The Policy Structure
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Challenges and Opportunities Facing Higher Education
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The Policy Structure

The policies of state government have historically been the foremost device for "steering" higher education in the U.S. At the most basic level, principles embodied in the U.S. Constitution make matters of education--both K-12 and postsecondary--an explicit state assignment. While responsibility for the public schools has been given to local bodies (with the expectation that local tax money will be a major feature of school finance), public colleges and universities are largely creatures of the state. In many states, the assets of the institutions are actually owned by the state. Even in cases where this is not so, state government wields enormous influence, through both the power of the purse and its general regulatory authority.

Certainly, the federal government also plays a significant role in shaping the directions of higher education. But federal influence is exercised indirectly through the clients of higher education rather than through direct engagement with providers. For example, the majority of federal funding of higher education flows through a variety of student financial aid programs that empower students by providing them with greater choice and access within the academic marketplace. A second major federal influence is accomplished through its funding of research activities. In this case, the federal government enters an established marketplace as a "client" in its own right, acting in the name of the larger society. Although federal research funds flow through institutions, they get there as a result of client choice, exercised through proposal processes and awarded on the basis of peer review. Moreover, such funds are allocated on the explicit condition that the institution will do something in particular. Herein lies a major distinction between the roles of the states and the federal government in higher education. State governments pursue public purposes primarily by assuming responsibility and providing direct operating support for public institutions as societal assets. The federal government, in contrast, pursues certain social objectives primarily by funding clients and by buying services of multiple providers, both public and private.

Postsecondary education systems are the creatures of 50 distinctive state political cultures. It is not surprising, therefore, to find considerable variety in the public policies relating to these systems. States also develop and carry out these policies through a wide variety of entities: the state legislature, the governor, and various regulatory or coordinating agencies. Yet despite this variation, state policymakers have always had a relatively limited policy toolkit at their disposal, and they have tended to use available tools in similar ways. The following subsections characterize the dominant patterns.

Tool 1 -- Mission and Program Approval: Determining What Institutions Can and Cannot Do
In most states, state government has the power to determine whether or not particular institutions will be allowed to operate within the boundaries of the state, and the conditions under which such permission will be granted. For public institutions, state action specifically establishes (and, rarely, disestablishes) institutions. For private institutions, most states have created registration or licensure requirements that must be met before such institutions are allowed to operate within the state. But most states are no longer in the position of creating new institutions. Almost all, however, are continually faced with decisions about what "businesses" existing institutions should appropriately undertake. These decisions are shaped by policies that deal with the following three areas.

1. Institutional Mission. States can define the missions of individual institutions, systems and sectors (e.g., community and technical college systems as opposed to university systems). While there are many dimensions to institutional missions, the key ingredients tend to be:

  • the extent to which the institution will be engaged in research and public service in addition to its basic instructional function;

  • the levels of degrees that the institution is authorized to grant (baccalaureate, doctoral, etc.);

  • the specific array of programs that can be offered; and

  • the characteristics of the students that the institution is intended to serve. Typical distinctions here include the academic ability of students (exercised through differential admissions requirements) and the geographic region of the state from which students can or should be drawn.

2. Program Approval. Policies regarding program approval are put in place in part to constrain an institution's ability to unilaterally change its program offerings, and, via this avenue, to indirectly alter its mission. In addition, the authority to approve programs can help to balance the state's range of programs, often taking into account the offerings of private institutions.

3. Geographic Service Areas. Policies regarding geographic service areas, in essence, grant an institution exclusive rights to offer programs (within its assigned mission) in a prescribed geographic region of the state.

States use policies regarding mission, program approval, and geographic service areas largely to limit institutional competition and to avoid unnecessary duplication of programs and services. They use this tool to limit regional competition for postsecondary resources and to curb the inevitable drift of missions away from undergraduate teaching toward the research university. In their quest for state-level efficiencies, however, states also tend to create monopolistic environments for individual institutions--a condition that seldom leads to efficiency or high quality. Given a more or less exclusive market within a given area, institutions quite naturally presume that students will have no choice but to come to them rather than the other way around. Indeed, when rigid institutional missions do begin to break down, their collapse is often prompted by specific demands for services from place-bound clientele--students who might in fact be served by another institution that currently does not (or cannot within state policy) offer certain programs. Such conditions are at the root of the phenomenal success that proprietary institutions (e.g., the University of Phoenix) have recently enjoyed.

