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Table of Contents
Update:
Interest in Performance-Based Budgeting Has Faded (March 2008)
Performance-Based Budgeting
South Carolina's new plan mired in detail and confusion
Winter 1998
By William Trombley
Senior Editor
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| "This is costing the state a fortune,"
says University of South Carolina's Marcia G. Welsh. |
COLUMBIA, SOUTH CAROLINA
THIS IS HOW Austin Gilbert tells the story of South Carolina's decision to launch
an ambitious new performance-based budgeting plan for public higher education.
Gilbert runs a small construction company in Florence, S.C. He is also chairman
of the South Carolina Commission on Higher Education. In that capacity, he was one
of 12 people who met for several months in 1995 to ponder the future of South Carolina's
33 public colleges and universities.
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| Chairman Austin Gilbert, of the South Carolina
Commission on Higher Education, is a strong supporter of the new plan. |
The study group, appointed by the state legislature, included four state senators,
four members of the House of Representatives and four people, including Gilbert,
from business and industry. Their discussions were guided by a North Carolina management
consultant named Terry Ainsworth, who asked the group to read two books: "Break
Point and Beyond," by George Land and Beth Jarman, and "The Fifth Discipline,"
by Peter Senge.
The "Break Point" book made a deep impression on Austin Gilbert.
"They made the point that an organization is like an organism that is constantly
evolving," he recalled during an interview. "In the early stages there's
a lot of enthusiasm and it's okay to make mistakes. Then you get to the second phase-the
'break point'-and the organization starts to become more rigid and mistakes are not
tolerated as much. People begin to say, 'We don't do it that way around here.'
"In the third phase, beyond the 'break point,' you have to reinvent the organization,"
Gilbert continued, "with supportive leadership that looks at things in a new
and different way, encourages new thinking and says it's okay to make mistakes. We
decided we were in that phase and we had to reinvent higher education in South Carolina."
Gilbert said the discussions were marked by "good will and camaraderie…this
was a peak experience for me…everybody put the issues right out on the table and
the openness of the discussions was wonderful."
None of the 12 members came from higher education, although the chair, State Senator
Nikki G. Setzler, a Democrat, has been chairman of the Senate Education Committee
for eight years, and Gilbert has been a member of the state higher education coordinating
body for five years.
"There was kind of a gentlemen's agreement that we didn't want that kind
of pressure," Gilbert explained.
Administrators and faculty leaders were in the audience when the group met but
could not speak unless they were asked specific questions. Few outside experts were
consulted and most of their advice was ignored.
The committee members were "largely unencumbered by knowledge of higher education,"
remarked Jack Parson, a political science professor at the College of Charleston
and head of the statewide Council of Faculty Chairs.
"You had business people and others who thought they knew how things should
be done in higher education," said Sally Horner, executive vice president at
Coastal Carolina University, a 4,500-student campus near the popular resort community
of Myrtle Beach. "This would be like me sitting on a committee to study the
South Carolina banking industry."
But Terry Ainsworth, the group's "facilitator," said the absence of
college administrators and faculty members "could be a positive-the people involved
didn't have any particular biases."
Toward the end of their deliberations, study group members began to decide which
were "critical success factors" for public higher education in the Palmetto
State. Using key pads called "innovators," so no one could see how others
were voting, they selected 37 "performance indicators," ranging from graduation
rates to "use of best management practices."
Act 359, passed by the General Assembly and signed by Governor David M. Beasley,
mandated that future funding of public higher education should be based on these
37 indicators, not on the enrollment-driven formula of the past.
This year, 25 percent of the increased funding for public higher education, or
about $4.6 million, was awarded according to the indicators. Next year, 75 percent
of the "new money"-perhaps $30 million or more-will be distributed in this
manner. Beginning with the 1999-2000 academic year, 100 percent of state funding
is to be allocated on the basis of the 37 "quality indicators."
Or so the theory goes. As a practical matter, each public institution will receive
a "minimum resource requirement" (MRR) and only 15 percent or less of its
funding will depend on performance.
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| State Senator Nikki Setzler pushed the performance
plan through the South Carolina Legistature. |
"The MRR is really a base budget for each institution," said a member of
the higher education commission who requested anonymity, "but we can't call
it that and we can't refer to a 'funding formula' because the PR we're putting out
says we're awarding 100 percent of the money according to performance."
John E. Smalls, director of finance for the higher education commission, predicted
the new budget approach will mean "no more than a one or two percent change
for any given institution" because it will be "politically unacceptable"
for the state to reduce financial support for any college or university significantly
on the basis of poor performance.
The legislation also calls for the closing or merger of low-performing schools,
but no one interviewed during ten days in the state thought local politicians would
allow that to happen.
