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Review of Funding Systems for New Zealand s Early Childhood and Schooling Sectors

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Review of Funding Systems for New Zealand s Early Childhood and Schooling Sectors Final Report: 31 March 2016 Prepared by: Murray Jack FCA 1 Executive Summary Introduction and approach
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Review of Funding Systems for New Zealand s Early Childhood and Schooling Sectors Final Report: 31 March 2016 Prepared by: Murray Jack FCA 1 Executive Summary Introduction and approach Introduction Approach Aims and objectives for New Zealand s 0-18 years education system Characteristics of well-performing systems Equity and quality matter The importance of ECE Teaching quality is key Decentralisation is a feature Disadvantage is a barrier to achievement Specific characteristics of New Zealand s education system The ECE sector The schooling sector Criteria for evaluating funding models Description of funding model options The options Funding for outcomes Funding for performance Discussion and evaluation of funding options Option evaluation Trade-offs Choices to be made Property School transport Conclusion and recommendations Conclusion Recommendations Limits of the funding model Implications of the preferred model Risks, transition and implementation Risks Transition Implementation Appendices A Terms of Reference B Statistics for the New Zealand Schooling System C Reference Material Executive Summary As part of the Government s Education Work Programme priority areas the Minister of Education has asked for an independent review of funding model options that support the evolving landscape. The focus of the review is on the 0-18 years that comprise the early childhood and schooling sectors, and includes state and stateintegrated school staffing, operating grants, property, and other programmes funded from the centre, and subsidies to private providers. The Review focuses on funding models and does not consider the adequacy of funding or its effectiveness. The Review considers the aims and objectives for New Zealand s 0-18 years education system, the characteristics of well-performing systems generally and New Zealand s education system, and then goes on to develop criteria for evaluating funding model options. In considering the funding models no distinction is made between the ECE and schooling sectors. Despite their obvious current differences in funding approach the available options for funding any education system apply to both. The options identified include the current funding models as well as other feasible options. While it is possible to mix elements of different models hybrids are not identified as separate models for evaluation. In developing models property and school transport have been excluded. These are considered separately as they have unique characteristics in the New Zealand context. The three funding options evaluated include: Formula funding: an input based model applying a number of weightings and payable in cash or in-kind Individual student funding: allocating funding based on individual students and the efficient unit cost of delivery of services, payable in cash Funded costs: an input based annual budget allocation model The three options were evaluated using eight criteria of alignment, equity, effectiveness, efficiency, flexibility, accountability and integrity, transparency and simplicity, and certainty and sustainability. There are a number of trade-offs inherent in the evaluation discussion. In particular there are trade-offs between equity and simplicity, flexibility and accountability, and efficiency and accountability. 4 Whichever funding model is preferred there are a number of implicit choices involving the extent of school choice, horizontal equity, funding for outcomes, and private school funding. The individual student funding model is preferred for the ECE and schooling sectors. It is particularly strong on the dimensions of efficiency, and transparency and simplicity, and is better aligned to the education system aims and government policy. The formula funding model rates well and both are significantly better than the funded costs model. The principal benefits of moving to an individual student funding model include: The ability to more precisely target resources to deal with educational disadvantage. This provides strong support for the investment approach. Improved performance at the school level as a result of funding on efficient unit costs of service delivery. Reduced administrative costs due to the simplicity of the model. The ability to support different provider structures (such as communities of learning, single providers, State and Partnership schools) with little or no adjustment. The current model for funding schooling sector property is preferred as there are economies of scale and expertise in managing the portfolio centrally and network capacity can be better managed to reflect broader demographic, societal and education service delivery changes. The full recommendations are: 1. Adopt an individual student funding model for the 0-18 years education system. 2. Implement the model across the system as follows: - ECE: per-child subsidy - State, State Integrated, Māori Medium, Partnership schools: efficient unit cost per student - Private: per-student subsidy (capped) 3. Transition per-child-place funding in ECE to per-child. Determine subsidy levels by reference to efficient costs of service delivery. 5 4. Use a small number of factors (such as parental education, student family occupation and income) as predictors of disadvantage for ECE per child funding levels 5. In determining per student funding levels for State, State Integrated, Māori Medium and Partnership schools: - Use a small number of factors (such as parental education, student family occupation and income) as predictors of disadvantage - Use average costs until such time as efficient unit costs of service delivery are available - Provide a base level of funding that reduces as schools increase in size to recognise the fixed costs of operating a school - Manage funding centrally (rather than placing it in the hands of parents/care givers) 6. Fund property maintenance for State, State Integrated, and Māori Medium schools as part of per student funding and require property to be maintained at specified standards. Review the maintenance which schools are responsible for and the use of ring fenced funding 7. Continue to fund capital upgrades and modernisation for State schools on five year funding agreements and State Integrated schools on the current basis. 8. Fund school transport for State, State Integrated, and Māori Medium schools on a per-student basis. 