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Editor's note: This is an excerpt from an article in the February/March edition of the Community College Journal, the bimonthly magazine of the American Association of Community Colleges.
As college completion becomes a priority, more state legislatures are challenging community colleges to demonstrate progress by tying funding measures to institutional performance.
Seventeen states are currently implementing or considering the use of performance-based funding measures, according to Tom Harnisch, a policy analyst with the American Association of State Colleges and Universities.
As states scramble to jumpstart local economies and satisfy the demand for workers with some postsecondary education, lawmakers are increasingly dangling public funding as a carrot in the march toward reform. A number of influential educational foundations have also recently entered the fray. Lumina Foundation funds a multi-partner college productivity initiative and has underwritten research on performance funding by the Community College Research Center (CCRC) and others.
Though the trend is nothing new—performance-based funding has been around for decades—more sophisticated metrics may be poised to take root where previous attempts have failed.
Early performance funding measures, commonly referred to as “PF 1.0,” allocated bonus funds to colleges relative to a set of performance metrics centered on student outcomes. Leaders in several states—Florida and Ohio, to name two—pointed to increased degree attainment and lower average time to completion as evidence that such programs were successful.
But, in a recent report detailing the effectiveness of early performance funding initiatives, CCRC researchers Kevin Dougherty and Vikash Reddy said that many such measures fell short of expectations, at one point writing that there is no “firm evidence that performance funding significantly increases rates of remedial completion, retention, and graduation.”
Limited success and a steady decline in state funding resulted in a mixed bag for the earliest performance-based funding initiatives. Between 1979 and 2007, 26 states enacted performance funding, while 14 states eliminated such programs.
Where previous efforts were criticized for tying too small a slice of the state funding pie to performance-based metrics—thus, doing little to spur significant change—recent efforts, or “PF 2.0,” are larger in scope.
In Tennessee, which pioneered its first performance-based funding system in 1979, legislation passed in 2010 aims to restructure the state’s higher education funding model, eventually tying 100 percent of state funding for two and four-year colleges and universities to a new set of outcome-based metrics. The previous model used primarily enrollment-based funding metrics.
Ohio also recently implemented a plan that will entirely base funding for four-year institutions on outcomes, with a much smaller but growing share of community college funding allocated in this manner.
Time to double down
States are not only returning to the idea of performance funding, many are doubling down on the bet that such metrics will significantly increase the productivity of their higher education systems and improve college completion.
As the stakes rise, so does the importance of getting it right. Recent research by Dougherty and Reddy and others has identified a number of considerations when developing a performance-based funding system for higher education. Some of the most relevant of these factors for community colleges include:
Though support for performance funding is on the rise, it’s not yet universal. Critics say thoughtful accountability reporting systems not tied directly to funding are capable of providing the necessary tools and incentives to help colleges improve. But the factors discussed in this article are relevant to any scheme.
Hermes is director of government relations at the American Association of Community Colleges.
Copyright ©2012 American Association of Community Colleges