KY Policy Blog

Questions and Concerns About the Senate’s Performance-Based Funding Proposal

By Ashley Spalding
March 25, 2016

The model for performance-based funding outlined in the Senate budget proposal raises some questions and concerns about how the money would be distributed and what the likely outcomes would be for students and the state’s public higher education institutions.

In the proposal, 25 percent of 2018 funding for the state’s universities and community colleges (other than Kentucky State University, which is exempt) is contingent upon each institution’s performance on certain metrics. The main metrics for measuring institutional performance in the Senate’s funding model are: degrees and credentials awarded; student retention rates from first to second year; percentage of full-time undergraduates earning 30 or more credit hours a year; graduation rates and sector-specific metrics.

While these metrics are based on what Kentucky’s Council on Postsecondary Education (CPE) proposed in November with the support of the university and community college presidents, the Senate has made significant changes that could lead to decreased accessibility for low-income, adult and academically underprepared students, among other impacts.

Since it’s combined with budget cuts, the Senate proposal could make it harder for low-income Kentuckians to earn degrees.

Since the Senate’s proposed performance funding model is within a budget that cuts higher education funding by nine percent, it could make it harder for many students to earn degrees and credentials, particularly low-income, underrepresented minority, academically underprepared and community college students who have the lowest graduation rates.

While the bachelor’s degree graduation rate for all Kentucky students at four-year institutions is 48.9 percent, it is just 36.6 percent for low-income Kentuckians — which is only a slight increase from previous years. For associate’s degrees, the graduation rate for all Kentucky students at the state’s two-year-degree-granting colleges — where many of the students are low-income community college students — is just 12.8 percent; the associate graduation rate for low-income students is 10.4 percent.

The Senate’s performance funding proposal would penalize universities and community colleges that do not increase student success, but the accompanying budget cuts are expected to make college less affordable by increasing tuition and prevent or reduce investments in needed student supports. Many low-income students are adults and first generation college students, for whom supports are shown to improve the likelihood of obtaining a degree. Among the barriers to degree completion for these students are financial difficulties, the need to work and support a family, being academically underprepared and losing momentum in developmental education courses rather than moving on to credit bearing courses, and the need for supports like intensive advising and counseling particularly for first generation college students.

Performance metrics could disincentivize institutions from serving underprepared students who are often low-income.

A concern with performance-based funding is that academically underprepared students, who are often low-income, may be left behind as institutions attempt to meet performance goals. That’s because academically underprepared students often have more difficulty staying enrolled in college and graduating, particularly within the prescribed time frame.

Performance funding models can be designed to help keep this from happening. For instance, CPE’s proposal included a separate metric to measure institutions’ success in closing achievement gaps for underrepresented minority students and low-income students. The CPE model also included as a metric underprepared students completing credit bearing math and English courses — which indicates that these students successfully moved beyond developmental education courses. The Senate proposal, however, does not measure and reward the successful progression of underprepared students or provide a separate metric for closing achievement gaps. The Senate proposal’s scoring system does boost an institution’s scores for the degree/credential attainment and retention rate metrics for low-income and underrepresented minority students, although it is not clear how much weight these measures will be given in the calculations.

The proposed model’s high stakes could make unintended consequences of performance funding more likely.

Making a quarter of funding for higher education dependent on performance and at the same time cutting state funding for higher education is a dangerous mix since it raises the stakes. The model also pits institutions against each other. While they are measured against their own past performance, in each sector (research universities, comprehensive universities and Kentucky Community and Technical College System institutions) only the highest performing school gets 100 percent of their potential performance funding; this competition among institutions was not part of CPE’s model. The state’s public universities and community colleges are already stretched thin from previous rounds of budget cuts, and making such a large share of needed funding contingent upon performance — and relative to the performance of other institutions in their sector — could make potential unintended consequences of performance-based funding more likely to occur.

A concern with performance funding is that institutions may end up diluting academic quality and/or raising admissions standards to exclude those who are academically underprepared. There is some evidence that these unintended consequences have occurred with performance funding in Indiana, Ohio and Tennessee, for instance. Making the funding high stakes would only seem to encourage such consequences.

It’s also important to note that in addition to performance funding not being tied to new money as it was in the CPE proposal — which lowers the stakes and also recognizes that additional funds are needed to improve student performance (i.e., through support services) — the model proposed by the Senate is not being phased in over multiple years, which is considered to be a best practice for performance funding.

Shifting discretion and authority over resources to the governor could introduce a dynamic not related to performance.

According to the Senate’s proposal, the governor can give institutions that receive less than 80 percent of their performance funds up to 100 percent of their funds. It’s not clear why institutions that receive between 80 and 100 percent of their performance funds are not eligible for additional discretionary dollars. More importantly, the rationale for providing such discretion — particularly to the governor (i.e., rather than CPE) — is not evident nor is the criteria the governor would use to award these funds. Money not distributed for performance is rolled over for use in future years, potentially giving a governor control of a growing amount of resources.

The Senate proposal is not clear about many of the specifics of how the performance funding would work.

Among the unanswered questions are: How much of a premium will institutions receive for retention and degree/credential attainment for low-income and underrepresented minority students? How exactly is performance scored? In addition to the previously discussed issue of the unknowns around the weighting of degree/credential attainment and retention for low-income and underrepresented minority students, much remains unclear about the calculation of performance. For instance, what is the meaning of the following description of scoring?: “The score for each metric shall be determined by comparing the net percent of improvement of that metric for the two most recent academic years to the modified measure of net percent of improvement of that metric for the four preceding years, consistent with metrics currently used by the Council on Postsecondary Education.”

Given these questions and concerns, among others, about the Senate’s performance funding proposal, lawmakers should take more time and agree to further study to develop a performance-based funding model that will benefit all Kentucky students, including low-income, underrepresented minority and underprepared students — and minimize unintended consequences.

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