Performance funding model focuses colleges and universities on achieving state goals

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.