How Texas Is Using Education Policy To Drive Economic Growth

As states gear up for their next legislative sessions, economic priorities are top of mind for governors and legislators. Most are rightly focused on how to bring well-paying jobs to their states and communities; and as they engage with employers, one of the first things that comes up is the importance of a well-prepared workforce with the skills to fill those jobs.

Whether it be green energy jobs in New Mexico and West Virginia, the electric vehicle industry that has opened new plants in Kentucky and Tennessee, or semiconductor fabrication that’s set to scale in New York, when companies decide to locate or expand their presence in key states and regions, you can bet that the ability of the education system to prepare talent is high on their list of criteria.

This is why a growing number of state and local leaders are adopting the posture that good education policy is good economic policy. At the K-12 level, this means preparing students for both college and careers, by giving them more exposure to career options, expanding pathways into the fastest-growing fields and shortening the time it takes to obtain postsecondary credentials of value that are the ticket to good jobs. In higher education, the action is shifting from improving completion rates—important in its own right—to ensuring postsecondary credentials have value in the labor market so there’s a clear return on the investment students and taxpayers are making in college.

One state that stands out for its ambitious moves to align education and the economy is Texas. Over the past five years, Texas has become a leader in using legislation to drive outcomes by putting the focus on (and attaching incentives to) the things that matter. Changes to the funding formulas in both K-12 and higher education have incentivized schools and colleges to prioritize the career readiness and success of their students, leading to highly productive partnerships and mutually reinforcing goals across the secondary and postsecondary education systems, and tighter connections with employers.

The first landmark piece of legislation, focused at the K-12 level, was House Bill 3 of 2019. This school finance measure included a “College, Career and Military Readiness (CCMR) Outcomes Bonus” intended to “reward districts for not only preparing students for college, a career and the military, but for students taking the next step in their career planning by enrolling in postsecondary institutions, completing a credential and/or enlisting in the military.” Under this rule, districts can receive bonuses ranging from $2,000 to $5,000 for every student who meets certain readiness criteria AND either enrolls in postsecondary, earns an associate degree or earns an industry-recognized credential within a year of graduation.

While there are still implementation details to work through to ensure the CCMR Outcomes Bonuses have the full intended effect, this important move is changing the definition of success in Texas high schools from simply graduating students to putting them on a path to future career success. In fact, the bonuses are dependent on students actually moving into their next step beyond high school graduation. For the class of 2020—the most recent year for which statewide data are available—16.2% of graduates exceeded state thresholds for readiness, generating more than $213 million in bonus funding for their respective districts. This is a number state leaders hope to see increase significantly over time.

At the postsecondary level, Texas made headlines this year for its overhaul of community college funding via House Bill 8. This legislation shifts the state’s community college funding model (which ultimately provides about 20% of community colleges’ total funding) from one based on enrollment to one based on student outcomes; specifically, it “rewards colleges for awarding degrees, certificates and other ‘credentials of value.’” This outcomes-based approach is a major departure from how colleges in Texas, and across the country, are typically funded. And the emphasis on credentials of value is placing a premium on the labor market outcomes of different degrees and credentials, which helps address the growing concerns about the value of higher education.

House Bill 8 is intended to align the funding that community colleges receive from the state with the evolving needs of the Texas workforce. And because of this, employers have fully embraced this new approach. Putting the needs of the workforce front and center encourages community colleges to make sure that students are earning the credentials they need to find success in rapidly-growing career fields and that employers can more easily find and hire qualified talent. The focus on value in the legislation is a win/win for Texas students and employers alike.

The Texas legislation is also notable because of the buy-in it has received from the higher education community. Community college leaders were fully behind the bill and helped to shape it. Many believe that the new orientation of the funding formula not only better aligns with the heart of their missions to prepare students for high-value careers, but is ultimately more sustainable than enrollment-based funding—particularly considering that enrollment has been a major challenge for community colleges since the onset of the pandemic. It also encourages them to innovate in their offerings to better meet workforce needs and to develop appropriate supports (including services like childcare and transportation) to make sure students can succeed.

Though both laws are early in their implementation, they serve as important examples of how states can tie education strategies to their economic priorities by focusing on outcomes. If these policies are successful, they will not only build a stronger talent pipeline and provide more Texans with access to well-paying jobs, they will reposition the education system, especially colleges, as engines of economic opportunity and mobility that are well worth the investment.