The West Michigan metropolitan area is actively engaged in urban renewal and seeks to strengthen its 21st century economy. The economic development focus in this area's central city, Grand Rapids, aims to retain and create jobs primarily by strengthening existing companies in the area (K. Woods, personal communication, October, 20, 2010). To grow, these companies require a well-educated work force. Higher education in the region, with over 73,000 students (Right Place, 2010), plays an important role in this process (M. McLogan, personal communication, October, 13, 2010). As the flag-ship institution of West Michigan, Grand Valley State University (GVSU) has steadily grown its student body over the last decade and a half, and the city values the partnership it has with the institution in this revitalization endeavor (Woods). Given the importance of GVSU to the West Michigan area, it is disturbing that state funding for the institution, as informally calculated per full time equivalent student, is the lowest in the State of Michigan (McLogan). To meet the recognized need for a young, well-educated workforce and address its long-term urban renewal goals, the city of Grand Rapids would benefit from an equitable method of state funding for higher education in Michigan.
Grand Rapids is a city of just under 200,000 people on the western side of central Michigan. It enjoys a location on the Grand River that contributed to its early urban growth by enabling development of product manufacturing and distribution capacity. Grand Rapids has engaged in several types of manufacturing including appliances, electronic equipment, automotive parts, aircraft and space navigation systems, and paper products. Today furniture making, once the cornerstone industry of the city, remains an important piece of a much more broadly diversified economy. As with other parts of the state and nation, the dramatic loss of manufacturing jobs has had a radical impact on the city. The unemployment rate increased substantially as these jobs disappeared.
Chart 1: Grand Rapids, Michigan 15 Year Unemployment Rate. Bureau of Labor (2010).
Chart 2: Grand Rapids, Michigan: 20 year Manufacturing Employment. Bureau of Labor (2010).
The good paying manufacturing jobs that provided generations of hard-working citizens a middle-class living have evaporated over the last ten years and the city now seeks ways to deal with high unemployment, urban decay, and the migration of people from the area. Other area industries have also experienced significant job losses including construction and trades (Bureau of Labor). The Brookings Institute (2010) identified Grand Rapids as part of the low growth, love diversity, low educational attainment "Industrial Core" of the nation.
Chart 3: Industrial Core. Brookings Institute (2010).
Grand Rapids recognizes that failing to recruit and retain young, well-educated people to the city will lead to continually decreasing tax revenues and overall economic decline for the area (Michigan Future, 2008). To address this need for an educated work force, Grand Rapids relies heavily on its local, public higher education institution, Grand Valley State University.
Grand Valley State University is located in West Michigan with campuses in downtown Grand Rapids and fifteen miles west in Allendale. The institution enrolls over 24,000 students per year, tied for fourth in terms of public higher education institutions in the state (GVSU, 2010). Grand Valley graduates 48.6% and 56%, respectfully, of its students in five or six-years, which places GVSU fourth and fifth in the state (GVSU). Most of these students are from the West Michigan area (GVSU) and 88% of those who graduated from Grand Valley between 2006 and 2008 stayed in the state and found employment (GVSU). This is a particularly notable achievement given that on average, post-graduates of the other state institutions leave the state an alarming 50% of the time (Michigan Future, 2008). In addition to these desirable educational outcomes, Grand Valley State University has grown by 42.6% over the last decade, a faster rate than all other public institutions in the state (GVSU).
Chart 4: Michigan higher education enrollment growth over 10 years. GVSU (2010).
With so many graduates staying in Michigan and significant number staying in the Grand Rapids area (M. McLogan, personal communication, October, 13, 2010), Grand Valley State University is clearly in the business of producing the human capital needed to develop West Michigan's 21st century economy.
The concept of the creative class, first introduced by Richard Florida (2003), highlights the importance of higher education as a key driver of modern economic development for urban areas in the United States. Florida posits that the creative class consists of well-educated, knowledge-working professionals and others engaged in creative activities.
Using census and economic data, he showed that the most invigorated urban areas are those with high concentrations of the creative class people. Florida, referencing the work of Spencer Glendon, claims that "city growth over the twentieth century can be traced to those cities' levels of human capital" and that "places with greater numbers of highly educated people grew faster and were better able to attract more talent." (p. 222). Grand Rapids seeks such growth today and largely depends on Grand Valley State University to provide the well-educated workforce needed to achieve this economic goal. Developing a vibrant creative class is a critical part of the strategy to revitalize the city of Grand Rapids. The existence of a consistent state funding model for higher education that rewards the institutions that most effectively and efficiently produce creative class citizens would speed the process.
State funding for public higher education has experienced extreme instability over at least the last fifteen years. When the state economy flourishes, public financial support for education increases; during times of economic trouble, such support dwindles while student demand for higher education rises (Blue Ribbon Commission, 2006). While hardship is shared by all who depend on state funding, public institutions of higher learning bear the burden disproportionately.
