Colorado's voucher legislation and the consequences for community colleges.

In this article, the authors examine the new voucher program used to subsidize undergraduate education at Colorado community colleges and four-year institutions. The authors explain the voucher program and discuss the fiscal and policy conditions that led to its adoption. This baseline account of the voucher program and the underlying conditions leading to its enactment provides a foundation for further community college research concerning open access, the comprehensive mission, student participation, and organizational culture.

Introduction

In May 2004, the Governor of Colorado signed Senate Bill 04-189 (2004) and established the first voucher system in the United States to facilitate state subsidization of undergraduate education. The voucher program was the subject of extensive national media attention for two reasons (e.g., Cada, 2004; Henley, 2004). First, vouchers will completely replace general fund appropriations to public institutions for undergraduate education. Second, students will be able to use their voucher, albeit at reduced value, at selected in-state private institutions. However, the controversial voucher program was only one component of Senate Bill 04-189, a complex bill implementing a comprehensive, market-based funding and accountability framework for all public colleges and universities.

Besides the new voucher system, Senate Bill 04-189 also required the use of annual fee-for-service contracts between governing boards and the Colorado Department of Higher Education (DHE) to fund (a) specialized undergraduate education (e.g., engineering and forestry); (b) graduate education; and (c) professional education programs (e.g., law, medicine, and veterinary medicine). (Senate Bill 04-189 also required fee-for-service contracts to fund basic skills education, but in May 2005, Senate Bill 05-132 [2005] repealed this provision.)

These two new market-based funding mechanisms--vouchers and fee-for-service contracts--replaced the General Assembly's regular general fund appropriations to institutional governing boards. Before the enactment of Senate Bill 04-189, these appropriations were based on the prior year's allocation plus inflation and enrollment growth.

Senate Bill 04-189's new accountability provisions required institution-specific, long-term performance contracts. Again, these contracts are between DHE and institutional governing boards. Institutional performance contracts require improved performance on specific undergraduate objectives. Under these multi-year contracts, colleges and universities must improve their performance on objectives such as student retention, graduation rates, and student success on licensure and certification exams. A failure to demonstrate long term improvement could jeopardize eligibility for state subsidization through vouchers and fee-for-service contracts.

The new market-based funding and accountability mechanisms will affect all of the state's public colleges and universities. However, some institutions will be more affected by some mechanisms than others. Our analysis of the legislation and related government documents indicates that fee-for-service contracts are likely to have no significant impact on colleges in the Colorado Community College System (CCCS). Institutional performance contracts are also unlikely to have significant consequences for public two-year institutions. The vouchers (which may be used as a credit towards tuition for developmental, technical, and transfer courses) will probably have substantial short term and long term effects on CCCS community colleges. Three considerations support this analysis.

First, annual fee-for-service contracts (signed and implemented in 2005) require that higher education institutions deliver certain programs of instruction in exchange for a specific state allocation. However, programs to be funded with these contracts (e.g., engineering, forestry, medicine, dentistry, law, and graduate education) are only offered at four-year colleges and universities. Consequently, CCCS will not enter into one of these agreements. Although an increase or decrease in state funding for fee-for-service curricula may have some consequences for enrollment at some four-year institutions, the implications for enrollment in transfer programs and articulated technical programs at community colleges probably would be minimal.

Second, the institutional performance contract between DHE and the CCCS governing board, the State Board for Community Colleges and Occupational Education (SBCCOE), will not directly affect state funding (Colorado Department of Higher Education, 2004). This contract (signed and implemented in June 2005) requires modest long term achievement on some performance objectives (e.g., system-wide year-to-year retention for all students must increase from 52.4% as of December 2004 to 54.4% as of December 2008). It also requires annual reports on other performance obligations such as CCCS' efforts to increase enrollment, retention, and graduation of under-served students (Colorado Department of Higher Education, 2004). However, the CCCS institutional performance contract does not have a trigger mechanism directly linking funding to performance. Theoretically, a failure to demonstrate appropriate performance at the end of the contract could jeopardize voucher eligibility. But, neither the law nor the CCCS institutional performance contract explains how, when, or why such eligibility could be limited or terminated.

