Performance based funding for higher education institutions

Colleges and universities in 25 states must meet performance requirements to receive at least part of their funding from state governments as education experts increasingly focus on closing the gap between the number of students who enroll in post-secondary institutions and those who actually graduate.

States differ in their performance funding incentive structures. Washington, Hawaii, Texas and Massachusetts allocate part of their funding to two-year institutions using performance measures; Arizona, Mississippi, Florida, Pennsylvania and Maine only apply metrics to four-year institutions. Another 16 states measure both two- and four-year institutions, according to data compiled by the National Conference of State Legislatures.

The measures of post-secondary performance varies widely by state, the conference report found. Most states measure the number of bachelor’s degrees awarded or the six-year graduation rate. Arkansas, Hawaii, Illinois, Kansas, Maine, Minnesota, Mississippi, Nevada, Ohio, Pennsylvania, South Dakota, Texas and Virginia award additional points for higher numbers of graduates in science, technology, engineering and math fields.

In Florida, four-year universities are judged in part by the success of their graduates. In fiscal year 2014, the state allocated $20 million in performance funding based in part on the median average full-time wages of undergraduates employed in the state one year after graduation.

Other states award money based on school improvement. Louisiana two- and four-year institutions are measured in part based on how their retention rates change: More students staying in school leads to more funding. Louisiana lawmakers apply at least 15 percent of base appropriations, one of the highest percentages of performance-based funding among any state, to school allocations.

Massachusetts community colleges will have to pay more attention to performance metrics than most schools in other states. The Bay State will award half of all base funding to schools that issue the highest percentage of certificates, and where students complete the highest number of entry-level math and English courses.

North Dakota calculates nearly all of its base funding by the number of credit hours completed at two- and four-year institutions. Most states award much smaller percentages of their higher education dollars on the basis of performance, usually around 5 percent.

Five more states — Montana, Colorado, South Dakota, Georgia and Virginia — are moving to implement performance-based funding mechanisms.

In Montana, 5 percent of base funding will be awarded based on performance standards, though the criteria have yet to be developed. South Dakota, too, is working to develop performance criteria.

Colorado will award up to 25 percent of its funding over $650 million on the basis of performance, though the legislature must act on standards proposed by the state Commission on Higher Education.

Beginning in 2017, Georgia schools will compete for new appropriations on the basis of performance, while Virginia will allocate half of all school funding based on performance and incentives.