University system changes how it funds campus performance. Is it a ‘tax’ on UNC?
AI-generated summary reviewed by our newsroom.
- Board adopted 2022 model tying campus funding to outcomes like graduation rates.
- Legislature provided one‑time awards in 2024–25, blocking the recurring funding plan.
- Board approved campus self-funding this year as fallback to ensure consistent support.
Under a new funding methodology for campuses in the UNC System, UNC Greensboro will receive an extra $1.7 million in funding and NC State University will receive an extra $116,000 — just two examples of how the math will shake out to reward campuses for their performance on a variety of metrics.
UNC-Chapel Hill, on the other hand, will forfeit about $6.9 million.
The change comes after the UNC System Board of Governors last month approved a new method to fund campuses’ performance, updating a model the board first approved in 2022. Instead of receiving the bonus funds from the legislature, campuses will now fund their own performance and that of their fellow system schools by contributing to a fixed pot of money.
For decades, the universities had received money from the state based on their abilities to increase enrollment. But that model, as system President Peter Hans said three years ago, was outdated and didn’t do enough to “emphasize the core responsibility of undergraduate education and to reward performance.”
In other words, the system was seeking to hinge campuses’ funding more on student outcomes, rather than just the number of those students at each school.
The result of the board’s deliberations and discussions was to add incentives for campuses to improve a variety of metrics, including their four-year graduation rate, student debt levels and the cost of delivering a degree to students, among others. Under the then-new model, approved in April 2022, if a campus experienced positive progress toward its goals in the areas, it would be eligible to receive additional funding for its performance from the state.
“We wanted to create that incentive within the funding model to improve performance. We wanted there to be both rewards and risks for focusing on student outcomes,” UNC System Chief Financial Officer Jennifer Haygood said at the Board of Governors meeting last month.
The idea was for the funding to be allocated on a recurring basis — that is, guaranteed to be funded in more than a single year.
But the General Assembly never fully got on board with that plan. For the 2024 and 2025 fiscal years, legislators chose to give schools the money on a nonrecurring, or one-time, basis.
Hoping to address some concerns from lawmakers that the existing version of the model could lead to the General Assembly being on the hook for large — and ever-growing — sums of money, the system this year asked the legislature for a fixed, $30 million pool of recurring funds to be divided among the schools based on their performance in a given year. But with a state budget yet to be approved, that proposal hasn’t come to fruition, either.
The inconsistency, and sometimes lack, of funding from the legislature has “created some problems,” Kirk Bradley, chair of the Board of Governors’ budget committee, said last month.
“They have given us nonrecurring funds, but this was designed to be a recurring fund — pool of funds — that would allow the campuses to use this money strategically, versus not knowing whether they were going to get it back for a second, third or multiple years,” Bradley said.
In an interview with The News & Observer after the meeting, Hans said he appreciates the many ways that the legislature supports the university system. But there was a need to think about a more consistent and reliable way for campuses’ performance to be funded.
“It was only a last resort for us to turn to this approach, but it’s not a reflection on the legislature,” Hans said.
New pool approved in split vote
The new model will see campuses contribute various amounts to a $30 million pool of funds based on their operating revenues and state appropriations in the 2024 fiscal year. The contributions will be proportional to each school’s share of the system’s total $10 billion in revenue that year.
The contributions will, essentially, be a recurring budget reduction for each school — though they will be eligible to earn the money back each year, up to the amount of their contribution, depending on their performance. Schools will also be eligible for “extra credit” funding if they exceed their “stretch goals” on their metrics. Any leftover funds in the pool not distributed based on performance will be allocated based on the number of “degree completers” at each school, “rewarding institutions with significant gains in degree completions,” per September meeting materials.
For instance:
- Appalachian State University in the 2024 fiscal year had roughly $508.5 million in revenues and appropriations, accounting for roughly 5% of the total revenues across the system’s 16 campuses. Thus, App State will contribute roughly 5% of the total $30 million — about $1.5 million — to the performance pool. The university is expected to receive about $1.8 million for its performance this fiscal year, making for a net gain of about $322,000.
- NC State’s roughly $1.86 billion of the campuses’ revenues accounted for about 18% of the total. NC State will thus contribute roughly 18% of the funds in the $30 million pool, at around $5.5 million. The university is expected to receive about $5.6 million for its performance this fiscal year, making for a net gain of about $116,000.
- UNC-Chapel Hill had roughly $3.23 billion in revenues, accounting for roughly 36% of the system’s total. UNC will thus contribute 36%, or about $10.8 million, to the $30 million pool. The university is expected to receive about $3.9 million for its performance this fiscal year, meaning the university will forfeit about $6.9 million of its contribution to the pool.