Third, we believe the voucher program (to be phased in during 2005 and 2006) is likely to have substantial short term and long term effects on CCCS institutions for two reasons. First, under Senate Bill 04-189, instate students can use a full value voucher at any CCCS community college, state college, or state university. Students can also use a reduced value voucher at selected in-state private institutions. As intended by legislators, this will probably increase competition within the state for undergraduate students. Second, reports from the General Assembly's Joint Budget Committee for FY 1995 to FY 2004 confirm that previous general funds appropriations to SBCCOE consistently approximated 60% of state funding (e.g., Joint Budget Committee, 1994; Joint Budget Committee, 2003). The bulk of the remaining state appropriation consisted of cash funds collected by the colleges as student tuition and fee revenue. Therefore, under the new voucher system, assuming appropriations for vouchers approximate previous appropriations for undergraduate education to SBCCOE, approximately 60% of CCCS public funding will be tied directly to enrollment--without a base to ensure budget stability. These two considerations--the distribution of state funds to public and private institutions and substantial funding appropriated through enrollment sensitive vouchers--indicate that increased competition and budget instability are probable.

As an aside, we note that the state's two independent community colleges (Colorado Mountain College and Aims Community College) are unlikely to be significantly influenced by voucher funding. These institutions have local governing boards and local taxing authority. Under the previous state funding process, these colleges only received nominal general fund revenues.

Because the voucher program will probably increase competition and budget instability, we infer that open access, the comprehensive mission, student participation, and organizational culture could be affected at all 14 CCCS community colleges. The purpose of this article is to provide a foundation for research on these subjects by explaining the program and by identifying the fiscal and policy conditions that led to its enactment.

We begin by reviewing the literature regarding institutional accountability, the marketization of higher education, and the use of vouchers in higher education. We then explain how the Colorado voucher program will operate. This discussion is followed by an account of the fiscal and policy considerations that facilitated the program's adoption. We conclude with recommendations for future research.

Literature Review

Institutional Accountability

The literature confirms that institutional accountability became a policy priority in the late 1980s when accounting scandals and complaints about increasing tuition led legislators to hold hearings on institutional mismanagement (Dill, Massy, Williams, & Cook, 1996; Kearns, 1998). When efforts to incorporate accountability goals into the regional accrediting process failed, critics argued that institutions were unable to control their costs or improve performance (Leatherman, 1995; Romer, 1995). As political pressure was building, rising expenditures for corrections and Medicaid began to limit growth in state legislative appropriations for higher education (Roherty, 1997). These developments led to the emergence of the accountability movement (Ewell, 1994; Wellman, 2001; Zumeta, 1998).

The growth of state mandated institutional accountability programs during the 1990s has been well reported (e.g., Burke & Modarresi, 1999; Burke & Minassians, 2003). These programs typically mandated reporting institutional progress on specific objectives (performance reporting) and sometimes created new systematic links between funding and performance (performance budgeting and performance funding). Several studies have reported on the evolution of such accountability initiatives (e.g., Banta, Rudolph, Van Dyke, & Fisher, 1996; Harbour, 2002; Pfeiffer, 1998; Serban & Burke, 1998; Stein & Fajen, 1995). The increasing use of state accountability programs for public colleges and universities occurred as all higher education institutions were buffeted and sometimes bruised by new market forces.

Marketization

The increasing role of market forces on higher education or marketization (Williams, 1995) has been clearly chronicled (e.g., Albert, 2003; Dill, 1997; Dill, 2003; Dunderstadt & Womack, 2003; Jongbloed, 2003; Middleton, 2000; Mok & Tan, 2004; Newman, Couturier, & Scurry, 2004; Walsh, 1995). Researchers contend that marketization may be attributed to two conditions (Dill, 2003; Jongbloed, 2003; Newman et al., 2004). First, global marketization has created international markets for higher education unrestricted by the funding and geographical monopolies that traditionally limited competition among colleges and universities. Second, governments have contributed to marketization by incorporating market-based mechanisms into their funding and accountability processes (Dill, 2003; Geiger, 2004). In the United States, federal and state governments have gradually channeled "public subsidies to students rather than institutions thereby enhancing choice and purchasing power," (Geiger, 2004, p. 162). Market-based mechanisms also have been used to guide legislative appropriations or governing board allocations. Finally, market-based mechanisms have been built into institutional accountability programs. Under any of these scenarios, state-promoted marketization emerges when the control and funding of institutions is managed with market devices requiring open competition for funding and performance ratings.

