American Association of State Colleges and Universities

A Higher Education Policy Brief June 2011

Performance-based
Funding: A Re-Emerging
Strategy in Public Higher
Education Financing
by Thomas L. Harnisch
Policy Analyst
The transition to a global economy has put an
increased value on human capital for individual and
collective economic security. Recognizing this, as
well as the need to pursue innovation, President
Obama has set the ambitious national goal of
leading the world in the proportion of college
graduates by 2020.
1
The administration hopes to
achieve this through a renewed focus on improving
the decades-long stagnation in college completion
rates.
2
This effort has led to a completion
agenda matched by initiatives from national
higher education associations, state government
leaders, policy think tanks and major philanthropic
organizations.
At the core of this agenda are public colleges and
universities. Public postsecondary institutions,
from community colleges to research universities,
educate the majority of U.S. students. They provide
high-quality, accessible educational opportunities
that reect the needs of communities, regions and
states. This place-based, public purpose mission is
achieved through public-private partnerships, value-
added research and skilled graduates.
However, because of reduced state operating
support, these very institutions are confronting
historic budget cuts and leaving some to question
whether President Obamas attainment goal can
realistically be achieved. Public colleges and
universities rely on state budget appropriations,
which have declined signicantly during the
economic downturn. Recent state budget cuts
have contributed to higher tuition levels, lower
nancial aid awards and academic program closures.
Enrollment caps have also been implemented in a
number of institutions and states. Together, these
factors, and many others, could hinder efforts to
help more students nish their college degrees.
Boosting college completion rates in an austere
funding environment has led to a national
productivity agenda for higher education. Led by
the Lumina Foundation for Education, the agenda
aims to identify, measure and increase institutional
effectiveness; share best practices through pilot
programs; and explore alternative educational
delivery systems.
3
These efforts are aimed at offering
more high-quality college opportunities to a greater
number of students within existing budgetary
constraints.
Productivity and Performance-based Funding
One component of the productivity agenda involves
re-visiting performance-based funding (PBF) as a
means of improving institutional effectiveness. PBF
2 / June 2011 AASCU Policy Matters
is a decades-old higher education nance strategy
that links state funding for public colleges and
universities with institutional performance.
4
PBF
represents a fundamental shift in higher education
nancea shift from state inputs to campus
outcomes, and from institutional needs to state
priorities.
5

This nance approach has had a mixed history
of success and instability.
6
However, advances in
state student data systems and policy renements
acquired from years of state PBF experiments have
allowed the postsecondary nancing strategy to
re-emerge as a core component of the productivity
and college completion agendas.
7
The Lumina
Foundation, Bill and Melinda Gates Foundation,
College Board, National Conference of State
Legislatures (NCSL), National Governors Association
(NGA), and Education Commission of the States
(ECS) have promoted PBF as a policy option for
improving campus productivity and boosting
college completion. The Obama administration
has also recommended that states explore PBF
to improve college completion.
8
Together, this has
translated to conversations and policy action in
state capitols across the nation.
PBF Theory and Components
PBF is an incentive-based policy instrument
predicated on resource dependency theory.
9
This
theory posits that changes in resource availability
will threaten organizations and encourage
adaptation for continued existence.
10
In this
case, because the leaders of public colleges and
universities are signicantly dependent on state
appropriations, the theory postulates that they
will take the measures necessary to retain or
enhance their institutions funding. This may involve
encouraging more efcient resource allocation,
improving program performance and generating
degrees that reect state workforce needs.
This approach to higher education nance has
three main components: goals, measurements and
incentives. For the system to be effective, these
components must be aligned and complimentary.
The goals generally consist of state or institutional
priorities, such as increasing the number of college
graduates and improving outcomes for low-income
students.
The measurement component tracks campus
outputs and progress towards these goals.
Measurements typically reect state priorities and
campus mission. The U.S. Department of Educations
College Completion Tool Kit categorizes these
measurements as:
General outcome indicators (graduation rates,
certicates conferred, etc.)
Subgroup outcome indicators (Pell Grant
recipients, nontraditional students, etc.)
High-need subject outcome indicators (STEM
elds, nursing, etc.)
Progress indicators (course completion, transfer,
credit milestones, etc.)
The incentives, which can be nancial or regulatory,
are rewards given to spur urgency and action on
improving measurements to meet state goals.
Often these incentives are in the form of state
appropriations, but they can also consist of changes
in campus autonomy, such as greater tuition-setting
authority.
PBF Delivery Models
Three PBF models that directly link state funding
and campus outcomes are output-based funding,
performance contracts and performance set-asides.
11

