Foreword
 
Introduction
 
State Context
 
Higher Education in South Dakota
 
Two New Processes for Policy-Driven Change
 
Changes Initiated in Higher Education
 
Conclusions
 
Endnotes
 
About the Author
 
About the National Center

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South Dakota
Page 6 of 10

Changes Initiated in Higher Education

REINVESTMENT THROUGH EFFICIENCIES
The roundtable and system unification processes have combined with other policy-driven processes to engender change. One major policy-driven change entailed efforts to make the system of higher education more efficient. In South Dakota, as in many states, pressure on state revenues was accompanied by more calls for efficiency. The policymaker crescendo calling for efficiencies began in the early to mid-1990s and continues today."In 1994 the Board of Regents was requesting an increase in [funding per] FTE," said one policymaker,"but almost everyone else in state government was decreasing."

The Legislature in 1995 passed a resolution calling on higher education to be more efficient. At about the same time, the Legislature passed Governor Janklow's property tax reduction initiative, which required a significant cut in statewide spending. While most areas of state government were seeing reductions in funding (as a result of property tax reductions and a general movement to reduce the size of government), higher education did not see any reductions in its budget.

Though it did not receive initial budget cuts, higher education feared that it would face a 10% budget reduction, according to many we spoke with. The board used the roundtable process to strategically determine how the system might respond if faced with a major budget reduction. Concurrently, the board pushed for a unified approach to managing academic resources. Institutional executives apparently felt this approach was acceptable; as one president commented,"As a system, we looked carefully at the things we were doing and tried to figure out where there was money that could be saved... We tried to come up with the money in a way that would do the least harm to the system." One of the major decisions that was made was to implement a new board policy to eliminate funding for low-enrollment courses. The policy stipulated that the board would not fund graduate courses with less than seven students or undergraduate programs with less than ten students.

The board further called on institutions to find savings in their base budgets equivalent to approximately 10% of the budget for instruction. The board gave each institution a minimum target for money to be saved, and then the institutions themselves decided how they would save the money. Savings came not only from eliminating low-enrollment programs, but also from redesigning enrollment service centers, administrative consolidations, and minor changes in business practices. The system successfully generated the 10% savings (approximately $10 million). At a roundtable held just prior to the 1996 legislative session, the board brought a proposal for strategies to reinvest these savings. The major product from this roundtable was an agreement to allow each institution to reinvest the savings it could produce through its efficiency efforts, while requiring that the reinvestments be made in high priority activities. Governor Janklow extended an"act of good will" by allowing the system to keep the savings. The priority areas include: the establishment of Centers of Excellence at each of the institutions, investments in a technology infrastructure, curriculum redesign, and K-12 linkages. The institutions are required to file plans annually with the board, but essentially it is their decision how to reinvest the money among the priority areas. The only parameter was that approximately 30% of the savings had to be invested in the Centers of Excellence.

Several higher education officials considered the governor's allowing higher education to keep the 10% budget savings to be a vote of confidence in the system. Most higher education administrators also said the development of technology infrastructure, especially as it relates to enhancing efficiency and improving service delivery, is of particular interest to the governor.

Program changes resulting from this initiative have taken the form of encouraging institutions to collaborate when combined system enrollments may indicate a need for continuing certain programs. Inter-institutional programs have been developed in French, German, and physics, for example, and the development of six electronic classrooms is intended to foster the sharing of curriculum.

FROM FORMULA TO BASE-PLUS BUDGET
The Reinvestment through Efficiencies Initiative was a first step toward using the higher education budget for high priority areas. More recent developments and changes in the budgeting process provide an even more telling story of the state's attempt to create a policy-driven agenda for the public higher education system. The state budget and the means of allocating dollars to higher education provide the glue that policymakers hope will bind higher education activity to state policy goals.

The idea that policy and budget are one and the same would indicate that there is no way to interpret the landscape of state finance without a concurrent understanding of the policy choices that are implicit in the numbers.19 Many respondents in South Dakota believe the state's policy goals for higher education have driven recent budgeting changes rather than the other way around.

In reality, however, a series of events converged to produce the new budgeting process in the state. The effectiveness of the roundtables was mentioned by virtually every person interviewed in the state. The series of roundtables produced discussions that culminated in reports published by the Board of Regents, which in turn led to the development of state policy goals now being used as the basis for the new funding approach. A second factor was that the state's commitment to fully fund the higher education formula in the early 1990s could not be maintained. One president said that this"gave impetus for the Legislature to push for something of a new funding approach." In addition, state revenues began showing the impact of property tax reductions, and, at about the same time, the legality of using lottery funds for educational purposes also came into question. A board representative said that as state revenues were being squeezed and enrollment projections looked less than positive,"I could see future problems with an enrollment-based formula."

