A Hopeful First Year for New Texas Funding Model

Texas community colleges underwent a radical shift last year as the state ditched its old funding structure in favor of a new, ambitious performance-based model.

Community college leaders say that, so far, the change seems to be paying off.

Signed into law last summer, the new structure earned unanimous support from leaders of the state’s 50 community colleges—as well as the trepidation that comes with so significant a change.

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The goal of the new model is to incentivize community colleges to improve student outcomes and provide them with the cash to do so, rather than base funding on student credit hours, which makes funding heavily dependent on enrollments. To achieve that, state lawmakers budgeted $210 million more for community colleges in fiscal year 2024 than the previous year, according to documents from the Texas Higher Education Coordinating Board.

“This innovative funding will help community colleges make strategic decisions about how they best prepare their students to successfully enter the workforce or successfully transfer to a four-year university after graduation and ensure that all students are set up for success,” said Woody Hunt, chair of the Texas Commission on Community College Finance, in a statement last summer. “This will strengthen our state and workforce for generations to come.”

While much about the model’s effects are still unfolding and unknown, a year later, campus leaders and higher ed experts are hopeful about its impact going forward.

How It Works

The new model was the brainchild of a state commission of legislators, community college presidents, business executives and policy experts, and passed last June as a part of the bipartisan House Bill 8.

Under the new plan, 95 percent of state funds are allocated to community colleges based on student success metrics, including the number of credit and noncredit “credentials of value” earned, the number of students who transferred to universities after earning 15 community college credits, and the number of high school students who earned at least 15 credits in dual enrollment programs.

Colleges also get extra funding for awarding credentials in high-demand fields, as determined by state and regional labor market data, and for enrolling low-income students, older adult learners and students who are academically underprepared. The old model based about 10 percent of funding on student success outcomes, including transfer and graduation rates.

Funds are dependent on individual colleges’ own improvement in these areas, as opposed to how they compare to other institutions. Colleges where instruction costs exceed property tax and tuition revenues also receive a base amount for operating support—a protective measure, particularly for small, rural colleges.

The legislation also created the Financial Aid for Swift Transfer program which enables low-income high school students to take dual enrollment courses for free.

How It’s Going So Far

At Austin Community College, a 14 percent boost in funding for 2024 has allowed the institution to undertake some new student success initiatives, said Jenna Cullinane Hege, vice chancellor of institutional research and analytics. She initially expected funding to stay level under the new model and was pleasantly surprised by the boost.

The college, which currently enrolls roughly 70,000 students in the state capital, is launching a pilot free-tuition program for five cohorts of high school graduates in the district, starting with the class of 2024. It’s a first-dollar program, meaning students who receive Pell Grants, financial aid for low-income students, will have tuition covered by the program and can use Pell dollars for other expenses, such as housing.

Cullinane Hege said the bulk of the funding boost comes from completion rates for credentials, particularly in high-demand fields, transfer rates and dual enrollment.

She added that institutions also get funding for noncredit continuing education programs, so the college is working to build out those offerings, ensure they meet state qualifications for funding and design them to be stackable and serve as an “on-ramp” to credit-bearing programs. In addition, Austin Community College is launching a guaranteed transfer pathway to Texas State University in the hopes of further improving transfer rates.

Cullinane Hege noted that Americans are increasingly questioning the value of higher education, and the new funding model “is really explicitly designed to help us show the return on investment for our students.”

“It’s also helping to drive really important conversations within the college,” such as which programs drive “high ROI [return on investment]” for students and should be expanded, she added.

Ray Martinez, president and CEO of the Texas Association of Community Colleges, said that in addition to undertaking new efforts to improve college access, retention and completion rates, colleges are pursuing more robust relationships with employers under the new funding structure, including through co-designed courses and new work-based learning opportunities.

“Texas has been the fastest-growing state in the nation in terms of population growth over the last decade,” he wrote in an email, which makes the new model’s emphasis on workforce training “essential to maintaining the state's robust economic growth.”

Jonathan Feinstein, Texas state director at the Education Trust, a research and policy advocacy organization focused on closing educational equity gaps, said the funding boost has been especially meaningful to community colleges as federal COVID-19 relief funds dissipate.

The new model prevents community colleges from feeling what could’ve been sharper post-COVID financial pangs and provides college leaders with “an opportunity to reflect and capitalize on some of the lessons they learned during the pandemic” about promoting student success, Feinstein said.  

He believes it’s too early to determine the full impact of the performance-based model or how its effects trickle down to students, but noted that state projections for fiscal year 2025 predict a significant overall funding increase to community colleges, an additional $43 million. While he attributes much of that bump to tweaks in the formula, he pointed to a few notable areas of growth in student outcomes: dual enrollment students who have fulfilled their 15 credits, students who earned occupational skills awards and students who are graduating with community college baccalaureate degrees.

But “I really think what you’re probably seeing is still a reflection of [the strategies and investments colleges made] prior to House Bill 8 … that are now kind of being rewarded though the formula,” he said.

The new funding model certainly came as a relief to Ron Clinton, the president of Northeast Texas Community College, which serves approximately 3,000 students in a rural area.

Clinton said the old model disadvantaged institutions like his, because Texas community colleges are funded by a combination of state funding, tuition and property tax revenues, which tend to be lower in rural areas than cities. Enrollment at NTCC—which was never large to begin with—started decreasing in 2018, according to data from the Texas Success Center. Then, during the COVID-19 pandemic, enrollment plunged, dropping nearly 8 percent between 2019 and 2020. The old model, which based roughly 90 percent of state funding on instruction hours, a metric highly dependent on enrollment, didn’t bode well for Northeast Texas.

“We really were kind of penalized, because we were competing with the larger schools … and there’s no way small rural colleges can do that,” Clinton said. While he believed his institution would survive, “many people thought that given the way things were going in terms of the old model, within 10 years or so, maybe even sooner, some of the smaller rural colleges would literally go away.”

He hoped the new model would come with a funding increase for his institution and, so far, it has. Graduation rates have been rising for several years, and dual-enrollment students now make up about 30 percent of the student body, he said. Under the new model, that progress pays; he estimated funding is more than 20 percent higher this biennium compared to last.

“It was a significant boost for us,” he said.

While some colleges got more significant funding increases than others, almost all colleges saw their state funding levels rise in fiscal year 2024 over 2023. Some colleges are expected to see declines in performance-based funding for fiscal year 2025 but, for the first two years of the new formula, they are guaranteed an amount to avoid funding losses. Meanwhile, the Texas Higher Education Coordinating Board is still hashing out some details for how funding will work next fiscal year, with plans to release a final formula for that year later this month.

Clinton said that uncertainty is “a little scary,” but it’s a “healthy anxiety,” and he’s confident Northeast Texas will hit its projections for student-success metrics. He noted that college officials have done a lot of work to improve student supports, partly in preparation for the model. Northeast Texas recently added mental health resources to its campus Care Center, launched a more high-touch advising model and adopted a new CRM system this year to better track student-success data and enable student- services staff, instructors and others to access information about student needs.

Performance-based funding “has been a catalyst for us to continue doing even more for our students,” Clinton said. “That’s been a big, big transformation."