Outcome-based funding OK'd for Arkansas colleges

Higher-ed board approves policies to reward degree, certificate completion rates

Posted: October 28, 2017 at 4:30 a.m.

Maria Markham, director of the state Higher Education Department

Maria Markham, director of the state Higher Education Department

MOUNTAIN HOME -- Come July, Arkansas will fund its public colleges and universities using a new method, one that focuses on students progressing and completing certificate and degree programs.

Three policies -- one governing how Arkansas will fund its 22 public community colleges, another for the state's 11 public universities and a third on how the funds will be distributed to the schools -- got their final approval from the Arkansas Higher Education Coordinating Board on Friday. The funding changes -- from one based largely on enrollment to one based on student success -- are the first in more than a decade.

Maria Markham, director of the state Department of Higher Education, said Friday that department officials are excited to have gotten through the final hoop. The state is hopeful that the changes are just "one of many, many pieces of a puzzle" that will help Arkansas, which has historically ranked in the bottom tiers compared with other states in the percentage of its adults with high-demand certificates and degrees, she said.

"We've been 49th for far too long," she said. "The definition of insanity is doing something the same way and expecting a different result. So, it's time for us to do something in a different way in hopes of getting a different result."

The idea is to produce a larger number of graduates who are ready to fill future workforce demands. A prepared workforce can attract businesses to the state, which can create high-wage jobs and improve quality of life overall, she said.

The new model has been in the works for the past two years, when the state's higher education leaders began developing a master plan. The plan -- the first of its kind since at least the late 1980s -- seeks to increase the percentage of adult Arkansans who hold technical certificates or higher degrees from the current 39.5 percent to 60 percent by 2025.

Arkansas' current enrollment-based funding method has been in place for public community colleges since 2001 and its public universities since 2005. But, in part because the Legislature never fully funded the schools at the start, the funding method was not equitable, higher education leaders have said.

Schools that experienced enrollment booms didn't receive any extra money, and those that saw decreases in their student populations often didn't lose state funding.

Higher education officials have for years considered schools that received 75 percent of its funding from the state as "fully funded." And most have not reached the 75 percent threshold.

"When I became governor, I came to understand how our funding model was outdated and, to a large extent, irrelevant," Gov. Asa Hutchinson said in an interview Friday. "That was just unacceptable and does not reflect the goals of our state to concentrate on student achievement rather than student enrollment."

As a part of the master plan, the state's higher education leaders took a close look at the funding method and started retooling the method to align it closely with the state's goals. With the adoption of the policies Friday, Arkansas joins a group of four other states -- Tennessee, Ohio, Indiana and Colorado -- with a "robust" funding method, commonly called an outcomes-based funding model.

Arkansas' new funding method has three broad goals: efficiency, effectiveness and affordability.

Under those three goals are metrics, including number of credentials, time to degree and students' success in gateway courses, or required classes that students need to pass before going on to others. (Composition 1 is an example of a gateway course for English.)

Each institution will be scored on those weighted metrics, which will be used to determine whether it has improved from year to year and, subsequently, whether it will gain or lose funds.

To account for fluctuations, the Higher Education Department will use rolling averages to produce a final "productivity index" score for each school, said its deputy director, Tara Smith. The department will also calculate an overall productivity score from all public colleges and universities' scores to determine how much new state funding it will recommend.

The new funding method will begin in fiscal 2019 -- July 1 to June 30, 2019 -- and no school can lose any funding because of a "hold harmless" clause. Schools can earn more funding, though.

After the first year, schools could lose up to 1 percent of their state funds in fiscal 2020, up to 1.5 percent in fiscal 2021 and up to 2 percent the year after that. The 2 percent is the threshold amount that a school can lose in subsequent years.

Schools can earn up to 1 percent, which will go into their base funding for fiscal 2019, up to 1.5 percent for fiscal 2020, and 2 percent for fiscal 2021. Two percent is also the threshold amount that a school can gain in base funding, and any percentage above that will be one-time incentive money.

