The legislative evolution of performance funding in the North Carolina Community College System.

Introduction

The use of performance-based allocations in higher education has increased dramatically over the past five years (Burke & Minassians, 2001). In 1997, 24 states considered institutional performance when making allocations to colleges and universities. By 2001, 36 states had adopted this funding practice (Burke & Minassians, 2001). Following this trend, in June 1999, the North Carolina General Assembly passed House Bill 168, a general appropriations bill that mandated the implementation of performance funding for the 58 colleges in the North Carolina Community College System (NCCCS) (H.B. 168, 1999 N.C. Sess. Laws 237 (N.C. 1999)). This provision was codified in the North Carolina General Statutes (N.C. Gen. Stat. [section] 115D-31.3). Although the statute was amended the following year, the substance of the law remained the same (H.B. 1840, 2000 Sess. Laws 67 (2000)). Under [section] 115D-31.3, each community college's performance is reported on 12 specific measures. Performance on 6 of these measures determines if a college is eligible for special budget flexibility and a supplemental allocation (N.C. Gen. Stat. [section] 115D-31.3).

The North Carolina program evolved out of three legislatively mandated initiatives: a NCCCS accountability program, a NCCCS formula funding study, and a state government performance audit. This legislative evolution also occurred, however, in an environment influenced by a variety of factors including coordinating, governing, and budgetary conditions. The purpose of this article is to describe, analyze, and interpret this evolutionary process and to show how selected environmental factors affected the adoption of performance funding for community colleges. Although practitioners in North Carolina will have a particular interest in this subject, college leaders in other states may observe similarities between the North Carolina program and performance-based allocations in their states. To the extent that these similarities point to common issues and challenges, the author's analysis and interpretation may have application in other jurisdictions.

Literature Review

The literature on performance-based appropriations has followed the evolution of its subject matter. Early publications focused on the implementation of new programs (e.g., Banta & Fisher, 1984; Eyler, 1984) and highlighted programmatic issues and barriers (e.g., Peterson, Erwin, & Wilson, 1977; Peterson & Stakenas, 1981). As performance-based appropriations became more common in the late 1980s and 1990s, scholars explained their role in the accountability and quality improvement movements (e.g., Bogue, 1998; Bogue & Aper, 2000; Burke, 1998a; Carnevale, Johnson, Ruffner, & Edwards, 1998; Serban, 1998a; Stein & Fajen, 1995).

Along with these programmatic and policy analyses, researchers have recently developed a taxonomy of performance-based appropriations (Burke & Minassians, 2001; Burke, Rosen, Minassians, & Lessard, 2000; Burke & Modarresi, 1999). Burke and his colleagues have identified two kinds of performance-based appropriations: performance budgeting and performance funding (e.g., Burke, et. al., 2000, p. 3). Under performance budgeting, however, satisfactory performance is only one of several factors in determining allocations (Burke, et. al., 2000, p. 3). In the case of performance funding, the link is direct, clear, and fixed. For performance budgeting, the link between funding and performance is indirect, ambiguous, and flexible (Burke, et. al., 2000, p. 3).

Serban (1998b) claims that performance funding programs are characterized by six major components: goals, performance indicators, success criteria, indicator weights, allocation methods, and funding levels (p. 61). The selection of performance indicators has been described as the most critical and controversial task in establishing a performance-based program (Burke, 1998b). The analytical distinctions made by Serban, Burke, and others follow and build upon research concerning the use of performance indicators and accountability programs in higher education.

Borden and Bottrill (1994) reported on the historical use of performance indicators for strategic planning and budgeting. Gracie (1998) reported on the use of performance indicators in assessing workforce development initiatives at community colleges. The propriety of various performance indicators for accountability purposes has also been addressed by Banta and Borden (1994); Ewell and Jones (1994); Gaither, Nedwek, and Neal (1994); Freeman (1995); and Ruppert (1995).

Researchers and practitioners have studied the operation of specific accountability and performance funding programs in Missouri (Stein & Fajen, 1995), Florida (Tyree & Hellmich, 1995), and Hawaii and Washington (Peterson, et. al., 1977). Tennessee's higher education performance funding program, reported to be the oldest in the nation, has been the subject of extensive analysis and interpretation (Banta, 1985; Banta, 1988; Banta & Fisher, 1984; Banta, Rudolph, Van Dyke, & Fisher, 1996; Mayes, 1995; Thompson & Riggs, 2000).

