The Pew Charitable Trusts

Office of Missouri Governor Jay Nixon Missouri Governor Jay Nixon (left) wants to fund public colleges and universities based on several measures, including student performance.

Speaking to higher education leaders from across his state last month, Missouri Governor Jay Nixon laid out a new goal for public colleges and universities: funding based on student performance.

"Our current funding approach is disconnected from statewide goals and needs," the governor said. "It doesn't give policy makers — or the public — confidence that the money we invest in public higher education … is being used in the most effective way possible."

In moving toward incentives for meeting state-mandated goals, Missouri would join a number of states that have recently adopted or are considering performance, or outcomes-based, funding models in higher education. The move comes at a time of increased national emphasis on college graduation: President Obama has called for the U.S. to lead the world in the proportion of its young people with college degrees by 2020.

Missouri's model would apply only to increases in state funding after fiscal year 2013, awarding each college and university a share of new state funds based on their ability to meet targets set in five categories. While a state task force is still hammering out the details, Nixon mentioned student retention and graduation, performance on professional certification exams and low tuition as some of the targets colleges might be asked to shoot for.

Quite a few other states accept the underlying idea of funds-for-performance, but they have been all over the board when it comes to how much they are willing to invest in it.

On one end of the spectrum are states like Pennsylvania, which will set aside roughly 2.5 percent of its higher education budget for performance-based funding, according to a revised plan approved earlier this year. At the other end is Tennessee, which will ultimately award more than 90 percent of its higher education money through an outcomes-based system, as part of the 2010 Complete College Tennessee Act.

Lessons learned

Performance funding isn't a new concept in higher education. From 1979 to 2007, 26 states — including Missouri, Pennsylvania and Tennessee — implemented the concept in some form, according to a recent report from the American Association of State Colleges and Universities. Many of those programs were established in the 1990s, when states were flush with cash, and then subsequently abandoned. The current climate of fiscal austerity has made lawmakers more receptive to reviving the programs.

As states consider moving toward performance-funding or revamping existing models, Julie Bell, director of the education group at the National Conference of State Legislatures, says there are three lessons they can apply from those earlier experiences: 

• Models can't be too complicated, she says, citing an earlier system in South Carolina that relied on dozens of variables.
• States should link performance funding to graduation, rather than relying on internal measures, such as student evaluations of teaching quality.
• The state has to offer enough money to give the institution a genuine incentive to change behavior.

This last measure is the trickiest, as states work to find a balance between providing enough incentive to encourage innovation but not so much that educators feel pressure to cut corners to get the money.

The past couple of years have shown evidence in elementary and secondary education of the potential perils of linking major chunks of funding to attaining particular benchmarks. Under the federal No Child Left Behind Act, school districts can suffer financial penalties for not meeting targets on standardized test scores.

In the past two years, widespread cheating on standardized tests has been discovered in Atlanta and is being investigated in Philadelphia and Washington, D.C. In many states, the majority of schools have not met the targets set by the national act, and this school year, the U.S. Department of Education is offering waivers to states that choose to opt out of the next round of performance targets, as the department awaits a much-delayed congressional overhaul of the law.

"If we push higher education in the same direction of relying on standardized testing or graduation rates, it's going to have a lot of the same consequences," warns John L. Curtis, director of research and public policy at the American Association of University Professors.

Watering the soup

Architects of performance funding in higher education argue that parallels to No Child Left Behind miss the mark.

The NCLB law, with its emphasis on standardized tests, provides a "perverse incentive," says Paul Wagner, Missouri's Deputy Commissioner of Higher Education and chair of the state's performance funding task force. "Performance funding is so much broader than that," he says.

In Tennessee, colleges don't have particular benchmarks they need to make. Rather, colleges receive credit each time a student achieves one of ten measures and those numbers, in turn, are weighted according to the educational mission of each institution, says Russ Deaton, the director of fiscal policy and facilities analysis for Tennessee's Higher Education Commission.

