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THEC continues five‑year review of outcomes‑based funding formula; staff flag redistribution concerns

Tennessee Higher Education Commission — Finance and Operations Committee · February 20, 2026

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Summary

Staff briefed the committee on a five‑year review of the outcomes‑based funding formula, recommending a pivot toward four‑year on‑time completion metrics and a review of workforce premium awards; staff also highlighted growing redistribution within the formula (to about $18.5 million in FY27), prompting questions about sustainability and fairness.

THEC staff updated the Finance & Operations Committee on the statutory five‑year review of the outcomes‑based funding formula on Feb. 19, 2026. Russell Van Zimerman outlined two priority proposals that staff expect to bring forward: (1) a pivot from measuring 'on‑time' degree completion at six years to a four‑year on‑time completion metric, and (2) annual or periodic review of the workforce investment premium list so the formula continues to target state workforce needs (notably STEM and health‑care awards).

Van Zimerman told the committee that redistribution — the internal formula mechanism that reallocates funds from lower‑performing to higher‑performing institutions — has grown substantially. He reported that redistribution historically moved roughly $6 million per year but has increased to about $11 million in recent years and reached about $18.5 million in the FY27 proposal. Staff said that growth is driven in part by rapid enrollment and outcomes gains at larger institutions; commissioners and presidents have raised concerns about whether the scale of redistribution is sustainable and fair given statutory constraints.

Staff framed the review as ongoing and said the statutory review committee will meet again in March and return recommendations to the commission later this year. The committee did not take formal action other than to note the report and provide feedback to staff.