Texas leads to this important change to match college education, workforce needs

Texas is now the largest state in the country to tie a majority of state funding for community colleges to student achievement, rather than attendance, as the result of a law enacted this year. House Bill 8, which comes 12 years after Texas first adopted outcomes-based funding for colleges and technical schools, significantly expands on this innovative approach that prioritizes student success and expands our educated workforce.

Across the United States, most public colleges are financed by state funding based on attendance, in addition to tuition and local taxes. This traditional model rewards colleges for placing students in classrooms at the start of a semester, but it doesn’t incentivize helping students earn degrees. When Texas focused only on students-in-seats and ignored caps-and-gowns, we paid a high price for our misaligned incentives: Texas graduated just 33% of students within four years and trailed workforce goals by nearly 200,000 degrees.

So, the Legislature pioneered a new way to fund community colleges and technical schools. In 2011, the Higher Education Outcomes-Based Funding Act set aside 10% of state dollars to reward colleges that prioritized student successes, such as graduating with a two-year associate degree or transferring to a four-year university. In 2013, lawmakers adopted outcomes-based funding for the Texas State Technical College System that ignored attendance and exclusively rewarded employment, income growth and economic returns for Texas.

A decade later, the positive results are clear. The Higher Education Outcomes-Based Funding Act invested $1 billion in student success formulas and, in response, community colleges increased their focus on student achievement. The most recent data indicates that fewer than 25% of students drop out and more than 50% earn a degree or other valued outcome. Even more impressive, the Texas State Technical College System awarded more than 25,000 degrees and placed more than 80% of students in jobs where they generated 40% more tax revenue than similar Texans without technical training. These successes demonstrate how outcomes-based funding helps expand our educated workforce, particularly when student accomplishment, rather than attendance, is the principal metric for determining state funding.

Like the proverbial goose that lays golden eggs, Texas must continue to feed economic growth. For 27 months in a row, Texas has led the nation in job creation, but filling these new jobs requires even more credentialed workers. In March, Texas reported more than 800,000 unfilled job openings, with many due to a lack of skilled workers. This number of missed opportunities for both job seekers and job creators threatens to increase dramatically in the coming years. By 2030, more than 60% of jobs will require a postsecondary credential; today, only 45% of young Texas workers hold a degree.

Texas Higher Education Commissioner Harrison Keller, in his 2022 state of higher education address, emphasized the importance of aligning college funding with workforce goals. And he endorsed “driving the majority of state funding through a dynamic outcomes-based formula.”

At the same time, a coalition of business leaders, effective legislators and policy experts were working on thoughtful solutions to address Texas’ workforce needs. Led by Hunt Companies Senior Chairman Woody Hunt, Commit Partnership CEO Todd Williams and other experienced advisers, this diverse group recommended expanding outcomes-based funding for community colleges beyond 50%; ensuring affordability for students; and enhancing capacity at colleges through targeted investments.

At the Capitol this year, Rep. Gary VanDeaver, R-New Boston, and Sen. Brandon Creighton, R-The Woodlands, who each served on Hunt’s commission, wrote the legislation that codified these recommendations and increased community college funding by nearly 25% to $2.2 billion. As a testament to the support for outcomes-based funding, House Bill 8 passed unanimously in both the House and the Senate.

Texas is one of only five states to allocate a majority of state funding to community colleges based on student success. Our progression from attendance-focused to robust outcomes-based funding has been a 12-year marathon relay race that started under House Speaker Joe Straus and is making strong gains under Speaker Dade Phelan. In the contest to expand our educated workforce, as more high-quality students become high-skilled workers at high-paying jobs, all Texans will share in the victory of a high-performing economy.

Sam Houston said, “The benefits of education and of useful knowledge, generally diffused through a community, are essential to the preservation of a free government.” When it comes to the most innovative way to incentivize colleges to diffuse useful knowledge, the Lone Star State is now among the nation’s guiding lights.

Dan Branch is a former member of the Texas House of Representatives from the Metroplex and led the Committee on Higher Education from 2009 to 2015. He is the author of the Higher Education Outcomes-Based Funding Act.

And Branches

And Branches