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
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
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
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
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
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 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."