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SECTION I - Performance Funding Process (2nd ed)

SECTION I - Performance Funding Process (2nd ed)

Section I: PERFORMANCE Funding Process


Act 359 (1996) dramatically changed how funding for public higher education would be determined. The Act mandated that 37 quality indicators would be used to rate the institutions’ performance, and that beginning in 1999-2000 all of the funding for the institutions would be based on this performance evaluation system. Pursuant to Act 359, the Commission on Higher Education developed a plan of implementation for performance funding that is outlined below:

The Plan. The plan consists of two major components: 1) a determination of financial need for the institutions and 2) a process for rating each institution’s performance on each indicator.

1) The determination of need identifies the total amount of money the institution should receive based on nationally comparable costs for institutions of similar mission, size and complexity of programs. The result is the Mission Resource Requirement for the institution.

2) The performance rating is determined by whether or not the institution meets or exceeds or does not meet goals for each indicator. For some indicators, the institutions propose goals subject to the Commission’s approval. For others, the goals are established by the Commission on Higher Education as criteria which an institution should meet. Each year, the institution is rated on its success in meeting each goal. The institution with the higher score receives a proportionally greater share of its Mission Resource Requirement.

Implementation. The plan as outlined above was developed in 1996-97 and modified in 1999. The original plan was used to distribute $4.6 million for FY 1997-98, and $14.5 million in FY 1997-98. Fourteen of the 37 indicators were used to produce the ratings in the first year, while 22 of the 37 indicators were used to produce the ratings in the second year. For the third year, 1999-2000, the Commission on Higher Education will use all 37 indicators to allocate funding based on performance.

System for Assessing Institutions’ Performance During fall 1998, the Commission undertook a thorough review of the performance funding system. Numerous meetings were held with South Carolina’s individual institutions of higher education as well as with groups of institutions to discuss the performance funding system in terms of its strengths and weaknesses. The Commission sought to improve the performance funding system within the parameters of Act 359 of 1996 based on the experience of the Commission and institutions during the initial two years of implementation. The fall meetings culminated with a Performance Funding Colloquium in October 1998. The Colloquium was a day-long, facilitated meeting attended by Commission members, Commission staff, and institutional representatives for the purposes of discussing topics related to the current performance funding system. As a result of the institutional meetings and the Colloquium, recommendations for improving the performance funding system and some of the measures were made. At its March 1999 meeting, the Commission adopted recommendations to amend the performance funding system and several of the measures. The following outlines the recommendations concerning performance funding measures, institutional and sector benchmarks, scoring of measures and overall institution performance, and the allocation of funds based on performance. These were adopted by the Commission at the March 4, 1999, meeting. 1.) Recommendation concerning Measures, adopted March 4, 1999: Modify existing measures, criteria, and schedules. The Commission adopted changes to measures. The measures altered included: 1B, 2A, 2B, 2D, 2E, 2F, 3A, 3D, 5A, 5D, 7A, 7B, 7E, 8C, 9A, and 9B. The alterations to these measures have been incorporated in Section II, Part B, of this workbook. The reader should refer to the description of the individual indicators for further information. 2.) Recommendation concerning Institutional and Sector Benchmarks, adopted March 4, 1999: Create two categories of indicators -- those for which the institution proposes benchmarks, subject to the approval of the Commission on Higher Education, and those for which criteria are established by the Commission on Higher Education. Benchmarks in the first category will be proposed by the institutions, subject to approval by the Commission on Higher Education. For indicators in this category, appropriate ranges will be determined within which performance will be scored as achieving the benchmark. Benchmarks in the second category will be stated as criteria required to be met for an institution to receive a certain score. Again, the reader is referred to information in Section II, Part B, regarding the designation of individual indicators. 3.) Recommendation concerning Scoring of Performance on Indicators, adopted March 4, 1999: Modify the current five point rating scale used for scoring each indicator as displayed below, using three categories of performance.

Exceeds (performance exceeds institutional benchmark, meets or exceeds sector benchmark, or corresponds to appropriate criteria for 'exceeds') Achieves (performance meets institutional benchmark or corresponds to appropriate criteria for 'achieves') Does Not Achieve (performance does not meet institutional benchmark, corresponds to appropriate criteria for 'Does Not Achieve,' or represents a 'No' on a 'Yes/No' indicator)

Criterion-referenced indicators for which performance is rated as a 'Yes' or 'No' are scored such that a 'Yes' is a check-off indicating compliance and will not factor into the overall score, whereas, a 'No' is scored as 'Does Not Achieve.'

4.) Recommendation concerning Overall Institution Score, adopted March 4, 1999: The method of determining and displaying the total score for an institution will be modified to reflect the extent to which an institution has met its goals on the indicators, as expressed in five overall categories:

Substantially Exceeds Standards (2.85 – 3.00)

Exceeds Standards (2.60 – 2.84)

Achieves Standards (2.00 – 2.59)

Does Not Achieve Standards (1.45 – 1.99)

Substantially Does Not Achieve Standards (1.00 – 1.44)

The recommended scale for the total score for the institution will be revisited after the rating process for year three is completed, in case adjustments are needed for year four of performance funding.

5.) Recommendation concerning Allocation of Funds based on Performance, adopted March 4, 1999: Funds will be allocated to provide incentives for high performance and disincentives for low performance as described below:

Incentives. Institutions will receive incentive funding of up to 1%, 3%, and 5% above their allocation if their total score falls within the 'Achieves,' 'Exceeds,' or 'Substantially Exceeds' category, respectively. (If there are residual dollars within the Performance Incentive Pool after high performing institutions have drawn their incentive funding, the remaining incentive funds will be distributed within the sector to the institutions that score in the 'Achieves,' 'Exceeds,' 'Substantially Exceeds' categories, proportionally to their share of the MRR weighted by their performance.)

Disincentives. Institutions which score in the 'Does Not Achieve' and 'Substantially Does Not Achieve' categories will receive disincentives of 3% and 5% of their allocation, respectively.

Funding for incentives will be derived from the Performance Incentive Pool, maintained by sector as described below: Performance Incentive Pool. Funds for performance incentives will be derived from three sources:


  • one-half of new funds (higher education appropriation for the new year in excess of the appropriation for the current year);
  • 1.75% of the allocation to the institutions (including current year plus one-half of new year appropriation distributed by the MRR);and
  •  funds derived from institutions within the sector that score in the 'Does Not Achieve ' or 'Substantially Does Not Achieve' categories.

Funds in the Performance Incentive Pool stay within sectors.

Funds will also be set aside for the Performance Improvement Pool as described below: Performance Improvement Pool. This pool is derived from 0.25% of the allocation to the institutions and are available to be awarded, based on a review of proposals, to institutions in the 'Achieves,' 'Does Not Achieve,' and Substantially Does Not Achieve' categories.

The allocation methodology outlined above will be reviewed after the current year’s (Performance Year 1998-99 to impact FY 1999-2000 funding) rating process has been completed so that adjustments can be considered for the following year’s rating process.