As states grapple with how to fund colleges and universities in an equitable and sustainable way, several are revising their higher education funding formulas. These formulas – a primary mechanism by which states distribute funding to and among institutions of higher education (IHEs) — are a critical piece of the overall funding picture for colleges and universities, with state and local funds augmented by other sources like tuition and federal funding. For example, to better align their funding formulas with state goals and priorities, states have adjusted formulas by incorporating new student weights and adopting outcomes-based approaches. But, how do those changes come about? And what do these policies look like as they are implemented?
Dollars and Degrees: Perspectives From the Field is an ongoing series of discussions with leaders from states where higher education finance policy reform recently occurred or is happening now to answer these questions and more. By talking with leaders involved in reform efforts, advocates and policymakers elsewhere can learn promising practices from the challenges and successes their states faced.
Spotlight on Texas
In 2021, the Texas Legislature created the Texas Commission on Community College Finance (the Commission), charged with making recommendations on reforming the state’s funding formula for community colleges. Legislators hoped that the Commission could better align community college funding and education with workforce needs, given the changing economy and growing need for specific skills. The existing Texas formula, which had been in place since 2013, distributed state dollars mainly on student enrollment metrics, although “success points,” based on specific outcome metrics, were also considered.
The Commission suggested a complete overhaul of Texas’ higher education funding formula — one that emphasized outcomes instead of enrollment. The Commission’s recommendations became House Bill 8, which was signed into law by the governor in 2023 and invests $2.2 billion over the next two years. The law established a formula that funded community colleges based on their outcomes, including the number of “credentials of value” earned, the number of students who successfully transferred to a public four-year university, and the number of high school students completing at least 15 hours of dual credit coursework at the IHE.
Recognizing the variability in funding across community colleges, the law established a 5% local property tax equalization component to specifically help small and rural IHEs. It also incentivized community college districts to achieve better outcomes for adult learners and economically and academically disadvantaged students.
The Chairman and CEO of The Commit Partnership (Commit), Todd Williams, served on the Commission that developed the new Texas funding model. Commit was also one of the leading organizations advocating for the new funding formula and facilitating a coalition to advance its reforms.
I recently spoke with Kate Greer, the managing director of policy and state coalition at Commit, to learn more about Texas’ new approach to funding community colleges.
Christine Dickason: Who are the major champions of higher education funding reform in Texas?
Kate Greer: From an advocacy perspective, the Texas Association of Community Colleges (TACC) sees themselves as a change agent to increase the economic mobility of native Texans, so they were at the table every step of the way. They had college leaders on the Commission and provided testimony throughout the process. And we were able to learn from exemplary entities in the Texas community college space who have strong student outcomes as well as see opportunities where colleges — if they had some additional incentives — could scale things like short-term credentials and non-credit programs that had historically never been tracked or rewarded at the state level.
From a legislative perspective, the funding formula changes passed nearly unanimously in the Texas House. We had an appropriations committee member Rep. Gary VanDeaver who authored the bill, and Sen. Brandon Creighton (who serves as the Senate Education Chair) who sponsored it, so the legislative leadership put their weight behind this every step of the way. The bill was viewed through an economic lens, which helped it garner support. For example, Gov. Greg Abbott came out to visit a community college and talk about workforce readiness. It’s always a lovely moment when everyone likes the proposal put forth, including the community colleges that stand to benefit from it. We were really pleased to see a bill of that magnitude receive so much support across the board.
CD: Besides TACC and the legislature, which stakeholder groups and agencies were involved in designing Texas’ new formula?
KG: The Higher Education Coordinating Board that oversees Texas’ postsecondary institutions was at the table. The Commissioner, Harrison Keller, was deeply influential in this process and really took it upon himself to shepherd the bill forward.
