Tennessee officials describe 100% outcomes funding model, warn of complexity and data limits

Tennessee Higher Education Commission Executive Director Steven Gentile and senior fiscal policy official Russell Van Zomeren told Pennsylvania's Performance Based Funding Council that Tennessee has used an outcomes-based funding formula since 2010 and now allocates operating appropriations based on measured outcomes rather than enrollment headcounts.

Gentile said the Complete College Tennessee Act of 2010 (CCTA) replaced a prior enrollment-based model and established outcomes — retention, progression, degree production and mission-weighted measures — as the basis for recommendations to the governor and legislature. "Since 2010, the state has followed our recommendations, determining on what share each institution should receive of the overall pie based on their performance," Gentile said.

The CCTA also created a formal review process. Van Zomeren described a five-year review cycle and a standing funding-formula review committee made up of institutional presidents, legislative committee chairs and state officials. "Every five years this group comes together to do a complete overhaul of the funding formula if it is necessary," he said.

Why it matters: Tennessee participants presented their system as an example Pennsylvania can study as it implements its recently enacted performance-based law. They emphasized the trade-offs states face when designing incentives tied to student outcomes.

How Tennessee's formula works

Van Zomeren said the formula converts disparate outputs ' degree counts, progression milestones, certificates and workforce training hours ' into a common scale so institutions compete for shares of a statewide appropriation. He said Tennessee measures about 20 outcomes across sectors and uses "focus population" premiums for students who are Pell eligible, academically underprepared, adult learners or in high-need fields. "A student who might be in all four of these buckets would account for 2.2 outcome points versus the traditional 1 outcome point," he said.

Gentile said the formula emphasizes outcome counts rather than rates to discourage institutions from "creaming" the student body by admitting only likely completers. "Institutions are still incentivized that the more you produce, the better," he said.

Benefits and limitations

Gentile and Van Zomeren listed five primary benefits: (1) it rewards production rather than just status; (2) it lets institutions be measured relative to mission; (3) it provides regular data-based feedback; (4) an established review process builds stakeholder buy-in; and (5) the formula is now followed by the legislature.

They also warned of limitations. Van Zomeren said complexity can make the formula opaque and that Tennessee maintains a dedicated technical team to run the model. "We have three analysts who work full time, primarily on the funding formula. We have four data technical experts who help inform the funding formula as well," he said. Gentile added that outcomes are downstream of enrollment, so rapid enrollment growth can take years to register in funding. He also described instances of short-term certificate growth that required policy corrections to avoid gaming.

Data, scale and funding

The commissioners said Tennessee's data system is extensive: Gentile described about 250 institutional data variables collected historically and a P-20 system that links education records to labor data. Van Zomeren said Tennessee is beginning to link to U.S. Census data to better track graduates who leave the state.

The presenters said the state's current operating appropriation processed through the formula is about $1.6 billion; they noted that, when financial aid and medical universities are included, total higher education-related spending is larger (they cited roughly $3 billion in a recent cycle) and placed the total state budget in the range of $30 billion to $35 billion.

Questions from council members

Council members pressed officials on implementation details: whether the legislature ever departs from the formula, how the formula handles institutional mission differences and whether the formula affects tuition. Gentile said the legislature can decline the commission's dollar recommendations but generally follows the formula'at least in the majority of years since 2010. On tuition, Van Zomeren provided approximate averages of about $5,000 per year for community colleges and $10,000 for universities in Tennessee, figures he said reflected both state funding levels and lower regional costs.

Takeaway for Pennsylvania

Gentile and Van Zomeren recommended building a robust data system, legislatively defined goals that align with a statewide master plan, and a periodic review process that preserves institutional mission while limiting incentives to exclude harder-to-serve students. "The statute... requires that outcomes shall be weighted to reinforce each institution's mission," Gentile said.

The Tennessee panel closed by urging careful attention to data quality, staffing and the risk that incentives can produce unintended behavior if not monitored.