In times of economic downturn, everyone suffers-but the pain is not shared equally. The state appropriation to public higher education, a discretionary item in most state budgets, is often the first budget item to be cut and the last to recover. (Russell, 2008, p. 1).
Higher education is a popular cut during difficult financial times because of its perceived ability balance the decrease by raising tuition (Russell, 2008). This funding instability limits public higher education institutions ability to engage in the development of human capital and local economic development. Besides inconsistent funding for higher education, the funding model traditionally used by legislators also poses substantial issues of fairness.
Used in 17 of the last 25 years (Jen, 2006), the Michigan state legislature is fond of the "across-the-board" funding model that simply increases (or even decreases) the appropriation for each higher education institution a set amount based on their prior year's state funding level. Policy makers in the state have tried other funding models for higher education appropriations without lasting success. As recently as 2005-06 and 2006-07 an alternative method of funding unsuccessfully attempted to tie appropriations in a rudimentary way to performance (House Fiscal Agency, 2006; State Budget Appropriations 2005-06, 2005; State Budget Appropriations 2006-07, 2006), but the traditional funding model continues as the perennial favorite. Addressing funding issues in ways that reward institutions that meet the needs of the state is a piece of Michigan's post manufacturing economy puzzle (Granholm, 2009).
Policy Recommendation: Performance Based Funding
To pull the state of Michigan up from the deep economic recession of the last decade, state government has increasingly demanded more from its higher education institutions (Granholm, 2009). Notably, Grand Valley State University has responded particularly well in many key areas including increasing enrollment, producing more graduates, keeping the cost of college affordable for students, improving the quality of graduates, and keeping students in the state after graduation (M. McLogan, personal communication, October, 13, 2010), while trailing in appropriation per full-time student.
Chart 5: Full-time equivalent students in Michigan. President's Council, State Universities of Michigan (2009).
Chart 6: Proportion of state appropriation by institution. President's Council, State Universities of Michigan (2009).
Chart 7: Appropriation per full-time equivalent student by institution. President's Council, State Universities of Michigan (2009).
Addressing the inequality in appropriation funding for higher education in the state could begin to even the playing field across all 15 state public higher education institutions and reward those institutions that are best meeting the needs of the state and the regions they serve. Changes to state appropriations would enable such institutions to play a more significant role in their region's quest to develop a healthy, strong economy for the future, thereby improving overall outlook for the state. To achieve the greatest impact, the state must discontinue the traditional "across-the-board" model for higher education appropriations. Although it is widely accepted that this funding model is far from desirable, state legislative politics make it difficult to discard it abruptly. Long-term change to another model may require phasing "across-the-board" funding out of the equation for calculating appropriations for higher education.
The various funding methods used to determine appropriation adjustments from year to year have generally been incremental in nature - taking the prior-year appropriation amounts and making marginal changes based on one or more policy objectives. There have been occasional attempts to develop a more comprehensive funding model or formula for determining state university appropriation amounts. Attempts to develop a comprehensive funding model have generally had a relatively small impact on enacted state appropriations, and have not resulted in the establishment of a permanent set of funding provisions." (2006, p. 13)
A comprehensive funding method is needed to assure fair and equitable appropriation for higher education that is linked to responsible use of public funds.
To guarantee that the funding given to public colleges and universities by state government is used appropriately in providing quality education for citizens (National Center for Public Policy and Higher Education, 2002; Hines, 1997), state policy makers across the nation are increasingly exploring the use of performance-based funding models (Woodley, 2005). Such models take many forms and vary widely in terms of effectiveness (Woodley). Originally popularized in the 1980's, the Education Sector policy group feels performance funding has "often fallen by the wayside, victims of funding cutbacks and resistance from universities that would rather have all of their funding guaranteed" (as cited in Lederman, 2008, para. 8). Seeking to encourage some behaviors and discourage others, performance-based funding attempts to tie specific outcomes to appropriations (Lederman). Most successful performance funding models focus more on incentivizing behavior, typically by tying portions of the total appropriate to specific performance objectives (Tanner, 2005). Popular objectives include the number of current full-time equivalent students, the number of students graduated, the number of minority students graduated, the number of graduates in specific fields, and the amount and types of research activity (Tanner). Broadly applied, a carefully designed performance-based funding model could even the playing field in Michigan higher education appropriations. Many states have tried to implement performance-based funding over the last two decades, including Michigan's rudimentary attempt from 2005 to 2007. Only a few states have successfully done so: Tennessee, Ohio, for example. Successful performance-based funding implementation is based on clearly defined measures for the higher education institution performance, a robust method of gathering and analyzing institutional data with which to hold colleges and universities accountable (Woodly) and buy-in by a critical mass of affected parties.