Because more and more of the clients to be served by postsecondary education institutions will be place-bound and reside at a distance from institutions capable of meeting their needs, competitive markets for postsecondary education will continue to arise despite state attempts to "rationally" apportion missions and service areas. This raises three key policy questions:

1. For which client groups will state subvention be provided?

2. What is the best way to bring existing educational assets (public, private and proprietary institutions, and services delivered on- and off-site) to bear on unmet educational needs? Further issues within this broader topic include:

  • whether or not to remove existing constraints and let market forces shift institutional attention to these needs;

  • whether or not to create alternative organizational arrangements that better match supply with demand; and

  • how the necessary mix of institutional capacity and desired application of that capacity can be achieved.

3. How can a state optimize institutional capacity designed for mobile students while simultaneously optimizing services to less mobile students scattered across the state?

Tool 2 -- Governance: Allocating Decision-Making Authority
State policies regarding governance of higher education have focused almost exclusively on the allocation of formal decision-making authority to various entities within an established hierarchical structure. These include:

  • statewide policy boards (either coordinating or governing) and their executives,

  • multi-campus system boards and their executives, and

  • institutional governing boards and campus-level decision makers.

Policies here are chiefly concerned with specifying who gets to make which decisions, and under what conditions particular kinds of decisions must be approved at levels higher up in the hierarchy. This pattern is consistent with the larger policy perspective noted earlier--one that reflects state "ownership" of institutions and a desire to directly constrain or manipulate institutional actions.

To date, very little such control has been ceded to groups outside the formal "chain of command." To the extent that others are brought into the process, it is almost exclusively in an advisory role, as in the use of practitioner advisory committees in two-year vocational programs. If higher education is to become more client-centered, a promising approach may be to directly empower clients or their representatives to make certain decisions outside the "chain of command." For example, it might be appropriate under some circumstances to establish community or regional groups to act on behalf of clients in setting priorities for the kinds of programs to be delivered in a particular geographic area. This would constitute a significant break with the current tradition, in which educational providers essentially make this determination. Making this break is important because opposing interests of providers and clients often lead to quite different conclusions about what should be done. Clients seek both specific services and enhanced status for themselves and their communities. Providers seek either the annexation of additional "protected territory," or the ability to deliver courses or programs with high revenues that can be directed toward internal institutional objectives like disciplinary research.

In this milieu, key policy questions include:

  • What kinds of decisions, if any, should be made by groups outside the current decision-making hierarchy, e.g., by bodies that act directly on behalf of clients?

  • How can states structure the process to ensure the effectiveness of decision making on behalf of clients?

  • How can states facilitate client access to a wider range of providers?

  • How can states ensure greater attention to public priority-setting and policy leadership (see Tool 7) as opposed to system and institutional governance?

A further question then becomes:

  • How can the process be structured to allow this kind of shared decision making to be effective?

Tool 3 -- Regulation: Prescribing "How" Providers Should Go About Their Business
As state entities, public colleges and universities must usually comply with rules and regulations that govern other state agencies. At the very least, the institutions are subject to those applying to other nonprofit entities. Since governments have tended to rely extensively on regulatory approaches rather than incentive systems to provide guidance, most public postsecondary institutions must cope with multiple regulatory requirements on an everyday basis. The extent to which colleges and universities are exempt from such regulation varies considerably from state to state. In some states, colleges and universities must conform to the regulations imposed on all state agencies. In others, educational institutions are treated largely as public-benefit corporations, and are subject to fewer regulations. In most states, regulations primarily address contracting, acquisition of fixed assets, and requirements for reporting information to state government.

