Regents task force looks at Tennessee's bold funding model

The architect of Tennessee's outcomes-driven state funding formula for its nine public universities told an Iowa task force Tuesday that "not an aspect of campus was untouched by change" since the conversion four years ago.

A task force appointed by Iowa's Board of Regents is studying performance-based alternatives for allocating state funds to the three regent universities. Iowa's traditional formula, dating back to the 1940s, divides the state appropriation on roughly a 40 percent/40 percent/20 percent (Iowa State/Iowa/Northern Iowa) split. As the name implies, the intent behind performance-based funding is to align public operating dollars with a state's higher education priorities.

In most of the 30 or so states that have tried or are trying performance-based funding, only a portion of state funds – typically 10 percent or less – is allocated by such a formula. What sets Tennessee apart from the rest of the pack is that since 2011, 100 percent of state operating funds (and about 90 percent of total state funds) are distributed among nine schools according to outcomes. Previously, Tennessee allocated only 5 percent of state funds according to performance, primarily enrollment numbers.

"It's an experiment that's had some pretty dramatic impacts on Tennessee's higher education," said Russ Deaton, chief fiscal officer for the Tennessee Higher Education Commission. "There was a fundamental disconnect between our goals and our finances."

Tennessee's current formula awards dollars for 10 outcomes -- for example, bachelor's degrees awarded or external grant funding -- which are weighted for each campus based on that school's mission. Premiums are added for targeted student populations, currently Pell Grant recipients (low income) and adult students.

Deaton said there are no goals attached to the outcomes for any of the campuses, so there's no penalty for failure to meet a goal. Rather, he said, "we're asking the Legislature to purchase what we have produced – not fund who walks in the door or what we'd like to do."

Deaton said the new funding mechanism has created many positive changes, including new academic programs and growth in student advising and student learning support. A challenge, he told the task force, is for educators and in some cases, legislators, to let go of a belief in entitlement; each campus can lose or gain 4 percent of its state funds every year.

Other presenters

Martha Snyder, an Albany, N.Y.-based consultant who has helped several states develop higher education finance policies, told the task force that Iowa has an opportunity to include tuition policies in its broader finance equation because the board of regents approves annual tuition at the three schools.

"You could set tuition policies that encourage students to get through school more quickly, for example by taking more credits," she said.

Snyder also encouraged task force members to attach "a significant amount of money" to any performance formula it might recommend. Five percent of all operating funds "seems to be the minimum magic number" to get schools' attention, she said.

She noted that quality in education is difficult to measure, therefore formulas that rely on hard counts work better.

Snyder presented data that 62 percent of Iowa jobs in 2018 will require postsecondary education. At its current pace, about 45 percent of Iowans between the ages of 24 and 65 years will have the necessary education. Most states face the same dilemma and are including workforce development/degrees granted in their funding formulas, she said.

ISU School of Education associate professor Janice Friedel and doctoral student Zoe Thornton presented summary information on states' forays in and out of performance-based funding. Because it's relatively new, Friedel called it "a moving target" and said time and research are needed to assess its success. Some states have abandoned their initial efforts and some keep tweaking their funding model, which resets the evaluation clock, Thornton said. Some commit inconsequential dollars to performance-based funding, rendering it ineffective in producing results.

Friedel noted that performance-based funding is not a solution for declining state support of higher education. But if it helps states achieve its education priorities, she said it could help reverse the decline.

Next up

The task force's information-gathering work is scheduled to continue on Monday, Feb. 24 (9 a.m., board of regents office, Urbandale). The three regent university presidents (Steven Leath, Sally Mason and William Ruud) will be part of the discussion that day.

The task force hopes to develop some recommendations for the board by June. The group is led by former regent David Miles and includes regent Katie Mulholland and an appointee by each of the three universities.