The formula gives extra points for at-risk and non-traditional students, to encourage colleges to take them on, even though they might be less likely to graduate or achieve some of the other benchmarks. "No one's telling the school if you don't hit this target you lose your funding," Deaton says.

While the institutional weights — which can be adjusted over time — and a gradual phasing in of the formula will ensure that changes in funding aren't too drastic for most Tennessee colleges in the short term, the reality is that competition is at the core of the new system. "Every dollar is back up for grabs every year," as Deaton explains it.

With the vast majority of Tennessee's ten university measures related to students' attainment of credit hours and, ultimately, undergraduate and graduate degrees, some worry that it could encourage professors to lower their standards. "It could potentially put a lot of pressure on faculty not to give tough grades," says Curtis, of the AAUP.

At East Tennessee State University, in Johnson City, the term they use is "watering the soup." Thomas Schacht, a psychology professor and president of the faculty senate, says that the prospect of lowered standards is the greatest concern among teachers. "Now there's an incentive to turn out diplomas," he says. "It puts faculty into an objective ethical dilemma which is going to require vigilance."

'Bring it on'

Still, Schacht says that the institution as a whole is working to avoid these scenarios. The school's provost, Bert Bach, set up a workshop for faculty members and state higher education officials, including Deaton, to discuss how the formula, and other provisions of the law that spawned it, would be implemented.

Bach says it's led the university to more closely analyze its successes and shortcomings. Athletes, for example, have improved in academic achievement because they receive extra academic support and are held accountable to maintain eligibility for their scholarships. The administration is looking to apply those lessons to the student body at large. The university has beefed up academic support for difficult subjects, such as mathematics, and has worked on strategies to keep doctoral students on task, so they finish their dissertations sooner.

At the state's flagship, the University of Tennessee at Knoxville, an initiative that was started last year to strive toward a top-25 ranking has one professor welcoming more emphasis on outcomes. "Bring it on," says Vincent Anfara, chair of the educational leadership and policy studies department and president of the faculty senate. "There's been no talking of lowering academic standards," he says. "The push on the side of faculty has been — we need to get better."

Legislative hurdles

While performance-based funding has received broad bipartisan support in many states, it isn't always an easy sell. That's what Texas Governor Rick Perry found this past session, when legislators failed to pass an outcomes-based funding model, which had been the governor's top priority for higher education.

Some legislators balked at a proposal crafted by higher education commissioner Raymund Paredes that didn't initially focus on graduation, according to The Texas Tribune . Ultimately, the legislature passed a law calling on the Texas Coordinating Board of Higher Education to develop an outcomes-based model in conjunction with leaders in the state's colleges and universities.

Dominic Chavez, a spokesman for the coordinating board, saw this passage as a sign of the legislature's growing acceptance of outcomes-based funding, even if passage will take longer than anticipated. "Back in 2009, when we started to have this conversation, it was difficult to get meetings," he says. "People did not want to talk about that."

But Judith Zaffarini, Democratic chair of the Senate Higher Education Committee, says the mandate for developing a plan doesn't ensure that it will pass when the legislature reconvenes in 2013. She wants to be sure that any proposal contains adequate input from university leaders and thinks that at a time of budget cuts, outcomes-based funding should come from a separate pool than the state's traditional appropriation. "That is the big divide," she says.

At East Tennessee State, Schacht says some professors shrug their shoulders at the mention of the new outcomes-based model. If the state's share of funding for the university continues to dwindle, they say, the state appropriation might not be a meaningful carrot for encouraging change.

In Missouri, where performance funds would be tied to increased funding after fiscal year 2013, the deputy commissioner, Paul Wagner, admits there is some talk of performance funding as an exercise in futility. Most Missouri colleges saw cuts of about 7 percent this past legislative session, on top of cuts of more than 10 percent over the previous two years. "A lot of people are saying, 'What's the point of talking about how you're distributing new money?' "