Performance, performance, performance. Those are the three things that matter for higher education these days—or so the conventional wisdom goes. State dollars must be spent more wisely. And for America to stay economically competitive, students need to see results. Through performance-based funding, states are saying: Instead of handing out public dollars based on how many students you can enroll, how about we focus on how many walk at your graduation ceremony and receive their diploma?
A movement toward performance-based funding is underway: seven states have it in place, eight are transitiong to it and and 15 are discussing it, according to the National Conference of State Legislatures. But Ohio is taking perhaps the most novel approach.
Gov. John Kasich announced last month that he was calling on leaders from the state’s 37 public colleges and universities to come together and formulate a funding system that will account for how public dollars are spent. Some of the potential metrics: graduation and retention rates. Kasich also encouraged sharing learning resources and reducing duplication within schools. Ohio State University President Gordon Gee will head the task force, and a report is expected by Thanksgiving.
“People who have these degrees in the 21st century are better able to compete and to fill jobs” Kasich said at a news conference. “We know we’ve got a problem with costs… We all know we can do much better.”
It’s not necessarily a new idea. States first experimented with performance-based funding as far back as the 1970’s. But it’s received renewed and more vigorous attention in recent years. The reasons are obvious: budget constraints and poor general performance. According to the American Association of State Colleges and Universities, 36 states cut their higher education funding in FY 2012. A report released last year by Complete College America estimated that just 61 percent of full-time students receive a bachelor’s degree—and that figure drops to 24 percent for part-time students. The numbers are even grimmer for those seeking associate’s degrees and vocational certificates.
“It’s a confluence of two conversations: one about cost and the other about quality. For the money that the government is investing, at some institutions, we're seeing very little output,” says Julie Morgan, a higher education policy analyst at the Center for American Progress (CAP), a liberal think tank. “Performance-based funding is a way of looking at the leverage that the federal and state governments have over schools. The biggest ones are always financial aid and broader institutional-based support.”
Some early adopters have shown that performance-based funding can get results, according to a CAP analysis. Pennsylvania in particular is often cited as a model for best practices. Starting in 2000, the state set aside 8 percent of its higher education budget (about $36 million) to reward institutions for meeting eight performance metrics, such as graduation and retention rates. Schools that achieve more of the targets receive a bigger share of funding. Since the system took effect, Pennsylvania has seen a 10 percent increase in overall graduation rates.
Ohio actually already has a form of performance-based funding in place. In 2012, 5 percent of higher education funding was based on a school’s ability to meet certain requirements, primarily course completion. Community colleges operate under their own system, which includes hours of coursework completed, associate’s degrees awarded and transfers to four-year institutions. Kasich’s plan is to increase the percentage of funding tied to performance to 30 percent by 2015—and that’s where the input of the state’s public colleges and universities comes in.
With a little luck, involving the institutions themselves will address some of the problems that have stymied performance-based funding for higher education. Often, too little funding is tied to performance to encourage schools to make significant changes, analysts have generally agreed.
But in a few other cases, such as South Carolina, the state perhaps went too far. In 1996, the South Carolina legislature decided to distribute 100 percent of higher education based on performance. The move was almost uniformly opposed by the state’s colleges and universities, according to an analysis by the Lumina Foundation. The experiment was abandoned seven years later in 2003, in part due to the complexity of the system devised by lawmakers as well as the staunch resistance of the higher education community.
While performance-based funding still faces an uncertain future, analysts say, Kasich’s effort to engage Ohio’s higher education institutions in the policymaking process could mean that states are starting to learn from the mistakes of the past.
"If you do that, you're going to get more buy-in on the part of the schools. If they're the experts on what they're doing, you'd want them to participate,” says Don Heller, dean of the College of Education at Michigan State University and recognized expert on higher education policy. "On paper, that certainly sounds like a good idea."