Effects of decentralization on pre-university education financing in Romania

1. Effects of decentralizationon pre-university education financing in Romania Sorin Ioniţă Romanian Academic Society (SAR, independent think tank) sionita@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

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