A Budgetary Facelift
The instructional formula designed in the 1970s can best be described as input driven since it was largely dependent on enrollment. The formula was based on actual student credit hours, which were used as a basis for determining factors ranging from the number of FTE faculty to requests for operations and maintenance. In order to use actual data, however, the formula required a two-year lag between the fiscal year the student hours were generated and appropriated resources expended.20

The new base-plus method, as it is called, will allocate state higher education appropriations and 80% of tuition revenues into what is called a System Operating Pool (SOP) for the six public universities.21 A significant portion of the SOP will be used for a base that is not dependent on enrollment and will adjust for inflationary increases over time. A university president said this enables some stability and long-term planning,"But there will always be an element of the money following enrollment." The base for each of the universities was determined by using an average of state-supported enrollment over several recent years.

The nine state policy goals that evolved from the roundtable discussions concern the following areas: access, economic growth programs, academic improvement, human resources, faculty development, collaboration, technology infrastructure, facilities and equipment, and external funds.22 The base is intended to support eight of these policy goals that are believed to directly affect instruction, operations, and other core activity. For example, two policy priorities that directly influence instruction include an emphasis on attracting high quality human resources, and providing professional development for future and
existing professionals.

The Legislature also endorsed the board's plan to pursue a performance-based funding policy whereby five percent of the SOP will be awarded to public institutions that meet certain policy objectives. The State Policy Incentive Funding, as named by the board, will be divided equally among five policy incentives: access, economic growth programs, academic improvement, collaboration, and increases in non-state funds.23 These priority areas were determined in consultation with the Legislature. Each institution has established (after negotiation with the Board of Regents) a target for each of the five policy incentive areas. If the institution meets or exceeds the goal, they receive the one percent (or potentially even more, if they exceed the goal significantly); if they do not meet the goal, they do not receive that portion of their funding.

Opinions differ as to how performance-based funding will work: some reserve comment or believe no changes will happen; others believe significant movement toward state policy goals is clearly within sight; and still others believe things will change only on the margin. One House representative echoed an opinion by a colleague in the Senate when he said,"If each university ends up with five percent of the incentive funding, this whole thing may be a fallacy." A higher education official said that the base provides the stability the system needs and added,"I am trying to get people to understand that we should look at the results of the incentive funding, not whether somebody got back five percent." Supporters of the incentive approach argue that this is a way to really leverage the base, that institutions will change behavior and work toward these policy areas if a portion of their base funding is on the line.

RELATIONSHIPS WITH VOCATIONAL/TECHNICAL INSTITUTES
One issue in the state that may soon come to the forefront is the governance of the technical institutes. Some are asking,"What is the appropriate role for the technical institutes in the broader state postsecondary picture?" Recent events regarding articulation and two-year offerings seem to have created this debate, resulting in a difference of opinions among and between policymakers and postsecondary leaders.

The perception among many representing the university system seems to be that the technical institutes are"wanting to become community colleges," and it would be best to place them under the Board of Regents. Respondents from the technical institutes flatly stated,"We are not interested in becoming a community college," with one administrator adding,"Becoming a community college would not make sense; there is no real local property tax base to support such an operation. We are a state institution now, and we are very happy with that." Respondents from the technical institutes strongly expressed the belief that they would not be able to meet state needs nor be as effective if they are placed under the Board of Regents. One director stated,"Ninety percent of the jobs in South Dakota do not require a four-year degree, and there would be no reason to change our mission or governance structure because we are doing an excellent job of meeting current business needs."

The issue of two-year offerings adds fuel to the governance issue because of the ambiguity of who should be offering what. Each university offers limited two-year programs, though the universities have been charged to"pursue market-driven associate degree programs." Many higher education representatives believe that the technical institutions are already moving toward an academic function in offering two-year degrees while maintaining their niche of serving the business market. One regent said,"The technical institutes already provide community college functionality." A state senator and technical institute director agreed that the institutes do fulfill some needed functions of the community college. Still, there is disagreement as to whether there is a need to provide more complete community college services, and if so, whether the need is significant enough to warrant a change in governance.

Further complicating the picture is the high regard policymakers have for the technical institutions, and their sound reputation throughout the state. A legislator representing Sioux Falls said,"We have a wonderful VoTech institution, and they are meeting needs." Regents' respondents said that if the technical institutions were under their governance structure, then coordination and program planning would more effectively meet the state's needs. The leadership of the technical institutes is happy with its current governance arrangement. Legislative reaction was mixed, with some offering cautious support to considering such an option, and others believing that"the technical institutions would be eaten alive if they were under the board."

