Missouri moves toward performance-based higher education funding

Sunday, June 23, 2013 | 6:00 a.m. CDT; updated 8:26 p.m. CDT, Monday, June 24, 2013

*This article has been modified to clarify how many states are moving toward performance funding.

COLUMBIA — A new model for performance-based funding of higher education failed to make its way through the Missouri General Assembly during the spring session, but Sen. David Pearce, R-Warrensburg, plans to raise the issue again next year.

Basing higher education funding on the performance of public colleges and universities has become a national trend in recent years. The bill proposed by Pearce this spring would have based 10 percent of Missouri higher education's funding on performance.

The bill largely was based on a report to the legislature by the Joint Committee on Education, which Pearce chaired. It suggested that 10 percent of schools' state funding be based on performance measures and included a simulation that compared Missouri schools with peer states' schools based on per-capita income. It found Missouri colleges and universities are being underfunded by about $388 million.

Missouri started down the road toward performance funding in January when Gov. Jay Nixon proposed $34 million of new funding for schools that met performance criteria that the Missouri Department of Higher Education helped set, according to a previous Missourian article. Those criteria included retention for freshmen and sophomores, degree completion, financial responsibility and specific measures that each school developed for itself, according to a report from the Coordinating Board for Higher Education.

Rep. Chris Kelly, D-Columbia, said the focus on performance funding is a distraction.

"Its purpose, I believe, is to detract from the fact that we're not funding higher education," he said. "And we're fundamentally underfunding higher education in the state of Missouri by hundreds of millions of dollars."

Kelly said performance-based funding models create the impression that schools aren't doing their jobs. Colleges and universities, he said, already have to evaluate their performance so they can compete in the marketplace.

University administrators favor performance-based funding because they think it will increase state appropriations, he said.

Sen. Kurt Schaefer, R-Columbia, who filibustered against Pearce's bill when it came up in the state Senate, said he doesn't oppose the concept of a funding formula but that what goes into that formula is "controversial."

"There needs to be more time to evaluate all aspects of the formula," Schaefer said.

Schaefer said Pearce did a "great job" with a "difficult topic." When the issue comes up again, he said, there should be some discussion of whether Missouri has too many public four-year institutions.

"The pie just gets cut into too many pieces," Schaefer said. As a result, schools need to increase tuition.

"The question is, are we spreading it too thin?" Schaefer said. "And I think we are."

Across the nation

Although the idea of basing 10 percent of schools' base funding on performance measures is steep compared to some states, it lags far behind others.

The National Conference of State Legislatures in 2012 issued a report spelling out where all 50 states were on performance-based funding. It said 12 states already have some sort of performance-funding policy, and another four, including Missouri, are moving toward it.

Julie Bell, education group director for the conference, said that since the report was issued another eight states have moved toward performance funding. The strategy started to become popular in recent years as lawmakers faced with tight state budgets sought more accountability.*

Performance-based funding models vary widely from state to state. Bell said that because most of the policies are relatively new, there is insufficient to data to determine whether they're effective.

"It's too soon for us to know," she said.

Michelle Cooper, president of the Institute for Higher Education Policy in Washington, D.C., said energy is building around efforts to improve college completion rates.

"It's definitely a trend that we're starting to see," she said, adding that differing education, political and economic situations among states are the reason some are going full steam ahead while others are approaching the idea more slowly.

Cooper said Tennessee has garnered a lot of attention for its models. In 2010, Tennessee took an extreme approach with its Complete College Tennessee Act, which bases 100 percent of schools' funding on performance measures.

Russ Deaton, associate executive director for finance and administration for the Tennessee Higher Education Commission, said Tennessee has had performance funding for 35 years, but it only made up 5 percent of schools' funding. The other 95 percent was based on enrollment. The College Completion Act, however, allocates money based on the number of graduates a school turns out each year.

"So it's really completely overhauled how we fund out institutions," Deaton said.

The state allowed an "adjustment period" in the first year of the new model so that a school's funding wouldn't change too dramatically. Since then, the model has allowed funding to move around, Deaton said. Some schools lose money even in years when the state is investing more in higher education.

The University of Tennessee at Knoxville received $143.7 million in fiscal 2010-11, the last year of the old formula, Deaton said in an email. It will get $174.4 million for fiscal 2013-14, an increase of 21.4 percent.

Deaton said Tennessee colleges and universities have seen a 12.8 percent increase in total funding under the new model.

"Basically, you have to re-earn your dollars every year," Deaton said.

Cooper said there are arguments against performance-based funding. Lawmakers and educators in some states worry that it will force schools to lower their standards so more students will graduate or that schools will refuse to enroll some students who might not finish their degrees. Other schools, Cooper said, find the model insulting, arguing they don't need incentives to do their jobs.

"We do get that concern quite a bit," Deaton said, in reference to whether schools might focus more on numbers and not students' educational experiences. Every funding model comes with trade-offs, he said.

In addition to Tennessee, the states of Washington, South Dakota, Minnesota, New Mexico, Illinois, Oklahoma, Louisiana, Indiana, Michigan, Ohio and Pennsylvania have implemented higher education funding models that involve some amount of performance-based funding, according to the National Conference of State Legislatures report.

Illinois has taken an incremental approach. Alan Phillips, deputy director for fiscal affairs, budgeting, and information technology for the Illinois Board for Higher Education, said half of a percent of schools' funding is based on performance. Last year, that amounted to about $6.1 million.

Phillips said that Illinois' performance-funding model is in the "pilot stage" and that the state is trying to work through early issues while dealing with relatively small amounts of money.

Back in Missouri

The University of Missouri System received $12.4 million in new funding this year because it met the five performance measures outlined by Nixon in areas such as graduation rates, enrollment and quality of student learning, according to a June 14 news release from system spokesman John Fougere.

Still, higher education officials remain concerned about having some of their core funding based on performance. That's because they set difficult, or "reach," goals for themselves with the Missouri Department of Higher Education, thinking only new funding would be affected.

Pearce said setting difficult goals is a good thing.

In February, the Joint Committee on Education took comments from key players in higher education on a draft of the proposal.

UM System Vice President for Finance and Administration Nikki Krawitz, who is retiring this month, said the final model did not incorporate the system's "most important concerns." The UM System sent additional comments to the joint committee after the public comment time period had closed.

Leroy Wade, assistant commissioner at the Department of Higher Education, said both the department and the Coordinating Board for Higher Education favor performance-based funding. The department, however, worried that using performance measures to compute 10 percent of schools' base budgets would put their core funding at risk. They also worried that the formula was driven too much by enrollment, which might prompt schools to grow their student numbers simply to get more money, he said. 

Supervising editor is Scott Swafford.

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