DATE: July 30, 2015
TO: University Leadership Council
FROM: Sidney A. McPhee, President
SUBJECT: Article for MTSU University Leadership Council - Formula Funding for Higher Education

States to colleges: Prove you're worth it
Posted Jul 28, 2015, 2:10 pm
Sophie Quinton Stateline


New College of Florida doesn’t offer pre-professional degrees, like nursing or engineering. Students choose the public liberal arts college because they want an intellectual experience. Many take a year off after graduation to pursue research or community service.

Yet last fall, New College opened a flashy new career center on its Sarasota campus. It needed to prove to the state that it was helping students find jobs and graduate on time, or risk losing $1.1 million in state aid. “That’s a big deal for us,” David Gulliver, media relations coordinator for New College, said of the money.  

This fiscal year, Florida was one of 26 states to fund their two- or four-year college systems (or both) partly based on outcomes such as graduation rates, according to HCM Strategists, a consulting firm. Mississippi, Nevada, North Dakota, Ohio and Tennessee all spent over half their higher education budgets that way.

The idea of using outcomes—not enrollments—to guide public funding of higher education has so much bipartisan backing that both President Barack Obama and Florida’s Republican Gov. Rick Scott support it. Just last week, the Florida Board of Education approved a performance-funding system for state colleges, adding to its existing system for state universities.

It’s too early to say whether performance-based funding will drive the changes lawmakers want. But the policy so aligns with national concerns about the cost and payoff of a college education that it’s likely here to stay.

The Completion Craze

Tennessee started giving state colleges and universities bonus payments for meeting goals in certain categories, such as student performance on national exams, in 1979. In the 1990s, a handful of states set aside a small percent of funding to reward outcomes, such as degree completion. Those programs typically didn’t last long.

Then the Great Recession happened. As the economy tanked, so did state tax revenue. Almost every state cut higher education funding between 2009 and 2014, and many colleges and universities raised tuition to compensate.

College became less affordable even as Obama and governors emphasized how important it was for Americans to go. “Education is an economic issue when nearly eight in 10 new jobs will require workforce training or a higher education by the end of the decade,” Obama said in 2010.

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To get the economic benefit of a college degree, the president emphasized, students have to graduate. Fifty-nine percent of first-time college students, studying full time, who started a bachelor’s degree program in 2007 graduated in six years from that institution, according to federal statistics.

The Lumina Foundation and the Bill and Melinda Gates Foundation have added to the sense of urgency over the past few years by spending millions of dollars on developing and promoting strategies for raising graduation rates. One strategy is performance-based funding, also known as outcomes-based funding.

The men and women who oversee Florida’s 12 state universities started developing a performance funding model in 2012. “We knew we needed to come up with a different approach to get additional state support [for state universities],” said Tim Jones, a vice chancellor for the Florida State University System Board of Governors.  

The Florida Legislature wanted more accountability for money spent on higher education. Both lawmakers and the board wanted to push colleges to become more efficient. 

Here’s the formula they came up with: Starting in 2014, a small portion of every university’s base funding—plus any additional state money—has to be distributed according to the university’s performance on 10 metrics. Metrics include the average wages of graduates, the six-year graduation rate, the second-year retention rate and the share of undergraduates who come from families with incomes low enough to qualify for a federal Pell Grant. In 2012-13, the vast majority of Pell Grant recipients had a family income of $40,000 a year or less, according to an analysis of federal data by the nonprofit College Board.

Universities are scored between 0 and 5 points on each metric, once based on performance and again based on improvement. The board takes the higher of the two numbers for each metric and adds them up. If the university scores less than 25 points overall, it risks losing the performance portion of its base funding. If it scores above, it’s eligible to get new money. The three institutions with the highest scores get additional funds.

Other states have put much more money at stake and have built much more comprehensive formulas. While performance-based funding made up 8.8 percent of Florida’s spending on state universities this year, Tennessee allocates almost 100 percent of its higher education funding—for both community colleges and universities—through an outcomes-based formula.

