Performance-based funding. It fits neatly on a bumper sticker and is hard to question. It’s a term that is used to justify how much funding is given to organizations, institutions and public programs. It affects higher education institutions’ budgets in more than three dozen states at a time when colleges’ and universities’ budgets are already being stretched thin. Federal and state funding for these schools have been shrinking for a long time, and the political way to inoculate decision-makers from criticism is to come up with “benchmarks” to meet in order get the dollars they need to do the very thing they are required to do – not so much to improve enrollment, but to expand completion numbers at their institutions. This philosophy-made-policy has been around in one form or another for 40 years, even though there is arguably some evidence that it can disadvantage Hispanic and other minority institutions, especially community colleges.

Put simply and bluntly, Performance-Based Funding (PBF) challenges schools to put up (higher completion numbers) or be shut out (of funding increases from state coffers or be subjected to funding cuts). Imagine the impact this can have and does have on the admission of disadvantaged or lower achieving students. From a pure economic perspective, it might seem more pragmatic to pack student rolls with students who, on paper, have the greatest chance of completing a degree. Never mind that the college experience – with or without an eventual degree – increases income and social maturity and therefore is an asset to society.

On the other hand, proponents argue, is it reasonable to funnel limited funding to schools that are underperforming and not incentivize schools that are overachieving by supporting them more financially? Of course, the answer is to make higher education funding a spending priority for state and federal governments, but the public appetite for belt tightening of state and federal programs makes that argument dead on arrival in the public arena.

How Did We Get Here?

Along with the reasons stated above, think about the impact of massive student loan debt and rising tuition rates have on the cry for accountability. Students and their families want the biggest bang for their buck. Higher education institutions need to make the case that their programs and degrees are worth the monetary investment they are asking students to make. And when you consider the monies provided by the federal government and states, which have to be accountable to taxpayers, the pressure is exerted from all sides to see a value in what is being offered. In 2017, the federal government dispensed more than $122 billion in taxpayer dollars to colleges and universities. States allotted nearly $100 billion to their local institutions of higher learning during that same period.

In 1979, Tennessee became the first state to impose PBF guidelines. It wasn’t long before the idea caught on, and more than 70% of states employ some form of PBF. Beyond the idea that these guidelines give cover to states to make tough calls in dividing up its tax cut starved assets, does PBF work in its aim to improve completion rates?

In the report, Catalyst for Change: Performance-Based Funding in High Education, a Case Study of Three States written by Matthew Crellin, director of Policy and Research for the New England Board of Higher Education (NEBHE) along with NEBHE Research Fellows Darrell Aaron, David Mabe, and Courtney Wilk for NEBHE, the PBF programs of three states, Tennessee, Ohio and Indiana, are explored and critiqued.

The takeaway from this report is that these programs, built around the idea that completion is the most important determination in awarding funding to colleges and universities is a simple, but successful plan. “Overall, performance-based funding in [the states studied in the report] promises positive results on the average. For example, in Ohio, a report generated by the Board of Regents found that median time to degree had decreased while persistence and completion, especially for at-risk students, increased steadily. In each state, the formulae were kept explicitly simple, with a beginning set of easy to understand metrics and clearly defined paths toward rewarding completion via degrees awarded on time (not just graduation rates), that awards additional incentives for successful transfers, incentives for low-income and minority students, and incentives to reward current economic needs and meet job demands in the labor market.”

Not all PBF programs are created equal. And as the concept of PBFs was introduced to other states, the NEBHE rosy analysis pronounced in 2011 did not necessarily produce the results that were heralded for Ohio. Tennessee and Indiana. And the passage of time has a way of exposing the virtues and the flaws of any new program. Fast forward to 2017. In a report for American Behavioral Scientist entitled, “The Equity Implications of Paying for Performance in Higher Education” by Nicholas Hillman, Daniel Corral for American Behavioral Scientist conclude, “On average, we find that Minority-Serving Institutions (MSIs) in PBF-states lose significant funding per student compared with MSIs in non-PBF states and non-MSIs in the same PBF state. These findings signal that MSIs are, on average, negatively affected by PBF models and could ostensibly alter the missions of these institutions.”

Short Term Vs. Long Term

Fighting for every dollar they need, community colleges have come up with unique ways to improve their completion ledgers without sacrificing their education mission. One way to do that is to increase the number of short-term certificates which can be counted with the weight of an associate degree in terms of funding in some PBF programs. In a report for Community College Review entitled Performance Funding Policy Effects on Community College Outcomes: Are Short-Term Certificates on the Rise? by Amy Y. Li and Alec I. Kennedy the authors explain, “Colleges may be responding to performance funding by creating new certificate programs or routing students into these programs, regardless of labor market value. If performance funding incentivizes colleges to engage in certificate production, this is a potentially problematic policy side effect, also known as an unintended consequence.”

Their analysis is based on the observation that schools are gaming the system in some way to cash in on this policy, even though the recipients of some of these short-term certificates are only partially prepared and credentialed to secure gainful employment in a particular field that might require a longer-term certificate or actual associate degree. It represents short term gain for the institution, but no short term or long-term gain for the student or the labor force.

The sentiment of the NEBHE is echoed in an analysis appropriately entitled Performance Based Funding is Here to Stay, published by New America. And what was once a simple idea has morphed into a complicated gauntlet with ever-changing conditions and standards for schools to meet. As this report explains, “Under PBF models, institutions receive funds from the state tied to their performance on several predetermined metrics, rather than through traditional block grants or enrollment driven formulas. While each state uses their own combination of indicators to determine allocations, several popular metrics include time to degree, graduation and retention rates for all students, as well as a particular focus on Pell-eligible and underrepresented students. States determine PBF levels in several ways. In the formula-based model, states rely on a combination of weighted indicators that factor in institutions’ performance to determine funding levels. In a target/recapture model, states instead dole funds to institutions for reaching institution-specific levels on each indicator; these models allow institutions to claim new funds, or recapture prior years’ funding levels. In some states, PBF models fund both two- and four-year institutions, while in others only one of those sectors is funded through PBF. States tend to design their PBF metrics around statewide education and workforce goals, such as increasing educational attainment, and certifications in high demand fields.”

If that sounds complicated, it is. But what it all boils down to is that PBFs are poised to not only pick winners and losers based on completion numbers, but to prioritize what kind of degrees and careers are forming the basis of these completions. Buzz words like “high demand fields” and “workforce goals” mean that STEM careers – as important as they are – are given priority over teaching careers – also vital to a functioning society. Imagine where the arts would be placed on such a list of funding priorities.

Conclusion

What it all comes down to is our priorities as a nation. In the extreme, do we follow the Darwinian model of survival of the fittest, or can we thoughtfully tweak and refine the PBF process, as some states have already done, to maximize the number of students our higher education institutions turn out as contributing and successful members of society? Time will tell. •