This report on the funding of school education constitutes the first in a series of thematic comparative reports bringing together findings from the OECD School Resources Review. School systems have limited financial resources with which to pursue their objectives and the design of school funding policies plays a key role in ensuring that resources are directed to where they can make the most difference. As OECD school systems have become more complex and characterised by multi-level governance, a growing set of actors are increasingly involved in financial decision-making. This requires designing funding allocation models that are aligned to a school system’s governance structures, linking budget planning procedures at different levels to shared educational goals and evaluating the use of school funding to hold decision makers accountable and ensure that resources are used effectively and equitably. This report was co-funded by the European Commission.

1. The Funding of School Education
-
Connecting Resources to Quality
and Equity Goals in School Education
OECD School Resources Review,
OECD Directorate for Education and Skills

2. Governing
school
funding
Distributing
school
funding
Planning
and
evaluating
the use of
funding
2
Key elements in school funding policies
School funding policies play a key role in directing resources to where they
matter

3. 3
Governance of school funding
Who pays and who decides?

4. • Almost 91% of school funding come from public sources (but private funding is
growing)
• Funds are typically raised by 2 or 3 different levels of government, but there are
some exceptions (4 levels in Belgium; only 1 in Uruguay)
• International funds increasingly contribute to funding school education
• Schools themselves also contribute to raising their own funds
• Private schools have become important end users of public funding
4
Key features in the governance of school funding

5. On average, sub-central governments are the most important
spenders in school education
5
0
10
20
30
40
50
60
70
80
90
100 Switzerland
UnitedStates
Korea
Japan
Argentina
Canada
Poland
Norway
Australia
Germany
Brazil
Finland
CzechRepublic
Spain
Latvia
Belgium
Lithuania
Iceland
Mexico
SlovakRepublic
Austria
OECDaverage
UnitedKingdom
EU22average
Chile
Estonia
Israel
France
Portugal
Italy
Ireland
Luxembourg
Turkey
Colombia
Hungary
Slovenia
Netherlands
%
Sub-central level transfers to schools Initially transferred from the central level
Source: OECD (2016), Education at a Glance 2016: OECD Indicators, Table B4.3
Share of final funds allocated to schools by sub-central government (2013, ISCED 1-4)

6. But governance arrangements vary across countries
6
0
10
20
30
40
50
60
70
80
90
100 UnitedStates
Norway
Poland
Finland
Canada
Latvia
Lithuania
Iceland
SlovakRepublic
Korea
UnitedKingdom
Argentina
Australia
Japan
Spain
Mexico
Germany
Belgium
CzechRepublic
Switzerland
Austria
NewZealand
Netherlands
Hungary
Slovenia
Turkey
Colombia
Luxembourg
Ireland
Italy
Portugal
France
Israel
Estonia
Chile
OECDaverage
%
Countries where
regional /state
authorities allocate
most of the funding
Countries where
central authorities
allocate most of the
funding
Countries where local
authorities allocate most
of the funding
Source: OECD (2016), Education at a Glance 2016: OECD Indicators
Proportion of funding allocated to schools by government level, after transfers between
government levels (2013)

7. Municipal fragmentation in international comparison
7
Source: OECD (2017), "Subnational government structure and finance", OECD Regional Statistics (database).

8. Schools may have considerable responsibility for managing
their own budgets
8
0
10
20
30
40
50
60
70
80
90
100
CzechRepublic
NewZealand
Estonia
Iceland
Latvia
Denmark
UnitedKingdom
Netherlands
Sweden
Australia
SlovakRepublic
Norway
Lithuania
Luxembourg
Finland
France
Spain
Belgium
Slovenia
OECDaverage
Poland
UnitedStates
Chile
Ireland
Canada
Portugal
Switzerland
Japan
Israel
Korea
Mexico
Hungary
Greece
Turkey
Austria
Italy
Germany
%
Percentage of students in schools where the principal has considerable
responsibility for formulating the budget (2015)
Source: OECD (2016), PISA 2015 Results: Policies and Practices for Successful Schools (Volume II), Table II.4.1

9. 9
Schools also contribute to raising their own funds

10. Private schools receive considerable amounts of public
funding
10
0
10
20
30
40
50
60
70
80
% Lower secondary education Primary education Upper secondary education
Percentage of students enrolled in government dependent private schools (2014)
Source: OECD (n.a.) Education at a Glance 2016 Database, Share of students enrolled by education level

11. • Connect funding strategies to education goals
• Clarify roles and responsibilities in
complex funding systems
• Build capacity for strategic budget
management at all levels involved
• Share experience from sub-central funding
approaches and formulas
• Develop adequate regulatory frameworks
for the public funding of private providers
Governance
of school
funding
11
Governing school funding
Main pointers for policy

12. 12
Distribution of school funding
How to design allocation mechanisms?

