State Workforce Development, Pt. 3: Funding

We are all too familiar in higher education with unfunded mandates. As there has been so much transition in higher education, with a call to focus on workforce growing evermore intense, it’s also important to clarify that this work cannot happen if funding isn’t there.

Without question, establishing formal, dedicated funding streams is critical to success. States must transition away from episodic, program-specific funding, and move to performance-aligned investment.

Many states have developed creative and durable solutions, i.e. payroll and unemployment insurance set-asides; special taxes or surtaxes; lottery revenue; public-private investment; and establishing outcomes-oriented incentives.

States achieving scale and durability rely on dedicated, diversified funding streams, not one-time appropriations.

• Alaska, Mississippi, and Rhode Island use payroll or unemployment-insurance set-asides to generate recurring workforce funds.

• Maine, Massachusetts, and Rhode Island use taxes or surtaxes earmarked for workforce and higher-education alignment.

• California’s Employment Training Tax (ETT): California employers pay a 0.1% Employment Training Tax specifically to fund workforce training.

• New Jersey’s Dedicated Revenues: New Jersey utilizes "dedicated revenues" (making up over 30% of their labor budget) and a special revenue Unemployment Compensation Auxiliary Fund to manage interest and penalties for system modernization.

• Alaska’s UI Program Structure: In Alaska, both the employer (1.0%–5.9%) and the employee (0.50%) contribute to the State Unemployment Insurance program, creating a shared investment pool.

• Louisiana and Illinois blend base funding with outcomes-oriented incentives that reward equity, completion, and workforce alignment.

• Nevada’s WINN fund demonstrates the value of public-private workforce investment vehicles managed outside traditional agency silos.

• States like Washington, Georgia, Florida, and North Carolina use lottery revenue to fund a variety of workforce and economic development initiatives. 



Recommendations

If workforce funding is the responsibility of the agencies or constituent units in your state; or initiatives have been funded using one-time ARPA dollars; and if high-level strategic goals exist in various forms in numerous places, which all roughly align with the direction set by the state, but there is no officially reliable and consistent funding source…

Here are some recommendations:

1. Create a Dedicated Workforce Revenue Stream

• e.g., Develop a modest unemployment-insurance or payroll-based workforce assessment to create a stable, recurring fund.

• Ensure funds are statutorily restricted to workforce and talent development, with accountability built in to mandate reporting and future funding.

2. Establish a Workforce Investment Fund

• Model a WINN-style public-private fund that supports regional sector initiatives, higher-education partnerships, and employer-led training.

3. Introduce Targeted Incentive-Based Funding

• Create outcomes-based incentives tied to credential completion, wage gains, and employment for priority populations—without adopting high-risk system-wide performance funding.

  • Look at Louisiana and Illinois, as well as examples such as Texas’s HB8, where funding is divided into a Base Tier and a Performance Tier.

  • Also look at Tennessee’s Outcomes-Based Funding (CCTA): Tennessee utilizes a funding formula that weights performance components differently based on an institution’s specific mission (e.g., technical colleges vs. research universities).