Funding formula update: Agreement emerges, but there's work left to do

20 Aug 2012 3:41 PM | Anonymous
As the legislative committee reviewing the Nevada System of Higher Education's formula for funding its institutions prepares for its final scheduled meeting next Wednesday, some consensus is emerging on the policy principles that new formula should embrace. Work remains, for the committee and eventually the legislature, to put those principles into practice by hammering out the all-important technical details of how the formula actually builds a budget for NSHE institutions.

The three subcommittees of the legislative committee studying the state's funding of higher education have completed their work on the funding formula, the performance funding pool and local funding for community colleges, respectively.

The subcommittees reviewed the latest version of the Nevada System of Higher Education's proposal for an alternative formula, including version 20 of the proposed performance pool and the report and recommendations of the committee's consultant, SRI International. Each subcommittee will report to the full committee at its final meeting next Wednesday, Aug. 29.

The committee's work has generated little press attention, but the Las Vegas Sun did run a story on the most recent round of subcommittee meetings, which offers a good run-down with a headline that advertises, with a bit of sensationalism, "heated debate" over the new formula.

For those observing the process closely, a solid degree of consensus has emerged on most of the major policy questions, and it is important to underscore those principles, as distinct from any projected allocation. After all, the governor and legislature will assuredly tinker with proposed allocation amounts, but sound principles are more likely to be accepted and acted upon as a lasting basis for a more credible, functional and effective formula in the future.

The principles listed below appear, based on the public discussions of the committee to this point, to be the essential principles on which the 2013 legislature is likely to construct a new formula , if not for the 2013-2015 biennial budget than for the future.

After seven months of intensive work by the System, its constituent campuses, the governor's office and the committee, major points of agreement that have emerged dictate that the new formula should...
1. take the politics out of higher education funding as much as possible by replacing the old complicated and opaque formula with something transparent and credible;

2. separate student fees from state allocations, with no offset or sequestration of state support to campuses that enhance student-derived revenue.

This separation of fees and state allocations would end the misnomer of student tuition and fees as "state support" in the NSHE budget – although the legislature would continue to audit how NSHE spends revenue from students. This principle would be a significant step forward, because it would respect student choice and reward academic prominence by allowing programs and campuses that generate more student revenue to devote it to instruction on those campuses.

3. use Nevada dollars to fund only Nevada students, by excluding non-resident students from the formula – and from state allocations.

Campuses would determine on their own, and within their own budgets, whether to offer scholarships or aid to recruit from out of state but could no longer, as is currently the case, offer scholarships to recruit out-of-state students that would increase their own formula allocation.

4. fund instruction and student success rather than building maintenance or other functions.

The new formula should focus on base funding on completed student credit hours rather than, as in the past, enrollment, students services or building maintenance. Those functions are essential but secondary to the primary goal of students completing credits and degrees.

5. produce an outcome that is  equitable across all regions of the state and proportional to institutional mission, as measured in state support per full-time equivalent Nevada student.

6. include a component based on outcomes specific to each campus's or each tier's mission.

This component of the formula appears likely -- based on subcommittee discussions and votes taken to this point -- to be funded by carving out a share of the base NSHE allocation, rather than based on an enhancement allocation of state funds. Specifically, the performance subcommittee voted last week to recommend the introduction of the performance share of the formula in the FY2015 budget (ie the second year of the next biennial budget), when 5% of the NSHE formula funding allocation would be distributed based on performance. (That share would be calculated, presumably, on 2012-2013 data, rather than the 2010-2011 data that has been used in the System's proposal document.) Each year, for the next four years, an additional 5% f the NSHE formula funding would be allocated based on this component, until FY2019 when it would drive  20% of the formula allocation.

The specific weights and measures of the outcome-based, tier-specific formula remain unfinished, and it is unclear if the System or the legislature would set the final weights and measures for the performance pool, or whether the System, the campuses, or the legislature data would collect, verify and report the data.

The "sparring" referred to in the Sun is primarily over a rather technical series of questions that have more to do the process of building a budget than with the educational principles of student attainment and degree completion, or of institutional performance. So on Aug. 29 the committee will have to discuss what if any recommendations to make concerning...

1. how to weight student credit hours completed on each campus and whether those weights should reflect the cost of instruction in a given discipline or the alignment of a given discipline to the state's economic development plan.

The System's proposal is based on the work of an external consultant, the National Center for Higher Education Management Systems, which – as explained at the last meeting – used both relative weights across disciplines from other states that study cost (primarily Texas as well as Ohio, Indiana and Florida) and adjusted to promote certain policy priorities, such as enhancing the weight given at some levels of instruction for credit hours completed in certain disciplines, specifically science, technology, engineering and health courses. Several committee members have noted that this list does not include all seven elements of the state's economic development plan, so that list may be expanded to include fields such as logistics, business information systems, hospitality and entertainment, and mining.

An alternative approach, suggested at the subcommittee meeting last week, would be to adopt the weights from another state, such as Texas, that does a cost study of the relative cost of each discipline. At the final committee meeting on the 29th, the consultant, SRI International, will offer a comparison of the weights in the NSHE proposal with those used in Texas and other states that use a cost study to generate their relative weights.

2. how to define the "completed student credit" that is at the heart of the base formula proposal.

The formula funding subcommittee has come to a consensus that students who fail courses by ceasing to participate ought not be counted towards completed student credit hours, and the most basic definition of completion therefore has been attendance past 60 percent of instruction (i.e., Fs count if the student attended 2/3 or more of the semester). However, there is not a standard data set for the entire System to use this measure, and some subcommittee members expressed a desire for a more precise measure of student and institutional effort than merely 60 percent attendance.

3. whether the base formula ought to be based entirely on student credit hours completed or whether some money should be carved out from the formula allocation to be distributed based on factors specific to certain institutions, namely the "small institution factor" for GBC and WNC or the "research factor" for UNR and UNLV

Some members of the committee have proposed running the new formula based entirely on the single factor of instruction at disciplinary weights that would be based as directly as possible on cost. Then "factors" for small institutions or research institutions, which, in mathematical terms, mitigate impact of the NCHEMS weights on some campuses, should be considered as temporary components or permanent parts of the base formula.

4. when and to what extent the new formula should be implemented.

The System has proposed, and the committee seems to support, that the new formula should be phased in over a four-year period, with approximately 25% of the formula allocation to be based on the new formula for year 1. (It has not been discussed if the remaining 75% would be based on the old, discredited formula or on the "base" of the FY12 or FY13 allocations (which in turn were determined largely by the old formula). Another approach would be to run the new formula for 100% of the allocation but apply additional, "stop-loss" funding to those campuses which would see a decrease in appropriation, namely the northern community colleges.
In any event, it seems clear that the proposed NSHE budget for 2013-2014 (the first version of which is to be revealed this Friday at the special Board of Regents meeting,  9 a.m. at Desert Research Institute in Las Vegas) is unlikely to represent much of a shift in share of allocation for each campus.

Hopefully, the primary difference from the legislatively approved 2011 budgets will be the restoration of full funding for faculty and staff compensation, which has been cut 4.8 percent for the past four years, and the restoration of a merit pay pool, as proposed by the governor.