Policy Environments and System Design: Understanding State Governance Structures

Kathy Reeves Bracco, Richard C. Richardson, Jr., Patrick M. Callan, and Joni E. Finney

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Focus on Policy and Planning

As we approach the 21st century, many states face economic, political, technological, and demographic changes of enormous magnitude. Demand for access to higher education from an increasingly diverse student clientele continues to increase as changes in the economy demand greater skills. Technological developments have created entirely new mechanisms for the delivery of education and have introduced new providers into the market. Global competition threatens historical patterns of economic activity. Can state higher education systems designed to manage enrollment growth under conditions of expanding prosperity meet these and other challenges of a new century? [End Page 23]

Elected leaders have responded to change by showing new interest in the performance of their higher education systems, approaching similar problems with widely differing solutions. Some have called for restructuring systems with proposals ranging from the discontinuance of statewide coordinating or system governing boards to the creation of new ones. The absence of trends or patterns in state restructuring efforts convinced us of the need to develop a better understanding of how performance and system design are related.

The research we report here is based on a national, three-year comparative study of state higher education governance structures, conducted with support from The Pew Charitable Trusts and The James Irvine Foundation. Our purpose was to improve understanding of how differences in the design of state governance structures affect performance. We also wanted to explore how structure affects the leadership strategies that state policy makers use to encourage institutions to respond to contextual change and new state priorities. Our study defined a state system of higher education to include public and private postsecondary institutions as well as the arrangements for regulating, coordinating, and funding them.

The broader research study looks at the impact of structure, leadership, and context on system performance, measured in a number of different ways. This paper will focus on one aspect of this study: the development of a new way of looking at state higher education governing structures, one that draws on, but also expands, existing typologies. For illustrative purposes, this paper will focus on three of the seven states included in the larger study. These three states--Illinois, Georgia, and Michigan--represent the major variations that we found in governance structures, based on our new framework.

We do not suggest that the explanations presented here are the only ones possible. A major purpose of this study (and of qualitative designs in general) is to challenge others to improve upon our explanation and thus contribute to the continuing scholarly dialogue on governance issues (Bogdan & Bicklen, 1992, p. 49). This explanation fits the data we collected for the seven states that participated in our larger study. The explanation must now be tested for its applicability to other states.

The paper begins with a brief description of our study methodology, followed by a review of the relevant literature. A second section explains the conceptual framework developed for this study, including the new framework for characterizing higher education governing structures. We then discuss the ways in which Michigan, Georgia, and Illinois illustrate the different characteristics of this new framework and conclude with some observations about the policy implications of this research. [End Page 24]

Study Procedures

We designed our selection criteria for selecting the study states to minimize differences among participants in terms of size and diversity of student populations, and to maximize differences in structure. This selection enhanced the probability that observable differences in outcomes could be related to variations in structure. The states selected were among the top twenty in the nation by both the size and diversity of their student populations. The research team also examined available data on inputs and outcomes for higher education systems. None of the data we examined suggested a more compelling basis for selecting states than the criteria of size, diversity, and differences in governance structures. Using these criteria, we selected seven states: California, Florida, Georgia, Illinois, Michigan, New York, and Texas.

We conducted undisguised comparative case studies in study states between September 1994 and September 1996. For each, researchers collected documents, examined archival data, and conducted interviews to obtain multiple sources of information about context, system design, governance structures, and performance.

We selected Illinois as the pilot case because of the long-term stability of its governance structure. While the study sought the cooperation of the higher education governing/coordinating board in each state, we did not require agreement to participate from the State Higher Education Executive Officer (SHEEO). We chose this approach to avoid biasing the study by limiting its purposeful sample only to states that wanted to participate.

We interviewed over 200 individuals during the study, using a common protocol for all interviews. Case study teams interviewed members of governors' staffs; state legislators; members of higher education coordinating or governing boards or commissions; current and former state higher education agency officials; legislative budget analysts; campus-, subsystem-, and system-level trustees, presidents, and staff; and representatives of faculty organizations. We also reviewed published articles on higher education and talked with education writers for major newspapers in several states. Additional documents reviewed in each state included budgets, master plans, statistical reports, board agendas, and system histories. Finally, we commissioned Kent Halstead of Research Associates of Washington to prepare a report that identified the principal operating variables for state-level public higher education systems and provided special commentary for the seven study states based on data available in the National Center for Education Statistics' Integrated Postsecondary Education Data System (IPEDS) and his own survey of state higher education financial officers.

