Education

Massachusetts’ Big Bet on Performance-Based College Funding

The Bay State is hoping its aggressive funding plan for community colleges will close its job skills gap. But not everyone is convinced.
November 2013
A job fair at Rutgers University in New Brunswick, N.J.
In 2011, a study commissioned by the Boston Foundation warned that Massachusetts’ job skills gap would worsen if community colleges didn’t churn out more qualified candidates. Getty Images/Robert Nickelsberg

In Massachusetts, the numbers just aren’t adding up right. The state weathered the recession better than most, adding a healthy number of jobs and maintaining one of the lowest unemployment rates in the nation. But it faces a serious job skills gap: At the end of last year, roughly 250,000 people in the state could not find work while 135,000 positions went unfilled. It’s a gap that has opened up in many places, but in Massachusetts the reality has had a particular sting. Here is a state that prides itself on its tech industry and top-notch universities, but it still isn’t producing enough qualified graduates for the work that needs to be done.

Increasingly, the focus has turned toward Massachusetts’ 15 community colleges as a key element in both the problem and the solution. For years, the colleges had been clamoring for a bigger appropriation and a new funding formula, but lawmakers were loath to grant more money without guarantees that it would be spent on addressing the workforce development gap. “The discussion moved more and more to the notion that access [to community colleges] is good and important but it is not enough,” says the state’s higher education commissioner, Richard Freeland. “We also need to really care about results.”

Today, the state is in the first phases of implementing a high-stakes gamble, moving toward results-oriented funding for all its community colleges. It is one of the most aggressive such plans in the nation, and the state’s education leaders hope it will generate a flood of homegrown talent filling homegrown jobs. Performance funding isn’t new—a dozen other states have some form of it already in place, with others soon to follow—but Massachusetts has leapfrogged its counterparts. Most states that have tried performance funding in public higher education devote less than 10 percent of total expenditures to it. Massachusetts is setting aside half of its community college funds for that purpose. Tennessee is the only other state that goes that far. In addition, Massachusetts increased its community college funding by $20 million after years of cutbacks.

Whether these moves will give Massachusetts’ community colleges better results than those in other states won’t be known for years. But the Bay State’s big step reflects a growing demand across the country for accountability in education funding that many believe will have a lasting impact.

Although performance funding has been a minor element of American higher education for more than 30 years, the form it’s taking today is new and more consequential. In the 1980s and ’90s, performance funding took the form of granting bonus money when goals were met rather than including it as a part of schools’ base budgets. But bonus money dried up when the 2008 recession hit and states began looking at revamping their performance measurement programs to make the consequences more lasting.

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Indeed, performance funding is now on the upswing across the country. Besides Massachusetts and Tennessee, 11 states have added performance criteria to their community college base budgets (some also are including universities), while four other states are transitioning to some form of it, according to the National Conference of State Legislatures.

Helping to push the trend is a political climate that has seen increased calls over the years for accountability in government spending, says Richard Kazis, vice president of Jobs for the Future, which promotes workforce development. “There’s a sense that we shouldn’t just fund institutions for getting people to sit in seats briefly; we should fund them for succeeding and moving people forward. How do you make the most out of each dollar? That’s the philosophical underpinning—it’s that we need to do better with public resources and to incentivize behaviors we want.”

Massachusetts’ new funding formula was created over the course of a year through the collaborative effort of college presidents, the state Department of Higher Education and other interested stakeholders. From now on, community college funding will be tied to each school’s ability to improve graduation rates, contribute to the state’s workforce needs and help more minority students thrive. Within three years, roughly half of each school’s allocation after its base operating subsidy will hinge on these benchmarks. The other half will be determined by course credits completed, so that student population is still addressed as part of the total funding package. No campus will lose money the first year, giving administrators time to adjust to the new standards.

The new scheme replaces an antiquated funding system under which community colleges generally received money from the state based on the amount budgeted in prior years. In recent appropriations, increases and decreases in that funding had been imposed across the board without concern for how individual campuses might be growing. The result was that some campuses were being funded to the tune of nearly $6,000 per full-time student, while others received as little as $2,500 per student. Adding to college presidents’ frustrations was the fact that the state had consistently cut funding starting with the recession, resulting in a major strain on resources, especially for the larger campuses.

Meanwhile, officials had been tinkering with various performance-funding models. A performance-based formula had been created some years before, although it was complicated and never put in place. But in 2010 the state launched the Vision Project, which laid out its plan to become a national leader in public higher education. Over the course of a generation, the balance of enrollments in the state had turned toward public universities—in 1967, just 30 percent of undergraduates were educated at state schools but by 2010 that number had ballooned to 52 percent. But not all those public schools were meeting the new demands.

