Bruce's Blog

Oct. 8, 2012

We legislators are planning to move to "performance-based" funding for higher education in the next biennium - what do you think?

    --- Asked recently by several legislators

My answer:  "Bring it on.  Top performing university that we are, Western welcomes any funding so based because we know we can beat the socks off the competition."

True as it may be, that's still president-speak.  Perhaps at its worst.  I am also an academic, and the question deserves thoughtful reflection.

And, our legislators want and deserve more thorough analysis.  Washington is a state that attracts thoughtful problem solvers to elected office, not folks who want to simply joust with issues using clichés and sound bites.  Poli sci guy that I am, I much enjoy such relationships.  I really do not care about partisan commitments and ideologies so long as folks are listening and learning in order to effectively fulfill increasingly challenging public duties.  And, Washington has many, many such real leaders.

Have been meeting with a number of them: our Washington legislators.  Conversations while the legislature is not in session are particularly pleasurable because our elected officials can take the time to really engage.  Coffee fanatic that I am (I roast my own beans every week), I also enjoy meeting with them in their districts, usually at a local one-off coffee shop new to me.

Directly connecting university funding to measures of performance is something I have been hearing a lot about.  Makes great good sense at first blush, perhaps even more so during tough budget times.

The subject is nothing new.  I first encountered it about 25 years ago.  And, that is my first point in talking with legislators: there are several decades of experimentation in other states, all consistent failures, and we had best learn from these others and not just plunge in with the risk of repeating their mistakes.  Let's do the research.

I first encountered performance-based funding long ago while working at two institutions that were part of the Oregon University System.  As that funding approach was refined and refined to be made valid and reliable, it got more and more complex.  I finally ended up referring to it as "a full employment act for institutional researchers."  It turned out that the staff I would have to hire to track all the measures was going to cost more than the "performance penalty" we would have to pay if we failed to measure up.

Then, next legislative session, times were tight, and the previously budgeted performance-based funds were the first to disappear: 100% gone amid the extensive budget slashing.  New times, new legislators, new challenges.  And, I am afraid, time for a new buzz word.

Those political realities – one biennium at a time is the best we can do – never change.

But, why the complexities?  Academics run amok?  Not really.

Consider Jim Collins.  Highly regarded, and rightfully so for his insights into how companies go from "good to great" in the private sector, he has also written a less-well-known book titled Good to Great and the Social Sectors.  Short, a quick read:  I recommend it. 

He begins, page one, by providing his answer to a question I am regularly asked:  "Why don't public enterprises run more like businesses?"  The answer offered by this business guru: why in the world would enterprises like universities want to run more like businesses when businesses are, generally, so poorly run? 

He then gets into thoughtful analysis of the implications of an organization that is mission-driven, that mission being much, much more complex and nuanced than is the case for a bottom-line focused, profit-driven business.  Therein lies one critical problem in applying performance-based funding to organizations with multiple missions, complex interdependencies, and cross-subsidies.

Let's try an analogy. There are problems with performance-based funding even where there's a clear bottom line.  Remember those CEO's, banks, and Wall Street traders being driven by performance-based incentives?  Because some – certainly not all – took the short-term focus they were rewarded for.  Turning a blind eye (necessarily, given the performance incentives) to longer-term consequences, most of the world's citizens have been paying a huge price.  As various bubbles burst, the Great Recession. 

There is a higher education analogy if we have our eye on the wrong ball – if performance-based funding is measuring the wrong things.  What I hear these days is to keep performance-based funding simple: e.g., "producing degrees."  Period.  Wow, does Washington ever need more baccalaureate degrees.  I have preached that relentlessly.  So, that focus is appealing.

But, back to those selected CEO's and bankers and the short-term focus their incentives kept them attending to.  Want us to focus single-mindedly on producing degrees?  I know how.  The research makes it clear.  Parents' family income is a far better predictor of success in college than are factors like SAT scores.  So, should Western just concentrate upon attracting more students from higher income families?

Would that make any sense?  At a time when the state's growth in college age population is coming from families where parents have not gone to college?  Not quite on a path as disastrous as the Great Recession.  But, disastrous for Washington's brighter futures, none the less.

We really have to put Western's nationally-best-of-class graduation and retention rates at risk – perhaps even see them decline – if we are to be serious about fulfilling our obligation to help build brighter futures for Washington.  Add on top of this the multiple, nuanced missions of universities, no two universities the same, and that is why a complete, valid, and reliable set of performance measures becomes that "full employment act" for those folks who crunch the numbers for us.

Why is performance-based funding back on the national stage?  It traces to Tennessee.  Legislation in 2010 tied nearly all their state funding for higher education to such things as completion rates for classes and degrees.

The jury is still out on whether the approach will improve Tennessee's situation.  We need to remember though, that having a hammer in hand, not all problems are nails.  At least not all are the same kind of nails.

While the jury may be out on Tennessee, we must ask how well Tennessee's challenges parallel those we face in Washington.

Consider the data.   When it comes to higher ed funding, Tennessee is middle of the pack.  What does the state get for its average-level funding?  Graduation and retention rates way below those in most other states. 

Tennessee does have a serious under-performance problem.  Maybe performance-based funding will work for them.  Hard to see how it could hurt.

What about Washington?  Our (really, your) six publics rank near the top nationally in graduation rates and such.  And, what price does our state pay, students, and parents for this premier performance?  Washington's total cost per student (add state support, and tuition together) for public baccalaureate degrees now ranks 50th out of the 50 states.  Right at the very bottom of a barrel that, compared to much of the rest of the world is, itself, a seriously inadequate national vulnerability.