A case report integrated all sources of data for each state in a format that preserved the interviewees' anonymity. Knowledgeable insiders from each [End Page 25] participating state reviewed the case reports for accuracy. Following this check on the accuracy of individual case studies, we wrote an interpretive synthesis as a first step in the cross-case analysis, using a single case study (Illinois) to develop a draft model that explained the relationships among variables relevant to the research questions. Following a critique by a national advisory panel, we tested the model against each of the remaining six case studies and successively modified it until it represented the best explanation the research team could devise for all seven of the study states. This paper reflects further attempts to clarify and apply the model in states beyond the seven original participants.¹

For the purposes of this article, we illustrate the components of the conceptual model with three of the original states--Michigan, Illinois, and Georgia--because they represent the major variations in the traditional taxonomy of state governing structures and illustrate what we found to be some of the most significant variations among our seven study states with regard to our framework. We use other states from our larger study, as well as from subsequent work, for contrast where this is helpful in explaining the conceptual model.

Traditional Examinations of State Higher Education Governance Structures

The state's role in governing higher education has been the subject of debate in the higher education literature for the last forty years. The question has typically been framed as one of institutional autonomy versus state authority, or centralization versus decentralization. Moos and Rourke (1959) argued that institutions required autonomy and that only strong independent lay boards would insulate public institutions from political intrusion and inappropriate budgetary controls. Glenny (1959) called for greater state-level planning and coordination in higher education. He argued that voluntary coordination would lead to domination by the oldest and largest institutions while failing to provide for adequate representation of the public interest or for effective coordination of a large and increasing number of institutions. Berdahl (1971) suggested that state agencies were preferable to politicians in resolving such issues as approval of new campuses and new degree programs. Kerr and Gade (1989) warned of a "drift" in public sector higher education towards consolidation and control that ran counter to the competition and autonomy characterizing trends in American economic policy. [End Page 26]

States vary considerably in the approaches they take to organizing their higher education systems. Concern about institutional autonomy after World War II focused on the state agencies that were established primarily to manage enrollment growth. Because of this concern, generally accepted taxonomies distinguish three basic types of state structures: consolidated governing boards, coordinating boards and planning agencies (Berdahl, 1971; Education Commission of the States, 1997).

Consolidated governing board states. A governing board has legal management and control responsibilities for a single institution or a cluster of institutions (Novak, 1993). Twenty-four states have consolidated governing boards that have such responsibilities for all public, four-year institutions in the state. Nine consolidated governing board states have a single board responsible for all higher education as in Georgia, South Dakota, and Utah. Fifteen consolidated governing board states, including Arizona and Florida, have a separate board for community colleges.

Coordinating board states. Twenty-four coordinating board states assign responsibility for some or all of nine functions (planning, policy leadership, policy analysis, mission definition, academic program review, budgetary processes, student financial assistance, accountability systems, and institutional authorization) to a single agency other than a governing board. Of these, twenty-one, including Illinois, Texas, and New York, have regulatory authority, while the remainder, including California, have advisory authority. A separate community college coordinating board may operate under the auspices of the statewide board as in Illinois or as an independent state agency as in California.

Planning agency states. The two planning agency states, Michigan and Delaware, have no organization with authority that extends much beyond voluntary planning and convening. Some states with consolidated governing boards may also have some form of planning agency.

No fewer than eleven footnotes are required to explain hybrid variations of the three basic structural arrangements in the most recent edition of the Education Commission of the States, State Postsecondary Education Structures Handbook (1997). The three states highlighted in this article represent the major variations in the traditional taxonomy of state governing structures.

Beyond these distinctions, some states, including Pennsylvania and New York, have a state board or agency with some responsibilities for all levels of education. Coordinating or governing boards may oversee subsystems of institutions with homogeneous missions as in California or multi-campus subsystems with heterogeneous missions as in New York. They may also coordinate primarily small subsystems or single campuses, as in Illinois or New Jersey, or mixed single campus and multi-campus institutions, as in [End Page 27] Texas. In addition, states vary in the extent to which their formally structured higher education governance includes the private sector (Zumeta, 1992). Coordinating board and planning agency states are more likely than those with consolidated governing boards to recognize and incorporate private higher education in their policy and planning processes. Additional differences in the approaches states take to governing their higher education systems include variations in history, political culture, and demographics (McGuinness, 1994).

Building a New Conceptual Framework

Even the most comprehensive efforts to classify differences fall short of capturing the full complexity of state structures present in some of the more populous states. Our model attempts to address this complexity by considering such factors as the constitutional powers of the governor (Burns, Peltason, & Cronin, 1990), the various roles of the legislatures and state higher education agencies, and the public and private, two- and four-year institutions in the state. In addition, we consider the historical, economic, political, and demographic context of each state.

