KY Policy Blog

Kentucky’s Performance Funding Design Should Work to Prevent Unintended Consequences Reported in Neighboring States

By Ashley Spalding
October 27, 2016

A new book by leading education policy researchers highlights some of the unintended consequences resulting from performance funding for higher education in three of Kentucky’s neighboring states — Indiana, Ohio and Tennessee. As we’ve discussed previously, while at its best performance funding would promote successful outcomes for all students, in practice the models may result in low-income, low-skilled adults being left behind.

These lessons need to play a more prominent role in the development of a performance funding model for Kentucky’s public postsecondary institutions, as the state’s appointed work group gets closer to proposing a specific model to the legislature.

Performance funding in higher education is when a portion — or potentially all — of state funding for public universities and community colleges is tied to institutions’ performance, with states creating metrics and systems for allocating funds. In Kentucky, five percent of state funding for higher educational institutions will be tied to performance in 2018, and it is expected that share may increase in the future. Currently a work group consisting of presidents of the universities and the community college system, the state budget director, a representative from the governor’s office and two legislators, along with the president and staff of the Council on Postsecondary Education, is meeting to develop recommendations for a performance funding model before the end of the year. The work group has had two meetings so far and the next one is scheduled for November 2.

The unintended consequences of performance funding reported by faculty and institutional administrators in Indiana, Ohio and Tennessee should be of concern to Kentucky’s work group and lawmakers. As noted in the new book:

“If higher retention and graduation numbers are purchased at the cost of restricting the admission of less prepared and less advantaged students or of lowering academic standards, this could well vitiate the benefits of performance funding. We need to move to vigorously counter these unintended impacts.”

When institutional funding is tied to degree attainment, for instance, universities and community colleges may experience pressure to admit only students who are the most likely to graduate and in a timely manner. Low-income students — particularly adults and first generation college students — are among those who experience the most difficulty completing a degree, meaning they end up being the students left behind in a performance funding system that does not address such consequences.

Institutions Restricting Admissions to Improve Perceived Performance One of Several Dangers

According to the book, performance funding can and has resulted in universities and community colleges restricting student admission in our neighboring states and was the most frequently reported unintended consequence. Reports included the raising of admission requirements in terms of grades and test scores, the recruiting of more students who are better prepared for college and the directing of institutional aid to academically better prepared students.

A related unintended consequence reported by faculty and administrators in Indiana, Ohio and Tennessee is that performance funding has or can lead to institutions narrowing their missions — where important institutional missions are dropped or deemphasized because they are not addressed by performance funding metrics. Such a consequence should be of concern to our state as Kentucky’s Postsecondary Education Improvement Act of 1997 established separate missions for its research universities, regional universities and community colleges. The mission of the state’s regional universities is to assure statewide access to quality bachelor’s and master’s degrees, and the community college system is tasked with promoting access to a two-year course of general studies, workforce training, and remedial and continuing education. These differing missions would seem to require different measures of performance. It would be detrimental if the state adopted a model of performance funding that reduced access to education for some Kentuckians currently served by the state’s regional universities and community college system.

Other unintended consequences of performance funding described in the book are the weakening of academic standards, with faculty and administrators concerned about grade inflation occurring as the result of pressure created by performance funding; reductions in degree requirements is another such impact. In addition, performance funding was associated with reduced cooperation between institutions, lower faculty and staff morale, and compliance costs.

Heavier Weighting for Disadvantaged Students Among Ways to Lessen Unintended Consequences

At its last meeting, Kentucky’s performance funding work group began focusing its attention largely on measuring performance in terms of improvements in degree attainment, with an institution receiving more credit for degrees earned by students who often face barriers to graduation such as low-income, minority and academically underprepared students. While including the weighting of degrees for these students is one step toward preventing unintended consequences, it alone is not enough to avoid the issues described above; in fact, Indiana, Ohio and Tennessee all included weights for at-risk students in their models.

Here is what the book’s authors recommend to create a model that addresses the unintended consequences of performance funding for higher education:

  • Including metrics for, at the very least, low-income, racial minority, adult and academically underprepared students. As mentioned previously, so far Kentucky’s performance funding work group plans to recommend weighting degree attainment more heavily for most of these at-risk categories of students; however, not much attention has yet been given to how heavy the weights would be. The performance funding book’s authors suggest that increasing these weights in our neighboring states could have a positive impact. Closing achievement gaps as a separate performance metric is another option. While this idea was incorporated into the Council on Postsecondary Education’s original proposal last year, it has not been a focus of the state’s performance funding work group so far.
  • Another important strategy is adopting performance criteria that rewards intermediate outcomes as well as longer term ones like degree completion — for instance, completion of a first course in developmental education, the transition from developmental education to a first credit bearing course and/or the attainment of the first 15 and 30 credit hours of college level instruction.

The book also emphasizes the importance of universities and community colleges being able to afford to make necessary changes to increase performance. It is costly for institutions to provide the supports and services needed in order to promote success for the state’s low-income, adult and academically underprepared students. The performance funding work group is limited to the funds that were included in the budget for 2018, which are reduced substantially after many rounds of budget cuts in recent years.

As Kentucky’s performance funding work group continues its conversations next week, those involved should keep in mind the lessons of our neighboring states and make the prevention of these unintended consequences a central focus so that all Kentucky students can be successful under the new funding model.

Letter Sent to Performance Funding Work Group

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