Performance-based budgeting has grown increasingly popular in recent years. A
study by the Nelson A. Rockefeller Institute at the State University of New York,
found that two thirds of the 50 states use performance measures in some way and that
more than half report these measures in the budget process. However, in most states
less than five percent of the higher education budget is tied to performance, and
no other state has tried to use as many as 37 measurements of quality.
| Related
information |
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South Carolina's 37 Steps
THE NEW SOUTH CAROLINA budgeting plan appropriates money
to public colleges and universities according to 37 "performance indicators":
- Expenditure of funds to achieve institutional mission
- Curricula offered to achieve mission
- Approval of a mission statement
- Adoption of a strategic plan to support the mission statement
- Attainment of goals of the strategic plan
- Academic and other credentials of professors and instructors
- Performance review system for faculty, to include student and
peer evaluations
- Post-tenure review for tenured faculty
- Compensation of faculty
- Availability of faculty to students outside the classroom
- Community or public service activities of faculty for which no
extra compensation is paid
- Class sizes and student-teacher ratios
- Number of credit hours taught by faculty
- Ratio of full-time faculty compared to other full-time employees
- Accreditation of degree-granting programs
- Institutional emphasis on quality teacher education and reform
- Sharing and use of technology, programs, equipment, supplies and
source matter experts within the institution, with other institutions and with the
business community
- Percentage of administrative costs compared with academic costs
- Use of best management practices
- Elimination of unjustified duplication and waste in administrative
and academic programs
- Amount of general overhead costs
- SAT and ACT scores of student body
- High school standing, grade-point averages and activities of student
body
- Postsecondary non-academic achievement of student body
- Priority on enrolling in-state students
- Graduation rate
- Employment rate for graduates
- Employer feedback on graduates who were employed or not employed
- Scores of graduates on post-graduate professional, graduate or
employment-related examinations and certification tests
- Number of graduates who continue their education
- Credit hours earned by graduates
- Transferability of credits to and from the institution
- Continuing education programs for graduates and others
- Accessibility to the institution for all citizens of the state
- Financial support for reform in teacher education
- Amount of public and private sector grants
- Number of "distance education" credit hours
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Austin Gilbert said he did not think 37 indicators were too many. "The construction
industry has 40," he said.
David Maxwell, a former Clemson provost and now a member of the Commission on
Higher Education, keeps asking why there are 37 measures and not 36, 38 or 110. "The
only answer I get is that the law says 37," Maxwell said.
Supporters of the South Carolina plan say it will convince a dubious public that
the state's public colleges and universities are doing a good job and deserve more
financial support.
Public support for higher education is said to have waned in South Carolina in
recent years. There have been complaints about faculty members who do not teach enough,
unprepared students and low graduation rates. Some businessmen believe good jobs
are being lost to other states because South Carolina colleges and universities are
not producing enough well-trained graduates.
Public confidence is thought to have been further weakened by the escapades of
former University of South Carolina President James B. Holderman, who resigned in
1990 after an expense account scandal and later was imprisoned for lying to federal
bankruptcy officials.
State Senator Setzler and others believe that requiring greater accountability
from public campuses through performance-based budgeting will help to restore public
confidence.
"I don't think there's any question that, with this movement to excellence,
you will see legislative and public support for appropriate funding for higher education,"
Setzler said in an interview. "And that clearly was one of the goals of the
committee and the legislation."
Others are not so sure.
"When all is said and done, I don't think there will be more money for higher
education," said David Fleming, director of institutional research at Clemson
University, one of three research institutions in the state (the others are the University
of South Carolina and the Medical University of South Carolina). "Higher education
doesn't have a strong voice like other constituencies-senior citizens or public schools
or crime. Politicians can't get elected on higher education."
In the 1995-96 academic year, South Carolina local and state expenditures per
full-time equivalent student in four-year institutions were $4,613-about $250 less
than the average for the 15 states belonging to the Southern Regional Education Board,
according to an SREB report.
"The basic problem here is that higher education is drastically underfunded,"
said a college president who asked not to be identified. "No amount of 'performance
indicators' or any of that other stuff is going to change that."
Or, as Mary Thornly, president of Trident Technical College in Charleston, put
it, "there's a strong interest in South Carolina in rolling back taxes of every
sort." In that kind of climate, she said, more "accountability" is
unlikely to earn large increases in spending for public higher education.
Nevertheless, because "this is the law"-as one college administrator
after another referred to it in interviews-a massive data collection and reporting
process is underway throughout the state.
For the 1997-98 academic year, the plan's first year, 14 of the 37 indicators
were used to judge the performance of each public college and university. Next year,
eight more will be added and in the third and final year of the phase-in period,
all 37 will be in play.
Some indicators have several parts. If all of the parts of all of the indicators
are used to judge all of the campuses, measurements could total in the thousands.
