New Mexico Higher Education Department

1. New Mexico Higher Education Department The Higher Education Funding Formula: An Overview www.hed.state.nm.us New Mexico is taking a statewide view of funding for higher education to increase accountability. The state level view is in sharp contrast to the institutional view that has driven funding in the past, especially at the legislative level. New Mexico is taking a statewide view of funding for higher education to increase accountability. The state level view is in sharp contrast to the institutional view that has driven funding in the past, especially at the legislative level.

2. 2 The Department’s Charge is to: “Be concerned with the adequate financing of [the] institution and with the equitable distribution of available funds among them.” 21-1-26 NMSA 1978 “Develop a funding formula that will provide funding for each public institution of higher education…” 21-2-5.1 NMSA 1978 The higher education policy environment may be characterized as performance and accountability-driven. Frames of reference include the 2004 report card issued by the National Center on Public Policy and Higher Education. New Mexico receives fairly low marks in preparation, affordability, and completion and articulation. In 2005, Governor Richardson created a framework for Performance and Accountability in each policy area. The education section is called, “Making Schools Work,” MSW includes indicators with baselines and targets for each policy area. Many of the measurements and rankings are reported by national organizations (NEA, Education Week, SHEEO ,etc) and not our own measurements and interpretations of progress. To address higher education, HED is testing performance based funding using pilot projects with the goal of selected components of the formula based on performance by 2010. In addition to Governor Richardson’s Making Schools Work framework for policy and accountability, we have reorganized our performance and accountability contract as a department, around the Measuring Up Report Card. The higher education policy environment may be characterized as performance and accountability-driven. Frames of reference include the 2004 report card issued by the National Center on Public Policy and Higher Education. New Mexico receives fairly low marks in preparation, affordability, and completion and articulation. In 2005, Governor Richardson created a framework for Performance and Accountability in each policy area. The education section is called, “Making Schools Work,” MSW includes indicators with baselines and targets for each policy area. Many of the measurements and rankings are reported by national organizations (NEA, Education Week, SHEEO ,etc) and not our own measurements and interpretations of progress. To address higher education, HED is testing performance based funding using pilot projects with the goal of selected components of the formula based on performance by 2010. In addition to Governor Richardson’s Making Schools Work framework for policy and accountability, we have reorganized our performance and accountability contract as a department, around the Measuring Up Report Card.

3. 3 Formula History The original Funding Formula was developed in the mid-1970s in order to: – Provide an objective, non-political means for determining the funding needs of institutions – Allow the New Mexico Higher Education Department to make a coordinated funding request for the higher education sector Although both major and minor adjustments have been made over the years, the basic concept has remained the same In 2002, the Blue Ribbon Task Force was created to revise not only the mechanics of the formula, but also the concept behind it Hispanic and American Indian populations constitute the majority of the state’s population. However, this majority is not reflected in PreK-12 education or higher education student populations. As an example of policy integration, HED is addressing Hispanic and American Indian student remediation, retention and graduation rates. We work with the Department of Indian Affairs and Public Education Departments, NM Tribal Higher Education Consortium (19 pueblos), tribal colleges and governors of the Navajo and Apache nations in New Mexico. The HED recently negotiated and signed MOUs with the four tribal colleges in NM to address student data collection and reporting and student eligibility for state-funded aid. To address student access and affordability, the legislature funded the College Affordability Act in 2006. This act will provide need-based scholarships to non-traditional students. It supplements the Lottery Success Scholarship which is a merit-based award available to all NM high school graduates. To effectively address higher education policy in this environment, we know that we have to include all state stakeholders as we craft proposals and communicate with them more effectively throughout the process. Hispanic and American Indian populations constitute the majority of the state’s population. However, this majority is not reflected in PreK-12 education or higher education student populations. As an example of policy integration, HED is addressing Hispanic and American Indian student remediation, retention and graduation rates. We work with the Department of Indian Affairs and Public Education Departments, NM Tribal Higher Education Consortium (19 pueblos), tribal colleges and governors of the Navajo and Apache nations in New Mexico. The HED recently negotiated and signed MOUs with the four tribal colleges in NM to address student data collection and reporting and student eligibility for state-funded aid. To address student access and affordability, the legislature funded the College Affordability Act in 2006. This act will provide need-based scholarships to non-traditional students. It supplements the Lottery Success Scholarship which is a merit-based award available to all NM high school graduates. To effectively address higher education policy in this environment, we know that we have to include all state stakeholders as we craft proposals and communicate with them more effectively throughout the process.

