Search Continues for Performance-Funding Model for Higher Ed

If state agencies made New Year’s resolutions, high atop the Texas Higher Education Coordinating Board’s list would likely be finding a politically palatable model of performance-based funding for the state’s public universities.

For the past three legislative sessions, coordinating board leaders, the Texas Association of Business and others have encouraged a shift from providing state funding to universities purely based on student enrollment to a formula that, at least in part, rewards and creates incentives for student achievement. Proponents believe it would encourage productivity at the universities and help align funding with state priorities. Others have been wary of potential unintended consequences of altering state appropriations — especially in recent years of tight higher education budgets.

In his 2013 State of the State address, Gov. Rick Perry, said: “We should tie at least a portion of state funding — I'm suggesting a minimum of 10 percent — based on the number of graduates. We need to encourage these schools to get their students educated and ready to work as quickly as possible.”

Despite the high-profile push, and while there has been progress toward implementing similar models at community and technical colleges in Texas, there has been little movement toward making such a change at the university level. Due in part to a lack of support from the universities for the coordinating board's proposals, legislators have consistently opted not to institute an outcomes-based approach.

Currently, at the coordinating board, an advisory group made up of university representatives is mulling potential tweaks to past recommendations in hopes that legislators might reach a consensus in 2015. The tweaked proposals are scheduled to be turned over to the full board in March.

Susan Brown, the coordinating board’s assistant commissioner for planning and accountability, said the board’s formula recommendation in the 2013 session — which would have allocated a portion of institutions' funding based on three-year rolling averages of metrics such as total undergraduate degrees awarded, number of degrees in fields deemed critical, and other factors — was criticized because it did not sufficiently take into account the differing missions at different types of institutions.

Texas has 38 public four-year universities that range in size and cater to varying populations with differing goals. As an example, Brown noted that the top-tier University of Texas at Austin does not expect or want to grow much in the coming years. “So they have different issues than Texas State University or Sam Houston State University, which are growing very rapidly,” she said. 

In November, the advisory committee heard a presentation from Trey Miller of the RAND Corporation, an international education research organization, who had been brought in to critique past proposals and recommend changes.

In addition to ensuring that the model accounts for the missions of different kinds of institutions, Miller recommended increasing the amount of funding that would be dependent upon performance. The best practices suggest that, to make a difference, performance funding should account for 5 percent to 25 percent of the state’s total funding for higher education. Miller said the most recent proposal in Texas only accounted for 5.2 percent of total funding.

Miller also recommended the state tweak its definition of “at risk” students. The current definition includes students who receive a federal Pell Grant, those who are enrolled part time, those who have GEDs and those who entered college after age 20. That means roughly 65 percent of Texas university students are considered “at risk.”

Narrowing this definition could better account for student characteristics at different institutions, Miller said. He said that best practices, gleaned from research and the experiences in states that have successfully implemented such models, indicate that a performance-based formula should include rewards for and incentives to encourage success with "at risk" students.

According to the National Conference of State Legislatures, 12 states currently have some form of performance funding for higher education. Texas was ahead of the curve when it began discussing the idea ahead of the 2009 session, Brown said. If the state implemented it next year, she said, Texas would be in the middle of the pack. And there are reasons for supporters of a new funding model to be wary of further delays.

Miller said that political instability scuttled attempts to implement performance-based funding models in other states. With a new governor and a new chairman of the House Higher Education committee certainly on the way in Texas, amid other potential changes, the 2015 session could be an unstable time.

“We’re hopeful,” Brown said of the prospects for outcomes-based funding. “But there is going to be such a new group of legislators coming in that I don’t know if anybody has a good feel as to what their priorities will be.”

She said the formula advisory committee had not yet reached an agreement on which changes to make. There was some concern that the proposals from RAND would be too complicated and unwieldy and that a simpler model might be more effective.

In addition to RAND’s recommendations, the committee members are also considering formulas that other states have implemented. They are particularly studying Tennessee, which has moved to a funding system that is entirely performance-based. In the Tennessee model, the funding formula for each institution varies depending on its mission.

But unlike Texas, Brown noted, Tennessee had a legislative mandate to move toward such a formula. “It takes a legislator to come out and say, this is what we’re going to do,” she said.

Additionally, the Tennesseans who developed that state’s formula only had to balance the needs and desires of roughly a quarter of the four-year institutions that Texas has. Developing a consensus in the Lone Star state’s higher education community can be a daunting task.

“If we can get all 38 to agree and say they’re behind it,” Brown said, “that will be the model we go with.”