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Returned-Value Funding at Texas State Technical College


Texas State Technical College, with 10 locations throughout the state, earns funding from the Texas Legislature by teaching students the most in-demand and highly-paid skills in today’s labor market. TSTC provides a “returned value” to students and the Texas economy by improving students’ job prospects and incomes.

To determine the value-add of a TSTC education, the Returned-Value formula compares former students’ average wages to the minimum wage. A percentage of this “returned value” is appropriated to TSTC each biennium as one hundred percent of their instruction and administration funding. TSTC’s typical “commission rate” is 36 percent, though the Texas legislature has underfunded this rate twice since the funding formula began.

The “returned value” calculation is the product of:

  • The number of students in a two-year cohort 8 years prior to the funding biennium that graduated, transferred, or left after completing at least 9 credit hours;
  • The average annual inflation-adjusted wage for that cohort in the first five years after leaving TSTC minus a “base wage” equal to minimum wage X 52 weeks X 40 hours;
  • The state effective tax rate;
  • 5 (for 5 years); and
  • 1 plus an “indirect economic multiplier” of 1.5 from a US BEA study.
BienniumReturned-Value Calculation (TSTC Student Wages)Budget-Requested Instruction & Administration Funding (36% Commission)Appropriated Instruction and Administration FundingActual Commission Rate
2014-2015$275M$98M$90M33%
2016-2017$265M$94M$94M36%
2018-2019$340M$121M$94M28%
2020-2021$367M$132M$132M36%
2022-2023$390M$140M$140M36%

Source: Email communication with a TSTC data scientist.

When their students earn more, TSTC earns more. As Chancellor Mike Reeser describes it, TSTC is the “only self-funded public college,” since their state funding is a percentage of what past graduates have already paid in additional taxes. And though their “commission rate” varies between legislatures, appropriations have significantly increased since the formula began.

Earning extra state funding allows TSTC to further invest in innovative instructive methods. For instance, instructors now use augmented and virtual reality training in many programs, such as architectural design, engineering graphics, registered nursing, and chemical technology.

Legislation

(2011) Budget rider directs THECB to work with TSTC and LBB to develop formula:

“Texas State Technical College “Returned Value” Funding Model. The Texas Higher Education Coordinating Board shall work with the Texas State Technical College System, the Legislative Budget Board and other relevant agencies to develop a new A&I [Administration and Instruction] funding formula to be implemented for the 2014-15 biennium for the Texas State Technical Colleges. The formula shall reward job placement and graduate earnings projections, not time in training or contact hours.” (82nd TX Legislature, THECB Rider 42)

(2013) Budget rider directs use of new formula for appropriations to TSTC:

“Returned Value Funding Model for Texas State Technical Colleges. Funding is recommended for and allocated among Texas State Technical Colleges (TSTCs) based on the additional direct and indirect state tax revenues generated as a result of the education provided to students by the TSTCs. The funding methodology is based on the following components:

  1. The model includes the cohort of TSTC graduates (earning an associate’s degree or certificate), transfers, and leavers (students who were not found in Texas higher education for two years following the last time they were enrolled in the TSTC) with a minimum completion of nine semester credit hours from 2006 and 2007.
  2. The cohorts were matched with Unemployment Insurance wage records for employment and wage information for five years after the students graduated from or left the TSTC to establish annual wages for each student. Direct value-added was defined as the incremental state tax revenue attributable to former TSTC students’ jobs, based on the difference between former TSTC students’ annual wages and a base wage representing a full-time employee earning minimum wage (7 percent of the wage delta). Indirect value-added was defined as the direct value-added multiplied by 1.5, an economic multiplier derived from a U.S. Bureau of Economic Analysis study. Total direct and indirect values-added were summed for each group of students by campus across five years.
  3. Values-added were reduced by a certain percentage, based on the assumption that the benefits would accrue both to the state and TSTCs but with only a portion of the added value included in the formula calculations.
  4. Values-added by campus were divided into the total TSTC value-added to define each institution’s proportional share of overall formula funding.

The Texas State Technical College System shall continue to work with the Texas Higher Education Coordinating Board, the Legislative Budget Board and other relevant agencies to refine the new Returned Value Funding Formula for the TSTCs. It is the intent of the Legislature that recommended adjustments to the formula shall be ready for implementation in the 2016-17 biennium and shall further the goal of rewarding job placement and graduate earnings projections, not time in training or contact hours.” (83rd TX Legislature, TSTC Rider 11)

(2021) Budget rider identical to 2013 rider every biennium except for dates.

(87th TX Legislature, TSTC Rider 11)