1. Education Policy Workshop “Using Resources Efficiently: Consolidating the School Network in Ukraine: What are the Challenges? What are the Options?” Kiev, February 25-26, 2010 Rosalind Levačić, International Consultant, World Bank Emeritus Professor of Economics and Finance of Education, Institute of Education, University of London 1

2. Outline of presentation What is per capita funding? What are its advantages? How does it promote more efficient school networks? 2

3. What is per capita funding (PCF) of education? 3

4. Key characteristics of PCF Briefly described as “funding follows the pupil”. Now adopted in many countries, including transition states. The education provider is allocated finance from the public budget for providing a specified quality of education according to the number of pupils receiving that education. Grant = amount per pupil X number of pupils The education provider can be: i) a local administrative unit (school founder) that manages several or many schools (usually a local government or commune) ii) a public school iii) a private school 4

5. Per capita funding involves funding by formula Central government uses a formula (set of objective rules) to determine education grants to municipalities, who may also use a formula to determine school budgets. The number of pupils is the main indicator in the formula. Pupils are differentiated according to characteristics that cause the costs of educating them to differ: e.g. grade/age, curriculum, location, minority language, social disadvantage. Other factors may be included in a formula: e.g. type of school heating, size of school, population density. 5

6. Focus is on a per capita funding (PCF) system which includes 3 main levels 6

7. Local government: 3 levels (using oblast as first level of local government), 7 Schools City, township or village Rayon or city Oblast Rayon School City subordinated to oblast School

8. A fully developed PCF system Consists 0f three essential elements: 1. Central government uses a per capita formula to determine education grants for local government units which administer schools. 2. Local governments use a local formula to allocate single line (lump sum) budgets to their schools for all major resources, including staff. 3. Schools have financial autonomy (manage their own budgets) (school director + school board): the number of teachers is determined by the school according to what it can afford from its budget. 8

9. Funding flows for education between 3 main levels: via Ministry of Finance Ministry of Education Ministry of Finance Local government school State formula Local formula 9

10. Funding flows for education between the 3 main levels: via Ministry of Education Ministry of Education Ministry of Finance Local government school State formula Local formula 10

11. Extent of per capita funding in Europe Partial PCF Full PCF Some elements are in place: National formula for allocating resources from centre to local governments + Some school founders (e.g. large urban municipalities) use a local formula to determine school budgets Examples: Poland, Estonia, Macedonia, Sweden, Finland. All three elements are in place: National formula for allocating resources from centre to local governments + All school founders use a local formula to determine school budgets + Schools manage own budgets. Examples: U.K, Netherlands, Lithuania, Slovakia, Bulgaria. 11

12. Examples of PCF formulae for general education: main approaches where local governments exist 1. A single formula from centre to local government based on local government-level indicators (e.g. Poland, Sweden, Finland). 2. A single formula from centre to local government or other school owners based on school-level indicators (e.g. Lithuania, Slovakia, Netherlands (no variation)). 3. Two distinct formulae. One from centre to local government, a second (mandatory) one from local government to schools. (e.g. England, Wales, Bulgaria, Kosovo). 12

13. What are the advantages of PCF of education? 13

14. In comparison with the system it replaces (input-based financing), PCF improves 14 Efficiency Equity Transparency Accountability

15. Improved efficiency due to PCF of local governments Input based system Per capita funding Funding for salaries determined by number of staff in post and/or class size As pupil numbers decline, pupil teacher ratio falls: cost per pupil increases. Funding depends on number of pupils: cost per pupil remains constant as number of pupils falls. Incentive for local government to rationalise school network by reducing number of classes and closing some schools. 15

16. Improved efficiency due to PCF of schools Input based system Per capita funding School directors have incentive to maximise number of classes in order to maintain or increase the number of teachers. School directors limited by the school budget in the number of staff they can employ. Organise classes according to number of teachers that can be paid out of the school budget. 16

