Evaluating the Effects of Performance-Based Funding Policies 2.0 on State Expenditures to Public Higher Education: Evidence from the States

The primary goal of this analysis is to examine the relationship between Performance-Based Funding (PBF) 2.0 policies and state expenditures to public higher education. Because “new accountability” theories suggest that when states seek to hold public higher education institutions accountable by impacting their revenues, public funding patterns should shift in some way to reflect this new set of inducements. Using a quasi-experimental design, difference-in-differences, I compared spending differences on public higher education before and after PBF 2.0 policy adoption in 50 states from 1995–96 to 2012–13. The findings show that PBF 2.0 policies exert a downward pressure on state spending to public higher education by between 5.55% and 10.68% when compared against states without such a policy. The results suggest that PBF policies may further exacerbate an already rough funding environment.