Financial Incentives for California Community Colleges: Impacts on District Revenue, Student Financial Aid Receipt, and Degree Production

The California Community College (CCC) system serves an integral role in the state’s public education. Serving more than 2.1 million students annually across 116 colleges, it is the largest higher education system in the nation. It provides students with remedial education, precollegiate instruction, and workforce preparation. Moreover, a substantial share of graduates from California’s four-year universities begin their coursework in the CCC system. The state uses a centralized funding formula to apportion CCC revenue. This formula is crucial in allocating resources across districts, colleges, and students in a manner that reflects the state’s priorities for the system’s many educational functions and student populations. Historically, the state used an enrollment-based funding formula that weighted funding for all students equally. However, in 2018, the state adopted the Student-Centered Funding Formula (SCFF) which represented a substantial shift in the state’s funding priorities for the CCC system. The SCFF funds districts according to enrollment levels, equity, and student success. The equity component is based on a district’s counts of financial aid recipients. The student success component is based on a district’s counts of students who achieve various academic benchmarks including certificate or associate degree completion. This component is also weighted according to the number of financial aid recipients who achieve a given benchmark. The SCFF poses significant implications for the CCC system. The added equity and student success components comprise roughly a third of total apportionment funding. Administrators thus face increased financial incentives to effectively administer financial aid to students and to improve student performance along the state-set metrics. If districts and colleges successfully respond to the SCFF’s financial incentives, the policy may improve student outcomes through reformed financial aid administration and/or increased completion of certificates and degrees. However, the failure to respond to these financial incentives may result in revenue shortfalls that limit the operational effectiveness of districts and colleges. This dissertation is comprised of three papers in which I explore the SCFF’s effects on district revenue, student financial aid receipt, and degree production in the CCC system. In the first paper, I provide a detailed discussion of CCC apportionment. I describe the funding mechanics of the SCFF and the enrollment-based funding formula that preceded it. I also use ordinary least squares modeling to estimate the impact of the SCFF on district revenue in its first operational year. For this analysis, I use CCC apportionment data in 2017 and 2018. I find that districts serving higher proportions of lower-income students experienced an increase in revenue from the SCFF relative to the prior formula, on average. In turn, the SCFF increased progressivity in CCC funding. In the second paper, I measure the SCFF’s effects on student receipt of Pell Grants and Promise Grants. I draw on student-level administrative data from the CCC system in the 2015-2019 period. I use an interrupted time series model to estimate effects on Pell and Promise Grant receipt systemwide. I also use comparative interrupted time series models to estimate differential effects across college groups. I find a systemwide increase in Pell Grant receipt—but not Promise Grant receipt—associated with SCFF. These effects did not show substantial differences across college groups that were financially affected or unaffected by the SCFF’s financial incentives. However, heterogeneity in Pell receipt was driven by the extent to which a college could expand awarding among students who likely would have been eligible non-recipients in the absence of the SCFF. In the third paper, I measure the SCFF’s effects on certificate and degree production. I draw on student-level administrative data from the CCC system in the 2015-2018 period. I use an interrupted time series model to estimate systemwide changes in certificate and degree awarding after the adoption of the SCFF. I also use comparative interrupted time series models to estimate differential college effects. I find an increase in certificate and traditional associate degree awarding associated with the SCFF. These gains are impressive considering that this analysis uses only a single year of post-SCFF data. However, Associate Degrees for Transfer exhibit null effects associated with the SCFF. I find modest evidence that heterogeneity in effects across colleges was driven by the extent to which a college was affected by the SCFF’s financial incentives. Across two distinct grouping methods, college groups that were more affected exhibited somewhat larger awarding gains in most degree types than college groups that were less affected. However, partially due to power limitations, the differences between more- and less-affected colleges were generally not significant, so these results are suggestive but not conclusive. This dissertation makes several contributions to existing literature. The first paper reviews CCC funding in a level of detail that, to my knowledge, has not been covered in nearly two decades. The second paper is novel in its topic since the SCFF is unique in its use of financial aid receipt as a student metric. These results offer encouraging evidence that financial aid incentives may be efficacious in increasing student financial aid receipt. Finally, the third paper contributes to a relatively larger body of literature on the effects of performance funding policies on student certificate and degree completion. While prior research largely finds that performance funding policies do not benefit student academic attainment, my results find early evidence of gains in certificate and associate degree completion associated with the SCFF