Within these models are a number of programmatic
arrangements, which can encapsulate the entire
state higher education budget or only a small share
of funding.
Output-based systems (or payment for results) are
funding formulas linking state funding and outputs,
such as the number of students meeting credit
milestones and completing college. The formula
can be weighted according to campus mission,
with preferences given for low-income and at-risk
students. This approach incentivizes campuses to
seek better performance on key metrics in order to
generate additional state funding.
3 / June 2011 AASCU Policy Matters
Performance contracts are negotiated agreements
between states and institutions to achieve
results. The contracts are regulatory documents
representing customized, campus-centric
approaches to improving performance. In exchange
for a funding allocation, institutions come to an
agreement with the state regarding benchmarks and
goals.
Performance set-asides are a separate portion
of state funding designed to improve campus
performance. This may be a bonus fund or a
separate portion of a regular state appropriation.
Campuses compete in order to receive money from
this account.
This paper will explore PBFs mixed history, illustrate
a number of programs operating across the nation,
present arguments on both sides of this approach,
outline best practices and provide an update on
PBF state policy proposals. All told, PBF can be
viewed as a historically popular approach to higher
education nance, but one with a mixed record of
success. The policy is re-emerging in many states,
with a number of them having integrated the most
impactful elements of past programs. If successful,
these efforts may spur changes that result in greater
institutional productivity and improved progress
toward meeting state and national educational
attainment goals.
Observations
PBF has had mixed success over the last 30 years.
PBF has been a popular yet unstable approach to
higher education nance. Between 1979 and 2007,
26 states enacted performance funding, while 14
abandoned their programs (two states, however, re-
established programs).
12
PBF was especially popular
during the 1990s economic boom, when ush state
coffers provided performance funds for colleges
and universities. As state revenues declined during
the early half of the 2000s, many PBF systems that
were considered add-ons were eliminated in state
budgets.
13
Only a handful of states have performance
funding, many of which link only a small portion of
state funding to performance.
14
A number of program hazards have in the past
prevented PBF from becoming a mainstay in higher
education nance. Several programs have been
abandoned because program designers failed to
correctly align campus measurements and state
goals or did not account for campus missions.
Other issuessuch as state funding cuts, crude data
measurement and lack of sustained support from
political and campus leadershave contributed
to program abandonment over the past three
decades.
15
Many states have reverted to simply
reporting their performance instead of linking it
directly to state appropriations.
16
Some have noted PBF success at the campus level.
Research performed on community colleges by
Columbia Universitys Community College Research
Center, for example, indicates that campus ofcials
garnered a greater awareness of state priorities
and institutional performance due to PBF systems.
This incentivized colleges to make changes to
reect performance indicators, such as improving
remediation efforts. However, program success at
community colleges continues to be hampered
by poor program design, unstable funding and
inequalities in institutional capacity.
17

Some states with PBF have observed success with
their programs, including:
Ohio: From FY 1999 to FY 2003, Ohio cut the
median time to degree for bachelors degrees from
4.7 to 4.3 years, a measure that remained at this
level until 2007 (performance-based funding began
in 1998).
18
Pennsylvania: The Pennsylvania State System of
Higher Education (PASSHE) has been cited by the
Lumina Foundation for Education as a national
leader in performance-based funding. During the
past ten years, PASSHE has experienced signicant
changes in its campuses attitudes toward
performance, with gains cited in student retention
and graduation rates, campus diversity, program
quality and faculty productivity. The average
number of credits at graduation has decreased,
while retention and graduation rates have increased.
PASSHE ofcials were recently given credit during
4 / June 2011 AASCU Policy Matters
their annual hearings before the Pennsylvania
House and Senate Appropriations Committees for
their leadership role. Despite historic budget cuts
proposed by the states governor, PASSHE remains
committed to its PBF principles and will continue its
performance-based approach.
Tennessee: Tennessee developed the rst PBF
system and has remained a leader in this eld for
decades. Their performance-based system has
yielded positive learning outcomes.
19
In 2010, the
state overhauled its nancing structure for higher
education, changing a primarily enrollment-driven
higher education nance system to an output-
based approach. The model is one of the most
intricate and innovative approaches to higher
education nancing in the nation. The change has
led campuses to bring in extra student advisers,
increase tutoring and remedial classes, fast-
track majors and develop extra courses between
semesters.
20
Washington: Washington community and technical
colleges have increased performance across
all student measurement categories since their
Achievement Points PBF plan began in 2006.
The changes led institutions to link PBF priorities
to strategic planning and accreditation activities,
and to focus on improving instruction, tutoring,
assessment and advising.
21
According to a recent
report, one-third of the increase in institutional
outputs in Washington has been tied to enrollment
increases, with the remaining majority attributed to
greater student achievement.
22

