1. The design of per student funding formula for allocating school budgets Jan Herczyński Baku, April 21, 2014

2. Structure of the presentation Formulation of main problems of designing a per student formula Outlines of general methodological approach Examples of different formulas with some analysis and lessons learned (transition countries) Conclusions Jan Herczyński2

3. What is a per student formula Allocation formula for education tasks based primarily on student numbers May include many factors which characterize students Often leading to „weighted number of students”, not the physical number of students Sometimes includes elements not related to students Jan Herczyński3

4. Formulation of the problem Students are not carriers of education costs – Except for special cases, no specific expenditures are associated with individual students Main carriers of education costs are teachers – Teacher salaries often represent more than 70% of school budgets Additional costs are related to school administration and to school facilities BUT: number of students is the best measure of education tasks Jan Herczyński4

5. Formulation of the problem 2 Education expenditure is not really proportional to number of students Main categories of school expenditures are proportional to number of classes: – Teacher salaries (according to curriculum norms), – Some ICT equipment (projectors, interactive blackboards) Jan Herczyński5

6. Formulation of the problem 3 Some expenditures are proportional to student numbers, but they are relatively small: – Water consumption, – Meals – Textbooks (if included in the formula). Some are proportional to school facility area, for example heating – School area is more in line with number of classes than with number of students Jan Herczyński6

7. Formulation of the problem 4 However, we cannot allocate funds on the basis of the number of classes – This would lead to division of students into smaller classes to increase alllocation – Perverse incentive to reduce efficiency Similarly, we cannot base formulas on the number of teachers – This would lead to excessive employment of teachers Jan Herczyński7

8. Methodological approach Generally, one should use in the formula only factors which: CAN predict class size or number of students per full time equivalent teacher CANNOT be influenced by local actors We call these objective factors Jan Herczyński8

9. Methodological approach 2 Per class costs may also vary depending on additional factors: Grades (different curriculum norms) Instruction language Integrated teaching for student with special needs These are usually related to teaching load Jan Herczyński9

10. Methodological approach 3 A potential formula therefore should use factors which taken together: – Are objective, – Reflect teaching load. The criteria adopted should be reviewed to see how well they predict class sizes The formula must be verified by checking the variation of per class allocation Jan Herczyński10

11. Methodological approach 4 Factors which may be used in the formula: School location (rural, mountain), Population density, School level (primary/secondary) or profile Categories of students who need extra care (special needs, minority, poor) if an objective identifying procedure exists Jan Herczyński11

12. Methodological approach 5 Factors which should not be used in the formula Number of students in a class or a school (if may be affected by local actions), Teaching load, number of teachers (if they are hired locally) Area of school buildings (in the long run), Teacher qualifications Jan Herczyński12

13. Main problem: rural schools Smaller classes due to small number of students in small villages (difficult to transport students) May be adressed through categorization of school location: Urban / Rural (Poland) Urban / Rural / Mountain (Georgia) By population density (Macedonia) Other criteria (Bulgaria) Jan Herczyński13

14. Rural schools 1 Macedonia, primary education: Categorization of municipalities using population density 4 groups of municipalities Coefficient based on also on grades Additional coefficient for special needs students Data for 2011 Jan Herczyński14

15. Formula for municipalities The formula for municipalities includes two elements: – Number of weighted students multiplied by a per student amount (31 thousand MKD in 2011) – Lump sum for municipality (5 million MKD in 2011) The lump sum supports small rural municipalities with few small schools, and becomes irrelevant for large municipalities Jan Herczyński15

16. Coefficents for primary schools Categories of population density Grades 1 – 45 – 8 Under 40 inhabitants per km 2 1,61,8 Between 40 and 50 inhabitants per km 2 1,41,6 Between 50 and 70 inhabitants per km 2 1,21,4 Above 70 inhabitants per km 2 11,2 Jan Herczyński16

17. Population density and class sizes Jan Herczyński17

18. Class size and per student allocation Jan Herczyński18

19. Class size and per class allocation Jan Herczyński19

20. What Macedonian example teaches us Good prior analysis of factors taken into account in the formula is necessary But sometimes non-perfect formula is better than no formula! After the formula is designed, its effects need to be thoroughly analyzed Public discussion is useful for preparing changes to the formula Jan Herczyński20

21. Rural schools 2 Bulgaria: Categorization of municipalities using many different criteria 4 groups of municipalities 4 values of unified cost standards – values of per student allocation Data from 2008 Jan Herczyński21