The literature on performance-based appropriations now has rich threads following program implementation, higher education policy, program taxonomy, and operational issues. However, there is still a shortage of published research on performance funding and performance budgeting in community college education. Mayes' study of the standards used for performance funding by Tennessee's community colleges is a notable exception (Mayes, 1995). Pfeiffer's report on workforce development that measures for performance funding in Florida is another (Pfeiffer, 1998). There is an absence of any work describing the legislative evolution of a broad-based performance funding program for public two-year colleges.

A review of the literature shows that researchers have used a variety of methodologies in examining performance-based appropriations. They have analyzed data from surveys of campus officials (Banta, et. al., 1996; Mayes, 1995), state policymakers (Serban, 1998c), and state higher education financial officers (Burke, et. al., 2000). Performance-based appropriations have been analyzed in case studies and comparative case studies (e.g., Gaither, et. al., 1994; Stein & Fajen, 1995). However, scholars have yet systematically to cull appropriation bills, state statutes, government documents, and consultants' reports for data that might shed light on the evolution of a statutorily mandated program for community colleges. This article responds to these substantive and methodological deficiencies by reporting on a study of the legislative evolution of the North Carolina performance funding program.

Methods

Because the North Carolina program was created by statute and incorporates aspects from other statutorily mandated initiatives, the author's interpretation is anchored in an analysis of the appropriation bills that recorded the key policy and funding decisions made by the legislature. This interpretation synthesizes data from appropriation bills, government documents, and study reports while acknowledging the intersecting roles played by the General Assembly, NCCCS, college representatives, and consultants.

The author's analysis of appropriation bills, statutes, and other materials followed a "bottom up" approach that constructed context-dependent narratives or "units" which were synthesized in a holistic interpretation (Manning & Cullum-Swan, 1998). The resulting interpretation strives to meet Geertz's (1973) injunction that, "a good interpretation of anything--a poem, a person, a history, a ritual, an institution, a society--takes us into the heart of that of which it is the interpretation, "(p. 18).

Analysis began in January 2001 with an examination of [section] 115D-31.3. The researcher then examined all other North Carolina community college statutes for relevancy by searching for key terms abstracted from [section] 115D-31.3 and the literature (community college, performance, funding, measures, reporting, and accountability). This work was supplemented with a search of the LEXIS on-line legal database. The on-line search identified an additional 258 pieces of legislation. The researcher examined statutes and bills for relevancy to the subject matter of the study and selected 17 pieces of legislation for final analysis. Several of these referred to government documents and consultants' reports; accordingly, these were obtained and analyzed in the same manner. Along with the 17 statutes and bills passed by the legislature, 22 government documents and consultants' reports were selected for final analysis. Data collection was completed in May of 2001.

Triangulation, or, in the context of this study, the confirmation of an interpretation based on the coherence and correspondence of data (Hodder, 1998), was obtained by reading statutes and appropriation bills against reports and documents authored by persons outside the legislative process. Throughout the research project, the author's experience as an attorney and senior community college administrator grounded his analysis and interpretation.

The Governance and Funding of North Carolina Community Colleges

The evolution of performance funding must be placed in the context of the major governing and funding characteristics of NCCCS and its constituent institutions. Each community college is governed by a local board of trustees. Each board has a minimum of 13 members (N.C. Gen. Stat. [section] 115D-12). Voting members are appointed by the governor, county commissioners, and the local school board (Lancaster, 1999; N.C. Gen. Stat. [section] 115D-12). The president of the college's student government association sits ex officio. The board of trustees sets local policy and employs the president, subject to approval from the State Board of Community Colleges (State Board) (N.C. Gen. Stat. [section] 115D-20).

The State Board is comprised of 18 voting members. Ten members are appointed by the governor and eight are appointed by the General Assembly (four by each body) (N.C. Gen. Stat. [section] 115D-2.1). The lieutenant governor, state treasurer, and president of the state student government association sit as ex officio members (Lancaster, 1999; N.C. Gen. Stat. [section] 115D-2.1). The State Board has four primary responsibilities: (a) equitable distribution of state funds to colleges through NCCCS, (b) maintaining fiscal accountability for NCCCS and the colleges, (c) establishing state policy, and (d) educational program approval and accountability (Lancaster, 1999; N.C. Gen. Stat. [section] 115D-5). Although the State Board and NCCCS have significant governing and coordinating authority at the state level, institutions have considerable local autonomy and retain decision-making authority over many academic, personnel, and administrative issues (Ingram & Tollefson, 1996). This local autonomy, however, does not extend to funding.

