Effects of decentralization on pre-university education financing in Romania

1
Effects of decentralizationon pre-university
education financing in Romania

• Sorin Ionita
• Romanian Academic Society
• (SAR, independent think tank)
• sionita_at_sar.org.ro

2
Responsibilities in education

• Education a system currently being
  decentralized
• By law the state should finance it with at
  least 4 of GDP, a target never achieved ?
  under-funding
• World Development Report 2003 data on 2000
  budgets

Bulgaria 4.1
Slovakia 3.9
Romania 3.4
Poland 5.9
Slovenia 4.4
Hungary 4.8
Czech Rep 4.2
3
Responsibilities in education

• After the 1998-99 local finance reforms
  function shared by the 3 tiers of government
• Local Councils own buildings facilities, pay
  for maintenance development, may contribute
  towards any other kinds of costs
• County Councils only special needs education
• Central government standards curricula
  decide on hiring/firing of principals and
  teachers decides the national salary grid
  finances salaries through a lump transfer to
  local governments (LGs)

4
Financing

• Two main types of operational costs
• Salaries defined as a lump sum in the Annual
  State Budget, split by county, who in turn pass
  them down to LGs
• No formula sums determined based on need
  estimates in fact, historical costs
  negotiations in two steps (local-county
  county-central)
• Make up about 85-90 of the total costs at the
  school level

5
Financing

• Two main types of operational costs
• Maintenance, utilities, other costs paid by LGs
  (plus some additional national programs
  textbooks, social scholarships)
• Roughly 10-15 of school-level costs however
  they may be underestimated
• there are significant arrears of payment to
  utility suppliers hard to estimate due to
  cash-based accounting
• asset depreciation is typically ignored by public
  bureaucracies in CEE countries

6
Current issues

• Declining demographics and Communist
  over-investment ? need to rationalize the
  overextended under-funded infrastructure
  (consolidate schools lay off teachers)
• In the same time, stop the decline in the quality
  of teaching staff (age, gender, qualifications)
  and increase the general level of funding
• Large disparities in cost/pupil not so much
  between regions or localities, but between
  schools in the same locality

7
Primary education cost/pupilsample of 61
schools from 3 counties
8
Disparities

• Why?
• Integrity of the financing system
  (politicization, corruption see paper) No
• Urban / rural Yes, but only 13 more in rural
  schools, as expected
• Contingent if LGs make significant capital
  investments in a particular year diversification
  of funding sources (urban, affluent schools)
• Inherited cost structure high in secondary
  schools with many facilities / labs / workshops
  high overheads overstaffed with
  teaching/non-teaching personnel obsolete subjects

9
Decentralization

• Half-way through. Points on the agenda on which
  there is (reasonable level of) agreement
• Close down schools, rationalize staff
• Increase the role of Local Councils in
• hiring / firing teaching personnel
• influencing quality standards (esp.
  teacher/pupils ratio)
• Shift to a more transparent, formula-based
  transfer system from the central government

10
Decentralization

• Points in suspension
• Which schools to close down the most expensive
  on paper (rural) the most expensive in reality
  (urban, overstaffed)
• probably, some from both categories
• To what extent should Local Councils be allowed
  to interfere in personnel and quality-education
  decisions
• probably split responsibility, with limited
  local discretion

11
Decentralization

• The financing formula the most contentious
  point, it cuts across all other issues
• A lot of TA was provided (WB, DFID, Usaid) so a
  list of options is on the table at the MoE
• Earmarked grant to LGs only for salaries in
  education
• Earmarked grant for pre-university education in
  general
• Block grant to LGs, which they could reallocate
  freely (i.e. a supplement to the current
  general-purpose transfers)

12
Finance decentralization

• Choice to be probably made between (a) and (b)
• Some stakeholders (MoE inspectorates teacher
  unions) are reluctant to
• allow LGs too much discretion to make
  reallocations, even between current and capital
  expenditure in education (MoE and unions want to
  keep salary funds insulated)
• shift from the current historical, input-based
  system to one user-based (with some corrections
  according to local circumstances)

13
Finance decentralization

• accept a formula when they do, they argue for
  correcting the standard variables agreed
  (school level location poverty ethnic
  minorities after-school services) with local
  coefficients (i.e. negotiable) reflecting
  historical costs
• There is still no agreement on how should the
  formula factor in a number of objective costs
  without creating disincentives / obstacles for
  the needed rationalization of schools optional
  subjects offered technical state of the building
  facilities

14
Finance decentralization

• LGs are not very interested in the issue at all
  if the choice is (a) it means they would
  continue to execute a national mandate on
  salaries
• The Ministry of Finance is only interested in
  controlling the aggregate level of spending it
  is worried that any new allocation mechanism will
  be an extra burden for them

15
Finance decentralization

• Independent experts and donors are in principle
  in favor of the objective formula and solutions
  (c) or (b)
• However, there are concerns that more local
  autonomy may also contaminate the education
  funds with bad practices observed in other
  intergovernmental transfers (general-purpose
  infrastructure)
• 2 sensitive points

16
Finance decentralization

• Allowing the shifting of funds between personnel
  and investment lines suddenly makes the whole
  issue more interesting to LGs political
  pressures on allocations to localities/schools
  may increase
• If County Councils are involved in the
  distribution of funds to LGs (following the
  Romanian administrative tradition) the danger of
  contamination is even higher