South Dakota higher education has gone more than 12 years without a formal funding system.

This lack of a system has led to a dramatic shift in the way the state’s public universities are paid for. In the span of a decade, state support for public universities has fallen from around 59 percent to just 41 percent. According to the Board of Regents, tuition and fees have replaced state support as the largest funding source for South Dakota’s public universities.

That trend could be slowed or reversed following next winter’s legislative session. In its fiscal year 2014 budget request, the BOR included a proposal to create a performance-based funding system. The system, as it has been proposed, would essentially pay out more money to universities that perform better at graduating more students, graduating students in high priority areas and generating research funding.

“The funding formula is a way of reflecting what we think is important,” said BOR Executive Director Jack Warner.

Since 1999, the state legislature has been allocating roughly the same amount of money to the BOR, with some exceptions for specific programs and requests. That has led to a decrease in the amount of state money available for each student. If the new funding formula is approved, the state could begin allocating more money to higher education, which could slow the growth of tuition and fees.

“When you think about it, the amount of money you get is going to be higher,” said SDSU President David Chicoine. “It’s a system based on students, not on institutions.”

The issue of a BOR funding formula was addressed two times last spring: once during the legislative session and once by the BOR itself. Sen. Bob Gray of District 24 introduced a bill into the Senate Education Committee, calling for a performance-based funding formula for higher education. Gray eventually tabled the bill in favor of a summer study session to take a closer look at the issue.

Last March the BOR also took steps to evaluate a performance-based funding model by creating a pilot program. That program was funded by a combination of one-time state funding and money pulled from each of the state’s six public universities for a total of around $6 million.

The pilot program, which went into effect July 1, was designed to award universities for a variety of things. Not least among these was applying a numerical value to degrees based on students’ academic level and major.  That value would then be combined with several other factors to determine the amount of funding each university would receive.  The universities were divided into two groups: one for the universities that only produce master’s degrees and one for those that have Ph.D. programs.

Chicoine said one of the goals of performance funding is to help align BOR goals with state goals, both for economic and workforce development. He said the BOR set a higher value for certain degree areas where the state is suffering from a lack of qualified workers, like engineers as well as math and science teachers.

“How do you incentivize higher education to graduate more (students)?” Chicoine said.  “You pay them for it.”

The pilot program resembles the one laid out in the BOR budget request, but there will likely be changes before it goes to a vote during the upcoming legislative session.

“Basically, (the BOR) submitted a budget request based on what a perfect system would look like, while reserving the right to change it,” Chicoine said.

According to Warner, the formula included in the BOR FY14 budget request is likely going to change in the coming months. The request was sent to Gov. Dennis Daugaard’s office in August for review and inclusion in the governor’s budget request. It is also being reviewed by members of the legislature.

“Both the concepts and the details are being debated,” Warner said.