This paper examines the major obstacles that hinder higher education institutions from responding effectively to the demands of performance funding 2.0 programs, in which performance funding is embedded in base state allocations to institutions rather than taking the form of a bonus. The authors interviewed administrators and faculty at nine community colleges and nine universities in three states with notable examples of performance funding 2.0 programs: Indiana, Ohio, and Tennessee.
Across the three states, public colleges and universities experienced the performance funding programs in different ways, but respondents predominantly indicated that student body composition, inappropriate performance funding measures, and insufficient institutional capacity most often made it difficult for their institutions to respond to performance funding. Besides documenting main trends, the authors also analyze how interviewee responses varied by state, by type of institution (community college or university), by institutional capacity to respond to the demands of performance funding, and by position the interviewee held in the institution. The authors draw on policy implementation theory and principal-agent theory to explain why the local response to performance funding programs may deviate from the directions intended by policy framers, and they offer policy suggestions aimed at reducing the obstacles to performance funding implementation.