Performance Funding is Motivating Colleges, Universities

States are turning to performance funding to increase the number of students earning a degree or certificate from a postsecondary institution, but it’s not a magic bullet.

States have funded universities and colleges based on how many students are enrolled. Performance funding takes all or part of the base funding and rewards schools doing well on certain goals—such as on-time graduations or the number of students earning a degree in science, technology, engineering or math.

“We do think it’s important,” Michael Baumgartner, vice president of finance and special projects for Complete College America, said at Sunday’s Education Task Force meeting. “We think every state should move in the direction of performance outcomes, but there are other things that need to be done.”

Baumgartner said states have tried performance funding before, but the money tended to be small and often disappeared. Data systems also weren’t easily available to track students across their college careers.

Brett Visger, deputy chancellor of institutional collaboration for the Ohio Board of Regents, said the Buckeye State’s funding formula changed this year to emphasize degree completion over course completion and the stop-loss provision that kept institutions from losing too much money was removed. Instead of using one year’s worth of data, Ohio also is shifting to three-year averages.

“The good news is performance funding is a big deal,” Visger said. “We’ve been at it a couple of years and we’ve seen people do what they’re paid for, even in incremental ways.”

Jason Dudich, associate commissioner and chief financial office of the Indiana Commission for Higher Education, said his state began performance funding in 2003. The measures included, however, have changed every biennium. In December 2011, the commission announced its focus on three main goals—completion of degrees, progression through the institution and the productivity of the institution.

Dudich cautioned that states have to be willing to use a significant percentage of their education funding to make the system effective. Indiana is using 5 percent of its total higher education budget for performance funding this year.

“Half a percent doesn’t do anything,” he said. “Higher percentages create results.”