education finance in transition countries

Education Finance in Transition Countries

Jan Herczyński

SKL Project

„Support to Decentralization in Ukraine”

Kiev, April 22, 2015

Structure of the presentation

• Sources of funds for education

• Education finance as an element of national local public finance system

• Management of education and its implications for education finance

• Examples of education decentralization

• Lessons for Ukraine

Jan Herczyński, SDU 2

Sources of funds for education

• Education is an expensive social function, employing large staff and consuming between 3% of GDP (Romania, Albania) and over 9% (Kyrgyzstan)

• Education is predominantly – but not exclusively – delivered by public institutions

• The sources of funds and a distribution procedure need to be defined by law


Sources of funds for education 2

• In developed countries between 73% (Germany) and 99% (Denmark) of all funds for education come from public sources

• Non public funds for education are concentrated in tertiary and post secondary education

• Thus primary and secondary education are mainly funded from public funds



• Primary and secondary education:

– low private returns to education (high opportunity costs, lack of immediate labor market relevance)

– high social returns to education (social and political cohesion, active citizens, literate workforce and soldiers)



• Tertiary and post-secondary education:

– high private returns (education as „filtering system”, significance of degrees, high personal position in life)

– relatively low social returns (social and political cohesion achieved already by secondary education)



Main sources of public funds for education:

• National budget: based on nationally collected taxes (PIT, CIT, VAT),

• Local budgets: based on local taxes (local fees, property tax, etc.)

– But rarely sufficient funds for education

• Local budgets: based on transfers from the national budgets (grants or shared taxes)



Types of transfers for education:

• General or specific for sub-sectors (preschools, primary schools etc.)

• Covering all school costs or specific budget categories

• Categorical or unconditional

• Needs based or taking into account local financial capacities


Education in national public finance

• In every civilized country, education finance is a part of national public finance system:

– All instruments of education finance are defined in budget and finance laws of the country,

– Budgeting process, budget execution, budget reporting and monitoring in education conform to procedures valid for all sectors.

• National budget discipline and demands for effective use of resources apply to education!


Education in national public finance 2

Nevertheless, education finance must address specific needs of the sector:

• School year and budget year do not coincide,

• Education costs are not related to individual beneficiaries of education (students), but to providers (teachers, schools),

• Schools require long-term financial stability to teach well


Management and finance of education

Specific instruments of financing education must be also adapted to the selected model of education management:

• Model and scope of decentralization,

• Degree of autonomy of education institutions at different levels

• National tradition and experience, which have an impact on skills and knowledge


Management and finance 2

• In transition countries, reforms of the inherited Soviet system of governance very often include decentralization

• Different countries decentralize for different reasons and choose different models

• We will review first the models and then the reasons



There are two basic models of education decentralization:

1. Decentralization to the level of local governments

2. Decentralization to the level of schools

It is useful to review them briefly



Decentralization to the local governments:

• Municipalities are responsible owners of local school networks,

• They manage, plan and finance schools on the basis of short term demographic projections

• They are responsible for rational use of budget resources

• They assess performance of schools



Decentralization to level of schools:

• Schools as autonomous institutions manage responsibly their resources

• School directors understand the needs of students and expectations of parents

• School activities are tailored to these needs, within the available budgets



The two models are in many respects compatible:

• School autonomy should be harmonized with municipal sphere of competence

• School directors and municipal officials should cooperate to improve school quality

• Dialogue between different stakeholders is necessary for education



BUT:

In two most important aspects the two models are in in disagreement:

1. School closures: who will decide that a school needs to be closed

2. Setting school budgets: who will decide on the funds to be used by the school



Implications for network management:

• Local government may become an agent of planned school consolidation

– Decisions should taken on the basis of demographic projections

• Schools will compete on the local education market and the „losers” will have to be closed by some special procedures



Implications for school financing:

• Education grants will be directed to either the schools or the local governments

• In theory, school level formulas should be much more complex, taking account many school needs – Local formulas in UK and Australia are very complex

• In practice, they are often the simplest (Georgian and Armenian vouchers)


Examples of education decentralization

We discuss briefly a few examples of education decentralization in transition countries:

• Poland 1990

• Macedonia 2002

• Georgia 2003


Examples 2

Poland 1990:

• As the first transtion state to have a non-Communist prime-minister, Poland faced huge problems

• The new team of reformers was a small group of Solidarność activitists elected to run well organized and hostile buraucracy

• They decided to cut the buraucracy from below


Examples 3

Poland 1990:

• Ministry of National Education initially opposed decentralization – Other tasks in education sector were considered

far more urgent

• MNE only managed to obtain postponement

• Because Poland chose strong decentralization program, education was decentralized to municipalities


Examples 4

Macedonia 2002:

• In 2001, armed clashes between Albanian intruders from Kosovo and Macedonian army killed a number of people and almost erupted into a war

• Peace imposed by EU was based on the principle of ethnic decentralization

• Education was just a part of this process


Examples 5

Macedonia 2002:

• Albanian and ethnic Macedonian municipalities existed side by side

• Their autonomy was planned as a guarantee of peaceful development of the country

• Education was therefore decentralized to the level of local governments


Examples 6

Georgia 2003:

• The Saakashvili government came to power as a result of rose revolution

• The driving force was the revolt against the corrupt state

• Fight against corruption became the symbol of the new government

• Local governments were among the most corrupt institutions in the country


Examples 7

Georgia 2005 :

• The new government took all the money and functions away from local governments

• This included education

• In consequence, schools were established as autonomous budget institutions

• Thus decentralization to the level of schools was selected


Lessons for Ukraine

Of the many lessons for Ukraine, we focus on two only:

• Model of education decentralization should be selected in accordance with political objectives and the traditions of the country

• Education finance should be adapted to the selected model of decentralization of the sector


Lessons 2

Choose wisely national model of education decentralization:

• Although both models have important benefits, one must be selected as the basis

• Reforms of the budget code and planned administrative territorial reform point towards decentralization to municipalities

• But strong forces exist in the opposite direction


Lessons 2

Adapt the financing system in education to governance model:

• In fact, financing reforms have preceded any reforms of education governance

• Various official strategic documents need to be harmonized

• Incoherent financing system is especially dangerous during fiscal contrainst due to war and must be avoided


Thank you for your attention!


education finance in transition countries

Education

education education

education social

education costs

kyrgyzstan education

education local budgets

postsecondary education

high private returns

public sources