Consider Performance-Based Funding for Education

Richmond (VA) Times-Dispatch

The newly minted governor of Virginia, Terry McAuliffe, has a short window in which to impact the Old Dominion’s education landscape. As his team moves to advance his schools agenda, including boosting funding for the Standards of Quality, many potential priorities focus on the staffing, operations or governance of schools and districts. But insistent “less versus more” debates over education funding fail to focus on a more comprehensive and deeper view of improving our schools — aligning funding to incentivize outcomes.

A performance-based funding approach to schools seeks to better align dollars for schools with important student outcomes. It provides an opportunity to make strategic investments in schools by focusing school funding on desired results. Rewarding schools for both achievement and improvement can promote innovation, competition and student performance.

Allocating dollars based on educational results is gaining traction because of its potential to drive improved outcomes and cost efficiencies. Performance funding is being implemented in some higher-education settings and even more so in vocational education, and is in use in several states for providers of online K-12 charter schools and virtual course providers. Arizona Gov. Jan Brewer signed a bill last year to allocate more than $2 million for a performance-funding pilot program in a handful of school districts and charter schools in Arizona.

What all of these efforts have in common is the recognition that the current ways we fund schools are based almost exclusively on attendance taken, at most, several times a year. This is a fundamentally flawed model that misaligns incentives, rewards sub-par performance and diminishes the imperative for significant and sustained educational outcomes. “School funding should be based upon academic growth and not just whether a student enrolls and sits at a desk,” wrote Michigan Gov. Rick Snyder in support of a 2011 performance-based proposal in his state.

Most current school funding systems invariably benefit the adults, but too infrequently, our students.

While the problem of misaligned incentives is a well-researched topic in numerous fields, from health care to labor compensation, we seldom think of schools in this way. In business, for example, misaligned incentives often cause excess inventory, inadequate sales efforts and even poor customer service. In education, the misalignment between high school expectations and college requirements results in hundreds of millions of dollars spent annually on academic remediation that only serves to get students who have already successfully graduated to simply be ready for credit-bearing courses.

Performance-based funding is about aligning funding to educational outcomes, as defined in collaborative and local ways. Such outcomes could include test scores, which reflect academic outcomes, as well as other measures such as graduation rates, college acceptance rates, suspension and expulsion rates and the like. Further, decisions about assigning dollars should be made closest to the actual teaching and learning. From a practical standpoint, much of a school’s funding is used to support the core infrastructure and staffing needs of a school; performance-based funding would be used to affect the discretionary portion of the budget — still a substantial amount. In this way, funding performance would not negatively impact school operations, but instead put positive pressure on performance-driving decisions.

To be clear, this idea is not the “business-ization” of education; it is the humanization of education. People respond to incentives in positive and negative ways. We should incentivize all the professionals in the system — from secretary to teacher to principal to superintendent — to focus on the end goal of education, not the various mechanics of running the system. After all, misaligned incentives create mistrust and can prove harmful to the best interests of students. Sustainable trust — the foundation of successful enterprises — requires that incentives (and therefore goals and vision) be aligned.

Performance-based funding is a crucial first step in breaking the current funding structure that disperses money to all schools regardless of performance.

In education, the misalignment between funding and performance is at best a drag on the system and student performance — and at worst, a fundamental flaw that ensures our schools will never improve as widely and deeply as necessary for this country to be competitive internationally and to live up to our founding ideals of equality and opportunity.