MONTGOMERY, Ala. – Along with the Education Trust Fund budget, the Alabama House on Thursday passed a bill to establish a framework for outcome-based higher education funding.
House Bill 565, sponsored by education budget committee Chairman Danny Garrett, R-Trussville, provides bonus funding to eligible colleges and universities that meet performance goals through a new College and Higher Education Excellence and Results, or CHEER, Act.
It ties tens of millions of dollars in funding to how well Alabama’s higher ed institutions help students graduate and find jobs and meet state workforce needs.
All of Alabama’s public colleges, universities and community colleges are eligible, as well as Tuskegee University, a private historically Black school.
“When you sit down with each individual university like I do, they are so unique,” Garrett said on the House floor Thursday. “They just have some very specific needs and they also have some very specific strengths and things they can do, so we just want to kind of support that and jointly develop those.”
The bill outlines several broad categories of performance measures that could be used to evaluate institutions. Those include “student success factors,” such as postgraduate employment in a high-wage job or high-demand field, completion or graduation rates and student retention, and “innovation,” like how institutions accelerate or remove barriers for students.
Factors can vary by institution and will not be compared against each other. Each institution will set its own performance goals, and bonuses will be awarded based on how well it meets those goals.
Measures will also consider how well institutional performance aligns with economic development and workforce needs and whether the university conducts research.
Money allocated to institutions from the CHEER Fund would be a bonus and would not impact any other funding universities and colleges receive from the state.
Because of this, Garrett said he has not heard any great concerns from higher ed officials.
“I think it’s just really (the fear of) the unknown,” Garrett said off the floor. “I’ve not heard any concern because, again, there’s nothing punitive about this. It’s just your opportunity to actually have more funding for doing things that align with the state goals and initiatives.”
The bill also establishes the Outcomes-Based Higher Education Funding Coordinating Committee, which will work with higher education officials to determine the specific performance measures for each institution.
The committee will be made up of 11 members, including a member of the Alabama Council of Presidents, the chancellor of the Alabama Community College System, the executive director of ACHE, the chairmen of the Senate and House Education Policy and Education Budget committees, ranking minority members of the Senate and House Education Budget committees and the Minority Leaders of the House and the Senate.
Garrett and his Senate budget counterpart Sen. Arthur Orr, R-Decatur, co-chaired a joint committee that met last year to hear from experts and review performance-based funding systems used in other states.
The House version of the budget passed Thursday sets aside $65 million for the CHEER Fund. Garrett said the money allocated this year will be used to “pre-fund” the program. If the bill becomes law, the committee will have one year to establish a process for collecting the data needed to award bonuses.
“What we want to do in this first year or two as we begin this program is to pre-fund what people would get, so whatever pot of money we set aside for outcome-based, we would pre-fund that so that institutions could now go out and begin that process of hiring people they would need or acquiring the equipment, whatever they need to do to get ready to get the ball rolling and starting meeting that,” Garrett said when introducing the bill on the floor.
Lawmakers made no major changes to the budget on the floor, largely passing the substitute budget approved by the House Ways and Means Education Committee on Wednesday. The 2027 budget totals $10.9 billion. There is also a $419.7 million supplemental spending bill for the current year.
Garrett called this budget season “challenging” because of several large expenses competing for the same pool of money, like the request for increased Public Education Employees’ Health Insurance Program funding and payments for the construction of the new State House.
The PEEHIP board projected a $380 million shortfall for the coming year. In her budget proposal, Gov. Kay Ivey allocated $210 million to address the deficit, but the committee reduced that amount to $180 million.
Because of a law limiting growth in the Education Trust Fund budget to 5.75% over the current year, lawmakers had only about $570 million in additional revenue to work with.
Adding to the squeeze, supplemental revenue has fallen year by year as COVID-era dollars have expired or been spent, which Garrett says he expects to continue going forward. Last year’s supplemental revenue was $525 million, compared to this year’s $419 million, Garrett said. Garrett said he expected next year’s supplemental revenue to dip below $300 million.
Though it presents challenges, Garrett said less money will force the state to examine its priorities.
“As a career chief financial officer, when you have a lot of money, you make your worst decisions, and you have everybody wanting money,” Garrett said. “When money’s a little bit tighter, it’s a little bit easier to kind of be more focused. I think we did take a real conservative approach here.”
The budget package also includes a $1 billion distribution from the Advancement and Technology Fund, a $500 million transfer from the Education Opportunities Reserve Fund, and legislation providing a 2% pay raise for educators.
Lawmakers passed the ETF budget by a vote of 104-0. Speaker of the House Nathaniel Ledbetter, R-Rainsville, called it “the strongest budget we’ve ever had.”
Senate Finance and Taxation Education Budget Chairman Arthur Orr, R-Decatur, reviewed the House committee version during a Senate committee meeting Wednesday morning and told members they plan to take up the budget after lawmakers return from spring break in late March.