Overall, 70% of the funding for operations at community colleges is provided by the state (North Carolina Community College System, 2001). Institutional allocations of state funds range from 59% to 77% of college operating budgets (Lancaster, 1999). Ninety percent of the state funding distributed by the State Board is allocated by FTE funding formulas and, again, individual college allocations vary (North Carolina Community College System, 2001). Garms' data from 1971-72 and Caruthers & Marks' report from 1991-93 indicate that the state's share of college operating expenses has remained relatively constant over the last 30 years (Caruthers & Marks, 1994; Garms, 1977).

The predominant features of the North Carolina formula funding mechanism have remained relatively constant since its inception in 1965 (Wiggs, 1989). Formula funding has been traditionally regarded as a key mechanism in maintaining funding equity throughout a state that has significant disparity in local wealth. This is the argument that W. Dallas Herring (a founding father of North Carolina's community colleges) used in defending formula funding before the State Board in the summer of 1988 (Wiggs, 1989, p. 361).

Colleges do not have local taxing authority, although overall about 12% of operating costs come from local government appropriations (North Carolina Community College System, 2001). Institutions receive between 5% and 20% of their operating funds from these local government appropriations (Lancaster, 1999). Tuition, which is set by the State Board, collected by the colleges, and passed through to NCCCS for reallocation, comprises about 11% of overall operating revenue (North Carolina Community College System, 2001; N.C. Gen. Stat. [section] 115D-39).

While the state's share in funding community college operations has remained relatively constant, data from the North Carolina Office of State Budget and Management indicate that appropriations for community colleges (including NCCCS administration) declined as a share of the overall state budget from FY 1989-90 to FY 1998-99 (see, Table 1) (North Carolina Office of State Budget and Management, 2001). During this period, annual operating appropriations for community colleges, including tuition receipts, increased from $403.2 million to $659.9 million, a 64% increase, while the General Assembly's overall appropriations for state government operations increased from $11.9 billion in FY 1989-90 to $22.6 billion in FY 1998-99--a 90% increase. But this significant increase in the rate of total state funding was dwarfed by the increase in the rate of spending for "mandatory" programs (Roherty, 1997). Thus, appropriations for health and human services (including Medicaid) grew by 181% (from $2.7 billion to $7.6 billion) and appropriations for corrections grew by 126% (from $380.8 million to $859 million) (North Carolina Office of State Budget and Management, 2001).

Data from Table 1 also show that the appropriation trends described above were well underway by FY 1995-96. While appropriations to community colleges had only increased by $142.9 million or 35% from FY 1989-90, the rate of increase in appropriations for "mandatory" programs far exceeded that for community colleges. Appropriations for corrections had already increased 114% or $434.6 million and state funding for health and human services had grown by 119% or $3,214.6 million (North Carolina Office of State Budget and Management, 2001). By the close of FY 1995-96 it was clear that rapid growth in appropriations for these mandatory programs would have implications for funding community colleges and other state departments.

The Formula Funding Study

Given this environment, in August 1996 the General Assembly directed the State Board to contract with an external consultant to "... undertake a comprehensive study of the funding formula used to distribute funds to local community colleges," (Section 17.3, H.B. 53, 1996 N.C. Sess. Laws 18 (N.C. 1996)). In accordance with this directive, the State Board retained MGT of America, Inc. (MGT) to conduct the study. Simultaneously, NCCCS established a 13-member task force (the Funding Study Task Force) to work in concert with MGT. The Funding Study Task Force was comprised of six community college presidents, two college business officers, representatives from the State Board and the North Carolina Association of Community College Trustees, and three NCCCS senior staff (MGT of America, Inc., 1997a).

Over the next four years, MGT produced a series of five reports that systematically reviewed a wide range of NCCCS funding issues (MGT of America, Inc., 2000). In an April 1997 report, relatively early in this review, MGT identified performance funding as a priority for further study (MGT of America, Inc., 1997b). The General Assembly responded with legislation passed in October 1998 that required the State Board to contract with "an outside consultant to ... study performance budget measures and recommend options for allocating community college funds on a performance budgeting basis," (Section 10.1, S.B. 1366, 1998 N.C. Sess. Laws 212 (N.C. 1998)).