There are a number of different PBF approaches
currently in operation. State leaders have
developed numerous systems linking institutional
performance and state appropriations. Some of the
programs developed in the last ve years include:
Indiana: Indianas 2007 Reaching Higher: Strategic
Directions for Higher Education initiative launched
a performance set-aside system for the state.
The program seeks to adjust institutional funding
based on a series of benchmarks shared by all state
institutions.
23
However, leaders of high-performing
state research universities have questioned the
approach, believing it neither adequately accounts
for current levels of excellence nor the distinctive
research missions of some campuses.
24
The Indiana
Commission for Higher Education (CHE) has
recommended a performance set-aside of 5 percent
in the 20112013 budget. CHE outlined the following
measurements in January 2011:
Total Degree Attainment Improvement: 60
percent
Change in overall degree attainment: 30 percent
Change in on-time degree attainment: 15 percent
Change in low-income degree attainment
change: 15 percent
Total Credit Hour Completion Improvement: 25
percent
Successful completion of credit hours: 18.7
percent
Successful completion of dual-credit credit
hours: 5.5 percent
Successful completion of early college credit
hours: .8 percent
Total Improvement in University Research: 15
percent
Louisiana: In 2010, Louisiana established a
performance agreement system (the GRAD Act)
that will comprise 25 percent of institutional
operating budgets when fully implemented. The
contract allows institutions to annually increase
tuition by up to 10 percent in exchange for meeting
performance targets.
25

The four performance objectives in the GRAD Act
are:
26
Student Success;
Articulation and Transfer;
Workforce and Economic Development; and
Institutional Efciency and Accountability
Each performance objective is comprised of a
series of elements or sub-goals. Housed under
each element is a series of quantitative measures
(see Figure 1 for a sample of targeted elements
at Louisiana Tech. In total, this agreement has 4
5 / June 2011 AASCU Policy Matters
objectives, 16 elements and 56 measures of campus
productivity). These measurements are categorized
as:
Targeted: Specic short- and long-term measures.
Institutions must have baseline data, annual
benchmarks and six-year targets. Institutions
report annual progress on measures.
Tracked: Measurements requiring baseline and
actual data must be reported in the rst two years.
These will be converted in targeted measures in
years three through six.
Descriptive: These measures do not require annual
benchmarks and targets. However, institutions are
required to submit baseline and actual data via
annual reports.
Ohio: Ohios output-based system was developed in
coordination with the states ten-year strategic plan
for higher education in 2008. The program includes
a decreasing number of stopgap measures for
its rst few years to ensure program stability; as
conceived, the state will eventually base its entire
appropriations allotment on outputs. The programs
are divided by type of institution and are weighted
to account for at-risk student populations.
27

University main campuses:
Course and degree completion
Campus/mission-specic contributions
Funding for graduate/medical education
University regional campuses:
Course and degree completion
Campus/mission-specic contributions
Source: Louisiana Board of Regents, 2010
Figure 1. GRAD Act Example: Louisiana Tech University

Baseline
Measure Baseline Year/Term Data Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

1
st
to 2
nd
Year Retention (targeted) Fall 2008 to 2009 74.2% 76.0% 76.2% 76.4% 76.6% 76.8% 77%
# in Fall 2008 Cohort 1,506
# retained in Fall 2009 1,118
1
st
to 3
rd
Year Retention (targeted) Fall 2007 Cohort 61.6% 64% 64.2% 64.4% 64.6% 64.8% 65.0%
# in Fall 2007 Cohort 1,522
# retained in Fall 2009 938
Same Institution Graduation Rates (targeted) 2008 Grad Rate Survey 47.3% 47.5% 48.0% 48.3% 48.7% 49.0% 50.0%
Fall Revised Cohort (total) 1,936
completers<=150% of the time 916
Statewide Graduation Rate (targeted optional) Fall 2002 Cohort 53.07% 55.1% 55.2% 55.4% 55.6% 55.8% 56.0%
#of Fall 02 FTF (cohort) 1,969
completers<=150% of the time 1,045
Percent Change in Program Completers
Baccalaureate -3.4% -3.1% -2.3% -1.0% 0.0% 2.0%
20082009 AY 1,306 1262 1266 1276 1293 1306 1332
Post-Baccalaureate 31.5% 56.0% 68.0% 76.0% 85.0% 85.0%
20082009 AY 19 25 30 32 33 35 35
Masters 16.7% 16.0% 16.0% 18.0% 18.0% 20.0%
352 411 408 408 415 415 422
Doctoral -2.7% -0.7% 1.0% 1.0% 1.0% 2.0%
37 36 37 37 37 37 38
6 / June 2011 AASCU Policy Matters
Community colleges:
Enrollment (95 percent)
Success points (5 percent)
Developmental education success
Number of students earning 15 credits
Number of students earning 30 credits
Number of students earning at least one
associate degree
Number of students who completed 15
credits and enrolled in a four-year college or
university
Pennsylvania: In early 2011, the Pennsylvania State
System of Higher Education approved a new PBF
system, thus replacing the performance structure
that had been in place since 2000. The new system
will be based on the core values of student success,
access and institutional stewardship. Following
a transitional year, all PASSHE institutions will
be evaluated on ve common indicatorstwo in
student success, two in access and one pertaining
to institutional stewardshipand ve additional
indicators, chosen by the institutions themselves (at
least one must be stewardship). The performance-
based funding plan is projected to be 2.4 percent
of PASSHEs state appropriation (see Figure 2 for a
more detailed outline of the PBF formula).
Tennessee: Tennessee lawmakers passed the
Complete College Tennessee Act in 2010, which
shifts higher education funding from an enrollment-
based to an output-based performance system.
There are two basic formulas, one for community
colleges and one for four-year state colleges
and universities. The two formulas account for
differences in institutional missions. The system,
which will be phased in over the next four years,
bases funding on outputs and does not have specic
targets or goals. Institutions receive funding based
on factors such as the number of students reaching
credit milestones, college completion, graduation
rates and research funding. The formula weighs
institutional mission and provides a premium for
the success of low-income and non-traditional
students.
28
Washington: The Washington State Board for
Community and Technical Colleges (SBCTC)
has developed a performance set-aside system
called Achievement Points under its Student
Achievement Initiative program. Campuses receive
funding based on accumulation of achievement
points.
29
Achievement points are acquired through
the following:
Building toward college-level skills (basic skill
gains, passing pre-college writing or math)
First-year college retention (earning 15 or 30
college credits)
Completing college-level math (passing necessary
college math courses)
Completion (earning a certicate, two-year degree
or apprenticeship)
The principles behind PBF remain controversial.
The concept of linking institutional performance
with state appropriations has been met with
praise and skepticism from stakeholders in higher
education.
Key advantages of PBF may include:

