Is Performance-Based Funding in Higher Education a Good Idea?

Amy Heath Michigan State University Research Paper EAD 876 Budgeting and Finance in Higher Education

Abstract: In this paper I discuss current issues surrounding performance-based funding and research ways this policy could successfully be implemented. I sought to provide answers to the broad question, Is performance-based funding in higher education a good idea? by using research to related to the following questions: Why do performance-based funding policies become adopted and abandoned?

What creates problems with performance-based initiatives? and What actions can be taken to create and promote a long lasting performance-based funding program? My suggestions mainly stem from research, but are also gleaned from insight and perspectives gained through occupying shifting institutional roles and as an active participant in the educational system for over a decade.

2 Making Performance Based Funding in Higher Education a Good Idea

Is Performance Based-Funding in Higher Education a Good Idea? Whats wrong with the current system? Burke, a leading researcher on accountability measures in higher education, discussed performance-based funding to an audience of university administrators. After his presentation, one administrator stood up and said sternly, What has this program done to improve the performances of colleges and universities? In response, Burke asked the question: What has traditional budgeting done after thirty years to improve campus performance? The presidents only response was, Why...traditional budgeting was never intended to improve performance. Burke just smiled and said, I rest my case (Burke, 2001). The president is meant to look foolish, however, his underlying concerns are valid. His question may have been better worded, Is performance-based funding in higher education a good idea? This is a broad question, but with all the political fervor swirling around the economic crisis, legislatures may be anxious to implement programs without full consideration of the consequences. There is a risk of rushing in and making matters worse by fixing that which is not broken, or impulsively selecting common sense answers without research to back them. Albright warns us during her presentation, Promoting Degree Completion through Financial Incentives to both Institutions and Students that programs are, difficult to design and require technical expertise early in the process (2009, slide 16). Research related to whether or not performance-based funding is a good idea, seems to convey that this depends how and where it is implemented. Perhaps the president should have asked this question, Is performance-based funding a good idea for my state and my institution?

3 Making Performance Based Funding in Higher Education a Good Idea One thing we do know is that many states are toting an abysmal graduation rate, and it seems to be getting worse not better. Alexander Astin (1985) referenced the current Resource Reputation Model as a major deterrent to true institutional quality. In this model a good university is determined by the following: Quality of resources, students entering and reputation of the faculty. How the university provides services or utilizes resources for the betterment of society and the student body is not a factor (Sweitzer, 2008). In addition, most colleges are funded based on enrollment, not completion rates (Crellin, Aaron, Mabe, & Wilk, 2011). According to Complete College America, nearly one in two students pursuing a bachelors degree will not obtain a college credential and even lower graduation rates exist in our public community college system. Meanwhile, most states assign funding to colleges and universities based on enrollment numbers, with few incentives for completion, be it by semester, year or degree (Crellin et al., 2011, p.3). This means that a university may feel more pressure to get students to move in to a university, then to support them moving on. The current system also creates educational access and equity problems by differentiating fund allocation between part-time and full-time status. Many students are forced into half-time status by external pressures. This method also limits accessibility for adults with children. Therefore, providing more state funding for full-time student enrollments may discourage programs from offering part-time degree options, creating educational obtainment issues for many students (Salmi & Hauptman, 2006). These issues coupled with ever climbing tuition rates, make public universities vulnerable to doubt and public scrutiny. Ohio ranked 41st for graduation rates, but surpassed the national tuition rate by 40%. With such a gap between tuition and attainment, there is little wonder why some states are investigating and adopting performance-based funding measures (Crellin et al., 2011, p.4). Why Do Performance-Based Funding Policies Become Adopted and Abandoned?

