The adoption of performance funding in higher education: A combination of public policy, finance and politics

At least 30 states have adopted or are in the process of adopting some form of performance funding in higher education. Historically, funding for higher education has been based upon enrollments. The recent increase in performance funding, or outcomes-based funding, follows an earlier period of unsustainable performance funding models in many states. With limited research showing the effectiveness or ineffectiveness of prior systems of performance funding, states have moved forward into Performance Funding 2.0, where colleges and universities are at risk of losing part of the base funding historically provided to them. This research examines the reasons why three states reinstituted or significantly expanded performance funding systems for higher education. Research was conducted using case study methods, including a review of public data and documents, transcripts of meetings, and interviews of policymakers in Washington, Illinois, and Ohio. While all three states developed performance funding with the stated goals of improving student success and college completion, politics, public policy, and finances were prevalent in the decision making process. Politics and the leadership of statewide officials were also critical in the recent adoption of performance funding programs in these three states. Outside advocacy groups are playing an increasing role in the development of performance funding