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Chancellor Dan Klaich
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Changing higher education to meet Nevada's needs


Dear Friend of Higher Education:


Note: Portions of this report were recently published in the April 23 edition of the Las Vegas Review-Journal. I wanted to expand some of those thoughts and share them with you today.

The turnaround in Nevada's economic recovery may finally be in sight. For years, I have advocated that our public education system will be central to that recovery and to our state's long overdue economic diversification. A welcome first step in this direction came from Gov. Brian Sandoval's announcement that he would stop further cuts to Nevada's K-12 and higher education budgets. After four years of successive reductions that have resulted in layoffs, program closures, and record tuition and fee increases for our students, concerns have lingered about the potential for yet another round of cuts and more damage. Gov. Sandoval has restored hope and demonstrated his commitment to our state's students and their families. 


He sent a similar message to staff and faculty who have had salaries reduced by indicating that this would be another high priority of his budget process. These early moves on his part will help us stabilize our services and allow us to begin rebuilding an even stronger and more responsive System.

While the governor is doing his part, the Nevada System of Higher Education (NSHE) must continue to do its part to ensure that the money Nevadans invest in our colleges and universities is spent equitably and wisely.

Our state's colleges and universities primarily receive state support through two sources: student registration fees and nonresident tuition (34 percent) and state appropriations (65 percent). It is the state appropriations portion of our revenue that I would like to discuss.  


Since I have asked you to treat state appropriations to higher education as an investment, there are a number of questions any savvy investor will ask:

  1. How much should I invest?
  2. What is the return on my investment? 
  3. How is the money I invest allocated within the portfolio?
  4. How is my investment manager performing?

I will discuss each of these questions in detail, but today, I want to focus on the third item in that list and take a closer look at how the state's investment in NSHE is distributed among our institutions.

A new funding formula
Over the last 20 years, the Nevada Legislature has used a funding formula to determine how state money is allocated to each of our eight institutions. While the formula has been modified and grown increasingly complex over time, it can best be summarized as being focused on enrollment. The more students we had, the more state money we received.

Unfortunately, that funding model no longer meets the needs of higher education, the state, or students and their families. The time has come to replace the old formula. I worked closely with the legislature during the 2011 session with respect to its passage of Senate Bill 374 that created an interim committee to study the funding of higher education. That committee is tasked, among other things, to examine the existing formula, compare it to formulas used in other states, and to determine if other methods for funding would be appropriate for Nevada.

I believe that the time has come to implement a funding formula that focuses on our most important metric: student success. Working with the NSHE presidents, faculty, and students, I have proposed a new formula that will better meet nearly everyone's needs. Note the qualifier "nearly." There is no magic equation we can use that will meet every single need of every single institution and their differing missions. We are letting the data drive the new formula outcomes, but next steps will involve discussions about how to assist institutions in successfully carrying out their missions in light of those outcomes.

My proposed model is based on the following principles:

  • The main focus for the investment of state dollars will be class instruction as measured by completed student credit hours.  
  • Different programs, such as English and chemistry, have different operational costs and those costs will be taken into account when determining funding levels. Also, additional weighting to upper division and graduate courses will be used to create a pool of dollars to support research missions.  
  • A base level of support will be given to smaller community colleges to ensure higher education access for all Nevadans.   
  • Cost of operations and maintenance for buildings, with the exception of certain research facilities, will be included in the base amount given to each institution and will be driven by weighted student credit hours.   
  • Revenue from students' tuition and fees will remain at the institution and not reduce state funding.   
  • An additional pool of dollars will be distributed to the institutions based on performance. This performance pool will have metrics that reward institutional behavior that results in student success, grows external financial support from grants and contracts and aligns higher education with the broader state goals.

In short, our proposed funding model shifts the emphasis from the public paying for inputs (enrollments) to investing in outputs (course completions and graduating students). The new formula is far simpler, will be easier for all to understand, and is based on data that focuses on student success.

Implementing the new formula
At this point, our formula proposal is being reviewed by the formula funding committee and we will not know until this summer if the new formula will be adopted as is, or if the committee will modify it or choose another formula altogether. It is our hope that the new formula will be adopted in time to be used in our 2013-2015 budget.

Our smaller, rural colleges do not fare as well under the new funding model. This is mostly due to fixed administrative costs and economies of scale. Part of our work ahead is to find ways to mitigate these impacts as well as explore alternative funding sources so that we can continue to offer higher education to all Nevadans regardless of where they live.

The metrics of quality
I indicated that this is a success model built on institutional performance. While the ruler for measuring performance will vary from institution to institution, completion is the key, whether that be graduation with a four-year degree or a certificate that prepares a student for a skilled job in the workforce. In order to assure that the degree has meaning and value, NSHE faculty, presidents and I have been discussing how to avoid graduating unprepared students in order to increase funding levels. We agree it is imperative to continue ensuring that academic rigor and degree quality remain our top priorities. I am working with faculty leadership at each campus to develop assessment for student learning outcomes and measures for student success.

Next steps
At its February meeting, the legislative interim committee selected SRI International (SRI) as its consultant to assist the committee in performing the study required by Senate Bill 374. We are working closely with SRI to provide data and policy information that they will use to make a recommendation to the legislative committee. This recommendation will be presented to the committee this summer and I will provide an update to you at that time.

We cannot continue to use a funding model that no longer meets our state's needs and fails to recognize student success as its central value. By improving the investment process by which Nevada funds its public colleges and universities, we can encourage student success, as well as provide a higher return to the citizens who have entrusted us with the development of our next generation of leaders and innovators.   


Dan Klaich
Nevada System of Higher Education