From Line-Item Budgeting to Per Student Funding Formulas. Successes and Failures from the Experience of Post Soviet Countries Jan Herczyński Baku, April 21, 2014

Movement towards formulas Accross transition countries there is movement towards using per student allocation formulas in the education sector The formulas have many different forms and applications Some countries which have not moved towards per student formulas have instead implemented repeated pilot projects 2Jan Herczyński

Movement towards formulas 2 Historically, school budgets were defined separately for each budget line (salaries, heating, etc.), on the basis of budgets of previous years and negotiating incremental changes Per student formulas give hope of much simpler approach to set school budgets However the movement is not easy 3Jan Herczyński

Movement towards formulas 3 Successful countries have used the formula as an instrument supporting decentralization efforts – Poland, Macedonia, Georgia, Bulgaria Less successful countries used the formula as a purely technical tool to achieve rationalization of education finance – Romania, Ukraine 4Jan Herczyński

Example 1: Georgia „Rose revolution” in 2004 led to establishment of strong reformist government Fight against corruption was one of dominant motivations In education, this led to complete removal of local governments from management and finance, in contrast to historical experience The Ministry of Education needed a formula to finance all Georgian schools 5Jan Herczyński

Georgia 2 Georgian schools became autonomous institutions with legal persona and own budgets In each school, the School Board oversees the school operations and selects the school director National Government sets minimum teacher salaries 6Jan Herczyński

Georgia 3 National formula determines only the overall volume of funds for each school – School vouchers of three levels (city, rural, mountain) Detail line budget is set by school director and approved by the school board The same applies to budget execution report Extensive support from Education Support Centers managed by the Ministry 7Jan Herczyński

Georgia 4 Results: School operations uninterrupted – Frequent updating of budgets – Only few conflicts between directors and School Boards Increased transparency and openess of schools Significant reduction of corruption in the sector 8Jan Herczyński

Georgia 5 Results: About one third of schools are deficit schools – No real budgeting procedures – Monthly additional transfer above vouchers Large schools became successful budgetary operations, especially in the cities – Large schools have ample budgets and little motivation to economize 9Jan Herczyński

Example 2: Romania No real motivation for decentralization Education strictly controlled by judet (oblast) level administrations subordinated to the Ministry No clearly defined financial transfers for education from the central budget to judet budgets, and from judet budgets to schools 10Jan Herczyński

Romania 2 Deep fragmentation of education finance – Employment levels and salaries in every school set and stricly controlled by the Ministry – Maintenance costs uncontrolled and quite differentiated in different municipalities Administrative and not political responsibility for education 11Jan Herczyński

Romania 3 Many attempts to define and implemented per student formula for school finance National Council for Financing of Pre- University Education was established in order to achieve this objective The council developed a series of complex formulas and published several books 12Jan Herczyński

Romania 4 Repeated pilot projects which remained purely formal (only on paper), in part because they contradicted existing legislation The pilot projects were not related to other reforms of school management No formula was finally implemented 13Jan Herczyński

Example 3: Bulgaria System of delegated budgets gave budgetary autonomy to schools Beginning with a few pilot municipalities, gradually extended to the whole country In 2007, a national formula implemented for transfers from central budgets to municipalities An obligation to use local formulas for schools 14Jan Herczyński

Bulgaria 2 National formula used 4 values of per student amount depending on the municipality Pure per student formula from central budget to municipal budgets Local formulas have to be based on student numbers: – 80% allocated on a pure per student basis (no coefficients) – 20% allocated according to additional standards 15Jan Herczyński

Bulgaria 3 Initially, great opposition from teachers and municipalities – Long strike by teachers, which the teachers lost – Many municipalities used pure voucher formulas in gesture of protest School directors supported the reform – More autonomy of directors over budget – More school discretion over teacher salaries 16Jan Herczyński

Bulgaria 4 Over time, opposition to the reforms was decreasing School directors implemented necessary cuts in school expenditures to adapt to new allocation levels Education efficiency was increased accross the system – Increased class sizes – More efficient use of funds 17Jan Herczyński

Conclusions Per student formula should be applied to a specific and legally well defined flow of funds between different levels of governance – From the central budget to local budgets – From the local budget to schools Formula should be a part of the budgeting process Formula must be public 18Jan Herczyński

Conclusions 2 Formula is an instrument of communication: – It communicates the priorities of the institution setting the formula and sending funds – It should be used for dialogue between the sender and receivers of funds Therefore formula should be comprehensible – All details necessary to understand the formula must be publicly available – Receivers of funds should be able to verify whether the formula was applied correctly 19Jan Herczyński

Conclusions 3 Simple formulas are easier to implement than complex formulas which nobody can understand – Bulgaria, Georgia used very simple formulas – Formulas developed in Romania were very complex Simple formulas are much easier to maintain and change (adapt) over time 20Jan Herczyński

Conclusions 4 Success depends on creating a real independent actor with strong competencies who will implement the reforms locally – In Poland, Macedonia: local governments – In Bulgaria, Georgia: schools Vigorous activities of that actor are necessary for the reform to benefit students 21Jan Herczyński