In February 1999, MGT presented its proposal for a performance funding program, incorporating key components from a second NCCCS task force (MGT of America, Inc., 1999). Four months later the General Assembly passed House Bill 168 and enacted [section] 115D-31.3 (H.B. 168, 1999 N.C. Sess. Laws 237 (N.C. 1999)). A comparison of MGT's February 1999 report and House Bill 168 confirms that the consultant's proposal was adopted almost in its entirety.

The North Carolina Performance Funding Program

Section 115D-31.3 has three major components. The first identifies the measures to be used for assessing community college performance. The second defines the different levels of college performance and describes the fiscal consequences for each. The last component explains how institutional performance must be reported.

Section 115D-31.3(e) identifies twelve performance measures (see Table 2). These measures serve as the foundation for a broad-based program that assesses college performance in a variety of areas including student retention, transfer, student satisfaction, and employer satisfaction. The statute does not, however, identify the standards for determining satisfactory performance on any of these measures. This critical responsibility was assigned to the State Board and standards were identified with input from local colleges and an external consultant (North Carolina Community College System, 1999; N.C. Gen. Stat. [section] 115D-31.3).

The law provides that a college's performance on 6 of the 12 measures determines its eligibility for special budgetary flexibility and a supplemental allocation. Under the statute, measures (1) through (5) in Table 2 must be used for this purpose. Each college must then select a sixth measure from (6) through (11) (N.C. Gen. Stat. [section] 115D-31.3, 1999 & amend. 2000). Program enrollment, the last of the 12 measures, cannot be used in determining an institution's eligibility for performance funding.

Under [section] 115D-31.3, an institution can carry forward the equivalent of one third of 1% of its regular general fund appropriation for satisfactory performance on each of the six measures used for funding purposes. For instance, satisfactory performance on three of the six funding measures would allow an institution to carry forward 1% of its general fund allocation from one fiscal year to the next (N.C. Gen. Stat. [section] 115D-31.3, 1999 & amend. 2000). Superior performance is defined as satisfactory performance on at least five of the six measures. Institutions that demonstrate superior performance also share equally in an undetermined pool of NCCCS nonrecurring funds at the end of the fiscal year (N.C. Gen. Stat. [section] 115D-31.3, 1999 & amend. 2000).

The third component of [section] 115D-31.3 requires that each community college publish its performance on all 12 measures. This information must be published electronically and in each edition of printed catalogs (N.C. Gen. Stat. [section] 115D-31.3 (1999 & amend. 2000)).

As noted above, the legislature adopted MGT's recommendation in enacting [section] 115D-31.3. Further analysis of appropriation bills, government documents, and consultants' reports revealed, however, that MGT's proposal incorporated elements from NCCCS accountability initiatives and a state government performance audit.

Accountability and Performance--NCCCS Initiatives

In August 1989, the General Assembly passed Senate Bill 44, a general appropriations bill that stated that, "the State Board of Community Colleges shall develop a `Critical Success Factors' list to define statewide measures of accountability for all community colleges," (Section 80, S.B. 44, 1989 N.C. Sess. Laws 752 (N.C. 1989)). The State Board solicited input from the colleges and NCCCS staff, and within a few months, six Critical Success Factors (CSFs) were formulated. CSFs were defined as key conditions that must be satisfied in order for NCCCS to achieve its goals (Baker Smith & Nagy, 1990, p. 1). Thus, CSFs were regarded as a measure of NCCCS performance, not college performance (Baker Smith & Nagy, 1990). Twenty-seven specific measures were developed and subsumed under the CSFs (Baker Smith & Nagy, 1990).

