Financing Change – Performance Funding and the Larger Issues

1. Financing Change – Performance Funding and the Larger Issues SHEEO Leadership SeminarSeattle, WAJuly 11, 2012 Jeff Stanley Dennis Jones

2. Why Performance Funding • Disconnect between higher education funding and statewide priorities • Link dollars more directly to these priorities: • More graduates • High-needs fields • At-risk students • Meeting needs of state

3. Intended Policy Impacts of Performance Funding • Higher completion levels/graduation rates • Reduced time to degree • Institutional changes producing higher performance/greater student success • Improved remediation • Alternative delivery options • Increased awareness of state priorities • Increased awareness of institutional performance

4. Performance Funding 1.0: Many States Tried It * indicates states pursuing new performance funding models • Arkansas* • California* • Colorado* • Connecticut • Florida* • Idaho • Illinois* • Kansas • Kentucky* • Louisiana* • Minnesota • Mississippi* • Missouri* • New Jersey • New Mexico* • North Carolina • Ohio* • Oklahoma* • Oregon • Pennsylvania* • South Carolina • South Dakota • Tennessee* • Texas* • Virginia* • Washington*

5. Design Flaws of Early Performance Funding Models • Multiple Priorities: Often times misaligned. No clear overall objective or goal. • Complex: Too many metrics. • Insufficientdata: Metrics were often not measurable or data sources were unreliable. • Lackof institutional buy-in: Not consulted in design process. No accounting for differences between institutions. • Competed with access agenda: Incentivized “gaming” through increasing admissions standards/did not provide “at-risk” priority. • Add-on or insignificant amount of funding: Did not drive institutional priorities. First to go in tight budget times.

6. Performance Funding 2.0: State Activity

7. What Has Been Learned About Design of Performance Funding Approaches?

8. Design Principles • Get agreement on goals before putting performance funding in place • Goals need to be the driving force for performance funding – not a rhetorical afterthought • Don’t construct performance metrics too narrowly • Important that all institutions have an opportunity (not a guarantee) to benefit by excelling at their different missions. • Design the funding model to promote mission differentiation – use it to sharpen distinctions, not blur them • Use different metrics for different institutions Or • Create different pools of resources for different types of institutions – and allow institutions to compete for resources in only one pool

9. Design Principles • Include provisions that reward success in serving underserved populations Among the possibilities • Low income • Minority • Adult • Academically at risk • Limit the numbers of outcomes to be rewarded • No more than 4 or 5 • Too many and both institutional focus and the communication value are lost • Use metrics that are unambiguous and difficult to game For example: • Numbers of graduates Not • Graduation rates

10. What Has Been Learned About Implementation?

11. Implementation Principles • Make the performance funding pool large enough to command attention • Reward continuous improvement, not attainment of a fixed goal • For each institution, establish most recent year as baseline • Allocate performance funds on the basis of year-over-year improvements • Include a phase-in provision • Employ stop-loss, not hold-harmless provisions • Continue performance funding in both good times and bad • Put in place a rigorous (outcomes-based) approach to assessing quality and monitor results on an ongoing basis

12. The Big Picture on Finance Policy

13. Students Institutions-Sectors FederalGovernment The Elements of Finance Policy States Philanthropy & Other Sources StudentAid Operating Support StudentAid Tuition & Fees Scholarships &Waivers Pell& Tax Credits Graduates

14. Consider the Following Questions • Doing business as usual, what would it cost to reach attainment goal? • Presuming performance funding worked in such a way that all institutions were on the “efficient surface” of productivity? • How much would total cost be reduced? • How much would remain to be financed?

15. Public Bachelors and Masters Institutions: Undergraduate Credentials per 100 FTE Undergraduates and Total Funding per FTE Student (2007-08) 28 NH WA NJ 24 IL FL The efficient surface KS CA IA MD ME CT NY UT OR MI VA HI 20 RI US MN ND OK TX VT WI SC Undergraduate Credentials Awarded per 100 FTE Students IN MS DE NC NE CO KY MT NM TN MA WV PA AR MO ID GA AL 16 AK LA SD 12 NV OH 8 2,000 6,000 10,000 14,000 18,000 22,000 State, Local, and Tuition and Fee Revenues (2008) Source: NCES, IPEDS 2007-08 Completions Survey

16. Consider the Following Questions • What combination of tuition, state-funded student aid, and additional state appropriations to institutions serve to • Provide the necessary resources to fund achieving the achievement goal? • Keep higher education affordable to students? • Keep higher education affordable to taxpayers? • What are the options if it is concluded that none of the options work? • A larger role for the privates (for-profit and not-for-profit)? • New public delivery models?