Running head: PERFORMANCE FUNDING

Performance Funding in Higher Education:

Issues in Implementation

Crystal Nikki Simpson

Georgia Southern University

EDLD 8432, Summer 2014

Dr. Daniel Calhoun

June 30, 2014

PERFORMANCE FUNDING 2

Performance Funding in Higher Education:

Issues in Implementation

Introduction

Performance based funding ties funding to higher education institutions to

performance outcomes of that institution. Some popular outcomes for performance based

funding include retention and graduation rates. Friedel, Thornton, DAmico, and Katsinas

(2013) noted that measures have evolved over time and include indicators such as general

outcomes, progress outcomes, subgroup outcomes, and high need subject outcomes.

As of September 2013, 22 states are utilizing performance based funding, seven

are in transition, and ten are discussion regarding performance based funding (Friedel et

al., 2013). Currently, funding for higher education in the state of Georgia is based on

enrollment. However, Georgia is in transition to begin the implementation of

performance based funding specifically looking at student progression, retention and

graduation rates starting in fiscal year 2017 (Higher Education Funding Commission,

2012). The Higher Education Funding Commission (2012) stated, moving from an

enrollment based driven formula to an outcomes-based formula is a commitment from the

state to invest our resources in the results we want and to accomplish these results with

clarity and predictability (p. 8). With performance based funding becoming the future of

institutions of higher education in Georgia, higher education employees have a vested

interest in performance based funding practices.

Literature Review

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The purpose of this literature review is to examine how performance based

funding has affected institutional performance. This review will look at research done at

the international, national, and state levels. The obstacles found will also be discussed.

International

Jongbloed and Vossensteyn (2001) looked at the policies for higher education

funding in eleven countries. Some of the countries used enrollment, the number of

educators, teaching and research output, and other formulas as determined by their

policies (Jongbloed & Vossensteyn, 2001). They noted that the amounts tied to

performance funding are small and that these measures are primarily for accountability

purposes or informing student about higher education; they do not (yet) use them for

funding decisions (Jongbloed & Vossessteyn, 2001, p. 140) The amount of funding tied

to performance outcomes being relatively small and affecting potential outcomes of

performance measures is a trend that will be addressed in more detail in the implications

portion of this paper.

Alexander (2000) found two commonalties while reviewing performance based

funding in The Organisation for Economic Co-operation and Development member

nations. There are increased tensions between policy makers and higher education

administrators and there has been a shift of the states involvement in higher education

from oversight to active involvement (Alexander, 2000).

National

In 2013, performance metrics emerged as a national agenda item (Friedel, et al.,

2013). Shin (2009) did an analysis of 467 institutions nationwide to see how performance

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funding affected institutional performance and found that there were no changes. Part of

these findings could be attributed to the fact that the amount of funding tied to

institutional performance was very small, on average less than 6% (Shin, 2009). In order

to directly impact performance outcomes, significant funding needs to be committed

(Friedel, et al., 2013). It was stated, federal efforts to create performance metrics will

likely build upon what is already happening in the states (Friedel, et al., 2013, p. 1).

State

Sanford and Hunter (2011) researched the affect of performance funding on

retention and graduation in the state of Tennessee due to the states fifteen-year history of

using performance based funding. They found that the institutions in Tennessee showed

no significant change in performance (Sanford & Hunter, 2011). Dougherty and Reddy

(2011) researched literature on performance funding in Florida, Tennessee, Ohio, and

Washington. They did find changes in institutions in regards to awareness of priorities

and performance and state competition (Dougherty & Reddy, 2011). However, they did

not find evidence that performance funding increases performance in the areas of

retention and graduation (Dougherty & Reddy, 2011).

Obstacles of Performance Funding

Dougherty and Reddy (2011) noted the need for more performance funding due to

the lack of significant changes to outcomes. Several of the studies reviewed noted that the

amount of funding tied to performance outcomes was relatively small (Jongbloed &

Vossessteyn, 2001; Sanford & Hunter, 2011; Shin, 2009). Sanford and Hunter (2011)

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discussed how doubling the incentive in Tennessee in 2005 also did not increase

graduation rates.