The growth of state-promoted marketization has led higher education researchers to focus on the underlying principles that define and distinguish the market and the academy (e.g., Dill & Soo, 2004; Geiger, 2004; Massy, 2004; Newman et al., 2004). Dill and Soo (2004) note that any attempt to construct a market-oriented theory of higher education is contingent upon market assumptions that may not apply in the academy. For example, a critical market assumption provides that efficient markets require transparent transactions where consumers and producers have perfect or complete information about the commodity (Dill & Soo, 2004). It appears dubious, however, that students and institutions possess or can acquire the information needed to understand the long-term economic, political, and social value of a college education (Massy, 2004). In short, students decide to enroll at higher education institutions for many reasons, and academic leaders decide to offer, expand, or close programs for many reasons, and only some of these can be captured through market analysis.

Vouchers in Higher Education

Vouchers are a classic example of state-promoted marketization to attain greater efficiencies in government services (e.g., Jongbloed, 2004). However, because federal and state governments have rarely used vouchers to subsidize universal enrollment of citizen or resident student populations, the literature on the subject is limited. Jongbloed and Koelman (2000) observe that economists and social scientists have offered theoretical arguments on the propriety of vouchers (e.g., Friedman, 1962; Levin, 1983). These arguments, however, raise more questions than they answer. For example, Jongbloed and Koelman (2000) note that scholars are quick to emphasize the theoretical advantages or disadvantages of vouchers, but good theory does not always translate into good policy. Accordingly, vouchers are touted as an effective means to grant students an extra measure of choice in selecting a postsecondary institution. It is not clear, however, if this opportunity is anything more than a preference or forced choice, since family resources, geography, and admissions requirements will deter many students from enrolling in their desired college or university. Similarly, vouchers are applauded as a device that rewards institutional competition and efficiency (Jongbloed & Koelman, 2000). However, there is a lack of relevant research indicating whether vouchers have this effect. Powerful colleges and universities entering a voucher system may benefit from competitive advantages gained under previous funding programs (e.g., superior facilities, strong academic programs, and a positive reputation) and not effective competition or internal efficiencies. A voucher system may offer weak colleges and universities little, if any, potential to compete against privileged institutions.

Critics contend that predicting the outcomes from any voucher program is risky because outcomes are also contingent on the demand for postsecondary enrollments, the supply of suitable student openings, tuition stability, and the terms and conditions of the specific program (Mason, 1975). In short, the voucher literature poses a series of intriguing issues that are yet to be fully examined. Proponents present theoretical considerations to explain their possible advantages. Critics propose considerations, no less abstract, to identify potential disadvantages. Colorado's new voucher program may provide researchers with an opportunity to investigate several of these issues in the years ahead.

The Operation of Colorado's Voucher Program

Under Senate Bill 04-189, the funding and utilization of vouchers (or stipends as referred to by the legislature) operates in the following manner. The General Assembly appropriates general fund revenues to a state trust, based on total anticipated undergraduate enrollment at public and selected Colorado-based private institutions. These moneys are then transferred by the trust to institutions based on their enrollment of qualified students. The voucher has universal value when used by in-state students as a credit towards tuition at Colorado public colleges and universities. In-state students may also apply their voucher towards tuition at approved in-state private institutions (albeit at reduced level) if they (a) graduate from a Colorado high school or complete an approved nonpublic home-based educational program, (b) demonstrate financial need through Pell grant eligibility, and (c) satisfy other eligibility requirements established by DHE.