While the General Assembly was requiring development of CSFs to hold NCCCS accountable for its performance, the State Board was taking action to hold the colleges accountable for their performance. In October 1989 the State Board required that, "each college review all its curriculum [credit] programs every five years," (Baker Smith, Brown, & Nagy, 1991, p. 79). By 1991 this requirement for program review was incorporated into the CSFs program as a performance measure (Baker Smith, Brown, & Nagy, 1991). Under this initiative, colleges developed their own procedures to review each credit program every five years. The CSFs program and program review process did not, however, use statewide standards. Thus, NCCCS lacked the means to measure and compare college performance across the system (Baker Smith, Brown, & Nagy, 1991). Accordingly, in July 1993, the General Assembly required that the State Board:

   ... establish standards for levels of institutional performance on those
   critical success factors that can be appropriately measured to indicate how
   individual colleges are performing in meeting the goals of the North
   Carolina Community College System. Each community college shall report its
   performance on these measures to the State Board. Colleges that fail to
   attain any of the standards in any year shall report to the State Board the
   reasons why performance fell below standards and the steps being taken to
   meet the standards (Section 109, S.B. 27, 1993 N.C. Sess. Laws 321 (N.C.
   1993)).

Senate Bill 27 also added several new measures to the CSFs program (e.g., graduate satisfaction and employer satisfaction) (S.B. 27, 1993 N.C. Sess. Laws 321 (N.C. 1993)). Finally, the law required that the State Board mandate college development and use of a new program review model to facilitate the annual and systematic collection, comparison, and reporting of institutional accountability data for presentation to the General Assembly (S.B. 27, 1993 N.C. Sess. Laws 321 (N.C. 1993)).

Despite the implementation of these changes, the General Assembly questioned the adequacy of community college accountability programs when it passed Senate Bill 1366, a general appropriations bill, in October 1998. The legislature also directed the State Board to contract with a consultant to develop recommendations for allocation of state funds based on college performance (S.B. 1366, 1998 N.C. Sess. Laws 212 (N.C. 1998)). The president of NCCCS responded by establishing the Performance Measures and Standards Task Force (the Performance Measures Task Force) to review existing accountability initiatives and recommend improvements (North Carolina Community College System, 1999). The State Board retained MGT to develop a performance funding proposal.

The Performance Measures Task Force was comprised of three community college presidents, five senior community college administrators, one representative from the State Board, and five senior NCCCS staff (North Carolina Community College System, 1999). After studying the history of the NCCCS accountability initiatives and consulting with national experts, the Performance Measures Task Force made two recommendations. First, it proposed the adoption of 12 specific "Core Indicators of Student Success" (Core Indicators) to assess individual college performance. The Core Indicators were not entirely new measures. Seven were measures under the CSFs program, including three mandated by the General Assembly in 1993 (see Table 2).

Second, the Performance Measures Task Force recommended that the Core Indicators replace the overlapping and expanding CSFs and program review initiatives (North Carolina Community College System, 1999). The State Board accepted the first recommendation, rejected the second, and NCCCS incorporated the Core Indicators into the CSFs program (North Carolina Community College System, 1999; North Carolina Community College System, 2000).

The Core Indicators were forwarded to MGT where they were captioned as "performance measures" and incorporated into its performance funding proposal to the State Board and, ultimately, the General Assembly (MGT of America Inc., 1999). This meant that performance measures developed by an NCCCS work group (dominated by college representatives) and approved by the State Board had become the heart of MGT's performance funding recommendation. MGT's 1999 proposal to link community college performance and funding, however, was not the first such recommendation made to the General Assembly.

Accountability and Performance--GPAC

In 1991 the North Carolina legislature passed House Bill 83, another general appropriations bill, which called for a performance audit of the executive and legislative branches of state government (Section 347, H.B. 83, 1991 N.C. Sess. Laws 689 (N.C. 1991)). The audit was directed by the Government Performance Audit Commission (GPAC), a blue ribbon panel cochaired by the Speaker of the House of Representatives and the President Pro-Tempore of the Senate. GPAC's final report, issued in February 1993, contained 350 recommendations (North Carolina General Assembly, Government Performance Audit Committee, 1993).

Ten of these recommendations concerned the governance, funding, and operation of NCCCS and its constituent institutions (North Carolina General Assembly, Government Performance Audit Committee, 1993). The general thrust of these recommendations was that there was a need to strengthen State Board and NCCCS control over community colleges. GPAC based this conclusion on its finding that "the State provides the largest share of funding but local communities exert more control" (North Carolina General Assembly, Government Performance Audit Committee, 1993, p. 83).

