Transitioning to Performance-Based State Funding: Concerns, Commitment, and Cautious Optimism

The introduction of performance-based state funding of higher education can be traced to the the late 1970s (Bogue and Hall 2003; Dougherty and Natow 2015; Dougherty, Natow, Hare, and Vega 2010; Dougherty and Reddy 2013; Long 2010; McKeown-Moak 2013). Early forms, referred to as Performance Funding 1.0, provided higher education institutions with bonuses, in addition to regular state funding, when they met certain state-defined outcomes.1 More recent forms, referred to as Performance Funding 2.0, have eliminated bonuses, and regular state funding has been replaced, in part or completely, with funding tied to achievement of state-defined performance goals, which often include student outcomes, like graduation and retention rates.2 Since the use of performance-funding, beginning in Tennessee in 1979, 38 states have used some type of performance-funding policy (Dougherty and Natow 2015). Of those, 23 states have used or are using a type of Performance Funding 2.0 (Dougherty and Natow 2015). The rationale for the shift from bonus-based programs to policies that require explicit outcomes in exchange for state funding may lie with state policymaker beliefs that the latter are more effective in improving student success rates. At the same time, some recent studies have questioned whether outcomes-based state funding delivers significant increases in results (Bogue and Johnson 2010; Rutherford and Rabovsky 2014; Sanford and Hunter 2011; Shin 2010)