The value of the voucher is fixed by the General Assembly for a specific fiscal year. This value may be increased or decreased, from year to year, to meet fluctuations in state revenues, state expenditures, or changes in the total qualified student population. The preamble to Senate Bill 04189 was explicit in noting that the new voucher system was not intended to create a new legal entitlement. Instead, the General Assembly proclaimed that "the provision of higher education services is a business," (Senate Bill 04-189, 2004, p. 703). Therefore, voucher funding will not be a super priority for the legislature and in difficult budget years, the General Assembly may use "a variety of mechanisms to balance the state's budget, including...decreasing the value of the stipend, or placing a limit on the number of stipends funded" (Senate Bill 04-189, 2004, p. 703).

Future research concerning the consequences of Colorado's voucher initiative will need to acknowledge that legislators were concerned with three problems or issues specifically identified in the preamble to Senate Bill 04-189 (2004). First, the voucher system was intended to remedy chronic funding problems precipitated by the Taxpayer's Bill of Rights (TABOR), a 1992 amendment to the state constitution (Colorado Constitution, Article X, Section 20, 1992). Second, the voucher mechanism was a part of a new market-based accountability framework designed to replace a failed 1996 institutional accountability system that attempted to measure institutional progress on statewide performance expectations. Third, the voucher program was intended to encourage young people to participate in higher education by (a) introducing new market forces that would result in lower costs to students through greater institutional competition and (b) replacing intangible, invisible subsidization to institutions with tangible, visible subsidies to individual students.

The Fiscal Considerations Leading to the Voucher Program

TABOR's tax and expenditure limitations precipitated chronic funding problems for the state and especially its higher education institutions. Under TABOR, the state's budget was, and continues to be, constitutionally limited in three respects. First, TABOR requires voter approval for any new state or local tax and any increase in state or local tax rates. Second, TABOR imposed a new restriction on state and local revenue collections through a formula limiting growth in state and local expenditures. If revenue collections exceed the amount required for expenditure (as restricted by the formula limiting growth in expenditures), this "surplus" must be refunded. Third, TABOR's formula for limiting expenditures provides that the rate of any annual increase in expenditures must be a consequence of a combined percentage increase in inflation and population growth. When combined with pre-existing legislative limitations on expenditures, any annual increase in expenditures permitted by the expenditure formula is capped at 6% even if the combined percentage increase in inflation and population growth exceeds 6%. Thus, for example, if for a given year inflation is 4% and population growth is 4%, the legislature would still be limited to 6% growth in expenditures and not 8%. Moreover, if state revenue collections exceed 6% (for example, because of combined inflation and population growth) the excess over 6% must be refunded to taxpayers. (Although voters passed a referendum in November 2005 suspending the refund provision for four years, it remains a part of the state's constitution.) As a practical matter, and since 1992, this aspect of TABOR has resulted in a decline in per capita revenue collections and per capita expenditures as the state population has increased (Bell Policy Center, 2003).

Colorado public higher education began to feel the effects of TABOR in the mid 1990s when rapidly rising expenditures for Medicaid and corrections could only be accommodated by restricting appropriations to other state priorities. Accordingly, while total per capita appropriations for Medicaid and corrections increased from FY 1992 to FY 2002 at an average annual rate of 6.0% and 4.9% respectively, total per capita appropriations for public higher education decreased (adjusted for inflation) at an average annual rate of-0.9% (Bell Policy Center, 2003; Blue Ribbon Panel, 2003).

The language of Senate Bill 04-189 confirms that the voucher provision was intended to sidestep TABOR in the following manner (Senate Bill 04-189, 2004): voucher funding replaces (a) direct appropriations to institutional governing boards for undergraduate education with (b) appropriations to a state trust which, in turn, transfers funds to qualified institutions based on verified student enrollment. This mechanism dramatically lowers direct general fund appropriations to colleges and universities. This reduction in direct appropriations means that many and perhaps most public institutions will eventually receive less than 10% of their total budget from the general fund and this will enable them to claim enterprise status. Under TABOR, enterprise status grants state agencies (including higher education institutions) greater budget flexibility by removing TABOR's constitutional revenue limitations and opening the door to revenue (tuition) increases that will only require legislative approval.