In terms of articulation, technical institutes previously worked with individual universities to arrange agreements. In 1998, however, the Legislature passed an articulation bill that requires the university system to take up to 64 credit hours from technical institute students who wish to transfer to a university. One institute director said that his previous arrangement with an individual university had been working well, and that the articulation bill had complicated the issue.

From the board's perspective, articulation should be a system-to-system arrangement, since it represents a state policy issue. A board member said there are other important issues such as instructor qualifications that must be considered. He repeated the general feeling of the university officials interviewed by saying,"The bill means the universities must take the credits; it doesn't necessarily mean that they will count for any particular major."

The legislation did provide that the Board of Regents and the Board of Education would jointly craft the details of the articulation agreements. The two bodies have met and established the guidelines for the articulation of general education courses.

The director of one technical institute said,"I don't expect that a university will necessarily take all 64 credit hours and automatically transfer them, but there are reasonable and cost-effective reasons why some general education courses should transfer." Another director, amazed at what he believes to be university resistance, said,"All we were trying to do was provide an avenue for those students who want to move on with their education, and the percentage who want to transfer is very small compared to the national average."

At one roundtable session, legislators perceived the data on articulation provided by the regents to be incorrect and were upset at how the issue was being handled. This seemed to be consistent with the legislative input provided in the interviews, as some individuals believed that the university system was putting up too many roadblocks and that there should be no problem transferring courses. One senator emphasized,"I think we at the Legislature decided that it was the regents who were at fault, not the VoTechs."

The policy conversation about the vocational/technical institutes has continued to be focused on articulation and governance issues. There has been very little focus on workforce development issues, or questions about what kinds of two-year education the state needs to be providing its citizens. Through its recent survey of employer needs, the Board of Regents has taken a first step in trying to further the agenda in this direction.24 The board now has some information about what employers think graduates should know and be able to do in order to be successful employees in the state. While it is too early to tell what the results will be, an initial process has begun.

ADDITIONAL CHANGES: ENHANCING ACADEMIC QUALITY
The establishment of Centers of Excellence via the Reinvestment through Efficiencies Initiative was an effort to emphasize quality. The universities are trying to provide evidence of quality and accountability via other means as well, such as through standardized testing and changes in admissions. One regent explained,"The quality of academic programs is probably an issue, and we're addressing that through some testing." South Dakota's university sophomores must take what is called the Regental Proficiency Examination to ensure competence at that level. This"rising junior" examination tests a student's improvement over their pre-college ACT scores (which are required for admission into a South Dakota university). A board member said that there isn't a big concern about dismal results because recent failure rates were"single digits, so the numbers are encouraging." Another board member added,"We think this exam will help us prove that we can be accountable. We are also moving toward an exit exam by discipline, and we think this will help prove the quality of our programs to legislators." It is clear that the Regental Proficiency Examination is internally supported by higher education and will continue. Although an exit examination seems to be of interest to some of those we spoke with, it doesn't seem to be a pressing issue. Implementation may well depend on whether a particular regent makes exit exams a priority or the Legislature demands additional proof of quality.

Addressing faculty pay has also been a part of what the board considers important to academic quality. The board mounted a substantial effort to increase faculty salaries concerned that the state's dismal national faculty pay rankings would hurt the system's ability to attract and retain high-quality faculty. The board introduced a plan to increase public university faculty pay over three years, and -- according to one board member -- to distribute the increases based on"merit and the market." The board proposed to pay for this increase by trimming full-time faculty positions and increasing tuition and fees. Two university faculty members, one who belongs to the union and the other who does not, expressed similar concerns that it is counterproductive to increase salaries from dollars that come from"imposed cuts on the faculty." One faculty member elaborated,"Now you have less FTE faculty, more work, and possibly marginal pay increases." In the 1998 legislative session, the state approved money to contribute to the salary increase according to the board's plan. Due to a bargaining impasse with the faculty union, however, the Department of Labor intervened before ultimately allowing the distribution according to the board's plan.

A faculty union representative explained that, from the union's perspective,"there was a sentence added to the bill that the monies would be under the sole auspices of the BOR [Board of Regents], but by law the BOR is supposed to bargain in good faith with the union." In addition, the union was concerned about such issues as salary compression and equity. The union had originally supported an across-the-board increase because, according to the faculty representative,"every other state employee in South Dakota was given a three percent across-the-board cost of living adjustment increase, so I don't think we were being unreasonable -- especially when you consider we are below the market."

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