The legal basis for the reallocation of funds comes from state law, which allows the “transfer of appropriated funds from one institution to another to provide adjustments” under certain circumstances.
The Board of Governors approved the new funding method at its September meeting. But the move came with significant debate and a relatively rare split vote, both in the board’s budget committee — where board Chair Wendy Murphy had to cast a tie-breaking vote to approve the proposal — and in the final vote.
Budget committee member John Fraley, who voted against the proposal, voiced concerns about campuses funding their own performance and suggested the board instead “go back to the drawing board with the legislature” and come up with a new plan entirely. (An amendment put forth by Fraley with that suggestion ultimately failed, with Murphy also casting the tie-breaking vote.)
“I’m fully supportive of a system that aligns the goals of the system president, the chancellors and the individual institutions,” Fraley said. “What I have trouble supporting, and can’t support, is a system that requires the recipients of the performance funding to actually fund the program out of their own funds.”
Murphy, explaining her vote against Fraley’s amendment, said she “would like to feel” that the legislature would provide the funding in the future. But given the financial headwinds the state is expected to face in the coming years and there being “a lot of uncertainty out there,” she had doubts.
“I personally do not see a problem with — and I hope I don’t get any enemies for this — but campuses putting in money to be incentivized to earn back,” Murphy said.
Should the General Assembly ever show an interest in funding performance as the system originally intended, on a recurring basis and as extra funding for campuses to earn, Hans said he would welcome their efforts.
“Should the circumstances change, I would certainly recommend we embrace the General Assembly’s willingness to fund this on a recurring basis,” Hans said. “I hope that will be the case. I don’t have that sense right now, and I base that on a number of conversations that we’ve had.”
UNC chancellor approves, trustees criticize new model
Some Board of Governors members also expressed concerns about the impact the new methodology will have at UNC-Chapel Hill, given that the campus is expected to lose about $7 million of its investment into the pool.
“I look at the University of North Carolina, it’s taking quite a hit,” board member Reginald Holley said. “And my question is, if we continue this course of implementation, for how long will UNC take this kind of hit? That is a concern that I have.”
But UNC Chancellor Lee Roberts, a business executive who served on the Board of Governors when the original performance funding model was approved, supports the new method.
“We’ve had a lot of conversation about it,” Roberts said when asked about his thoughts on the proposal by board member Harry Brown. “We support the concept of performance funding.”
Some members of the UNC-Chapel Hill Board of Trustees weren’t as convinced. At the board’s meetings last month, trustee Marty Kotis — who previously served on the Board of Governors — compared the new methodology to a “tax,” which he described as the opposite of the original purpose for the funding.
“That was funded originally as a bonus performance for the schools,” Kotis said. “It was not a tax to be assessed on the current schools and then a reassessment.”
Trustee Ritch Allison added: “To call this ‘performance funding’ is a farce. It’s a tax.”
While UNC will see the biggest loss of funds, compared to the amount it puts into the pool, it will not be the only one to see a net decrease. For instance, Winston-Salem State University is expected to lose about $253,000. Board of Governors member Art Pope, a former state budget director, took issue with the “win-lose” situation he believes the new model creates.
“When it becomes a redistribution, taking money from campuses, it becomes a win-lose solution,” Pope said. “Some campuses will never receive more money.”
The funding change comes at a time when UNC is already confronting concerns over its budget — and taking steps to make reductions. This summer, university leaders announced a plan to cut nearly $70 million from the school’s budget, including a reduction of nearly $30 million this year alone.
And UNC isn’t alone. East Carolina University, which is expected to contribute about $3 million to the new performance pool, with a net gain of about $233,000, announced last month it will cut $25 million from its budget over three years. And universities across the system have collectively saved more than $5 million under a salary spending and personnel cap enacted by Hans in June. (The cap remains in place at some campuses, while it has been lifted at others.)
The in-progress budget cuts and other savings campuses are seeking could provide “a possible source for the campuses to make their performance investment,” Hans said at last month’s Board of Governors meetings.
“All campuses will benefit from shifting resources from less productive pursuits back to our core mission with recurring dollars in performance funding,” he said.
Speaking to reporters after the meetings last month, UNC trustees Chair Malcolm Turner acknowledged the differing opinions about the matter on the board but said: “We appreciate and acknowledge settled system policy. We have every confidence in our chancellor and our CFO to navigate what goes forward and how we move forward.”
