Editor's note: This is the second of a two-part story on performance-based funding, a new mechanism that will likely be incorporated in the state of Illinois' 2013 education budget. This week's story focuses on Tennessee's experience with performance-based funding and whether Illinois will be able to emulate it. The first story outlined the mechanics of performance funding and why it is being considered. The first story is available online.
Tennessee higher-education officials say a very simple formula has made the state's 30-plus-year experiment in performance-based funding a success.
The ingredients of that formula include an outcomes-expectant legislature bent on reforming education funding, a community of educators willing to offer a layer of accountability to improve the system and equal parts communication between the two.
"We think it's a good thing that has really changed the culture," said Richard G. Rhoda, the executive director of the Tennessee Higher Education Commission. "Campuses are thinking differently than they did in the past, which is good."
Rhoda said the Tennessee performance-based system, which began as a pilot program in the early 1970s, was first created as a way to encourage the state's higher-education institutions to seek accreditation for a more standardized and better-quality statewide system.
"(The performance-based system) has had its critics, but for us, it's something that's matured over time," he said. "The question has always been, 'How do we do this in a meaningful, fair way?' "
Tennessee's performance-based efforts have changed over time, but legislative reforms in just the last two years have increased the percentage of money set-aside out of the total budget for performance from the traditional 1 to 2 percent level to about 5.5 percent of the overall higher-education budget.
Formerly, the state followed the traditional national funding model where "headcounts and warm bodies" were the major measurement of need and fund disbursal, Rhoda said.
"Now we're more interested, not in fall enrollment, but graduation rates" and other preordained "productive enrollment" measurements, he said. "It's much more qualitative."
Rhoda said the state has over the years developed a comprehensive formula that groups similar institutions together in an effort to differentiate mission and success in meeting the specified state goals of each. He said about 80 percent of funding is driven by more traditional "outcome" factors (based on graduation statistics), 5.5 percent is earmarked for spotlighted "performance" factors (such as low-income and minority student retention) and the rest distributed for fixed costs.
"We put a premium on some of those factors because we think it's good policy," he said.
The formula, which has been "tweaked" as goals are re-evaluated, is regularly held up as a model by states looking to adopt performance funding. In fact, components of the proposed Illinois system draw from Tennessee's experience.
Rhoda said the state has phased the revised program in over three years and there is a likelihood officials will push for larger performance percentages in the years to come.
"We're still restraining it a little bit," he said.
He said there are concerns, considering Tennessee also is facing funding constraints, that the system could reward better-performing institutions at the expense of those struggling to meet the goals.
"We expect level funding in Tennessee as well, so the pie is probably going to remain the same size," he said.
So, when it comes to performance funding, why has Tennessee been able to pull off what no other state seems to have been able to accomplish?
"Today is such a different environment; it's kind of a scarcity mentality," he said. "There has to be a lot of buy-in and there has to be a lot of communication."
He said the Tennessee Higher Education Commission has worked closely with legislators in creating a workable system, and Illinois officials are confident they can repeat the results of the Tennessee experiment.
George W. Reid, the executive director of the Illinois Board of Higher Education, said there has been an unprecedented level of communication between educators and legislators over the past two years as they attempt to create a performance-based system.
"There has been almost constant discussions involving legislators, the IBHE and all the colleges and universities," he said. "This is being done with lots of input from everyone with a stake. We're pretty much doing this hand-in-hand because it has to be workable and acceptable or it won't work."
The IBHE's Finance Study Commission included representation of the state's community colleges, four-year institutions and the Illinois House and Senate.
"We've been discussing this with everyone, with all of the stakeholders, and we've taken a lot into consideration," Reid said. "In every case we've had rather in-depth and very lively discussion. I'm sure there are folks who will be skeptical until they see how it all sorts out."
Alan Phillips, IBHE budget and planning director, said he thinks performance funding will not only be implemented, but succeed.
"The hope is that colleges will be working more on ensuring we're getting these students through to graduation," he said. "I think everyone understands this is something we have to do. We have to do a better job of aligning the goals of our state with some of the funding issues."
He said that will be accomplished by better measuring - and then rewarding - progress.
"When we look at (future) data," Phillips said, "we'll know we are looking at progress or not. The numbers will give us a clear picture and a story."
Julie Smith, chief of staff for Illinois Gov. Pat Quinn, also has been involved in the discussions to move the state to a more-accountable and effective method of funding its higher-learning institutions.
"You could also call it 'budgeting for results,' " she said of the proposed performance system. "With funding the way it is right now, we have to be sure the programs we're funding are achieving the desired results."
She agrees that state education officials and legislators have made an unprecedented effort, starting with the creation of the Illinois Public Agenda for College and Career Success, of working together to reform education funding.
"Our state has been very successful in communicating this to everyone," she said. "There has been a good and extensive dialogue. There has been a very significant attempt to make sure everyone has been involved in the process."
She said she feels everyone involved was "on the same page" prior to presentation of the final performance-funding proposal, approved by the IBHE Board on Feb. 7. Board recommendations go next to the Legislature for approval and are expected to be a part of the 2013 state education budget.
"There has been a lot of investigation, a lot of feedback, a lot of back-and-forth from all sides," she said, "and the (IBHE) commission members have been very good about going back to their institutions and sharing what they've learned. It's been a good process because it has really gotten people thinking. People have been really engaged in the process."
Smith said institutions have an added stake in adopting performance measures because they will lead to better planning and budgeting practices that are more strategic.
"It will help them make operational decisions based on goals and outcomes," she said. "I think it's something that will evolve."
Most important, if reforms like performance funding work, the Illinois economy and the residents who depend upon it will be better prepared to face the future.
"I think our educators and the Legislature realizes that our economy has to have an educated workforce to fill future jobs," she said. "This (performance-based funding) broadens and clarifies and more succinctly focuses on key areas where we need to see improvement."
Smith said the governor also is moving forward on other components outlined in the Illinois Public Agenda and other ways to improve higher-education management: the recent easing of state procurement policy provisions that have been praised by UI President Michael J. Hogan, the approval of several school-related capital projects on hold for years, and even the promise of three years of "level" funding in a state with a 2012 fiscal year starting deficit of more than $12 billion.
She said there is much work left to be done.
"For the governor, education has been among his highest priorities," she said. "He's done his best to shield programs from cuts."