In order to enhance State Board and NCCCS oversight of the colleges and increase attention to state goals, GPAC advocated State Board appointment of college presidents (as opposed to approval) and replacement of the FTE formula funding model with one that had "an FTE component and a performance component," (Klein & Associates, 1992, p. 9.30; North Carolina General Assembly, Government Performance Audit Committee, 1993, p. 84). The performance component would function as an incentive and provide community colleges with, "appropriations of specific sums in addition to base program and FTE appropriations," (Klein & Associates, 1992, p. 9.30). GPAC consultants predicted that implementation of this recommendation would result in a "massive shift" away from a funding model that rewarded enrollment to one that rewarded progress towards State Board goals and objectives (Klein & Associates, 1992, p. 9.30). Despite the high profile of GPAC and its report, the recommendation on presidential appointments was never acted upon. The recommendation concerning funding was not addressed until June 1999 when the General Assembly passed House Bill 168.

Interpretation

The foregoing analysis of appropriation bills, statutes, and attendant documents explains how the General Assembly of North Carolina came to adopt performance funding. In 1989 the legislature mandated development of critical success factors to assess NCCCS performance. Two months later the State Board established a program review requirement for the colleges. In July 1993 the General Assembly revised and expanded its CSFs mandate to require annual and systematic assessment of college performance under uniform standards. In August 1996 the legislature directed the State Board to retain an external consultant to conduct a comprehensive study of the funding formula. And, in October 1998, in response to pressure from the General Assembly, the State Board and NCCCS turned to MGT and the Performance Measures Task Force for the components of a new performance funding program. MGT presented its formal proposal in February 1999 and four months later the legislature adopted the recommendation and passed [section] 115D-31.3.

Viewed from another perspective, however, the events from 1989 to 1999 reflect and chronicle the evolving relationships shared by the General Assembly, the State Board, NCCCS, and the colleges. Throughout this period, the General Assembly's appointment and appropriation powers provided it with significant control over the State Board and NCCCS. Prior to 1999, however, General Assembly oversight of the colleges was limited by two factors. First, the legislature appropriated funds to NCCCS, not the colleges. NCCCS made allocations to the colleges using a State Board funding formula that was supported by tradition and equity considerations. Second, campus leaders could claim that although the State Board and NCCCS were accountable to the General Assembly, the colleges were accountable to their local governing boards.

By 1993, the GPAC report and Senate Bill 27 signaled a growing interest in the legislature to measure institutional performance, condition funding on performance, and acquire a level of control over community colleges commensurate with state financial support. Three years later, state funding for community colleges was declining in relative terms as North Carolina, like other states, significantly increased appropriations for corrections and health care (Roherty, 1997).

The General Assembly's October 1998 call for a performance funding proposal opened the door to greater state control of the colleges. It also provided the opportunity to move away from an FTE funding mechanism that might be unable to easily reconcile future increases in enrollment with "declining" appropriations. In the end, neither change came to pass. MGT did not recommend a "massive shift" to performance funding. The General Assembly enacted a modest incentive program built around the 12 measures developed by the Performance Measures Task Force.

The legislature made an important tactical concession to NCCCS and the State Board when it adopted, in wholesale fashion, recommendations made by the Performance Measures Task Force and MGT. But, this did not reflect a wavering interest in a firm link between college performance and funding. Section 115D-31.3 created a performance funding program, not a performance budgeting program. And, the adoption of performance funding followed a gradual and continuing expansion in the state's role of defining how local colleges would be held accountable for their performance.

The North Carolina program may prove to be an effective incentive mechanism that only requires limited administrative adjustment in setting standards, collecting data, and reporting performance. Perhaps there will not be further substantive legislative activity on this issue for years to come. But, given the dynamics of state funding and the history of [section] 115D-31.3 continued evolution is probable. This will be a virtual certainty if legislators conclude that the program is not producing adequate improvement across NCCCS. In this case, three legislative options are immediately available, and each could be explained, at the state level, as an incremental change consistent with past recommendations. At the college level, however, each of these options could pose significant challenges for campus leaders.

Initially, the legislature could revise or delete the incentive component of the program. Incentive funding could be significantly increased for satisfactory or superior performance. Alternatively, the incentive could be eliminated and college performance could be used to determine a fixed percentage of a college's regular allocation. Under either scenario, the proportion of state funding available for allocation through the FTE formula would probably decrease and this could jeopardize budget stability.

