Formula financing of the vocational training: best practices

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SSI «Institute of Educational Analytics»

Formula financing of the vocational training: best practices

O. Anisimova, Ph.D. (Economics)



Abstract

Vocational education plays an important role in the national education systems of different countries. At the same time, the issue of the framework of financing the provision of educational services remains extremely important. The aim of the article is to analyze the best practices of formulaic financing of vocational education. The article considers the main approaches to determining the components of the formula for financing vocational education. To achieve our goal, we used several scientific methods, such as synthesis, analysis, deduction, etc. The analysis of the best practices of formula financing of vocational education is carried out, the basic indicators which are used for the formula for the financing of vocational education are defined. It is established that the proper funding and adequate allocation of funds for vocational education help to improve the quality of educational services.

The allocation of public funds using a formula can be based on criteria determined by each country, depending on the place of vocational education in the general education system. The funding formula is most often used when vocational education is part of general secondary education or its direct continuation. It is determined that the use of the financing formula helps to increase the efficiency and transparency of the allocation of funds. The key factor in the successful use of the formula is the choice of allocation criteria. It is established that the basic criteria are usually used in funding formulas such as the type of educational institution that provides educational services, type of educational program, number of students and years of study, the need for additional funding for students with special needs. Among the countries that use the funding formula extensively, we analyzed the practices of the UK and Denmark. Both countries have a long history of using the formula, constantly improving and assessing its efficiency.

Keywords: vocational education, formula financing of vocational education, criteria of the formula of financing vocational education, efficiency of the allocation of funds

Анотація

Світовий досвід формульного фінансування професійної освіти

Анісімова О.Ю., к.е.н., завідувач сектору аналізу фінансування освіти відділу статистики та аналітики освіти ДНУ «Інститут освітньої аналітики»

Професійна освіта посідає важливе місце в національних системах освіти різних країн світу. При цьому надзвичайно важливим залишається питання механізму фінансування надання освітніх послуг.

Мета статті - проаналізувати світовий досвід формульного фінансування професійної освіти. Автором розглянуто основні підходи до визначення складових формули її фінансування. Досліджено світовий досвід формульного фінансування професійної освіти, при цьому застосовано загальнонаукові методи, зокрема синтез, аналіз, дедукцію. Визначено основні показники, які використовуються при побудові формули для фінансування професійної освіти.

Встановлено, що належне фінансування та адекватний розподіл коштів, виділених на професійну освіту, сприяють підвищенню якості надання освітніх послуг. Розподіл державних коштів на формульній основі може здійснюватися за критеріями, що визначаються кожною країною залежно від місця професійної освіти в загальній системі освіти. Найчастіше формула фінансування застосовується в разі, коли професійна освіта є складовою загальної середньої освіти або її безпосереднім продовженням. Виявлено, що використання формули фінансування сприяє підвищенню ефективності й прозорості розподілу коштів. Визначальним чинником її успішного використання є вибір критеріїв розподілу. Встановлено, що зазвичай у формулах фінансування фігурують такі основні критерії, як тип закладу освіти, що надає освітні послуги, вид освітньої програми, кількість студентів і років навчання, необхідність додаткового фінансування для студентів з особливими потребами.

Ключові слова; професійна освіта, формульне фінансування професійної освіти, критерії формули фінансування професійної освіти, ефективність розподілу коштів.



To create an efficient system of the VET it is important to provide an effective framework for financing. At the moment the public sector for most OECD countries still is the major benefactor of the financial resources for schools, but the frameworks for the allocation, management and usage of the resources became rather diversified due to the financial decentralization. The reason for that is that the allocation of the funding is no less important than its level. Funding frameworks are used as an incentive for schools to increase efficiency. As a general rule for the OECD countries, the framework implies a per capita public funding, supplemented by direct funding from the local governments. One of the frameworks ensuring the transparency and openness of the financing is the funding formula.

Many researchers examined the topic of the VET funding including funding formula, among them B. Bergseng, M. Fazekas, V. Gasskov, W. Grubb, M. Hanni, D. Lang, J. Masson, E. Schmidt, A. Wolf, etc. For example, W. Grubb [1] led comprehensive research of different aspects of the VET paying particular attention to the frameworks used for its financing. He concluded that correct schemes of the VET financing improve the quality of the services provided and learning outcomes. B. Bergseng researched the VET system in Bulgaria as well as the models used for its financing. He concluded that the implementation of the formula funding encourages transparency and openness of the allocation of the resources and improves its efficiency. The OECD [3] is one of the leading international organizations to monitor the VET systems, their researchers are trying to assess the efficiency of existing systems and determine the best ways to implement education policy. V Gasskov [4] tried to analyze the VET systems from the point of view of the administrator, explaining the best methods to achieve the priority goals. M. Fazekas [5] paid particular attention to the funding formulas, assessing their structure, advantages, disadvantages and limitations. J. Masson [6], M. Hanni [7], D. Lang [8], A. Wolf [9], and E. Schmidt [10] researched certain VET systems in-depth to point out their achievements and the ways for improvement.