13. Countries need to consider a set of guiding questions to design funding models that fit
governance structures:
 Which resource categories are we looking at?
 What conditions (if any) should be set for the funding allocation?
 What basis is used to fix amounts allocated to schools?
 What balance to strike between the main allocation mechanism and additional grants?
 Which indicators are best suited to meet student needs?
Guiding questions to design funding models
13

14. Source: OECD (n.a.) Education at a Glance 2016 Database, Educational finance indicators: Expenditure by resource category
Current and capital expenditure as a percentage of total expenditure in secondary
educational institutions (ISCED 2-3, 2013)
Over 90% of annual spending is for current expenditure
(and 77% of this on staff compensation)
0
10
20
30
40
50
60
70
80
90
100
%
Current expenditure Capital expenditure Current expenditure OECD average
Staff compensation Staff compensation OECD average
14

15. Predominant basis to determine allocation of current expenditure
a) Administrative discretion is based on an individual assessment that each school needs.
b) Historical costs consider historical expenditure to calculate the allocation for the following
year.
c) Bidding and bargaining / negotiated process involve schools responding to open
competitions or making a case for additional resources.
d) Formula funding involves the use of objective criteria with a universally applied rule to
establish the amount of resources each school is entitled to
15
What basis is used to calculate the amount of funding
allocated to schools?

16. Transfers to different administrative levels and to schools
Lump sum: discretion on % going to education
Block grant: for education, but spender has full discretion
Restricted block grant: spender has discretion within specific
areas of spending (e.g. operating costs)
Earmarked grant: For a specific type of expenditure (e.g. teacher
professional development; special educational needs)
School-specific grant: must be used for a specific school
Dedicated grant: not administered by individual schools (e.g.
direct payment of salaries)
Most
discretion
Least
discretion
Allocation mechanisms for current expenditure
What are the conditions set for funding allocation?
16

17. Funding formulas typically include four main components
• A basic allocation per student or per class that is differentiated according to
school year / stage of schooling
• An allocation for specific curriculum programmes or education profiles
(different VET fields, SEN programmes, focus on the arts or sports)
• An allocation related to school site and location, adjusting for structural
differences in operational costs (e.g. rural areas with low class size)
• An allocation for students with supplementary educational needs (specific
student characteristics or elements of disadvantage)
17
What criteria are used for funding allocation?

18. Two main approaches
Including additional funding in the main allocation mechanism (e.g.
through weightings in a funding formula)
Providing additional resources through targeted programmes (external
to the main allocation mechanism)
How to ensure that funding is allocated equitably across
schools in need of additional resources?
18

19. Systems may direct additional funding to certain geographical areas or to the
actual population in each school
Area-based funding aims to address additional negative effects of a
concentration of disadvantage
Student-based funding aims to adapt funding levels to the needs of
the actual population in each school
How to determine differential funding needs of schools?
19

20. • Availability and quality of data is a key concern
• Trade-off between simplicity and accuracy
• National research can be used to choose the best combination of indicators
School-based data Census-based data
Which indicators are best suited?
20

21. • Ensure a stable and publicly known system
• Align funding formulas with government policy
and establish evaluation criteria accordingly
• Ensure periodical review of formula to assess
needs for adjustments
• Seek efficient ways to address equity in
funding mechanisms
• Pay attention to accuracy and reliability of
data used as a basis for funding allocation
Distribution
of school
funding
21
Distributing school funding
Main pointers for policy

22. 22
Evaluating the use of funding
How to monitor needs-based funding,
how to promote transparency?

23. • Almost all participating countries have developed approaches for needs-
based funding, but evidence on impact is scarce
• With greater discretion given to schools over use of funds, there is
greater need for adequate accountability (incl. by school boards)
• Budget transparency will help make inequities in resource allocation
apparent
• But important to take a holistic approach to evaluate resource distribution
(incl. distribution of human resources) – special equity funds often insufficient
to address underlying structural inequities
23
Monitoring needs-based funding?

24. • System accountability for progress in meeting the needs of target
groups is equally important
• Ensuring transparency and integrity is key in a context where levels of
public trust in government have decreased
• Communicate goals of investments in the school system and build
consensus about fiscal efforts for schooling
• Mobilising knowledge generated through research, evaluation and
monitoring will enhance budget planning / quality of decision making
24
Promoting transparency in the use of funding

25. • Be transparent about use of funds
for system goals
• Bring together information on
funding, processes and outcomes
• Pay particular attention to evaluating
equity outcomes
• Use evidence for future budget
planning
Planning&
evaluation
of school
funding
25
Evaluating the use of funding
Main pointers for policy

26. Connect
funding
strategies to
education
goals
Match
funding to
learner
needs
Evaluate for
continuous
improvement
26
The Funding of School Education
Main pointers for policy

27. 27
All publications of the School Resources Review can be found at:
www.oecd.org/edu/school/schoolresourcesreview.htm
For further information:
EDUSchoolResourcesReview@oecd.org