Greater awareness of campus performance. PBF
can lead to a greater awareness of performance of
college campuses. This can spur discussions about
resource allocation, mission and priorities. Greater
visibility and state emphasis on performance may
also generate competition between campuses to
improve outcomes.
30
Improved delineation of state and institutional
priorities. The relationship between higher
education and the state can have greater clarity
under a PBF system. PBF allows governors and
state legislatures to set priorities for public
higher education and attach funding to them.
PBF also allows state priorities and strategic
plans to permeate the higher education system,
shifting the focus from institutional needs to
state priorities. This can lead to greater scrutiny
of the effectiveness and scope of campus
programs and services, and ultimately to a better
synergy between campus planning, budgeting
and performance.
31
This may lead to important
discussions that re-visit and re-dene the missions
7 / June 2011 AASCU Policy Matters
Figure 2. Pennsylvania State System of Higher Education
(PASSHE) Performance Funding System, 20112017
PASSHE Performance Funding System, 20112017 (10 total indicators5 mandatory, 5 optional)
Groups Student Success Access Stewardship
I. Mandatory 2 indicators 2 indicators 1 indicator
II. Optional 04 indicators 04 indicators at least 1
III. University Specifc universities may develop 02 indicators
Recommended to be equal to 2.4 percent of PASSHEs total educational and general appropriation.
Each university will have the ability to meet performance on each measure for a maximum of ten points.
The university will get points for meeting sub-measures.
All points are tallied for each university, then weighted by the universitys base appropriation funding determined by the allocation formula.
Weighted points are divided into the total performance funding pool to create a dollar-per-point value that is multiplied by the number of points the university earned to establish the
allocation.
Student Success
Mandatory:
1. Degrees Conferred (two sub-measures)
2. Closing the Achievement Gap (two sub-measures)
Optional:
1. Deep Learning Scale Results
2. Senior Survey-National Survey of Student Engagement (fve sub-measures)
3. Student Persistence (two sub-measures)
4. Value-Added
5. STEM Degree Recipients
Access
Mandatory:
1. Closing the Access Gaps (two sub-measures)
2. Faculty Diversity (two sub-measures)
Optional:
1. Faculty Career Advancement (four sub-measures)
2. Employment (nonfaculty) Diversity (four sub-measures)
3. Student Experience with Diversity and Inclusion
4. Student Diversity
Stewardship
Mandatory:
1. Private Supportthree-year average of total dollars raised
Optional:
1. Facilities Investment
2. Administrative Expenditures as Percent of Cost of Education
3. Faculty Productivity
4. Employee Productivity
University-Specifc
Universities may create no more than two of these indicators, which must be approved by the chancellor.
Source: Pennsylvania State System of Higher Education, 2011.
of some state campuses to reect new state
priorities and economic dynamics.
Enhanced transparency and accountability.
This approach clearly delineates key state and
institutional priorities while allowing stakeholders
to evaluate institutional performance. Institutional
accountability is an inherent system feature.
This can dispel traditional assertions that higher
education is opaque, unaccountable for state
dollars or unresponsive to state needs. It may also
allow higher education to better compete as a
state funding priority.
Increased productivity. PBF policy renements
could result in key productivity gains for
campuses, leading to better a value for students,
parents and state residents.
8 / June 2011 AASCU Policy Matters
While PBF provides an incentive for meeting certain
metrics, it may also lead to a number of unintended,
potentially detrimental consequences for colleges
and universities.
Key disadvantages may include:
A limited portrait of university performance. PBF
systems hold universities accountable for a series
of measurements of student and institutional
success. It offers few shades of gray in a
multifaceted, complex environment. Rewarding a
few campus outcomes is a difcult exercise that
can lead to contentious discussions both within
and among state universities.

