Rebecca Spiro Natow

Performance Funding for Higher Education

Since the 1970s, federal and state policy-makers have become increasingly concerned with improving higher education performance. In this quest, state performance funding for higher education has become widely used. As of June 2014, twenty-six states were operating performance funding programs and four more have programs awaiting implementation. This article reviews the forms, extent, origins, implementation, impacts (intended and unintended), and policy prospects of performance funding. Performance funding has become quite widespread with formidable political support, yet it has also experienced considerable implementation vicissitudes, with many programs being discontinued and even those that have survived encountering substantial obstacles and unintended impacts. Although evidence suggests that performance funding does stimulate colleges and universities to substantially change their policies and practices, it is yet unclear whether performance funding improves student outcomes. The article concludes by advancing policy recommendations for addressing the implementation obstacles and unintended side effects associated with performance funding.

The Demise of Higher Education Performance Funding Systems in Three States

Over the past three decades, policymakers have sought ways to secure better performance from higher education institutions, whether in the form of greater access and success for less advantaged students, lower operating costs, or improved responsiveness to the needs of state and local economies. As a result, great effort has gone into designing incentives for improved college performance. One of the key incentives that state governments have tried is performance funding, which ties state funding directly to institutional performance on specific indicators, such as rates of retention, graduation, and job placement. One of the great puzzles about performance funding is that while it has been popular, it has also been very unstable (Dougherty & Hong, 2006; Erisman & Gao, 2006). States that have enacted performance funding have often and sometimes substantially changed the amount of funding they devote to it and the criteria by which they award that funding. Moreover, the number of states enacting performance funding has waxed and waned. Between 1979 and 2007, 26 states enacted performance funding, but 14 of those states dropped it over the years (with 2 reestablishing it recently) (Burke & Minassians, 2003; Dougherty & Reid, 2007). We are now entering a period of renewed interest. In the past few years, a variety of prominent higher education commissions and researchers have called for greater focus on performance accountability, though often taking forms different from past practice (Blanco, Jones, Longanecker, & Michelau, 2007; Shulock & Moore, 2005, 2007). Moreover, several states have recently enacted or readopted performance funding, including Virginia (in 2005) and Washington (in 2007), and other states, such as Texas and Arizona, have been considering it. Despite its apparent popularity, however, performance funding has experienced only limited and unstable institutionalization in the years since it was first introduced. This Brief, which draws on a longer report, examines this instability. Based on an analysis of three states that enacted and then eliminated performance funding systems, we identify factors that may lead states to let their performance funding systems lapse. To understand the experiences of the three states — Florida, Illinois, Washington — we drew upon interviews and documentary analyses that we conducted in these states. We carried out interviews with state and local higher education officials, legislators and staff, governors and their advisors, and business leaders. The documents we analyzed included state government legislation, policy declarations and reports, newspaper accounts, and analyses by other investigators.

Continuity and Change in Long-Lasting State Performance Funding Systems for Higher Education: The Cases of Tennessee and Florida

One of the key ways that state governments pursue better higher education performance is through performance funding. It ties state funding directly to specific indicators of institutional performance, such as rates of graduation and job placement. This report considers the ways that performance funding systems in states with longlasting systems have changed over time and what political and social conditions explain the changes. We analyze the experiences of two states: Tennessee, which pioneered performance funding in 1979; and Florida, which launched it in 1994. Funding for Tennessee’s system has steadily increased over the years, whereas Florida’s funding history has been more volatile and now provides much fewer dollars than when it was at its peak. Both Tennessee and Florida have changed their performance indicators substantially. But Florida added nine and dropped two in 12 years, while Tennessee added only six and dropped four over 31 years. Moreover, in Tennessee, performance indicators are added at the end of a regular five-year review, whereas in Florida they have been added irregularly, with no tie to a cyclical process of program reappraisal. Overall, Tennessee’s performance funding system has been considerably more stable than Florida’s because its initial policy design delineated much more clearly how the system was to be governed and changed over time, and provided for regular and systematic evaluation. Moreover, Tennessee’s state legislature has played a smaller role in the ongoing development of performance funding than Florida’s. These differences in policy process carry important implications. A system where funding levels do not oscillate greatly and indicators change more gradually and systematically is more likely to allow institutions to plan effectively. Further, such a system will have a more secure base of consent from institutions if it comes under attack.

