LANSING – Michigan would be on the leading edge of states if it includes performance measures for universities to see increased funding as part of the fiscal year 2012-13 budget, but it also would be on the low side of the funds committed to that incentive, the House Appropriations Higher Education Subcommittee was told Wednesday.
Legislatures around the country are looking for ways to make their university systems more efficient and to better tie them into job growth and economic development, and requiring that they meet performance targets to receive some of their funding is an increasingly popular idea, said Julie Davis Bell, Education Group director for the National Conference of State Legislatures. But she said few states have taken the next step of implementing the plan.
Governor Rick Snyder’s budget calls for providing universities a 3 percent increase, but to qualify for the funds, they would have to meet four performance goals: growth in overall degrees granted, growth in degrees in critical skills degrees granted, numbers of students receiving federal Pell grants, and controls on tuition.
The increases in undergraduate degrees, which would be a graduation rate based on enrollment for the overall degrees and an absolute number for the critical skills areas (science, technology, engineering, mathematics and health care), would be calculated over rolling three-year averages, said Robbie Jameson with the Budget Office.
The funds for students with Pell grants would be based on simple percentages of enrollment the first year, but would look at graduation rates for those students beginning with fiscal year 2013-14, Ms. Jameson said.
To get a piece of the tuition restraint funds, universities for the coming year would have to keep their tuition increase less than 4 percent. The further below that level they can keep the increase, the bigger share of the funds set aside for tuition restraint they would receive, she said.
Bell said there were few other plans to compare to know if Michigan was on the right track in trying to direct reforms in its universities.
“There’s no set formula, there’s no best practice that’s emerged yet,” she said. “We also have very little evaluation data, most of these programs are too new. We have really very little to know if this works.”
And she said the prior attempts at performance-based funding, started in the 1980s, provide little guidance for the new wave. Most of those programs were abandoned as the economy declined because they had little money behind them and generally complex measures of performance that were difficult for the institutions to meet.
The focus on degree completion is a common theme among the new round of performance funding plans, she said. “We’re moving from valuing and focusing on enrollment to focusing on outputs,” she said, adding that is including both numbers of degrees and the subjects for those degrees.
But she did say the 3 percent Michigan is using for the incentive program is on the low side. Other states that are considering performance-based funding are looking at committing 25 percent of university base funding to the idea. And she said Tennessee has put all university funding into a performance formula.
Jameson said Snyder kept it to 3 percent to give the universities some guarantee of funding. “We came to the concept of using new funding because the universities had been cut 15 percent last year,” she said. “We felt going forward all the new money should be put through performance evaluation.”
Bell said other states are looking to roll existing funding into the performance measurements because they are not expecting new funding. “Nobody thinks that a lot of the money is going to be restored and there’s going to be a lot of money to invest in higher education in the future like there was in previous decades,” she said.
But she also said it was important, if the state moved in this direction, that there be a transition period so no institution saw a dramatic cut in funding in the short term.
In response to questions, Bell said other states are also trying to work research into their performance formulas. Both Tennessee and Indiana provide research universities additional funding based on the outside research grants they are able to attract.
Jameson said Snyder’s sole focus for his proposal was on graduation rates. “The governor’s goal with this funding formula is by 2025 is 60 percent of Michigan residents will possess a high quality degree or credential,” she said. “All these goals are focused on degree completion. We’re focused on outputs, getting people done, through the program. None of these tell the universities how to do that.”
Bell said, in testimony preceding Jameson’s, that studies estimate that within five years some 60 percent of open jobs will require at least a bachelor’s degree.
Rep. Shanelle Jackson (D-Detroit) raised concerns universities would respond to the incentives by trying to inflate graduation rates. “Is there any concern in the administration that on some level this will encourage universities just pushing people out that are really just not prepared?” she said.
Jameson said that is unlikely. “If our universities don’t have better integrity than that, then we’ve got bigger problems,” she said.
Another key difference between the Michigan proposal and those adopted or under consideration in other states is the look-back in determining graduation rates, Bell said. Other states look at current rates for determining performance.
And Rep. Joan Bauer (D-Lansing) raised concerns that the proposal was actually rewarding past performance, not current improvements. “I wonder why we didn’t go forward, which maybe meant we didn’t award some of it this year?” she said. “I’m not sure what doing it in this way gets us.”
Jameson said any system that used graduation data would have to look back at least one year, and she said the administration decided to look back three because of large fluctuations in graduation rates at some of the institutions.
“We thought there was too much variation to rely on one year’s data,” she said.
Lack of data was also why the plan for the coming year looks only at the percentage of students receiving Pell grants, with the graduation rate for that population being added later, Jameson said.
“We don’t have data on the number of Pell grant students who are actually graduating. We hope to have that by 2014,” she said.
Jackson was concerned the move to measuring graduation rates for Pell grant recipients would push universities to accept fewer of them. But she also questioned whether there actually was a problem with those students graduating at a different rate from the general student population.
“That’s part of the problem: the data is missing,” Jameson said. Universities are currently not reporting Pell grant recipient graduation rates.
“A Pell grant recipient who isn’t getting the support to graduate needs to get that support,” she said.
Jackson also balked at the idea of encouraging students to consider degrees in particular fields. “Ultimately, we should encourage students to study what’s in their hearts,” she said. “I have concerns about incenting students to study what in the best interests of the state.”
When Republicans on the panel noted President Barack Obama had made similar calls to increase the number of science and engineering graduates, she said, “If it’s President Obama’s idea or someone else’s, it’s a bad one.”
Jameson said the proposal was about helping students find jobs. “Universities need to be very honest with students as they’re coming in the door about what the job prospects are with the degree completion that they get,” she said.
Bell said other states are also working to better tie degree completions to the job market. “There is a growing realization of what does it