Mission distortion/student access. PBF may lead
some institutional leaders to abandon, distort
or manipulate the universitys core mission and
responsibilities in order to inate performance
metrics. Some systems encourage administrators
to change inputs instead of outcomes. This
could include limiting access to students from
disadvantaged backgrounds. Some changes may
even go unnoticed, such as reducing outreach
efforts to low-income students.
Quality reduction. The PBF approach may
not capture gains in student learning or skills
acquired.
32
And because it may stress efciency
over quality, some believe academic quality
might suffer.
33
If the incentives are substantial, it
is possible that some may act to reduce program
rigor to achieve better outcomes. Institutions
could also attempt to alter academic programs to
improve performance scores (such as completion
rates), while ultimately diluting the value of the
students degree.

Lack of program support. PBF may not be
popular among some groups in academia,
including faculty members. Some may object to
market principles being integrated into academic
operations, believing that evaluating performance
based on a few metrics is antithetical to academic
freedom and campus autonomy.
Increased inequality and instability. Some
believe PBF hurts institutions that need the most
help, especially those serving disadvantaged
populations. In some cases, the lack of resources,
not university efforts, may be the driver behind
poor performance.
34
Some PBF approaches
could also lead to large swings in funding and
institutional instability.
The successes and failures of past systems
have yielded a number of best practices now
being utilized in new program design and
implementation. Effective practices to consider
when developing a PBF system include:
Establishing state postsecondary education
goals. PBF should be integrated in a state plan
for higher education.
35
This provides meaning
and direction for the campus and clarity for state
higher education. The institution should know
its role and goals in this plan, with performance
measurements tied to these goals.
Bipartisan political commitment. To be successful,
PBF requires bipartisan legislative champions.
Ideally, a broad coalition of program supporters
should be garnered to ensure its success during
changes in political administrations.
Support from institutions. Multi-state research
of PBF programs at the community college level
has demonstrated that a lack of institutional
support or indifference from campus ofcials
led to program failure or prevented its spread
to other campuses. PBF advocates need to
address common program concerns, including
undercutting autonomy and failure to account for
institutional differences.
Stakeholder collaboration throughout the
program design process. PBF needs buy-in
and involvement from a number of different
stakeholders during all parts of the policymaking
process in order to be most effective and
sustainable. This includes college presidents,
political leaders, faculty members, student groups,
9 / June 2011 AASCU Policy Matters
K-12 and business groups. Advocates should also
reach out to groups committed to educational
equality for underserved students. These groups
may be drawn to PBF systems that reward
enrolling, educating and graduating students from
disadvantaged backgrounds.
36

Stable program funding. For the program to
function properly, incentives must remain in place
and remain predictable. State and campus leaders
must protect the program from budget cuts for
PBF to be successful and sustainable in the long-
term.
37
If this is not possible, PBF advocates may
want to consider embedding state funding into
the performance formula, such as the systems in
Tennessee and Ohio. This ensures that changes in
appropriations do not interfere with performance
goals.
Program design remains the most critical
component to PBF success. Funding system
architecture should consider the following best
practices:
Allow institutional autonomy. Campus and
political leaders should revisit state regulations
that could hinder an institutions ability to meet
performance benchmarks.
Keep it simple. PBF should only emphasize a
handful of measurements in order to be most
effective, balancing institutional complexity
and state goals.
38
Too many goals can lead to
confusion and conict; too few goals can provide
an inaccurate picture of institutional performance.
PBF should also consider intermediate goals
(such as credit milestones) in order to focus on
improving all segments of the postsecondary
education pipeline.
Account for institutional differences. PBF
architects must ensure that programs do not
discriminate against institutions that serve the
needs of poor or at-risk students. Mission creep
should not be encouraged. They must account for
the institutional missions, roles and outcomes.
Allow time for implementation. PBF requires that
campuses have time to change to achieve better
outcomes, as it will take time to understand the
measurements and make changes to campus
programs, systems and processes. One way to
achieve this is to have a learning year when
performance is tracked but no performance funds
are exchanged.
39

Anticipate challenges. There are concerns that
PBF systems will be manipulated by grade
ination, institutions changing their student
makeup or reducing program rigor. PBF formulas
should anticipate and address attempts to
manipulate the systems.
Evaluate outcomes, ensure recognition. PBF
systems require extensive and ongoing evaluation.
State and campus leaders should recognize
excellent performance and share both best
practices and pitfalls to avoid.
State leaders throughout the country are exploring
PBF. Budget cuts, turnover in political leadership,
continued low completion rates and calls to increase
educational attainment have led many states to
explore or re-examine PBF (see Figure 3). Policy
proposals by political and higher education leaders
include the following:
Arkansas: In his 2011 State of the State address, Gov.
Mike Beebe (D) called for state funding to be tied to
coursework completion and graduation rates.
40

