Kentucky panel reviews performance-based funding model, highlights gains and equity concerns

The Budget Review Subcommittee on Postsecondary Education heard a detailed briefing Tuesday on Kentucky's performance-based funding model for public postsecondary institutions and the changes made since the model's creation.

The Council on Postsecondary Education and university officials told members the model has helped reduce large funding disparities across institutions and increase degree and credential production, while some lawmakers and a public speaker warned the model still under-serves low-income and other underserved Kentuckians.

The briefing began with State Senator David Givens, Ninth Senate District, who recounted the shift from a simple "old shares" budget approach to a performance model and called the change a long-term investment. "When we think about what changes people's lives, education does that," Givens said, adding that the model was designed to prioritize student success and the state's "60 by 30" attainment goal. Givens said the model was developed in 2014'—2016 and implemented gradually amid tight budgets.

Aaron Thompson, president of the Council on Postsecondary Education (CPE), and CPE staff described how the model allocates all eligible institutional funds into component pools (student success, course completion, maintenance/operations, institutional support and academic support) and then distributes each pool to campuses based on metric shares. "We're now at 56.2 percent," Thompson said, referring to the state's progress toward the goal of 60 percent of Kentuckians holding a postsecondary credential by 2030.

CPE senior staff laid out the model mechanics and recent statutory and regulatory changes. Travis Powell, senior vice president and general counsel at CPE, and Bill Payne, CPE vice president of finance, explained that policy choices in 2016 (House Bill 303) and later statutory actions created the working group that designed the model and that subsequent legislation, including the 2023 Senate Bill 191, adjusted metric definitions and weights. CPE staff said the student-success portion of the model has grown (noted in presentation slides as increasing from 35 percent to 40 percent of the allocable pool) and that premiums were added or increased for low-income students and adult learners. Payne described the initial 2017 carve-out of about $43,000,000 (a portion described in earlier materials as a 5 percent institutional carve-out) that the working group redistributed, and he said the General Assembly later established a funding floor (holding each institution's base harmless from 2021) and began appropriating new operating dollars into the performance fund.

Payne summarized the seven-step formula the model follows: calculate allocable resources (general fund appropriation minus debt service and mandated program funds, plus performance distributions), split those resources among component pools, allocate each pool to metric pools (for example, bachelor's degrees awarded, STEM degrees, progression at 30/60/90 credit hours, low-income and first-generation premiums), compute a formula total, and use appropriated performance dollars to narrow the difference between each institution's actual allocable resources and the formula total.

CPE staff said differential metric weights were adopted in 2016 to account for cost-and-mission differences between the two research institutions (University of Kentucky and University of Louisville) and the comprehensive universities. Payne noted the weights were intended to preserve funding parity in the first year of implementation and compensate for mission-related activities (graduate and research activity) that were not measured directly in the original model. "The weightings account for the cost and mission differences between the research and comprehensive sectors," he said.

CPE presented fiscal data showing the effect of the model over time: during the first implementation years, when no new state funds were added, several institutions saw net declines in state funds for educating students; after the stop-loss elimination and the funding floor in 2021, and with new appropriations, every university shown recorded per-FTE increases by 2024 except one small institution. Payne said disparities within the comprehensive sector narrowed and highlighted that Northern Kentucky University and Western Kentucky University experienced the largest percent increases in state funding per FTE in the recent period.

Lawmakers pressed presenters on equity and mechanics. Representative Massaroni asked whether the metrics favor out-of-state recruitment; Powell and Payne said most metrics count outcomes regardless of residency while earned credit hours and some weights treat nonresident students at reduced weight (discussed recent change from 50 percent to 75 percent of in-state value). Representative Decker and others challenged the rationale for sector weightings for research universities, citing their access to higher tuition and federal research grants; CPE noted federal research dollars are typically restricted and that research institutions face a different faculty-cost structure and national labor market pressures that the weights aim to reflect.

A public commenter, Michael Frasier, executive director of the Kentucky Student Rights Coalition, urged the committee to sharpen attention to Kentuckians from low-income and historically underserved groups. Frasier cited enrollment declines among low-income and minority students and asked, "Are we measuring Kentucky students with Kentucky's taxpayer money?" He advocated for clearer metrics and more wraparound supports targeted to those students.

Committee members and CPE staff agreed the model is under continuous review. CPE described the working-group process (meetings every three years by statute) that produced the initial design and subsequent changes (including replacing an "underrepresented minority" metric with a first-generation metric and adding an adult-learner premium). CPE staff offered to provide committee members with institutional-level degree and credential counts and said the agency maintains a public data portal with detailed outcomes and scenarios the staff use when testing model changes.

The subcommittee did not take formal votes during this meeting; members said they expect legislation to be considered at the next meeting.

CPE and university officials acknowledged the model requires ongoing adjustments to balance enrollment, equity, mission, and fiscal stability. The presentations and questions highlighted both measurable gains in degree and credential production and continuing concerns about whether the model's incentives and metrics prioritize Kentuckians who face the greatest barriers to postsecondary success.