Texas House OKs bill that would fund community colleges based on their performance

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A bill that would dramatically change how Texas funds its community colleges is sailing through the Legislature, receiving its first major stamp of approval Wednesday in the Texas House.

House Bill 8 would fund community colleges primarily based on how many of their students graduate with a degree or certificate or transfer to a four-year university. Currently, schools are largely funded based on the number of hours students spend in a classroom.

The bill is sponsored by Rep. Gary VanDeaver, R-New Boston, who served on a commission of lawmakers and community college presidents last year that recommended the changes, along with a long list of ways the state could better support the more than 642,000 students who attend Texas’ 50 community colleges.

Besides calling for a performance-based funding model, the commission recommended providing more support for high school students who want to earn college credit, more state grants for low-income students and a stronger commitment to workforce development programs that show they can help students get a job and good wages. Those are often noncredit courses in which students can get a certificate to start working in a new field or gain a new skill within the field they are already employed.

So far, state lawmakers have signaled during this legislative session that they’re willing to provide funding to support these ideas.

“Through this bill you are setting Texas on a path to meet the workforce challenges that we know exist today and will only increase in the future,” VanDeaver told members on the House floor Wednesday. “But more than that, members, be proud that through this bill you are creating generational change for Texas families for years to come.”

The Texas Senate and House included a total of about $650 million in their budgets for the new funding model. They also provided money to increase classroom space for high-demand programs and offer financial aid to low-income high school students who want to take college classes known as dual-credit courses.

Overall, early calculations of the new funding model provided by VanDeaver’s office estimate that community colleges could see a 31% increase — an extra $305 million — in funding for fiscal year 2024.

That amount would include more money for the state community college program known as the Texas Educational Opportunity Grant Program. Right now, the state provides funding to cover only 28% of the students who qualify for the grant. The new budget proposal would raise that number to 70%.

When broken down by college, those early estimates of the new funding model show from an additional $700,000 at Galveston Junior College to more than $33 million extra at the Alamo Colleges District in San Antonio.

“This is a transformative opportunity for the state to organize and better support its community colleges in serving Texas students and employers,” said Renzo Soto, a policy adviser at Texas 2036, a nonprofit focused on improving Texas’ future through public policy. “Texas will help lead the nation in embedding workforce value into its credential offerings by relying on strong labor market data, ensuring that students graduate with a credential that has proven returns on investment.”

The legislation now heads to the Senate, where some lawmakers have signaled fairly bluntly that its passage is essentially a foregone conclusion. Rep. Bryan Slaton, R-Royse City, was the only representative to vote against the bill.

“It’s gonna pass,” Sen. Mayes Middleton, R-Galveston, told Texas Higher Education Commissioner Harrison Keller at a Senate subcommittee on higher education last month as they took testimony on the Senate’s version of the bill. “I mean, knock on wood,” he said as he glanced at Sen. Brandon Creighton, R-Conroe, who is carrying the Senate version of the bill.

Middleton’s confidence in the bill’s future prompted his main question for Keller at that committee hearing: Presuming these changes are signed into law, what would it look like to implement the legislation?

HB 8 lays out a road map for the Texas Higher Education Coordinating Board to implement the new funding system, but it would require the state agency to determine many specifics such as the new formulas to calculate just how much money each college would receive. As the bill is written now, the state agency would have until Sept. 1, 2023, to put the new system in place. Keller told The Texas Tribune that means they’d need to have the details decided by mid-July so they can get state approval.

Despite broad support for the bill, community college leaders and advocates say state approval for a new system is only just the beginning.

“A lot of people are talking about this as a once-in-a-lifetime opportunity, but passing it is only half the battle,” said Katy Launius, an education policy expert with the Lumina Foundation and a former Dallas College employee. “The real work comes in what the implementation of policy looks like.”

Creating flexibility

Right now, Texas community colleges are primarily funded by local property taxes, student tuition and fees and state money.

While every college receives a little over $1.3 million for core operations from the state in each two-year budget, the rest of the money is allocated in two ways. The vast majority of that funding depends on how many hours of instruction students receive, called contact hours. The rest — around 10% — is awarded based on milestones like the number of students who complete their first year of math, earn 15 credit hours or graduate with an associate’s degree.

But over time, the state’s share has not kept pace with other sources of funding and now accounts for less than 25% of community colleges’ budgets. Leaders also say the state needs to rethink how community colleges respond to workforce demands and enroll more students in programs for industries that pay well — but don’t take a long time to complete.

Over the past few years, community colleges saw enrollment declines exacerbated by the COVID-19 pandemic, which has negatively impacted their budgets. Meanwhile, Texas’ growth as a state has not occurred evenly across all regions, making those budget woes even worse for small and rural colleges.

Plus, under the current system, Texas lawmakers allocate a pot of money every two years that is then distributed to schools based on a set of formulas, pitting schools against each other for that set amount of dollars.

Mike Simon, president of Angelina College in rural East Texas, said smaller schools in areas with shrinking populations suffered.

“We might increase our contact-hour production in a given biennium but if other institutions had grown faster, especially institutions in areas of the state with faster population growth — in some cases explosive population growth — you have less overall funding,” he said.