Colorado: Legislation has been sent to Gov. John
Hickenlooper (D) that would eventually build up
Figure 3. Performance-based Funding
(PBF) Legislation in the States
State Bill Number Status
Colorado SB 11-52 Sent to Governor
Illinois HB 1503 Passed House/Senate
North Dakota SB 2300 Failed to Pass
Oregon SB 242 In Committee
Texas HB 9 Passed House/Senate
Virginia HB 2510 Signed by Governor
Washington SB 5915 In Committee
Source: State websites, National Conference of State Legislatures.
10 / June 2011 AASCU Policy Matters
to 25 percent PBF over the next ve years. This
would replace the existing performance contract
approach.
41
The governor is supportive of the PBF
plan.
Connecticut: A bipartisan group of lawmakers has
recommended linking institutional performance to
state appropriations. This has been considered in the
context of overhauling the states higher education
governance system.
42
Illinois: In December 2010, the states Higher
Education Finance Commission released a report
highlighting performance-based funding as an
option for state higher education nance reform.
43

The Illinois House and Senate passed PBF legislation
in April 2011.
44

Massachusetts: Gov. Deval Patrick (D) has included a
$7.5 million performance set-aside competitive grant
program for campuses in his FY 2012 state budget
proposal.
45

North Dakota: Gov. Jack Dalrymple (R) called for
performance-based funding during his 2011 State of
the State address.
46
However, an effort to create a
higher education nance commission was defeated
by the state legislature in April 2011.
47

Oregon: State lawmakers are weighing a series
of policy and governance changes for the states
education system, including a performance compact
proposal for higher education.
48

South Carolina: Gov. Nikki Haley (R) is developing
a plan with state college leaders that would link
state funding to factors such as graduation rates,
job placement, institutional outcomes in economic
development and service to disadvantaged
students.
49

Texas: In his 2011 State of the State address, Gov.
Rick Perry (R) called for an outcomes-based
funding model for the states public universities
and community colleges.
50
A PBF bill has passed the
states House of Representatives and Senate.
51
The
Texas Higher Education Coordinating Board has also
developed a plan that would set aside 10 percent of
based funding according to outcomes.
52
Virginia: Gov. Bob McDonnell (R) signed legislation
in April 2011 overhauling the states higher education
nancing system. This change includes some
performance funding measurements.
53
Washington: Legislation was introduced in April 2011
to allow institutions greater autonomy while holding
them accountable for performance.
54

West Virginia: The West Virginia Higher Education
Policy Commission released a report in January 2011
calling for the adoption of a performance approach
that includes incentives for increased degree
production, enrollment of nontraditional students
and course completion.
55
Conclusion
Performance-based funding for higher education
has reemerged as a state policy solution aimed
at generating greater institutional productivity,
accountability and educational attainment. Through
funding incentives, PBF is designed to encourage
efcient resource allocation, greater awareness and
attention to state priorities, and a results-oriented
campus culture. Past PBF approaches have shown
that program development, implementation and
evaluation must be thoughtful and comprehensive
so that college access, affordability, quality
and institutional stability are maintained, if not
enhanced. New incentive-based and outcomes-
oriented approaches hold promise for improving
productivity and must be evaluated to provide
the clearest picture of the effectiveness of PBF
as a state higher education nance approach.
Rened PBF approaches will be evaluated in the
coming years and may provide new perspective
on this approach to higher education nance and
institutional productivity.