A school's loss or gain in funding is proportionate to its contribution to the overall four- and two-year productivity index scores.

As an example, Arkansas Tech University received $32,216,531 from the Revenue Stabilization Act this fiscal year. The Higher Education Department recommended that the Russellville school get a 2.15 percent increase, or $693,692, in new funding for the coming fiscal year. The school will receive $322,165, or 1 percent of its fiscal 2018 dollars from the revenue act added to its new base funding, which will be used for calculations in the next fiscal year. The remaining 1.15 percent, or $371,526, is one-time incentive funding.

Should an institution lose more than 5 percent of its funding from its fiscal 2019 level, the department will evaluate the policies, taking a holistic approach to see what in the funding mechanism is causing the decline.

The department will look at the institution if officials find no flaws in the funding method.

Friday's approval came after the governor had met with several leaders of higher education institutions who had some concerns with the new funding method, he said. Many concerns, including the addition of a noncredit workforce training component and post-completion success, have been addressed. Any changes to the current policies will go through the same process, which includes a public comment period and legislative approval.

"I applaud all of our higher education members from four-year colleges to two-year colleges that have been very supportive of a new model of funding," he said in the interview. "I applaud them for really working with us in an encouraging way to make it better. Ultimately, they were supportive of it."

Hutchinson has backed the changes from the start and even committed $10 million in one-time funding to help get the new funding method started.

"I am grateful for the cooperation and energy that went into making this funding model a reality," he said in a statement. "By shifting the focus from student enrollment to student progression and accomplishment, we create a positive incentive for colleges and universities to encourage more students to complete their courses of study and for institutions to be more efficient in their operations."

At the board meeting Friday, many members asked questions and voiced support for the effort. Jim Carr of Searcy said the new funding method is "a great step forward."

Many questions came from one of the board's newest members, Keven Anderson of Rogers, who said he agreed with what the new funding method is trying to accomplish. He asked how much enrollment gains or losses would affect the new funding method.

Markham, the director of the Higher Education Department, said it could affect funding in that institutions with more students will likely have more graduates. But schools with declining enrollments can also increase funding if they graduate more students in high-demand fields, she said, referring to the different weighting used to calculate a productivity score.

The key is to do a better job with the students the institution already has, she said.

After further discussion, Anderson said that "the more graduates you have, the better you score on the formula. So growth matters."

It has to be productive growth, though, said Greg Revels, a board member from De Queen.

"You can go and just run 'em in like cattle," he said, but the institution has to graduate them.

Recruiting is also very expensive for institutions, Markham said.

"So, there's a trade-off: the investment that you make bringing all those students in versus a small movement in your productivity increase," she said. "It's not productive practice ... because you're going to invest more in those students than you would ever hope to recover from an increase in your model."

The coordinating board also approved on Friday funding recommendations using the new method for the colleges and universities for fiscal 2019, which begins July 1.

The department is recommending an overall increase of $9.4 million for the state's colleges and universities. It will be able to use the remaining funds -- of Hutchinson's $10 million commitment -- as the officials wish, the governor said.

Of the $9.4 million, nearly $7 million would go toward universities and $2.4 million to community colleges.

Among the universities, four -- Arkansas State University, the University of Arkansas at Fort Smith, the University of Arkansas at Little Rock and the University of Arkansas at Monticello -- experienced productivity declines and would not receive any new funding. The University of Arkansas, Fayetteville would receive the most in new funds -- nearly $5 million, of which only $1.2 million will go into its base funding.

Eight of the 22 public community colleges would receive new funding. They are Cossatot Community College of the University of Arkansas, College of the Ouachitas, North Arkansas College, University of Arkansas Community College at Hope and Arkansas State University System's two-year campuses in Beebe, Mountain Home, West Memphis (Mid-South) and Newport. ASU-Beebe would see the highest increase of just over $1 million.

Now, the funding recommendations will go to the campuses, Hutchinson and the General Assembly. The campuses will prepare budgets with the given recommendations, and it will be up to the Legislature to fund the schools accordingly.

Metro on 10/28/2017