This HCM Strategists report describes the diversity and complexity of community college state finance systems, and how to identify the often competing incentives within them, by comparing the systems of three very different states: California, Ohio, and Texas. The authors conducted extensive research, engaged with state policymakers, and created an analytical framework to fill a major gap in existing research, which largely focuses on individual elements of community college funding or policy rather than how they all add up. The report’s maps of the California, Ohio, and Texas finance systems include: the share of total funding from each of three main revenue streams (state appropriations, tuition, and recurring local revenue); the policies that control how those revenues are generated, distributed, and used; the combined incentives for colleges; and the distinct equity implications for institutions and for students.
- Even though each of the three state’s finance systems includes a student-centered funding formula, the percentage of total revenue directly tied to student outcomes ranges widely: from 3% in Texas and 8% in California to 42% in Ohio. These differences are due to the intersection of the formula’s design, the share of total funding the formula controls, and the prominence of other funding streams.
- All three state finance systems strongly incentivize community colleges to focus on enrollment, with 80% of total revenue tied to enrollment in California, 40% in Ohio, and 46% in Texas.
- Relying on local revenue does not necessarily lead to inequitable funding between colleges. Some states, such as California, have policies that level the funding playing field, while others do not.
- Net incentives for community colleges to increase equity in student outcomes are highest in Ohio and lowest in Texas, while California’s finance system prioritizes equity in student access.