17. Improved efficiency due to schools deciding on how to spend their budgets Input based system Per capita funding Schools have no incentive to economise on utilities. Local governments don’t buy the goods and services that schools need most. Schools can spend less on utilities and use the money on other items e.g. learning materials, small repairs. Schools can more easily procure the goods and services they need. 17

18. Improved efficiency due to locally determined performance related pay Input based system Per capita funding Salaries based on qualifications and years of service: performance makes no difference to pay Teachers can be motivated by additional payments for effective teaching and greater effort 18

19. Improved horizontal equity: pupils with similar needs funded the same Input based system Per capita funding Schools which are similar in educational phase and numbers of pupils have different amounts spent per pupil. Similar local governments are funded different amounts per pupil. Schools which are similar in educational phase and numbers of pupils have the same amount per pupil. Local governments with similar characteristics are funded the same amount per pupil. 19

20. Improved vertical equity: pupils with different needs funded differently Input based system Per capita funding Can be vertically equitable if pupils with special needs allocated to smaller classes or other extra resources: e.g. learning disabilities; minority language pupils, pupils in isolated rural areas Funding formulae address vertical equity by allocating more money per pupil for specified categories. Extra weights for: - Special needs - Minority language - Social disadvantage - Isolated rural location 20

21. Improved transparency Input based system Per capita funding Non-transparent Lack of information on how much funding per pupil each local government and school receives and why. Transparent Formula funding shows explicitly how much funding each local government and school receives and why. 21

22. Improved accountability Input based system Per capita funding Lack of accountability Often no requirement for local officials or school directors to justify in public how funds are allocated and spent. Accountability School-based financial management: school director held accountable for how school budget is spent and with what results. Very important role for School Board in holding school director accountable. 22

23. How does PCF promote more efficient school networks? 23

24. School network is rationalised at local government level Local government funded largely on a per pupil basis. Can reduce per pupil costs by reducing number of schools and classes so long as transporting pupils to another school costs less than teachers and buildings costs saved. Funding is not reduced by rationalising school network. Quality of education can be improved through investment in better facilities and single grade teaching. 24

25. Maintaining access to school When school networks are rationalised it is important to keep open small schools and classes needed to maintain access to school. 25

26. Adjusting formula for pupils’ additional needs and school site costs Criteria for allocating additional teachers for: Small schools (e.g. Distance from alternative school, quality of road communications) Minority language classes Socially disadvantaged pupils 26

27. Lithuania: pupil basket Funds teaching process Central government Funds teaching environment Local government 27

28. Lithuania: teaching process: expenditures included (2007) 28

29. Lithuania: pupil basket formula: the coefficient per pupil varies according to: Grade range (grades 1-4; 5-8; 9-10; 11-12) Average class size which varies with type of settlement from 10 to 25 Regular pupil or additional needs pupil (minority, multi-language, integrated) Institutional type (not general education): pre-school, adult, hospital, special school 29

30. Lithuania: change in average size of school Number of pupils Consolidation of school network attributed to Education Improvement Project as well as introduction of pupil basket funding 30

31. England: primary school consolidation 1970- 2008: fall and rise in number of pupils 31

32. England: primary school consolidation 1970- 2008: Introduction of Local Management of Schools 32

33. England: primary school consolidation 1970- 2008: Introduction of Local Management of Schools 33

34. Size of school is same as in 1970 but number of pupils is 20 per cent less ‘ 34

35. Per capita funding doesn’t necessarily lead to school consolidation Size of school: number of pupils % of schools 35 Change in number of primary schools by size: Poland 1998/9 to 2006/7

36. Conclusions Both partial and full PCF provide incentives for creating an efficient school network. Full PCF more effective as ensures all schools within a local government are funded by the same criteria. PCF by itself not sufficient: need strong policy lead by Ministry of Education. A phased introduction of PCF needed to ensure access to school maintained for all pupils. 36