The Policy Conditions Leading to the Voucher Program

Institutional Accountability

A TABOR-restricted state budget, however, was not the only consideration that led to the adoption of the voucher program. Two policy considerations were also acknowledged in Senate Bill 04-189. The first concerned the perceived need to develop a new market-based accountability for institutions offering undergraduate programs. The voucher system imposed this new accountability on state colleges and universities by forcing them to compete openly for undergraduate students and their financial resources. This new informal market-based accountability complemented the accountability to be required under institutional performance contracts and annual fee-for-service contracts. Together, these three provisions were the latest salvo in a series of legislatively mandated accountability initiatives intended to hold institutions accountable for performance.

A 1985 campus specific assessment program was supplemented by a 1992 incentive grants program designed to focus institutions on state priorities (House Bill 85-1187, 1985; Senate Bill 92-59, 1992; Senate Bill 93-136, 1993). When it became evident that data from the 1985 and 1992 initiatives could not facilitate measurement and comparison of institutional performance, the General Assembly enacted legislation in 1996 creating a new performance reporting and performance funding program (House Bill 96-1219, 1996). This program was undermined, however, when DHE could not effectively assess institutional performance and the legislature was unable to fund performance because of the 2001 economic recession (House Bill 96-1219, 1996). The accountability framework created in Senate Bill 04-189 was intended to remedy the deficiencies in these earlier accountability programs by introducing new market-based funding and accountability mechanisms such as institutional performance contracts, fee-for-service contracts, and the voucher system.

The Colorado Paradox 

The second policy consideration concerned the need to increase the number of young adults enrolling in public higher education and specifically those in underrepresented populations. This need was clearly described in the final report issued in January 2003 by the Governor's Blue Ribbon Panel on Higher Education for the 21st Century (Blue Ribbon Panel, 2003) and then later in the preamble to Senate Bill 04-189 (2004).

Governor Owens created the Blue Ribbon Panel in January 2001 to examine critical issues facing the state's public higher education system (Blue Ribbon Panel, 2003). The seventeen member panel was comprised of six state legislators, two gubernatorial appointees to the Colorado Commission on Higher Education (CCHE), the Executive Director of CCHE, two gubernatorial appointees to institutional governing boards, and one elected member of an institutional governing board. Five members of the panel were identified as "Citizens at Large." One of these members was a former governor. Another citizen at large, the Chair of the Blue Ribbon Panel, was the chairman of a leading state political party.

The Blue Ribbon Panel's January 2003 report described the low enrollment of in-state students in public higher education as the "Colorado Paradox" (Blue Ribbon Panel, 2003, p. 2). Citing data from the U.S. Bureau of the Census and the Measuring Up 2000 report, the Panel noted that although Colorado ranked first in the nation with more than 34% of its adult population age 25 or more holding a bachelor's degree, the state "... placed 31st among the states with only 38% of its high school freshmen entering higher education four years later," (Blue Ribbon Panel, 2003, p. 3). Moreover, the low enrollment of Colorado high school graduates in higher education was exacerbated by disparities based on ethnicity and income.

For example, the Blue Ribbon Panel found that although the proportion of White Non-Hispanic males attending state colleges and universities from 1990 to 2000 declined from 31% to 28%, the decline in the proportion of Hispanic males was from 14% to 9%. The importance of this decline becomes even more pronounced when placed against emerging changes in Colorado's under age 18 population. The Blue Ribbon panel noted that although Hispanic youth accounted for 18% of the under age 18 population in 1990, by 2000 this population represented 24% of the state's youth population.

When income is considered as a factor distinguishing student participation in higher education, the picture gets even worse. National data presented to the Blue Ribbon Panel indicated that from 1970 to 2000 participation in each income quartile increased (Blue Ribbon Panel, 2003). For students coming from families in the top or fourth quartile, participation increased from 72% in 1970 to 75% in 2000. Participation for students in the third quartile increased from 58% to 68% during this same period. The increase in participation for students in the second quartile increased from 47% to 68%. And, national data indicated that for students in the lowest, or first quartile, participation increased from 28% to 35%. In Colorado, however, participation by students in the lowest quartile only increased from i6% in 1990 to 17% in 2000. Indeed, in 1999, Colorado ranked last in the nation in the proportion of students in the lowest income quartile enrolling in higher education.