We saw a tremendous amount of support from Chambers of Commerce and businesses across the state. Commit helped lead an advocacy coalition called Aim Hire Texas Policy Committee, which is a statewide coalition of advocates, business leaders, education institutions, and others who said that the formula change and $700 million in new money to community colleges is a worthy investment that Texas should make. As a fiscally conservative state, having that business support was critical.
A group of community college students also gave compelling testimony about the value of community college and how it was a launch pad for their careers. In community colleges, you have parents who are attending school part-time, or you have people experiencing mid-career changes who need a certification. Having Texas Legislature members hear from their constituents who’ve benefited from community college was very helpful to secure the bill’s passage.
CD: For years, Texas has considered outcomes in its distribution of state funds to community colleges. What’s the role of outcomes-based funding in this new formula?
KG: For many colleges, 100% of the state funding that they get is outcomes-based under the new formula. There’s a 5% local equalization amount that’s meant to be a safety net for the smaller rural colleges without the tax base that many urban colleges have.
CD: Was there any backlash around making the funding formula 100% outcomes-based?
KG: Nearly everyone was supportive throughout the entire process, which was incredible. I think the emphasis on outcomes is a reflection of the belief in Texas that community colleges can move the needle and improve students’ lives as well as statewide workforce outcomes. We also know that Texas is a fiscally conservative state and people want to see a return on public investments.
It’s also important to understand that these are new state dollars flowing to community colleges; it’s not as though the state pulled back any existing funding. But House Bill 8 essentially created a new baseline so colleges could continue to improve over time and get rewarded for that in the long term. This is an influx in funds that community colleges have not seen from the state in decades. Community colleges understand that as long as they continue to improve their outcomes — and that the state ensures they get more money for adult students and those who are economically and academically disadvantaged — there are a lot of incentives for them to support this funding change.
CD: What challenges have there been, if any, as Texas moves from policy design to implementation?
KG: We’re still in very early days. The bill’s implementation rests with the Higher Education Coordinating Board. There’s been deep focus, attention, and resources devoted to implementing House Bill 8 in a way that brings stakeholders along and is effective.
This was a significant change for community colleges across the state, and many of them are still coming to terms with things like data collection and tracking these outcomes — particularly for previously unrecognized programs that they had no reason to collect data on. Now, community colleges are charged with collecting a lot of that information and reporting it accurately to the state. Texas has built this monumentally different system, and it happened in a matter of months. It will take some time for colleges to come to terms with setting up systems to do that.
It’s also a shift in strategy. We’re very interested in watching what behavioral changes the new law prompts at the community college level over the next few years. How are chancellors and presidents thinking about the outcomes-based funding model? I think there’s a huge opportunity to do some interesting analysis over time to see where colleges are doubling down on programs aligned with high-demand fields, or how they improve students’ time to degree completion. My hope is that over the next few years, we will start to see how colleges are shifting their mindsets and actions. I think what we may see is an increase in the advising students receive between high school graduation and college enrollment, or better co-enrollment models, or increased focus on transfer students.
CD: What have you and others in Texas learned through this process that other states can learn from?
KG: The success of House Bill 8 in Texas shows the power of a strong advocacy community. It also showcases the ability of advocates and community colleges to recognize a major shift in economic and workforce needs and step forward to meet that moment. To see the collective willingness and desire to get this done was really powerful. I would tell other states, “Don’t underestimate the power of stakeholders, practitioners, and the community that you’re serving in trying to meet this moment, because they can speak to it better than any other advocacy or policy think tank could.”
States looking to implement similar reforms should also think through what the definition of a high-value credential is and how to effectively measure it given available datasets. My hope is that states and their workforce data systems will evolve in the coming years so that they can do more than look at base wages, but instead can generate smarter unemployment datasets to make sure that we’re incentivizing the right kinds of skills and credentials that we know make a difference for adults in the workforce.
For more from Bellwether on higher education finance, check out the Dollars and Degrees series that offers a crash course in the essentials of higher education finance for policymakers, advocates, and others interested in improving postsecondary funding.
