Don’t Dismiss Performance Funding

A recent research paper published by the Wisconsin Center for the Advancement of Postsecondary Education and reported on by Inside Higher Ed criticized states' efforts to fund higher education based in part on outcomes, in addition to enrollment. The authors, David Tandberg and Nicholas Hillman, hoped to provide a "cautionary tale" for those looking to performance funding as a "quick fix."

While we agree that performance-based funding is not the only mechanism for driving change, what we certainly do not need are impulsive conclusions that ignore positive results and financial context. With serious problems plaguing American higher education, accompanied by equally serious efforts across the country to address them, it is disheartening to see a flawed piece of research mischaracterize the work on finance reform and potentially set back one important effort, among many, to improve student success in postsecondary education.

As two individuals who have studied performance funding in depth, we know that performance funding is a piece of the puzzle that can provide an intuitive, effective incentive for adopting best practices for student success and encourage others to do so. Our perspective is based on the logical belief that tying some funding dollars to results will provide an incentive to pursue those results. This approach should not be dismissed in one fell swoop. 

We are dismayed that the authors were willing to assert an authoritative conclusion from such simplistic research. The study compares outcomes of states "where the policy was in force" to those where it was not -- as if "performance funding" is a monolithic policy everywhere it has been adopted.

The authors failed to differentiate among states in terms of when performance funding was implemented, how much money is at stake, whether performance funds are "add ins" or part of base funding formulas, the metrics used to define and measure "performance," and the extent to which "stop loss" provisions have limited actual change in allocations. These are critical design issues that vary widely and that have evolved dramatically over the 20-year period the authors used to decide if "the policy was in force" or not.

Treating this diverse array of unique approaches as one policy ignores the thoughtful work that educators and policy makers are currently engaged in to learn from past mistakes and to improve the design of performance funding systems. Even a well-designed study would probably fail to reveal positive impacts yet, as states are only now trying out new and better approaches -- certainly not the "rush" to adopting a "quick fix" that the authors assert. It could just as easily be argued that more traditional funding models actually harm institutions trying to make difficult and necessary changes in the best interest of students and their success (see here and here).

The simplistic approach is exacerbated by two other design problems. First, we find errors in the map indicating the status of performance funding. Texas, for example, has only recently implemented (passed in spring 2013) a performance funding model for its community colleges; it has yet to affect any budget allocations. The recommended four-year model was not passed. Washington has a small performance funding program for its two-year colleges but none for its universities. Yet the map shows both states with performance funding operational for both two-year and four-year sectors.

Second, the only outcome examined by the authors was degree completions as it "is the only measure that is common among all states currently using performance funding." While that may be convenient for running a regression analysis, it ignores current thinking about appropriate metrics that honor different institutional missions and provide useful information to drive institutional improvement. The authors make passing reference to different measures at the end of the article but made no effort to incorporate any realism or complexities into their statistical model.

On an apparent mission to discredit performance funding, the authors showed a surprising lack of curiosity about their own findings. They found eight states where performance funding had a positive, significant effect on degree production but rather than examine why that might be, they found apparent comfort in the finding that there were "far more examples" of performance funding failing the significance tests.

"While it may be worthwhile to examine the program features of those states where performance funding had a positive impact on degree completions," they write, "the overall story of our state results serves as a cautionary tale." Mission accomplished.

In their conclusion they assert that performance funding lacks "a compelling theory of action" to explain how and why it might change institutional behaviors.

We strongly disagree. The theory of action behind performance funding is simple: financial incentives shape behaviors. Anyone doubting the conceptual soundness of performance funding is, in effect, doubting that people respond to fiscal incentives. The indisputable evidence that incentives matter in higher education is the overwhelming priority and attention that postsecondary faculty and staff have placed, over the years, on increasing enrollments and meeting enrollment targets, with enrollment-driven budgets.

The logic of performance funding is simply that adding incentives for specified outcomes would encourage individuals to redirect a portion of that priority and attention to achieving those outcomes. Accepting this logic is to affirm the potential of performance funding to change institutional behaviors and student outcomes. It is not to defend any and all versions of performance funding that have been implemented, many of which have been poorly done. And it is not to criticize the daily efforts of faculty and staff, who are committed to student success but cannot be faulted for doing what matters to maintain budgets.

Surely there are other means -- and more powerful means -- to achieve state and national goals of improving student success, as the authors assert. But just as surely it makes sense to align state investments with the student success outcomes that we all seek.