TXEXplainer: Formula Funding

By Chris O'Connell in Promote & Protect on March 23, 2015 at 2:40 pm | 2 Comments

How does the University of Texas at Austin, and all other public four-year higher ed institutions in Texas, calculate state funding? It all comes down to a formula.

What is formula funding?

In a nutshell, formula funding is how state higher-education institutions equitably distribute available state funds. The formula is calculated by the Higher Education Coordinating Board and its recommendations are presented to the Legislative Budget Board on June 1 of even years.

What are the components of the formulas?

There are two major components: instruction and operations, and infrastructure support. Essentially, departmental needs and maintenance of campus academic buildings. There is also a third, smaller component: a teaching-experience supplement. State universities are given an incentive in this way to place their most experienced professors in classrooms instead of, for example, teaching assistants, so that students are learning at the highest level.

How does the formula generate funds?

The formula is based on two items: the base period and weighted credit hours.

The base period is the 12-month period used to measure the semester credit hours, or SCH. The formula uses the summer and fall of even-numbered years and the spring of odd-numbered years. This base period SCH determines formula appropriations until the next legislative session.

Institutions are funded by the number of credit hours taught in the base period. However, not all credit hours are equal. A doctoral engineering credit hour is weighted much more heavily than, say, an undergraduate liberal arts credit hour because it costs much more money to educate a PhD candidate in aerospace engineering than an undergrad majoring in English. Higher-level classes tend to have smaller class sections and employ higher-salaried professors. Science credit hours, as opposed to liberal and fine arts, carry a heavier weight because of factors like expensive equipment.

Have there been any recent changes to the formula?

There has been a push in recent years to employ outcomes-based funding, based on student-success measurements, like graduation. During the 2013 legislative session, lawmakers approved an incentive-based plan that allocates 10 percent of base funding to two-year universities to be based on outcomes. It hasn’t yet been approved for four-year state institutions. State Sen. Judith Zaffirini, (D-Laredo), BS ’67, MA ’70, PhD ’78, Life Member, introduced Senate Bill 22 this session, which completely overhauls the formula schema, notably removing weighted credit hours and adds in a whole host of new measures not presently accounted for in the existing formulas, like total number of degrees, degree completion by population type, and graduation rates.

Senate higher education chair Kel Seliger (R-Amarillo) introduced Senate Bill 788, which combines outcomes-based funding with more legislative oversight for tuition increases. His bill is something short of full-on tuition re-regulation. Outcomes-based funding likely has the best chance to pass under a bill like this, which would allow institutions to pair tuition increases with reaching certain performance goals. The Houston Chronicle stated in January that the prospects for overturning 2003’s tuition deregulation are the best in the 12 years since. That is despite university leaders arguing that deregulating tuition actually slowed the race of increase.

How do the formulas incentivize?

Growth. There’s one important factor in Texas higher education in regard to grabbing a larger slice of the pie: more credit hours. Since the formulas are used as a way to distribute higher ed funding, universities that grow at a slower rate than the average of the state as a whole end up with less money, benefitting only fast-growing institutions.

Where does the money come from?

State taxes; federal funds; fees, fines, and licenses; interest and investment income; the lottery; and state land income are the funding resources used.

What functions do the formulas fund?

The funds are used for faculty salaries, departmental operating expenses, libraries, instructional administration, research enhancement, student services, and institutional and infrastructural support. Essentially, everything academic that happens on campus. Except for…

What functions fall outside the formula?

Special items; capital funding (the funding mechanism for new campus buildings); the Texas Competitive Knowledge Fund, which provides state-level bonuses for research funds an institution raises on its own; the Research Development Fund; the Available University Fund; and other auxiliary institutional funding. The UT Marine Science Institute in Port Aransas, for example has its budget calculated outside the formula.

Illustration by Melissa Reese.

Tags: formula funding, higher ed, outcomes based funding, texas legislature, TXEXplainer