A Step Toward Outcomes-Based Funding for Texas 2-Year Colleges

State funding for Texas community colleges, long distributed based mostly on student credit hours, would reward institutions for helping students transfer, graduate and move into high-demand fields under a new model proposed by a state commission. The recommendations, in a report released Thursday by the Texas Higher Education Coordinating Board, would, if approved by state legislators, create a much more outcomes-focused approach that is expected to result in more funding, especially for small and rural community colleges.

The proposal has widespread support among community college leaders who believe the move would markedly increase state allocations and aid dollars to their institutions and help them build capacity to meet the workforce training needs of the state’s growing population.

“Our Commission believes the new funding model must do three things: reward colleges for positive outcomes, especially in credential completion and transfer, ensure equitable access through financial aid, and help community colleges increase capacity to meet rapidly changing workforce needs,” Woody Hunt, chairman of the Texas Commission on Community College Finance, wrote in the report. The commission, made up of lawmakers, community college leaders, business executives and policy experts, was tasked last year by the Texas Legislature to suggest a new funding system.

The recommendations could have a major impact on the state’s 50 community college districts. Funding would be tied to student success metrics, including the number of degrees and certificates awarded, the number of credentials earned in high-demand fields, transfer rates to four-year universities, and the number of students completing dual-credit courses.

Under the current funding formula, the majority of state funding for Texas community colleges is allocated based on the number of credit hours students take, a measure dependent on enrollment. A portion of the funding, 17 percent, is allocated through a performance-based funding model including student success metrics over the previous three years, such as the number of students who completed their first college-level math course and the number of students who successfully finished their first 15 credits.

State allocations only account for about 26 percent of overall community college funding in the state, according to the Education Trust, a research and advocacy organization focused on closing equity gaps in education. Community colleges otherwise rely on tuition revenue and local property taxes, which can vary widely based on the institution.

Jonathan Feinstein, Texas state director for the Education Trust, said smaller rural colleges, often located in communities with lower property wealth and less likely to approve taxes, suffer under the current model. The existing formula is also partly based on how institutions perform relative to one another, while the new model would judge colleges based on how much they improve over time.

“Schools were competing against each other for a fixed pie,” he said. “Whereas what’s being proposed in this new system, that I think is really important, is we’re going to assign a fixed value to these outcomes, which means that as the institutions improve their outcomes, they’ll actually see increased funding. So they’ll be competing with themselves, or competing with a prior version of themselves, to access additional state investment.”

The report says one of the goals of the new model, in addition to a stronger emphasis on student outcomes, is to provide “more consistent base levels of funding for instruction and operations across community colleges” and to create a model that ensures “small and rural-serving colleges with lower property values have the resources needed to serve students inside and outside their service areas and to meet local employers’ workforce requirements.”

The report includes plans to provide financial aid for low-income students in dual-credit courses and one-time seed grants to colleges expanding programs in high-demand fields to meet state workforce needs. Colleges would also receive a baseline amount for operations and instructional costs so institutions that bring in less money via local property taxes are adequately funded. It also suggests the state increase funding for Texas Educational Opportunity Grants, state financial aid, with a goal of enabling at least 70 percent of qualified low-income students to attend two-year or four-year institutions in the state.

Harrison Keller, Texas’s higher education commissioner, told The Texas Tribune that he expects the changes would initially cost an extra $600 million to $650 million. Despite potential additional costs, he said he’s been heartened by the “encouragement we’ve gotten across the political spectrum.”

Robert Kelchen, professor and head of the department of educational leadership and policy studies at the University of Tennessee at Knoxville, described the recommendations as the product of “thoughtful” deliberations. He was on a team of scholars that produced a paper, released last month, to advise the commission.

“It is balancing the political and economic needs of the state to where funding needs to be tied to student outcomes but also providing additional funding to groups that have been historically underrepresented and may need more resources to succeed,” he said.

He added that a funding model largely based on credit hours, like the current one, risks disadvantaging smaller institutions and institutions that serve students with a high level of financial need. The new model has the potential to correct for that.

“If some students need more funding to succeed, the current allocation doesn’t work as well,” he said.

Richard Rhodes, chancellor of the Austin Community College District, said that previously only 22 percent of eligible low-income community college students received Texas Educational Opportunity Grants. He expects the model to increase both state aid to students and state funding for his district.

He also praised the commission for soliciting the perspectives of a variety of stakeholders, including community college presidents and trustees and legislators from rural and urban regions of the state.

“I’m happy about the whole process that took place to lead to those recommendations,” he said. “The process was inclusive. It included all of the points of view necessary to come up with good policy … I think that in itself will lead to bipartisan support.”

The new model has garnered significant support. A survey of 5,000 Texans, funded by the Bill & Melinda Gates Foundation and Educate Texas, found that 65 percent of Texas residents supported basing community college funding on outcomes rather than enrollment. The recommendations also received the unanimous support of the Texas Association of Community Colleges, a community college advocacy organization in the state, and its 48 member colleges, according to a press release from the association.

Ray Martinez III, president and CEO of the association, said its leaders “worked hand-in-hand with the Commission members to ensure these recommendations equally voiced the concerns of our diverse institutions, big or small, rural or urban.”

Jay Barrett, regent at Amarillo College and board chair of the Community College Association of Texas Trustees, said the recommendations “will empower all colleges to better serve our diverse communities.”

“As stewards of public money, elected trustees and legislators can have confidence that these policies will yield a high return on investment, enhancing local workforce pipelines to ensure Texas’s prosperity well into the future,” he said in a press release.

The majority of states have some form of outcomes-based funding for higher education, including Texas, which has had its version of performance-based funding since 2013. And with some of those transitions have come growing pains for the colleges. For example, when California adopted a performance-based funding model in 2018, faculty groups and community college leaders raised concerns about potential funding losses and cast doubts about the effectiveness of these models in improving student outcomes. Several studies of performance-based funding models have shown lackluster results, while others suggest these formulas have potential, especially when they incorporate metrics related to improving educational equity.

The report acknowledges that strategies should be in place to address any “unintended negative consequences” of the model as colleges make the transition. It also recommends providing “hold harmless” funds to colleges to ensure the onset of the new formula doesn’t cause them to lose funding.

Francisco Solis, interim president of San Antonio College, said rural colleges might feel more trepidation about an outcomes-based funding model like this if they’re facing enrollment declines and they’re located in areas where students have less access to a variety of jobs. But enrollment at his institution is increasing, and he expects students to go into high-demand fields in a bustling city like San Antonio, so he foresees a positive impact on his institution.

“I think San Antonio College, and really all the Alamo Colleges, are poised to see this as a benefit,” he said.

Kelchen said research on performance-based funding models tends to show they don’t have huge effects on boosting student outcomes, but that doesn’t mean they don’t have value. He believes this model in particular was designed with thought and care.

“I’m skeptical that this is the silver bullet,” he said. “But could this be beneficial because it brings in additional funding and forces thoughtful conversations? Yes.”