11 / June 2011 AASCU Policy Matters
Resources
Illinois Higher Education Finance Study Commission, 2010.
Final Report.
Louisiana Board of Regents, 2010. GRAD Act Agreements.
Lumina Foundation for Education, 2009. Performance
Funding 2.0 Tip Sheet.
Lumina Foundation for Education, 2011. Productivity.
National Governors Association, 2011. Degrees for What
Jobs? Raising Expectations for Universities and Colleges in a
Global Economy.
New England Board of Higher Education, 2011. Catalyst
for Completion: Performance-based Funding in Higher
Education.
Tennessee Higher Education Commission, 2010. Presentation
on Outcomes Model.
Texas Higher Education Coordinating Board, 2010.
Recommendations to the 82th Texas Legislature.
U.S. Department of Education, 2011. College Completion Tool
Kit.
West Virginia Higher Education Policy Commission, 2011.
Financing West Virginias Future: A Funding Model for Higher
Education.
Endnotes
1
The White House, Education, http://www.whitehouse.gov/
issues/education (accessed May 9, 2011).
2
U.S. Department of Education, College Completion Tool Kit,
Washington, D.C., 2011.
3
Lumina Foundation for Education, Productivity, http://www.
luminafoundation.org/our_work/college_productivity/
productivity.html (accessed May 9, 2011).
4
Joseph Burke and Shahpar Modaresi, Performance Funding
Programs: Assessing Their Stability, Research in Higher
Education (2001), http://www.jstor.org/pss/40196419.
5
Arthur Hauptman, Performance-Based Funding in Higher
Education, Financing Reforms for Tertiary Education in
the Knowledge Economy (2005), http://www2.montana.
edu/.../Performance-Based%20Funding%20in%20Higher%20
Education-1%20(2).ppt (accessed May 9, 2011).
6
Kevin J. Dougherty and Rebecca S. Natow, The Demise of
Higher Education Performance Funding Systems in Three
States, Community College Research Center Brief (2009)
http://ccrc.tc.columbia.edu/Publication.asp?UID=693
(accessed May 9, 2011).
7
Doug Lederman, Performance Funding 2.0, Inside Higher
Ed, December 17, 2008, http://www.insidehighered.com/
news/2008/12/17/perform (accessed May 9, 2011).
8
U.S. Department of Education, 2011.
9
Robert Barnetson and Marc Cutright, Performance Indicators
as Conceptual Technologies, Higher Education 40 (2000),
http://zimmer.csufresno.edu/~sasanr/Teaching-Material/MIS/
MRS/PI-higher-education.pdf.
10
Jeffrey Pfeffer and Gerald R. Salanick, The External Control of
Organizations: A Resource Dependency Perspective, (Harper
& Row, 1978), 47.
11
Hauptman, 2005.
12
Dougherty and Natow, 2009.
13
Kevin Carey, Truth without Action: The Myth of Higher
Education Accountability, Change Magazine (2007), http://
www.educationsector.org/publications/truth-without-action-
myth-higher-education-accountability (accessed May 9,
2011).
14
Kevin Carey and Chad Alderman, Ready to Assemble:
A Model State Higher Education Accountability
System, Education Sector Reports (2008) http://www.
educationsector.org/usr_doc/HigherEdAccountability.pdf
(accessed May 9, 2011).
15
Dougherty and Natow, 2009.
16
Carey and Alderman, 2008.
17
Kevin J. Dougherty and Esther Hong, Performance
Accountability as Imperfect Panacea: The Community
College Experience, Defending the Community College
Equity Agenda, (Baltimore: The Johns Hopkins University
Press, 2006), 81-83.
18
Brenda Norman Albright, Higher Education Performance
Funding 2.0 Tip Sheet, Lumina Foundation for Higher
Education (2009), http://www.collegeproductivity.org/sites/
default/les/resources/TipsheetonPerformanceFunding.pdf
(accessed May 9, 2011).
19
Albright, 2009.
20
Jennifer Brooks, TN colleges get creative to increase
graduation rates, The Tennessean, March 29, 2011,
http://www.tennessean.com/article/20110329/
NEWS04/103290325/-1/MICRO0603/TN-colleges-get-
creative-increase-graduation-rate (accessed April 17, 2011).
21
David Jenkins, Todd Ellwein, & Katherine Boswell, Formative
Evaluation of Student Achievement Initiative Learning Year,
Community College Research Center (2009), http://ccrc.
tc.columbia.edu/Publication.asp?UID=655 (accessed April 17,
2011).
22
Erin Sparks and Mary Jo Waits, Degrees for What Jobs?
Raising Expectations for Universities and Colleges in a Global
Economy NGA Center for Best Practices (2011), http://www.
nga.org/Files/pdf/1103DEGREESJOBS.PDF (accessed April
17, 2011).
23
M. Crellin and others, Catalyst for Completion: Performance-
based Funding in Higher Education New England Board
of Higher Education Policy and Research (2011), http://
www.nebhe.org/info/pdf/PerformanceFunding_NEBHE.pdf
(accessed April 17, 2011)
24
Indiana University, IU Expresses Concerns over aws in new
funding plan, IU Newsroom, April 30, 2011, http://newsinfo.
iu.edu/news/page/normal/18426.html (accessed May 8,
2011).
25
Jordan Blum, College Funds Based on Grads, The Advocate,