As a result, the funding system incentivized schools to add students and increase the number of courses offered, rather than ensuring they’re earning their degree in a timely manner.

“Do you want to pay me to have students take courses? Or you want to pay me to have students graduate and become productive?” Cesar Maldonado, chancellor of Houston Community College said. “For the first time in decades, the funding will align with the mission of the institution that comes from the state, in being a rapid developer of [the] workforce, and of students that transfer to university.”

A different way 

The proposed system under HB 8 would shift the balance so the majority of state funding would be based on student outcomes, and schools would compete for funding against their own progress in those areas.

Specifically, the legislation says the state would allocate funding to colleges based on metrics like the number of credentials they award in high-demand industries, the number of students who earn 15 credit hours and then transfer to a four-year university, or the number of high school students who earn at least 15 credits through a dual-credit program.

“It makes it a more reliable, dependable funding stream,” VanDeaver said. Instead of waiting for lawmakers to allocate a pot of funding each session, he said, schools would be able to look at their data and determine what their funding levels would be.

Keller said if those incentives work, the Legislature would have to increase the amount of money to the colleges.

“But this would be a great problem to have,” he said. “Because it could mean we had more students transfer, we have more credentials or more credentials in high-demand fields. So there’d be no question about that return on that investment.”

The schools would also get a base amount of funding depending on the number of full-time students they have. But the law includes additional ways schools could receive extra funding through formula weights that would provide extra money for students who might be more expensive to educate, including economically disadvantaged students, academically underprepared students or students over 25 years old who have been out of school for a while.

The new system would also provide a funding adjustment for smaller community colleges that have fewer than 5,000 students. But unlike the public school system, which requires school districts with a lot of property tax wealth to give the state some of that money to subsidize poorer districts, this system would use state money to make sure property-poor community college districts are well funded. And the state baked a mechanism into the bill that would hold colleges harmless if they initially lose money under the new calculations.

The estimates from VanDeaver’s office show that just two schools would initially lose some money: Houston Community College and Wharton County Junior College, a small school with fewer than 6,000 students in Wharton, Bay City, and the Houston suburbs of Sugar Land and Richmond. According to Keller, HCC would lose around $1.2 million and Wharton $46,000.

Maldonado at HCC emphasized that these estimates are just a first pass and there are still many details to be determined before final formulas are decided that could result in different estimates.

In addition to changing how Texas calculates how much money each school should receive, the state is investing a significant amount of new funds into the community college system as they overhaul it.

The current House budget allocates an additional $428 million toward community college funding for operations, plus nearly $190 million toward state grants for low-income students to go to college and the new dual-credit financial aid program. It also includes $33 million to fund shared services that all schools can use.

Denisa Gandara, a higher education policy professor at the University of Texas at Austin who has studied performance-based funding, said these additional investments are key to this change.

“I do actually think the policy would improve outcomes at public two-year colleges in Texas. But I don’t necessarily think it’s because of the outcomes component of the model,” she said. “I think it’s because the model would be making a significant, long-overdue investment in [these schools]. And research shows that greater state support for public higher education leads to better outcomes. That’s pretty clear.”

Keller said it’s not just about pumping new funds into the schools, arguing if the Legislature had just given them money without changing the current system, it would’ve disproportionately benefited larger schools where enrollment is already growing quickly.

“You would have done very little to address these other issues,” he said. The recommendations “are tailored to address specific needs in our production of credentials in high-demand areas, to bolster student transfers, to add more coherence to dual-credit course taking and then, importantly, to recognize the real costs of educating students who have different kinds of educational needs. We’ve never done that before.”

Researchers also caution that performance-based funding models, which are used in multiple ways to fund education in dozens of states, are not a silver bullet to improving student outcomes. Keller acknowledged that, but he said the commission had candid conversations with leaders in other states and used them as a reference to create a model that he hopes will avoid pitfalls of previous models.

If the legislation passes, the higher education coordinating board still would need to finalize its formulas to calculate how much money colleges receive for each type of student they serve, including low-income, adult or academically underprepared students.

Another unknown involves data. Historically, Texas community colleges have not been required to keep data on the nonacademic side of their work, including how many students are earning these credentials in areas like truck driving or information technology programs.

The coordinating board is now analyzing that data to figure out how to best incorporate it in this newly proposed funding stream.

Even with some unknowns remaining, college leaders and higher education advocates are hopeful that this new system won’t mean just more money for community colleges, but also a new mindset.

“For employers, when you’re talking about outcomes and outputs, they become a lot more energized because now it’s a conversation that addresses their needs,” said Kenyatta Lovett, managing director of higher education at Educate Texas, which is part of the Community Foundations of Texas. “I think you’ll see employers engaged in totally different ways.”

Simon at Angelina College said he expects a change in mindset within the colleges, too.

“What I think will make a difference for us is really focusing on being as efficient as we can with those students, advising them effectively,” he said.

For instance, he said if a student enrolls in electromechanical technology but then they enroll in a course outside that pathway, the school might be more likely to reach out to that student and make sure they understand the course wouldn’t count toward their degree.

“When the [current] funding model was built around contact hours, I don’t know if the motivation was there.”

Disclosure: Angelina College, Houston Community College, Texas 2036 and University of Texas at Austin have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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