Hermes (2012) also noted some factors for consideration if performance funding

is going to be successful. These points include the need to identify proper metrics,

consider the institutional mission, incentivize completion by dis-advantaged students,

recognize interim measure, proved stable funding, and obtain buy in from key

constituencies (Hermes, 2012). The item about providing stable funding is interesting in

that Hermes (2012) states that models should ensure that funding does not drastically

change year to year. This provides stability for institutions so that students are not

dramatically impacted by decreases of performance based funding year to year.

Implications

Performance funding is spreading across higher education institutions in the

nation. Hermes (2012) wrote that states are not just returning to the idea of using

performance funding but that they are also increasing their efforts.

The largest implication found in the review of literature is that performance

funding has no significant impact on performance outcome. Shin (2009) noted policy

makers garner more success by changing the factors that are known to be highly

correlated with institutional performance (p. 65). Sanford and Hunter (2011) commented

that policy makers might need to consider alternate solutions to achieve goals.

Another implication is the unintended effects of performance funding. Dougherty

and Reddy (2011) noted there impacts of performance funding that are unintentional

including costs of compliance, narrowing of institutional missions, grade inflation and

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lowering of academic standards, restrictions on student admissions, and diminished

faculty voice in academic governance (p. 44).

Stakeholders need to look at where performance funding has succeeded and failed

in the past and make corrections in order to successfully implement performance funding.

Cavanaugh and Garland (2012) stated that there are two reasons that performance

funding fails, not having enough funding tied to the outcomes and discontinuation when

the economy begins to decline. Sanford and Hunter (2011) also stated that any impact on

outcomes is going to be the result of significant incentives.

Cavanaugh and Garland (2012) concluded, performance funding, if designed

well, can improve targeted outcomes and reflect good and appropriate stewardship

(Cavanaugh & Garland, 2012, p. 39). Some policy recommendations for consideration

are engaging stakeholders, aligning the measurements to the goals of the state agenda,

consider individual institutional missions, have a phase in period, have a significant

amount of money tied to the program, have outcome and progress measures, and evaluate

the system (Friedel, et al., 2013).

Conclusion

As with all polices and procedures, it is best not to try to reinvent the wheel. Time

should be spent reviewing best practices of states which are currently using performance

funding and learn from their past experiences. What problems emerged and what changes

were made to correct them? What worked correctly from the beginning? At what

threshold is the amount of money tied to performance funding effective? These are all

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questions that stakeholders and policy makers need to consider when moving towards

implementing and evaluating performance funding.

While the research shows that there has be limited impact on performance funding

on performance goals, there are suggestions in research for how performance funding can

be modified to successfully impact outcomes. An important factor that should be kept in

mind is assessment. Any state implementing performance based funding should assess

the impact, both positive and negative, on institutions. This will allow states to determine

how successful performance based funding initiatives are in each state, and what changes

may need to occur.

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References

Alexander, F. E. (2000). The changing face of accountability: Monitoring and assessing

institutional performance in higher education. Journal of Higher Education, 71,

411-431.

Cavanaugh, J., & Garland, P. (2012). Performance funding in Pennsylvania. Change,

44(3), 34-39.

Dougherty, K.J., & Reddy, V. (2011). The impacts of state performance funding systems

on higher education institutions: Research literature review and policy

recommendations. Working paper No. 37, Community College Research Center,

Columbia University, New York, NY.

Friedel, J.N., Thornton, Z.M., DAmico, M.M., & Katsinas, S. G. (2012, September).

Performance-based funding: The national landscape. The University of Alabama,

Education Policy Center.

Hermes, J. (2012). States trend toward performance funding. Community College

Journal, 82(4), 26-29.

Higher Education Funding Commission. (2012, December). Report to Governor Deal.

Retrieved from

http://gov.georgia.gov/sites/gov.georgia.gov/files/related_files/press_release/Reco

mmendations%20of%20the%20Higher%20Education%20Funding%20Commissi

on.pdf

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Jongbloed, B., & Vossensteyn, H. (2001). Keeping up Performances: an international

survey of performance-based funding in higher education. Journal Of Higher

Education Policy & Management, 23(2), 127-145.

doi:10.1080/13600800120088625

Sanford, T., & Hunter, J.M. (2011). Impact of performance-funding on retention and

graduation rates. Education Policy Analysis Archives, 19(33), 1-30.

Shin, J. (2010). Impacts of performance-based accountability on institutional

performance in the U.S. Higher Education, (1). 47.