4. 4 Formula Concept In 2002 New Mexico adopted a “Base Plus” formula model Goals of the Base Plus formula are to: Support increased access and economic development Make the formula easier to understand Create incentives for student and institutional success In 2005, HED formed a Formula Enhancement Task Force as a followup to a 2003 TF in order to look at consequences of earlier formula enhancements. The current TF is comprised of higher education and legislative leaders to examine the formula and find ways to enhance it by adding performance incentives with significant funding attached. One proposal is to fund the institutions according to their mission: research, comprehensive, and two-year. Another is to address the increasing costs of opening the doors: benefits, utilities, and competitive salaries. The latter has become an increasingly sensitive area due to recent increases in public teacher salaries which include a career ladder funded in three tiers based upon education, experience and other teaching certifications and credentials. In 2005, HED formed a Formula Enhancement Task Force as a followup to a 2003 TF in order to look at consequences of earlier formula enhancements. The current TF is comprised of higher education and legislative leaders to examine the formula and find ways to enhance it by adding performance incentives with significant funding attached. One proposal is to fund the institutions according to their mission: research, comprehensive, and two-year. Another is to address the increasing costs of opening the doors: benefits, utilities, and competitive salaries. The latter has become an increasingly sensitive area due to recent increases in public teacher salaries which include a career ladder funded in three tiers based upon education, experience and other teaching certifications and credentials.

5. 5 Component of the Formula Instruction and General Expenditures Instruction and Instructional Support Student Services Physical Plant Operations and Maintenance Revenue Credits – Land and Permanent Fund – Mil Levy – Tuition Transfers – Three Percent Scholarships – Building Renewal and Replacement – Equipment Replacement Athletics will be addressed separately, outside the formula. There is a need for accountability in funding of athletics. For example, once women’s soccer is funded, funding continues regardless of the continued existence of the athletic program. 2-year and 4-year institution parity is a critical policy issue. Performance-based funding proposals will include a $5 M supplement to address underrepresented students and student outcomes (retention, remediation, graduation, etc.) and $3.5M Higher Ed Program Development Enhancement Fund for nursing Recommendations will be presented to GBR by August 2006Athletics will be addressed separately, outside the formula. There is a need for accountability in funding of athletics. For example, once women’s soccer is funded, funding continues regardless of the continued existence of the athletic program. 2-year and 4-year institution parity is a critical policy issue. Performance-based funding proposals will include a $5 M supplement to address underrepresented students and student outcomes (retention, remediation, graduation, etc.) and $3.5M Higher Ed Program Development Enhancement Fund for nursing Recommendations will be presented to GBR by August 2006

6. 6 Mechanics of the Formula Instruction and Instructional Support Courses are categorized into clusters, and clusters are categorized into tiers Student credit hours from the most recent academic year are mapped to the appropriate cluster and tier by level of instruction Short term goal: Conduct a pilot funding project to test performance-based funding as incentive to IHE’s to improve student outcomes Different measures for 2yr and 4yr institutions for all measurements of performance and accountability Short term goal: Conduct a pilot funding project to test performance-based funding as incentive to IHE’s to improve student outcomes Different measures for 2yr and 4yr institutions for all measurements of performance and accountability

7. 7  Data for TF consideration were provided by institutional researchers in each institution: For universities, graduation rates as reported to U.S. DOE; For community colleges, graduation rates and fall-to-fall persistenceData for TF consideration were provided by institutional researchers in each institution: For universities, graduation rates as reported to U.S. DOE; For community colleges, graduation rates and fall-to-fall persistence

8. 8 Student credit hours are summarized by tier and by level of instruction Graduation rates at NM research and comprehensive universities remain low and show a three-year erosion in both research and comprehensive institutions. Graduation rates at NM research and comprehensive universities remain low and show a three-year erosion in both research and comprehensive institutions.