The list of potential regulatory involvement--as experienced by some institutions in some states--is much longer, however, covering such specifics as:

  • the number of personnel to be hired,

  • compensation of employees,

  • reimbursement for travel expenses,

  • reallocation of funds among line items and established budget accounts,

  • procedures for purchasing goods and services,

  • limitations on the use of consultants, and

  • limitations on out-of-state travel.

These kinds of regulations can combine to create an operational straight-jacket for institutions, making change very difficult. For colleges and universities to adopt new ways of doing business that respond to client needs and that emphasize innovative solutions to emerging problems, they must be freed of much of the red tape that entangles them. But policymakers are loathe to eliminate regulation absent an alternative that assures them equivalent leverage. Regulation is their most familiar tool and no proven alternative yet exists to ensure that institutions attend to priorities set outside the academe.

If institutions are expected to focus more fully on their clients, then additional policy questions about approaches that offer alternatives to regulation, such as institutional "steering," will have to be raised and answered. Some of these include:

  • What kinds of workable substitutes for regulation can be developed to ensure that institutions adhere to good managerial practices and pursue priorities that the government establishes on behalf of its citizens?

  • What is the appropriate domain for regulation? In other words, in what specific areas are regulations necessary?

  • What are the characteristics of effective regulations? In other words, what determines the regulatory approaches that work best to attain certain ends, within different institutional and political environments?

Tool 4 -- Financing and Resource Allocation: Creating Incentives and Subsidies for Action
Although regulation is probably the most ubiquitous policy tool employed by state government to influence institutional behavior, policies governing the allocation and use of state funds are probably the most powerful. This is true for several reasons. First, the budget is the only available policy tool that involves both the use of incentives and explicit prohibitions on particular kinds of institutional action. Second, budget issues are revisited regularly--in most states annually and at least biannually. Regulations, in contrast, are placed on the books permanently and can remain there indefinitely regardless of their continuing appropriateness or applicability. Third, budget decisions affect all operations of the institution, not just isolated activities or processes. Finally, the budget is tangible and certain. It is much less open to interpretation than statutes, which individual state offices and officials can alter in the rule-making process and can interpret variously in implementation.

Currently, states tend to finance or allocate resources for public higher education in the following ways:

  • They are overwhelmingly oriented to funding providers. Funding for state student financial aid, for instance, is small in comparison to institutional funding.

  • They are geared predominantly to the support of basic institutional capacity. Finance mechanisms address, for example, the acquisition of various productive assets (faculty and staff, buildings, equipment, library books, etc.), rather than dictating how such assets should be used. Directions about utilization (or more often, limits on utilization) are generally provided by means of attendant regulation rather than being incorporated into the allocation mechanism itself.

  • They tend to emphasize equity of funding provisions among institutional recipients. Perceived "fairness" to providers thus comes before criteria that might be associated with clients and their needs.

  • They tend to be oriented toward traditional, college-ready students. For example, it is common for institutional funding mechanisms to exclude support for developmental education and off-campus instruction from state subvention. Similarly, the majority of student aid funding is provided to full-time, degree-seeking, on-campus students.

  • They are based overwhelmingly on inputs or activity levels (e.g., student credit hours taught) rather than outcomes (e.g., student credit hours completed or educational objectives attained).

  • They include few examples of funds being provided to empower client groups other than individual students--for example, communities or key industries.

  • Where a given institution uses technology to deliver instruction to students at another institution, they overwhelmingly fund the "sending" institution and ignore the student service and administrative costs incurred by the "receiving" institution.

These tendencies perpetuate the status quo and provide institutions with few incentives to adopt a stronger client orientation. This raises several important questions for policy:

  • What is the appropriate structure of a state higher education budget? What should its fundamental components look like?

  • What constitutes an appropriate balance between funding of providers and funding that empowers clients? How can such a balance best be achieved?

  • What mechanisms appear appropriate for addressing the educational needs of specific, and often quite different, client groups?