Traditional classifications of higher education structures define systems along a single dimension--that of centralization versus decentralization. Most of the focus is on the state agency and the powers exhibited by that agency. While this dimension is important, we have come to believe that many more aspects need to be addressed. Our study suggests that state governance structures include two dimensions: first, the policy environment, which determines the role that state government plays in balancing the often competing influences of professional values on the one hand and the market on the other; and second, the structural environment, or system design, which includes the decisions that states make about how to design their higher education systems. (We further define these two environments below.) While we acknowledge the importance of leadership in our framework, it is not treated as a key variable in this paper.

Policy Environment

The first dimension of our conceptual framework is the policy environment, or the role taken on by the state with regard to higher education. The distribution of authority between the state and higher education ultimately reflects the interests articulated by groups inside and outside of government as these interests are realized in the implementation of public policies and policy priorities. In other words, the higher education system in each state operates in a policy environment that is the result of balancing, or altering the balance between the sometimes conflicting interests of academic professionals and, as we define it, the market. Each state--and each state is [End Page 28] unique--balances these influences according to its own policies and priorities; there is no ideal or permanent balance.

Academic interests are familiar influences. Our use of "market" forces is not. The "market," for our purposes, is the broad array of interests and influences that are external to the formal structures of both state government and higher education. Our concept of the market is broader than that of economists. It does include economic influences, such as competitive pressures, user satisfaction, and cost and price. But it also includes quantifiable factors, such as demographic characteristics and projections, and less quantifiable ones, such as political pressures, public confidence, and the availability of new technologies. Moreover, states can respond to market influences through a wide range of strategies, including promoting institutions (such as building community colleges), promulgating regulations (such as restricting the freedom of institutions to sell items in their bookstores that compete with those offered by the private sector), or encouraging competition (such as establishing performance-based budgeting or increasing student aid, thereby enhancing student choice).

Our view of the state policy environment is best understood as the progressive drawing of the triangle of tensions illustrated in Figure 1. The first line represents the tension between "Higher Education" and "State Authority." It incorporates the structural dimension and reflects what we have called the traditional approach to the study of higher education governance (Berdahl, 1970; Shattock, 1994). The second line between "Higher Education" and "Market" represents the tension between producer domination and consumer sovereignty and is the basis for the human capital literature and rate of return analysis (Johnstone, 1992; Psacharopoulis, 1992). The triangle was closed when Clark added the line between "State Authority" and "Market," foreshadowing the possibility of states "steering" rather than providing services directly through public bureaucracies (Clark, 1993).

Williams (1995) argued that the Clark triangle was static and, therefore, best suited for description. In its place, he proposed a dynamic alternative that allowed consideration of government's variable roles in shaping the relative influence of the market and professional values on the types of services provided and their costs. In Williams's model, the role of the state changes as the force of the competing claims shifts among state, market, and academic interests. Among the state roles Williams described are promoter, referee, and consumer supporter. As promoter the state provides the facilities and sets the rules to achieve a given purpose that is seen as more important than the market. As referee, the state mediates between consumers and providers, ensuring fair play. As consumer supporter, the state throws its weight behind users. Our adaptation of Williams's model, shown in Figure 2, identifies four policy roles that lie along the continuum [End Page 29] from state-provided higher education to the state as consumer role described by some advocates of privatization.

Like Williams's promoter, the state as provider in our scheme subsidizes higher education services with little regard for the market. As regulator, our second role, the state specifies the relationship between institutions and the market by controlling user charges, constraining administrative discretion in using resources, and eliminating or attenuating the incentives for efficient operation. As consumer advocate, the state redirects some allocations for higher education to students, increasing the influence of their market choices on institutional behavior. Our fourth role, steering, has no exact parallel in Williams's model but was popularized as a concept by Osborne and Gaebler in their book Reinventing Government (1992). States steer by [End Page 30] structuring the market for higher education services to produce outcomes consistent with governmental priorities. The inclusion of private higher education institutions in the design of state systems is one example of steering, as is the use of vouchers that students may use to purchase approved services from any provider.

Low-tuition, low-aid strategies fall on the provider/regulator end of the scale. High-tuition, high-aid strategies are a good example of the consumer advocacy/steering end of the policy environment continuum. Examples of policies that move beyond consumer advocacy to approach steering include the aggressive inclusion of private institutions in planning to meet public needs, the use of contracts to take advantage of private capacity in lieu of creating or expanding public capacity, the use of targeted vouchers that enable students to purchase approved services from any providers, and the appropriation of different levels of funding for some degree programs based on state manpower needs. The key distinction between roles involves the use that a state makes of the market. In a market-dominated environment, price is a function of demand. In the consumer advocacy role, the state concentrates on supporting demand. In the regulating role, the state controls price. [End Page 31]

All states exhibit some characteristics of each of the four policy roles. While one role will typically be more dominant than the others (the state may tend to lean more towards the market than it does towards institutions), this model represents a continuum, not simply four distinct roles.

