Policy Instruments in Service of Performance Funding: A Study of Performance Funding in Three States

This study examines the primary policy instruments through which state performance funding systems influence higher education institutions in Indiana, Ohio, and Tennessee. The authors interviewed personnel at nine community colleges and nine universities about the use of four policy instruments: (1) financial incentives, (2) communication of program goals and methods, (3) communication about institutional performance, and (4) enhancement of colleges’ capacities to improve student outcomes. The authors examine the immediate impacts of these instruments on college budgets, campus awareness of performance funding goals and institutional performance, and institutional capacity, as well as their impacts on efforts to improve student outcomes. In all three states, policymakers relied mainly on financial incentives to induce change at community college and university campuses. State officials also made efforts to communicate with campus leaders and staff about performance funding and institutional performance, though these efforts varied in their intensity and their level of campus penetration. The authors find very limited evidence of state efforts to build campus-level capacity for organizational learning and change. Besides documenting main trends, the authors also analyze how interviewee responses varied by state, by type of institution (community college or university), by institutional capacity to respond to the demands of performance funding, and by position the interviewee held in the institution