Alabama panel studies outcome-based funding models for higher education, asks for follow-up data and funding commitment

A Joint Interim Committees meeting on Oct. 25 examined outcome-based funding (OBF) approaches for Alabama's public higher education institutions and discussed next steps including follow-up analysis and a possible funding commitment from the state's Opportunity Fund.

The committee heard a presentation from Will Carroll, managing director for strategic finance and student success at HCM Strategist, who said outcome-based funding is now used in roughly 30 states and can align state dollars with goals such as degree completion, transfer success and workforce outcomes. "It's a way of making sure that the state is investing its dollars in a way that advances and aligns with the state goals," Carroll said.

Committee members said they had no fixed positions but wanted data and safeguards before pursuing legislation. "We have no preconceived ideas or opinions," Chairman Garrett said during opening remarks. Members repeatedly returned to questions about how to preserve institutional mission, avoid unintended incentives, and ensure any program provides reliable, multi-year funding rather than a one-time increase.

Carroll described common structures and tradeoffs. States use several models: base-plus stability funding; enrollment-weighted funding; weighted enrollment (to account for student needs or program cost); and full or hybrid outcome-based funding where allocations reflect institutional performance on a set of metrics. He said many states use a hybrid approach that mixes a base allotment with outcome or enrollment components so institutions keep funds to cover fixed costs while being rewarded for progress.

Carroll reviewed typical OBF metrics and target populations. "Definitely the most common is degrees and certificates," he said; other frequent measures include progression (for example, completion of gateway courses or fall-to-fall retention), transfer success, and workforce measures such as job placement, licensure pass rates, wages and, in a few states, return-on-investment metrics. The four most common population weights were low-income students, underrepresented minorities, academically underprepared students and adult learners.

He also summarized how states have balanced adequacy, outcomes and mission. For example, Texas's community college redesign includes a base-tier guarantee and a large outcomes component that emphasizes credentials of value; Carroll said the Texas analysis estimated the cost to produce a successful outcome ranged from about $4,500 for a baseline student to roughly $11,458 for adult learners and about $5,900 for low-income students. "Those kinds of research findings help a state set weights tied to cost differences across populations," he said.

Committee members raised common policy concerns: that an outcomes system could encourage institutions to reduce access ("cream skimming") unless weights offset additional costs to serve higher-need students; that some institutions have missions (research, medical education, or public service) that require separate treatment; and that OBF must be large enough in dollar terms to influence behavior. Carroll recommended designing formulas to reward continuous improvement rather than only meeting fixed targets.

Members asked for follow-up information. Carroll agreed to provide the missing slide that was not in the handout and to share comparative data, including which states with OBF models use consolidated governance (a "regents" structure) and empirical work on tuition guardrails. Several members requested copies of the slide deck and additional state examples, and Carroll said he would resend slides and could provide the requested state-level governance comparisons.

Chairman Garrett told members the committee should consider using the same pool of appropriation dollars the legislature used for the RAISE Act'the Opportunity Fund'if lawmakers decided to seed a long-term program. "Once we start this, we cannot whipsaw our higher ed institutions," Garrett said, urging a multi-year commitment if the legislature creates an OBF program and encourages institutional investment in student supports.

No formal action, motion or vote took place at the hearing. Committee members closed by saying they wanted to continue the conversation, emphasizing workforce alignment and program value over simple degree counts.

What happened next: The committee requested follow-up materials from HCM on missing slides, state comparisons (including which states use regents structures), and additional detail on workforce and ROI measures. The committee also identified the Opportunity Fund as the likely budget vehicle for any initial allocations but made no binding decision at the hearing.