States in our study that exhibited patterns of deference to professional values or relied heavily on regulation (Michigan, California, New York, and Texas) reported less satisfaction with higher education system performance than those that found a more dynamic balance between professional values and market forces (Florida, Georgia, and Illinois). Ignoring the market in favor of state-planned systems of public higher education increases costs and limits responsiveness to emerging state needs and priorities. Excessive state regulation removes institutional incentives for efficiency and quality. Too-heavy reliance on consumer choice substitutes what people are willing to buy at present for longer term investment strategies. Too-zealous market structuring can leave the most expensive tasks to public institutions while stripping them of critical mass and flexibility. Each of these influences can contribute to effective system balance, but each can also be detrimental if unchecked by governance structures and policies that balance all three in a way that is appropriate to a state's context and priorities.

Michigan exhibits a predominantly provider environment for higher education. Institutions expect and generally receive incremental increases in annual appropriations without regard to performance or even changes in enrollments. During our study, the governor was able for one year to persuade the legislature to reward the three institutions that followed guidelines for limiting tuition increases. The resulting outcry and political fallout from the higher education lobbying community led to a reinstatement of the status quo by the following year. Georgia has moved from a regulating environment toward one of consumer advocacy as a result of its widely known HOPE Scholarships. Illinois maintains a predominantly steering environment through such strategies as the careful management of competition between public and private institutions and its highly regarded Priorities, Quality and Productivity (PQP) initiative.

System Design

The second dimension of our conceptual model is system design, or the structural environment. States make four sets of decisions when they design systems of higher education:

Decisions about governance structures establish lines of authority and accountability between state government and providers.

Decisions about work processes define responsibility for and characteristics of the major work processes: (a) collecting and disseminating information about performance, (b) prescribing the framework for budgeting, (c) allocating responsibilities for monitoring program [End Page 32] quality and redundancy, and (d) providing arrangements for encouraging higher education institutions to see themselves as a system and to work together on such tasks as school-to-college transitions and student transfer.

Decisions about mission divide responsibilities for achieving higher education goals among types of institutions.

Decisions about capacity determine the availability, quality,

In our model, we characterize state governance structures for higher education systems as segmented, unified, or federal. In the most segmented systems, multiple governing boards are each responsible for one or more institutions. There is no effective state agency with substantial responsibility for all higher education. State government reserves only the power to determine the appropriation each institution receives each year. Each governing board and its appointed executive represent institutional interests directly to state government through the budgeting process. Four-year institutions and community colleges may each have their own separate arrangements for voluntary coordination to identify issues on which they are willing to cooperate in dealing with state government and with each other.

Michigan is the most segmented design in our study. Each of its four-year institutions (with the exception of the University of Michigan campuses at Dearborn and Flint) have their own governing boards. There are no arrangements for statewide planning. No statewide agency provides information about higher education performance, and four-year institutions have worked actively to preserve this situation. Articulation between two- and four-year institutions is handled under a voluntary agreement that has never been signed by all of the public four-year institutions. Program review is also voluntary; and if an institution disagrees with the outcome, it may decide to offer the program anyway.

In unified systems, a single governing board manages all degree-granting higher education institutions and represents them in discussions with governors and legislators. Unified systems are characterized by Handy's (1992) principles of twin citizenship, interdependence, common rules, and common ways of communicating and measuring. Twin citizenship is determined by the degree to which participants feel themselves a part of both the larger system and the institution to which they have their primary allegiance.²

Georgia is the most unified system in our study. All of its degree-granting two- and four-year institutions are governed by a single board of regents. The system uses strategic planning and its program approval authority to address statewide need and to prevent mission creep. Its chancellor offers [End Page 33] a single point of contact for state government. While this arrangement might encourage excessive intervention from the governor and legislators, Georgia seems to avoid these problems as a result of constitutional status for the entire system conferred by vote of the electorate in 1942.

Federal systems have a statewide board responsible for collecting and distributing information, advising on the budget, planning programs from a statewide perspective, and encouraging articulation. Federal systems, like their unified counterparts, emphasize interdependence, common rules, and common ways of communicating and measuring. To these characteristics, they add separation of powers and subsidiarity. Separation of powers divides responsibilities for representing the public interest (monitoring inputs, performance, and institutional accountability) from responsibilities for governing institutions (strategic direction, management accountability and institutional advocacy). The former are carried out by the coordinating board and the latter by institutional or system governing boards. Subsidiarity safeguards the legitimate roles of institutions by limiting the size and influence of central system agencies.

Illinois has a federal system. A strong coordinating board (that is neither higher education nor state government) negotiates a consolidated budget each year for all of higher education with the governor. The board also provides credible and comprehensive information about institutional performance to state officials who describe the board as "the institutional memory of higher education." The board uses its planning and program approval authority to maintain a viable private sector and to ensure that institutions focus on centrality to mission, quality, and productivity in making program decisions. The legislature keeps a watchful eye on the board to keep it from infringing on institutional prerogatives.

