Missouri Considers Performance-Based Higher Ed Funding

Published October 21, 2011

Missouri Gov. Jay Nixon (D) is pushing performance-based funding for higher education aimed at boosting student graduation rates and test scores and providing accountability to taxpayers.

The governor created a task force to develop a Missouri Performance Funding Model he will bring to legislators for deliberation, with hopes of implementing it by 2013. With the governor’s decision Missouri joins a growing list of states considering or passing outcomes-based measurements for education. The performance model would only affect new funding after 2013.

“This will move us away from a system of spending money based solely on what an institution has received in the past, to a system where we invest money in those institutions that are meeting their goals and whose students are reaching their potential,” Nixon said in a statement.

The new model will award state funds for higher education according to clear, statewide goals applying to all institutions, Nixon said, which must be quantifiable and measured annually, reflect “best practices” for accountability, and account for differences between two- and four-year institutions. 

Potential Pitfalls
Missouri Performance Funding Task Force members will look at a handful of areas including graduation rates, student retention rates, students’ performance on state certificate exams, and each university’s ability to keep tuition rates low. That last measure has piqued particular interest.

“Schools that are able to keep tuition down will get more funding,” said Matthew Denhart, administrative director for the Center for College Affordability and Productivity. “That seems like a unique metric.”

Still, each performance assessment has potential pitfalls, Denhart said. Too much focus on graduation rates could lead schools to dumb down class requirements or graduate ill-prepared students in order to receive state funding, he said. Similarly, emphasizing low tuition rates does not necessarily guarantee student expenses will significantly drop.

“Schools could hold tuition constant but then increase fees,” Denhart said. “For a student, a dollar is a dollar coming out of their pocket. It doesn’t matter if it’s a dollar for tuition or a dollar for fees.” 

Bigger Ambitions, Less Money
President Obama has repeatedly and publicly declared it a national goal for the United States to lead the world in college graduation rates by 2020. Since the recession began in 2008, however, 43 states have cut higher education funding to deal with massive budget deficits. In 2010, these cuts totaled $1.2 billion, and in 2011 they are expected to reach $5 billion.

These bottom-line considerations coupled with the importance of a well-educated workforce are pushing schools nationwide to institute performance-based funding models for higher education, said Brenda Bautsch, a policy specialist for education programs with the National Conference of State Legislatures (NCSL).

“Colorado, Texas, Illinois, all have passed [such] legislation,” Bautsch said. “It’s partly because of poor graduation rates around the country, and states are seeing limited funding and they’re asking themselves how to get more bang for their buck.”

Increase in Performance Incentives
Since 1979, 26 states have tied higher education funding to particular outcomes, in varying degrees, according to a recent report from the American Association of State Colleges and Universities. Pennsylvania sets aside less than 3 percent of its higher education budget for performance funding, while Tennessee disburses roughly 90 percent of its higher education budget according to outcomes.

It’s too soon to tell whether financial incentives bring about better performance, Bautsch said. Only recently, she said, are we “starting to see states move [completely] to outcome-based funding, so it’ll be interesting to see what happens. There are a handful of states—Indiana, Ohio, Tennessee— that in the next 10 years will move to a formula where nearly 100 percent of funding will be based on outcome measures.” 

Such measures have often been a tough sell for governors and legislators because they challenge institutional inertia and unsettle entrenched interests. Texas Gov. Rick Perry (R) found this early in 2011 when legislators failed to pass an outcomes-based higher education funding model. The plan had been Perry’s top higher education priority.

Keys for Success
One key provision for successfully implementing performance funding is to keep it simple, said Julie Bell, director of NCSL’s education group, in a published report. Another is that states should provide sufficient funding incentives so schools see participation as worthwhile, Bell continued.

For taxpayers, the benefits go even deeper.

Cherylyn Harley LeBon, a former senior counsel for the U.S. Senate Judiciary Committee and now a member of the national advisory council of the Project 21 black leadership network, cites a 2011 internal report from the Texas university system that rated individual professors by comparing their salaries to research grants they brought in and the number of students they taught.

“At Texas A&M [University] alone,” she said, “the report found that more than 1,000 professors taught only 19 percent of the classes but accounted for 46 percent of faculty costs, and on top of that, they weren’t bringing in significant research funds at all.”

Performance-based measures would eliminate such funding disparities, she said.

“Pay-for-performance is basically like merit pay. It’s kind of like what they were doing at the high-school level with test scores,” Harley LeBon said. “As tuition is being raised across the country, parents and students deserve some better customer service.… It’s a step in the right direction.”

Image by the Missouri News-Horizon.