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Some states are introducing new outcomes-based funding formulas to incentivize community colleges to improve student outcomes.

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Oregon is joining the wave of states that have shifted to performance-based funding models for their community colleges. The Oregon Higher Education Coordinating Commission approved plans last week to replace its current model, based entirely on enrollments, with a new formula that bases a portion of funding on student equity and success metrics, starting in the 2024–25 academic year.

The move follows a proliferation of state funding formulas in the last decade that attach money to student outcomes and hold institutions accountable for closing equity gaps. The news out of Oregon came during the same week Texas governor Greg Abbott signed legislation into law to transition to a more intensive performance-based formula for the state’s community colleges that bases most funding on student success measures. California is also on the brink of fully implementing its performance-based funding formula, which goes into effect in 2024.

Other examples from the recent past include Alabama, which adopted a performance-based funding formula for community colleges in the 2018–19 academic year, and Kentucky, where lawmakers approved a new outcomes-based funding model in 2017.

Robert Kelchen, professor of education and head of the Department of Educational Leadership and Policy Studies at the University of Tennessee at Knoxville, said the surge of states adopting these models stems from “growing concerns about the value of a college degree” and “whether colleges are really performing.”

“And it’s not just a thing from conservatives, either,” he added. “Oregon and California are going right along with states like Texas.”

The new formula in Oregon will base up to 10 percent of state funding for community colleges on measures including the number of underserved students enrolled, including low-income students, adult learners, students of color and students in career and technical education programs. That chunk of funding will also be based on outcomes such as the number of students who earned at least 30 credits or who earned credit in an English, writing or math course and who completed a credit or noncredit credential. The colleges will get even more funding when students in underserved categories hit these milestones.

Ben Cannon, executive director of the Oregon Higher Education Coordinating Commission, said 10 percent is a modest amount but he hopes it influences college leaders to continue and enhance their efforts to serve these student populations.

“I think our community colleges are working hard to support the success of all students,” Cannon said. “However, the current funding formula doesn’t give them any incentive from the state to focus additional resources and supports on students who are often hard to serve because they may be first-generation college goers or maybe other nontraditional student categories. Under the new formula, they will be directly supported from the state. The colleges’ funding distribution will be a reflection of the extent to which those colleges enroll and successfully serve students from those priority populations.”

Some Oregon community college leaders expressed tentative optimism about the new formula and how it’ll affect their finances.

“It’s really targeting things we’re trying to do already,” said J. Mark Browning, president of Blue Mountain Community College. “We’re a Hispanic-serving institution, so underserved populations are a big focus for us. Retention and completion … are always a big focus for us. Those are already areas where we’re concentrating and shifting a lot of efforts, so we’re hopeful.”

Bill Jennings, institutional researcher at Klamath Community College, said representatives from all of Oregon’s 17 community colleges were part of a working group that advised the commission and were heavily involved in the process, which made it easier to be on board with the final product.

“I felt like it was very collaborative,” he said. “Everybody had a chance to be heard.”

The Evolution of Performance-Based Funding Models

Performance-based funding isn’t new, with examples dating back as far as the 1970s, but more states have adopted these formulas in recent years. Approximately 30 states now have these kinds of funding formulas, and the majority apply them to community colleges. The models vary vastly in terms of the percentages of money they base on student outcomes and the measures of student success they use. They’ve also had mixed results, in part because they differ so widely from each other. But higher ed experts say states such as Oregon and Texas are recent examples that suggest these models are evolving to include sharper, more specific metrics focused on underserved students and better address some of the challenges posed by their predecessors.

Martha Snyder, managing director of postsecondary transformation at HCM Strategists, an education consulting firm, said performance-based funding models have become “more refined” in recent years. The earliest models in the 1970s and ’80s generally relied on a “random assortment of performance metrics,” some having to do with academic prestige, while formulas a decade ago started focusing more on college completion rates. Snyder said there’s been a recent shift to more equity-minded metrics.

