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The ups and downs of performance funding

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​In 1997, the Washington State Legislature voted to enact performance-based funding for higher education institutions as a provision in its appropriations bill.

There was no real warning for the institutions that would be affected, and they weren’t included in the discussion. The Washington State Board of Community and Technical Colleges (WSBCTC) was given less than a week to identify three performance measures for the higher education committee.

“It was not a happy experience,” recalled Jan Yoshiwara, deputy executive director for education services at WSBCTC.

The state-mandated program lasted only two years, but that wasn’t the end of performance funding for two-year colleges in Washington. In 2006, WSBCTC began the Student Achievement Initiative (SAI)—a program that attached new money to progress and completion outcomes.

Slow and steady

Unlike with the state legislature, WSBCTC took a slow and inclusive approach to designing and implementing the program. A policy task force and a large advisory group were formed to make sure every voice was heard. The process of gathering input, choosing the achievement areas and testing took more than a year, but it was worth it, according to Yoshiwara.

“We were able to identify success ourselves, before it was imposed on us,” she said.

SAI continues to show promising results. Student achievement gains have grown at a faster rate than enrollment, increasing 19 percent between the 2006–2007 baseline year and the 2008–2009 first performance year, when enrollment only grew 4 percent.

Completion rates, too, have shown improvement. In the 2010–2011 academic year, the completion rate jumped 17 percent from the prior year.

In addition, the program gained the support of the legislature and governor.

Only a handful of states have adopted performance-funding models, but given tight state budgets and a call for greater accountability, it’s likely more states will move in that direction, according to Kevin Dougherty, senior research associate for the Community College Research Center (CCRC).

That’s not necessarily a bad thing for community colleges, if it’s gone about the right way.

“It provides a new avenue for them to show their effectiveness,” said Dougherty, who co-authored a 2011 CCRC report on performance funding.

Institution-specific outcomes

Tennessee became a pioneer of performance funding in 1979 when it began using a largely enrollment-based model that other states adopted. In 2010, a new outcomes-based model was used. Conceived by the Tennessee Higher Education Commission (THEC), the model had high buy-in from community college leaders because they had a chance to be heard and to set the priorities for their institutions, according to Russ Deaton, associate executive director of fiscal policy and administration at THEC.

The Complete College Tennessee Act (CCTA) incorporates productivity metrics and institutional missions. There are no state-mandated targets or completion goals that institutions have to reach. While workforce placement might be the top priority for one college, success in student transfers might be another college’s top priority. Those are taken into account and weighted differently for each institution.

“Community colleges as a group champion this in part because the state is rewarding them for things no other state acknowledges,” Deaton said, such as workforce training, transfers and remediation success.

In fact, opposition to performance funding has generally come from four-year universities, where mission definition is more complex.

The model also has the support of the state government, from both political parties. Without that, CCTA “wouldn’t have gotten off the ground,” Deaton added.

Getting to the comfort zone

CCTA allocates 100 percent of funding for institutions, rather than just new money. Funding is reallocated every year, depending on institutional outcomes. Implementing the funding model required an adjustment period.

“A key part of our success was making sure everyone is on the same page,” Deaton said. 

THEC back-tested the outcomes model using the formula calculations so institutions could see what funding appropriations would have been for three prior years. The model was tested to ensure that funding shifts would not be too great immediately. A projection tool was created, too, to simulate the effect that changes in outcomes would have on future appropriations. 

Chattanooga State Community College is a success story of Tennessee’s model. One of the main priorities for the college is workforce training, which has increased, leading to an increase in funding.

Barriers and considerations

The models in Washington and Tennessee have garnered interest from other states. But while both states are seeing satisfying results, there are challenges to implementing performance-funding programs, said Davis Jenkins with CCRC. Performance funding requires collecting data, and many community colleges—particularly small, rural colleges—have limited institutional research capacity. In Washington, WSBCTC worked directly with institutional researchers to make sure they understood measures and definitions. For Tennessee, CCTA relies heavily on existing data.

There’s also the issue of finding the funds. Many performance-funding models have institutions working for new money, and sometimes there is no new money. Shortly after Washington implemented SAI, the economy crashed and those “quality dollars” disappeared, Yoshiwara said. A “point of irritation” for colleges is that the state legislature earmarked funds in the base appropriation for performance awards rather than providing new funds.

“Bonus systems are unstable,” warned Jenkins.

He advises having performance funding built into the base funding, as in Tennessee’s and Ohio’s programs.

It’s also important for faculty to be involved in improving student learning and success, he said. Often, it’s the administrators involved in the process, and the faculty know little about it.

“Until things change in the classroom,” Jenkins said, setting up a performance funding system won’t necessarily change behavior.