Understanding HB 8: The new funding formulas

This session, the Texas Legislature adopted the work of the Texas Commission on Community College Finance and transformed the way the state financially supports its community colleges through House Bill 8. Texas 2036 has engaged in the state’s reform efforts by offering testimony both to the TCCCF and the Legislature, helping lead education and business stakeholders in the Aim Hire Texas Policy Coalition, and developing a community college finance simulator.

With the passage of HB 8, authored by Rep. Gary VanDeaver, R-New Boston and sponsored by Sen. Brandon Creighton, R-Conroe, attention now turns toward implementing these historic reforms and supporting community colleges’ transition to the new finance system. In the coming weeks, we will explain over a series of blogs how the implementation of HB 8 will help realize the goal of ensuring Texans are earning a workforce-aligned postsecondary credential of value.

But first, what exactly passed in HB 8, and how will these reforms affect the way students pursue higher education through their local college? We group the reforms into three categories: funding formula changes, college capacity improvements, and student affordability investments. This blog focuses first on the new funding formulas.

Dynamic funding formulas focused on student outcomes

HB 8 primarily established a new set of funding formulas, changing how Texas provides community colleges with state dollars. The old formulas prioritized enrollment, awarding state funds based on the number of hours and types of courses students take. This system presented many challenges, driven mainly by consistent decreases in community college enrollment over the past several years which led to funding instability felt particularly acutely in small and rural colleges.

HB 8 Blog series pt. 1 chartThrough the work of the TCCCF, the state decided to overhaul this enrollment-based system to more directly align community college funding to student completion of a postsecondary credential that has proven workforce value.

This new outcomes-based system has great potential to vastly improve the skilled Texas labor force. Community colleges in Texas still served an annual average of nearly 700,000 students over the past four years despite steep enrollment decreases during the pandemic. That means that they have positioned themselves well to equip large numbers of Texans with the specialized skills required by emerging and high-demand jobs.

The HB 8 metrics: What to know

There are four metrics in HB 8 that define the state’s priority outcomes for community college students:

  • Credential of Value Attainment – Aligned with the state’s higher education strategic plan, this metric rewards each credential of value awarded to a community college student. The types of credentials that can be rewarded will be expansive, ranging from traditional college degrees to skills-intensive (and often shorter-term) certificates, certifications, licenses, or even digital badges. However, no matter the credential type, they must have proven value in the workforce. This is calculated by measuring whether the typical wages of individuals who hold that credential are higher than the cost of the credential and the typical earnings of an individual with only a high school diploma.
  • Credential of Value Attainment in a High-Demand Field – In addition to the conditions outlined for regular credentials of value, this metric will provide bonus incentives for credentials of value that are associated with high-demand fields. These fields will be assessed and updated regularly using labor market data such as job growth and wage levels. These fields will also account for both statewide and regional workforce demand.
  • Successful Transfer to a Four-Year University – This metric rewards the successful enrollment of a community college student in a four-year university for the first time. In order to qualify as a transfer student under this metric, the student must have earned at least 15 semester credit hours at a community college prior to enrollment in a four-year university.
  • Dual Credit Completion – This metric rewards high school students who complete at least 15 hours of dual credit. The hours must be a coherent sequence, meaning that they must align with the requirements of either an academic program leading to a degree or a workforce program leading to another type of credential.

Performance and Base Tiers

Together, these four outcomes metrics make up the “Performance Tier” formula which composes over 90% of state funding awarded to community colleges. There are also bonuses for economically and academically disadvantaged and adult students who achieve the metrics. These incentives will encourage colleges to equitably serve the whole range of its student populations.

Finally, the remainder of the funds are provided through the “Base Tier” formula. Only certain community colleges can receive funding through this formula. Specifically, they must demonstrate that their local tax bases and student bodies do not generate enough revenue through property taxes and tuition and fees, respectively, to pay for their base instructional and operational costs.

As such, only small, rural, and property-poor community college districts benefit from this portion of the formula. The state calculates funding by accounting for each community college’s local tax bases, student body sizes, the types of courses taken by students, and yearly instructional and operational expenditures. This formula aims to provide financial equity to community colleges that experience diseconomies of scale and, therefore, face difficulties in providing a range of postsecondary opportunities and supports for students.

The new funding formula system comes with a $428 million investment from the Legislature to ease the transition for community colleges and shift their focus to improving students’ outcomes as soon as the start of the 2023-24 academic year. This will help expediently meet the state’s vision in positioning community colleges as an important partner in developing the skilled workforce needed by Texas employers.

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