9. 9 Summer student credit hours are then multiplied by the dollar values according to the level of instruction and tier NM community colleges have a higher rate of graduation over the same three-year period, hovering around 50%. NM community colleges have a higher rate of graduation over the same three-year period, hovering around 50%.

10. 10 This results in formula Instruction and Instructional Support expenditures The Formula Enhancement TF will define an agreed-upon definition of cohorts and student success outcomes. The Formula Enhancement TF will define an agreed-upon definition of cohorts and student success outcomes.

11. 11 Total Student Credit Hours are compared with the total Student Credit Hours base year, which varies by institution Total Instruction and Instructional Support dollars are compared with the total Instruction and Instructional Support dollars in the base year If either the Student Credit Hours or the Instruction and Instructional dollars increase by 3% or more, or decrease by 5% or more, the institution qualifies for a “workload” adjustment In summary, New Mexico will use the formula enhancements recommended by the TF to test the sensitivity of the formula as a tool to affect policy outcomes. As we all know, the role of the institutions in the process is critical. Just as critical is the communication with legislators and legislative staff to gain their support. The next steps will be to expand the performance components of funding institutions of higher education in New Mexico to achieve desired policy outcomes. In summary, New Mexico will use the formula enhancements recommended by the TF to test the sensitivity of the formula as a tool to affect policy outcomes. As we all know, the role of the institutions in the process is critical. Just as critical is the communication with legislators and legislative staff to gain their support. The next steps will be to expand the performance components of funding institutions of higher education in New Mexico to achieve desired policy outcomes.

12. 12 Mechanics of the Funding Formula:Student Services If the institution qualifies for Instruction and Instructional Support workload increase or decrease, the institution also gets an adjustment in Student Services funding The difference between the fall student head count and base year fall head count is multiplied by a flat rate determined annually FY 08 = $366.76

13. 13 Student Services Example If the institution qualifies for a workload adjustment then: Increase Example Fall 2003 HC = 3,448 Base Fall HC = 3,347 3,448 - 3,347 = 101 101 X $348.89 = 35,238

14. 14 Mechanics of the Formula: Physical Plant Operation and Maintenance Maintenance • Provides $4.02 per square foot of allowable space • Space is allowable if used for Instructional and General Purposes Utilities • Average utility cost per square foot is calculated for each institution • Average utility cost is applied to allowable space

15. 15 Physical Plant Operations and Maintenance Example Maintenance • 2004 – 2005 Allowable Square Footage = 310,550 • 2003 – 2004 Allowable Square Footage = 282,550 • 310,550 – 282,550 = 28,000 New allowable Square Footage • 28,000 X $4.02 = $112,560 Utilities • Average Utility Cost per Square Foot = $0.70 • $0.70 X 28,000 = $19,600 Total Plant Formula Workload = $112,560 + $19,600 = $132,160

16. 16 Mechanics of the Formula:Land and Permanent Fund Revenue Credit This portion of the formula applies to constitutionally created colleges and universities Credit is taken for actual Land and Permanent Fund revenue If Land and Permanent Fund revenues exceed the funds required for BRR, credit is taken for 1/3 of the excess, with 2/3 remaining at the institutions for discretionary use This calculation is compared with the calculation from the prior years to determine any increase or decrease in formula workload

17. 17 Mechanics of the Formula:Mil Levy Revenue Credit Credit is taken for the mil levy revenue generated by the minimum mil levy required by statue • Branch Community Colleges: 1 mil • Independent Community Colleges: 2 mils Any additional mil levy revenue generated by voter approved mil levy rates above the minimum remain at the institution for discretionary use This calculation is compared with the calculation from the prior year to determine any increase or decrease in formula workload