It is important to note that these categories of system design represent a continuum rather than discrete categories. Design characteristics tend to lean more toward one type of structure than another, but there are no absolutes. And, as we noted above, some states exhibit hybrid characteristics, combining an advisory agency with a consolidated governing board as in Oregon, or with segmented systems as in California.

Policy Environment and System Design: Three Cases

The relationship between the policy environment and system design is critical to our conceptual framework. The role of the state as regulator, for example, works at cross-purposes with the deference to professional values that characterizes the most segmented systems. The regulator role is consistent with more centralized bureaucratic models, including the unified model. A federal system may work well in a steering environment but does not work well in an environment dominated by the state in a provider role. To [End Page 34] perform effectively, systems must be compatible with the policy environments in which they function.

Our case studies suggest that system design, policy environment, and the degree of compatibility between design and environment all influence the kinds of performance systems achieve and the kinds of leadership that will be effective in each. As Table 1 indicates, Michigan, Georgia, and Illinois represent the three main categories of the traditional taxonomy. They also illustrate significant variations in the two dimensions of our new conceptual framework.

Illinois

In 1961, Illinois established a "system of systems" for higher education that was specifically designed as a federal model. Responsibility for coordinating the system was given to the Illinois Board of Higher Education (IBHE). Until 1995, this system of systems included four public university governing boards with responsibility for 12 public universities and a system of community colleges coordinated by a state level board that worked closely with IBHE. The four-year systems included the Board of Regents, Board of Governors, the University of Illinois (U of I), and Southern Illinois University (SIU). The system of systems was created partly to bring together and thereby improve the capacity of several smaller four-year institutions to compete with the U of I and SIU, which remained as separate subsystems.

Private, nonprofit institutions, historically strong in urban areas, were defined as an integral part of the system in the late 1960s. Private institutions asked the state for need-based financial aid programs as well as capitation grants to subsidize Illinois residents attending private institutions, and asked that the state use the capacity in the private sector rather than starting new programs in public institutions. In return, private higher education agreed to be involved in the state's master planning process. [End Page 35]

In the spring of 1995, legislation was passed that abolished the Board of Regents and Board of Governors, replacing them with individual governing boards for seven of the eight institutions they governed. The eighth institution was designated as a campus of the University of Illinois. While significant, these changes did not change the federal character of the Illinois system.

The IBHE has responsibility for all four of the work processes. Illinois has the most sophisticated information system of any of the states we studied, and state and institutional leaders rely on that information for policy decisions related to the budget and program planning. While the IBHE has authority only to recommend budgets, not to mandate them, the budget process is central to IBHE strategies. The board enhances the informal authority derived from its trust relationships with the governor and, to a lesser degree with the legislature, by concentrating on rational, responsible budget recommendations, and by reducing conflict among institutions and sectors.

Illinois exhibits all of the key characteristics of Handy's federal model. In terms of subsidiarity, we have evidence of a legislature that does not want an IBHE that is too strong. An attempt to strengthen IBHE powers was easily defeated during our study, despite support from a strong governor. The system also provides evidence of substantial interdependence. The reserved powers implicit in the budget process and the program review and approval processes prevent institutions from ignoring the concerns of the center. A high quality information system links all system participants in both the public and private sectors. This information is key to the common rules and language, another characteristic of the federal system. Twin citizenship is evident in the emphasis on consensus inherent in the Illinois system. Finally, there is a clear separation of powers, with various players having responsibility for monitoring (IBHE), management (institutions) and for strategy, policy, and direction (the governor and other elected leaders).

The policy role in Illinois can best be described as steering. The state has the capacity to identify and set priorities, and to monitor institutions' ability to address those priorities. The Priorities, Quality and Productivity (PQP) project evolved out of a call from the governor and board chair for institutions to set priorities, improve quality, and increase productivity. Each college and university was expected to focus its mission and consolidate or eliminate lower-priority and lower-quality programs and services. Resources saved were to be reinvested in higher-priority, higher-quality programs and services. The state "steers" the environment in this case by setting the direction (high priorities and high quality) but allowing institutions to come up with the specific solutions. [End Page 36]

A second example of the steering role in Illinois is the extensive use of the private sector. A large student financial aid program, categorical grants to private institutions, and involvement of the private institutions in statewide planning activities are examples of ways in which the state uses the market to help meet priorities.

The steering role is well matched to the federal design in Illinois. The incentives in both are focused on responding to the environment and to market forces. The match between the structural and policy environments leads to high satisfaction among elected officials about the performance of the Illinois system.

