New model for school funding that won’t break the budget

Funding schools according to the needs of their students is something of a Holy Grail in Australia: something that we want very much but that has been very hard to achieve.

Every school has a “target” rate of funding for each of its students that takes into account the fact that disadvantage, disability, language difficulties and other factors make it more challenging and more expensive to educate some students than others.

But schools are not funded according to their needs-based target. Schools are funded based on a complex mix of historical arrangements and special deals

Some schools are over-funded when compared to their target. But most schools are under-funded across independent, Catholic and government school sectors.

ACT Independent schools receive combined government funding at over 150% of SRS. Grattan school funding model, based on analysis of data from Commonwealth Department of Education and Training

Lifting all schools to their target funding levels is extremely costly under the current model – we estimate that it would cost more than A$3.5 billion each and every year to fund all schools even at 95% of their target. 

But times have changed and unprecedented low wages growth means that needs-based funding has never been easier to achieve than right now. 

We propose a new deal that aligns funding to need for the same amount of money. We create big savings by reducing the automatic annual growth on school funding (indexation), affecting all schools. We then reallocate these funds to the most under-funded, getting all schools to their target by 2023. 

How will this work?

The first step is to fix funding arrangements to set all schools on a course to their target within six years. In parallel, we recommend reviewing the formula for determining needs-based targets to ensure we are aiming for the right target, and adjusting targets if required.

The second step is to introduce transparency in funding arrangements through an independent body, to ensure funding goes where it is needed most. 

The third step is to ensure that funding improves teaching and learning. We propose investing in new roles for expert teachers to drive improvement in our classrooms. 

What does the new model mean for schools?

There will be winners and losers. But there already are. And the current arrangements ensure that the winners stay winners and losers stay losers because school funding grows according to what you got last year, not what you need this year. 

Within six years we could level the playing field with very few schools experiencing any loss in real terms.

Grattan school funding model, based on analysis of data from Commonwealth Department of Education and Training

Fixing funding arrangements

To fix funding arrangements, we propose reducing the automatic annual growth (indexation) of both target and actual funding per student to recognise the low inflation environment we now live in. Historically education wages have grown each year by about 3% to 4%, but since 2015 this has been dropping and education wages are now growing at about 2.5% each year.

School costs are mostly wages, so school funding indexation should be linked to wage growth in order to maintain its real value over time. But the current (fixed) indexation rates were designed when wages growth was higher and are now over-generous.

Changing indexation arrangements will affect all schools – it slows the growth of every school’s funding target, as well as the actual funding they receive, in line with real cost growth. 

The budgetary savings these changes generate are significant and should be redistributed to closing the needs-based funding gap.

We propose additional changes to funding arrangements to ensure all schools reach target funding levels within six years. 

Plan for overfunded schools

For overfunded schools, we recommend freezing the growth of per student funding until they return to their target funding level. 

For example, a school that is over-funded by 10% would receive no funding growth per student for four years, at which time it has returned to target and would then recieve normal funding growth. 

This requires over-turning the Gillard government’s promise that “no school will lose a dollar”. If no school loses a dollar, some overfunded schools will take more than a century (if ever) to return to target funding levels. 

There is no doubt that this is politically challenging. 

The independent schools lobby warned the Turnbull government not to treat it as an “easy target” after education minister Simon Birmingham flagged the idea on ABC’s Q&A show in September

Yet, even with a freeze on indexation, many schools will take decades to return to target levels, because some schools are funded nearly three times as much as the formula says. A list was published recently in the Sydney Morning Herald. 

For these highly overfunded schools we recommend year-on-year funding cuts over six years from 2018 to 2023 to spread the impact and ensure all schools reach 95-100% of their target funding levels by 2023. 

While tough, these schools have been receiving far more than they need and the change will be easier for them to manage in a low inflation environment. And the most over-funded schools typically have high fees and get the bulk of their revenue from parents, not from the government. They are not the struggling schools in the system.

Plan for underfunded schools

Meanwhile, schools that are under-funded will receive boosted indexation to help them catch up over time. Schools that are very under-funded (below 90% of their target) will require top-up payments spread over six years to reach their target funding by 2023. 

This will benefit schools in all sectors – in fact, some of the most under-funded schools in Australia are actually independent schools.

What does this mean for budgets?

The model will cost the Commonwealth exactly the same as the 2016 Budget over the next four years – and offers significant savings when compared to the funding arrangements under legislation. 

The implications however are very different for individual states and for each school sector in each state. 

Whether an individual state’s budget will be better or worse off under the model depends on the rate at which per student funding is growing at present (information not publicly available) and how well schools are currently funded compared to the target.

A state like Victoria with under-funded schools will need to step up under the model and spend more on their schools than they have in the past. But it will also receive more Commonwealth funding.

ACT government schools are currently over-funded schools, and the ACT could potentially bank savings under the compact. But it will also receive less Commonwealth funding.

Funding must improve teaching and learning

Fixing school funding arrangements – so that actual school funding matches target school funding – will help to maintain a fair and inclusive education system. 

But fixing school funding arrangements is only part of the battle. Just as importantly, schools must spend their funding well.

We need structures and approaches that will improve teaching quality to ensure school funding is well spent. 

To maximise student learning progress, teachers need to use evidence-based teaching practices in the classroom, including targeted teaching and the types of practices described by John Hattie in Visible Learning

We propose investing in teaching quality, through two new roles that recognise expertise in teaching.

Master Teachers and Instructional Leaders will work in and across schools to drive improvements in teaching effectiveness in their subject areas. These roles provide a mechanism for spreading the use of evidence-based teaching practices to all Australian classrooms.

The new model we propose is a circuit breaker. It aligns school funding to need, invests in teaching quality, and maintains most schools’ purchasing power, without breaking the budget.

creative-commonsThis piece was written by Peter Goss, school education program director, and Kate Griffiths, associate; Grattan Institute. The article was originally published on The Conversation.

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