The History of Performance Funding in State Higher Education

1/21/2022

Performance funding for state entities provides a financial incentive for agencies (or other state actors or contractors) to come up with innovative solutions to achieve better ultimate outcomes. Performance funding for higher education usually includes incentives for colleges and universities to improve academic success measures such as retention or graduation rates, or career success measures such as job placement or graduate earnings.

State-level performance funding for public higher education has a complex and storied history in the United States. As captured in the diagrams below, only seven states have never tried performance funding, and about half of states that tried and discontinued performance funding later reinstated it. Some states implement performance funding for just one higher education sector (usually technical or community colleges), while, of those that have performance funding for all public institutions, most have separate funding formulas for different types of institutions. Some states, such as Tennessee, even have multiple performance funding formulas for the same institutions.

The funding formulas themselves vary widely as well. Some states only have one performance metric, such as the earnings-based funding formula at Texas State Technical Colleges or the credit completion funding formula in North Dakota. By contrast, other states such as Florida have a dozen or more performance metrics. Some formulas control part of the state’s base funding for higher education, while some serve as bonus funding. And while some formulas control less than one percent of state funding for higher education, others control one hundred percent of state funding. 

The following map does not capture many of these complexities, but instead presents the years during which each state has had performance funding for higher education. The color of each state represents the total number of years that the state implemented any type of performance funding for higher education.

Total Years of Performance Funding in States
(Click on a state for more information)

Notes:

Start years represent the first fiscal year that a performance funding scheme was authorized, even if actual performance funding did not begin that year (delayed implementation is common). This is to “acknowledge that … institutions may begin reacting to the prospect of financial repercussions” (Dougherty and Natow).

End years represent the first fiscal year that funding is not allocated according to the performance funding formula, despite whether the legislation for the formula remains in place. If a program was authorized without a plan for delayed implementation, but was never funded by the legislature, the end year listed is two years after the start year to capture any initial anticipatory effects.

In addition to representing one unchanged performance funding formula, time spans of performance funding in the map may also represent overlapping formulas or formula changes without a discontinuation of performance funding. Each time span of performance funding seen on the map represents one instance in the chart “Number of Performance Funding Instances in States.” 

Sources:

Boelscher, Scott, and Martha Snyder. “Driving Better Outcomes: Fiscal Year 2019 State Status & Typology Update.” HCM Strategists, April 2019. https://hcmstrategists.com/resources/driving-better-outcomes-2019/.

Dougherty, Kevin, and Rebecca S. Natow. The Politics of Performance Funding for Higher Education: Origins, Discontinuations, and Transformations. Baltimore: Johns Hopkins University Press, 2015.

Lingo, Mitchell, Robert Kelchen, Kelly Rosinger, Dominique Baker, Justin Ortagus, and Jiayao Wu. “The Landscape of State Funding Formulas for Public Colleges and Universities.” InformEd States, August 2021. https://static1.squarespace.com/static/5d9f9fae6a122515ee074363/t/618c2867bc037379c1f64db8/1636575336901/redo_ISBrief_TheLandscapeofStateFundingFormulas_PublicCollegesUniversities.pdf.

Snyder, Martha. “Driving Better Outcomes: Typology and Principles to Inform Outcomes-Based Funding Models.” HCM Strategists, July 2015. https://hcmstrategists.com/resources/driving-better-outcomes-typology-and-principles-to-inform-outcomes-based-funding-models/.

Snyder, Martha, and Brian Fox. “Driving Better Outcomes: Fiscal Year 2016 State Status & Typology Update.” HCM Strategists, March 2016. https://hcmstrategists.com/resources/driving-better-outcomes-fiscal-year-2016-state-status-and-typology-update/.

Snyder, Martha, and Scott Boelscher. “Driving Better Outcomes: Fiscal Year 2018 State Status & Typology Update.” HCM Strategists, March 2018. https://hcmstrategists.com/resources/driving-better-outcomes-fiscal-year-2018-state-status-typology-update/.

Snyder, Martha, Scott Boelscher, and Danielle Zaragoza. “Driving Better Outcomes: Fiscal Year 2020 State Status & Typology Update.” HCM Strategists, August 2020. https://hcmstrategists.com/resources/driving-better-outcomes-fiscal-year-2020-state-status-typology-update/.