Not all states match federal designs with steering or consumer advocacy policy environments. Texas uses a federal design within a predominantly regulatory policy environment. State officials are less confident about system performance. The coordinating board is not infrequently used as a scapegoat by both the legislature and higher education leadership producing a significantly more contentious environment than we observed in Illinois. Tennessee uses a federal design in a predominantly "providing" policy environment. After significant dissatisfaction with coordinating board performance by several successive leaders, the governor in 1997 appointed a blue-ribbon committee on excellence to propose changes to its system of governance.

Georgia

The Georgia system has the simplest design of our study states and represents the unified model in our framework. A 1931 decision placed all degree-granting institutions under the supervision of a single governing board. Following a 1941 attempt by the governor to intervene in the hiring and firing of administrators, the electorate ratified an amendment that gave the board constitutional status to govern, control, and manage the system. Currently, the University System of Georgia includes 15 two-year and 19 four-year institutions.

The Board of Regents of the University System of Georgia has responsibility for the four main work processes. The board has the power to define institutional missions, to determine the array and size of institutions in the system, to allocate funds to institutions, and to determine how much higher education will cost. The effectiveness of board management of the work processes depends heavily on executive leadership. The system makes strong use of strategic planning but provides less information on performance than federal systems. Limiting information helps reduce the ability of external actors to intrude into system decisions.

As a unified structure, most decisions are made between the chancellor, the board, and elected officials. The system does not present the separation of powers inherent in the federal system. There are, however, examples of [End Page 37] twin citizenship, interdependence, and common rules and ways of communicating. The institutional representatives we spoke with agreed that they identified with the University System of Georgia but also had loyalties to their own institutions, examples of twin citizenship. For the most part, they believed that they gained something from being a part of the larger system even if it meant that they also gave up some individual flexibility. There is interdependence; institutions cannot ignore concerns of the center because the governing board controls the budget process. As for common rules and language, a protocol in the university system guides how individual institutions (represented by their presidents) deal with the legislature. Typically, the university system does the lobbying; but if presidents are called upon to work with the legislature, it is as representatives of the university system. A "common law" provides an understanding that the system will work as a system. The formula funding process is another example of a common law of sorts in the Georgia system. While the formulas are not used for budget allocation to institutions, they are used for funding approximately 90-95 percent of the university system's budget. As a result, there is little discussion or negotiation over the major portion of the budget with the legislature or governor.

The unified structure is closely overseen by the governor through the Board of Regents, whom he appoints, and through his influence in the budget process. The governor can set priorities for higher education; but because of constitutional autonomy, these must often be addressed through nontraditional mechanisms. For example, to raise what have been relatively poor college-going rates, the current governor instituted a scholarship program in 1993 funded by the lottery. The program, Helping Outstanding Pupils Educationally (HOPE), provides full tuition and fees to students who maintain a B average in high school and attend a public college in Georgia. Those who maintain that B average in college continue to receive the award. Although critics of the program point out that it does not provide additional money to the poorest students if they are already receiving federal grants, it is generally seen as a model that helps to encourage access in a state that had not previously placed a high priority on higher education. The HOPE scholarships have helped to move the Georgia policy environment from regulatory toward consumer advocacy.

While Georgia's unified system design and policy environment seemed compatible during our study, the emphasis on central planning could become more problematic if elected officials further strengthen the market emphasis represented by the HOPE scholarships. Present strong leadership, along with constitutional status for the entire system may give Georgia more latitude for coping with any potential mismatch than other states confronting this issue. [End Page 38]

The Florida system is similar to the Georgia design in the sense that all four-year institutions are governed by a single board. However, community colleges in Florida each have their own governing boards, while a statewide coordinating board serves as the interface between these institutions and state government. The policy environment in Florida is strongly regulatory. Significantly, the Florida legislature in this "weak governor state" is also moving toward a policy environment that places greater emphasis on consumer advocacy. New York groups all of its degree-granting institutions into two heterogeneous (two- and four-year institutions reporting to the same board) systems and has a predominantly regulatory policy environment. Efforts by the current governor to make the system more responsive to market forces have been largely thwarted by legislative refusal to relax regulations that prevent institutions from responding effectively.

Michigan

Michigan represents the most segmented model in our system design framework. There is no statewide agency with significant responsibilities for higher education, and all four-year institutions have constitutional status. Thirteen of the fifteen four-year public institutions in the state have their own governing boards; the exceptions are the two branch campuses of the University of Michigan. Universities are seen as the "fourth branch of government" by many legislators.

While the 1963 constitution charged the state Board of Education with serving as the general planning and coordinating body for all of higher education, a 1975 court decision found that the University of Michigan did not need the board's approval to expand or establish programs, effectively limiting the authority of the state board to advising the legislature on requests for funds. Universities have refused to cooperate with the state board on several occasions, and resist any information-gathering or -coordinating activities as an encroachment on their constitutional autonomy.