4 Making Performance Based Funding in Higher Education a Good Idea The question on many voters and legislatures minds during this time of economic crisis is, If colleges have no external regulation or incentive to support success through completionshould we trust them to place this standard on themselves? Many say no, seeing potential for lax admission standards or suspect practices contrary to the public good and wasteful with public investments. This is especially dangerous, as universities begin competing with one another for diminishing state funds. Public criticism of higher education has mounted: Institutional costs are deemed to be out of control and to be caused by agendas that are foreign to public interests (Ibid) (Burke, 2001, p.4). Universities resist limiting themselves for efficiency, as they are not held to the same market economy as other businesses. As university funding is derived from state appropriations or donor gifts, and its desirability rests in prestige not price, there is little incentive to change (Greene, 2010). In fact, the rules of value-cost- trade-off - the belief that high value equates to high cost (Kim & Renee, 2005) and the cost model - which includes the belief that decreased financing equates to decreased quality (Jones & Wellman, 2010) may actually provide incentives for high tuition costs and spending. Parents and students will question a universitys quality and prestige if the cost is not high enough. Why then, should an institution work to lower tuition costs? The resistance of campuses to focus on results led to increasing criticism both in state governments and the business (Burke, 2001, p. 4). Waxing and Waning Public and Political Interest Performance funding is nothing new and has been a hot political topic for years, gaining strength in the 1970s with Assessment Standards, and changing to Performance Reporting in the 90s. Performance Funding has a bit more sting than Performance Reporting in that the former gives funding for results, not promises (Burke, 2001). States have been riding a pendulum between stringent and less stringent policies for years.

5 Making Performance Based Funding in Higher Education a Good Idea Waxing and waning of interest occurs for various reasons, but often has much to do with states observing neighboring states success in implementation. There is a sort of regional keeping up with the Joneses that may occur, as one state adopts or abandons a performance-based funding policy causing other nearby states to follow suit. This frame works for explaining both policy adoption and policy failure. In the latter case, policy abandonment, or information about implementation difficulties in other states may trigger a similar response in the given state (Gorbunov, 2010, p. 5). However, further studies have proven that this may not be as strong of an influence as originally thought. Performance-based funding began moving back to forefront of politics when the economy began increasing the need for educational attainment, while decreasing each familys ability to pay for it. The nation began recognizing our slipping rank in international degree attainment rates. Obama stated, We must reverse a trend that has put the nation in a four-way tie of 10th for the percentage of population (ages 25 and 34) with a college degree (Albright, 2009, slide 4). Remarkably, this demand occurred in tandem with intense higher education cutbacks to balance the state budget. In this political dichotomy, an environment was created for performance-based funding to be evaluated or re-evaluated in many states (Gorbunov, 2010). The public and the state began wanting more for less and wondering if less was more. Continuous Institutional Inefficiencies As stated above, many believe colleges are not as efficient as they ought to or could be. Some go as far as deeming universities too self-assured and too complex. The fact that higher education has high barriers to entry and competes on decades (or centuries) of accumulated status rather than price gives universities little incentive to economize (Greene, 2010, p.16) The article Administrative Bloat at American Universities: The Real Reason for High Costs in Higher Education (Green, 2010) refers to the inefficiencies of higher

6 Making Performance Based Funding in Higher Education a Good Idea education and its failure to emulate successful business models. Where most businesses streamline and minimize employees and spending over time, universities, on the other hand, have done just the opposite. The article continues, They also all significantly increased the tuition they charge their students. And what taxpayers and students received in return was more administrators and fewer teachers - probably not what they had in mind (Greene, 2010, p.11). Ethics come into question when institutions increase fees instead of tuition, creating a deceptive means of building revenue. Productivity is questioned when the institutions aimed at preparing us for the real world are technologically running at a snails pace behind it (Kim, 2010). Universities may rightfully claim that these are the consequences of dramatic decreases in state funding. However, this is of little consolation to the students and parents who are left to take up the slack. As growing numbers of taxpayers become dissatisfied and disenchanted with their public institutions, they become more likely to bring this issue to the voting booth. Unfortunately, those who question if the universities aims are in line with their own, often feel powerless to contest the steadfastness of the institution. Ineffective university operations will most likely outlive the disenchanted students academic career and the careers of the legislatures who represent them. Lack of Cooperation from Intuitions vs. The Temporary Status of Government Officials A major reason for the abandonment of performance-based funding policy relates to the lack of cooperation from institutions, coupled with the temporary status of government officials who would push for reforms. As representatives rotate in and out of office, the newly elected officials may change a significant amount of a previous candidates policy. States with terms limits, and that is, with less professional legislatures, are found to be 3.5-4 times more likely to adopt (readopt) performance funding than their counterparts

