1 Tennessee Higher Education Commission Outcomes Formula Technical Details TBR May 17, 2011

1

Tennessee Higher Education Commission

Outcomes Formula Technical DetailsTBR

May 17, 2011

2


Tennessee Finance Policy

• Phase-in of the outcomes model

• Removal of the Hold Harmless policy

• If TN adheres to a Hold Harmless policy, then it effectively has no finance policy.

• It effectively has no funding formula if changes in the need calculation do not produce changes in funding levels.

3



Year 1 A B C TotalFunding Request $100 $200 $300 $600

Actual Funding $60 $120 $180 $360Percent Funded 60.0% 60.0% 60.0% 60.0%

Baseline Data; all three institutions are funded at the same percentage.

4



In Year 2, institutions funding requests change, but the overall level of state funding is unchanged ($360).



Difference $0.0 $0.0 $0.0 $0.0

5



If a Hold Harmless policy is utilized, institutions maintain funding levels though the percentages diverge.



Difference $0.0 $0.0 $0.0 $0.0

6



If there is no Hold Harmless policy, actual funding changes to equalize the percent funded levels.



Difference $6.0 $0.0 -$6.0 $0.0

7



If overall funding levels decline, the same principle works – actual funding changes to equalize the percent funded levels.



Difference $0.5 -$10.0 -$20.5 -$30.0

8



• Straight forward calculation: overall formula units funding divided by overall formula units recommendation.

• Take that percentage and multiply by the institutional recommendation.

9



Formula Units Funding $800,000,000Formula Units Recommendation $1,400,000,000Formula Units Percent Funded 57.1%JSCC Formula Request $22,000,000JSCC State Appropriations $12,571,000

2013-14 Hypothetical

10



Multiply overall funding level of 57.1% times JSCC calculation of $22M.

Formula Units Funding $800,000,000Formula Units Recommendation $1,400,000,000Formula Units Percent Funded 57.1%JSCC Formula Request $22,000,000JSCC State Appropriations $12,571,000

2013-14 Hypothetical

11



How the Phase-In Process Works

12



Back to our example, if we know where institutions start (with a Hold Harmless policy)……



Difference $0.0 $0.0 $0.0 $0.0

13



And if we know where institutions ought to end up (no Hold Harmless policy)……



Difference $0.0 $0.0 $0.0 $0.0



Difference $6.0 $0.0 -$6.0 $0.0

14



We go 20% of the distance (or, the first year of a 20/30/50 percent phase in schedule).

Year 2 AFunding Request $110

Actual Funding $60Percent Funded 54.5% Year 2 A

Difference $0.0 Funding Request $110Actual Funding $61.2

Year 2 A Percent Funded 55.6%Funding Request $110 Difference $1.2

Actual Funding $66Percent Funded 60.0%

Difference $6.0

20% of the $6

difference is $1.2

15



The percent funded levels begin to converge as the Hold Harmless policy begins to be phased out.


Actual Funding $61.2 $120.0 $178.8 $360Percent Funded 55.6% 60.0% 61.7% 60.0%

Difference $1.2 $0.0 -$1.2 $0.0

16



How the Formula Phase-In Factors

Were Derived

17



• During the design process, THEC attempted to have the 2010-11 outcomes model estimates replicate the 2010-11 enrollment model numbers.

• Generally, the design came within +/- five percent.

18



• To make every effort to have the outcomes model “pick up” where the enrollment model left off, an additional, temporary calculation was added.

19



• For example, if the 2010-11 design estimates “undershot” an institution’s enrollment model by 3%, then a factor of 1.03 was added to the model.

• This factor would be used during the three year phase in period.

20



Outcomes Formula Total Need $105,876,600Enrollment Formula Total Need $107,397,000

Comparison 98.6%Phase-In Factor 1.014

Year 1 (2011-12) of Phase-In Factor 1.010 Year 2 (2012-13) of Phase-In Factor 1.005 Year 3 (2013-14) of Phase-In Factor 1.000

TSU 2010-11 Outcomes Formula Design

The final outcomes model design in 2010 was largely able to replicate the enrollment model.

21







The inverse of the comparison (1/0.986) established the Phase-In Factor. Theoretically, this ensured that the outcomes model design exactly reproduced the previous enrollment model calculation.

22







Or, 1.014 x $105,876,600 = $107,397,000

23







Over the three-year phase-in period, this factor would drift towards 1.0, where it would have no mathematical impact on the calculation.

24







This is the outcomes model phase-in factor and it is distinct from the removal of the Hold Harmless provision.

25


Formula Phase-In FactorsInstitution Year1 Year2 Year3 Institution Year1 Year2 Year3

Chattanooga 0.968 0.984 1.000 APSU 0.940 0.970 1.000Cleveland 1.024 1.012 1.000 UTM 0.988 0.994 1.000Columbia 0.955 0.978 1.000 TTU 0.936 0.968 1.000

Dyersburg 1.005 1.003 1.000 UTC 1.032 1.016 1.000Jackson 0.972 0.986 1.000 MTSU 1.037 1.018 1.000Motlow 1.022 1.011 1.000 ETSU 1.028 1.014 1.000

Nashville 0.946 0.973 1.000 TSU 1.010 1.005 1.000Northeast 1.036 1.018 1.000 UM 1.038 1.019 1.000Pellissippi 1.053 1.027 1.000 UTK 0.978 0.989 1.000

Roane 1.017 1.008 1.000Southwest 1.017 1.009 1.000Volunteer 1.056 1.028 1.000

Walters 1.003 1.001 1.000

26


Outcomes Formula Technical DetailsTBR

May 17, 2011

Documents

1 Tennessee Higher Education Commission Outcomes Formula Technical Details TBR May 17, 2011