“For every degree you award, it counts. For every student that accumulates 12 hours, they count. And we just simply count those up, and those are your outcomes for that funding year,” said Crystal Collins, a director at the Tennessee Higher Education Commission. “You don’t have to perform at a higher rate than you did last year; you just have to perform.”

The formula involves multiple calculations (you can check them out on the commission’s website). But basically, the state decides how much it wants to spend on higher education and parcels the money based on certain factors. A big one is whether students are progressing and graduating.

Tennessee’s model also takes into account basic operating costs and adjusts its formula based on each institution’s mission. Research universities are rewarded for spending money on research, for example, while community colleges are rewarded for connecting students with jobs.

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So Far, So Good?

So is performance funding making a difference? “Yes—incredibly, actually,” said Joe DiPietro, the president of the University of Tennessee. The university system has beefed up academic advising and started stressing that students take a full course load each semester, he said.    

Graduation rates have risen across the university system since the outcomes-based formula was implemented in 2010. And they’re improving across the state, Collins said.

Yet researchers say it’s unclear whether performance funding is pushing up graduation rates. “We do not have as yet conclusive evidence that performance funding does indeed improve student outcomes in any significant way,” Columbia University researchers wrote last year in a working paper that reviewed models in Indiana, Ohio and Tennessee.

More statistical analysis needs to be done before researchers can disentangle performance funding from everything else that affects colleges. Decisions made by presidents and faculty, requests by accrediting agencies, grants from foundations or the federal government and public pressure can all push colleges to change. Other factors affect whether students graduate in two or four years, such as the availability of financial aid.

So far, studies haven’t found a strong link between performance funding and graduation rates. A recent analysis of Washington state’s model for community colleges found that it hadn’t much affected retention or the number of associate’s degrees awarded. Institutions were awarding more short-term certificates, credentials that don’t always have much labor market value.

The results suggest, the researchers wrote, that it may be more difficult for institutions to retain students from year to year than the designers of Washington’s formula thought. 

Kevin Dougherty, the lead author of the Columbia working paper, thinks states should pay more attention to what he calls “the issue of creaming.” An easy way for colleges to improve their metrics is to raise admissions standards, potentially pushing out disadvantaged students.

About 30 percent of administrators interviewed by Dougherty and his fellow researchers for the study said restricting admissions was already happening or could happen. Colleges can also game performance-funding systems by shifting recruitment to better-prepared students, including from out of state, or by making it easier to pass classes, the administrators said. 

States such as Tennessee try to address this concern by weighting the success of low-income students and other subpopulations more heavily in their formulas. “We don’t have a clear idea of how well that works,” Dougherty said.

Performance-based funding has caught on at a moment when colleges are less reliant on state money than they used to be. State funding now makes up just 29 percent of revenue for Tennessee’s universities and about 41 percent of revenue for its community college system, according to Collins.

Sean Tierney, a strategy officer for the Lumina Foundation, says the states’ growing shift to tuition to fund higher education—which rises with enrollment—strengthens the case for rewarding outcomes. “It makes more and more sense for the state to fund on a different variable, in order to help these students,” he said.

In a different world, you might imagine policymakers figuring out how much it would cost to raise graduation rates by a certain amount and fund institutions that way, says Robert Bradley, a professor at the Institute for Academic Leadership hosted by Florida State University.

Instead, performance-funding formulas take the money states want to spend and divvy it up based on productivity. And that’s exactly how lawmakers like it.

“The fact that we’ve gotten $220 million over the past two years, three years, shows the belief that our policymakers and the legislature and the governor’s office have in what the board is doing,” Florida’s Jones, the CFO, said of his state’s formula. “It’s very likely that we wouldn’t have gotten the money without this model. So I think folks are happy, because they are getting funding for this.”

Stateline is a nonpartisan, nonprofit news service of the Pew Charitable Trusts that provides daily reporting and analysis on trends in state policy.

DATE: February 12, 2014
TO: University Leadership Council
FROM: Sidney A. McPhee, President

Dr.  McPhee asked that I forward this article to you so that you could see what is going on at one of our sister institutions. This emphasizes the importance of our student success initiatives so we might avoid a similar situation.

University of Memphis budget to cut $10.6 million from academic affairs

By Jennifer Backer
Tuesday, February 11, 2014

University of Memphis Provost M. David Rudd unveiled plans Monday to plug part of the university’s $20 million budget hole for the 2014-2015 school year by trimming costs in academic affairs by $10.6 million.

The university’s fiscal year begins July 1.

While the $10.6 million budget cut to academic affairs spared faculty and staff positions — at least for now — the cuts still do “damage to the university,” said Richard Evans, U of M Faculty Senate President.

Another $4.5 million in cuts will be rolled into the next fiscal year.

“We understand the financial situation we are in and that we needed to make cuts,” Evans said. “The purpose of the budget-cutting group was to do as little damage as possible — but you can’t be stronger.”

About one-third of the cuts are through administrative cost-cutting measures such as not replacing workers who have retired or left, another one-third are through the recovery of designated tuition and fee funds, while the remainder are direct hits to core academic delivery.

Much of the university’s current financial woes stems from a 1,500-student drop in enrollment over the past two years. That decline in enrollment created a $14 million hit to tuition revenue.

But a confluence of factors have added to the challenges — a loss of $44 million in state appropriations over six years and the end of another $66 million in federal stimulus funding.

With a graduation rate of 44 percent, the U of M has been hard hit by 2010 changes in the focus and funding of Tennessee’s public higher education. The law, The Complete College Tennessee Act, moved the state away from the old model of funding public universities, community colleges and technical institutes based on enrollment to a new model based on graduation rates and student outcomes.

As many as 25 percent of the university’s freshman drop out before their sophomore year, and another 18 to 20 percent leave after their sophomore years.

Until recently, U of M administrators could use reserve cash to plug budget gaps that emerged in August after enrollment figures were tallied, Evans said.

But without any cash reserves, the university has had to tap “last resort sources of money.”

Rudd has told faculty members that unless the school makes structural cuts to the university’s operational budget — the $20 million budget gap will be a recurring annual problem in the U of M’s $478 million annual operational budget.

Last year, Rudd proposed consolidating four colleges into two and handing over control of a speech therapy clinic to the University of Tennessee Health Science Center, for an additional $7 million in cost savings.

Rudd said the university also hopes to raise new revenue by boosting enrollment, student retention and degree completion.

“Without a stable increase in revenue, we can’t support the current budget at the level we had been operating,” he said. “We will have to raise money through new revenue or we will have to take another look at the budget.”

The cuts will spare departments like engineering, health sciences and business in an effort to position them for future growth. Rudd did not provide information on specific department-level cuts in other areas.

DATE: January 24, 2014
TO: University Leadership Council
FROM: Sidney A. McPhee, President

SAVE THE DATE:  Monday, February 3, 2014 (8AM - 3PM)

GUEST:  Dr. Richard DuFour, one of the nation’s leading experts, author, and researcher in educational leadership and best practices for increasing student achievement will meet with the University Leadership Council.

8:00 - 8:20 am University Leadership Council
Continental Breakfast
Room 201: Student Government Parliamentary Room
8:20 - 10:30 am University Leadership Council
Purpose of the Meeting

President Sidney McPhee
Dr. Bob Eaker
Dr. Rick DuFour
10:20 - 11 am Break  
11:00 am - Noon Chairs Council
Room 201: Student Government Parliamentary Room

Dr. Rick DuFour
12:15 - 2:00 pm Brad Bartel
Michael Allen
Mark Byrnes
Ken Paulson
David Urban
Terry Whiteside
Bonnie Allen
Mike Boyle
Bud Fischer
Lana Seivers
John Vile
Working Lunch
Room 280: President's Executive Conference Room

