulted to confirm that the measures will reflect the learning outcomes they teach (Burke & Modarresi, 2000; Dougherty, 2011; Layzell, 1999).
Conclusions and Recommendations
Increasing accountability is the way that most states are moving and it will most likely continue in this direction with the economy still slow to recover from the Great Recession. Performance-based funding is a way to meet calls for accountability and try to improve higher education systems. When implementing PBF systems like the 2.0 model found in Tennessee it is important for legislators to consider the following:
- Ensure that the amount of money tied to the PBF model is sufficient enough to provide incentives for positive change at institutions. To have any success in creating change, 100% of the base appropriation or as close to it as possible should be tied to the model. New PBF models should emulate the 2.0 version.
- Protect “at-risk” populations through built-in incentives that reward institutions for serving this population and helping them to be successful. Incentives should target this population by identifying groups specifically (low-income, adult, first generation, etc.) and tying additional funds to positive performance. This funding should be tied to the base appropriations instead of additional funding to ensure that institutions focus on these groups when instituting programs for student success.
- Assess the PBF model throughout its lifetime to ensure it produces the outcomes that are desired. Make sure that there are clear, measurable outcomes that can be tested and that they align with the vision, mission and goals for higher education in the state. Policymakers should work closely with institutional representatives to construct the outcomes to protect individual school’s vision, mission and goals. Campus coordinators should work with the state closely to provide data critical to assess the effects of the PBF model in place. Finally, the state should report on these affects on an annual basis so that adjustments can be made if outcome goals are not being met. This will also ensure that the public and institutions will be made aware of how effective the policy is.
- Work with the higher education administrators and faculty in your state to construct your model. It is more effective to bring those that work in the system on a daily basis into the fold so that all share the same vision towards improving the higher education system. Identifying administrators at each institution as representatives to work with legislators to create PBF policy will be a key first step to creating a mutually beneficial relationship. These representatives should be present for all meetings related to the creation of the policy and should be given a voice to influence all elements. Once the policy has been created and implemented, regular meetings should be established to review and assess all data collected.
References
Abdul-Alim, J. (2013). The Price of Performance. Diverse: Issues In Higher Education, 29(26), 14-15.
Alexander, F.K. (2000). The changing face of accountability: Monitoring and assessing institutional performance in higher education. The Journal of Higher Education, 71(4), 411-431.
Banta, T.W., Rudolph, L.B., Van Dyke, J., & Fisher, H.S. (1996) Performance funding comes of age in Tennessee. The Journal of Higher Education, 67(1), 23-45.
Bradford, C. (2008). Significance of institutional factors in the allocation of state appropriations to public research universities. (Doctoral dissertation). Retrieved from EBSCO. UMI 3337342.
Burke, J.C. & Modarresi, S. (2000). To keep or not to keep performance funding. The Journal of Higher Education, 71(4), 432-453.
Dougherty, K.J. & Reddy, V. (2011). The impacts of state performance funding systems on higher education institutions: Research literature review and policy recommendations. Working paper 37. Community College Research Center. http://ccrc.tc.columbia.edu/publications/impacts-state-performance-funding.html
Frolich, N. (2010). Funding systems for higher education and their impacts on institutional strategies and academia. International Journal of Educational Management, 24(1), 7-21.
Kantrowitz, M. (2012). The college completion agenda may sacrifice college access for low-income, minority and other at-risk students. Retrieved from http://www.finaid.org/educators/20120910completionagenda.pdf
Layzell, D. T. (1999). Linking performance to funding outcomes at the state level for public institutions of higher education: Past, present, future. Research in Higher Education, 40(2), 233-246.
Liefner, I. (2003). Funding, resource allocation, and performance in higher education systems. Higher Education, 46, 469-489.
Locker, R. (November 11, 2012). Tennessee’s outcomes-based college funding model already “changing the way our postsecondary institutions do business,” says Haslam. Retrieved from http://www.politifact.com/tennessee/statements/2012/nov/11/bill-haslam/tennessees-outcomes-based-college-funding-model-al/
National Conference of State Legislatures. (February, 2013). Performance Funding for Higher Education. Retrieved from: http://www.ncsl.org/issues-research/educ/performance-funding.aspx)
Sanford, T. & Hunter, J. M. (2011) Impact of Performance-funding on Retention and Graduation Rates Education Policy Analysis Archives, 19(33). Retrieved May 26, 2013, from http://epaa.asu.edu/ojs/article/view/949
Shin, J.C. (2010) Impacts of performance-based accountability on institutional performance in the U.S. Higher Education, 60(1). 47-68.
Whissemore, T. (June 26, 2012). The ups and downs of performance funding. Community College Times, Retrieved from http://www.communitycollegetimes.com/Pages/Funding/The-ups-and-downs-of-performance-funding.aspx