A “big, big improvement or progression from those earlier funding models was the very real reflection on the reality that we also need to weight or incorporate increased funding for certain student populations who are oftentimes given less access to higher education and oftentimes less successful,” she said.

In that vein, Cannon said Oregon’s new formula is “broadly consistent with the overall national movement toward [a] more performance-based funding system,” but its focus on the success of specific student groups is noteworthy.

“If a college started doing really well in terms of student success outcomes, but only for white and more affluent students, it actually wouldn’t generate much benefit under the formula,” he said. “I think that is distinct, maybe not unique, but helps to distinguish or at least characterize Oregon’s work. I’m very proud of the very deliberative and multiyear approach we’ve taken to develop it, the inclusive approach, the heavy reliance on a work group, a lot of back-and-forth with our commission, a very public and transparent process … I’m not sure that’s unique to Oregon, I just think it’s a hallmark of what we’re doing.”

Kelchen also noted that recent performance-based funding formulas tend to focus more on equity measures and workforce metrics, such as earnings of graduates or completion rates in specific fields. The newer models by and large also tend to base larger percentages of funding on student outcomes, though often with provisions that limit the amount of money that can be taken away from a college in a given year.

A Controversial Trend

Performance-based funding models have been met with some anxiety or distrust among community college leaders in some states.

California’s formula, for example, has raised concerns among community college leaders. The new formula awards money based on enrollment but also the number of students receiving state aid or Pell Grants, completion rates and transfer rates, the number of students who finish math and English courses for college credit in their first year, the number of graduates earning a living wage, and other metrics.

Larry Galizio, president and CEO of the Community College League of California, which represents two-year college leaders in the state, believes the values behind the formula are laudable, but he says the formula is overly complicated and risks penalizing smaller, already underresourced colleges trying to recover from enrollment declines that occurred during the pandemic. He highlighted the performance-based funding formula in Washington State, where colleges can receive a base allocation plus additional funding based on student success metrics, as a less risky model.

“Considering how volatile the situation has been—the pandemic, the economy, enrollment, though it’s looking a lot better right now—there are concerns, certainly,” he said.

He believes some of the California regulations could “hamstring” colleges in meeting goals set by the formula, including a law that 50 percent of funds go to classroom instruction. For example, college leaders who want to increase completion rates by offering more wraparound supports don’t necessarily have the flexibility to use their money to do so, he said.

Snyder noted that not all performance-based funding formulas are created equal. For example, she said it’s valuable to have some portion of funds based on enrolling underserved populations so that colleges have sufficient resources to cover operating costs and work on improving outcomes.

“To achieve that change, to start to provide better supports for students, to help students be more successful, requires capacity on the front end,” she said. “If you just have a purely outcomes-based funding formula, you’re not giving institutions that front end capacity.”

Kelchen also sees certain risks for community colleges, depending on how the funding models are designed. For example, newer performance-based funding formulas that reward colleges for graduating students with workforce credentials may incentivize colleges to focus less on helping students earn associate degrees and transfer to four-year universities.

The models over all are “not tremendously effective,” he said. “The research suggests, depending on the exact details of the model, it may improve outcomes some, it may hurt outcomes some, but on the whole, these models tend not to do that much.”

Nonetheless, he still believes they’re worth instating.

A tangible benefit of these formulas is “if states believe they’re holding community colleges accountable, they’re more likely to give them money,” he said.

The formulas also signal to prospective students and their parents that these institutions are focused on students succeeding, he added. Even if no student outcomes move, they’re worthwhile just for “building trust and goodwill.”

Cannon said the last time Oregon made major changes to its funding formula for community colleges was in the early 2000s, and the emphasis then was on ensuring that state funding was equitable and accounted for disparities in local property tax revenues.

“That was the first effort at equity, but it was institutional equity,” he said. “And what we’re trying to do in the updated formula is add a real focus on student equity.”

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