Kentucky's new performance funding model will focus the state's community colleges and universities on achieving state goals, and specifically, on raising Kentucky's educational attainment level from 45 percent to 60 percent by 2030, as outlined in the state's strategic plan for postsecondary and adult education. Achieving this goal is critical to accelerating job creation and a stronger economy through a  more highly skilled and productive workforce.

The new model distributes funding among institutions based on a rational set of criteria: campus enrollment, program mix, mission and student and institutional performance. The model will be phased in over four years. (View phases.)

The recommendations of the Postsecondary Education Working Group formed the basis for Senate Bill 153, which the House and Senate passed with no changes and Gov. Bevin signed into law March 21, 2017. The Working Group was established through the 2016-18 budget bill (HB 303).

We believe this model as it has been designed and described in the bill is the fairest way to distribute state funds recognizing the factors that the Governor and the legislature directed the Working Group to address." CPE President Bob King

The newly enacted legislation establishes two models for distributing postsecondary institution appropriations net of mandated programs and a small school adjustment. The four-year university model and the Kentucky Community and Technical College System model are similar in overall structure and function, but differ in terms of student success metrics rewarded in the models.

As the state begins implementation this fiscal year, it is important to note that the legislation requires that both funding models use a multi-year approach to provide campuses time to adjust. A breakdown of how the funding model will work follows.

First year (2017-18): Distributes $42.9 million in the Postsecondary Education Performance Fund

As part of the 2016-18 budget bill, $42.9 million was transferred from the postsecondary institutions (except Kentucky State University) to a Postsecondary Education Performance Fund to be held in reserve for the first year of implementation. The reserve’s funds will be distributed among the participating institutions according to the model. (Kentucky State University was exempted from the model in the first year by HB 303.)

Second year (2018-19): Hold harmless provision

In the second year of implementation, the funding model will be applied to the full amount of allocable resources, but will feature a hold harmless provision to prevent the transfer of any funds among institutions.

If any additional funding is provided for the postsecondary institutions in fiscal 2018-19, that funding will be distributed according to the model and will help bring institutions closer to equilibrium (the point at which every institution has an appropriately proportionate level of resources given their level of productivity in achieving student success outcomes, course completion outcomes and other model components).

Third year (2019-20): One percent stop-loss safeguard

The third year includes a 1 percent stop-loss provision, meaning that campuses compete for funding but will be eligible to lose no more than 1 percent of base funding. The Council will keep any designated 2018-19 hold harmless amounts in place, as provided in the statute.

Fourth year (2020-21): Two percent stop-loss safeguard

The fourth year includes a 2 percent stop-loss provision, meaning that campuses compete for funding but will be eligible to lose no more than 2 percent of their base funding. The Council will continue to keep the 2018-19 hold harmless amounts in place, as provided in the statute.

Moving forward: Rolling averages and continuous assessment

At the end of the fourth year, without action by the General Assembly, the hold harmless and stop-loss provisions will sunset, allowing 100 percent of allocable resources to be distributed as determined by the formula. During the third year of implementation, the Performance Funding Working Group will assess the model and report findings to the governor and legislature. As a result, it is possible that the model will be adjusted.

Once model equilibrium is reached, rates of improvement will drive the flow of funds. This will allow smaller campuses to compete effectively and fairly with larger campuses.

The enacted models will offer clear guidance to elected officials regarding how to fairly and strategically invest public dollars in colleges and universities and provide financial incentives for campuses to adopt best practice strategies to achieve desired state goals.

On June 16, the Council will take action on campus tuition and mandatory fee proposals for the upcoming year. Rates for undergraduate, in-state students cannot exceed the ceilings set March 31 by the Council. Check out the following fast facts to learn more.

Tuition Fast Facts:

1. Most Kentucky students don't pay sticker price.

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The net prices for Kentucky's public institutions are considerably lower than the total cost of attendance. For example, the average total cost of attendance, which includes tuition and fees, books and supplies, room and board, transportation, and personal expenses, at one of Kentucky's comprehensive universities is $18,441. But the average net price — what a student really pays after the grants, scholarships and other forms of financial aid are applied — is $10,298, or 45 percent less.

2. Funding responsibility has shifted to students due to declining state investment.

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The decline of state investment is shifting the funding of higher education to students and their families through gross tuition and fee revenue. What used to be an equally divided responsibility at the onset of the recession has shifted to a 35/65 percent split by FY 16, with student tuition funding the majority.

3. Campus financial aid outpaces state and federal sources combined

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While increases in tuition are moderate again this year, the total cost of college attendance can be discouraging, especially to low-income or nontraditional students. Federal sources are time-limited and state sources often run out before all students receive help. To address this growing need, Kentucky’s public campuses have boosted institutional aid. Over the decade, campus-funded grants and scholarships have outpaced both state and federal grants. In 2013-14, Kentucky students received, on average, over three times as much institutional aid as state aid. To continue this trend, Kentucky’s public campuses expect to spend $23.5 million in institutional aid for FY 18, plus an extra $10.3 million in implementing new or expanded financial aid programs.

4. Tuition increases have been moderate, even in a decade of declining state investment.

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The shift of funding responsibility is a crucial concern of policymakers tasked with raising the state’s educational attainment numbers. When the Council and campus leadership consider caps on tuition increases, they factor in students’ family and individual incomes and their capacity to save for college or handle student loans. This has resulted in modest tuition increases, even in the face of growing campus revenue needs. Since 2009, the average annual growth rate for resident undergraduate tuition and fees has been 4.6 percent, compared to the previous seven-year, prerecession period at 11.7 percent.

5. Tuition increases do not balance campus budgets.

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It is important to note that tuition increases do not balance campus budgets. Besides cuts to state funding, campuses are facing expenses outside of university control: increases in mandatory state pension and health insurance contributions; inflationary cost increases, such as utilities, contractual obligations; and a cost shift from the state to the campuses for maintenance and operations of facilities.
For example, in FY 18, estimates show that Kentucky’s public campuses will experience increases of $42.1 million for fixed costs and $13.7 million for pension contributions. Provision of financial aid to low-income students, coupled with cost increases - while partially offset by tuition revenue - leaves Kentucky’s public campuses facing a $33.5 million shortfall next year. If campuses pursue the maximum percentage set by their tuition caps, equating to approximately $56.1 million in tuition revenue, they still will not cover these operational costs.

6. Student debt is a concern.

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Student loan debt is a significant concern to policymakers tasked with maintaining college affordability and increasing college access. Two out of three graduates from a public, private, for-profit or non-profit institution in 2015 had student debt, averaging $27,225 per borrower. This amount is less than most states in the region and less than the national average of $30,100. The Council's strategic plan calls for sufficient state operating and financial aid support, in addition to moderating tuition increases.

Average student debt of college graduates