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Community college finance reform aims to address workforce demands, skill gaps

South Plains College has multiple campuses and thousands of students across the region.
Jane Davenport
Texas Tech Public Media
South Plains College has multiple campuses and thousands of students across the region.

The way community colleges in Texas are funded is receiving an overhaul thanks to a newly passed law that rewards schools based on how many students earn degrees or transfer to four-year universities.

The changes, codified by the signing of House Bill 8 by Gov. Greg Abbott last week, came after a commission was convened last year to gather recommendations for improving the state’s system of financing community colleges. Over the course of seven public hearings in Austin between Nov. 2021 and Oct. 2022, the Texas Commission on Community College Finance ultimately recommended the legislature distribute the lion’s share of state funding to schools based on measurable outcomes that address workforce needs, according to its final report to the 88th Legislature.

The commission was comprised of “lawmakers, community college leaders and experts in policy and workforce issues from across the state” who laid out the basis for the new law’s provisions. Robin Satterwhite, president of South Plains College in Levelland, said the demands of the state’s workforce led many to rethink how community colleges were funded.

“What we anticipate is that we will have a different funding mechanism... that will focus more on success factors — success of students, the performance tier — where there's going to be a focus on credentials awarded with an emphasis on those credentials in high demand occupations,” Satterwhite said. “It emphasizes students earning at least fifteen credit hours to transfer to universities, so we want to improve that pipeline of transfer students from community colleges to universities that aren't just looking at a technical education degree but also may be looking at that degree at the baccalaureate level.”

In addition to rewarding schools for issuing “credentials of value,” like badges, certificates and degrees, the new finance system similarly rewards colleges for students that earn at least fifteen credit hours to transfer to a four-year institution. Further, the legislation includes over $75 million in financial aid for low-income high school students to take dual-credit courses and earn credit toward a college degree.

The enrolled state budget passed this year sets aside $683 million in funding for the state’s community colleges, one of the most significant contributions to those schools since the legislature began allocating funds for community colleges over 50 years ago. Community colleges under the current system receive funds from a combination of local property taxes, student tuition and fees, and state allocations based on “contact hours” and certain student milestones.

Only about 10% of the present funding system rewards schools for their students’ milestones like earning a certain number of credit hours or graduating with an associate degree. Most of the funding community colleges currently receive is based on contact hours, or the amount of time their students spend enrolled at the institution.

Because of the limitations of property tax revenue generated from smaller municipalities and enrollments at two-year colleges, they have operated with some inherent disadvantages for some time. While the current system emphasizes constantly increasing enrollment rates, Satterwhite said the new system allows schools the flexibility to address the educational needs of their own respective communities.

Variables like shifting populations meant for years that the state’s portion of the money sent to community colleges was receding, and declining tax bases meant there was less money from the community to go around. The legislature provides just over $1.3 million to every community college for “core operations.”

“Historically, we've been funded almost exclusively on the number of students that we had at a particular college. So, the focus was always on increasing the number of students enrolled at your institution,” Satterwhite said. “The allocation to the community colleges was a single allocation, which was split 50 different ways among the 50 different colleges, and largely based on enrollment... But the fact is that if someone else increased their enrollment at a greater rate than you increase your enrollment, you could potentially even lose funding.”

Under the new system, Satterwhite said SPC would be able to be more competitive in hiring highly qualified faculty members, provide new educational opportunities for students and finance new infrastructure for their five campuses located throughout Lubbock, Levelland and Plainview. Soon, he said, SPC students might expect to see improvements made to the college’s facilities that make them a more vibrant and positive learning environment.

However, the lack of equitably dedicated funding to community colleges over the years has led to a disparity in the state’s industry demands and the qualifications of the state’s workforce. Although this skill gap is not unique to just Texas, Renzo Soto, policy advisor for Texas 2036, said it is addressed by the performance-based incentives of the law that are tied to formula funding and the attainment of credentials of value.

“What that means is the state is the one that's going to be doing the work to understand [whether] the credential offerings that community colleges provide to their communities are actually leading to credentials of value that have a positive wage premium attached to it at the end for Texans,” Soto said.

The plan aims for an equitable distribution by focusing in part on historically underserved communities and populations within the state, and the changes to the funding model account for local needs — particularly the needs of smaller and rural communities. Soto said the model introduces a new base tier of funding to address the instructional and operational needs of rural community colleges, including weights for “disadvantaged student populations.”

Under the new guidelines, SPC is set to receive an additional $7.5 million, or a 52% increase, in funds for the 2024 fiscal year, according to estimates. The roughly 8,500 students attending classes at SPC comprise a small portion of the over 642,000 community college students in the state.

Essentially, Soto said, the new funding formula expands the educational focus of two-year institutions to not just associate degrees, but also what skills-based certificate or micro-credential pair best with a particular learning track. Soon, students in Texas will be able to worry less about earning a fair wage for the degree they earned and, by extension, the debt they accrued by gaining it.

The law leaves the Texas Higher Education Coordinating Board in charge of figuring out the best way to implement the sweeping changes. Texas Higher Education Commissioner Harrison Keller said the agency has until the new fiscal year begins on Sept. 1 to outline the school’s formula distributions and until mid-July to gain state approval of the emergency rules set for its parameters.

“We're going to have a dynamic funding formula that really just puts each college in competition with themselves,” Keller said. “And in this new funding formula, there'll be funding to level up and stabilize funding for smaller and property-poor community colleges.”

Importantly, Keller said, 95% of the state support for community colleges in the formulas will be allocated to a new outcomes-based formula tied directly to the value students provide to the state’s labor market — with an additional $125 million set aside in funding for the state's primary need-based financial aid program for community college students.

“This is a bill that passed unanimously — its final passage was unanimous in the Texas House and in the Texas Senate,” Keller said. “It was a bill that was backed by all fifty of our community colleges, from our smallest colleges to our largest colleges.”

“This is an issue where all Texans can come together, get behind our community colleges,” he continued, “and because I think everybody recognizes that community colleges have to be in the vanguard of what comes next in the kinds of opportunities that we provide in education for Texans.”

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