Kentucky Council on Postsecondary Education

Performance Funding

Prior to 2016, Kentucky’s leaders appropriated state funding based on each public institution’s share of the higher education budget (i.e., a “base plus” approach). This approach did not take into consideration growth in enrollment and student outcomes, which help the state meet its educational attainment goals.

As part of the 2016-2018 state budget, the Kentucky General Assembly created a Postsecondary Education Work Group, consisting of the Council president, postsecondary institution leaders and representatives from the Governor’s office and the legislature, to develop a funding model that aligns state funding to performance and student success metrics.

Based on the work group’s recommendations, the legislature enacted two very similar funding models: one for the public universities and one for the community colleges. In addition to establishing the models (hereafter referred to as “the model”), the statute directed the Council to call back the Postsecondary Education Working Group in 2021 and every three years thereafter to monitor the model's performance, identify any unintended consequences and recommend any adjustments.

Guiding Legislation

Postsecondary Education Working Group

Per statute, the working group is comprised of

This group reviews the model and makes recommendations. These recommendations are then presented to the legislature for vote and implementation.

Guiding Documentation

Goals of the Model

Specifically, the model’s goals are to

These goals are in alignment with the state’s 60 by 30 educational attainment goal: raising Kentucky's educational attainment level from 45 percent to 60 percent by 2030, as outlined in the state's strategic plan for postsecondary education.

Implementation

The models for the public universities and KCTCS were phased in over three years, beginning in fiscal year 2018-19. Funding distribution is based on three basic components:

Graph of the model
Distribution of Allocable Funds through the Performance Funding Model

In the first three years of implementation, the statute included “stop-loss” provisions, which limited the amount of potential transfer among institutions due to the model.

New for fiscal year 2021-22, a “funding floor” was established at each institution, as recommended by the Work Group and incorporated in statute. Barring state budget reductions, institutions will receive this floor funding. Any additional appropriations for postsecondary education, however, will be placed in the performance fund, and will be distributed to the institutions based on student success and operational support metrics.

It is important to keep in mind that all of the state funds for institutional operations are run through the model (i.e., are taken into consideration), and this informs how the performance funds are distributed. In other words, the performance fund is more than a “bonus” pool, because it ensures that, to the extent possible, institutions receive state funding commensurate with their student success and operational support metrics. For this reason, Kentucky’s model is one of the most robust in the country.

Benefits

Aligning state funding with college completion and other student success metrics incentivizes institutions to enroll, progress, and graduate more students. The model also rewards the efficient production of degrees and credentials, and provides premiums when institutions graduate low-income, underrepresented minority, and STEM+H students. An overall rise in the number of graduates maximizes taxpayers’ return on investment in higher education and translates to a more highly skilled workforce.

Rewards for progressing and graduating students should help reduce college costs for Kentucky’s students and families who pay more when school takes longer to complete. The model also encourages campuses to take aggressive measures to close achievement gaps of minority and low-income students.

Last Updated: 2/7/2022