9. Develop an outcomes framework for the State, State Integrated and Māori Medium sector that involves a set of soft and hard incentives for student achievement and financial performance. 10. Develop an accountability framework for the funding model for the schooling sector that encompasses: - Governance arrangements - Educational achievement targets, plans and reporting - A maturity assessment of management capability to direct resources where needed - Monitoring and review processes 6 - Financial planning and reporting The individual student funding model moves away from an input driven formula funding approach used in the schooling sector to an efficient unit cost of service delivery approach, albeit using average cost as a proxy initially. It sees staffing entitlements and most other in-kind funding replaced by cash to providers. Some inkind programmes may remain at the central level for example special education. No structural changes at the provider level are envisaged as a result of the preferred model. The preferred model can accommodate new structures, such as communities of learning, or a scaling of structures like Partnership schools. Nonetheless as New Zealand s schooling sector is characterised by a relatively large number of very small and in many cases isolated schools there is merit in evaluating the use of a funded costs model for schools that fit that profile. The added complexity in a per-student funding model in these cases may have little utility given resource inflexibility, high fixed costs and unavailability of alternatives. An individual student funding model will require a focus on capability building at the school level and is likely to support the formation of communities of learning or shared services arrangements. Accountability requirements, including any outcomes framework, will need careful design in particular as they relate to the use of funding for disadvantage. The preferred model confers greater flexibility for providers in the schooling sector as once implemented the per-student funding moves with labour cost and CPI changes and is not directly linked to the current entitlement formulae. Once implemented it is likely that over time the financial performance of individual schools or communities of learning in the State, State Integrated and Māori Medium sectors will diverge from the efficient unit cost of service delivery as a result of their relative effectiveness in managing resources. Policy will need to be developed to deal with significant deficits or surpluses (the latter likely to be less common). There are a number of risks in transitioning from the current models to the preferred model. Some of these are inherent in any significant change, and others are specific to the preferred model. Transition fiscal risk: It is assumed that the implementation of an individual student funding model will need to be fiscally neutral. This is not regarded as a significant risk in ECE sector. However, it is more complex in the schooling sector (other than for Partnership and Private schools). Detailed modelling will be required to determine the impact of transition from the current funding formula to the preferred model. This 7 will highlight winners and losers. Depending on the approach taken to manage transition it is feasible that the Government will face increased costs. Longer term fiscal risk: Education spending has been increasing over time. This has been particularly acute in the ECE sector as participation rates have increased. The fiscal risk within the ECE sector is lower going forward as participation nears practical limits and the Government caps free hours. Fiscal pressures will come from population growth and delivery cost increases (primarily salaries). Stakeholder risk: Providers have the most direct interest in the outcomes of transition to a new model, however, there are also other powerful groups that will need to be brought on the journey, such as parents, peak bodies and unions. It is noted that even past small changes to the current formula funding approach have faced significant opposition. Execution risk: There is a significant change programme which will require strong leadership, focus and capability to execute. Management capabilities vary across the 0-18 years schooling sector and it is expected that schools would require significant support over transition. As there will be winners and losers consideration needs to be given to a period of transition to the desired end state. The length of time will depend on the materiality of the funding impacts. For example a 2-3 year transition for both winners and losers may be appropriate. Both winners and losers need to transition to the end state over similar time periods otherwise fiscal neutrality is not assured. It is likely that there will be some schools that are significantly below the efficient cost of service delivery (or the current average cost) and where a 2-3 year transition period is not sufficient. An approach to supporting improvement to efficient service delivery and deficit funding these schools will need to be developed. Steps to implement the preferred model include the following: 1. Complete detailed design of the model components, including the confirmation of the factors to be used in weighting funding for disadvantage. 2. Develop a detailed financial model to enable financial impacts to be identified at the provider level (the winners and losers), and overall fiscal impacts evaluated. 8 3. Determine the approach to transition, including any longer term deficit funding arrangements for those schools furthest from the efficient cost of service delivery. 4. Resolve key policy issues: rates of funding for disadvantage, extent of funding for outcomes/performance, any changes to levels of ECE/Private school subsidies, transition periods, etc 5. Develop an implementation plan. 6. Consult with affected stakeholders. 7. Build required processes and systems to support implementation and ongoing management of the funding model. 8. Establish effective governance arrangements for the funding model, including such matters as oversight of decisions on parameters, processes for consultation, publication of model determinants, and on-going evaluation of the model s effectiveness. 