7 Making Performance Based Funding in Higher Education a Good Idea (Gorbunov, 2010, p. 28). However, these new laws may work for students in differing ways or become confused over time in the slow-to-change bureaucracy of the institution. Often times the institutions displeasure with regulation lasts longer than the terms of those who instigated the policy. The temporary nature of the budget proviso tends to create ease in dismissing unpopular funding standards. If an institution disapproves of a certain performance-funding measure, university representatives can just wait for the election of a new candidate. When this new candidate arrives (anxious to not create enemies too early) representatives just request that the wearisome measure not be added to the next round of policy evaluations. Students are left with laws that shift in and out of their favor. There is also a partisan preference for adoption and abandonment of performancebased funding policies, with republicans more often favoring adoption. Democrat voters in favor of these measures may be forced to weigh the issues and choose between voter loyalty and policy adoption. Economic Shifts As the economy is based more and more on knowledge workers, businesses and states are pushing for educated workers in high need areas, such as math and science. State demands are increasing for institutions to act as economic buffers, not drains (Albright, 2009). Gorbunov (2010) supports this claim by pointing out past and current trends, The economic motivation of the states became more pronounced; it drives states to pressure institutions to become more efficient and productive in the use of public resources. He continues, Governments expect higher education to play a key role in creating highly performing economies (p. 4). Mechanism Characteristics Leading to Program Adoption, Continuance or Demise There is variance between types of traditional budgeting and performance-based funding methods. Analysis of differing budgeting mechanisms demonstrates that they do not

8 Making Performance Based Funding in Higher Education a Good Idea share the same effectiveness. Programs run risk of abandonment when the right mechanism is selected for the wrong objective, or the right objective is coupled with the wrong mechanism. Examples of traditional funding mechanisms include: Negotiated (ad hoc) Budgets, Categorical Funds, and Funding Formulas. Negotiated funds are the most traditional method and include the restrictive Line-Item Budgets- which tell an institution exactly how to use allocated funds, and the less restrictive Block Grants- where blocks of money are tentatively given with more flexibility in spending. Categorical/Earmarked Funds involve funding for specific purposes, usually intended to ameliorate some previously neglected institution by location or population served. The last traditional mechanism, Funding formulas, include some form mathematical measurement to determine the allocation of funds, such as student and staff inputs or other predetermined criteria (Salmi & Hauptman, 2006). The above traditional standards are often included in performance-based indicators and may be easily confused as such. However, when economic and political shifts began requiring more accountability, states began seeking ways to make these standards more measurable, stringent, and results driven. Hauptman (2005) states that performance-based funding mechanisms as a whole have several advantages over other systems. Performancebased mechanisms, ...tend to be more transparent...allow for greater linkage between funding and public policy objectives (and) encourage greater accountability in the expenditure of public funds by linking results to funding levels (slide 4). Salmi and Haumptman (2006) studied performance-based measures by category in order to evaluate each mechanisms success regarding performance goals and objectives. These categories include: Performance contracts- where governments enter into regulatory agreements with institutions to set performance-based objectives, Performance set-asides-

9 Making Performance Based Funding in Higher Education a Good Idea where a portion of public funding is set aside and paid when performance measures are met, Competitive funds- where peer-reviewed proposals are used as evaluative measures on whether or not agreements are met, and Payments for results" where output or outcome measures are used to determine all or a portion of the funds that institutions receive either through a formula or as a separate set of payments ( p. 24). In their study, Salmi & Haumptman (2006) discovered that each performance-funding mechanism had possibilities for adoption and continuance or abandonment and dismissal. When used, Performance Based Contracts are often seen as punitive and resembling their restrictive Line-Item predecessors. Performance contracts require a strong governmental body and decisive allocation by incentives or penalties. In fact, the selection of funding by incentives or penalties has a major impact on a programs longevity (Albright, 2009). Performance contracts are often adopted as an internal efficiency measure to moderate costs. Colorado and Virginia have adopted this system for these purposes. Performance set-asides can act a happy medium between restrictive line-item budgets and laissez faire budgeting methods. Their success is determined by how the money is set aside and inclusion of an appropriate number of indicators. Adoption or abandonment depends upon whether a healthy or unhealthy competition is fostered between institutions and how each criterion is monitored (there is no funding formula included in this mechanism). More often than not, these set-aside funds equate to a small amount money used for re-occurring costs (usually less than five percent), so this mechanism is adopted to avoid the variability of other performance-based funding measures. However, if the performance objective is intended as a push for change, this percentage may be too low to create sufficient institutional impact. Institutions may avoid this pressure by simply replacing funds lost (Crellin et al., 2011). States that have adopted this method include: Missouri, New Jersey, Tennessee, South Carolina, and Ohio.

