Using Funding Policy to Achieve State Goals: The Response to SJR 88

1. Using Funding Policy to Achieve State Goals:The Response to SJR 88 Illinois Board of Higher Education Oakton Community College October 5, 2010

2. The Specifics of SJR 88 • History and means of higher ed funding in Illinois • Comparisons • Reviewing for adequacy, equity, and reliability • Compare productivity of Illinois institutions • State systems • Peer institutions • Analyzing best practices for incentivizing certification and degree completion • Students • Institutions • Review tuition and financial aid policies – assess roles in improving certification and degree completion • Consider alternative funding mechanisms that will advance the goals of the Illinois public agenda

3. The Illinois Public Agenda for College & Career Success • Goals • Increase educational attainment to match best-performing states • Ensure college affordability for students, families, & taxpayers • Increase the number of high-quality postsecondary credentials to meet the demands of the economy and an increasingly global society • Better integrate Illinois’ educational, research, and innovation assets to meet economic needs of the state and its regions

4. Among the principles established in conjunction with the public agenda “2. Priorities, policies, and budgets must align with state goals.”

5. Policy Leadership Alignment Consistency

6. Of the Policy Levers Available to Legislatures, the Most Powerful is Finance • Finance Policy • Sends the strongest signals • Creates the strongest incentives for institutional behavior In the absence of alignment between goals and finance policy, failure to achieve goals will be assured.

7. Federal Government Economy Available State and Local Govt. Funds Higher Education FederalGovernment The Flow of Funds Tax Policy Stimulus Funds • K-12 • Corrections • Health Care • Other Govt. Income Student Aid Appropriations/Grants Tuition Donors Foundations Corporations Students Institutions Scholarships &Waivers Student Aid (Restricted)

8. Federal Government Available State and Local Govt. Funds Higher Education The Flow of Funds - State Economy Stimulus Funds Tax Policy • K-12 • Corrections • Health Care • Other Govt. Income Student Aid Appropriations/Grants PublicInstitutionsPrivate Tuition Students Scholarships &Waivers Student Aid Federal Government

9. Available State and Local Govt. Funds Higher Education The Flow of Funds Student Aid Appropriations/Grants Tuition Students Institutions Scholarships &Waivers Student Aid FederalGovernment

10. Three Purposes for State Funding • Sustaining institutions – capacity creation & maintenance • Investing in state priorities – capacity utilization • Ensuring Affordability

11. Finance Policy – The Options InstitutionFocused StudentFocused Core Capacity Capacity Utilization/Public Agenda

12. Remember – all funding mechanisms create incentives for behavior Institutions Students Question – are the incentives created consistent with pursuit of stated goals?

13. Incentives in the Current Funding Mechanism • Keep students enrolled – but not necessarily completing • Increase tuition to compensate for declines in state allocations

14. Characteristics of Sound Higher Education Finance Policy • Comprehensive – encompasses • Appropriations to institutions • Tuition • Student financial aid • Components all consistently promote pursuit of state goals • Maintains affordability to • Students – judged against family income • States – judged against tax capacity • Serves to maintain – as well as create – necessary educational capacity • Promotes alignment of institutional missions with state priorities

15. Some Observations About Results of Past Practices

16. Funding model has provided sufficient funds to four-year institutions to maintain capacity • Community colleges are underfunded

17. Illinois/National Comparisons – Public Research Sector, AY 2008 Source: Delta Cost Project

18. Illinois/National Comparisons – Public Masters’ Sector, AY 2008 Source: Delta Cost Project

19. Illinois/National Comparisons – Public Community Colleges, AY 2008 Source: Delta Cost Project

20. Illinois Institutions are Relatively Efficient in Producing Degrees

21. Completions Per 100 FTE Students Education & Related Spending per Completion Source: Delta Cost Project

22. Costs are Increasingly Being Shifted to Students And Student Aid Isn’t Keeping Up

23. Illinois Public Research Institutions State & Family Share of Funding1988-2008 Source: Delta Project on Postsecondary Education Costs, Productivity, and Accountability; Delta Cost Project IPEDS Database.

24. Illinois Public Masters & Bachelors Institutions State & Family Share of Funding1988-2008 Source: Delta Project on Postsecondary Education Costs, Productivity, and Accountability; Delta Cost Project IPEDS Database.

25. Illinois Public Associates Institutions State & Family Share of Funding1988-2008 Source: Delta Project on Postsecondary Education Costs, Productivity, and Accountability; Delta Cost Project IPEDS Database.

26. Percent of Family Income Needed to Pay for CollegeMinus Financial Aid Public 2-Year Public 4-Year Private 4-YearNot for Profit Source: Measuring Up 2008

27. State Tax Capacity & EffortIndexed to U.S. Average 1.7 DE 1.6 1.5 1.4 CT NJ 1.3 MA AK 1.2 WY State Tax Capacity (Total Taxable Resources Per Capita) MD NY VA NH 1.1 MN CO IL NV WA CA RI 1.0 US PA NE WI NC GA KS HI MO SD IA OH FL IN VT TX OR 0.9 TN AZ ND ME MI UT SC KY 0.8 ID NM LA AL OK WV MT AR 0.7 MS 0.6 0.6 0.8 1.0 1.2 1.4 State Tax Effort (Effective Tax Rate) Source: State Higher Education Executive Officers (SHEEO)

28. A Framework for a New Funding Model • Appropriations to institutions • Tuition • Student financial aid

29. Appropriations to Institutions Task Force Recommendation Performance-based funding is a valuable policy tool to achieve state goals of improved student outcomes, and Illinois should move forward with development of financial incentives to achieve desired outcomes

30. Performance Funding Model Should • Include a performance feature in the base component of institutional funding • Be different for different types of institutions • Research Universities • Competitiveness for research funds • Application of research to state issues/opportunities • Masters Institutions • Increasing number of graduates • Application of research to regional priorities/problems • Community Colleges • Increasing numbers of completers • Increasing numbers of transfers • Completion of momentum points • Be constructed so as to encourage success of at-risk students

31. Tuition Policy • Now a train on its own track • Must be more explicitly linked to other elements of funding policy

32. Student Financial Aid • Current program is • Well designed • Underfunded (by 50%) • Unable to ensure that affordability goal can be met • Operated in such a way that allocation (triage) criteria are not aligned with public agenda • Options • Alter triage criteria used to allocate map funds • Add high school preparation, for example • Add resources to current program • Human capital bonding program • Reallocation of state money from institutions to students • A new model that makes explicit the responsibilities for all partners in student aid funding • Students • Families • Federal Government • State Government • Institutions

33. Some Pitfalls to Avoid • Trying to solve the funding problem piecemeal • It will require a comprehensive solution • “we can’t tweak our way out of this” • Creating a model that is too complex and not transparent • Not reflecting different contributions of different types of institutions • Trying to make a single part of the model carry too much of the load • Building it in isolation – involvement of, and consultation with, key constituents is critical