Performance-Based Funding for Higher Education: What You Need to Know

illustration of an article

by Patrick Cain (Academic Impressions) and Dennis Jones (NCHEMS)

January 2015. While states and institutions across the country experiment to find successful funding formulas, all will agree that performance-based funding (also termed outcomes-based funding) is once again gaining momentum. A majority (60%) of states have already adopted measures to allocate public funding on the basis of outcomes, and many more plan to follow suit.
The time is now for your institution to begin thinking about how performance-based funding models can represent state and institutional interests while achieving better student outcomes at your institution.

To offer a clear look at the future landscape of performance funding -- and what conversations college and university leaders need to be leading on their campuses today -- we reached out to Dennis Jones, the president of the National Center for Higher Education Management Systems (NCHEMS). We would like to share our interview with you.

An Interview with Dennis Jones, NCHEMS

Patrick Cain.
Looking back 12-18 months, what overall trend have you seen in regard to the position of policy makers and senior institutional leadership on adopting performance based funding?

Dennis Jones.
There continues to be growing interest in outcomes-based funding among policymakers. It is increasingly viewed as a form of good budgetary practice at the state level; and the notion of paying for performance has logical and political appeal. Among most institutional leaders there is more a sense of inevitability than of eagerness. For them, the issue is less philosophical and more practical: “what is the impact of this (or any) new allocation mechanism on the institutional bottom line?” Anything that adds uncertainty in the budget process is cause for concern, and depending on the overarching fiscal environment, even alarm.

Patrick Cain.
What conditions chiefly separate those most aggressively adopting performance based funding from those only lightly adopting it?

Dennis Jones.
The condition at the state level that separates aggressive from lukewarm adopters is the presence of a clear and widely embraced set of state-level goals for higher education – a public agenda. Where outcomes-based funding is seen as the obvious way to link funding to results that have high value and currency, enthusiasm for adoption is higher. Where the linchpin of a public agenda is absent – or is present in name only – the support for the idea is more tepid. Moving to a new approach to resource allocation simply because “everyone else is doing it” engenders a much lower level of enthusiasm.

The same basic motives are found at the institutional level. Where campus leaders view outcomes-based funding as a tool to rationalize and promote changes they see as necessary within their institutions support is higher. Where leaders don’t have a change agenda – where protecting the status quo is the priority – outcomes-based funding is a fad to be accommodated and minimized, not embraced.

Patrick Cain.
From your perspective at the National Center for Higher Education Management Systems, what seems to create the hesitation for those only lightly (or not at all) adopting performance based funding?

Dennis Jones.
Outcomes-based funding is essentially a device for drawing attention to certain state priorities and to the importance of producing results that are consonant with those results. Where these priorities are compelling there is less hesitation about adoption. Where this is not a compelling case – or the case is not compellingly made and continually reinforced – inertia dominates. Old habits die hard for both policymakers and institutional leaders. The processes they know and the results that can be counted on to result from those processes are strong arguments for the status quo.

Perhaps the largest change is the change in public policy focus represented by outcomes-based funding. For much of the twentieth century high education policy at the state level was driven by considerations of building educational capacity and sustaining that capacity once built. Outcomes-based funding shifts the focus to utilizing that capacity to achieve state priorities. Hesitation occurs when the reasons for change aren’t accepted as imperatives.

Patrick Cain.
In your experience, to what extent is institutional involvement in the process of adopting performance based funding critical to the success of the initiative.

Dennis Jones.
Institutional involvement is critical to the successful implementation of outcomes-based funding, especially when success is defined as production of desired results, not acquiescence to the adoption of a funding model. There are many layers of action and decision authority between state policymakers and the classroom. Implementation can derail at each level. Institutions must not only buy into the fact and form of outcomes-based funding, they must own it and see it as a tool that reinforces their values and rewards them for performing their mission well. One of the biggest mistakes in creating outcomes-based funding models is to omit features that reward institutions of a particular type for successfully pursing a key part of their missions. For example, some outcomes-based funding models focus solely on undergraduate student success, ignoring the contributions of research universities to innovation and technology transfer. This condition reflects either poor model design or the reality that institutional capacity is poorly aligned with the needs of society.

Patrick Cain.
Are you optimistic regarding continued adoption of performance-based funding across higher education?

Dennis Jones.
There is every reason to believe that the adoption of outcomes-based funding will continue to spread and evolve. The importance of higher education to states and their citizens is increasingly recognized by policymakers. The realities of fiscal constraints are taken as givens, however reluctantly, by leaders in the statehouse and on campus. These conditions lead to an almost obvious conclusion that states will have to invest the funds they have in a much more strategic manner. To be sure, some of this investment will continue to be made in creating and sustaining educational capacity (although the definition of “capacity” will have to expand beyond the notion of bricks and mortar and institutional departments). But increasingly that investment will have to be made in acquiring outcomes needed by society and not provided through the aggregation of individual student choices. Models as we know them may well change as the ability to articulate (and measure) outcomes improves, but it is hard to envision a future in which the link between funding and results is diminished.

Patrick Cain.
For those institutions in states early in the process of adopting performance-based funding, what on-campus conversations would you advise at both the cabinet and faculty level to help them move forward positively and productively?

Dennis Jones.
I would start with on-campus efforts to build understanding and consensus around the goals that are driving selection of the funding model metrics – use data to make the case that the funding model is a means to important ends, not an end in its own right. The values embedded in the funding models are almost always consistent with those held by faculty – student success, closing attainment gaps, putting individuals in a position to get living wage jobs, etc. The state and faculties really do share common causes.

Second, I suggest a serious look at the barriers to student success at the institution:

  • Are there certain gateway courses that are weeding students out?
  • Is developmental education the major roadblock?
  • Is the issue one of capacity in certain majors?

After these steps have been taken it is necessary to engage the campus community in discussions around strategies for moving forward. At each step, the use of data is key; data-free conversations don’t promote real progress.

After participating in this online training with Dennis Jones (NCHEMS) and Russ Deaton (Tennessee Higher Education Committee), you will be able to apply national trends and case study samples in informing your institution’s performance-based funding strategy.