10 Making Performance Based Funding in Higher Education a Good Idea Competitive funds were deemed as ... one of the best allocation mechanisms for funding quality improvement and innovation. It is often adopted when performance objectives are focused on improving quality and relevance and fostering better management (Salmi & Haumptman, 2006, p. 22). The Competitive funds mechanism allows for ease in modifications, further adding to its desirability for adoption. However, if changes are made without inclusion or timely notification of the institutions involved, this type of measure runs the risk of abandonment due to institutional frustrations incurred. This program may also promote misplaced competitiveness by rewarding universities for strong proposal writing skills, not by actual need or accomplishment. Internationally: Argentina, Bolivia, Bulgaria, Chile, Ghana, Hungary,Indonesia, Mozambique, and Sri Lanka, all use this method. The Fund for the Improvement of Post-secondary Education advocates the use of this mechanism here in the US (Salmi & Haumptman, 2006). The Payments for Results Model is the choice that disenchants many academics at the university, as it is a purely market-based system. However this method is popular to those who feel the institution should function within a business model. States that adopt this method feel that competition will sharpen higher educations customer responsiveness. However, this model is risky and leaves a very wide open door for market abuses, such as low quality programs tailored only for government money allocation. Internationally, Denmark, England, Israel and the Netherlands all use this method and Colorado utilizes it stateside. When investigating which programs worked best, studies demonstrated that the determining factors for adoption or abandonment, were not related to any specific mechanism chosen, but if the program only used one specific mechanism. They found that choosing both

11 Making Performance Based Funding in Higher Education a Good Idea traditional and performance based mechanisms in combination or mixing different performance-funding methods was a major factor in a programs continuance and durability. Also, there seemed to be no magical mechanism for all goals. Certain mechanisms are better at meeting certain performance objectives than others. For example, studies demonstrated that use of competitive funds would achieve external efficiency goals of improving quality and relevance, but would have little effect on internal efficiency goals of cost moderation (Salmi & Haumptman, 2006, p.94). The study also agreed with Albrights (2009) presentation, that careful selection of policy objectives (and ensuring policies chosen are not too restrictive) might be more important than the actual mechanism matched to it. What Causes Problems with Performance-Based Funding Initiatives? With the growing public and legislative support for performance-based funding measures, it may seem confusing that they experience such a high pattern of termination or are dismissed from being adopted at all. Lederman (2008) stated in his Inside Higher Ed article entitled, Performance Funding 2.0,Today, only a handful of states base funding on performance, and those that do make only a small fraction of available dollars contingent on results (para. 7). Perhaps this is due to problems with the implementation of these programs. While Performance-based funding measures have benefits, they also have disadvantages. Haumptman (2005) states that performance-based funding measures tend to be more inflexible in their application and can lead to greater year-to-year variation in funding if performance results vary. Also, leaders fear discouragement of institutional diversity as colleges and universities become more heterogeneous in order to compete and match state incentives (slide 5). Dougherty & Natow (2009) conducted a study identifying factors that led to problems with performance-based funding programs and found that lack of institutional support and

