KY Policy Blog

Questions and Answers on Performance Funding for Higher Education

By Ashley Spalding
February 20, 2017

The theory behind performance based funding for higher education in Kentucky is that tying some funding for the state’s public universities and community colleges to outcomes could incentivize the institutions to graduate more students. While it is a relatively simple concept, the details of the performance funding bill Senate Bill 153 are more complicated. Here are some of the key questions and answers on the topic.

Where does the funding come from?

While performance funding is often tied to new money, in this case it is not. In 2018, the formula described in SB 153 would apply to five percent of state funding that would otherwise have gone to the state’s public universities. After 2018, all state institutional funding (other than for mandated programs and debt service on bonds) would be distributed through the formula. It is important to note not only is there no new money tied to performance funding in Kentucky at this point, the public higher educational institutions are already stretched very thin from previous rounds of state budget cuts — including a 4.5 percent cut in 2017.

SB 153 describes a proposal for distributing most state money for the public universities and community colleges (not including for mandated programs and debt service on bonds) through two different funding models — one for the universities and one for the community colleges system. In these models, 35 percent of the funding is explicitly connected to performance outcomes and another 35 percent is based on credit hours earned — which can also be seen as related to performance. The other 30 percent is tied to basic operational costs.

Who was consulted about what is in the bill?

SB 153 is based on recommendations made by a Performance Funding Work Group established through the state budget bill for 2017 and 2018. Work group members were: the university and community college presidents, the president of the Council on Postsecondary Education (CPE), two legislators, a representative of the governor’s office and the state budget director. The work group began meeting over the summer and agreed on recommendations in late November that were submitted in a report to the administration. The bill is generally based on this report, but many of the details are not in the bill. The bill would make CPE responsible for developing the specific administrative regulations for the funding model, which would assumedly be based on the work group report.

Would institutions be competing against each other? Or against individualized goals for each institution?

The universities would be in competition with each other based on a three-year average of their outcomes on various metrics. However, there are limits placed on how much funding can drop for institutions from year to year in the first several years of the model. The two research universities are expected to receive larger shares of the funding (with heavier weights on each performance metric) as outlined in the work group report, due to the greater cost of producing advanced degrees at these institutions; however, these details are not included in the bill. The model also makes a funding adjustment to reduce the disadvantage for smaller schools that would otherwise be present in the model. Kentucky State University is exempt from the funding model in the first year.

The 16 community colleges in the Kentucky Community and Technical College system would similarly be competing against each other for shares of the funding.

How is performance measured in the proposal?

The four-year universities and the community colleges have different funding models and pools in the proposal, as described below.

It may seem surprising that some of the metrics in the funding model are not actually based on performance — for instance, a share of funding is based on the square footage of campus buildings. This has to do with the somewhat broader charge of the performance funding work group laid out in the budget bill: “The working group shall be established for the purpose of developing a comprehensive funding model for the allocation of state General Fund appropriations for institutional operations.” In the past, funding for the state’s public postsecondary institutions has been somewhat arbitrarily based on how much each institution received in the past rather than in a more systematic way. As noted previously, while 35 percent of the funding model is explicitly tied to student success outcomes, the other 65 percent has less to do with performance per say — although 35 percent is based on credit hours earned, which is related to performance.

Four-Year Universities

Funding that would have gone directly to the public universities (although just 5 percent in 2018) would be divided up as follows:

  • 35 percent is based on each institution’s share of student success outcomes produced, including: bachelor’s degree production; bachelor’s degrees awarded per 100 undergraduate full-time equivalent students; number of students progressing beyond 30, 60 and 90 credit hour thresholds; Science, Technology Engineering, Math and Health (STEM + H) bachelor’s degree production; and bachelor’s degrees earned by low-income and underrepresented minority students.
  • 35 percent is divided up based on each institution’s share of total student credit hours earned at all the public universities, with greater weight given to upper division undergraduate as well as graduate courses.
  • 30 percent is divided up based on the share of measures of operational support needs.
    • 10 percent is based on each institution’s share of square footage for maintenance and operations.
    • 10 percent is for institutional support based on share of direct instructional costs.
    • 10 percent is for academic support services based on each institution’s full-time equivalent student enrollment.
  • As mentioned previously, metrics are expected to be weighted more heavily for the University of Kentucky and the University of Louisville, although these details are not included in the bill, and the model includes a “small school adjustment” for funding to minimize negative impacts on smaller public four-year universities.

Kentucky Community and Technical College System (KCTCS)

The model for KCTCS colleges is similar, with 35 percent of all funding (in 2018 this is 5 percent of state funds that would have gone directly to KCTCS) being distributed based on the share of student success outcomes produced. However, the student success outcome metrics are different for KCTCS schools:

  • Diploma, certificate and associate degree production.
  • Number of students progressing beyond 15, 30 and 45 credit hour thresholds.
  • Production of the following credentials: STEM+H; high-wage, high-demand industry credentials; and industry credentials designated as targeted industries by the Education and Workforce Development Cabinet.
  • Credentials earned by low-income, underprepared and underrepresented minority students.
  • Transfers to four-year institutions.

The other 65 percent of KCTCS’s portion of the performance fund is divided up in the following way: 35 percent is based on the share of total student credit hours earned at KCTCS (weighted according to cost differences by academic discipline) and 30 percent is divided up based on the cost for maintenance and operation of facilities, institutional support and academic support.

The KCTCS model may include an “equity adjustment” for funding to account for declining enrollment in some regions of the state.

Click here to read about how the performance funding proposal could impact low-income, minority and academically underprepared students.

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