National Center for Higher Education Management Systems 3035 Center Green Drive, Suite 150 Boulder, Colorado Using Funding Policy to Achieve State Goals: The Response to SJR 88 Illinois Board of Higher Education Oakton 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 Goals 1.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 FinanceRegulationAccountabilityGovernance Goal 1 Goal 2 Goal 3 Consistency 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 Federal Government Higher Education StudentsInstitutions Economy K-12 Corrections Health Care Other Govt. Donors Foundations Corporations Stimulus Funds

The Flow of Funds - State 8 Federal Government Tax Policy Appropriations/GrantsStudent Aid Tuition Scholarships & Waivers Available State and Local 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 Appropriations/Grants Student Aid Tuition Scholarships & Waivers Available State and Local Govt. Funds Higher Education StudentsInstitutions Student Aid Federal Government

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 Institution Focused Student Focused

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$16,28220 State & Local Subsidy per Student $8,055$7,53328 Source: Delta Cost Project 17

Illinois/National Comparisons – Public Masters’ Sector, AY 2008 National Average IllinoisIllinois Rank E&R Spending per Student $12,185$13,56013 State & Local Subsidy per Student $6,578$7,20317 Source: Delta Cost Project 18

Illinois/National Comparisons – Public Community Colleges, AY 2008 National Average IllinoisIllinois Rank E&R Spending per Student $10,396$7,83646 State & Local Subsidy per Student $7,404$5,42231 Source: Delta Cost Project 19

Illinois Institutions are Relatively Efficient in Producing Degrees 20

Completions Per 100 FTE Students Education & Related Spending per Completion Source: Delta Cost Project 21

And Student Aid Isn’t Keeping Up Costs are Increasingly Being Shifted to Students 22

Illinois Public Research Institutions State & Family Share of Funding 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 Source: Delta Project on Postsecondary Education Costs, Productivity, and Accountability; Delta Cost Project IPEDS Database. 24

Illinois Public Associates Institutions State & Family Share of Funding Source: Delta Project on Postsecondary Education Costs, Productivity, and Accountability; Delta Cost Project IPEDS Database. 25

Percent of Family Income Needed to Pay for College Minus Financial Aid Public 2-YearPublic 4-Year Source: Measuring Up 2008 Private 4-Year Not for Profit 26

State Tax Capacity & Effort Indexed to U.S. Average Source: State Higher Education Executive Officers (SHEEO) AL AK AZ AR CA CO CT DE GA HI IL IN IA KS KY LA 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 TN TX WV WI WY State Tax Capacity (Total Taxable Resources Per Capita) 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 Recommendation Performance-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 33