North Dakota joins states with performance-based model for funding higher education

Stateline Midwest ~ June 2013

Ever since he joined the legislature more than a decade ago, North Dakota Sen. Tim Flakoll says, lawmakers have been looking to change how the state funds its higher-education system.

This year, he says, “We were finally able to crack the code.”

The result: Two-year colleges, regional campuses and research universities will no longer receive dollars based on enrollment or historical funding levels, but instead on the credit hours earned by students.

With the passage of SB 2200, North Dakota joins the growing number of Midwestern states that have moved to some type of performance-based funding model — tying state dollars to output-based measures such as credit hours earned, degree completion, and/or the graduation of low-income or minority students.

This year in Ohio, for example, lawmakers have been considering a budget proposal to base 50 percent of university funding on degree completion. 

In Indiana, a mix of performance metrics has been used now for a decade. The metrics, which vary depending on each school’s mission, include on-time degree completion, the number of STEM (science, technology, engineering and math) graduates and student progress toward degrees. In Michigan, this year’s state budget is tying increases in university funding to measures such as graduation rates and degree completion in STEM fields.

Nearly all of North Dakota’s base funding for higher education will now be linked to students finishing courses with passing grades. 

Flakoll points to two key factors in getting SB 2200 passed. First, the state was able to increase state funding for all schools. Second, the state’s policymakers and higher-education officials agreed on a formula to determine the actual cost of delivering different types of courses. (The formula is based on CIP, or Categories for Instructional Programs, codes). Each course is assigned a “cost factor” that determines the amount of state funding per credit hour earned by students — ranging from a low of 1.0 for lower-level courses in core subject areas to a high of 38.0 for medical-school courses.

“It’s an output-based, transparent funding mechanism,” Flakoll says.

And by encouraging the state’s postsecondary schools to graduate more students on time, he notes, the new funding formula should help strengthen North Dakota’s workforce and reduce college costs for young people.