Tool 5 -- Quality Assurance: Providing Accountability and Consumer Protection
Historically, state government has eschewed direct involvement in most academic issues relating to quality assurance. Exceptions are licensure requirements established largely to help ensure that "fly-by-night" for-profit institutions are not operating in the state, and program-review systems applied to public institutions in many states. For the most part, however, quality assurance has been delegated to regional accrediting bodies. Since regional accreditation is also the minimum "quality" standard required for participation in federal programs, delegating this function is not, on the surface, an unreasonable approach. But it has at least two significant drawbacks.

First, regional accreditations have focused overwhelmingly (at least until recently) on the quality of the providers' resources and processes, not on the quality of the learning achieved. Although the accrediting bodies have lately added more outcome criteria to their standards, their application remains uneven. Even under the best of circumstances, the outcome measures applied are group averages. They are not the kind of measures that certify individual learning and make that certification portable and meaningful in the marketplace. Nor are they capable of saying much about the particular segments of student population (and their characteristics) that do not meet desired standards.

In the mid- to late-eighties, pressed by demands to ensure greater accountability and "return on investment" for state resources invested in higher education, these drawbacks induced a majority of states to institute assessment mandates for public institutions. While often pursued with vigor, these policies were usually subject to the same drawbacks experienced by regional accreditations: standards were uncertain and institution-specific, and a predominantly "regulatory" approach to implementation meant that assessment policies remained generally unconnected to other state policy tools. More recently, states have attempted to reinforce assessment with more standardized systems of performance indicators. Although these have ensured greater consistency in factors used to assess institutional quality, few such indicators are intentionally constructed to inform particular kinds of public or policy choices, and even fewer address student learning. Indicator systems of this kind, however, have significant potential, including helping to direct special-purpose funding (as well as broader asset-renewal investments) and grounding new approaches to providing consumer-choice information.

A second problem with approaches to quality assurance that defer to institutional providers is a corollary of the first. When almost two-thirds of the students who graduate from college attend multiple institutions, restricting quality-assurance mechanisms to the individual "nodes" in the chain of instruction--rather than focusing on the collective experience and its consequences--misses key aspects of the quality-assurance problem as a whole. These problems are exacerbated by the growing inability of the degree (and particularly the baccalaureate degree) to certify a common standard of attainment. Based solely on prescribed accumulations of credit, current academic degrees are increasingly incapable of guaranteeing to society that their conferees have achieved given levels of competence--particularly in those cross-cutting areas like communication skills and critical thinking that lie outside the domain of the major. The resulting depreciation of meaning puts both degree-holders and potential employers at a severe disadvantage in the marketplace.

In an increasingly client- and market-centered environment, this provider-centric view of quality assurance is insufficient. This reality has been recognized by entities like Regents College and the Western Governors University that certify learning and award degrees based on demonstrated competence in clearly specified areas. This movement, if successful, promises to bring major changes to the higher education landscape. Together with the changing nature of accountability, it raises a number of questions about higher education policy at the state level. These include:

  • How can state entities act more effectively in partnership with other quality-assurance players like accreditors and third-party information providers to minimize duplication of effort and ensure consistency of outcome?

  • How can current state-level "performance reporting" and assessment mandates be better integrated with other policy tools to help shape institutional behavior?

  • What role, if any, does the state play in ensuring the effectiveness of new and "indirect" quality-assurance mechanisms? Does the state have a role, for instance, in certifying the certifiers?

  • What role should the state assume in articulating credit- and competency-based approaches to credentialing? For example, how, will the growing presence of credit- and competency-based approaches affect inter-institutional transfer agreements that have already been painfully negotiated at the state level?

Tool 6 -- Reporting Requirements: Creating an Information Base for Decision Making
State governments currently collect massive amounts of data from institutions of postsecondary education, particularly from public colleges and universities. Almost uniformly, however, these data:

  • are about institutions and their operations. To the extent that data are gathered about students or other clients, they are compiled from an institutional rather than a client perspective (e.g., current reporting requirements emphasize ascertaining how many students are enrolled at each institution, rather than the total number of students enrolled statewide or the number that are simultaneously enrolled in multiple institutions).

  • are collected primarily to ensure institutional compliance with established regulations.

