From Line-Item Budgeting to Per Student Funding Formulas.

Successes and Failures from the Experience of Post Soviet

Countries

Jan HerczyńskiBaku, 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

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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

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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

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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

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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

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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

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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

sectorJan Herczyński

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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 Jan Herczyński

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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

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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

Jan Herczyński