Texas community colleges are at a crossroads, facing substantial funding challenges that threaten their ability to sustain critical investments in student success. The state’s performance-based funding model, designed to reward colleges for achieving specific student outcomes, has created financial uncertainties that are forcing administrators to make difficult budgetary decisions.
During a recent Texas Senate committee hearing, college leaders openly discussed the strain that state funding shortfalls are placing on their budgets. The situation arises as schools have surpassed state projections on student outcomes, which is the primary basis for their funding. However, the Texas Higher Education Coordinating Board (THECB) has had to prorate the dollars each college will receive to stay within the budget, resulting in a more than 15% drop in state funding for nearly a dozen colleges.
Impact on College Budgets and Services
Brenda Hellyer, president of San Jacinto College, highlighted the direct impact of the funding shortfall on faculty salaries and advising services. “When I put that [shortfall] into our budget, it turns into faculty salaries…. It’ll definitely affect advising,” Hellyer stated. “For us, it’s going to be a hard budget year.”
Colleges have limited options to make up for the shortfall, especially since state schools have kept tuition and fees flat in recent years. Hellyer expects to recommend spending more money than the school takes in this year. Legislators could fund the dollars colleges are owed during the next legislative session, as they did last year when the gap between earnings and payouts for that biennium was nearly $90 million. However, THECB hasn’t put a price tag on how much the gap is this biennium.
Unpredictability of the Funding System
The challenges with the community college funding formula come three years after House Bill 8 created financial incentives for schools to get more students to complete certificates or degrees, transfer to a university, and participate in dual credit. During a separate Senate finance committee meeting, lawmakers questioned how forecasts for the funding model could be so off.
“Was that a mistake of your projections?” Sen. Lois Kolkhorst, R-Brenham, asked THECB officials. Andy MacLaurin, assistant commissioner for funding and resource planning for THECB, responded that the growth vastly exceeded even their significant growth expectations. As Texas gathers more data on community college outcomes, MacLaurin said forecasting will become more accurate.
Until then, the unpredictability of the system threatens the stability of any positions community college leaders hire with the extra money the schools bring in. North Central Texas College Chancellor Brent Wallace said he must now freeze some positions because of a $4.5 million shortfall. Mike Flores, the chancellor of the Alamo Colleges District in San Antonio, avoids funding permanent positions altogether with that money, acknowledging it as a “privileged” approach he could take as a larger institution.
“If I fund positions on HB 8 money, and then I lose that money, well, then I have to lay off or fire those folks,” Flores said. “We don’t spend HB 8 money on anything that we couldn’t just cut essentially overnight.”
Early Successes and Future Challenges
A new analysis by Texas 2036 suggests that tying dollars to outcomes is showing early signs of success, which directly increases the amount of money schools are owed. From fiscal year 2026 to fiscal year 2026, students enrolling in dual credit increased by 20%, and students completing credentials, from short-term certificates to associate degrees, increased by about 22%, according to the nonprofit think tank’s findings.
“The first two years show incredible growth in student outcomes,” said Grace Atkins, postsecondary and workforce policy advisor at Texas 2036. “The next phase is ensuring this change reaches more students and that state funding keeps pace with the outcomes colleges earn.”
In a move to lower the amounts colleges are owed, THECB changed the funding formula at a board meeting last week, trimming the incentives that trigger additional dollars when schools educate high-need students. Colleges will now see smaller bonuses for getting low-income students and adult learners to graduation.