Dr. Rick DuFour
2:00 - 2:30 pm Break  
2:30 - 3:00 pm Exit / Wrap-up
President's Office
President Sidney McPhee
Dr. Rick DuFour
Dr. Bob Eaker
Dr. Deb Sells

DATE:December 11, 2009
TO: University Leadership Council
FROM:Sidney A. McPhee, President

I wanted to take this opportunity to thank those of you who participated in our first "Administrative Council"; meeting last month. I was very encouraged by your enthusiastic attendance as well as the quality of our discussion, and I look forward to working with each of you in the New Year. Having considered the feedback that I received regarding the name of the group, I have decided to identify it as the "University Leadership Council.";

As promised, we have established an online forum which will help facilitate discussion among the members of this group on issues of importance to the University and its personnel. You may wish to utilize this opportunity for group discussion in the coming weeks as you review my end-of-the-year report on our Positioning the University for the Future Initiative, which I expect to release early next week. This report will provide the campus community with an update on our progress as it relates to the implementation of many of the recommendations that were identified in my May 21, 2009 final report.

As you well know, discussions regarding the overall economy as well as how MTSU will be impacted by future budget cuts and the end of stimulus funding continue to spark vigorous dialog and debate throughout the state. In a related issue, I have received a number of communications from faculty, staff and others over the past few days regarding comments made by individuals associated with the University who were quoted in a December 6 article in the Daily News Journal. Like many of you, I am concerned about the inaccurate perceptions that are now floating around about the average salary and responsibilities of MTSU professors. In an effort to reduce some of these negative perceptions, we provided the DNJ with more accurate information regarding the salaries of our faculty and attempted to provide additional clarity on the role and expectations of faculty at comprehensive universities.

Please know that I value our faculty and recognize how hard they work, especially during these times when we all have to do less with less and in some cases more with less. I acknowledge and support the diverse roles that faculty play here at MTSU and fully understand the importance of maintaining the proper balance between teaching, research and service. Unfortunately, the value and importance of these responsibilities are not impervious to the economic challenges that we will continue to face. We must all remain mindful that budget reductions and other sacrifices will have to be made which will impact the work load of our faculty and other critical aspects of our institutional operations.

Although the economic picture for the near future remains somewhat bleak and we must continue to face the current fiscal challenges head-on, as I have said before, I am confident that we are well prepared to emerge from this period of crisis with positive results. Your support and involvement as the University Leadership Council will be a critical factor in helping MTSU rise above these difficult times. I am extremely grateful to have each of you as a resource in the University's strategic planning efforts and will keep you apprised of ways in which you can actively help us position the University for the future.

Please feel free to share this information and other updates with your colleagues as appropriate, and best wishes to you for a safe and joyous holiday break.

DATE: November 2, 2009
TO: MTSU Faculty and Staff
FROM: Sidney A. McPhee, President
RE: MTSU Administrative Council

I am pleased to announce the establishment of the Middle Tennessee State University Administrative Council, a group of faculty, staff and administrators who will serve in an advisory capacity to the President and the executive administration in identifying and addressing issues of importance and concern to the University. Composed of 83 individuals from across the campus community, the Council will offer recommendations and perspectives on University policies and procedures and will serve as a sounding board for new ideas and institutional initiatives.

I am excited about the establishment of this Council because it provides University decision makers with direct access to the thoughts and opinions of a broader range of key personnel as we address issues that have the potential to impact the overall success and viability of MTSU. The feedback and guidance provided by this group, which will meet periodically, will be particularly important as we continue to implement the recommendations associated with our Positioning the University for the Future Initiative and as we work to address future economic challenges as anticipated by the State.

The Council's first meeting is scheduled for Monday, November, 16, 2009, at 2:00 p.m., in Cantrell Hall in the Tom Jackson Building. Shortly, we will send out some materials for your review prior to the meeting. We will also provide more information about the Council, along with its membership, in the next issue of the Record as well as on the MTSU Web site.