Unintended Impacts of Performance Funding on Community Colleges and Universities in Three States

This paper identifies and analyzes the types and numbers of unintended impacts— actual or potential—of state performance funding policies on higher education institutions. These impacts—which were not intended by the framers of the performance funding policy—were ones mentioned in the course of telephone interviews with over two hundred college personnel at nine community colleges and nine public universities in three states: Indiana, Ohio, and Tennessee. The respondents were senior administrators, middle-level administrators, academic deans, and department chairs at these institutions. This paper discusses each type of these reported impacts, making a distinction between impacts that we judge as actually occurring and ones that were stated as possibilities. The unintended impacts most frequently mentioned by interviewees were restrictions in admissions to college and a weakening of academic standards. Besides describing overall patterns, the paper also analyzes how interviewee responses varied by state, by type of institution (community college or university), by college capacity to respond to the demands of performance funding, and by position the interviewee held in the institution. The paper closes by providing policy recommendations to address these unintended impacts.

Envisioning Performance Funding Impacts: The Espoused Theories of Action for State Higher Education Performance Funding in Three States

This study reviews the theories of action espoused by state-level performance funding advocates and implementers in Indiana, Ohio, and Tennessee. The study found that these espoused theories of action are incompletely articulated, with significant gaps in the specification of policy instruments, desired institutional changes, and possible obstacles and unintended impacts that need to be countered. Performance funding is conceived largely as stimulating changes in institutional behavior and student outcomes by providing financial inducements and securing institutional buy-in. Less attention is paid to other policy instruments, such as providing information on institutional performance to the colleges and building up the capacity of institutions to engage in organizational learning and change. The states’ espoused theories of action for performance funding are, thus, narrower than those for state and federal K-12 accountability programs, which put much more emphasis on information provision and capacity building. Moreover, the espoused theories of action for performance funding in the three states miss important possible obstacles to and unintended impacts of performance funding. This report argues that insufficiently articulating the theories of action for performance funding makes it less likely that it will be successful and avoid undue harm.

The Political Origins of State-Level Performance Funding for Higher Education: The Cases of Florida, Illinois, Missouri, South Carolina, Tennessee, and Washington

Performance funding is a method of funding public institutions based not on inputs, such as enrollments, but on outcomes, such as retention, degree completion, and job placement (Burke, 2002a; Dougherty & Hong, 2006; Layzell, 1999; Ruppert, 1995). The principal rationale for performance funding has been that performance funding will prod institutions to be more effective and efficient, particularly in a time of increasing demands on higher education and increasingly straitened state finances. This report examines the origins of state performance funding in six states: Florida, Illinois, Missouri, South Carolina, Tennessee, and Washington. These six states were chosen with an eye to enabling us to explore the establishment of state performance funding systems from a wide variety of angles. The states differ in the histories and structures of their state performance funding systems, higher education governance arrangements, political systems, political cultures, and social characteristics. We analyze each of our six cases in turn, beginning with the earliest case, Tennessee. We examine the supporters and opponents of performance funding, their beliefs and interests, how performance funding came to be identified as a policy option, and the political openings that allowed advocates of performance funding to place it on the government decision agenda. At the end of the report, we summarize these findings—looking across all six cases—and draw lessons for policymakers.

The Political Origins of Higher Education Performance Funding in Six States

Performance funding is a method of funding public institutions based not on inputs such as enrollments but on outcomes such as retention, degree completion, and job placement. While there has been great interest in performance funding for over 30 years, only half of all states have ever created a performance funding system for higher education. Given state interest in performance funding, why are such systems not more widespread? To answer this, it is necessary to look at what forces have driven the development of performance funding and how those forces differ across states. This Brief summarizes a study that examined the origins of state performance funding in six states: Tennessee, Missouri, Florida, South Carolina, Washington, and Illinois. In order to capture a wide range of possible forces at work in the origins of performance funding, we selected states that differed in a variety of ways, including when performance funding was established, how long the system was in place, which sectors of public higher education were affected, the proportion of state higher education funding taken up by performance funding, higher education governance structures, state political culture and government functioning, degree of party competition, and differences in social characteristics such as population, income, and education. The research was based on semistructured interviews in each state with a variety of political actors and on examinations of the documentary record in the form of public agency reports, academic books and articles, doctoral dissertations, and newspaper articles. Our analysis drew on two powerful theories of policy origins: the Advocacy Coalition Framework (Sabatier & Weible, 2007) and the Policy Entrepreneurship perspective (Mintrom & Norman, 2009). The Advocacy Coalition Framework looks at how policy evolves over long periods of time, driven by the efforts of different “advocacy coalitions” that have distinctive sets of beliefs about how society is and should be organized and what form higher education policy should take. The Policy Entrepreneurship perspective highlights the role of policy entrepreneurs who identify public issues, develop policy solutions, bring together political coalitions, and take advantage of timing and political opportunities to promote their policy issues and solutions. Used in conjunction, these two theories help identify important features of the politics of performance funding that are not sufficiently addressed by the prevailing literature on the origins of performance funding. We find that while the prevailing perspective on the rise of performance accountability is correct on a number of points, it overlooks several important elements. Our analysis confirms that the following circumstances favor the establishment of a performance funding system: a revenue/cost squeeze on elected government officials, business demand for greater government efficiency and lower costs, and a rising Republican presence in state legislatures. However, we identify a variety of actors, and their beliefs and motives, that the prevailing perspective does not address, such as advocates of performance funding from within higher education itself and their desire for new sources of public funding. We also draw greater attention to the opponents of performance funding and the long-term effects of such opposition. Finally, our research calls attention to the influence of policy learning and “policy windows” or “external shocks.” In this Brief, we first provide an abbreviated background on the origins of performance funding for each of the six states (see full report for more details). We then examine the supporters and opponents of performance funding, their beliefs and interests, how performance funding came to be identified as a policy option, and the political openings that allowed advocates to place it on the government decision agenda. We conclude by drawing lessons for policymakers.

