Lumina Foundation Releases Papers on Outcomes-Based Funding, Public Institutions

By Allie Bidwell and Brittany Hackett, Communications Staff

The Lumina Foundation last week released a final round of papers on how public institutions are responding to state policies that move away from enrollment-based funding toward outcomes-based funding, with the ultimate goal of improving postsecondary attainment. According to Lumina, these papers "focus on how institutions can align internal finances, student supports and incentives, and educational delivery to respond to funding formulas that create incentives for on-time degree completion and year-over-year increases in the numbers of students of color and at-risk students who earn degrees or other credentials." Below are summaries of each paper.

  • “Leveraging Outcomes-Based Funding Policies At The Institutional Level,” Jose L. Cruz, California State University-Fullerton: As state outcomes-based funding policies continue to be pursued in California, Cruz outlines several strategies the University of California-Fullerton is using to position itself for success, and how other institutions can utilize the strategies to help prepare and implement outcome-based funding policies. For example, institutions can engage and mobilize campus communities to utilize outcomes-based funding policies to their benefit, and the benefit of students. Institutions can also use “actionable” data and technology tools and restructure budget processes to help meet their goals and eliminate some of the unintended consequences associated with enrollment-based funding models, Cruz wrote. He also outlines several recommendations for policymakers to consider when creating outcomes-based funding policies, including framing the policies to help institutions meet the funding metrics used in the model, while being flexible enough to help them meet their institutional missions and strategic priorities. Institutions should also be engaged in the process of developing metrics and should be given ample time to “position themselves for success” under an outcomes-based funding model, Cruz said. Policies should also promote accountability, provide flexibility, and support stable funding for the institutions.
  • “Aligning Student And Institution Incentives In Higher Education Finance,” Nate Johnson, Postsecondary Analytics, LLC: Policymakers looking to increase educational attainment and address the needs of the workforce are examining ways to change and improve the “cash-for-credit” model of higher education financing, in which revenue is derived from the number of credits students pay for. According to Johnson, higher education stakeholders – including the federal and state governments, private foundations, and systems of higher education – are looking at “testing new ways to pay institutions and support students,” including changing appropriations at the state and local levels, changing tuition and financial aid to offer students more support for short-term choices, and revising the service model for higher education so that curriculum is packaged in larger units. Policymakers and advocates for higher education can also adjust policies to better address goals regarding student completion, including recognizing the limits of what institutions can accomplish on their own and accounting for risk and reward value-added outcomes. Other things they can do include addressing financial constraints on both students and institutions, closing financial gaps, and creating short-term incentives.
  • "Connecting State and Institutional Finance Policies for Improved Higher Education Outcomes," Steve Boilard, Center for California Studies, California State University–Sacramento: In this paper, Boilard discusses how to balance state higher education goals with institutional finance policies. “Specifically, state finance policies can shape how institutions allocate funding, set tuition, administer financial aid and approach other fiscal and programmatic decisions,” Boilard writes. In order to achieve this balance, the three elements of postsecondary financing – state appropriations, tuition, and financial aid – must be aligned, Boilard writes. Initial performance-based funding models often gave schools a small reward for meeting certain performance metrics, which inadvertently encouraged the schools to lower academic standards or avoid admitting certain students. But more refined policies today “employ metrics that are well aligned with state goals, acknowledge differential costs, protect education quality, leverage the expertise and commitment of faculty and staff, and honor the unique missions of different institutions,” the paper says. Some institutions might receive more funding for positive performance outcomes of at-risk students than for other students, for example. Four key considerations to take into account when developing outcomes-based funding models, Boilard writes, are: identifying unambiguous, measurable goals; selecting metrics and collecting data; aligning accountability; and determining what portion of funding to base on outcomes. 
  • "Outcomes-Based Funding and Responsibility Center Management," Linda Kosten, University of Denver: In this paper, Kosten describes an institutional budgeting model that is gaining traction as a way to ensure the allocation of resources with outcomes-based funding models result in student success. By using Responsibility Center Management, institutions involve deans, department heads, and other mid-level managers in budgetary decisions. “By using Responsibility Center Management, college and university administrators are better able to marshal resources to help students complete their degrees and other credentials while also reaping the benefits of an outcomes-based funding system that directs public funding toward institutions that are doing just that,” the paper says. Within this system, the administrators and faculty involved will need to make decisions on: the method to be used for revenue distribution, including the use of outcomes measures to determine funding; the definition of financial units to be involved; the process for setting annual budget parameters such as tuition rates and salary increases; the allocation of shared indirect costs across units; and handling positive and negative variances from the budget. In a study examining the use of this model at 27 universities, “deans confirmed that as a result of implementing this model, they are more fiscally aware, more empowered to manage their unit, more accountable and, as a result, more entrepreneurial,” the paper says.
  • "Using Real-Time Labor Market Information to Achieve Better Labor Market Outcomes," John Dorrer, Georgetown Center on Education and the Workforce: Community colleges "are being increasingly challenged" to better connect their programs of study with economies and workplaces, especially those undergoing restructuring or increasing requirements for skills, Dorrer wrote. "[T]he growing digitization of labor markets—including Internet job postings and resumes, social media sites and social networks—offers a constant source of current data that are increasingly mined through private-sector data-aggregator analytic tools," he added. "By strengthening these functions, community colleges will be able to more tightly align curricula with the requirements of dynamic economies."


Publication Date: 7/19/2016

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