In the absence of formal coordination, the four-year public institutions in the state established a voluntary Presidents Council in 1952. The council's activities include developing positions on the state budget for higher education, reviewing and monitoring legislation affecting higher education, collecting and disseminating data, reviewing academic programs, and interacting with state agencies and organizations (Presidents Council, 1992, p. 1). The policy community believes that institutions use the council for issues that benefit them but primarily stand by themselves when there is nothing to gain individually from collaborating.

The 30 community colleges (one tribally controlled) in the state are linked together through the voluntary Michigan Community College Association and a Community College Board that advises the State Board of Education. The [End Page 39] Community College Board is not seen as a major player in the Michigan system, as might be inferred from the governor's actions in cutting its budget significantly and in eliminating board member per-diem expenses for meetings.

The private sector is included in state policy decisions to the extent that the state provides reimbursements for degrees awarded to Michigan residents. There is also a small need-based tuition grant program for students attending private institutions.

Because of the segmented nature of the structure, no one agency or institution has responsibility for the work processes in Michigan. Individual institutions define and modify their own missions. There is a voluntary program approval process under the auspices of the Presidents Council, but the process does not limit program duplication. Most articulation efforts are the result of local agreements. There is little statewide information on performance.

The only way for state government to influence higher education in Michigan is through the budget process. Funding is based primarily on historical funding patterns over the past 30 years. While the legislature is attentive to the priorities of the governor, it typically provides a lump sum to each institution at a common rate of increase. Institutions can spend their appropriation as they see fit.

The state uses the budget primarily to reinforce a carefully negotiated pecking order among institutions, based more on prestige than on state priorities. As a result, the state role is primarily that of provider--supporting institutions with across-the-board increases with few restrictions on how the money is spent. While many refer to Michigan as a "market model" because it has no statewide or systemwide boards, it was described to us as more of a "public monopoly." There is little competition from the private sector, and across-the-board increases in funding allow institutions to offer pretty much what they want.

There have been some attempts by Michigan governors to implement regulatory policies to encourage certain institutional actions, but these attempts have not always been successful. After tuition increased dramatically over a four-year period in the early 1990s, Governor John Engler developed a tuition tax credit plan designed to hold down tuition. Students attending institutions where tuition increases were held below the rate of inflation for the previous year received a tax credit. The incentive plan was not popular with most four-year institutions, whose leaders argued that the state should have provided more money to institutions to help keep tuition increases down. Others viewed the program as a violation of constitutional status which grants individual boards the right to set tuition. The tax credit was discontinued after one year, an example of how difficult it is for a state clearly in the provider role to use regulatory policies on its institutions. [End Page 40]

The state-as-provider role is well aligned with the segmented design of the state system. The incentives in both environments emphasize deference to professional values. While some elected officials acknowledged that the system may not be as efficient as it should be, there was general satisfaction among those in Michigan with the structural and policy environments. For now, there is a general assumption that what universities provide equals the public interest.

California also uses a segmented design in a policy environment that, for the constitutionally autonomous University of California, is predominantly providing. Interestingly, the environment for the California State University and the California Community Colleges has historically been highly regulatory. The California Postsecondary Education Commission, an advisory agency, has many of the same credibility and effectiveness problems as the Tennessee Higher Education Commission. In both states, the providing policy environment for the major university makes opposition an extraordinarily high-risk activity. In California, there is the additional problem of having all key understandings about higher education enshrined in a master plan that no one seems able to alter even in the face of external changes that threaten the integrity of the promises on which it is based.

Policy Implications

As these three descriptions make apparent, state systems of higher education are structured in a variety of ways. Each state system offers different tools and opportunities to those charged with leading it, and some of these tools are more useful than others in adapting to conditions that are likely to dominate the future. Less obvious, but equally real, are the different incentives--implicit and explicit--that are inherent within the state policy environment and that can prompt or even prevent states from achieving their policy priorities.

We suggest that each state has the responsibility to its citizens to assess the capacity of its higher education system to respond to the substantial changes that the next several decades are likely to bring. If this assessment suggests a lack in capacity (as reflected in unmet state needs or insufficient information), deeper probing becomes essential.

We propose two areas for such probing: the incentives and disincentives fostered by the state policy environment, and the allocation of responsibilities as determined by system design. For purposes of policy analysis in a particular state, it is also helpful to consider the most pragmatic effects of these in day-to-day governance and administrative practices, i.e. in the work processes (defined above as part of the system design). We can thus distinguish the tools available through the key work processes as a distinct and [End Page 41] third level of inquiry. If a higher education system is to accomplish more than its aggregated campuses could do individually, it is in these three areas that solutions can be developed. In examining higher education's performance relative to present and future state needs, problems and solutions appear at one or more of these three levels of analysis and also in the interactions among elements of all three.

