1 Tennessee Higher Education Commission Tennessee’s Outcomes-Based Funding Formula AASCU –...

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Tennessee Higher Education Commission

Tennessee’s Outcomes-Based Funding Formula

AASCU – December 1, 2011

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TN Finance Policy Overview

• For decades, TN operated an enrollment-based funding formula for higher education, with a 5% Performance Funding add-on.

• Recently, the policy focus has shifted from enrollment to productivity (educational attainment and workforce preparation).

• In response, states have altered Performance Funding programs or added productivity incentives to existing models.

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• However, enrollment is still the basis of these models. The vast majority of funding is still distributed as a function of enrollment.

• There is a disconnect between the state policy focus (productivity) and the finance policy instrument (enrollment).

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• TN completely threw out its enrollment model and started over, building from scratch an outcomes-based model that is unique in higher education policy.

• Key features: exclusive use of outcomes, in lieu of enrollments; institution specific weighting structure for the outcomes; end of entitlement approach to funding.

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Tennessee Finance Policy Genesis

• In 2009, THEC proposed to former Governor Phil Bredesen a new incentive structure – an outcomes-based funding formula that would replace the enrollment based funding formula.

• Gov. Bredesen included THEC’s idea of an outcomes-based model in a proposal for higher education reforms that he made to the Legislature.

• In January 2010, Tennessee passed the “Complete College Tennessee Act” which called for the creation of an outcomes-based funding formula.

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• This is not a reform to TN’s long-standing Performance Funding program.

• The outcomes-based model completely replaces the enrollment-based model.

• Enrollment, beginning or end of term, simply no longer factors into TN higher education state funding.

• The outcomes model is not for the allocation of any new state funding, but for all state funding.

TN Outcomes-Based Formula

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OutcomeStudent Progression: 24 Credit HoursStudent Progression: 48 Credit HoursStudent Progression: 72 Credit Hours

Bachelors DegreesMasters Degrees

Doctoral/Law DegreesResearch/Grant Funding

Student TransfersDegrees per 100 FTE

Graduation Rate

Universities

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OutcomeStudents Accumulating 12 hrsStudents Accumulating 24 hrsStudents Accumulating 36 hrs

Dual EnrollmentAssociatesCertificates

Job PlacementsRemedial & Developmental Success

Student TransfersWorkforce Training (Contact Hours)

Awards per 100 FTE

Community Colleges

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• The outcomes-based model “weights” outcomes differently by institution.

• For instance, as graduate degrees and research have a larger role in institutional mission, they are weighted more heavily in the model.

• This weighting feature allowed the model to be designed specifically to an institution’s mission.



Bachelors degrees; little research/doctoral degrees

Extensive doctoral degrees and emphasis on research

Weights Based on Institutional Mission APSU UTM TTU UTC MTSU ETSU TSU UM UTKStudent Progression: 24 Credit Hours 3% 3% 3% 3% 3% 3% 3% 2% 2%Student Progression: 48 Credit Hours 5% 5% 5% 5% 5% 5% 5% 3% 3%Student Progression: 72 Credit Hours 7% 7% 7% 7% 7% 7% 7% 5% 5%

Bachelors Degrees 30% 30% 25% 25% 25% 25% 25% 25% 15%Masters Degrees 15% 15% 15% 15% 15% 15% 15% 15% 15%

Doctoral/Law Degrees 0% 0% 5% 5% 5% 7.5% 7.5% 10% 10%Research/Grant Funding 10% 10% 10% 10% 10% 12.5% 12.5% 12.5% 15%

Student Transfers 10% 10% 10% 10% 10% 5% 5% 5% 5%Degrees per 100 FTE 15% 15% 10% 10% 10% 10% 10% 10% 10%

Graduation Rate 5% 5% 10% 10% 10% 10% 10% 12.5% 20%100% 100% 100% 100% 100% 100% 100% 100% 100%

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• All state funding is back up for grabs every year.

• No institution is entitled to some minimal level of appropriations that is based on prior-year funding.

• State appropriations have to be earned anew each year.

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• THEC convened a Formula Review Committee to discuss and debate the new formula design.

• The committee included representatives from higher education and state government.

• The committee included people with vastly different views on higher education.

• Broad consensus on the philosophy and principles of new outcomes-based formula model.

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• Institutions played a key role in the process.

• Selected campus presidents, CFOs and provosts were members of the Formula Review Committee.

• Presidents/chancellors were queried for their suggestions on what outcomes to include and the priority of the outcome.

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• Multiple Formula Review Committee (FRC) meetings

• Explicit institutional feedback and input

• Regional town halls

• Staff background briefings with governing boards, Constitutional officers and legislative members

• Campus visits and consultations

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Developing a New Formula Model

• THEC staff back-tested model designs by simulating the formula calculations for three prior years.

• This provided comfort that the new design was stable and that the new model’s behavior was properly understood.

• Once the outcomes model was finalized, THEC staff developed a projection tool, a Dynamic Formula Model, that allowed the user to simulate the effect of future changes in productivity.

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Outcomes Based Model Advantages

• The outcomes model is linked directly to the educational attainment goals of TN’s Public Agenda.

• The outcomes model establishes a framework for government to have an ongoing policy discussion with higher education.

• The model is adjustable to account for new outcomes or a different policy focus (changing the weights).

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Outcomes Based Model Advantages

• Emphasizes unique institutional mission.

• More transparent and simpler for state government.

• Does not penalize failure to achieve pre-determined goals.

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Lessons Learned in Tennessee

• Go Big. Even a clever PF program at 5% is swamped by the other 95% that is based on enrollment.

• Smooth transition from old to new rules of the game.

• Proper engineering/Back testing.

• Transparency in intention and design.

• Institutions must help shape the finance policy (in TN’s case, the outcomes and the weights).

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Lessons Learned in Tennessee

• Key philosophical and practical impediments to traditional Performance Funding paradigm:

• An institutional reluctance to put state funding at risk;

• Attempts at large-scale PF designs have been too volatile and complex (see South Carolina in the 1990s).

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TN Outcomes Formula

• Extensive information, including the outcomes-based formula, are available on the THEC homepage.

• tn.gov/thec

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Russ Deaton, Ph.D.Associate Executive Director for Fiscal Policy & Administration

Tennessee Higher Education Commission404 James Robertson Parkway, Suite 1900

Nashville, TN 37243-0830615-532-3860

[email protected]

Date post:	31-Mar-2015
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1 Tennessee Higher Education Commission Tennessee’s Outcomes-Based Funding Formula AASCU –...

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