9 1. Introduction and approach 1.1. Introduction Strong education outcomes are important to the development of a strong and successful civil society. Governments play a key role in supporting strong education outcomes by setting overall system objectives, managing qualification and curricula frameworks, and providing funding for the delivery of education to public and private providers. While the New Zealand education system performs well on many measures it is characterised by persistently high levels of disparity in student achievement. This has seen a number of initiatives in recent years including, for example, the setting of specific achievement targets, improving teaching quality and leadership, investments in hard and soft infrastructure, and in measurement and reporting. Over the next five to ten years it is anticipated that the schooling system will become more diverse with the emergence of geographic, faith and language based communities of learning alongside individual providers, either public or private. The current funding model is over 25 years old and has evolved incrementally in an ad hoc fashion over that time. As part of the Government s Education Work Programme priority areas the Minister of Education has asked for an independent review of funding model options that support the evolving landscape. The focus of the review is on the 0-18 years that comprise the early childhood and schooling sectors, and includes state and stateintegrated school staffing, operating grants, property, and other programmes funded from the centre, and subsidies to private providers. The Review focuses on funding models and does not consider the adequacy of funding or its effectiveness. The full Terms of Reference for the Review is included in Appendix A Approach The approach is principally desk based drawing on existing materials and further research provided by the Ministry of Education. Section Two of this report clarifies the aims and objectives for New Zealand s 0-18 years education system. It is recognised that work is underway on a revision of the Education Act, part of which will include a clear statement of objectives. Nonetheless 10 the broad thrust of these is known and it is important that the analysis of any funding model options considers them. Sections Three and Four examine what we know of the characteristics of wellperforming education systems and of New Zealand s education system. In Section Five the specific criteria for evaluation funding model options are developed. Sections Six and Seven describe the particular funding models and discuss and evaluate each of them. Three models are considered for this analysis. Section Eight sets out the conclusions and recommendation and finally Section Nine considers the risks, transition and implementation issues for the recommended option in more detail. 11 2. Aims and objectives for New Zealand s 0-18 years education system While there is no single statement of the aims and objectives for New Zealand s education system contained, for example, in the governing legislation (principally the Education Act 1989), there are a number of markers in documents such as the Ministry of Education s Statement of Intent, the New Zealand Curriculum, the National Education Guidelines and Government policy statements. It is acknowledged that there is a review of the Education Act 1989 currently underway and that as part of that work an agreed set of aims and objectives will be developed for inclusion in the revised Act. Among other things it is expected that this work will put a focus on students and achievement. Aims and objectives can be thought of as encompassing both high level long term aspirations and specific goals that comprise the focus of governments of the day. High level long term aims typically focus on preparing students to be successful participants in society and they reflect the particular characteristics of a nation s education system in terms of access, participation and cost. By their nature these overarching aims are enduring. In the New Zealand context high level long term aims for the education system can be summarised as: Delivering high quality education to enable all New Zealanders to participate successfully in a dynamic and diverse civil society and a competitive global economy Developing our young people as confident, creative, connected and involved lifelong learners and citizens These statements imply a system that provides access for all New Zealanders, that is focused on high quality, and that is capable of evolving over time. In addition to these overarching aims are specific objectives set by governments that respond to the particular issues requiring focus if the overarching aims are to be achieved. The current Minister of Education has specific objectives in relation to: Raising the level of education achievement for all students Directing investment to where it is needed most, specifically increasing participation and quality in Early Childhood Education (ECE), and increasing the proportion of 18 year olds with NCEA Level 2 or equivalent 12 Tackling long-standing differences between students and schools that are performing well and those that are not These statements imply a system that focuses on high quality outcomes, takes an investment approach and targets effort and resources to students and schools where they are needed most. 13 3. Characteristics of well-performing systems There is extensive evidence-based research into the factors that are most influential in the achievement of learning outcomes. There is very little research on the direct impact of funding model design on learning outcomes. In this section those characteristics of well-performing education systems which are most able to be influenced by funding model design are discussed Equity and quality matter The OECD (Equity and Quality in Education, 2012) identifies that well-performing education systems combine equity with quality. The analysis looks at the relationship between PISA results and socio-economic background. New Zealand sits in a group of countries where the strength of the relationship is above the OECD average impact. While many of the factors affecting equity are not related to funding models (for example school leadership, classroom strategies, early student selection) the available resources and the way they are spent influences learning opportunities. The common use of weighted funding formulas in many schooling systems reflects this as would, as an example, additional incentives for high quality schools to enrol more disadvantaged learners The importance of ECE The OECD (2012) also identifies that investing in ECE and care yields high returns, particularly for disadvantaged learners, as it allows early acquisition of skills and knowledge that shape future development. Later interventions are more costly and can be less effective. Both participation and quality are important for good outcomes from ECE investments. Most OECD countries have materially increased their investments in ECE and New Zealand is no exception. Funding models have a role to play in influencing participation and can impact quality in tandem with other interventions (for example regulating teaching standards) Teaching quality is key
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