Each campus establishes a "benchmark" for each indicator. This year,
the benchmarks have little meaning because they are based on past performance. To
some extent, that will be true for the second year as well. Beginning in the 1999-2000
academic year, however, each school must demonstrate that its benchmarks have been
met or exceeded in order to earn a high rating from the Commission on Higher Education,
which administers the entire unwieldy process.
Once a year, the commission assigns ratings of one to six for each indicator at
each institution and then issues a single-sheet "report card."
This year, for example, Clemson received a "6" for holding down "overhead
costs per FTE student" but only a "4" for "average class size."
The university's total score was 92 percent, tenth highest in the state.
The highest score-101 percent-was recorded, surprisingly, by the University of
South Carolina's branch campus in Lancaster, a lower-division (freshman-sophomore)
school with about 1,200 students and a modest academic reputation.
After studying these scores, Fred R. Sheheen, the state's former commissioner
of higher education, wrote, "No other method of which I am aware would render
such results, including the ancient practice of spilling the entrails of goats on
the ground and reading messages from the patterns formed thereby."
"I was just as surprised as anyone else," said Deborah Cureton, dean
of academic and student affairs at Lancaster. "I guess we just looked particularly
good on some of those first 14 indicators."
Michael Smith, who is coordinating the new plan for the higher education commission,
warned that the first-year scores don't mean much because only a limited number of
indicators were used, the benchmarks were based on past performance instead of future
goals, and there was insufficient planning time.
"We're feeling our way," Smith said. "We're looking for answers.
We won't know what works and what doesn't until we have all 37 indicators in place
and we've been using the whole system for a couple of years."
But critics wonder if the scheme will ever make sense. They believe large amounts
of meaningless information are being compiled that, in the end, will make little
difference in state financial support.
Some indicators, or "critical success factors," are puzzling.
For instance, one tries to measure "institutional emphasis on quality teacher
education and reform" when the state's 21 two-year colleges do not train teachers.
Act 359 calls for the Commission on Higher Education to apply "objective,
measurable criteria" in judging a school's performance, but for some indicators
no such criteria exist. For instance, one indicator asks if "curricula (are)
offered to achieve (the) mission" of a given school. Any judgment about that
would be, as Fred Sheheen has written, "subjective" and "largely in
the eyes of the beholder."
Most campus officials who were interviewed agreed that some of the indicators
are valid measures that can be quantified, at least to some degree: Does the institution
have a strategic plan? How do faculty salaries compare with those of rival institutions,
both inside and outside South Carolina? How much of the total budget is spent on
administration? Is there a post-tenure review policy for tenured faculty members?
How many degree-granting programs have been accredited?
But other measurements appear to be trivial or meaningless-for example, one requiring
institutions to report on the "non-academic achievements" of their students
when they were in high school.
Still others are contradictory. One indicator rewards an institution whose students
enter with high SAT or ACT scores, while another gives high marks for enrolling in-state
students, many of whom have low test scores.
| Related
information |
South Carolina Statistics
(Fall 1996)
• Number of public campuses: 33 (three research universities, nine four-year comprehensive
universities, five two-year regional colleges, 16 technical colleges)
• Enrollment: 157, 363 (headcount)
• Students: 73 percent white, 27 percent minority (mostly African American)
• Operating budget: $642,407 (1996-97 academic year-14.7 percent of total state revenue)
• Tuition and fees: average for four-year universities $3,133, for two-year regional
colleges $1,850, for technical colleges $975
(Source: South Carolina Commission on Higher Education) |
South Carolina State University, the only historically black school in the state,
made the mistake of taking the test score indicator seriously, increasing the SAT
score required for entrance last fall. The result was a 25 percent drop in freshman
enrollment, causing a revenue loss of more than $500,000 that the state will not
reimburse.
"We have always done a very good job of retaining the students who enroll
here, including those with low test scores," said Leroy Davis, South Carolina
State's president. "I should think that would be a more significant indicator
of quality than entering test scores."
Another indicator calls on campuses to gather "employer feedback on graduates
who were employed or not employed," a measure that Susan Pauly, director of
planning at the University of South Carolina at Lancaster, called "ludicrous-employers
aren't going to take the time to do that and, if they answer honestly, they might
be opening themselves to law suits."
Class size seemed at first to be an appropriate quality measure but problems developed
immediately. How can an introductory course in political science or psychology, almost
always a large lecture, be compared with the one-on-one instruction required in some
programs at the Medical University of South Carolina?
Commission staffers first decided not to apply this indicator to the medical campus.
Then they limited the evaluation to freshman and sophomore classes. Campus officials
doubt that the eviscerated indicator has much meaning.