Organizational Learning by Colleges Responding to Performance Funding: Deliberative Structures and Their Challenges

This paper identifies and analyzes the deliberative structures used by colleges and universities to respond to performance funding demands and the factors that aid and hinder their working. Our investigation found that colleges use a variety of deliberative structures, including both their general administrative structures and more specialized and evanescent structures such as strategic planning committees and accreditation review committees, to engage in organizational learning. The aids and hindrances to effective deliberation that colleges encounter principally involve organizational commitment and leadership, effective communication and collaboration, timely and relevant data, and enough time for deliberation. Our data come from telephone interviews with over 200 college personnel at nine community colleges and nine public universities in three states: Indiana, Ohio, and Tennessee. The respondents were senior administrators, middle-level administrators, academic deans, and department chairs at these institutions.

Implementing Performance Funding in Three Leading States: Instruments, Outcomes, Obstacles, and Unintended Impacts

In recent years, performance funding has become a particularly attractive way of pursuing better college outcomes in higher education. This paper summarizes findings from a large study on the implementation and impacts of performance funding through the lens of three states that are regarded by many as leaders in that movement: Indiana, Ohio, and Tennessee. Based on extensive interviews with state officials and with staff of 18 colleges and universities in those three states, we describe the policy instruments used by those states to implement performance funding, the impact of performance funding on institutional policies and programs and eventually on student outcomes, the obstacles institutions encountered in responding to performance funding demands, and the unintended impacts that ensued. We found that while performance funding clearly spurred institutions to make changes to improve student outcomes—particularly in developmental education, course articulation and transfer across twoand four-year colleges, and counseling and advising services—it is difficult to gauge the importance of performance funding because it was only one of several concurrent initiatives aimed at improved outcomes occurring at the colleges. Our interviewees reported obstacles that hindered efforts to respond to performance funding demands or perform well on state performance measures; these included the academic and demographic composition of student bodies, inappropriate metrics, and insufficient institutional capacity. They also frequently reported observed and potential impacts that were not intended by the designers of performance funding policies; the most commonly mentioned were restrictions in college admissions and the weakening of academic standards.

From Capitol Hill to Dupont Circle and Beyond: The Influence of Policy Actors in the Federal Higher Education Rulemaking Process

The federal higher education rulemaking process develops policies that can profoundly affect college students, higher education institutions, and other actors in the higher education policy community. But little has been researched about the influence that different types of actors have on higher education rulemaking. By analyzing interviews with 55 policy and higher education actors as well as reviewing documents, news articles, and websites, this case study examines the involvement and influence of different types of policy actors in higher education rulemaking. This research finds that federal bureaucrats, congressional officials, White House officials, and certain interest groups consistently participate in, and are often influential over, the higher education rulemaking process; however, no one category of actor consistently dominates the rulemaking process. Political actors are particularly influential in high-profile rules with easy-to-understand subject matters. In highly technical and less prominent rules, bureaucrats and certain interest groups often exercise greater power. This research illustrates the importance of understanding policy subject matter in determining which actors exercise the most power, and suggests that no single theory of bureaucratic policymaking is consistently correct about the types of actors that tend to control regulatory outcomes.