A new way to fund Texas community colleges focuses on student success, not enrollment

Texas’ new method for funding community colleges could position two-year, public institutions as major players in training students on skills employers say are missing in the state’s labor force.

House Bill 8’s historic $683 million investment in community colleges rewards schools for getting students to complete a degree or certificate, transfer to a four-year university or participate in college courses as early as high school.

HB 8 passed with a near unanimous vote, a contrast to the political polarization that surrounded higher education in 2023 through contentious legislative battles over professors’ tenure and diversity, equity and inclusion offices.

Proponents of the new funding formula believe it will help community college students and the state economy as a growing number of high-demand, self-sustaining jobs in Texas require credentials beyond a high school diploma.

“It's about making sure that community colleges have a source of sustainable funding to innovate and to keep up with that pace of change,” Jonathan Feinstein, ​​of Education Trust in Texas, said.

Here’s what to know about the new finance system and what it means for community college students:

How did the funding formula change?

The old formula primarily awarded money based on the total hours of instruction students received, which is dependent on enrollment.

The new formula allocates funds based on student outcomes. Here are the metrics:

• Earning credentials of value. A credential has “proven value in the workforce” when workers who hold the credential earn higher wages than workers with only a high school diploma. Colleges get bonus incentives if students earn credentials in high-demand fields, which are determined by state and regional labor market data.

• Successful transfers to a four-year university. Transfers are counted when students earn at least 15 semester credit hours at a community college before enrolling in a four-year university.

• Completion of dual credit courses. High school students must complete at least 15 hours of college credit that is sequential and meets academic or workforce program requirements.

Schools get extra money for students who might be more expensive to educate, including economically disadvantaged students, academically underprepared students or adult students.

And when property taxes and tuition fees do not produce enough revenue for basic operational expenses, the college can get a boost from the state; beneficiaries are expected to be small colleges in rural, property-poor districts. Advocates say the boost will help community colleges continue to exist in every corner of the state.

How much are community colleges expected to receive?

Texas community colleges saw an extra $210 million budgeted for the 2024 fiscal year under the new funding formula. When broken down by college, that varied from an extra $70,000 for Galveston Junior College to $25 million for the Alamo Colleges District. One school, Frank Phillips College in the Panhandle, saw its funding double to $2.9 million.

The state baked a mechanism into the bill that prevented colleges from initially losing money under the new calculations. That saved Wharton County Junior College near Houston more than $300,000.

State legislators earmarked a ceiling of more than $650 million for the 2024 and 2025 fiscal years. They gave the Texas Higher Education Coordinating Board the latitude to determine the specifics of the formula. The idea is that colleges will be measured against their own progress on student success, rather than compete with each other.

Why did the state change the funding model?

Under the enrollment-driven financing model, community colleges were losing funding because of steady enrollment declines — a trend that worsened during the COVID-19 pandemic. The situation was especially dire for small and rural colleges.

Texas community colleges get money from three main sources: local property taxes, tuition and fees, and state funding. The state’s share of the funding has shrunk over time, from 68% in 1980 to 26% in 2020. Advocates were calling on legislators to use the state’s budget surplus to recommit to supporting community colleges in the interest of the state economy.

At the same time, Texas had adopted a pay-for-performance mentality for other educational institutions. Since 2013, the state’s technical college has been paid based entirely on its graduates’ earnings. And when legislators overhauled K-12 school financing in 2019, they rewarded school districts for preparing their students for college, a career and the military.

How are community colleges changing operations to get more dollars?

Colleges are now sizing up how they can get more students to earn a degree or complete certificates. Each college will take its own approach, but students might see efforts to streamline academic advising or expand wraparound supports like child care.

After Austin Community College trailed behind their counterparts in funding increases, Chancellor Russell Lowery-Hart said the school would examine the barriers to graduation, like lack of access to child care and food insecurity.

“We did not receive as much as I think our community and our students and our faculty and staff deserve. Because we're not as good at the outcomes as we need to be,” said Lowery-Hart, who stepped into the position this school year. “Those funding levels … I think they signify deeper core issues.”

Once colleges increase student outcomes, HB 8 advocates say additional funds will be used to scale up supports for students over time.

Money first started to roll in during October. High school students in Corpus Christi have already gotten a break when they enrolled in courses at Del Mar College in the fall. With the extra $2 million from HB 8, the college’s board of regents made their dual credit program tuition-free.

The Texas Tribune partners with Open Campus on higher education coverage.

Be sure to check out a Jan. 24 Texas Tribune event, where we examine the implementation of House Bill 8 and discuss other laws affecting community colleges. Register for the event here.

Disclosure: Education Trust, Austin Community College and the Texas Higher Education Coordinating Board have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.