Lars Sondergaard November 2010

1. What are the benefits of introducing per student financing? And what are the pitfalls to avoid during implementation?Assessing the evidence Lars Sondergaard November 2010

2. Financing results (not inputs) makes sense • Good management: tying resources to desired results makes sense • Primitive result: a student enrolled • More sophisticated result: a student graduating – or a student graduating with a desired level of competencies • Greater transparency • Greater predictability

3. Why is per student financing a good idea? • More “fair” distribution of resources: • Similar schools are financed with same amounts of money • Schools with a more difficult student population (e.g. students with another mother tongue, or rural students) can receive more money • Strong incentives to use resources efficiently: when money is tied to classes, there is no incentive to reduce teachers. When money is tied to students, there is.

4. Most countries in the region have already (or have started) to move toward per student financing • Albania • Belarus • Bosnia & Herzegovina • Croatia • Kazakhstan • Montenegro • Turkey • Ukraine • Kyrgyz Republic (2006) • Russia (1998) • Tajikistan (2005) • Uzbekistan (2008) • Azerbaijan • Latvia • Macedonia • Moldova • Serbia • Slovenia • Armenia (2005) • Bulgaria (2008) • Czech Republic (1992) • Estonia (2001) • Georgia (2007) • Hungary (1990) • Kosovo (2002) • Lithuania (2001) • Poland (2000) • Romania (2010) • Slovak Republic (2004) Still stuck with input-based financing

5. However, per student financing alone will not fix an oversized school network • Per student finance is a sensible thing to do on its own merits… • …but, by itself, it will not solve the oversized school network • Rationalizing the school network and staff is really difficult… • …and you need several instruments to tackle the problem

6. Outline of the rest of this presentation • Intuition on why per student financing, alone, won’t rationalize the school network • Empirical evidence: have countries who have introduced per student financing managed to rationalize their school network?

7. What are the limits of per student financing? • The costs to close down a school may be substantial and much bigger than the “rewards” built into the per student financing scheme. • The financing formula may not necessitate school closures • Too generous per student amounts • Too generous annual increases in per student amounts • Design flaws

8. How can the costs exceed the rewards? Look at costs • Political costs • Parents’ opposition to close village school • Teachers’ opposition to lose jobs • Financial costs • Cost of transporting children (and looking after them) • Cost of refurbishing school • Human cost • Who likes to be the bad guy?

9. What is the opportunity or “reward”?

10. The formula may not necessitate closures Example 1: too generous amounts Funding to school = X What if allocation is more than costs for all schools?

11. The formula may not necessitate closures Example 2: too generous increases Funding to school = X What if annual increases offset declines?

12. Design flaws (we are still learning…) • It is not a good idea to allow local authorities to top up education budget by diverting resources from other areas • It is not a good idea to have a formula that provides additional financing to small schools • It is probably not a good idea to introduce per student financing directly to schools in the first year of reforms IF a lot of school consolidation is needed. Perhaps it is wiser to introduce per student financing to local authorities first.

13. Empirical evidence • Three countries with elements of per student financing in place: Bulgaria, Estonia and Moldova • Lessons: • Per student financing by itself is insufficient • When adding additional instruments to per student financing, the results can be impressive

14. All three countries have experienced large declines in student numbers

15. Especially Estonia and Moldova have struggled to downsize Bulgaria didn’t! Moldova and Estonia had money following students

16. Very generous class size norms sent the wrong signal to all actors • In Moldova, (until recently) there was no minimum class size and the maximum class size was 20. • In Estonia, the maximum allowed class size was lowered from 36 in 2002 to • 24 in grade 1 in 2003/04 • 24 in grade 2 in 2004/05 • 24 in grade 3 in 2005/06 etc

17. Bulgaria undertook sweeping reforms, starting on Jan 1, 2007 • Good example of country that introduced per student financing as part of a comprehensive reform to the way schools are managed • Good example of a country that recognized that additional measures are needed to accelerate school consolidation • Visible evidence that their reforms worked

18. 2005 status: Quality had fallen and was seen as unacceptably low

19. 2005 status: More money wasn’t (yet) buying better quality

20. The reforms • Finance: Introduce per student finance • Autonomy: expand autonomy of principals • Accountability:introduce external assessments to monitor the quality of education Implementation: • “Safe-guards”: support municipalities in the transition process and ensure that access is not jeopardized.

21. Number of school closures rose sharply

22. Resulting in fewer staff and improved student-teacher ratio

23. More resources spent on non-staff costs

24. Why did the reforms resultin school closures in Bulgaria? • Introduce per student financing with low per student amounts to “underfund” many schools • Make receipt of large sums of (additional) money to local authorities conditional on making progress with school consolidation. • Strong political leadership • Comprehensiveness of reforms made “selling” the reforms easier

25. National performance-based programs to support municipalities Conditional on progress with school consolidation, municipalities could receive financing for • Refurbishing school buildings (to reduce heating costs) • Pay severance payments to laid off teachers • Busses

26. Summary of messages: does per student financing help? Yes, it can help but it is not enough • Per student finance is a sensible thing to do on its own merits… • …but, by itself, it will not solve the oversized school network (e.g Moldova, Estonia) • Rationalizing the school network and staff is really difficult (e.g. Moldova) • …and you need several instruments to tackle the problem (Bulgaria 2007-2009) reforms

27. How can we help implementing per student financing and supporting school optimization? • For more information: contact Lars Sondergaardlsondergaard@worldbank.org • Alberto Rodriguez, Sector Manager arodriguez@worldbank.org • MamtaMurthi, Sector Director, mmurthi@worldbank.org