Driving Better Outcomes: Aligning State Investments With Completion Needs Typology & Principles to Inform Outcomes-Based Funding Models Presented by: Martha Snyder & Nate Johnson

Revenue Sources for Institutions

Revenue Sources of Public Degree-Granting Postsecondary Institutions ( )

Trends in Institution Finance Source: SHEF 2014 Interactive Data, US Wave Chart -On a Per FTE basis the (public) enterprise isn’t becoming more expensive. -Costs are shifting to students. -Increases the enrollment/ retention incentive for institutions. -Limits the ability of states to leverage/drive change toward outcomes and completion.

However … and State appropriations remain the largest single source of funding for institutions There are ways to align finance policies toward outcomes and student success

Total Funding: $86.3 Billion 89.3% from state funding 10.9% local funding 0.6% state endowment Student Financial Aid $6.7 billion (75%) to students attending public institutions; $2.2 billion (25%) to students attending private/independent institutions General Operating Support Typically allocated based on FTE, outcomes/performance, historical allocation, or combination Special Purpose Research, agricultural extension, medical education State & Local Support for Higher Education (In Billions) Source : SHEF FY 2014

Driving Toward Better Outcomes: State Finance Policies to Support Completion Agenda

OUTCOMES-BASED FUNDING POLICIES

State Allocation Models Allocation based on prior levels of funding Adjusted +/- based on available funds Goal: Institutional fiscal stability Challenge: Equity in institutional funding Historic # of students enrolled at census date Recent shift to course completion Goal: expand access Challenge: Incentive on prolonged persistence/retention Enrollment Reward for reaching performance milestones or goals Completion not necessarily key objective Often ‘bonus’ (new allocation) or small % of general allocation Challenge: Sustainability and funding Early Performance Funding based on student success and completion Significant portion of general allocation to institutions (not reliant on new money-only/separate allocation) Challenge: College’s ability to respond Outcome -Based

Objectives of Outcomes-Based Models Align funding method with state/system priorities Completion/Attainment Jobs/Economic Development Align institution priorities Support Scaling of Proven Student Success Practices Programmatic Evaluation and Change Improve Efficiency & Reward Outcomes

Early Efforts of Performance-Based Funding More than half of states adopted a form of performance funding in the past 35 years, challenges in sustaining the model existed because of design & implementation shortfalls: – Multiple, unaligned priorities – Lack of institutional consultation – Complicated & burdensome – One-size-fits-all – Competed with access agenda – Target oriented approach – Funding challenges

Next Phase: Outcomes-Based Evolved form of performance-based funding Similarly seeks to incent and reward progress toward goals More explicit connection to state needs – Focus on student progress and completion – Closing gaps in student outcomes – Refined development & modeling approaches

Development of Outcomes-Based Funding Typology Effort to classify outcomes-based funding policies on key elements they address and funding levels: – Link to attainment or completion goal – Stable funding structure – Significant level of funding – All public institutions included – Differentiation of metrics across sectors – Degree/credential completion is included – Encourages increased success with underserved students

Typology Classification TYPE I No attainment/completion goal New-money only Does not include all institutions Degree completion not included Underrepresented student success not reflected TYPE II Completion or attainment goal in place Part of general allocation < 5% of overall support Does not include all institutions Degree completion included Underrepresented student success likely reflected TYPE III Completion or attainment goal in place Part of general allocation Moderate funding level (5-24.9%) All institutions included Differentiation in metrics Degree completion included Underrepresented students are prioritized TYPE IV Completion or attainment goal in place Part of general allocation Significant funding (>25%) All institutions included Differentiation in metrics Degree completion Underrepresented students are prioritized Sustained over time*

Status of Funding Models in States As of Fiscal Year 2015, 35 * states (70 percent) are developing (10 states) and/or implementing (26 states) some level of outcomes-based funding model – Great variance in critical elements included in typology and reflected in associated design & implementation principles *Oregon was both implementing and developing a new funding formula. Source: Data collected by HCM Strategists as of December 2014

States Developing and Implementing Outcomes-Based Funding Models

States Implementing OBF in FY 15 by Type & Sector

States Developing OBF in FY 15 by Type & Sector

Funding Associated with OBF Models Wide variation in funding associated with student success and completion In many states, outcomes remain a small portion of institution’s funding

OBF as % of Overall State Institutional Support

OBF as Percentage of Funding: Broken out by course completion, progression and degree completion

Estimated OBF Spending in FY 15, Per Student

Approaching the Design of OBF Research and analysis of earlier models has yielded a series of design and implementation principles to guide states. The typology is derived from these principles. Completion Goals & Commitment to Priorities Make Money Meaningful & Sustainable Limited, measurable and valid metrics Include all institutions & allow for differentiation Support success of underserved student populations Focus on completion & reward progress Engage stakeholders in the process

Implementation of OBF Phase-in the effect of funding change Continuously improve data Evaluate & Adjust

Understanding State Investments Provide transparent information on all state higher education finance policies Examine, collectively and individually, all elements of state finance policies – Institution allocation – Tuition – Student Financial Aid

Discussion Questions Considered as a business, where does higher education in your state derive its revenue? Which revenue sources are best aligned with what the state wants from higher education? What do institutions or systems have to do to maintain or increase revenue in each category? How much institutional effort is required to produce the revenue in each category? How well do those activities or practices align with the state's interests? What does the state want from higher education that does not have an existing (or sufficient) revenue source available to support it?

Thank You Presented by: Martha Snyder Phone: