Preparing for Performance-Based Funding 2.0

Critical Questions in Designing Formulas

Topics: Academic Affairs, University Systems and Governance, Budgeting, Administration and Finance

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About the Research Brief

A variety of forces are converging to fuel a resurgence of performance-based funding in states across the country. Given the attention from both the state and federal governments and concern from the public at large and the philanthropic sector, this trend may outlast previous attempts to institute performance-based funding.


Current approaches to performance-based funding have drawn upon lessons learned from the flaws of earlier models, and there seems to be a consensus on a handful of funding features. Current models tend to place a meaningful percentage of core funding dollars at risk, but there are still many areas where funding models vary considerably. This variation exists primarily around precisely how states measure performance and how incentives are structured to promote change while minimizing disruption.

When designing appropriate measures, states must consider how to account for diverse missions, whether or not to weigh certain student populations or programs, if they should reward progress as well as completions, and whether or not it is feasible to track career outcomes.

When putting change levers in place, states must strike a balance between consequences and stability by deciding how much funding will be at risk, how to help mitigate transition risks, the best way to incent continuous improvement, and whether or not individuals and institutions will be held accountable for success.

  • BookRead the full research brief to examine the various approaches to performance-based funding as they stand at this moment, and to learn how early adopters have attempted to balance what are often competing demands.

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