J.K. Wall, The IBJ
Cut to the future.
The Indiana Commission for Higher Education's decision late last month to slash state university budgets based on key performance measures gives a peek into the way higher ed financing is likely to work from now on.
And not just in Indiana.
The commission's actions grabbed the attention of higher ed observers nationally, and many states could follow suit within a couple of years.
"Indiana's providing a fantastic opportunity-a chance for other states to learn both from its ambitious leadership, and from its policy innovations," wrote Sara Goldrick-Rab, a professor of education policies at the University of Wisconsin, on her "Education Optimists" blog. "I hope in 2010 we see more states making similarly bold moves."
Indiana is by no means the first state to link higher ed funding to such things as graduation rates and per-student spending. Nor are December's cuts the first time state appropriations to Indiana's universities have been influenced by performance metrics.
But the willingness of the commission and Gov. Mitch Daniels to stick to a performance-funding formula even when taking money away from schools caught people's attention.
"Whenever talk of budget cuts shows its head, usually any talk of performance funding is immediately put down," said Derek Redelman, education lobbyist for the Indiana Chamber of Commerce, referring to other states' efforts. "The action of our commission may have changed that standard way of thinking."
The reductions, prompted by plummeting state tax revenue, followed just six months after the state-funded universities had their budgets trimmed by the Indiana General Assembly.
The commission cut $150 million, or 5.5 percent, of state funding to the seven public university systems around Indiana.
In the past, each school would have had its state dollars reduced by 5.5 percent. But this time, the commission assigned a range of cuts, from 3.5 percent to Ivy Tech Community College to a high of 6.6 percent at Indiana State University.
Below-average cuts fell to Vincennes University and the University of Southern Indiana. It balanced those with above-average cuts to Indiana and Purdue universities. Ball State University received a cut of exactly 5.5 percent.
The cuts were worked out during a frantic 18 days in December, following Gov. Daniels' Dec. 4 order to hack 6 percent out of the entire state budget. Higher Education Commissioner Teresa Lubbers and her chief financial officer, Bernie Hannon, met their counterparts at each university multiple times to explain their formula and try to get them to buy in.
Lubbers acknowledged that some schools with above-average cuts pushed back, saying the traditional across-the-board, or pro-rata, method would be better.
"There were some who would have preferred to have a pro-rata basis. It was predictable to them," she said. But, she added, "They didn't quibble with our goals."
The purpose behind performance-based funding is to give incentives to the universities to do more than just enroll more students. The standard way Indiana funds higher education is to give more money to the schools that enroll more students.
But now the state wants to make sure its dollars are being spent efficiently and that students actually graduate.
Schools' current performances on those fronts are all over the map.
The percentage of undergraduates who graduate in six years ranges from 73 percent at IU's Bloomington campus to as low as 43 percent at ISU.
The amount of money spent by each university varies just as widely. At four-year research universities, spending per degree ranges from $87,000 at Ball State to $111,124 at Purdue's West Lafayette campus.
At schools with lots of non-traditional students, which also award many associate's degrees, spending ranges from as low as $48,000 per degree at Ivy Tech to as high as $75,000 per degree at IU's satellite campus in Richmond.
The commission wants all the universities to improve their on-time graduation rates and, as a result, be more efficient with their dollars.
"The payoff to the student and to the public is not to get people to go to college. It's getting people to complete college," said Dewayne Matthews, vice president for policy and strategy at Indianapolis-based Lumina Foundation for Education.
Efficiency has emerged as a major theme for public universities around the country. States rely more than ever on universities to be engines of development in an economy that now runs far more on heads than hands.
At the same time, other budget demands have made it harder and harder for states to raise revenue as fast as university enrollment demands. The schools have compensated by raising tuition at twice the rate of inflation.
But now the recession has sharply halted growth in both sources of funding, and education leaders are acknowledging that efficiency may be the only way forward.
That's why there's a new wave of performance funding in Indiana, Ohio and Washington-in spite of failed performance-funding experiments in the 1990s in such states as South Carolina and Missouri.
"Everyone's hitting the wall on funding. You've got to do something," said Hannon, CFO of Indiana's higher ed commission.
The Indiana General Assembly first adopted some performance metrics in 2007, saying that any new money allocated to universities would hinge in part on increases in degrees and on-time degrees. Also, colleges handing out two-year degrees were rewarded for the number of those graduates who went on to a four-year, bachelor's program.
Those same factors were used in 2009, but legislators added a measure of degrees completed by low-income students. They also began to change how they count enrollment, shifting from the old model of counting credit hours attempted to the number of credit hours completed at the end of a semester.
Lubbers, the higher ed commissioner, acknowledged that the formula is still evolving.
That's important to the schools because the risk of performance funding is that it will only encourage schools to reduce academic standards or to turn away lower-quality applicants in order to pump up their graduation rates.
"We don't want to create institutions that are more worried about reaching some funding formula than they are at providing a quality education," said Randy Howard, vice president for business affairs at Ball State in Muncie.
Already, Indiana's push on performance funding is having an impact. Schools have placed extra focus on boosting graduation rates in their recent strategic plans.
In 2007, Ball State set a goal that 60 percent of its incoming freshman would graduate in six years. It wants to bump it to 65 percent by 2015.
To help in that effort, Ball State's faculty are moving to reduce the minimum number of credit hours required for a diploma to 120 from the current threshold of 126.
Some might criticize the change as making it easier to graduate, Howard acknowledged. But he said the change would give academic departments the freedom to be more efficient if they determined a certain program no longer requires as many hours of instruction.
"We've been looking at a lot of things to facilitate graduation rates and improve graduation," he said.
In Terre Haute, Indiana State also placed heavy emphasis on improving both enrollment and graduation rates in a strategic plan it approved in the fall. One reason the school's per-student spending is high is because enrollment has been declining in recent years.
The plan calls for boosting ISU's six-year graduation rate from 43 percent now to 46 percent by 2014. Its long-term goal is a rate of 55 percent.
Upon release of the plan in October, Indiana State President Daniel Bradley said the impetus for the goals is coming from state government.
"These are aggressive goals but for the most part they are attainable, and in many cases they are political requirements," he said in a statement. "Higher education is going to have to do a better job of helping our students be successful if we are to retain our much valued position politically."