Equity or Disparity: Do Performance Funding Policies Disadvantage 2

Objective: We investigate whether performance funding—an increasingly prevalent state policy that allocates appropriations based on outcomes that prioritize retention and completion—places minority-serving institutions (MSIs) at a financial disadvantage due to these institutions serving a greater proportion of historically underrepresented students. Method: Using data from 2004-05 to 2014-15 within Texas and Washington, we compare state funding allocations to 2-year institutions designated as MSIs versus non-MSIs, before and after performance funding policies are implemented. We additionally compare funding allocations for each performance metric. Results: On average, MSIs in Texas and Washington are allocated the same or less in per-student state funding after performance funding compared to non-MSIs. MSIs in Texas are advantaged in performance metrics for transfers and for gateway courses in math (credit-bearing courses that serve as a “gateway” to continued study), and MSIs in Washington are advantaged in developmental education courses. However, MSIs are typically disadvantaged in metrics for degree completions. Conclusion: Our findings suggest that MSIs in Texas and Washington are not financially disadvantaged due to performance funding because the funding formulas in both states incentivize milestones in addition to outputs. We recommend that policy makers consider incorporating performance metrics for developmental education and gateway courses in addition to retention rates and degree completions, and tailor metrics to the student population of institutions to mitigate the potentially inequitable funding consequences of performance funding policies