Performance-Based Funding

Federal, state, and local governments may choose to award funding based on workforce program performance, often measured by participant outcomes. Such strategies are referred to as performance- or outcomes-based funding. For example, a state education board may award performance-based funding to community colleges that reach a prescribed level of program completion or degree attainment. A performance-based approach is an alternative or complement to the more traditional method of reimbursing programs according to “outputs,” such as number of participants served or students enrolled. Sometimes only a portion of program funding is performance based, supplementing traditional funding.

Several states, including Virginia and Kansas, are using performance-based funding to provide incentives to community colleges to enroll students in certificate programs that are in high demand by employers. 

Performance-based funding is viewed as a way to improve outcomes. Experts warn that the success of this type of funding depends on several factors, including

  • performance-based funding levels presenting a large enough incentive for change;
  • performance metrics selected not providing incentives for unintended and unwanted activities, such as only serving students deemed more likely to meet performance outcomes (also called “cream skimming”); and
  • stakeholders having a voice in developing performance-based outcomes, with specifics revisited and updated regularly to incorporate learning.