Texas could tie community college funding to student outcomes

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A commission charged by the Legislature to suggest new ways of funding Texas community colleges is poised to recommend a complete system overhaul that would tie state dollars to how successful schools are at getting students to graduation or four-year universities.

The Texas Commission on Community College Finance, a group of lawmakers, business leaders and community college presidents created last legislative session, released its draft recommendations ahead of a meeting Monday to hear testimony on its vision. The group has been meeting throughout the past year, but the draft recommendations are the first glimpse into what types of changes lawmakers might consider when they convene in January.

The major recommended change would be to fund schools based on the number of students who complete their certificate or degree programs or transfer to a four-year university to continue their education. Other recommendations include major increases to the state’s need-based financial aid program and funding to help schools grow capacity on par with Texas’ population growth.

“These recommendations would establish Texas as a national leader in using outcomes-based funding to support community colleges in addressing rapidly changing needs for a highly skilled workforce,” the commission wrote in the draft report.

A final report on the state’s community college finance system is due to the Legislature in November. So far, the recommendations have largely been met with enthusiasm from community college leaders.

“These draft recommendations can be transformational for Texas community colleges and, ultimately, for helping Texans achieve their full potential while uplifting the entire state,” said Ray Martinez III, president of the Texas Association of Community Colleges.

For decades, Texas has funded its two-year community colleges largely with three pots of money: local property taxes, student tuition and a complicated state system that has not kept up pace with other resources and now accounts for less than 25% of community colleges’ funding.

While Texas has grown, that growth has been uneven across regions, impacting schools’ budgets in different ways depending on their location, size and the value of their taxable property in their districts.

At the same time, enrollment across community colleges in Texas has declined over the past decade — made worse by the pandemic — even as workforce demands are increasing and changing.

“There’s a deep tension between what we’re seeing right now in community college enrollment and what we’re seeing happening in our Texas workforce,” said Harrison Keller, Texas’ higher education commissioner. “We have growing needs for Texans who have the kinds of credentials that are awarded by community colleges, and employers are saying they are having trouble finding the skilled workforce they need.”

The commission includes four current lawmakers, including Sens. Brandon Creighton, R-Conroe, and Larry Taylor, R-Friendswood, the Senate higher education and public education committee chairs. Taylor authored the legislation that spurred this commission. Reps. Oscar Longoria, D-Mission, and Gary VanDeaver, R-New Boston, were also appointed to be on the commission. VanDeaver serves on the House Appropriations Committee.

Keller said there are still many details to be worked out by state lawmakers during the upcoming legislative session, including how the state would determine the specifics of these funding formulas. He said preliminary estimates show these changes would require state lawmakers to appropriate somewhere between $600 million and $650 million in additional funding toward community colleges for the next biennium. He added that would be a starting point that would likely increase as colleges start to respond to the funding incentives set by the state. While no proposal is a sure deal, he said he’s encouraged by the positive reaction so far.

“We’ve got strong momentum to drive some historic change in our community college finance system,” he told the Tribune.

Outcomes-based funding

Currently, Texas lawmakers allocate a set amount of state money toward public community colleges every two years that is then distributed to individual schools based on a formula. It provides a base of around $1.3 million per school, plus additional funding depending on enrollment, the types of classes schools offer and student success data over the previous three years. But starting the funding system with a set pot of money and then deciding how it is distributed means schools are essentially competing with each other for funding, creating a system of winners and losers.

“You can add students and improve outcomes and lose money in current funding formulas because it all depends on what you’re doing relative to every other college in the state,” Keller said.

The commission recommends that the state stop allocating a set amount and instead create a formula that determines an individual community college’s funding based on student program completion and transfer to four-year universities.

“That way individual colleges aren’t in competition with each other; they’d only be in competition with themselves,” Keller said.

On top of the outcomes-based funding, the commission recommends that the state make sure that every college can access a baseline amount of money for instruction and operations to ensure that schools in areas with low taxable valuations are not disproportionately funded.

The commission recommends the amount be based on enrollment and types of courses offered and include some adjustments for students who cost more to educate or need extra support, such as academically underprepared students and adults returning to the classroom. If schools cannot meet that foundational base through property taxes and tuition, the commission said they should receive additional funding to meet the threshold, though no specific numbers have been suggested yet.

But unlike the public school system, the commission said those schools that do collect more money via property taxes should not be subject to recapture and would not be required to send that money back to the state.

Renzo Soto, a policy adviser who focuses on higher education and the workforce for the data and research group Texas 2036, said this system would give two-year colleges more assurances as to how much money they would receive annually, something the current system does not provide.

He said when schools know they will receive more money based on student outcomes, it will drive them to incentivize services such as counseling and ensure students are choosing a major and a pathway to complete their program, rather than taking courses randomly.

He also said providing funding for non-credit programs will encourage schools to enroll more students in those areas where there is a large demand for jobs upon completion.

More need-based financial aid

The commission also says the state needs to better invest in its need-based financial aid programs to help more students access the programs they need, whether that be a certificate or associate’s degree.

The Texas Higher Education Coordinating Board estimates that the state has enough funding to serve 28% of eligible students through the Texas Educational Opportunity Grant Program. During the 2021-22 academic year, the average public community college student who received funding received $1,711 per semester.

The commission recommends the state increase that funding and set a goal of supporting at least 70% of students who qualify for need-based aid at two- and four-year schools. Investing in grants would especially help students who live in the service area of a community college but not the taxing area and are therefore considered out-of-district students, the commission report stated.

Soto said the Legislature’s openness last session to add $100 million in stimulus funds to need-based financial aid programs in the state set an encouraging precedent that lawmakers understand the need for more funding. Plus, the state is heading into the next session with a major surplus.

“With $27 billion in the bank, and likely more, I can see that being less of a concern,” he said.

Disclosure: Texas 2036 and Texas Association of Community Colleges have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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