Kentucky Governor Matt Bevin (R) has said that the budget he will present to the legislature in January 2016 will include “outcomes-based funding”; or funding that is at least in part based on the performance of public agencies or publicly supported institutions. While Governor Bevin has not talked specifically about outcomes-based funding for higher education institutions, variants of performance-based funding in higher education have been adopted in all of Kentucky’s neighboring states, with the exception of West Virginia.
In a nutshell, performance-based funding of higher education differs from the more traditional funding approach in that state funding of institutions or systems is either in-whole or in-part dependent on an institution’s progress toward achieving certain goals or its progress on certain predetermined state-defined indicators or metrics. Common indicators for higher education performance-based funding include institutions’ retention rates, graduation rates, and successful course completion rates. Critics of traditional higher education funding approaches and advocates for performance-based funding argue that traditional funding models provide little incentive for institutions to improve retention and graduation rates, graduate students in a more timely manner, or graduate students with a more industry-ready skill set. Opponents of performance-based funding argue that such approaches disadvantage institutions that don’t perform well on performance indicators, but desperately need state funding to improve their performance.
The policy details of performance-based funding vary significantly from state to state. Among Kentucky’s border states alone, performance-based funding approaches differ substantially. For example, in Tennessee, institutions (two-year and four-year institutions) receive a base allocation for operations, but beyond that, all state funding is allocated based on institutions’ progress on specified outcomes. Ohio has taken a different approach. For four-year institutions in Ohio, 50% of state funding for institutions is based on degree completion, and 30% of funding is based on course completion. For two-year institutions in Ohio, 50% of funding is based on course completion, 25% is based on state-defined completion milestones, and 25% is based on state-defined success points. Different still, in Indiana, 6% of funding for two-year and four-year institutions is based on state-defined specific institutional performance metrics, including: degree completion, at-risk degree completion, high impact degree completion, persistence, remediation, remediation success, on-time graduation, and an institution selected measure.
While Kentucky has not yet adopted performance-based funding for higher education, the policy conversation is not at all new in Kentucky. State policy makers as well as leaders at the Kentucky Council on Postsecondary Education (CPE) and at high education institutions across the commonwealth have engaged in relatively substantive policy conversations for the last few years about what performance based funding in Kentucky could look like. CPE President Bob King has encouraged the shift since 2011.
Most recently, in the 2015 Regular Session of the Kentucky General Assembly, the Republican-led Senate passed a resolution to move higher education funding in the state in the direction of performance-based funding. The resolution directed the CPE to:
“develop a performance-based funding model for the public postsecondary education institutions; identify guiding principles and constraints; establish metrics that recognize difference of missions among research, comprehensive regional, and community and technical college institutions; require findings and recommendations to be reported by December 11, 2015.”
Voting on the resolution was for the most part along party lines, with most Republicans voting for the resolution and most Democrats voting against it. The resolution moved to the Democrat-led House and was assigned to the House Education Committee, which took no further action on it.
It should be noted that the presidents of both the University of Kentucky and the University of Louisville have not been supportive of a shift to a performance-based funding model, making the argument that such a shift should not be considered without the General Assembly directing additional funding to higher education. State funding for higher education in Kentucky and across the U.S. has declined substantially in recent years. According to a 2014 report from the Center on Budget and Policy Priorities, most states continue to fund higher education “below pre-recession levels.” Specifically, they reported that every state with the exception of North Dakota and Alaska are spending less per student on higher education than they were spending prior to the recession.
Whether Kentucky adopts performance-based funding in 2016 remains to be seen, but CPE, community college, and four-year institution leaders would be well-advised to prepare for its eventual coming to the commonwealth.