Budget stability would also be undermined in this scenario by the colleges' inability to supplement reduced formula funding with revenue from real property taxes or increased tuition. Just as the legislature's lack of governing authority over the colleges has limited its ability to focus their attention on state goals, the colleges' lack of control over their funding streams would limit their ability to compensate for adverse consequences under a program that results in a lower proportion of funding through the FTE formula.

Second, viewed from an organizational perspective, the General Assembly's legislation has followed a trajectory that could be extended to another level. In 1989, the legislature's mandate for accountability was directed to the State Board. The increasing interest in college performance eventually moved the focus to the institutional level. If the current program fails to improve performance, the next step along this path could be one surely dreaded by campus leaders--greater state involvement in college operations. The General Assembly could dictate internal budget allocations at the department level (Burke & Minassians, 2001). Alternatively, it could expand the State Board's current authority in the area of program approval and accountability. A more radical step would be direct or indirect state regulation of faculty teaching loads and staff workloads.

Third, [section] 115D-31.3 implicitly accepted the GPAC notion that a linkage between funding and performance would result in greater state control over community colleges. If the future shows that this linkage is inconsequential, the legislature could decide to reexamine another GPAC recommendation--State Board appointment of college presidents. The General Assembly has repeatedly declined to act on this recommendation when addressing institutional accountability. But, the perceived success or failure of performance funding may be a central consideration for legislators in determining whether to take up this issue and pursue a new course in attempting to make colleges more responsive to state goals.

Conclusion

The General Assembly's enactment of performance funding legislation followed an extended, complex, and recursive process that included participation by the State Board, NCCCS, college representatives, consultants, and GPAC. The evidence shows that the legislature gradually increased its role in determining how colleges would be held accountable, and now a modest portion of state funding is determined by performance. The legislative options outlined above indicate how the General Assembly could respond if it concludes further action is necessary to hold institutions accountable for performance on state performance measures.

Campus leaders will soon begin to accumulate longitudinal data on how their institutions are performing. When performance is not satisfactory, it is reasonable to assume that institutions will work towards improvement by making internal adjustments in staffing and funding. These adjustments may result in higher performance ratings. But, they may also have implications for larger issues in community college education.

Will efforts to meet performance standards have adverse consequences for student access and the open door admissions policy? Will these efforts result in the termination of instructional programs and undermine the comprehensive mission? Will performance funding have hidden costs or unintended consequences that outweigh the advantages of the program? These questions will be critical in assessing the impact of [section] 115D-31.3 and campus leaders will be uniquely positioned to answer each of them. Only time will tell if the state's growing interest in accountability and performance can be reconciled with the local autonomy needed to maintain student access and the comprehensive mission.

Table 1

Total North Carolina State operation budget by department
appropriations in millions

Departments                 FY 1989-90   FY 1995-96   FY 1998-99

Public Education             $3,468.2     $4,477.5     $5,549.9

Higher Education              1,662.2      2,035.1      2,321.1

Community Colleges              403.2        546.1        659.9

Health and Human Services     2,695.5      5,910.1      7,604.9

Transportation                1,399.1      1,917.1      2,125.4

Corrections                     380.8        815.4          859

General Government            1,270.4        1,735        1,759

Other                             717        619.9      1,752.4

Total                       $11,996.4    $18,056.6    $22,631.6

North Carolina Office of State Budget and Management, 2001
Table 2

Performance indicators adopted in N.C. General Statute
[section] 115-31.3 in June 1999 and those present in the
April 1999 CSF Report (a)(b)

(1) Progress of basic skills students +

(2) Passing rate for licensure and certification examinations +

(3) Goal completion of program completers and noncompleters

(4) Employment status of graduates * +

(5) Performance of students who transfer to the university system +

(6) Passing rates in developmental courses +

(7) Success rates of developmental students in subsequent college-level
courses

(8) The level of satisfaction of students who complete programs and
those who do not complete programs *

(9) Curriculum student retention and graduation +

(10) Employer satisfaction with graduates * +

(11) Client satisfaction with customized training

(12) Program enrollment (NCGS [section] 115D-31.3 (e) (as amended))

(a) Performance indicators established in Senate Bill 27 are identified
with an asterisk (*).

(b) Performance indicators in the April 1999 CSF Report are identified
with a plus (+).

References

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Clifford P. Harbour is an associate professor in the community college leadership program in the school of education at Colorado State University in Fort Collins, Colorado. Cliff. [e-mail]