Banking on Success

Technical colleges in Texas are poised to up the ante on performance-based state funding, linking 45 percent of their operating budget to the employment rates and salaries of alumni.

State lawmakers have provided legislative encouragement to the Texas State Technical College System as it works on the still-developing proposal; the Legislature last year mandated that the system devise a funding formula that rewards “job placement and graduate earnings projections, not time in training.”

But system officials have voluntarily forged ahead with the plan, which they fully support and believe will help the system be more efficient.

“Some sort of outcomes-based methodologies are inevitable for likely all of public higher ed,” said Michael L. Reeser, the system’s chancellor. “We thought we’d be the first.”

The system, which includes four colleges and 11 centers around the state, is collaborating with the Texas Higher Education Coordinating Board on the formula. It’s a complex work in progress, but the basic idea is to use job data captured by the state to compare graduates’ salaries to an earnings baseline for high school degree holders in Texas, Reeser said. Also factored in will be overall employment rates for alumni, and other measures of their value to the state’s economy.

The colleges would see cuts if employment outcomes sag, and no new money will be tied to the plan. Reeser also said discounts would be included, such as through percentage reductions to account for the small number of graduates who leave Texas for jobs.

Roughly three-quarters of the technical colleges’ operating budget comes from the state. The proposed formula will determine the instructional portion of the state’s contribution, which is currently 45 percent of that budget. The state’s Legislature will consider the final proposal, probably early next year.

Reeser and others working on the proposal caution that the funding model will be difficult, if not impossible, to duplicate at most other colleges, because of the strong workforce focus of the technical college system. But they also know plenty of people will be watching the plan closely, in Texas and beyond, and appear concerned that higher education reformers will tout its value for colleges where such an approach won’t work.

“This is strictly a pilot for TSTC,” said Susan Brown, assistant commissioner for planning and accountability at the Texas Higher Education Coordinating Board.

The two-year-college system has a relatively narrow mission and advertises its “return on investment” to prospective students, so performance-based funding based on employment outcomes might not be such a stretch. The state's technical colleges also have a more explicit workforce development charge than do its community colleges, which in other states often are responsible for the technical college role.

"We’re solely a practitioner’s school. That’s all we do,” Reeser said. And as for the funding formula’s applicability to more comprehensive institutions, such as research universities in Texas, Reeser said, “You just can’t go there.”

Powerful Message

The proposal probably will be the most aggressive performance-based funding policy attempted in American higher education.

“I’ve not seen anything this sweeping before,” said Jane Wellman, an expert on college finance and executive director of the National Association of System Heads.

Wellman said she generally supports the use of good employment data by colleges. And at first glimpse, the experiment by the Texas technical colleges could work. “It’s worth a try.”

But she agrees that it would be a big mistake for most other colleges -- or their state legislatures -- to attempt such a heavy outcomes-based formula. And performance-based funding is far from a miracle solution for the challenge of increasing college costs, she said, or for slumping state support for colleges.

“This is not a fix for the deeper problems of higher education finance,” Wellman said.

Thomas K. Lindsay is more optimistic. Lindsay, director of the Center for Higher Education at the Texas Public Policy Foundation, has written that the technical colleges’ proposal sends a valuable message that could ripple around the country -- that a substantial proportion of state funding such be linked to “actual student learning” rather than just seat time.

“It really is an imaginative step,” Lindsay said. And while the funding formula isn’t totally transferable to other institutions, “it’s more the idea that’s important.”

Accountability Push

Public colleges and universities in Texas are under a lot of pressure to prove their value to lawmakers. And accountability ideas championed by Gov. Rick Perry, the Legislature and Texas-based think tanks are described as either forward-thinking reforms or frontal assaults on higher education, depending on whom you ask.

For example, an ambitious plan by the University of Texas System seeks to improve efficiency through published faculty productivity data and increased use of technology, among other measures.

The Texas State Technical College System has also felt some of that heat.

A few years ago the state Legislature began asking public institutions about the feasibility of “accountability funding.” The technical colleges’ leaders said such an idea could work for their system, so the Legislature passed a bill rider requiring a feasibility study. The Texas comptroller’s office gave the plan a nuanced green light, and the Legislature later passed another rider mandating the funding formula’s creation. Joining the system in that work is the state’s Higher Education Coordinating Board, the Texas Workforce Commission and an independent economist.

Reeser is confident that the final plan will be an improvement on the current funding structure, which rewards enrollment growth and student contact rather than the system’s mission to serve as a “crucial link in the supply chain to employment.” A focus on outcomes will help everyone, he said, including faculty members.

“It will drive us to be more concise; to be more relevant in the selection of programs,” said Reeser.

Furthermore, the current formula is determined as long as two years ahead of time, Reeser said, so an outcomes-based approach could actually be more real-time.

The technical colleges were created to train students in high-demand technical fields, and they have been successful in doing so, with high employment rates for graduates. Furthermore, Texas has one of the nation’s most sophisticated labor market data collection systems, which gives officials student outcomes data to work with.

But those databases are far from perfect. They don’t accurately differentiate between full- and part-time employees, according to the feasibility study. And while officials can track the name of a graduate’s employer, as well as the employer’s location and industry, they can’t see the graduate’s occupation or job title.

For example, Brown said the state can tell if a technical college graduate graduated with a credential as a welder and then got a job at an oil field. But “what you don’t know is are they welding or being a roughneck?”

Another obvious limitation is that college completion is not the sole determiner of employment. Outside events -- like, say a recession -- can drive statewide unemployment rates and wage levels.

“I have problems holding higher education accountable for things they can’t control,” Wellman said.

Brown agreed, and said officials were working to try to create a fair model. “We don’t want the school penalized for something that’s affecting the entire country, or the state.”

State agencies and interested lawmakers have been thoughtful about making sure that students and faculty are well-served by the plan, observers said. And that nuanced approach gives it a good chance of being viable.

But sensing that the proposal is likely to generate interest among reform-minded lawmakers around the country, Reeser warned that the approach is specific to a relatively unique group of colleges. “The diversity of higher education is rich,” he said.

(Note: A headline for this article has been updated from an earlier version to clarify that the amount of funding subject to the performance proposal is 45 percent of the system's operating budget, rather than of the state's contribution.)