12 Making Performance Based Funding in Higher Education a Good Idea sharp reductions in state funding were major determining factors in termination (Gorbunov, 2010). Other factors, which negatively reflect on performance-based funding programs, are provided as follows. Misunderstandings Between States Intent and Institutional Perspectives Problems occur when institutions misunderstand the legislatures intent and legislatures fail to see restrictions from an institutional perspective. For example, the Baseplus financing belief is pervasive throughout university spending culture. This system views increases in base funds as a given and not as real increases (Jones, & Wellman, 2010). Therefore, taking money away from the base fund is seen as a great penalty and adding to it is just business as usual. An analysis of differing results from two programs in the state of Florida demonstrates this point well. The Work Force Development Fund (which was eventually abandoned) differed from the Performance Based Budgeting Fund (which is still functioning) in that the former subtracted money from existing funds when improvements were not seen. Institutions under the WFDF were expected to win lost money back by meeting performance objectives. Institutions harboring resentment towards this policy pushed for proviso removal after its instigators term limits had passed. Institutions felt insulted and punished. Restrictions were seen as meddling by the state for economic and cost saving purposes, not as a way of ensuring institutional quality (Dougherty & Natow, 2009). States, on the other hand, may falsely assume that a financial sanction will correct Institutional unethical behavior. What the legislature may forget is that an institution is composed of people, and that these individuals may or may not even be aware that sanctions are in place. In addition, studies have shown that sanctions for unethical behavior are not necessarily a deterrent. One study conducted by Bazerman, and Tenbrunsel (2011) demonstrated that when participates faced fines for poor compliance with an agreement, they

13 Making Performance Based Funding in Higher Education a Good Idea cheated more often. The financial sanction made the behavior an economic decision, not ethical one. When one considers the Base-plus financing belief stated above, it makes logical sense to speculate that reductions in base funds may also trigger this response in institutional members. Some universities claim that it is impossible to create standards for all Institutions, since they are so different in their mission statements and in their goals. However, critics question this as being a viable excuse, as most universities share the same degree programs (Burke, 2001). In fact, universities themselves seem to switch arguments when comparing one another in marketing strategies or when pushing for performance funding abandonment. Some schools try to point to an unsuccessful program at another university as evidence that the program will not work at their institution. Universities also claim that it is very difficult to research what works, as programs often make policy adjustments midway and student populations vary so much by location. This lack of research and consistency creates few precedents universities and states can use for designing practical, low-risk, performancebased funding programs (Gorbunov, 2010).

Lack of Research or Precedents Create Programs with Contrary Results Due to lack of consistent research, policy criteria may actually achieve results opposite to the programs intended goals. For example, utilizing graduation rates or testing as a performance measure can penalize schools that accept at-risk students, one of the targets performance-based funding is intended to reward. Institutions in Colorado were effected by this phenomenon. Statistical analysis indicated that almost 70% of the variation in students GRE scores could be attributed to students ACT scores. Problems occurred when the states performance funding model rewarded higher or improving GRE scores at a flat rate for all institutions, ...research institutions attracted higher-achieving students (as measured

14 Making Performance Based Funding in Higher Education a Good Idea by ACT scores) thereby allowing those institutions to reap the rewards of the performancefunding model simply because of the type of students they served (Bridges & Billington, 2000, para.11). Similar results were found in Ohio where the same program funding formula that granted more funding to Ohio State University for enrolling at-risk students, resulted in funding cutbacks for three open-enrollment universities who traditionally served underrepresented student populations. ...Shawnee State, Youngstown State and Central State Universities. All three are open-enrollment institutions that often cater to traditionally underserved and first-generation students. Central State is also a historically black university (Moltz, 2009 para. 13) Equally problematic is the policy of rewarding high student enrollments with funding. This performance standard may cause intuitions to engage in expensive and exorbitant recruiting tactics. These tactics defeat the hope that tuition from high enrollments will offset cuts and diminish the need for state funding. Accessibility is once again negatively affected, as the resulting tuition hikes increase the educational attainment gaps between student populations (Crellin et al., 2011). What Actions can be Taken to Create and Promote a Long Lasting Performance-Based Funding Program? Burke does not question whether or not performance funding will become common policy, what he asks is if institutional researchers will lead or leave the action on accountability to outsiders. (Burke, 2001, p.21) A review of the literature finds that stable programs exhibit the following behaviors and traits: Careful Planning and Implementation with Quality Stressed Over Efficiency; A Sense of Improving Higher Education with Demonstrated Accountability Rewarded by Increased Funding From the State;

