Every dime that South Carolina gives its public colleges may soon be tied to how well they perform.
Under a new financing system for higher education that the South Carolina General Assembly adopted overwhelmingly this month, the amount of money that each public college gets from the state will depend entirely on its progress in meeting a list of goals. The colleges are to be judged in such areas as the achievements of their graduates, administrative efficiency, and the quality of their professors and classrooms.
Gov. David M. Beasley is expected to sign the bill that creates the new system. Once in place, it will provide new state money to public colleges that meet or exceed the specified standards. Chronically poor performers will be deprived of state financing and could be forced to close.
“To make higher education more accountable, we must first define what we expect from the system,” said State Sen. Nikki G. Setzler, the measure’s chief sponsor. The new financing plan, he said, “will bring us a system of excellence rather than a system that supports mediocrity.”
While the South Carolina proposal is unprecedented in its scope, several other states, including Colorado, Florida, Ohio, Minnesota, and Missouri, are putting in place similar methods for distributing portions of their higher-education budgets.
The approach, known as “performance-based budgeting,” has gained widespread support among state legislators, and even among some public-college officials, who embrace it as a way to coax new money for higher education out of a public seeking reassurance that its tax dollars are well spent.
“You can’t just show up and ask for money and expect to get it anymore,” said Gary S. Cox, executive director of the Kentucky Council on Higher Education. The council, with the General Assembly’s backing, is developing a performance-based budgeting scheme for Kentucky’s public colleges.
“The competition for public funds is fierce,” Mr. Cox said, “and, in a number of ways, we have to send the message that we are using these funds wisely, that we are accomplishing what the appropriators of dollars want us to accomplish.”
Mr. Setzler, Democratic chairman of the South Carolina Senate’s Higher Education Committee, said the current enrollment-based financing formula offers few incentives for improvement and actually penalizes institutions that seek to raise their standards and become more selective.
The bill creating the new system calls for the state’s Higher Education Commission to develop a set of 36 “performance indicators” for each state college by the end of the year. The commission is expected to seek advice from businesses as well as state colleges in devising indicators that take into account the role and mission of each institutions. The specific criteria for judging a given institution and the progress it has made may include references to its student-professor ratios, for example, or the amount of time students spend in the classroom, or the credentials of its faculty members.
The state plans to move quickly to phase in a new budgeting system based on these standards. By mid-1999, South Carolina would base all of the funds it gives to each public college on performance.
Fred R. Sheheen, the state’s Commissioner of Higher Education, acknowledged that developing quantitative and qualitative standards for each of the state’s 33 public colleges would be a complicated task, especially given the short time frame. But doing so, he said, will pave the way for marked improvements in higher education.
Officials of the state’s public universities said they supported the concept. “If it is done in a mutual and collaborative way with the institutions, we will have something that is very workable and very acceptable,” said Chancellor Robert E. Alexander of the University of South Carolina at Aiken.
He cautioned, however, that support for the new system could weaken if the state insisted on adopting standards that the institutions regard as invalid or unfair.
Most of the resistance to the plan has come from the Conference of South Carolina University Faculty Chairs, an association of elected faculty leaders from the state’s 18 public four-year institutions. It expressed concern that the new system would be put in place too quickly and fail to recognize crucial distinctions between public colleges and the business sector, where performance-based budgeting is most commonly used. Assessing the bottom-line performance of public colleges is harder than doing so for businesses -- which offer the tangible measure of profits -- and the public would suffer if the colleges were allowed to go broke, the conference said.
“My fear is that the move to performance-based funding will serve to mask the poor performance of the state legislature in funding higher education,” said Jack D. Parson, the group’s chairman and a professor of political science at the College of Charleston.
Experts on performance-based budgeting say the high stakes of the South Carolina plan could spell trouble later on. Tying all state financing to performance “makes institutional budgets extremely volatile” and hurts public colleges’ efforts to finance capital projects and other long-term improvements, said Peter T. Ewell, a senior associate at the non-profit National Center for Higher Education Management Systems.
Attaching so much state support to performance also can make any political quarreling over how to measure performance “extremely vicious,” he said. Moreover, he added, “the higher the stakes, the greater the temptation” for institutions to manipulate the numbers by which they are judged. He recommended that states instead tie no more than 20 per cent of public-college budgets to performance.
National experts cite the experience of Texas to show the difficulty of trying to put a significant share of public-college budgets behind specified performance standards. In 1993, the Legislature there was poised to enact a performance-based budgeting system to distribute 5 per cent of the state’s higher-education funds. But when the plan was revised to double the share of the budget affected, to 10 per cent, the consensus behind it crumbled. The proposal died in committee and has never been revived.
Most of the performance-based budgeting policies affect less than 5 per cent of the higher-education budgets -- most or all of it new money. Those policies aim to reward change that either helps to fulfill the institutions’ missions or to address the states’ priorities.
Arkansas this month distributed $5-million of its $454-million higher-education budget using a performance-based budgeting system approved by the legislature last year. That amount was sufficient to “stimulate a lot of campus discussion of how to change,” said Ed Crowe, senior associate director of the state Department of Higher Education. A public college in Arkansas can earn more state money if it retains more freshmen, produces more graduates who pass licensure exams, holds down administrative costs, increases faculty productivity, or makes its staff more diverse.
Both Florida and Ohio began to use performance-based budgeting this spring to distribute a small portion of their community-college budgets, a task that their legislatures viewed as easier to undertake than trying to measure and reward the performance of four-year institutions. Ohio has allocated $1.5-million in new money to reward community colleges, generally for keeping fees low, offering a wide array of programs in various areas, or working with businesses or other groups to develop training programs.
Many of the states interested in performance-based budgeting for higher education are in the South. Observers of higher-education finance say this is an outgrowth of the region’s leadership in the education-accountability movement, as well as of the fact that many Southern states already have compiled exhaustive data on public colleges as part of desegregation agreements. The Southern Regional Education Board also has pushed the process along; it held a conference on performance-based budgeting for member states in March.
Tennessee has used a performance-based formula since the early 1980s to determine a small portion -- no more than 5 per cent -- of its base budget for each public college. John K. Folger, who was executive director of the Tennessee Higher Education Commission when the process got under way, said the state had made the budgeting approach more palatable to the public colleges by applying it only to new money, and not using it to cut their funds. Most of the states that have tried performance-based budgeting use this approach.
Like most states that have adopted similar mechanisms, Tennessee has refined how it measures performance. It has provoked opposition from public colleges when the criteria were viewed as unfair or overly complicated.
But Kala M. Stroup, the commissioner of Missouri’s Higher Education Coordinating Board, said public colleges there had come to appreciate the performance-based system put in place in 1994.
“It builds into the system an expectation that everyone in higher education assesses their students and assesses their progress,” she said. “The system learns what is effective, and what is not effective.”