The Board of Regents will drastically alter the way it allocates state funds to Iowa’s three universities over the next four years by tying a majority of dollars to resident enrollment – a move that could ramp up competition among the institutions and pull millions from the University of Iowa.

UI leaders and faculty members urged the Board of Regents to delay its decision and more extensively study how a new performance-based funding model would impact the universities and the state. But a majority of regents agreed Wednesday that the state’s current funding model for its universities is archaic and “perverse” and needs to be changed.

The Board voted 8-1 – with regent Robert Downer of Iowa City voting no – to adopt the new funding model that ties 60 percent of state-allocated higher education funds to resident enrollment. If immediately applied, Iowa State University would become the top funded institution in the state, and the UI would lose $47.8 million of its appropriations.

But, following the board’s vote, UI President Sally Mason told reporters that “Hawkeyes love a challenge,” and so does she. Mason said the UI “fully intends” to increase enrollment of in-state students while maintaining its out-of-state and international enrollment.

She said the UI in recent years hasn’t been in a position to grow due to damage and renovation costs associated with the 2008 flooding. But now it is, and it will, Mason said.

“We’re going to get larger,” she said. “We can continue to grow in strategic ways.”

ISU President Steven Leath expressed gratitude for the new funding metrics and said they will help ISU manage its tremendous growth. The Ames campus now boasts the largest student body among the regent universities.

UNI President William Ruud said the change will be “significantly” helpful in making up for years of inadequate state funding for his institution.

The funding model approved by the Board of Regents on Wednesday was amended slightly from the original model recommended by a task force charged to review how state funds are allocated.

Instead of tying 5 percent of state funds to job placement and continuing education, the approved funding model associates that portion with graduate and profession student enrollment.

The approved funding model is set to roll out over a three-year period beginning in the 2016 budget year. And it will cap the amount of money that can move from university to university each year at 2 percent of the 2013 budget.

The original proposal would have meant a hit to the UI of about $60 million – if implemented over one year. The approved funding model drops the impact slightly to $47.8 million or $12.9 million a year based on the 2 percent cap.

That amount is based on an assumption that the universities’ enrollment proportions remain the same. Regents on Wednesday said each university can adjust their recruiting and admission efforts to increase in-state student enrollment.

As for the remaining 35 percent of state funds, the new funding model ties 15 percent to progress and attainment, 10 percent to access, 5 percent to sponsored research, and 5 percent is left up to the regents to decide.

Former Regent David Miles, who led the task force charged with recommending a new way of funding the universities, said he thinks the new model better aligns state funding with regent goals. He said it also more appropriately subsidizes in-state student tuition, which does not cover the cost of education like out-of-state tuition does.

“I for one believe the University of Iowa has broad shoulders and that it will respond to the priorities articulated in the new budget model, as it has effectively in the past,” Miles said. “And I think the University of Iowa, along with Iowa State University and the University of Northern Iowa, will be stronger, more successful, and frankly better funded by the citizens of Iowa in the years to come based on the board’s actions today.”

Both regents Downer and Subhash Sahai expressed concerns with how the new funding model could affect the UI, referred to as the state’s flagship university, and the state as a whole.

“If we discourage the universities or punish them for enrolling out-of-state students, that will impact the state’s economy,” Sahai said.

He said the funding change could prompt universities to shift attention from out-of-state or international recruiting, affecting the state’s ability to become more diverse and grow its population. He said it also could prompt universities to increase tuition for out-of-state students, resulting in more student debt and driving graduates to seek employment elsewhere.

Sahai stressed the importance of making sure Iowa communities have enough doctors, dentists, attorneys and other professionals.

“I think if we try to squeeze this down where everything is going to be heaped on the backs of students in those programs, we are going to see very sad results in terms of the ability to recruit those persons to serve communities in Iowa,” he said.

Regent statistics show the UI is the only institution that gets a majority – 52 percent – of its freshmen from outside the state. Conversely, ISU has a 42 percent out-of-state freshmen enrollment and UNI gets just 9 percent of its freshmen in the form of out-of-state students.

Meanwhile, the UI received 46 percent off state general-education funding in 2013, while ISU got 36 percent and UNI got 18 percent. That is unfair, given the fact that in-state student tuition doesn’t cover the cost to provide them an education, according to the task force and its leader Miles.

“What we have created is a system whereby we penalize a university for taking on additional residents,” Miles said.

Still, Miles said, some states have applied different funding levels for the various metrics at different institutions – meaning the UI still could get a larger portion of the funds, if regents choose to go that route.

Sahai acknowledged the need for a funding change, but he criticized the recommended model for failing to address quality of education, rather than just quantity of students enrolled. Miles acknowledged that inadequacy and said “it would be wonderful” if the board could, over time, find a way to sort that out.

“I think it’s not the quantity, but the quality that should be addressed,” Sahai said.

The Board of Regents years ago did create a “regent admission index” that scores Iowa high school students and qualifies them for automatic admission to the three regent universities. The score is based on ACT or SAT scores, high school rank, cumulative grade-point average and the number of completed high school courses. Students who earn a score of at least 245 have automatic admission while those will weaker scores can be considered for admission on an individual basis.

Regent documents show that, in fall 2013, 5.3 percent of new freshmen applicants to the UI had scores below 245, while ISU had 8.1 percent of applicants with lower scores and UNI had 11.2 percent of applicants under the 245 mark.

Of those applicants, the UI in fall 2013 admitted 20.8 percent of the lower-achieving students – or 237. ISU admitted 36.9 percent – or 526 – and UNI admitted 79.6 percent – or 367, according to the regent enrollment reports that were made public in October.

In fall 2010, the UI admitted 13.6 percent of the applicants with scores below 245, ISU admitted 41.8 percent and UNI admitted 56.9 percent, regent documents show.

Regent President Bruce Rastetter said he’s not concerned that new funding metrics will prompt universities to lower their admission standards. Board of Regents Executive Director Robert Donley said many of the students admitted with low index scores succeed and do well at the respective universities, and that’s why admission officials have the flexibility to consider each student holistically.