15 Making Performance Based Funding in Higher Education a Good Idea Accepting Input From All Participants Effected by and Contributing to the Performance-Based Funding Policy and its Success; Keep Performance Funding Indicators Simple, Clear, and Prioritize Objectives (Stein, 2005; Dougherty & Natow, 2009). Careful Planning and Implementation with Quality Stressed Over Efficiency As weve seen, the current business-as-usual formula places too much emphasis on enrollments. Albright (2009) suggests shifting to performance-based funding formulas that support timely course and degree completions. Utahs policies resonate with Albrights findings and may eventually become a model for other states to follow. Utah allocates performance-based funding by the average credits to graduation divided by total credit hours required. When this ratio decreases, the university knows the criterion aimed at promoting a timely graduation has been met. However, this formula may pose problems for first generation or part-time students. A Sense of Improving Higher Education with Demonstrated Accountability Rewarded by Increased Funding From the State Washington's community and technical colleges will receive extra money for students who earn their first 15 and first 30 college credits, earn their first 5 credits of college-level math, pass a pre-college writing or math course, make significant gains in certain basic skills tests, earn a degree or complete a certificate. Colleges also will be rewarded for students who earn a GED through their programs. All of these benchmarks are important accomplishments that help propel students forward on the road of higher education (Boggs and Seltzer, 2008, para. 4). Washingtons system solves the issues related to at-risk students and graduation rates by rewarding each step a student achieves while progressing towards their degree. Kentucky also utilizes a needs-based-benchmark system. Providers qualify for a state-funded incentive grant if they meet 100 percent of the annual

16 Making Performance Based Funding in Higher Education a Good Idea state enrollment goals for adult populations and at least 50 percent of performance benchmarks across 15 key performance areas (Klein, 2005 p. 19). Funding increases (or reductions) need to be enough of an addition (or subtraction) to the Base funds to create an impact. If it is not at least a 2-5% increase it is not enough of an incentive to incite change. Some researchers suggested using a small incentive that will increase over time. Dedicate 5% of funding that compounds annually to go toward a performance-based system. A modest percentage is critical to sustainability and a cumulative effect will prove to act as a large enough incentive for most colleges and universities (Crellin et al., 2011, p.16) Funding similar to the benchmark system in Washington would provide substantial incentive and financial support for meeting both the state and institutions educational accessibility goals. Washingtons performance-based policy distinguishes between research and non-research institutions and the ending point of a students progress is compared to that students starting point (Boggs and Seltzer, 2008). Accepting Input From All Those Effected by and Contributing to the Performance- Based Funding Policy and its Success Including staff, faculty and students into the performance based funding decision making process can greatly improve its chances of success. The Myth of Performance Funding in Higher Education by Bridges and Billington (2000), states the seemingly obvious fact that the true change agents for an institutions success are the faculty, who are seldom included in incentive policies. Burk states that, Professors are unlikely to pay attention to performance programs that neither publicize or reward their own performance (Burke, 2001, p.20). Including those oft-forgotten members of the university with the most direct contact with students could potentially have the most direct influence over improvement. However, when considering institutional representation on boards, Gorbunov (2010) pointed out that boards tend to negatively influence the adoption of performance-

17 Making Performance Based Funding in Higher Education a Good Idea based funding measures. Therefore, boards may not create better policies, as it is unlikely these boards would adopt performance-based funding measures in the first place. When considering students, attendance rates at the end of class could be used as a new enrollment standard. In Ledermans (2008) article he discussed David Wright, the associate executive director of the Tennessee Higher Education Commission, and his perspectives on this issue. Wright stated Right now colleges receive formula funds based on the number of students who are enrolled on the 14th day of class in a given semester. How different would it be, Wright wondered, if institutions instead received funds based on how many students were enrolled at the end of that first semester (para. 15). I agree with what Wright is hinting at, although surveys are useful, many students speak better with their feet. Surveys do help, however, and staff and faculty both support the use of student satisfaction surveys. This was among the nine agreed upon methods of measuring performance reported by both Universities and Community Colleges (Burke, 2001). Contrary to popular belief, staff members are not in opposition to performance-based measures, but are skeptical of their usual means of implementation. When the staff at Ohio University was informed of a new system of weighting at-risk students differently than traditional students in order to encourage equitable educational access, most felt that this was a positive direction for the university (Moltz, 2009). With regards to performance measures for faculty, there was little opposition here as well. Moltz (2009) commented on how Russ Harris, an association government services consultant, claimed no significant opposition to the move among faculty. Faculty dont feel threatened...there will be better advising, better decisions and more time will be spent laying out study and career paths (para. 11) Burke (2001) collected performance-funding suggestions from faculty and staff at community colleges and universities. Contrary to the popular belief that these institutions vary greatly in aims, both agreed on nine out of ten measures. Universities, however, leaned

