Published on 2014/05/09

Performance-Based Funding in the Technical College Context

AUDIO | Performance-Based Funding in the Technical College Context
Tying funding to performance can be a valuable move for technical colleges as it allows them to focus exclusively on pursuing their main mission.

The following interview is with Michael Reeser, chancellor of the Texas State Technical College system (TSTC). Reeser spearheaded the creation of a new outcomes-based funding model for technical colleges across the Lone Star state, a topic he spoke about at the recent SxSW (South by Southwest) EDU conference in Austin. In this interview, Reeser expands on the new funding model, shares some insights into the benefits of innovative approaches to funding for students and the state, and explains the value of the move for institutions.

1. How does the mission of Texas’ technical colleges differ from that of two-year community colleges?

What makes our system unique is the fact that we have a statewide mission and that the programs we teach are restricted to technical programs.

Typically we don’t do programs designed to transfer to university, but instead result in a great technical or applied science job in the Texas economy.

2. What was the impetus behind adapting the old, contact hour-based funding model for technical colleges?

There was actually more than one driver. The first was rather pragmatic; it is that the Texas legislature was interested in finding a way to tie the funding for higher ed to desired outcomes. That’s a very practical approach. That was probably the starting impetus.

For TSTC, as we studied the notion further, what we realized was that if we did this correctly, it would provide us with two things. The first thing is the funding: the best interest of the institution and the way in which we’re funded could be instantly aligned with the best interests of the students if we were to get paid once the students actually get a job.

The second thing … was that it freed us from the contact hour. In the contact hour there’s actually an economic or financial incentive for institutions to teach students as long as possible. The reason is, the longer they teach, the more they get paid. … With this new funding method, we could reshape the size of our technical training programs.

3. How will the new funding model change the way institutions operate?

The first sounds simple but it’s actually fairly complex; … under the new model we start with the end in mind. Now, in our case, the end is not merely a college credential; it’s more than that. It’s a college credential and a good-paying job. Everything that comes in the process leading up to that job is then engineered to concisely and optimally prepare the student for that job.

When we took on this challenge, what we found was we had some programs that were bigger than they needed to be or smaller than they needed to be or that they contained content that wasn’t relevant to the jobs our students tend to be getting, or didn’t have all the content that was needed for the students. So a vast resizing of our curriculum was the first result.

The second result was that when we began our dialogue with students who were applying here, we got to start by asking them, “What do you want to do when you graduate?” That’s a profound difference than, “What do you want to study while you’re in college?”

4. What are the benefits of the new model for students?

When a student comes to TSTC, here’s what they can rely on: every single thing we do together with that student is focused singly on preparing that student for a great-paying job. They can also count on TSTC to work really hard as they near the end of their college studies to find that great-paying job because our payment from the state of Texas doesn’t occur until the student actually lands their employment.

5. What is the biggest benefit of the new model from the state’s perspective?

The state is naturally concerned about its industrial citizens and the quality of its workforce, and the state is naturally concerned with the quality of life of its individual citizens.

The beauty of this approach is that TSTC is therefore focused on both of those outcomes at the same time. And we work hard to find the sweet spot between the two. What kind of training is needed for individual Texans to land great jobs and, likewise, what kind of programs need to be taught so that Texas industries can get the skilled workers they need? Everybody’s interests are served.

6. What are the benefits of the new model for technical colleges?

This gives us room to maneuver in two ways. The first is we get to size our programs in an optimal way, rather than an artificial and sometimes arbitrary size defined by either a certificate or a degree. We get to do just what’s needed for the student’s wellbeing — no more no less. So that makes us very efficient.

The other advantage for us is we don’t have to offer programs that aren’t going to end in great jobs at the end, so it also makes us very effective. Both of those mean that we can train more students than we could before because our operations are optimized for the final desired outcome.

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Key Takeaways

  • The performance-based funding model for Texas technical college ties public funding for the institution to graduates entering and succeeding in the labor market.
  • This funding model allows technical colleges to focus exclusively on preparing students for work in high-demand industries.

Readers Comments

Daniele Thomas 2014/05/09 at 10:47 am

As Mr. Reeser says, this model is specifically designed for technical colleges whose point is to get students jobs in specific fields.

This would never work for non-career-focused institutions.

That said, this plan could provide a model that the gainful employment rule could build on. For example, institutions only get financial aid reimbursements based on what students make on-the-job.

After all, if they’re convinced their programs lead to gainful employment, then they might as well get some skin in the game.

Nadia 2014/05/09 at 1:05 pm

This is one example where performance-based funding makes sense. It’s easier for a technical college, which trains students for specific in-demand jobs, to identify performance measures and assess itself against them than for another type of institution to do so.

Beth D 2014/05/09 at 4:36 pm

Interesting experiment by the state of Texas. Higher ed is in desperate need of greater accountability and performance-based funding could become the key mechanism for that. It seems to be working well in the technical college system and perhaps a slight variation of this model could be used for other postsecondary institutions.

Mike H 2014/05/12 at 4:27 pm

There’s a lot this piece leaves out. It’s unclear what percentage of funding is based on these technical colleges’ performance — whether it’s all funding or only funding dedicated to those “high-demand” job areas. It’s also unclear how the funder or institution (or both) defines “high-demand” and how the level of funding might change as labor market trends change. Without this type of information, it’s difficult to make an accurate assessment of the performance-based funding model.

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