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Mr. Edward L. Flippen, Commission Chairperson, welcomed the Commission and introduced Dr. Linwood Rose, President of James Madison University. Dr. Rose expressed his appreciation to the Commission for its interest in higher education and the James Madison University campus. Then, Mr. Flippen introduced Mr. Frank Atkinson who served as the moderator for the meeting.
Ms. Karen Peterson provided Commission members with a brief review of "Appendix M." This was a set of formulas used to calculate financial need of institutions of higher education based on a variety of input measures.
Appendix M was synonymous with "budget guidelines" during the 1980s. It addressed staffing, library books, faculty salaries, and tuition and fees. Other funding programs such as the Funds for Excellence, Incentive Funds, Eminent Scholars, and Financial Aid were not included in these guidelines.
Data used in these guidelines were taken from several sources. Staffing guidelines were based on national norms. Library books and periodical data were taken from national data sources. Peer group data were taken from the national IPEDS databases. Equipment needs were based on discipline-specific studies of Virginia colleges and universities.
The model was driven by several input measures such as enrollment projections, physical plant space, actual expenditures for salaries, non-personal services, and existing non-faculty staff ratios.
The variables were loaded into a computer program to determine a "statement of need." Then, multiple simulations were run to reduce the percentages of various guidelines being funded to "back into" the revenues available.
The strengths of the model were: (a) it provided a stable estimate of need, (b) it allocated available revenues equitably, and (c) it addressed some differences in mission, discipline, student level, library books, and student mix.
Its weaknesses were that it: (a) did not adequately address certain aspects of the budget such as non-personal services and inflation - it maintained status quo, (b) did not provide adequate incentive for change, improvement, innovation, and cost-effectiveness, and (c) did not address environmental changes such as the increasing use of technology, workforce development, and professional development.
Ms. Peterson suggested that the next generation of formulae (a) include all components of the budget, (b) reflect policy, (c) must treat institutions equitably but reflect differences of mission, and (d) must be in writing in one document.
Several Commission members asked questions about the place of capital outlay and measures of efficiency in the old model. Other members asked why the Commonwealth moved away from the formula. Other members asked Ms. Peterson to explain the gross differences in per student allocation given these guidelines.
Mr. Padgett, SCHEV Chairperson, along with Ms. Kate Griffin and Ms. Phyllis Palmiero, reviewed the Council's performance-based funding model. Council members and staff have been working on the model for several months. A wide variety of stakeholders have provided input and feedback.
The underlying premise of the model is to (a) encourage innovation and efficiency by freeing public college and universities from regulatory micromanagement, and (b) hold public colleges and universities accountable for the results they achieve with the public funds entrusted to them.
The model is comprised of to parts. A performanced based block grant is given to each institution. This grant is coupled with deregulation. In addition, incentive funding will be given for performance that exceeds expectations.
The grant would be based on the prior year's E&G funding with technical adjustments, an inflationary growth factor, and adjustments for base budget adequacy. At the same time, institutions would be deregulated. Institutions would still remain accountable to the law and would have to meet internal and external audit standards.
Institutions would establish their own internal policies and procedures but the state would provide general best practice guidelines. The state would evaluate institutions' performance on a variety of measures for early warning signals of potential problems which would include: (a) trends on performance indicators, (b) success in meeting Management Standards, (c) meeting enrollment plans, and (d) success in strategic planning.
The second part of the model includes incentive funding that would be awarded from a fund allocated for that purpose. If awarded, such funding would become a continuing portion of the institution's base budget. Incentive funding performance measures may include graduation rates vs. predicted graduation rates, retention rates vs. predicted retention rates, passage rate on exit exams, post graduate placement, faculty productivity, transition rates, and others. Only institutions achieving positive performance relative to their benchmarks would receive incentive funding.
The Council will use this model to make operating budget recommendations to the Governor and the General Assembly for the 2000-2002 biennium. Council staff will work this summer on a base adequacy analysis which will be incorporated into Council recommendations.
The Council expects to recommend legislation to the Governor and General Assembly for consideration during the 2000 General Assembly Session to allow for the decentralization and deregulation called for in the model.
Presenters reviewed the Demand Cost Subsidy Cycle and reviewed the relationship between enrollment demand, cost pressures, price, and tution subsidies. The presenters suggested that the current price controls imposed on college tuition would not work in the long run.
They recommedned that price controls should be removed, that out-of-state tuition should be set to a market rate not recovery cost, and that excess revenue should be used to support needy in-state students.
The presenters suggested that the SCHEV Block Funding proposal was consistent with their proposal in many ways. They also noted that the block grant would provide stable funding, allow for long-term planning, and eliminate the need for lobbying by presidents. Presenters suggested that the savings connected with this later activity should be used instead to improve management on the campus and to increase private fund raising.
They expressed concern about the incentive grant part of the SCHEV model. The presenters agrued that year-to-year incentive funding would reduce the stability of the funding process and encourage focus on short-term goals. They suggested that performacne measures NOT be coupled with funding. Instead, they suggested that performance be factored into the next block grant allocation. They also suggested that consumer information should also be made easily available through a web site. This additional information would add to the market force dynamic.
In their model, enrollment growth would be factored in the block if growth was approved in advance.
Finally, they suggested that the new system be phased in or initialized as a pilot program for selected schools.
Dr. Rose highlighted the historical relationship between the college presidents, SCHEV, and the General Assembly using an analogy and a fictious story about the family. He also reviewed a handout entitled, "Higher Education Funding Plan Considerations" developed by the Council of Presidents. The handout has been reporduced and linked to front page of this web site.
Dr. Rose indicated that presidents were largely supportive of the block funding model currently being developed by the State Council. He suggested that the next step might be to involve presidents in work groups that would flesh out details on several components of the plan.
Mr. Joe Farrell reviewed the national concern about the high cost of higher education and what it will mean for students and parents if prices continue to increase. According to his figures, if price increases by 100% in the next 20 years, one out of two students will not be able to pay for college.
He made the following recommendations:
Bob Lauterberg reviewed the Department of Planning and Budget's 1998 plan for performance funding. He defined briefly the process by which performance measures were developed and then illustrated how institutions could be compared with their national peer group to determine performance using weighted scores.
These weighted scores were summed and then indexed based on the size of the institution. The indexed score was used to determine the proportion of the incentive funds for which an institution would qualify. Mr. Lauterberg demonstrated how James Madison University ranked with its national peer group and led the Commission through the calculations.
Several Commission members were impressed with the methodology and asked about the plans status. Mr. Lauterberg responding by saying that Governor Gilmore and the General Assembly deferred action on the performance funding recommendation made by Governor Allen in his outgoing budget until it could be studied further.
When asked if the college and university presidents still supported the measures, Mr. Lauterberg responded by saying that most did. One or more of the college presidents agreed but added that more work needed to done on some measures.
A summary of Mr. Lauterberg's presentation in linked to the front page of this web site.
Mr. Flippen closed the meeting at 4:40 p.m.
Posted: June 10, 1999
By The
Educational Policy Institute of Virginia Tech
sjanosik@vt.edu