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Using Funding Policy to Achieve State Goals:The Response to SJR 88

Illinois Board of Higher EducationOakton Community College

October 5, 2010

The Specifics of SJR 88

• History and means of higher ed funding in Illinois– Comparisons– Reviewing for adequacy, equity, and reliability

• Compare productivity of Illinois institutions– State systems– Peer institutions

• Analyzing best practices for incentivizing certification and degree completion– Students– Institutions

• Review tuition and financial aid policies – assess roles in improving certification and degree completion

• Consider alternative funding mechanisms that will advance the goals of the Illinois public agenda

2

The Illinois Public Agenda for College & Career Success

• Goals1. Increase educational attainment to match best-

performing states

2. Ensure college affordability for students, families, & taxpayers

3. Increase the number of high-quality postsecondary credentials to meet the demands of the economy and an increasingly global society

4. Better integrate Illinois’ educational, research, and innovation assets to meet economic needs of the state and its regions

3

“2. Priorities, policies, and budgets must align with state goals.”

Among the principles established in conjunction with the public agenda

4

Policy Leadership

slide 5

Strategies for Achieving Goal Attainment

Planning and Leadership

Finance RegulationAccountabilit

yGovernance

Goal 1

Goal 2

Goal 3

Consi

stency

Alignment

Of the Policy Levers Available to Legislatures, the Most Powerful is Finance

• Finance Policy– Sends the strongest signals– Creates the strongest incentives for institutional

behavior

In the absence of alignment between goals and finance policy, failure to achieve goals will be

assured.

6

The Flow of Funds

slide 7

Federal Government

Tax Policy

Appropriations/GrantsStudent Aid

Tuition

Scholarships &Waivers

Student Aid (Restricted)

Income

Available State and Local

Govt. Funds

FederalGovernment

Higher Education

Students Institutions

Economy

• K-12• Corrections• Health Care• Other Govt.

DonorsFoundationsCorporations

Stimulus

Funds

The Flow of Funds - State

8

Federal Government

Tax Policy


Tuition



Govt. Funds

Higher Education

Students

• K-12• Corrections• Health Care• Other Govt.

Stimulus

Funds

Federal Government

Student Aid

Income

Economy

Public

Institutions

Private

The Flow of Funds

slide 9


Tuition



Govt. Funds

Higher Education

Students Institutions

Student Aid

FederalGovernment

Three Purposes for State Funding

• Sustaining institutions – capacity creation & maintenance

• Investing in state priorities – capacity utilization

• Ensuring Affordability

slide 10

Finance Policy – The Options

slide 11

• Base-Plus• Formulas• Investment

Funds

Tuition & Aid Policy Focused

on Revenue Generation

Performance Funding

Tuition & Aid Policy Focused on Attainment

of Specified Outcomes

Core Capacity

Capacity Utilization/

Public Agenda

InstitutionFocused

StudentFocused

Question – are the incentives created consistent with pursuit of

stated goals?

Remember – all funding mechanisms create incentives for behavior

• Institutions• Students

12

Incentives in the Current Funding Mechanism

• Keep students enrolled – but not necessarily completing

• Increase tuition to compensate for declines in state allocations

13

Characteristics of Sound Higher Education Finance Policy

• Comprehensive – encompasses– Appropriations to institutions– Tuition– Student financial aid

• Components all consistently promote pursuit of state goals• Maintains affordability to

– Students – judged against family income– States – judged against tax capacity

• Serves to maintain – as well as create – necessary educational capacity– Promotes alignment of institutional missions with state

priorities

14

Some Observations About Results of Past Practices

15

• Funding model has provided sufficient funds to four-year institutions to maintain capacity

• Community colleges are underfunded

16

Illinois/National Comparisons – Public Research Sector, AY 2008

National Average

IllinoisIllinois Rank

E&R Spending per Student

$15,619 $16,282 20

State & Local Subsidy per Student

$8,055 $7,533 28

Source: Delta Cost Project

17

Illinois/National Comparisons – Public Masters’ Sector, AY 2008

National Average



$12,185 $13,560 13


$6,578 $7,203 17


18

Illinois/National Comparisons – Public Community Colleges, AY 2008

National Average



$10,396 $7,836 46


$7,404 $5,422 31


19

Illinois Institutions are Relatively Efficient in Producing Degrees

20

Completions Per 100 FTE Students

Education & Related Spending per Completion

Source: Delta Cost Project21

And Student Aid Isn’t Keeping Up

Costs are Increasingly Being Shifted to Students

22

Illinois Public Research Institutions State & Family Share of Funding

1988-2008

Source: Delta Project on Postsecondary Education Costs, Productivity, and Accountability; Delta Cost Project IPEDS Database.

23

Illinois Public Masters & Bachelors Institutions State & Family Share of Funding

1988-2008


24

Illinois Public Associates Institutions State & Family Share of Funding

1988-2008


25

Percent of Family Income Needed to Pay for College

Minus Financial Aid

Public 2-Year Public 4-Year

Source: Measuring Up 2008

Private 4-YearNot for Profit

26

State Tax Capacity & EffortIndexed to U.S. Average

Source: State Higher Education Executive Officers (SHEEO)

AL

AK

AZ

AR

CACO

CT

DE

GA HI

IL

IN IAKS

KYLA

ME

MD

MA

MS

MT

NE

NV

NJ

NY

NC

ND

OH

OK

PA

RI

SC

SD

UT

VT

VA

WA

FL

ID

MI

MN

MO

NH

NM

TNTX

WV

WI

WY

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

0.6 0.8 1.0 1.2 1.4

Sta

te T

ax C

apacity

(Tota

l Taxable

Reso

urce

s Per C

apita

)

State Tax Effort (Effective Tax Rate)

US

OR

slide 27

A Framework for a New Funding Model

• Appropriations to institutions

• Tuition

• Student financial aid

28

Appropriations to Institutions

Task Force RecommendationPerformance-based funding is a valuable policy tool to achieve state goals of improved student outcomes, and Illinois should move forward with development of financial incentives to achieve desired outcomes

29

Performance Funding Model Should

• Include a performance feature in the base component of institutional funding

• Be different for different types of institutions– Research Universities

• Competitiveness for research funds• Application of research to state issues/opportunities

– Masters Institutions• Increasing number of graduates• Application of research to regional priorities/problems

– Community Colleges• Increasing numbers of completers• Increasing numbers of transfers• Completion of momentum points

• Be constructed so as to encourage success of at-risk students

30

Tuition Policy

• Now a train on its own track

• Must be more explicitly linked to other elements of funding policy

31

Student Financial Aid• Current program is

– Well designed– Underfunded (by 50%)– Unable to ensure that affordability goal can be met– Operated in such a way that allocation (triage) criteria are not aligned with public

agenda

• Options– Alter triage criteria used to allocate map funds

• Add high school preparation, for example

– Add resources to current program• Human capital bonding program• Reallocation of state money from institutions to students

– A new model that makes explicit the responsibilities for all partners in student aid funding

• Students• Families• Federal Government• State Government• Institutions

32

Some Pitfalls to Avoid

• Trying to solve the funding problem piecemeal– It will require a comprehensive solution– “we can’t tweak our way out of this”

• Creating a model that is too complex and not transparent

• Not reflecting different contributions of different types of institutions

• Trying to make a single part of the model carry too much of the load

• Building it in isolation – involvement of, and consultation with, key constituents is critical

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