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Virginia Switches Funding Systems

Virginia Switches Funding Systems

Change to performance-based formula is posing questions for public HBCUs, and two-year colleges

By Scott W. Wright and Hank Kurz Jr.

RICHMOND, Va. — The State Council of Higher Education last month unanimously adopted a performance-based system for funding colleges and universities that rewards schools based on student achievement.
The plan deregulates colleges and universities on the front end — letting administrators spend the $1.3 billion provided by the state each year as they see fit — while holding them accountable on the back end.
The state and schools will set goals specific to each institution based on past performance, and the schools will be measured against how they improve. Council members stress that schools will only be measured against their own past performance and not compared to other institutions.
“It’s a carrot and stick approach,” Council Chairman John Padgett says. “The carrot is that if they accomplish the objectives that they set, there will be more money that they can take back to their institutions.”
In switching to performance-based funding, Virginia joins a growing clique of states that have turned to that method since Tennessee became the first state to do so in the late 1980s, says Katherine Boswell, who studies community colleges for the Education Commission of the States in Denver.
“It’s part of the whole reinventing government move,” Boswell says. “Accountability in government has long been a theme. It started out in other parts of state government but has finally moved to higher education.”
Ten states had adopted performance-based funding and another 17 states and the District of Columbia were considering it, according to a 1997 analysis by the Rockefeller Institute, the most recent available.
Eight states have performance budgeting, a variation under which colleges agree to report certain key indicators, which lawmakers can consider as part of the overall budgeting process for higher education in their state, the institute’s report shows. Another 17 states were considering such a plan.
“It is certainly a growing movement,” Boswell says. “There are many in higher education who would like to see it go away, but it’s here to stay. It will continue to evolve though as states make adjustments to their plans.”
 HBCUs Express Cautious Optimism
Administrators of Virginia’s two historically Black public universities — Norfolk State and Virginia State universities — express a cautious optimism that the new performance-based funding system will help their institutions. Although state officials say there will be no competition between schools for funding because the baselines for the measurements of improvement will come from each individual institution, some HBCU administrators want to reserve judgment on the plan until they are satisfied about its equity.
At Virginia State, Dr. Eddie N. Moore, the university’s president, and his staff are going over the plan with a fine-toothed comb.
“We are still in the review process, studying the details of the proposal,” says Tracey G. Jeter, Virginia State’s director of university relations. “We need a better analysis of the proposal before we decide which way we’re going to go on it. There are specific performance-based criteria in the proposal and we just want to make sure that it’s fair across the board.”
Administrators at Norfolk State seem more optimistic — if only a little. Edward Jolley, vice president for finance and business at Norfolk State, was one of the business officers from institutions around the state who worked on developing the performance-based funding system that the State Council on Higher Education adopted.
“Many of the institutions will see some benefit from the model proposed,” Jolley says. “The autonomy and additional authority to achieve the goals of the institution are liked by many around the commonwealth and here at Norfolk State.”
But while he is encouraged by the proposed elimination of much of the bureaucratic red tape involved with state funding and the benefits he sees in having institutions receive block-grant funding, he also sees potential areas of concern. One concern deals with how the base funding level will be achieved. The base funding level is the minimum amount of money an institution will receive from year to year.
“We [at Norfolk State] concur that the development of that initial funding level, the initial base-budget adequacy evaluation, is crucial. That is key,” Jolley says, “especially for Black institutions where the evidence indicates that has been a historic funding disparity. How [the funding formula] addresses that [disparity] concerns us.”
Then, there is a worry about the comparison to peer institutions nationwide. According to Jolley, the base funding formula will rely heavily on how much money other institutions of similar pedigree get with which to operate.
“We also have some concern with the combination of ways of looking at the institution,” he says. “To the degree that we have concerns with the schools identified as looking like us, we need to be able to express that concern about that peer group.”
Yet despite the concerns, Jolley thinks the package has positive potential.
“To the degree that [our concerns] are addressed, I think that we as institutions can perform effectively under this funding model,” he says.
The commonwealth’s three private HBCUs are not affected by the new funding system.

Devilish Details
Virginia’s community college presidents are also withholding judgment about how the formula will affect the commonwealth’s 23 two-year institutions.
“It hasn’t been flushed out yet,” says Dr. Charles L. Downs, president of Virginia Western Community College in Roanoke, which has about 7,700 students. “I don’t mind stacking up against others to compete for resources.
“But the council needs to ask the right questions,” he says. “If they do, it could be a real boon for community colleges. Graduation rates might be suspect for us but on things like cost per student, we’d do real well.”
Dr. Belle S. Wheelan, president of Northern Virginia Community College, is somewhat optimistic that the right questions will be asked.
“I think Dr. [William] Allen, [director of the State Council of Higher Education] understands that many students do not come [to community colleges] with the goal of transferring or getting a degree,” Wheelan says. “Some come for just one or two classes with the purpose of getting a promotion on their jobs, and some come to get just enough training necessary to get hired.”
The higher education council will use the new formula for making its funding recommendations this fall. However, Gov. Jim Gilmore and the state legislature could adopt, revise, or ignore the council’s recommendations.
Padgett says it likely will take three or four years for the system to be fully implemented and between five and 10 years to see results.
“We’re starting with the assumption that we have a tremendous system of higher education. What we are trying to do is enhance that system,” he says.
Instead of disbursing state funds based on enrollment projections and other figures provided by schools, the state will establish funding levels for each school using a variety of performance-based factors, then reward the institutions that exceed expectations with additional incentive funds.
“The formula that exists currently is all based on input,” Padgett says. “It’s based on enrollments, it’s based on the number of books in the library. What we’re doing is trying to cut some of the strings to allow colleges to set their own targets and to achieve those by cutting some of the regulatory strings that have been haunting colleges for a long time.”
Under the model approved by the council, areas where incentives could be earned would include graduation rates, student retention, exit exam results, where graduates go after leaving school, and faculty productivity.
Although Wheelan is reserving judgment until the plans are finalized, she still has some concerns about the impact the incentives will have on funding.
“It depends upon the variables, and I know that transfer rates,  graduation rates, and retention rates are three of those variables,” she says, adding, “It’s those incentives that have us worried.”
“The devil’s in the details,” says Dr. William F. Snyder, president of Wytheville Community College, which received about $8.6 million from the state this year — still less than it received before the recession of the early 1990s.
Snyder believes that a performance-based funding system will mean “ultimately, we’ll have a better system of higher education in Virginia for having participated in this.”

Allaying the Fears
And council member Kate Griffin, chair of the group’s resource committee, agrees.
“The point of this is not to [see] what institutions are not doing, but [rather to challenge] them,” she says. “We’re saying, ‘We’re going to let you all go and do what you want with the money the state provides to you. However, you will be held to high standards and we will hold you accountable at the other end.'”
The higher education council has kept financial officials at all state schools apprised of its discussions, says Deputy Director Phyllis Palmiero, and the schools like the deregulation idea and support being held accountable.
Timothy Sullivan, president of the College of William & Mary, says that it’s too early to say where the state’s public college leaders stand on the council’s plan, especially with a blue-ribbon commission set up by Gov. Jim Gilmore and a joint legislative subcommittee also studying college funding.
“There are so many potential other [sic] players in deciding what’s going to be the process in higher education in finance,” says Sullivan, who also heads the Virginia Council of Presidents, made up of college chief executives.
“My real fear is that usually they set a pattern that’s a model for a university,” Downs says. “Then they measure everything by that. We don’t often fit that mold. I’d like to see some unique markers developed for community colleges.” 

— Eric St. John contributed to this report.

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