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Are Community College Funding Models Incentives for Change?

More than 30 states fund higher education via an approach called “performance-based funding.” Lawmakers seek to ensure institutional accountability, such as college completion and evidenced-based improvements in disadvantaged student groups. Learn about the funding model, its possible pros and cons, and how it has been explored in Ohio and Texas. Plus, get three story ideas from experts.

Photo credit: Alessandro Biascioli/Bigstock

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Student-centered funding – also known as outcome or performance-based funding – drew much attention in the past decade, according to Kate Shaw. 

Shaw, postsecondary senior adviser at HCM Strategists, spoke during a session at the Education Writers Association’s Higher Education Seminar: The Covid Generation on Jan. 27, 2023, in Alexandria, Virginia.

The panel on the costs of community college also included Marcia Ballinger, president of Lorain County Community College in Ohio and Ray Martinez III, president and CEO of the Texas Association of Community Colleges. It was moderated by Amy Morona, higher education reporter at Signal Cleveland.

Community colleges have three revenue streams: state appropriations, tuition/financial aid, and local funding, Shaw said.

The student-centered funding formula, which can be controversial, drives a portion of state appropriations to community colleges based on how well institutions do on enrollment, retention and graduation, she said. Additionally, equity weights could be built into funding formulas to reward colleges for success in target populations, such as students of color, low-income students and adult learners (usually students older than 25).

“Institutions will get more money if they retain and graduate different kinds of students depending upon the priorities of the state,” Shaw said.

Exploration of Student-Centered Funding Models in Ohio and Texas

Controversy over performance-based funding stems from debates over the best ways to improve higher education and fears about unintended consequences, such as the exclusion of disadvantaged students and the lowering of academic quality. Despite concerns, many states moved forward. 

A decade ago, Ohio decided to move to performance-based funding, Ballinger said. Previously, the state mostly funded higher education institutions based on student enrollment data and offered performance-based funding on a limited basis beginning in the 1980s

“Accountability certainly was one of those pieces, but even more importantly than that was the recognition of how critically important higher education is to ensuring a state’s economic competitiveness,” she said.

In Texas, community colleges have been funded by local property taxes, student tuition and “a complicated state system that has not kept up pace with other resources and now accounts for less than 25% of community colleges’ funding.” A commission advised the state legislature on new ways to fund its 50 community college districts. 

The Texas legislature is “very seriously considering moving from allocation based upon static enrollment contact hours to one that would be dynamic based upon outcomes and performance,” Martinez said. State lawmakers are expected to decide whether they will redesign the funding formulas during this year’s legislative session, which ends in May.  

How Effective Is Performance-Based Funding?

The research is mixed on whether performance-based funding improves student outcomes, given states have different formulas and have continued to refine their formulas, Shaw said.

“I don’t think it’s fair to say that these formulas are a grand slam. Nor do I think it’s fair to say that they have struck out,” she said. “I think it’s somewhere in between.”

Ballinger said community colleges in Ohio have seen success with the direction it’s taken with performance-based funding and other policies. 

From 2013 to 2021, the state’s community colleges saw an increase in the number of associate degrees awarded as well as job-focused credentials, she said. There was also data showing the closing of equity gaps.

Story Ideas

Skills Gaps 

Martinez noted Texas’ population growth (an increase of nearly 4 million from 2010 to 2020), job creation (2 million new jobs in the past decade) and rising demand for a more skilled labor force.

A first-generation college student, Martinez said his father didn’t have a high school diploma but raised a family with his job as an auto mechanic. But now those skilled jobs require more than a high school diploma, and there’s a mismatch in the labor market.

The community college sector is “best poised to address these skills gaps,” he said.

Short-Term Certificate Programs

As shown in the pandemic where people are dislocated out of the workforce, Ballinger said her college began taking apart its curriculum around high-demand areas and created short-term certificate programs that can be delivered in less than 16 weeks and in flexible ways. 

The college partnered with employers and keeps expanding programs based on what employers request.

Economic Impact 

Community colleges are increasingly central to the economic wellbeing of their states, Shaw said.

Reporters can examine the economic impact of community colleges in various ways, such as student spending in the state and lifetime earnings for students. 

Speaker Presentation 

Kate Shaw, HCM Strategists: “Brief Overview of Community College Funding.”