The Demise of Higher Education Performance Funding Systems in Three States. CCRC Working Paper No.17.

Over the past three decades, policymakers have sought ways to secure better performance from higher education institutions, whether in the form of greater access and success for less advantaged students, lower operating costs, or improved responsiveness to the needs of state and local economies. As a result, great effort has gone into designing incentives for improved college performance. One of the key incentives that state governments have tried is performance funding, which ties state funding directly to institutional performance on specific indicators, such as rates of retention, graduation, and job placement. One of the great puzzles about performance funding is that while it has been popular, it has also been very unstable (Dougherty & Hong, 2006; Erisman & Gao, 2006). States that have enacted performance funding have often and sometimes substantially changed the amount of funding they devote to it and the criteria by which they award that funding. Moreover, the number of states enacting performance funding has waxed and waned. Between 1979 and 2007, 26 states enacted performance funding, but 14 of those states dropped it over the years (with 2 reestablishing it recently) (Burke & Minassians, 2003; Dougherty & Reid, 2007). We are now entering a period of renewed interest. In the past few years, a variety of prominent higher education commissions and researchers have called for greater focus on performance accountability, though often taking forms different from past practice (Blanco, Jones, Longanecker, & Michelau, 2007; Shulock & Moore, 2005, 2007). Moreover, several states have recently enacted or readopted performance funding, including Virginia (in 2005) and Washington (in 2007), and other states, such as Texas and Arizona, have been considering it. Despite its apparent popularity, however, performance funding has experienced only limited and unstable institutionalization in the years since it was first introduced. This Brief, which draws on a longer report, examines this instability. Based on an analysis of three states that enacted and then eliminated performance funding systems, we identify factors that may lead states to let their performance funding systems lapse. To understand the experiences of the three states — Florida, Illinois, Washington — we drew upon interviews and documentary analyses that we conducted in these states. We carried out interviews with state and local higher education officials, legislators and staff, governors and their advisors, and business leaders. The documents we analyzed included state government legislation, policy declarations and reports, newspaper accounts, and analyses by other investigators.