Lawmakers are set to consider a new approach to higher education funding based on school-specific goals rather than blanket recommendations, and they’ve gotten their first look at an Oct. 26 state budget committee meeting.
The proposed funding model comes from the Commission for Higher Education, which was commissioned by the General Assembly to research a new formula for covering costs at Indiana state colleges and universities.
Stakeholders have criticized the state’s “legacy model” funding formula for not distinguishing between two-year and four-year schools or research and non-research institutions. The country’s current model also does not allow for individualized goals at different schools.
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“The legacy model (of) today essentially rewards growth across the same five metrics for each institution and institution type,” said Seth Hinshaw, Deputy Commissioner and CFO of the Indiana Commission for Higher Education (CHE). “What this (new prospective) model gives us is the flexibility to … instead identify growth goals for similar institutions, but allow those goals to be specific to that institution.”
This legacy model also uses averages over the past few years for various factors, such as on-time graduation, to calculate the government’s future financial responsibility.
“You ended up with a 10-year dataset that’s about two years behind at the time of implementation and funding,” Hinshaw said.
New Model School Budget Opportunities
The new formula does not eliminate all aspects of the current process, while still allowing institutions to increase their core funding by making progress toward a set list of goals. For example, if the school has met 10% of its goal, 10% of its projected funding this year will be converted to its baseline funding, but this will not affect its projected funding allocation in the next budget cycle.
Prospective funding essentially means additional funding that a college or university can earn on top of core funding.
The Indiana state budget is operated in biennial or biennial periods. The General Assembly prepares the budget in odd-numbered years, which means that expenses must be accounted for in two-year increments.
Hinshaw outlined an example where the General Assembly allocated $100 million as a base allocation to a school in 2023. Under a new, smaller line of projected funding, the school has the potential to earn an additional $10 million if it meets a set of defined goals over the next two years.
The fictional school earned $2 million in its first year, followed by $5 million in its second year, for a total of $7 million by 2025. That $7 million will become part of the school’s core funding in the following biennium, meaning it will receive at least $107 million in 2026 and 2027. However, the remaining $3 million will carry over and the school may seek to use them again, in addition to an additional $10 million in projected funding for fiscal years 2026 and 2027.
“Amounts will change over time, but the amount earned will be paid out in the biennium it was earned and added to the base in the following biennium,” Hinshaw said. “It would ensure that no base funds are necessarily cut under this model, but it would also ensure that institutions that are performing well – that meet or exceed expectations – have an opportunity to increase their overall future funding.”
An important aspect of the prospective funding, Hinshaw said, is that unused prospective monies will not flow back into the general fund like other special items do.
“The idea here would be that if an institution does not fully earn its allocation in the biennium — whatever was not earned — it would be reassigned in the following biennium based on the new proportions of working capital,” Hinshaw said. “Money earned during the biennium would be added to the base of the institution in the following biennium.”
Goals for schools fall into two categories: systemic and institutional. System objectives include quality and career relevance, a metric that would account for in-demand industries, and completion rate.
The added level of flexibility does not penalize schools whose student population plans from the outset of their education to take more than the standard two or four years to complete their degree. These students may have to balance multiple commitments such as a part-time job or domestic responsibilities, and no amount of institutional support could have made a difference for them.
“We don’t want to incentivize institutions to move away from on-time completion, but we do want to make sure that we don’t encourage students to push students to complete more coursework than students should be doing,” Hinshaw said.
The newer model will also allow institutions to compete for funding tied to improvements against, rather than against, each other.
“(For) an educational institution to show an improvement in key metrics that is not overshadowed or offset by the greater improvement in another institution,” Hinshaw said. “Instead of having improvements measured at the base of the institution itself.
The achievement of these goals is measured using data supplied by the universities themselves, which is then checked by CHE staff and supplemented with other sources.
Budget Committee members listened to the presentation but did not comment on the proposed funding mechanism.
Increase in scholarship amounts to increase college attendance
Also on October 26, Chris Lowery — the Indiana Commissioner for Higher Education — emphasized the need for Indiana to address its low college-going rate for high school students. Governor Eric Holcomb once wanted 60% of Hoosiers to have a post-secondary education, but today just over 48% of residents are achieving that goal.
“We had a steep decline; it’s not unique to Indiana, but the decline has been steeper than nationwide,” Lowery said.
Lowery said he was concerned by the message that secondary education is not valuable when research shows those with advanced degrees have more earning opportunities than high school graduates. For the first time in their analysis, fewer than half of the male Hoosier high school seniors will be going to college in 2022.
To reverse this tide, Lowery recommended increasing funding distributed through Frank O’Bannon Grant grants by 35% and returning them to pre-Great Recession award levels, allowing for inflation.
Current funding limits are US$9,200 for private institutions or US$4,600 for public institutions, not far from their 2008-2009 grants of US$9,160 and US$5,080 respectively.
A 35% increase would bring those amounts to $12,400 for private entities and $6,200 for public entities, according to Lowery.
The commission estimated the increase could cost the state between $170 million and $190 million.
“I hear every day – and I suspect you all do – from employers about the challenges with (the) workforce to find talented people who can get the job done,” Lowery said. “I absolutely believe that there are a number of our Hoosier colleagues (who) – with the right training and skill development – could fill these critically important roles in our society.”
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