An ambitious performance-based funding model for community colleges in Texas outperformed all expectations in its first three years. Student success metrics at Texas community colleges skyrocketed with credential attainment and dual-enrollment rates surpassing the state\u2019s projections. But now, the program is suffering from its own success. <\/p>\n
Three years ago, Texas celebrated the launch<\/a> of the new funding model<\/a>, which was widely applauded<\/a> by state policymakers and community college leaders for its careful design to reward colleges for improving student outcomes aligned with state priorities.<\/p>\n But the state didn\u2019t appropriate enough funding to pay for the gains, thrusting colleges into financial uncertainty. Forty-two of the state\u2019s 50 community college districts could face funding reductions<\/a> for fiscal year 2027, according to calculations by the state. For some, that would mean multimillion-dollar shortfalls. <\/p>\n Because of the state\u2019s biennial budget cycle, Texas lawmakers appropriate funds for community colleges for a two-year period based on projections by the Texas Higher Education Coordinating Board, made by looking back at prior data. But the funding formula is so new that there\u2019s limited data to work with, said Barbara Kessler, a spokesperson for THECB.<\/p>\n State lawmakers can still make up the difference between the state\u2019s predictions and what colleges are owed. When community colleges overshot the state\u2019s expectations last biennium, the State Legislature appropriated an extra $89.5\u00a0million to the institutions for fiscal year 2025 in a supplemental budget. Community college leaders are hopeful the state will come through with more money again, given the popularity and overall success of the funding model. But in the meantime, they\u2019re anxiously trimming their budgets.<\/p>\n \u201cI hope that the Legislature can hold to its promise of what this dynamic outcomes-based funding model was designed to do,\u201d said Russell Lowery-Hart, chancellor of the Austin Community College District. \u201cWe lived up to our end of the bargain.\u201d<\/p>\n The Model\u2019s Successes<\/p>\n When Texas adopted its new funding formula in 2023, the state tied 95\u00a0percent of community college funding to a range of performance metrics instead of enrollments. <\/p>\n Now community colleges\u2019 funds depend on how much they boost outcomes including credentials of value earned, the number of students transferring to universities after earning 15 community college credits and the number of high school students earning at least 15 dual-enrollment credits. Colleges get extra funds for serving low-income students, adult learners and academically underprepared students and graduating students in high-demand fields. The legislation that created the formula, House Bill 8, also established the Financial Aid for Swift Transfer (FAST) program, which allows low-income high school students to take dual-enrollment classes for free.<\/p>\n The formula\u2019s positive effects were immediate. Between 2023 and 2025, credential attainment among community college students jumped about 22\u00a0percent\u2014and soared even higher for credentials in high-demand fields, roughly 26\u00a0percent, according to a July 2026 report<\/a> by Texas 2036, a state public policy think tank. Dual-credit enrollment increased 20\u00a0percent over that period, reaching an \u201call-time high\u201d for the state. The growth was widespread, with 43 districts increasing credential-attainment rates.<\/p>\n The model also resulted in more funding for community colleges\u2014an increase of $352.2\u00a0million, or a 38\u00a0percent jump, between fiscal years 2023 and 2027, according to THECB\u2014that could be poured back into student supports, services and programs.<\/p>\n Lowery-Hart said the funding model prompted his district to analyze labor market data and expand programs in high-demand, high-wage fields. The college hired more faculty and dedicated more campus space to these academic offerings, understanding that \u201cthere would be funding on the back end to cover that level of investment and expansion.\u201d<\/p>\n \u201cWhat this model should tell everybody across the country, not just the political apparatus in Texas, is that if you give community colleges just a little bit of funding, we will kill it,\u201d said Lowery-Hart. \u201cWe will rise to the moment. We\u2019ll be data-driven. We\u2019ll be employer need\u2013driven\u00a0\u2026 It demonstrates what can happen when community colleges are funded to thrive,\u201d not just survive, he said.<\/p>\n The \u2018Growing Pains\u2019<\/p>\n But Lowery-Hart doesn\u2019t want to see colleges returning to \u201cspinning gold out of straw\u201d because of state funding gaps.<\/p>\n The Austin Community College District expected a $4\u00a0million boost this biennium because of its progress under the funding formula, but he didn\u2019t factor that money into the district\u2019s budget, knowing state funding could be uncertain. He later realized the state\u2019s predictions left the district $10\u00a0million short of what it should earn under the formula.<\/p>\n He said the sprawling district is well-off and can afford the hit, but he worries for rural colleges with smaller property tax bases that rely more heavily on state funding.<\/p>\n He\u2019s confident policymakers will allocate more funding for the program. Still, from now on, \u201cI\u2019m going to budget as if the political system is broken,\u201d Lowery-Hart said. \u201cWe\u2019re going to be budgeting very conservatively over the next three biennium\u2014in hopes [the shortfall is] not real\u2014but I\u2019m going to be prepared for it if it is, more than I was this time around.\u201d<\/p>\n Brenda Hellyer, chancellor of San Jacinto College, said the performance-based funding formula initially gave her institution a $13.7\u00a0million funding boost in 2023, plus $2.9\u00a0million for the FAST program. The college used that money to hire advisers and faculty in sought-after fields and to sustain supports previously funded by COVID-19 relief dollars, such as mental health services.<\/p>\n But now the institution is expecting $6.8\u00a0million less than it collected for fiscal year 2027. The college is tasked with finalizing its budget by the end of August, so Hellyer has scrambled to take belt-tightening measures. For example, San Jacinto is lowering merit raises for employees, she told state lawmakers at a Texas Senate meeting<\/a> in late July. She also restricted travel and professional development opportunities. <\/p>\n Regardless, the budget she\u2019s proposing to her board includes a one-year deficit of about a million dollars. She said the college has a tuition freeze in place to keep costs low for students and is under local pressure not to raise property taxes, so she felt she had little choice but to accept a deficit.<\/p>\n \u201cWe\u2019ve got to protect our students, and we\u2019ve got to protect our taxpayers, and we\u2019re going to figure this out,\u201d Hellyer said. Despite the challenges, she believes the funding shortfall is a \u201cblip\u201d in the early implementation of an otherwise successful model.<\/p>\n Grace Atkins, policy adviser for postsecondary and workforce policy at Texas 360, said the gaps between state projections and community college outcomes \u201cwill improve with time\u201d as the state collects better data over a longer period to inform its predictions.<\/p>\n \u201cWe are still dealing with a very new system,\u201d she said. \u201cThis was a big change for Texas community colleges. It basically fundamentally changed their operating models in a lot of ways, and this is, for lack of a better term, the growing pains of such a big change for such a fundamental part of our state\u2019s higher education.\u201d<\/p>\n New Cost Controls<\/p>\n