In 2011, a study commissioned by the Boston Foundation warned that Massachusetts’ job skills gap would worsen if community colleges didn’t churn out more qualified candidates. The report, which recommended outcomes-based funding, echoed a refrain from the state’s business community, which was struggling to fill mid-level job openings that demanded associate degrees or trade certificates (which require less schooling than degrees).

The community college presidents, in their desire for a new funding method from the state, saw that the formula would have to include performance funding. “We very quickly found out that if we were going to get buy-in from those folks, performance was in some way, shape or form going to be wrapped into this,” says Bill Messner, president of Holyoke Community College. “It’s at that moment that the presidents [said], ‘OK, if that’s what we have to accept as the price of getting a rational funding formula, we’ll accept that.’”

It took more tweaking to get all the presidents on board, but unity was critical from the state’s point of view. “The legislative leadership was very interested,” says Freeland, “in getting to a place where everyone was in agreement so we were not dealing with a divisive situation.”

Some experts warn that performance funding should not be viewed as a panacea for the state’s job gap ills. One of them is Kevin Dougherty, an associate professor of higher education at Columbia University’s Teachers College. “States are rapidly copying each other,” Dougherty says. “There’s an element of fashion involved.” And with that push, he says, some may be tempted to rush into a new funding system without considering possible side effects.

That was the problem in South Carolina, which still represents the best-known disaster among performance funding experiments. It jumped into performance measurement for higher education in 1996, and it tried to change too much too quickly. The state did not phase in a new formula but instead leapt to 100 percent performance funding for colleges and universities using a complicated system with dozens of metrics. “They built a system they couldn’t deliver,” says Kazis of Jobs for the Future. The funding formula was never embraced by university faculty and administrators, who were not included in the process of designing it. Administrators who tried to implement the program were overloaded with unfamiliar demands. After seven years, the program was abandoned.

It’s a lesson that Massachusetts and Tennessee have both learned from. They are easing into their current programs and collaborating with the higher education community as they do so. Even with that, Dougherty warns that institutions under pressure to produce better results “may well be tempted to start going to easier ways” to produce those results. But in Tennessee, whose 100 percent outcomes-based funding formula uses 10 measurements weighted differently depending on each school’s mission, the creators tried to anticipate any unintended consequences by actively searching their formula for holes. “We spent a lot of time on if somebody wanted to beat this, how would you do it?” says Richard Rhoda, executive director of the Tennessee Higher Education Commission (THEC).

And so far, it seems to be working. For example, the formula’s designers realized that schools might be tempted to get their performance numbers up by admitting students more selectively. To prevent that unintended consequence, Tennessee awards a 40 percent premium on outcomes achieved by low-income or adult students. Massachusetts also gives extra credit for minority student achievement.

Simplicity in developing a new formula is key, says Russ Deaton, THEC’s associate executive director. He cautions against the impulse “to find a more cleverly designed outcomes formula to try and one-up the last state. That temptation can lead all of us to build things that don’t resonate with the government, the public or institutions.”

It’s too early to tell whether this new round of performance funding will pay off. Also up for debate is whose way is best. Massachusetts’ investment of a significant portion of college funding in performance is a big endorsement by a high-profile state and it’s a program many states will be watching. Others are awaiting Tennessee’s study of its program and some early numbers indicate productive results. During the first two years of the new performance funding system, all but one of Tennessee’s 13 community colleges increased the number of associate degrees awarded to low-income students. At the state’s nine universities, all succeeded in increasing the number of bachelor’s degrees awarded to low-income students.

Many states are reluctant to jump in as dramatically as Massachusetts and Tennessee are doing, with some of them placing an informal lid of 25 percent on the amount of community college funding that can be awarded on performance. THEC’s Deaton, however, is encouraging other states to “go big” as Tennessee has. “It’s worked here,” he says. “We have not had the sky fall in on us. If you only leverage a small percent, our own experience has taught us that’s a limited approach and you don’t generate the leverage you need.”

In Massachusetts, performance funding had to win over college presidents and other stakeholders before the 50/50 approach could be agreed upon. Freeland, the state’s higher ed commissioner, cautions that Massachusetts’ population is generally flat, which made opting for a funding formula focused on results (rather than traditional formulas based on student population) easier to sell. It may not work so well for states where enrollment is still in a growth mode, he reasons. But Freeland contends that it’s worthwhile for all states to try bolder moves in the name of accountability. “To simply incentivize growth sends the wrong message to institutions,” Freeland says. “It leads to too many students coming in the door and dropping by the wayside. That’s not what our institutions ought to be caring about.”

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