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Outcomes-Based Higher Ed Funding Seems Right — But Which Outcomes?

During the regular session, Gov. Rick Perry’s top legislative priority for higher education was the implementation of a new financing system that rewards universities for graduating more students, not just for getting students into classes. Why didn't that happen?

Commissioner of Higher Education Dr. Raymund Paredes sits in the Senate gallery awaiting the end of the session on May 30, 2011.

During the regular session, Gov. Rick Perry’s top legislative priority for higher education was the implementation of a new funding system that rewards universities for graduating more students, not just for getting students into classes. To reach its 2015 goals, Texas needs to increase the number of degrees awarded by 46,000 each year.

A financing system that includes more “outcomes-based funding” has strong support, including from Raymund Paredes, the Texas Higher Education Commissioner, and business leaders such as Woody Hunt of El Paso, who chairs the Governor’s Business Council. But policy makers have struggled to agree on which outcomes to measure, how to encourage them and if they should alter the funding formulas while budgets are being slashed.

House Higher Education Chairman Dan Branch, R-Dallas, passed a major bill on the subject this session. The final version approved by the full Legislature, however, stops short of actually implementing an outcomes-based system, and instead provides guidelines for the Texas Higher Education Coordinating Board and instructs the board to return next session with new proposals.

With the session over, Senate Higher Education Chairwoman Judith Zaffirini, D-Laredo, said the question was still “if, not when,” Texas might adopt such a system. The state’s current financing formula is based on course enrollment.

Even getting to this point has been difficult. Lawmakers rebuffed Paredes’ initial proposals for failing to target the right outcomes. His plan focused on course completions instead of graduations. After a new proposal was drawn, Branch had to convince House leaders that the approach was not related to controversial strategies pushed by Perry and the Texas Public Policy Foundation, a conservative research group.

“This is serious higher education reform that a lot of folks have had input on,” Branch said. Some lawmakers concerns were also diminished by including requirements in the bill that reports be submitted to a new higher education oversight committee created in response to the controversy.

The Coordinating Board’s last proposal would tie financing to total degrees awarded, as well as to degrees awarded to at-risk students and in critical fields. It also would reward each institution for surpassing predicted graduation levels or penalize them for falling short. Under this proposal, some of the institutions that produce the most graduates, including the University of Texas at Austin and Texas A&M University, appear to lose funding.

“How is it that an outcomes-based approach ends up diverting money away from the two most productive institutions in the state? That’s a puzzle,” said UT President Bill Powers.

Paredes says the coordinating has analyzed the changes universities could make to improve their results under this system, and he said, “Everything institutions need to do is good for Texas.”

The proposal was part of the original House version of the budget, but was omitted from the final product. Rep. Scott Hochberg, D-Houston, who chairs a key subcommittee, said it was included to express support for the idea — not for the methodology. “It’s such a mess — it’s sort of a black box,” he said. “I know the equations have been all laid out, but it’s hard to know what they all mean.”

Sen. Kirk Watson, D-Austin, concerned about pitting universities against each other in a “zero-sum game” during a time when budgets are shrinking, was among those who pushed for taking more time to find a better formula. “We want to do the appropriate, correct, visionary things to increase positive outcomes,” he said.

Watson emphasized the need for the Coordinating Board to offer options that rewarded outcomes without altering the baseline funding for universities, as well as options — like the one Paredes has pushed — that do make such changes. Other guidelines ultimately included in the bill were that no more than 10 percent of funding can be outcomes-based, and the coordinating board must ensure that it does not have a negative affect on graduate education.

Still, Paredes considers passage of the bill a success, and looks forward to strengthening his case for the most recent proposal and giving universities time to make necessary changes over the next two years. “We’ve essentially come to a concurrence that outcomes-based funding is something that we ought to do,” he said.

Catherine Frazier, a spokeswoman for Perry, said, “If it doesn’t accomplish what he wanted to, he’ll look forward to continuing to pursue that in the future.”

Meanwhile, referencing the public school finance debate that threw a wrench in the end of the regular session and is now continuing in a special session, Hochberg added, “It’s interesting to see that small variations in funding at the university level are perceived to drive significant performance change, and large variations in funding at the K-12 level get written off as ‘Oh, stop griping, you’re just jealous.’”

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Higher education Griffin Perry Judith Zaffirini Rick Perry Texas A&M University-College Station