Increased access to higher education is one of the UNC system’s guiding goals. Moderate growth estimates project UNC enrollment will grow by another 20 percent in the next seven years and reach approximately 265,700 students.
In January, then-UNC President Erskine Bowles submitted as part of his 2011-13 budget priorities a request for $45.8 million in additional enrollment growth funding. Enrollment growth funding is money added to the regular UNC budget request to help campuses accommodate enrollment increases.
To help manage growth and justify additional public investment, UNC has long used an enrollment growth funding formula. The funding formula is more complex than we need to explain here. Suffice it to say it’s based on student credit hour estimates by campus. The current enrollment growth funding formula has been in use since 1998. For three previous budget cycles, UNC enrollment growth requests averaged about $60 million.
Concerns about the accuracy of campus estimates and how growth funding dollars were being used prompted law makers in 2009 to instruct the Program Evaluation Division (PED) of the General Assembly to do a complete evaluation of UNC’s enrollment growth funding formulas.
In November 2010, PED released its evaluation. The study found:
Emphasis on Enrollment Growth Not Balanced With Performance.
The UNC Enrollment Growth Funding Formula generated $386 million from enrollment growth between the fiscal years 2003-04 to 2007-08. However, the study found that funding for growth was not balanced by funding for performance. Although UNC officials considered increasing accountability and introducing performance funding since 1996, such funding has never been implemented. 
No Cost to Campuses for Inaccurate Estimates.
According to PED inaccurate estimates by campuses generated inaccurate funding requests. Campuses had minimal consequences for poor enrollment change projections. Those campuses that fell short of budgeted enrollment projections merely requested a “hold harmless” designation from the UNC Board of Governors. Under the designation, campuses are not required to return any money gained from unrealized growth. Furthermore, funds received for unrealized growth estimates are added to the next year’s base budget. Thus, in the coming years, campus budgets benefit from inaccurate estimates.
The PED report spoke to how this occurs on a campus basis when it reported:
The recent experience of North Carolina A&T State University illustrates what happens when anticipated SCH (student credit hours) do not materialize. The university projected its SCH would grow to 308,652 in 2006-07, but instead of growing, SCH declined (see Exhibit 7). The university received hold harmless status, under which its budgeted SCH has remained at 308,652 even though its enrollment continued to decline. The university has received no enrollment change funding since 2006-07, but it was allowed to keep $2,105,749 for the unrealized growth it received that year. In addition, this amount was included in the university’s base budget for 2007-08, and thus the initial overestimation will continue to affect future budgets.
No UNC Analysis to Ensure Validity of Projections.
While UNC committed to ensuring access to higher education, the university had no analysis to assess the accuracy of their own projections. That is no data was collected to analyze whether campus estimates were correct. .
No Link to Campus Performance Measures.
The PED study also found that while the UNC system collected information that could be used to measure performance, the current formula has no component for assuring accountability for campus performance.
PED’s final report recommended examining the current formula and standardizing enrollment change formulas across campuses. The report also recommended requiring the UNC Board of Governors to provide annual reports with performance indicators linking enrollment change funding to campus performance measures and targeted outcomes such as graduation and retention rates.
For an enterprise that receives $2.7 billion in state support, the descriptions of UNC inefficiency and lack of accountability are more than troubling. UNC campuses have a public obligation to use tax dollars as efficiently as possible. Based on PED findings, strong reasons exist to revise the current growth formula. Tying receipt of enrollment growth funds to performance indicators such as graduation rates is a good place to start. To his credit, former UNC President Erskine Bowles advocated support for such an option last year.
Doing so could have a significant impact in a variety of areas. For example, the UNC 6-year graduation rate is about 65 percent while the national 6-year graduation average is about 68 percent. With state per student appropriations support for UNC campuses averaging about $19,500 the total annual cost of dropouts is in the millions.
These findings highlight immediate problems, but a larger issue as well. Campuses have incentives to admit students. However, few incentives exist for campuses to ensure students remain in school and graduate. To his credit former UNC President Erskine Bowles on several occasions spoke about the idea of tying enrollment funds to institutional performance in targeted areas such as graduation and retention rates.
On March 9 Sen. Fletcher Hartsell introduced Senate Bill 255 that incorporates many of the PED recommendations, including tying receipt of enrollment growth funds to an institution’s performance in achieving targets established by the UNC Board of Governors.
In the end, $45 million will probably be used to help expand UNC enrollment. However, it should also come with provisions that ensure taxpayer funds are spent wisely.
 The University of North Carolina Board of Governors. (2004). Long Range Plan, 2004-2009.
 From Executive Summary. UNC Enrollment Change Funding Formula Needs Documentation and a Performance Component: Final Report to the Joint Legislative Program Evaluation Oversight Committee. Report Number 2010-05. November 17, 2010
 UNC Enrollment Change Funding Formula Needs Documentation and a Performance Component: Final Report to the Joint Legislative Program Evaluation Oversight Committee. Report 2010-05. November 17. 2010. Page 15.