  • are not analyzed or disaggregated in ways that are helpful to either stakeholders or decision makers.

In an environment where learners will exercise greater choice among providers (enhanced by technology-delivered instruction) and where earning a traditional academic degree is not the learner's only objective, students will increasingly have to be viewed as active consumers instead of passive recipients of education. As a result, they will increasingly need information that allows them to act as informed consumers. The federal government, through such measures as its "Student Right to Know" legislation, has taken the first halting step in this direction. The popularity of the rankings presented in U.S. News and World Report and Money Magazine attest to the public's continuing thirst for such information, even though it is irrelevant to the vast majority of students.

Perhaps more importantly, states are beginning to use the market to induce institutions to pay greater attention to improving client service and academic quality. In recent years, even the most proactive states have become frustrated by their inability to directly induce institutions to become more client centered. As noted, regulatory initiatives are generally limited in scope and their influence rarely penetrates to the institutional levels that directly serve or interact with students. At the same time, incentive funding pools, though often effective, are generally limited in size and duration. As a result, many now believe that the only way to effectively induce institutional attention to client needs is to expose them to higher levels of market competition.

If clients are to enter the marketplace for education as informed consumers, they will need information about such issues as:

  • the real cost of attendance,

  • the likelihood that students "like them" (i.e., those with similar experiences and competencies) will succeed in the particular educational undertaking (e.g., completing a degree or earning a credential), and

  • the consequences of successful completion (e.g., getting a particular job or achieving an expected income level).

In addition, such information must be accurate and must allow the potential student to make direct comparisons among alternative providers. Because of the perceived credibility of respected consumer guides, students and other clients may increasingly rely on them rather than on the "sales pitches" of individual provider organizations to provide such information. Finally, to be useful in informing choice, consumer information must incorporate data on non-traditional providers--including proprietary institutions, corporate courseware providers, etc.--that have traditionally fallen outside the realm of state interest and concern.

This emerging requirement for new kinds of information to inform consumer choice raises a number of policy questions about the role of the state:

  • Should state agencies serve directly as collectors and repositories of consumer information? Or is it necessary to have a single national or international source of information of this kind?

  • What is the state's role in ensuring institutional compliance with requests for information of this kind?

  • Should states assume the responsibility of ensuring that reported consumer information is accurate and, if so, how should they do so?

  • How should states work with accreditors and other non-governmental entities involved in quality assurance to develop an appropriate division of labor in providing consumer information?

Tool 7 -- Setting Public Priorities: Explicit Agendas for Action
State governments have a long history of stating their expectations for the higher education systems within their province, and of requiring institutions to plan to meet these expectations. These state agendas have until now focused almost exclusively on desired institutional behavior--dealing, for example, with efficiency (e.g., exhortations to "do more with less") or with the relationship between students and institutions (e.g., issues of access, tuition prices, and involvement of senior faculty in undergraduate education). Under the emerging paradigm for postsecondary education, the state will increasingly need to enter the higher education marketplace directly on behalf of society and its disenfranchised members. As this occurs, the role of state postsecondary education agencies must expand to address such tasks as:

  • developing a "public agenda" of priority issues to be addressed by the state system of postsecondary education on behalf of the citizens of the state,

  • building consensus around these topics--once identified--with the public and with political and educational leaders, and

  • most importantly, taking steps to ensure the coordinated use of policy tools in a manner that promotes rather than hinders the pursuit of priority objectives.

This particular role of state higher education agencies is neither widely accepted nor widely practiced. As a result, there remains much to learn concerning how to effectively create and implement such a public agenda. Among the most important questions are the following:

  • What processes are most effective in establishing and building consensus around a public agenda for state postsecondary education?

  • What mechanisms are effective in allowing political leaders to embrace an agenda that is far more specific than those with which they are familiar?

  • How can support for meeting the unique needs of sub-state regions be generated within this statewide agenda, without the process degenerating into traditional political "deal making"?

  • How can agendas be advanced that are not so long-term that the political consensus underlying them evaporates before significant progress is achieved?