18 Making Performance Based Funding in Higher Education a Good Idea more towards performance measures based on retention/graduation and external peer reviews, whereas community colleges preferred job placement, student access, and satisfaction surveys. Keep Performance Funding Indicators Simple, Clear, and Prioritize Objectives Interestingly Arizona and Massachusetts have included a good number of the researchers criteria into their performance-based funding standards. However, Massachusetts may still run into some trouble as its policy proposal including 38 different standards. Most researchers state that in order to last, whatever program, mechanisms, or standards selected should be simple and easily implemented. Albright (2009) suggests keeping standards simple enough to be able to foresee potential variables, obstacles and consequences. The article Catalyst for completion: performance-based funding in higher education: a case study of three states states Keep any new system simple - less is more. Beginning with focused, readily understood goals targeted on college completion will yield the most change with minimal effort. (Crellin et al., 2011, p.16) Conclusion: Review Is Performance-Based Funding in Higher Education a Good Idea? With many states toting an abysmal graduation rate coupled with ever increasing tuition rates, my answer would have to be yes. However, this is dependent on whether enough time is taken to ensure these policies are done well. Although, performance-based funding measures have researched benefits, they also have disadvantages. Haumptman (2005) states that performance-based funding measures tend to be more inflexible in their application and can lead to greater year-to-year variation in funding if performance results vary. Also, leaders fear discouragement of Institutional diversity as colleges and universities become more heterogeneous in order to compete and match state incentives (slide 5). All participants in the program must carefully consider these variables.

19 Making Performance Based Funding in Higher Education a Good Idea Flexibility for modifications, and substantial experimentation will have to take place before good models are created and tailored to specific states and universities. Still, I believe the long-term results will negate the short-term inconveniences. One of my mottos has always been, Things have to get worse before they can get better. Hauptman (2005) states that performance-based funding mechanisms as a whole have several advantages over other systems. Performance-based Mechanisms, ...tend to be more transparent... ...allow for greater linkage between funding and public policy objectives, and encourage greater accountability in the expenditure of public funds by linking results to funding levels (slide 4). In the current system, most states assign funding to colleges and universities based on enrollment numbers, with few incentives for completion, be it by semester, year or degree (Crellin et al., 2011, p.3). This means that a university may feel more pressure to get students to move in to a university, then to support them moving on. Many believe colleges are not as efficient as they ought to or could be. Some go as far as deeming universities too self-assured and too complex. The fact that higher education has high barriers to entry and competes on decades (or centuries) of accumulated status rather than price gives universities little incentive to economize (Greene, 2010, p. 16). Performance funding began moving back to the forefront of politics when the economy began increasing the need for educational attainment, while decreasing each familys ability to pay for it. The nation began recognizing our slipping rank in international degree attainment rates, while simultaneously engaging in intense educational cutbacks. The public and the state began wanting more for less and wondering if less was more. With the growing public and legislative support for performance-based funding measures, it may seem confusing that they experience such a high pattern of termination or are dismissed from being adopted at all. Lederman (2008) stated in his Inside Higher Ed