Washington is an over-achiever:  getting exceptional performance for the lowest costs around.  Problems abound (can you believe we really are at 50th out of 50?!!!).  But Washington's challenges are not, fundamentally, performance-based.

No matter how good we are doing, we can always do better.  Certainly, and we always strive to do so.  So, why think twice about jumping on the Tennessee bandwagon?

There is the medical principle: first do no harm.  Or, that old adage: if it ain't broke, be careful trying to fix it.

Could harm be done?  There is that earlier problem: focusing on a too simplistic ball and then going down a path to disaster.  Or, in compensating for that danger, coming up with measurement approaches too complex for any of us to be meaningfully guided by.

I want to dig a bit deeper though.  A more fundamental problem is simply this: as Collins points out, an organization is not the same as a person.  Not in what drives each.

Consider an approach that some Washington legislators are now talking about:  hold back some percentage of funding.  A university could eventually get that portion of funding but only if certain goals are reached. 

Sort of like an end-of-the year salary bonus for an individual.  Salary bonuses may, indeed, keep sales reps for a pharmaceutical firm pushing hard year long.  But how does this approach shape the behavior of the thousands of people doing the work of a university? 

First, the "bonus" comes to the university, not to the people doing the work, and the bonus is for group achievement rather than for individual achievement.  Therein lies a world of difference.

How are funds coming to the university at the end of the year going to change the decisions that 2,200 Western employees make daily throughout the course of a year?  No effect at all, for there is no link between what the university might end up getting and choices people who are the university are making, daily.  It is not just that, unlike the pharmaceutical sales reps, there's not direct link between their personally beating some target and receiving an individual salary bonus.  It completely ignores well-established understandings (again check out Jim Collins for examples) of what drives superior group performance in complex organizations. 

There's another problem with such approaches to performance-based funding.  As president, I cannot spend dollars we do not have.  No deficit spending: neither our governing board nor the legislature allow it.  So, if we happen to be successful under some "bonus" performance-based approach, what do we do with the "windfall" dollars that then come our way?  Throw a big party?  Buy some equipment?  Give employees a holiday bonus? (Public would never allow that, of course.)

What we cannot do is take on a recurring commitment like add staff to support retention, permanently reduce a source of revenue like tuition, add faculty to address a bottleneck, or start an academic program serving critical state needs.  Cannot rely on uncertain, one-time funds to cover continuing base budget commitments. That would be fiscal irresponsibility – sort of like counting on a one-time bonus to pay for the groceries.  Year after year.

So, are we uninterested in legislative attention to our performance?  Not at all.  We are proudly public and demand to be held accountable.

Consider this, though, when it comes to performance based funding.  With state support for Western cut 50% in the last four years, it now constitutes 14% of our budget.  That means that 86% of the dollars we spend come from people who could write their checks to some place other than Western: tuition checks, gifts, grants, contracts, residence hall payments, theater subscriptions...

There are competitors for every one of those dollars.  It is the performance-based accountability of the marketplace – anticipating and meeting the needs of those choosing to pay the freight – but 86% of our budget is already ruthlessly performance based.

In a very real sense, when it comes to performance-based funding, we are already mostly there.  But I know, for I have tried, that reasoning does not cut the mustard in Olympia.

Nor does my next conclusion although I think it clearly and logically follows from the reasoning I have just gone through.

Just as Dorothy had to be reminded that she was no longer in Kansas, we must remember that we are not in Tennessee.  Washington's problem is not performance, it is funding. 

Washington badly needs expansion of the baccalaureate pipeline.  Want more of the current premier baccalaureate performance?  The problem is not performance.  It is paying for it.

I would not advocate staying at 50th out of 50 in cost per student rankings for current quality is not sustainable at that reduced support.  Still, revel in the great opportunity Washington has (and Tennessee does not have) when it comes to buying more baccalaureate capacity.  Even moving up from 50th in cost, our state can increase capacity at what is a really phenomenal bargain price.

That would directly address an obvious and real state need. But without the superficially appealing and, I fear, politically more salable approach of joining the Tennessee bandwagon.

There are lots of other approaches to think about.  The "end of year bonus" or "hold back" approaches are fundamentally flawed for reasons I have given.  What could work?

At Western, we believe our success in what will be a challenging future depends upon relentless innovation.  Crystal balls are always cloudy and higher education is in a period of major transformation.  So, while we cannot be sure of what we will be in decades hence, we are certain of the strategies and attitudes that will successfully get us there.  Western will flourish because we are always about experimenting, trying new things, and not being afraid to sometimes fail.

Why not something similar at the state level?  Imagine innovation-based funding instead of performance-based funding: competitively awarded public higher education funding oriented to support innovation.  Innovation-based funding got us to the moon; arguably, performance-based funding got us the first space shuttle disaster.

Innovation-based funding for Washington public higher ed must be multi-year because we make multi-year commitments to students.  Must have clear measures of success.  Must be strategically tied to the State's objectives as well as congruent with institutional missions.  Must have exit strategies (something higher ed has not been good at historically) -- with funds returning to the state's kitty to support the next innovation if success is not attained.  Why such exit strategies?  Because we never are really innovating unless we are sometimes also failing.    

That could actually achieve strategically relevant and potentially game changing performance improvements.  But, again, I am a poli sci guy, I understand "performance funding" is the current political shiboleth, and as I said at the opening, I have no worries about Western's ability to flourish in that environment.

Bruce

 

Page Updated 01.24.2014