Although Colorado's Hispanic and low income students were enrolling at some of the lowest rates in the nation, this situation cannot be attributed to low per capita personal income in the state. Data presented to the Blue Ribbon Panel indicated that from 1993 to 2001, state per capita personal income increased by 51%. Indeed, during the 1990s, the state was consistently among the ten highest in the nation in per capita income. This income was not taxed, however, at rates comparable to most other states. Thus, for instance, in FY 2001, Colorado was 36th in the nation in per capita state tax collections. The state's tax receipts, calculated per $1,000 of personal income, were 46th in the nation.

The Blue Ribbon Panel's final report and the preamble to Senate Bill 04-189 both revealed that state policymakers and legislators were concerned with the low participation rates by Colorado's young people in public higher education. Both documents also revealed that policymakers and legislators believed a voucher system would result in a more entrepreneurial and efficient public higher education system and encourage young people to use their new personal state subsidy.

In March 2003, members of the Colorado House of Representatives responded to the Blue Ribbon Panel's final report by introducing legislation authorizing the use of vouchers to subsidize undergraduate and graduate education (House Bill 03-1336, 2003). However, the bill failed to gain support and was tabled in May 2003 by the House Appropriations Committee. As we noted above, Senate Bill 04-189 was introduced in the Senate in January 2004 and signed into law by Governor Owens in May 2004.

Recommendations for Research

The state's public higher education system will be affected by all three components of the new market-based funding and accountability framework. We regard the voucher program as the mechanism most likely to affect CCCS community colleges, however. Our explanation of the voucher program and the conditions leading to its adoption should provide researchers with a starting point to investigate a variety of potential consequences. We now recommend a series of research questions that may be modified for particular quantitative or qualitative studies.

Institutional Mission

1. Does voucher funding affect institutional commitments to open access (e.g., the open door admissions policy) and the comprehensive mission?

2. Does voucher funding affect the community college focus on community needs?

Budget Stability

3. Does voucher funding undermine budget stability at CCCS community colleges and, if so, how will this affect educational programs and services?

4. Does voucher funding lead to greater reliance on external or nongovernmental funding?

Student Participation

5. Does voucher funding lead to an increased financial burden on students and, if so, does this affect student participation?

6. Does voucher funding influence students' decisions about where to go to college?

7. Does voucher funding affect the retention, graduation, and transfer of students (and especially underrepresented students) enrolled at CCCS institutions?

8. Does voucher funding affect the distribution of student populations (as defined in terms of family income, race, ethnicity, and gender) at Colorado public and private higher education institutions?

Organizational Culture

9. Does voucher funding affect institutional culture and strategic planning?

10. Does voucher funding affect the distribution of full-time and part-time faculty across the institution?

11. Does voucher funding affect the roles and responsibilities of campus leaders?

12. Does voucher funding of CCCS community colleges have any consequences for Colorado's two independent community colleges?

Conclusion

In the years ahead, CCCS community colleges will face a series of challenges as the state's new market-based funding and accountability framework is implemented. We contend that the most important aspect of this framework for CCCS community colleges is the state's new mechanism to subsidize undergraduate education, the voucher program. The voucher program may lead to greater institutional competition, increased institutional efficiency, and improved performance on critical indicators such as retention and graduation. Alternatively, Colorado's voucher program may contribute to budget instability and may not improve efficiency or institutional performance. It may not increase enrollment, transfer, or graduation of students and especially those in underrepresented populations. Further research will be needed to determine how the program affects community colleges and their students.

What is now evident, however, is that Colorado's voucher program responded to a complex array of fiscal and policy considerations. Our objective has been to explain the voucher program and the underlying considerations that led to its adoption. We do not suggest that our work answers any of the questions posed above. We only hope that our investigation provides other community college researchers with a resource as they examine the consequences of the nation's first voucher program for subsidizing undergraduate education.

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Clifford P. Harbour is associate professor and program chair of the Community College Leadership Program in the School of Education at Colorado State University. [e-mail]

Timothy Gray Davies is professor and director of Graduate Programs in the School of Education at Colorado State University. [e-mail]

Chance W. Lewis is associate professor in the Department of Teaching, Learning, and Culture in the College of Education at Texas A&M [e-mail]