22. Two levels of formulas A formula allocates funds to municipalities – Unified Cost Standard multiplied by number of weighted students – No lump sum as in Macedonia Municipality must adopt a formula to allocate these funds to its schools – 80% on a simple per student basis – 20% based on locally selected criteria Jan Herczyński22

23. Groups of Bulgarian municipalities 1Municipal center more than 70 thousand 15 2Center between 10 and 70 thousand, density > 65 40 3Center between 10 and 70 thousand, density <65, not mountains 139 4Other70 Jan Herczyński23

24. Unified cost standards, 2008 Jan Herczyński24

25. Class sizes: groups are heterogenous Jan Herczyński25

26. UCS fit average class sizes Jan Herczyński26

27. Per class allocation and class size Jan Herczyński27

28. What Bulgarian example teaches us It is difficult to capture real variation of class sizes using even multiple and rather complex criteria The average values mask significant variation The variation may lead to unequitable allocation of funds for education Jan Herczyński28

29. Rural schools 3 Georgia: School receive funds directly from the Ministry of Education No other legal revenues of schools Three values of vouchers: city, rural, mountain Data from 2007 Jan Herczyński29

30. Voucher and students per full time equivalent staff, by location Students per FTE staff Voucher (Lari) Voucher per FTE staff City13,23003 952 Rural8,84203 690 Mountain6,15103 117 Jan Herczyński30

31. Students per FTE staff by school size and location StudentsCityRuralMountain 41 to 604,14,03,4 61 to 1004,95,54,8 101 to 2007,07,76,9 201 to 50012,910,710,1 Above 50115,311,715,5 Jan Herczyński31

32. What Georgian example teaches us School size is a better predictor of class size (or number of students per FTE staff) than school location There is huge variation of school sizes within each category of location Location is not a good criterion for allocation formula Jan Herczyński32

33. Rural schools 4 Lithuania: Introduced a Student Basket (per student amount) based on 4 categories of school Schools are categorized by size (number of students), leading to normative class sizes Student Basket depends on size category (on normative class size) and also on grade (teaching load) Data from 2007 Jan Herczyński33

34. What does the Student Basket cover All expenditures are divided into education process and education environment Education process includes teaching and related expenditures Education environment includes school maintenance and related costs Both include both salaries and material costs Student basket covers only education process Jan Herczyński34

35. Local re-allocation Transfer to each municipality is defined as sum of school allocations for all schools located there Municipality must trasnfer these funds to schools Municipality has the right to re-allocate up to 5% of school budget to other schools Jan Herczyński35

36. Definition of school size categories Size category Initial (1-4) Basic (1-10) Secondary (1-12) Normative class size XSup to 50up to 130 10 S51 to 80131 to 300 up to 40015 M81 to 200301 to 600 401 to 700 20 Lover 200over 600over 70025 Jan Herczyński36

37. Relative values of per student amount Size category Grades 1 to 45 to 89 & 1011 & 12 XS 158%188%243% S 119%141%164%181% M 90%108%125%138% L 90%100%125%132% Jan Herczyński37

38. Budget of initial school as function of student numbers Jan Herczyński38

39. What does Lithuania teach us Basing per student amount on school size may lead to problems of reporting of student numbers National per student formula plus local power of re-allocation works very well for education process In the sphere of education environment significant inequalities emerged Jan Herczyński39

40. Small schools – a different approach Moldova (2012): The formula for schools uses only one differentiating factor, grade – Grade 1-3: 0,75, grade 4-7: 1, grade 8+: 1,32 Per student normative A, per school normative B. – School budget: Weighted Students * A + B For large school first term dominates, for small school – the second. Jan Herczyński40

41. Another problem: minorities students Often attend smaller class sizes, due to number of students Often have additional curriculum requirements (teaching of the additional language) A greater than 1 weight attached to minority students should take into account both of these factors Jan Herczyński41

42. Conclusions Designing a per student allocation formula is not a scientific activity, there are no strict rules and optimal models Every allocation system has its weaknesses and problems Understanding of these problems is necessary for taking appropriate mitigating measures, and hence for successfull implementation Jan Herczyński42

43. Conclusions 2 Prior to implementation, detailed simulations are necessary Review of simulations should include: – Analysis of per class allocation – Vertical and horizontal equity – Cases of insufficient funding for specific schools Simulations often yield more useful information than pilots Jan Herczyński43

44. Conclusions 3 Hard budget constraints should apply only to units with some budgetary independence, such as large schools or local governments Needs of every school are different, therefore a good system allows for some degree of flexibility The minimum form of such flexibility is to define reserve funds at the central or local level Jan Herczyński44