As state policy makers attempt to strike an appropriate balance between institutional interests and market forces, they have a wide array of options to achieve their objectives, as outlined by the four policy roles we have identified: providing resources, regulating, consumer advocacy, and steering. For instance, states can restrict or encourage competition; they can create new providers, such as the Western Governors' University; they can offer incentives to new or existing private or nonprofit programs of higher education; or they can seek to protect the student markets of existing institutions by impeding the entry of new providers. States can fund students directly on the basis of merit or need or both, or they can fund institutions. They can support institutions on a "maintain the asset" basis, on the basis of performance, or on the basis of performance and competition. They can act as the principal owner and operator of institutions (the maintenance approach). Or they can act as a consumer in the marketplace, purchasing instruction and research from the public and private institutions that meet state access, quality, and cost requirements. They can create centralized or federal governance structures, or they can leave each college and university to the exclusive guidance of its own board. They can regulate or create systems and agencies to manage and administer colleges and universities; they can have procedural accountability through extensive rules and control mechanisms; or they can hold institutions accountable for results and outcomes.

While all of these policy-affecting options are exercised in some form somewhere, most states employ a particular combination of options that has resulted from ad hoc responses to economic conditions or political problems that appeared at an earlier time in the state's history. Few states explicitly use policy to balance market and institutional interests to assure the right combination for their current priorities. We hold that greater awareness of options at all three levels of policy direction will lead to more intentional use of public policy to pursue specific priorities, as well as to more systematic and useful policy analysis.

One of the most difficult problems for state public policy is inconsistency or misalignment of the three policy levels. Misalignment may arise from state attempts to solve a problem at one policy level by measures more appropriate to another. Tools appropriate at the operational policy level--for example, tinkering at the margins of budgetary formulas--would not [End Page 42] achieve the desired result if the problem were at the system-design level. Nor would they be effective in the presence of constitutional constraints that perpetuate inadequate funding. Misalignment may also result when state government adapts policy incentives aimed at enhancing the influence of market forces without altering the design of a higher education system that has grown accustomed to heavy regulation.

States that fail to address their systemic alignment will approach higher education reform through a series or package of discrete endeavors. Such approaches run the risks of misalignment and inconsistency. And, of most practical importance, they are unlikely to achieve the desired system performance.

Conclusion

The conceptual framework described in this article suggests that statewide governance of higher education is best understood as the result of interaction between a policy environment shaped by government strategies to achieve balance among professional values and the use of market forces; and a system design which determines provider responsibilities, capacities, and linkages to each other and to elected leaders. Traditional examinations of state governance focus primarily on the relationship between the state agency and institutions of higher education. This new framework allows for a more complex understanding of the overall system structure.

It is the relationship between the two dimensions that becomes critical when trying to understand a state system. States may design or restructure governance arrangements without considering the degree to which effective operation depends on the incentives and disincentives of the policy environment. Conversely, policy environments can change over time to the point where governance structures designed for a different era no longer work very well. Outcomes are influenced both by design limitations and by the compatibility of the design with a policy environment. States where the policy environment and structural design are mismatched create unnecessarily contentious circumstances that make leadership extremely difficult. Systems with good leadership can at times overcome many of the constraints of poor design or incompatible policy environments, and systems with poor leadership are likely to fall short of their potential under the best of circumstances. Of course it follows that well-designed systems operating in compatible policy environments with good leadership have the best chance of performing in ways that satisfy policy priorities.

Kathy Reeves Bracco is Senior Policy Analyst at the National Center for Public Policy and Higher Education, San Jose, California. Richard C. Richardson, Jr., is a Professor of Educational Leadership and Policy Studies at Arizona State University, Tempe. Patrick M. Callan is President of the National Center for Public Policy and Higher Education, and Joni E. Finney is its Vice President. This article is based on R. C. Richardson, K. R. Bracco, P. M. Callan, and J. E. Finney, Designing State Higher Education Systems for a New Century (Phoenix, AZ: Oryx Press, 1998). An earlier version of this article was presented at the American Educational Research Association (AERA) annual meeting, April 1998, in San Diego. Address inquiries to Kathy Reeves Bracco, 152 N. Third Street, Suite 705, San Jose, CA 95112; e-mail: kbracco@highereducation.org

Notes

1 Additional states that have contributed data used to test the model include Oregon, New Jersey, Tennessee, Washington, and Oklahoma.

2 We draw here upon a modified version of concepts that C. Handy (1992) uses to describe the integrated system and to distinguish federal from unified systems.

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