Clancy at Culture Cat mentions a proposal they're looking at in Minnesota that would tie a big chunk of the funding of state universities to the number of students enrolled there. There's more about the proposal here and here -- it looks like it's modeled after a new program in Colorado. And of course there are strong overtones of Bush's ownership society.
It reminds me a lot of a program they implemented within the university itself when I was an undergrad at Indiana University: funding for departments and schools was allocated based on how many studenst were enrolled in a particular department or school's classes. The program was called responsibility centered management, and it had a couple of interesting results: first, funding quickly moved away from arts and sciences toward the business and policy schools; and second, many different departments began to offer and advertise their own version of key classes like statistics or introductory writing. (I also expect there were changes in major requirements to reduce the number of electives allowed.) As funding shifted, many of IU's highly regarded humanities departments have declined or even (in the case of my beloved comparative literature department, which has always had trouble differentiating itself from English) closed up shop.
Are the two situations analogous? It seems likely money will be drawn away from major research institutions in favor of trade schools or schools that focus on teaching -- not a good thing, since having a respected research institution in Minnesota is important for (among other things) economic growth. And as above, I'd expect to see funds flowing away from arts and sciences toward trade schools, since schools will have an incentive to promote programs that are going to bring in students; the results will be similar.
One interesting and perhaps unintended consequence of the change will be a new constituency -- students:
"In the future, if the Legislature wants to cut higher education funding, they're actually going to have to take 300,000 students' stipend and reduce the amount," O'Donnell said. "And those 300,000 students are going to see very clearly what's happening and the consequences of that. And I think it's going to make them a very vocal constituency for the state to keep investing in higher ed."This is just what the engineers of the Social Security program did when they institutionalized that entitlement -- once you do implement a program like this, it's political suicide to go back. If the goal is to make the system more accountable and responsive to students, there's little doubt it will be achieved.