In order to generate more money for faculty salaries and other high priorities,
Coastal Carolina University had increased its student-faculty ratio gradually from
19-to-one to 25-to-one. "This was cost-effective and we were convinced quality
did not suffer," said Sally Horner, the campus executive vice president. "But
we got a low rating (3.5) on that indicator."
Some of the people who are working on implementation of Act 359 understand that
some indicators need to be modified and others should be tossed out altogether.
Changes have been made already, such as limiting the class size measure to the
lower division. Other modifications are coming.
Work is being concentrated on indicators that seem practical, while others are
being silently ignored.
"We've found, as we work through this, we tend to find problems that were
not apparent until our work began," Dalton Floyd, who chairs the higher education
commission's planning and assessment committee, said diplomatically.
Floyd, a 59-year-old attorney from Surfside Beach who specializes in golf law,
is given credit for bringing calm and reason to the implementation process since
taking over the planning committee a few months ago.
However, every formal attempt to reduce the number of indicators or make other
substantive changes has been given short shrift by Senator Setzler and other supporters
of the plan.
When a committee from the three research institutions suggested that 15 of the
indicators should be dropped as largely irrelevant, they were rebuffed.
"Some people want to drop some measures," Austin Gilbert said. "But
I tell them, 'No, it's like the knob on your radio-if it's not right, you adjust
it but you don't remove it altogether.'"
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| Attorney Dalton B. Floyd, Jr. heads a committee
to work out the budget plan's details. |
Setzler believes the implementation problems have been exaggerated.
When questions arose last year, "we sat everybody around the table (and)
we learned that there really wasn't the disagreement they thought there was and everybody
was on the same song sheet," Setzler said in an interview. "Certainly,
I think any postponement of implementation would be an effort to either dilute or
kill the legislation, and I certainly would not support that."
"I think we need to work with this awhile before we make any significant
changes," Dalton Floyd said. "I don't think the legislature would look
in a friendly way at any major changes at this stage."
Now that Setzler, Floyd and others are being invited to talk about the South Carolina
budget plan at national higher education meetings, it will be even harder to make
needed changes, some campus officials fear.
Said one, "Senator Setzler is getting praise for this and now his ego is
so big, he doesn't want to hear about any defects" in the plan.
So the expensive, time-consuming process continues.
"This is costing the state a fortune," said Marcia G. Welsh, associate
provost and dean of the graduate school at the University of South Carolina's main
campus in Columbia. "We have a number of people who are dedicating a significant
part of each day to this, and when all the numbers fall out, what are they going
to mean?
"It's really frustrating," she continued. "Higher education is
in such tough shape in this state, the situation is growing more and more desperate,
and we're spending all this time and effort on this exercise."
The legislature did not appropriate any additional money for performance-based
budgeting, so the institutions are absorbing the costs. University of South Carolina
officials estimate they have spent at least $150,000 on start-up costs alone.
Clemson's David Fleming said he has put 62,000 miles on his Mercedes in the last
two years, most of it traveling from the Clemson campus, in the western part of the
state, to meetings at the state capital in Columbia.
Gathering the massive amount of data required for the performance review process
has been especially burdensome for smaller campuses.
Thomas Hallman, associate chancellor at the University of South Carolina's 3,000-student
branch campus in Aiken, said a successful student assessment program has been "significantly
reduced" because campus administrators are spending so much time on the new
budget plan.
But Joseph C. Burke, who has been studying performance budgeting at the Rockefeller
Institute of Government, is not sympathetic to these complaints.
"Shouldn't they have been gathering much of this information already?"
Burke asked. "If some people in higher education had their way, nothing new
would ever get started because you can always think of more criticisms than reasons
to do it."
Several administrators agreed that the plan has forced them to analyze their campuses
more carefully and to do better planning.
At Coastal Carolina University, for instance, seven task forces, including about
50 faculty members, have been involved in fashioning campus responses to the higher
education commission's requests. "I think we all know a lot more about the institution
than when we started on this," Executive Vice President Sally Horner said.
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| Former Higher Education Commissioner Fred
R. Sheheen doubts the plan will work. |
"We feel, with hard work and good sense, it will become a useful exercise,"
said Conrad Festa, provost at the College of Charleston, a handsome liberal arts
campus in the heart of Charleston's historic district. "It forces us to hook
together planning, budget and assessment in ways we haven't done before."
But Jack Parson, who has taught political science and international relations
at the college since 1980, is less optimistic.
"The best we can hope for," Parson said, "is to be able to go back
to the public and the legislature and say, 'Here are the indicators, we seem to be
doing pretty well and, now that you have the evidence it's time to appropriate more
money for higher education.'"
"This may enable higher education to regain some of the credibility it has
lost, not only in South Carolina but nationwide," Sally Horner said. "But
do I think it will affect, in the near future, what goes on in the learning experience
of a single student in this state? No, I don't think so."
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