(The Center Square) – While Colorado says its higher-education funding formula is performance-based, a new report found that in practice, spending doesn’t reward better performance.
The 65-page report, released by the Common Sense Institute of Colorado, takes a look at the formula.
In an exclusive interview with The Center Square, Kelly Caufield, the institute’s executive director, said it is critical that taxpayer funding be used responsibly.
“In a time of a really constrained state budget, we should have hard questions about how all state money is being used,” Caufield said. “Higher education certainly has not received the biggest part of the general fund but … anyone at any age should care about how public dollars are being spent.”
For higher education, successful spending means students are graduating and their credentials are actually leading to jobs that will pay a living wage and have a good return-on-investment.
Currently, Colorado’s higher-education funding formula is subject to a mandatory five‑year review cycle. In the 2025-2026 fiscal year, Colorado allocated approximately $1.7 billion to funding public higher education. That was a $39 million increase over the prior year.
Caufield was joined in the interview by Dr. Caitlin McKennie, who co-authored the report. McKennie said it is time to take a closer look at the current funding formula and how effectively it is actually incentivizing institutes of higher education in Colorado to do better.
“We found that the current funding system is not being very effective,” she said. “It’s not incentivizing institutions to really invest in their students … they’re getting more money for doing less.”
The funding formula currently is based on eight components, with Pell Grants-eligible students, underrepresented minority students and retention rate having the greatest weight at 20% each. Other factors include graduation rate and resident full-time enrollment at 10%. Credential production is given a weight of just 5%.
Each institution is then funded depending upon how well Colorado’s Institutions of Higher Education rank them based on these indicators.
The report, which only looked at public institutions, found that since the state’s model was first adopted in 2019, no institution has seen its share of total state funding increase or decrease by more than 1%. In fact, institutions are receiving funding increases even amid falling enrollment or declining output.
“When everything’s a priority, nothing is a priority,” Caufield said, explaining it is difficult for institutions to really do all of the different components well.
On top of that, she said a provision within the formula makes it very difficult for there to be any real shifts in the current funding going to each institution.
“There’s an averaging component … so that institutions are not going to see really big increases or decreases year over year,” Caufield said. “So while that does provide sustainable funding for our institutions, it doesn’t really incentivize or change behaviors.”
The report laid out some of the top-earning degrees or credentials of value for Colorado, which included Computer and Information Sciences, Engineering, Mathematics and Statistics, Construction Trades, Homeland Security, etc.
It found that if Colorado was able to successfully increase credential production by just 20% in those fields, it could have substantial positive impacts on the state.
“We saw that this would lead to about a 25,000 population increase over 10 years,” McKennie said. “At a time when our population is really slowing down … We need to attract these young, working age individuals to our state and to our workforce, hopefully for the long term.”
That credential production increase would also lead to a $4.5 billion increase in GDP, $8 billion increase in output, and nearly 19,000 new jobs, all by 2035.
“We know the state has a real incentive to get this right and to figure out ways to help more students to earn credentials of economic value,” Caufield said. “I also want to be clear. We’re not saying other degrees are not valuable … but for limited taxpayer dollars going towards higher education, it feels like a real fair push that credentials lead to high economic value, both for the economy and for the student.”
Currently, 36% of states use credentials of economic value in their state higher-education funding formulas, with the report finding that those states also see higher job growth.
For Colorado to move toward that, McKennie said the state’s formula should be rearranged to put higher emphasis on credential production and value.
“Investing in student success in that way would be key,” she said.
Not all Colorado schools are equal, though. Some are doing better than others at producing graduates with high-demand credentials than others. Those include schools such as Colorado School of Mines with 62% of graduates having degrees of value and Fort Lewis at 50%.
“Sometimes data is uncomfortable for people to see, but this is important transparency for students, the legislature, business leaders and any taxpayer to understand specific outcomes of Colorado institutions,” Caufield said. “Maybe there’s something that can be learned from those top performers, and they would probably stand to win if the funding formula for Colorado was changed in a way to reward institutions that do a good job of helping students graduate in these high-demand pathways.”