  • How can consideration of such public agendas be systematically embedded in budget processes, established accountability processes, and other state-level governing mechanisms, which often have lives of their own that are unconnected to such agendas?

The Larger Need -- Policy Leadership
Considering individual policy tools identifies a host of questions that must be addressed by those responsible for one or another of the components of state policy. This treatment of the policy tools as independent topics reflects the way policymaking most frequently works: as a set of disconnected initiatives that are usually well-intentioned, but that frequently work at cross-purposes to one another. The real concern is less the nature and appropriateness of the individual tools than the question of how they can be orchestrated to move a single agenda forward.

In many states, it is becoming more difficult to provide the kind of policy leadership that might conduct such orchestration. Term limits and the associated rapid turnover of legislators in leadership positions are inevitably leading to situations in which power is more widely dispersed and policy dealt with episodically and in a piecemeal fashion. It takes more skill and more persistence to accomplish systemic change in this environment. While the individual skills of leaders have not diminished, their ability to sustain an agenda--at least using the old rules of the game--is decreasing. Their roles in positions of leadership with regard to higher education are short-term, and the coalitions necessary to move an agenda tend to collapse quickly.

This structural problem is exacerbated by some of the realities mentioned previously, especially: (1) the delivery of higher education is becoming more global, not respecting the lines that demark political jurisdictions, and (2) the demand for higher education finds its voice more and more at the local or regional level. In light of these trends, the state is by no means the obvious community of solution. Yet the authority, the responsibility, and the fiscal resources necessary for policy leadership in higher education now reside at the state level.

In the face of this complexity, the urge to abdicate the leadership role can become overwhelming. One manifestation of this urge is the growing popularity of using market forces as an alternative to an unworkable policy framework. But there are serious flaws using the "market" as a substitute for intentional policy, as outlined below.

1. Reliance on the market emphasizes higher education as a private good and diminishes it as a public good. Achieving public purposes in a market environment requires a public entity (the state) to enter the market on behalf of the collective citizenry--a form of policy activism for which most states are ill-equipped.

2. The market has serious imperfections. First, almost all participants in the market are subsidized to a greater or lesser extent. As a consequence, questions about allocating subsidies arise--who gets them, who doesn't, and through what mechanisms. Resource allocation decisions can be thrown into even sharper relief than historically has been the case. Second, the market is poorly informed. Reliance on the market requires a much more proactive stance on the part of the state to provide information to that market.

3. For large numbers of individuals who need education (particularly basic skills) but who historically have not taken the initiative to enter the market, market mechanisms do not work.

4. For the market to work effectively and efficiently, there must be competition at all levels. But many years of policy have deliberately and effectively placed institutions in a monopolistic position. A move toward the market, if sincere, means removing many layers of institutional protection.

At the core, the "state" faces a significant conflict between the two roles it assumes vis-a-vis higher education: as the entity responsible for the creation and maintenance of the major intellectual assets of the state (its public institutions), and as an entity seeking to acquire certain services from those institutions on behalf of the citizenry. Some have noted this as an inevitable conflict between "owner-operators" and "purchasers of services."

In the end, therefore, embracing the "market" does not allow abdication of policymaking responsibilities. But it does significantly change the nature of policymaking--from a focus on regulating institutions to a focus on affecting the market.

This perspective on policy leadership raises several extraordinarily important questions:

  • What are the conceptual frameworks that can organize thinking about policymaking in a client-centered, market-driven environment?

  • Can effective state policy regarding higher education be developed in the absence of a broader reform of state government?

  • How can policy be given some continuity in an environment where power is dispersed and leadership changes frequently? More importantly, what steps can be taken to help ensure that policies act in concert in such an environment?

  • Can some basic principles be articulated to guide policy leaders in this emerging environment? Or must leaders deal with issues on a state-by-state basis?

  • Can the entities established to provide policy leadership for state government simultaneously play the "owner-operator" role and the "purchaser of services" role? If not, what are possible alternative arrangements?

Finding answers to these questions is key to the future health of higher education--and potentially the nation.



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