18. 18 Mechanics of the Formula:Tuition Revenue Credit Factors that affect changes in General Fund appropriations: Student enrollment in prior year Institutional tuition rates in prior and current year Legislatively enacted tuition credit percentage for current and upcoming year NMHED minimum tuition rate (resident and non-resident) for current year Local operational mil levy rate for community colleges Increase or decrease in General Fund appropriation for each institution: Net amount of changes in (1) Tuition Credit Base, (2) Formula Tuition Expenditures and (3) Tuition Rate Increase Assumption. Note: Refer to NMHED Procedure for Calculating the Funding Formula Tuition Revenue Credit.

19. 19 Mechanics of the Formula: 3% Scholarship Transfer This transfer is calculated by multiplying 3% of the previous fall’s Student Head Count enrollment by the current annual tuition and fee rate at the institution This calculation is compared with the calculation from the prior year to determine any increase or decrease in formula workload Note: Appropriated funds are recorded in Instruction and General, and must be transferred to the Student Financial Aid Budget

20. 20 Mechanics of the Formula:Building Renewal and Replacement (BRR) Transfer The Building Renewal and Replacement transfer is intended to provide an appropriation equal to 3% of the replacement cost for eligible facilities Eligible facilities include all square footage used for Instruction and General purposes This portion of the formula is currently funded at 40% No new eligible square footage may be added until the formula is funded at 100% This calculation is compared with the calculation from the prior year to determine any increase or decrease in formula workload Note: Funds are appropriated to Instruction and General and must be transferred to the Plant Funds budget

21. 21 Mechanics of the Formula:Equipment Replacement Transfer Institutions annually submit an inventory of equipment used for Instruction and General purposes • Each equipment item is certified as having either a 5 yea or 12 year useful life If fully funded, the formula would generate 1/5 of the replacement cost for 5-year equipment and 1/12 of the replacement cost for 12-year equipment This portion of the formula is currently funded at 46.5% This calculation is compared with the calculation from the prior year to determine any increase or decrease in formula workload Note: Funds are appropriated to Instruction and General and must be transferred to the Plant Funds budget

22. 22 Mechanics of the Formula:Summary of Workload Calculation Prior Year Base Instruction and General Appropriation +/- Instruction and Instructional Support (if applicable) +/- Student Services (if applicable) +/- Physical Plant Operations and Maintenance +/- Land and Permanent Fund Revenue +/- Mil Levy Revenue +/- Tuition Revenue +/- 3% Scholarship Transfer +/- Building Renewal and Replacement Transfer +/- Equipment Renewal and Replacement Transfer = Recommended General Fund Appropriation for Instruction and General

23. 23 Incentive Funds Program Development and Enhancement Fund • Provides additional funding programs through a competitive proposal process, for example Nursing or Teacher Education Higher Education Performance Fund • Intended to reward institutions that meet agreed upon performance standards in areas determined by the Department, for example minority participation. Note: Funding varies each year

24. 24 Higher Education Incentive Matching Funds Workforce Skills Development Fund • Provides matching funds to community colleges for development, expansion and support of entry-level high-skills training programs Technology Enhancement Fund • Provides matching funds to research universities to support innovative applied research in the fields of agriculture, biotechnology, energy, materials science, microelectronics, water resources, aerospace, telecommunications, manufacturing science, and other similar areas Faculty Endowments Fund • Provides matching funds to universities for endowed faculty chairs and professorships Note: Funding varies each year

25. 25 For more information on the Funding Formula for Higher Education contact: M. Tino Pestalozzi, CPA Chief Financial Officer Director, Budget and Finance 1068 Cerrillos Road Santa Fe, NM 87505-1650 Phone: 505-476-6538 Fax: 505-476-6511 Tino.pestalozzi@state.nm.us www.hed.state.nm.us