A comparative analysis of higher education incentive funding methods used in 12 states

States, colleges, and universities have been considering methods of incentive funding with greater seriousness in recent years. Incentive funding, theoretically a process of relating educational outcomes, quality improvement, or other intended results with financial allocations, provides states with a method of demonstrating accountability and provides institutions with some motivation to improve their effectiveness. The influence of incentive funding methods on institutional behaviors can be identified in several aspects of decision-making techniques and institutional planning.

The purpose of this study was to describe and analyze incentive funding policies of those states identified by the Education Commission of the States (ECS) as being involved in incentive funding programs for public institutions of higher education. Incentive funding policies of states responding were described. Policies were analyzed regarding their influence on organizational decision making and institutional planning. Policies were then characterized according to Allen's two-dimensional scale of five identifiable incentive funding models.

Data for the study were obtained by requesting written copies of incentive funding policies from statewide coordinating units of those states identified by the ECS survey. ECS identified 12 states as being involved or considering involvement in incentive funding. Ten states responded to the researcher's request for statewide guidelines of incentive funding policies. Two of the 10 states indicated incentive funding was not currently operational in their states. Therefore, the study focused on eight states-Colorado, Florida, Mississippi, Missouri, New Jersey, Ohio, Tennessee, and Virginia.

Results of this study indicated that three primary methods of incentive funding are used in the eight states: a competitive grant system to reward or encourage quality improvements; completion of state-developed administrative policies; and non-competitive awards of funds to encourage institutional improvement of quality. Criteria and procedures are generally determined by the state coordinating unit, although some states allow institutional input.

External reviews are used in Colorado, New Jersey, and Ohio to determine grant or funding awards. The remainder of the states rely on internal reviews, primarily by the statewide coordinating units. Colorado, Missouri, Ohio, and Virginia require institutions to prioritize incentive funding proposal requests before submitting them to state coordinating units. All state incentive funding programs in this study allow voluntary involvement from institutions. State initiatives to relate funding with quality improvement or educational outcomes appear to be motivated by the states' desires to improve their national competitiveness.

Finally, incentive funding appears to not be an allocation system that currently detracts from traditional funding formulas or incremental funding processes. It is generally viewed as a supplemental or temporary funding process used by states to accomplish specific goals.