March 24, 2011, http://www.2theadvocate.com/news/
latest/118554719.html (accessed April 17, 2011).
26
Louisiana Board of Regents, Operational Denitions and
Reporting Specications, Louisiana GRAD Act (2011),
http://regents.louisiana.gov/assets/docs/Academic/GRAD_
Attchmt_B_Rev_3-1-11.pdf (accessed April 17, 2011).
27
Illinois Higher Education Finance Commission, Ohios
Performance-Based Subsidy Formula for Higher Education,
Chancellor Fingerhuts Testimony (2010). http://www.ibhe.
state.il.us/SJR88/Materials/100830/FingerhutTestimony.pdf
(April 17, 2011)
28
Russ Deaton, Presentation on Outcomes Model, Complete
College Tennessee Act Summary (2011), http://www.tn.gov/
thec/Divisions/Fiscal/funding_formula/1-Funding%20
Formula%20-%20Final%20for%20Website.PPT (April 17,
2011).
29
Washington State Board for Community and Technical
Colleges, Student Achievement Initiative (2010), http://www.
sbctc.edu/college/education/student_achieve_summary_
nov2010.pdf (April 17, 2011).
30
Dougherty and Hong, 2006
31
Joseph Burke and Associates, Funding Public Colleges and
Universities for Performance (Albany: Rockefeller Institute
Press, 2002), 267.
32
Burke and Associates, 273.
33
Burke and Associates, 279.
34
Burke and Associates, 275.
35
Albright, 2009.
36
Dougherty and Natow, 2009.
37
Doughtery and Natow, 2009.
38
Albright, 2009.
39
Peter Garland, interview by author, April 14, 2011.
40
Gov. Mike Beebe, 2011 State of the State Address, Ofce
of Gov. Mike Beebe (2011), http://governor.arkansas.gov/
newsroom/les/sots2011.doc, (accessed April 17, 2011).
41
Razan Naqeeb, Fact Sheet Memorandum SB 11-052:
Expectations for Higher Education Institutions, Ofce of
Senator Mike Johnson (2011), http://www.mikejohnston.org/
images/stories/110214_FactSheet_11-052_v2.pdf (April 17,
2011).
42
Jacqueline Rabe, Lawmakers Propose Tying Higher
Education Funding to Performance, Connecticut Mirror,
December 10, 2010, http://www.ctmirror.org/story/8735/
lawmakers-recommend-restructuring-how-public-colleges-
are-funded-state (accessed April 17, 2011).
43
Kimberly Pohl, Higher ed Commission recommends
performance-based funding, Daily Herald, December
7, 2010, http://www.dailyherald.com/article/20101207/
news/712089767/ (accessed April 17, 2011).
44
Kiera Manion-Fischer, Illinois Senate OKs performance-
based funding for higher ed, Quad-City Times, April 15,
2011, http://qctimes.com/news/state-and-regional/illinois/
article_9cdda48e-67a9-11e0-a22c-001cc4c002e0.html
(accessed April 17, 2011).
45
Molly Bench, 2012 House 1 Budget Recommendations,
Executive Ofce for Administration and Finance (2011),
http://www.mass.gov/bb/h1/fy12h1/exec_12/hbudbrief16.htm,
(accessed April 17, 2011).
46
Gov. Jack Dalrymple, 2011 State of the State Address,
Ofce of Gov. Jack Dalrymple (2011), http://governor.nd.gov/
events/2011-state-state-address (accessed April 17, 2011).
47
Proposed ND Higher Ed Finance Commission Beaten,
KFYR-TV, April 4, 2011, http://www.kfyrtv.com/News_Stories.
asp?news=47813 (accessed April 17, 2011).
48
Oregon Legislature, Senate Bill 242, 2011 Regular Session,
http://www.leg.state.or.us/11reg/measpdf/sb0200.dir/sb0242.
intro.pdf (accessed April 17, 2011).
49
Harriet McLeod, South Carolina moves to Dene
Performance-Based Funding Formula for Higher Education,
Diverse Issues in Higher Education, April 11, 2011, http://
diverseeducation.com/article/15010/ (accessed April 17, 2011)
50
Gov. Rick Perry, 2011 State of the State Address, Ofce
of Gov. Rick Perry (2011), http://governor.state.tx.us/news/
speech/15673/ (accessed April 17, 2011).
51
Texas Legislature, House Bill 9, 82
th
Regular Session (2011)
http://www.legis.state.tx.us/tlodocs/82R/billtext/pdf/
HB00009H.pdf#navpanes=0 (accessed April 17, 2011).
52
Susan Brown, Outcomes-Based Formula Funding: Promoting
Student Success, Texas Higher Education Coordinating
Board (2010), http://www.thecb.state.tx.us/download.
cfm?downloadle=F35695D2-078D-1E9C-CD27DEFFFA8AE
E9C&typename=dmFile&eldname=lename (April 17, 2011).
53
Virginia Legislature, House Bill 2510, 2011 Regular Session,
http://lis.virginia.gov/cgi-bin/legp604.exe?111+ful+CHAP0828
(accessed April 17, 2011).
54
Washington Legislature, Senate Bill 5915, State of
Washington 62nd Legislature (2011), http://apps.leg.wa.gov/
documents/billdocs/2011-12/Pdf/Bills/Senate%20Bills/5915.
pdf (accessed April 17, 2011).
55
West Virginia Higher Education Policy Commission,
Financing West Virginias Future: A Funding Model for
Higher Education, West Virginia Higher Education Policy
Commissions Efciencies Project (2011), http://wvhepcnew.
wvnet.edu/.../WVHEPC%20Funding%20Formula%20FINAL.
pdf (accessed April 17, 2011).
Contact:
Thomas L. Harnisch, Policy Analyst [email protected]
ph 202.293.7070 aascu.org/policy