In 2009, Ohio implemented a new funding formula to "appropriate dollars based on colleges' ability to retain and graduate students" (Moltz, 2009). The funding formula was developed cooperatively between the state legislature, the Ohio Board of Regents, and higher education institutional administrators in Ohio (Moltz). Broad support increased the likelihood of successful adoption of the policy. Designed to fairly distribute funds and encourage specific educational outcomes, the comprehensive policy is necessarily complex and gives special consideration to the neediest students.
Among the hallmarks of the new formula, most state funding would be based on the number of individual courses that students successfully complete and the average cost of a program, instead of the current practice of utilizing enrollment data from the 14th day of the academic year. Undergraduate student course completion would be weighted against an institution's number of "at risk" students -- defined as those eligible for the Ohio College Opportunity Grant, one of the state's main need-based financial assistance programs. In other words, colleges that enroll more "at risk" students would receive more latitude on their completion rates. Graduate student completion rates would not be weighted in any way. (Moltz, para. 4)
As part of the implementation of this performance-based funding model, the State of Ohio included "a more than 6 percent increase in state dollars for higher education" (Moltz, para. 12). In the midst of the national economic recession, this garnered greater support for the change by faculty members within the affected higher education institutions. As expected there are institutional "winners and losers" (Moltz, para. 14) who experience either funding increases or decreases as a result of the policy. The overall funding increase to higher education in the state help offset some of the losses for the "losers." As Ohio continues to gain experience with their performance-based funding model, other states might benefit from the wisdom of their efforts.
As was the case in Ohio, to properly assess funding policy strategies that involve all higher education institutions across a state like Michigan, a state-wide context is required. In Michigan, the current reality is that higher education funding is a zero-sum game. Shifting the funding distribution to a performance-based model necessitates that some institutions will benefit and others will lose. This is the financial "cost" of the program, with some institution's losses benefiting others. Political "costs" also pose a challenge. Historically, some influential legislators have tended to favor certain institutions over others, creating gaps in appropriations. The long-term good of Michigan, its cities, and its citizens requires legislative attention on this issue.
The state and urban areas in Michigan are facing challenging economic times. The void that remains as a consequence of lost manufacturing and trades jobs must be filled with economic development that includes a highly educated work force. Recognizing the need for a college education to fill these emerging knowledge-worker jobs, demand for higher education in the state has increased. Appropriations to higher education institutions in Michigan have not kept pace with their enrollment growth. Higher education funding in the state is not meaningfully linked to educational outcomes. This is particularly noticeable in the ever increasing funding gap between Grand Valley State University and the three major research institutions in the state (Michigan State University, University of Michigan - Ann Arbor, and Wayne State University). The three state research institutions educate proportionately fewer in-state students yet garner a much greater share of state funding. This inequity directly affects the West Michigan Economy in terms of the relatively fewer dollars available to educate students at Grand Valley. Grand Valley, in turn, is less able to hire faculty and staff to serve the needs of students. Ultimately, this equates to fewer jobs for the region and reduces the ability of the institution to grow to meet ever increasing student demand. Michigan would benefit from the policy process used in Ohio. Collaboratively developing and implementing a comprehensive, performance-based funding model for Michigan is a reasonable, significant step toward economically revitalizing Grand Rapids and other core cities in the state.
Blue Ribbon Commission, (2006). Transforming higher education national imperative - State responsibility. Denver: National Conference of State Legislatures.
Brookings Institute. (2010). The state of metropolitan America. Brookings Metropolitan Policy Program.
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Florida, R. (2003). The rise of the creative class and how it's transforming work, leisure, community, and everyday life.
Granholm, J. (2009). State of the State Address: Priorities for Michigan's Economic Future, Jobs, Education, and Protecting Families. Retrieved February 15, 2009 from http://www.michigan.gov/documents/gov/SOS2009_265915_7.pdf
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Right Place. (2010). http://www.rightplace.org/
Russell, A. (2008). Dedicated funding for higher education: Alternatives for tough economic times. American Association of State Colleges and Universities. Retrieved June 25, 2010, from http://www.aascu.org/media/pm/pdf/pmdec08_2.pdf
State Budget Appropriations 2005-06, House Bill 4831, 93rd Legislature (2005). As retrieved from: http://www.legislature.mi.gov/%28S%28c04oge45phzi4c45icey0d45%29%29/mileg.aspx?page=getobject&objectname=2005-hb-4831
State Budget Appropriations 2006-07, Senate Bill 1088, 93rd Legislature (2006). As retrieved from: http://www.legislature.mi.gov/%28S%282xkyrqveccxla5yfouuopby2%29%29/mileg.aspx?page=getObject&objectName=2006-SB-1088