Transitioning to Performance-Based State Funding: Concerns, Commitment, and Cautious Optimism

Oct 15, 2026

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Examines the shift toward performance-based state funding in higher education and its implications for student outcomes accountability. Traces the evolution from Performance Funding 1.0 to 2.0, highlighting policy rationale alongside evidence questioning measurable gains. Using a qualitative multiple case study, explores midlevel administrators, faculty, and student-facing staff perceptions during transitions in five regional public universities, assessing how stakeholder engagement shapes implementation and perceived effects on students.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages6

Reading Time15 min

AccessFree to download

Introduction

Performance Funding 1.0 and 2.0

Research Methodology

Educational Considerations

State Policy and Institutional Roles

Transitioning to Performance-Based State Funding: Concerns, Commitment, and Cautious Optimism Lindsay K. Wayt and Barbara Y. LaCost Lindsay K. Waytis a recent graduate of the Educational Leadership and Higher Education doctoral program atthe University of Nebraska-Lincoln. She has worked in secondary education, student affairs in higher education, and higher education policy. Barbara Y. LaCost, a National Education Finance Academy Fellow, is Associate Professor of Educational Administration at the University of Nebraska-Lincoln. Her teaching and research focus on P-20 education finance issues. “It [performance-based funding] kind of causes innovative thought. I think that’s important. So, in a way, it’s good. I think people see it as bad sometimes because it’s change. And it’s pushing the envelope of accountability.” Comment of a study participant Introduction The introduction of performance-based state funding of higher education can be traced to the the late 1970s (Bogue and Hall 2003; Dougherty and Natow 2015; Dougherty, Natow, Hare, and Vega 2010; Dougherty and Reddy 2013; Long 2010; McKeown-Moak 2013). Early forms, referred to as Performance Funding 1.0, provided higher education institutions with bonuses, in addition to regular state funding, when they met certain state-defined outcomes.1 More recent forms, referred to as Performance Funding 2.0, have eliminated bonuses, and regular state funding has been replaced, in part or completely, with funding tied to achievement of state-defined performance goals, which often include student outcomes, like graduation and retention rates.2 Since the use of performance-funding, beginning in Tennessee in 1979, 38 states have used some type of performance-funding policy (Dougherty and Natow 2015). Of those, 23 states have used or are using a type of Performance Funding 2.0 (Dougherty and Natow 2015). The rationale for the shift from bonus-based programs to policies that require explicit outcomes in exchange for state funding may lie with state policymaker beliefs that the latter are more effective in improving student success rates. At the same time, some recent studies have questioned whether outcomes-based state funding delivers significant increases in results (Bogue and Johnson 2010; Rutherford and Rabovsky 2014; Sanford and Hunter 2011; Shin 2010). 3, 4 Clearly, additional research is needed on how higher education institutions implement state performance policies that incorporate student outcomes accountability Previous historical, survey, and qualitative literature on performancebased funding has focused on processes and relationships Educational Considerations 1 associated with policymakers, coordinating boards, institutional leadership, and senior administration (Banta, Rudolph, Van Dyke, and Fisher 1996; Bogue and Johnson 2010; Dougherty et al. 2010), with one notable exception by Dougherty and Natow (2015). Although performance funding policy development and initial implementation are likely best understood by considering the perspectives of individuals atthe state and system levels, as well as those in institutional senior university leadership positions, these perspectives alone may not provide a complete view of the relationship between performance-based funding policies and student success outcomes. Kadlec and Shelton (2015) posited the importance of stakeholder engagement throughout the development and implementation of outcomes-based funding and further asserted the importance of the engagement of institutional stakeholders from various levels, including midlevel leadership, faculty, and and student-facing staff to ensure effective policy implementation. To add to that research literature, the study described in this article explored the perceptions of midlevel administrators, faculty, and studentfacing staff in a sample of small to midsized four-year regional higher education institutions with a teaching focus as they transitioned to state pe

FAQs

What distinguishes Performance Funding 1.0 from Performance Funding 2.0?

Performance Funding 1.0 provided bonuses on top of regular state funding for meeting state-defined outcomes. Performance Funding 2.0 ties state funding, in part or fully, to achievement of state-defined performance goals such as graduation and retention rates.

How many higher education institutions were included in the study, and what types were they?

Five four-year public higher education institutions were selected. They included two from Maine, one from Mississippi, and two from Virginia, with a mix of historically black, historically women’s, underrepresented-serving, and adult-learner-serving contexts.

What research approach and data sources did the study use?

The study used a qualitative multiple case study approach. Interviews and focus groups provided the primary data sources, with 26 participants selected across relevant institutional roles.

Oct 15, 2026

Upload by ahduag