PERFORMANCE-BASED

FUNDING FOR HIGHER

EDUCATION
Association of Community College Trustees
July 23, 2014

Agenda

Overview & Background

Policy Issues
Approaches
Current Status
Future of Performance-based Funding (PBF)
Q&A

Performance-based
Funding
You may be asking yourselves . . .
What exactly is performance-based funding?
What do I need to know about it?
What are the local & state issues related to
adopting this model?

Questions from a Trustee

Who will determine the metrics?
What will the metrics be?
Will it be scaled or is it all or nothing?
Will it be for a portion of the funding or
all funding?
What will the reporting time period be?
Annually?
Jim Kelly
Chairperson
Who will oversee the system?
Board of Trustees

Macomb Community College

Overview & Background

Public higher education
accountability:
Pre-1980s Enrollment-based:
States commitment to accessibility &
equitable per-student spending
Individual campus autonomy
Statewide public oversight

Overview & Background

The New Accountability:
Quality of performance, outcomes,
institutional effectiveness
Performance-Based:
Public concern over student outcomes
Demand for skilled workers
Demand for more affordable higher
education
Self-regulation efforts

Overview & Background

Objectives of PBF:
Improve Effectiveness
Improve Efficiency

Overview & Background

Formula-based
Funding tied to performance

Points awarded for

Meeting performance targets
Serving underrepresented students
Diversity

Policy Issues
Public Investment in Higher Education
How is the investment performing/ROI?
Student success
Goal Alignment
Transfer, workforce development &
economic development

Policy Issues
Why try PBF?
Global Competitiveness
Transparency & accountability
Limited public resources

Public Policy Goals

Good stewardship of public resources
Improve retention & graduation rates
Labor market needs & relevance STEM
Access & success for at-risk students
Increase traditionally underrepresented
populations

State & Local Issues

Challenges of PBF:
Varying student characteristics
Lack of available or reliable data
Varying institutional characteristics Defining success
Varying institutional missions

Some Common definitions of success:

Student retention
Graduation rates

Undergraduate access
Student learning

Institutional efficiency
Job placement rates

Course completion
Time to degree

Faculty productivity
Campus diversity

Transfer rates

State & Local Issues

Community College Definition of Success
A small business
A millwright
A recent high school graduate

National Approaches
As Kysie Miao stated in Performance-Based Funding of
Higher Education: A Detailed Look at Best Practices in 6
States (2012),
States have had to carefully assess how their limited
funds are spent on higher education. Performancebased funding is a system based on a state allocating a
portion of its higher education budget for specific
performance measures, particularly course completion,
credit attainment, and degree completion. It goes
beyond funding entirely on enrollment.

National Approaches
Today, as reported by the National Conference of State Legislatures
(3/2014), 25 statesArizona, Arkansas, Florida, Illinois, Indiana, Kansas,
Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, New Mexico, Nevada, North Carolina, North Dakota, Ohio,
Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah and
Washingtonhave a funding formula in place.
These allocate some amount of funding based on such performance
indicators as course completion, time to degree, transfer rates, the number
of degrees awarded, or the number of low-income and minority graduates.
Five statesColorado, Georgia, Montana, South Dakota and Virginiaare
currently transitioning to some type of performance funding, meaning the
Legislature or governing board has approved a performance funding
program and the details are being developed.

National Approaches
Prior to 2010 Ohios higher education funding system relied
on challenge grants which rewarded institutions with
additional funding if they met various enrollment and
completion objectives. The state began to realize, however,
that this system failed to provide incentives, mainly because:
The funding came from sources other than the base
allocation.
Performance-based funding amounts that colleges could
receive was much lower than enrollment-based funding.
Every school received some sort of benefit.

National Approaches
To recognize institutional differences in
mission, student body composition, and goals,
Ohio developed three unique funding formulas
for its universities, regional university
campuses, and community colleges.

National Approaches
Indianas Reaching Higher initiative allocated 5 percent of its
total higher education budget for 20112013 performancebased funding.
Unlike Ohio, Indiana's performance-based funding system
does not distinguish between different types of institutions, it
uses the same benchmarks across the board.
Indiana assesses college completion based on the number of
degrees conferred, degree completion of low-income
students, and the number of community college transfers.
Indiana institutions receive $5,000 and $3,500 for each
additional bachelors and associates degree produced the
previous year, respectively.

National Approaches
Tennessee has implemented an aggressive
PBF model over the next few years, 80% of
total state higher education funding is
expected to be allocated on the basis of
performance. The Complete College
Tennessee Act of 2010 introduced PBF as one
item in a package of reforms centered on
college completion.

National Approaches
PBF creates a model for how
successful institutions use their state
appropriations to support students
throughout their college careers.

Public Policy Impacts &

Results
Governors & legislatures appear responsive to
public needs & demands
Colleges & universities have become more
aware of states goals & instituted a variety of
student success measures
Student success, retention & graduation rates
Indeterminate

Operating Impacts
Insufficient state financial
support to produce desired
outcomes
Lack of institutional capacity
& compliance challenges
Academic quality

Important Lessons
PBF formulas require higher education input to
avoid unintended consequences, such as
potentially harming academic quality
PBF amountstoo small, not therapeutic

Current Status
25 states adopted
5 in transition
7 considering

On the Horizon
According to Complete College America:
There is a growing body of information about
good practices regarding design and
implementation of such [public] financing
models . . . . The field has advanced to the point
that the knowledge base regarding how to
develop such systems is now in place. The issue
now is political will, not technical know how.

Working to Improve Outcomes

American Graduation Initiative
AACCs Voluntary Framework of Accountability
ACCT's Trustees for Student Success
American Association of Colleges & Universities
(AAC&U) LEAP
Lumina Foundations Degree Qualifications Profile
Achieving the Dream
Competency-based Education

National Leaders Speak

As a Community College CAO, what aspects of
performance-based funding most concern you?

A model that is 100% PBF, depending on

other metrics, could be very destabilizing
and make long-term institutional planning
very difficult.
Dr. Jim Sawyer, Provost
Macomb Community College

National Leaders Speak

The problem with performance based
funding is the implementation details.
The worst cases are when state legislators change
the funding criteria every year to suit an individual
short-term goal they havewhich ultimately not only
does not lead to better performancebut destabilizes
the system.

Dr. Jim Jacobs, President

Macomb Community College

National Leaders Speak

The best use of performance funding
would be to decide on a long-term goal
such as student successand determine
what sort of objectives could be met by
institutions to move them into that
direction
Dr. Jim Jacobs, President
Macomb Community College

Questions & Answers

Lois Darga

Accounting Faculty at Alpena Community College

Vikki Gordon

Apprentice Coordinator at Macomb Community College

Lisa Webb Sharpe

Senior Vice-President, Finance, Administration, and Advancement

at Lansing Community College

Veronica Wilkerson-Johnson

Adjunct Professor at Lansing Community College

and Director of the University of Michigan Lansing Service Center

References
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