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Budgeting for Results
Use of performance indicators increases in popularity

AS GOVERNORS and state legislatures press for more "accountability" in public higher education, performance budgeting has increased in popularity.

Only South Carolina plans to base all of its public higher education spending on performance factors but some states already use this approach to allocate a small part of the annual budget, and others are planning to do so.

"The growing popularity of considering results in the funding of state colleges and universities is clear," according to a recent report from the Nelson A. Rockefeller Institute of Government at the State University of New York. The report said two-thirds of the states "either have or are likely to adopt programs that use results in their budgeting for public higher education."

Joseph C. Burke, who directed the study, said only eight states, including South Carolina, currently tie appropriations directly to some kind of measurement scheme but 18 others are expected to adopt such plans in the near future. Still other states take these measurements into account in a general way but do not tie them to specific fund allocations.

"We don't yet know if this a trend or just a fad," Burke said. "The rationale makes sense but the implementation details are very difficult."

Dennis Jones, president of the National Center for Higher Education Management Systems in Boulder, Colorado, agrees that this approach to budgeting sounds appealing but is devilishly difficult to administer.

"You need a clear understanding of the measurements, so there is no ambiguity," said Jones, whose organization has worked on performance budgeting plans in several states. "And you need agreement on what you are trying to do: Are you trying to increase the graduation rate? Do you want to improve access? What are the goals? Often, that's not clear."

The movement has gained strength because governors and legislators, facing increased pressure for more spending on health, welfare, public schools and prisons, are seeking evidence that dollars spent on public higher education produce results. In South Carolina and other states, they have been joined by coalitions of business leaders who are dissatisfied with the performance of public colleges and universities.

"The business attitude tends to be, 'If we can make these decisions in the business world (cutting costs, downsizing, introducing technology), why can't it be done in higher education?'" said Michael Smith of the South Carolina Commission on Higher Education.

This attitude annoys many educators.

"I don't think these business comparisons are valid," said Bill McCulley, director of academic programs for the Tennessee Higher Education Commission. "We're not just making boxes of cereal here; we're improving the lives of our citizens."

Nevertheless, the argument that public higher education should improve its efficiency and quality, in order to justify the large sums it draws from the public treasury, is gaining ground.

Performance funding "makes the public feel more comfortable in giving us increases in the core budget," said Stephen Lehmkuhle, acting vice president for academic affairs for the University of Missouri system. "That has been healthy and good."

The programs in Missouri and Tennessee are considered by some researchers and policy analysts to be among the most successful in the country. Both are incentive-based, utilizing a limited number of performance indicators to allocate about five percent of the total state higher education budget.

The Missouri approach, called "Funding for Results" (FFR), uses graduation and retention rates, scores on nationally-normed senior tests and graduate school entrance examinations and other assessment information to determine how much money should go to each public institution.

For the current academic year, the four-campus University of Missouri system will receive $5.1 million in FFR funding, while Truman State University (formerly Northeast Missouri State) will receive about $1 million, roughly three percent of the campus budget. "It's a very small percentage, but it's money that can make a difference," said Ralph Cupelli, assistant to the vice president for academic affairs at Truman State.

"Culturally, higher education is beginning to become more accepting to being accountable," the University of Missouri's Lehmkuhle said. "Initially, it (performance-based funding) was feared to be a way to build in accountability and standards set by the state, but that's starting to change"

In Tennessee, where performance funding has been used since 1979, the higher education commission applies ten indicators to determine how much incentive money (up to 5.4 percent of the campus budget) should go to each school.

The indicators include graduation and retention rates, accreditation of academic programs, job placement rates, and scores on national tests, among others.

Incentive funding has amounted to about $300 million since the program began, according to Bill McCulley of the higher education commission. This year's allocation is $26.7 million, out of a total appropriation of about $1 billion.

The commission has reported that job placement rates in vocational programs have increased from about 65 percent to about 95 percent since the program began; that the percentage of accredited major programs has risen from the mid 60s to more than 90 percent; and that scores on national tests have improved dramatically.

The Tennessee legislature is "very happy" with performance funding and would like to expand it, McCulley said, "but the institutions are concerned that their base funding might be cut if this goes much over five percent."

Joseph Burke, of the Nelson Rockefeller Institute, hopes that the successes in Missouri and Tennessee can be repeated elsewhere and that performance funding will not go the way of earlier, unsuccessful attempts to assess the accomplishments of public colleges and universities.

"If this turns out to be just one more fad," Burke said, "I'm afraid governors and legislatures are going to throw up their hands in disgust and forget about trying to fund higher education."

÷William Trombley and Donald Sevener

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