20 Making Performance Based Funding in Higher Education a Good Idea article entitled, Performance Funding 2.0,Today, only a handful of states base funding on performance, and those that do make only a small fraction of available dollars contingent on results (para. 7). I believe this is due to problems with the implementation of these programs. Again, whether or not performance-based funding in higher education is a good idea depends on how and where programs are implemented, and the selection of performance objectives these programs are intended to support. There is no magical performance-based mechanism for all goals. Certain mechanisms are better at meeting certain performance objectives than others. Albrights (2009) presentation stated that careful selection of policy objectives (and ensuring policies chosen are not too restrictive) might be more important than the actual mechanism matched to it. I am overall encouraged (though a bit cautious) by the current trends and moves towards performance-based funding measures. I will be interested in observing the future changes that will be taking place. References Albright, B. (Designer). (2009). Promoting degree completion through financial incentives to both institutions and students. [Web]. Retrieved from www.mhec.org/policyresearch/20091109albright.ppt Bazerman, M.H., & Tenbrunsel, A.E. (2011, April 20). Stumbling into bad behavior. New York Times Boggs, J.R., & Seltzer, M.B. (2008, February 28). What to measure and reward at community colleges. Inside Higher Ed, Retrieved from http://www.insidehighered.com/views/2008/02/25/boggs students. Burke, J.C. (2001). Accountability, reporting, and performance: why haven't they made a difference? Proceedings of the 39th annual conference research and planning group for community colleges (pp. 01-22). New York, NY, Philadelphia, PA: Ford Foundation, Pew Charitable Trusts. Crellin, M., Aaron, D., Mabe, D., & Wilk, C. New England Board of Higher Education, Policy and Research. (2011). Catalyst for completion: performance-based funding in higher education: a case study of three states. Boston, MA: Policy and Research.

21 Making Performance Based Funding in Higher Education a Good Idea Direct Bridges, G.L., & Billington, P. (2000). The myth of performance funding in higher education. Unpublished manuscript, College of Business, University of Southern Colorado, Pueblo, Colorado. Retrieved from http://faculty.business.utsa.edu/gbridges/maui.html Dougherty, K.J., & Natow, R.S. (2009). The demise of higher education performance funding systems in three states . Community College Research Center, 41. Retrieved from http://ccrc.tc.columbia.edu/Publication.asp?UID=694 Gorbunov, A.V. (2010). The rise and fall of performance funding: antecedents of policy adoption and failure in higher education. Tennessee Higher Education Commission Greene, J.P., Kisida, B., & Mills, J. (2010). Administrative bloat at american universities: the real reason for high costs in higher education. Department of Education, University of Arkansas, Fayetteville, Arkansas. Retrieved from http://www.goldwaterinstitute.org/aboutgoldwater Hauptman, A.M. (Designer). (2005). Performance-based funding in higher education. [Web]. Retrieved from www2.montana.edu/../Performance-Based%20Funding%20in%20Higher %20Education-1%20(2).ppt Jones, D., & Wellman, J. (2010, May/June). Breaking bad habits: navigating the financial crisis. Breaking Bad Habits: Navigating the Financial Crisis, Retrieved from http://www.changemag.org/Archives/Back%20Issues/May-June%202010/breaking-badfull.html Kim, C.W., & Renee, M. (2005). Blue ocean strategy. Boston, MA: Havard Business School Publishing Corporation Kim, Paul. (2010). Is higher education evolving?. Educause Quarterly Magazine, 33(1), Retrieved from http://www.educause.edu/EDUCAUSE+Quarterly/EDUCAUSEQuarterlyMagazineVolum/Is HigherEducationEvolving/199366 Klein, S. US Department of Education, (2005). Performance-based funding in adult education: literature review and theoretical framework. Berkeley, CA: MPR Associates, Inc Lederman, Doug. (2008, December 17). Performance funding 2.0. Inside Higher Ed, Retrieved from http://www.insidehighered.com/news/2009/04/30/ohio Utah System of Higher Education, State Board of Regents, The Governors Office of Planning and Budget, the Legislative Fiscal Analysts Office and the State Legislatures Executive Appropriations Committee. (1997). Performance based funding in the utah system of higher education Salt Lake City, UT: Utah System of Higher Education. Retrieved from www.le.state.ut.us/lfa/reports/he_perf2.pdf Salmi, J., & Hauptman, A.M. (2006). Innovations in tertiary education financing: a comparative evaluation of allocation mechanisms. Education working paper series, 4, 1-98. Sweitzer, K. (2008). The correlates of prestige across graduate and professional schools. Proceedings of the 48th annual forum of the association for institutional research (pp. 1-33).

22 Making Performance Based Funding in Higher Education a Good Idea East Lansing, MI: opbweb02.dev.ais.msu.edu/../Sweitzer-ResearchinHiEdjournalarticlegraduaterankings.pdf.