Across the U.S. and the world, higher education and government leaders have pointed to the exceptional need for a more educated citizenry and the central role higher education can play in improving people's future. In Tennessee, that need is acute as our state's public policy has for a long time sought solutions to address an undereducated population and the changing workforce and job skill demands of today's economy.
To address these challenges, Tennessee passed the Complete College Tennessee Act (CCTA) in 2010 which ushered in a comprehensive reform agenda that sought to transform public higher education through changes in academic, fiscal and administrative policies at the state and institutional level. At the centre of these reforms is the need for more Tennesseans to be better educated and trained for an evolving workforce. Central to the CCTA is a long-range plan for Tennessee higher education that establishes the direct link between the state's economic development and its higher education system. One of the primary policy levers for addressing the state's educational needs is a new public higher education funding formula, which allocates the entirety of institutional operating dollars on the basis of outcomes – not enrollment.
The fundamental question at issue was on what basis should government allocate taxpayer funds to public institutions. For decades, Tennessee and virtually all other states answered that question with enrollment. As institutional enrollments grew, government funding increased, irrespective of outcomes, productivity or student learning. However, as the policy imperative in Tennessee changed in the CCTA from student access to educational attainment and workforce preparedness, then the methodology by which government funded institutions needed to evolve as well.
Tennessee has done exactly that as outcomes – degrees awarded, research conducted, graduation rates, etc. – have completely replaced enrollment in the allocation of government funding. In fact, the Tennessee outcomes-based model does not consider student enrollment at all. Only when a student begins progressing toward a degree and graduates does funding follow. This approach, allocating 100 per cent of all government funding through performance or an outcomes-based model, is unique in scope and design.
Within the structure of the model are two features which further promote Tennessee's public policy goals. First is a substantial built-in incentive for institutions to graduate low-income students and adult or non-traditional students. Both populations are critical to Tennessee increasing its educational attainment rates and economic competitiveness. Second is that the funding formula recognizes the differences in institutional mission by weighting outcomes differently by institution. Therefore, the incentives given to a large, complex institution for doctoral degrees or research output are very different than the focus on bachelor's degrees at our smaller, more regional schools. This weighting structure allows the Tennessee model to be designed specifically to an institution's mission, reflecting campus priorities and the contributions the institution can make to Tennessee's overall public policy goals.
As this radical redesign unfolded, a concomitant policy shift embedded in the outcomes-based formula was that all government funding had to be earned anew each year. No more are schools entitled to prior year funding levels. As productivity and outcomes change, funding naturally gravitates toward institutions graduating more students and away from less productive institutions.
These changes, predictably and understandably, initially caused consternation among higher education leadership. Therefore, Tennessee went to great lengths to ensure that campus presidents had ample input into the design of the model. The contours of the outcomes-based formula were developed in collaboration with a range of thought leaders from across Tennessee higher education and state government. Additionally, the design process was transparent and fluid, with all parties focused on the goal of reforming public finance policy while respecting institutional mission and uniqueness.
Such a profound change in how government funds institutions has not only aligned public policy goals with finance policy, but it has unleashed a wave of creative energy as institutions completely rethink how they serve students and promote their success and completion. This simple act of government properly constructing the institution's financial incentives has empowered campus professionals and channeled financial incentives away from a focus on enrollment and toward degree completion. Tennessee has made very clear what it expects from institutions and how funding is to be derived without interfering with institutional judgments over how best to serve students.
Tennessee is approaching the third year of the outcomes-based model and the results thus far are extremely encouraging. Outcomes and productivity are up, though to be fair it will take time to determine causality. As important, though, is the cultural change across Tennessee institutions that has permeated most every facet of campus operations, from student outreach and advising to curriculum design. Our experience thus far has been that alignment of financial incentives and public policy goals, if properly and collaboratively designed, can affect significant change.
Dr. Richard G. Rhoda is the Executive Director of the Tennessee Higher Education Commission
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