The aim of the article is to analyze the best practices of the VET formula financing.

There are several ways to ensure the efficiency of the allocation of funds for the VET system including:

- direct financing meaning the amounts of funding received from governments as subsidies or obtained from individuals as tuition;

- subsidies and tax expenditures in the form of the revenue uncollected or discounted tuition;

- financing by loans where students borrow and then return the costs of their education;

- donations and sharing arrangements with employers;

- outcome-based funding systems with the funding provided by the state depending on success measured as placement rates or earnings levels;

- voucher framework for funding.

The funding formulas usage became particularly effective in allocating funds efficiently and transparently. A funding formula contains mostly objective criteria for the allocation of available resources among schools. However, the success and results depend on the funding formula structure. Funding formulas facilitate accountability and sustainability, help achieve efficiency and equity (see Figure).

As it was pointed out, there are four key criteria used by the OECD countries to create funding formula:

- a type of education institution (it can be a general secondary school institution offering additional courses or programs, or a specialized institution requiring additional funding),

- curriculum or educational programs offered (some programs require more expenses due to the costs of the needed equipment, the VET institutions can offer a full educational program or separate courses for adult training),

- number of students and years of education (the simplest approach, suited for starting formula),

- individual student needs (formula includes additional funding for disabled or underprivileged students).

Figure. Different criteria for the funding formula. Created by the author

To increase the efficiency output and outcome-based criteria are used [1].

In practice, we can note two key types of resource allocation formulas for the VET. The first type is a normative formula. For this type of formula, the assumption is that each training institution has a certain number of teachers, technical and administrative staff meaning the wage-related expenses are needed at a certain level. More so, the education institution has operational and maintenance costs that need to be covered. Those expenses require financing and sometimes they are not dependent on enrolments, performance and outputs. For the purpose of budgeting, certain ratios may also be established, including the number of students per teacher, etc. This type of formula does not take into account the institution's performance, so it does not affect the amount of funding. This type is usually called the «central administration and funding model», it is rather simple and relatively cheap to implement, as it's based on standard decisions and uses a standard cost principle. However, the main drawback of the central decisions and funding frameworks, is that their nature constrains their initiative, they do not possess much operational flexibility and are not capable to account for local demands for training and to adjust for the corresponding need to reallocate funds. Another issue with this approach is that it does not adjust for local and regional changes in maintenance and operational costs for the educational institutions. As a result, using normative models it is usually difficult to achieve the best possible performance from individual institutions.

On the contrary, the performance-based approach takes into account actual or planned performance and other output indicators of the providers while allocating funding. For this approach the most commonly used are the following frameworks:

- the amount of state resources is linked to enrolment numbers so that institutions are encouraged to attract and retain more students. However, the drawback of this approach is that it stimulates only enrolment and has next to no impact on providers to develop and offer expensive complex education programs. As a result, those institutions offer mostly low-level and low-cost courses to save funds. Besides, this approach encouraged institutions to increase retention, so they enroll only the students most likely to attend the whole course, ignoring those most in need of short-term training.

- the amount of public funding per student is different for programs depending on the degrees of sophistication. More complex programs receive higher funding rates per student, so the institutions have the incentive to offer the programs that the government desires to promote. The supply can be expanded for certain qualifications by offering higher rates for particular programs. It also can be used to promote the training of certain target groups. For example, providers can be encouraged to train disadvantaged individuals, even if their learning is often potentially unsuccessful because in that case, they receive higher funding rates per student for all the students enrolled and graduated from that program.

- the additional amount can be allocated to institutions depending on the percentage of students graduating with certificates or with higher levels of achievement.

- the amount allocated can depend on the percentage of graduates who managed to find jobs and retain employment for a certain period of time afterward (usually 6-12 months). However, the drawback of such an approach is that training providers are not capable to control the availability of jobs for their graduates, so such mechanisms need caution while applying. It is rather effective in the case of financing providers offering labour market training, as they are directly linked to the labour demand and can somewhat predict the market success of their graduates.

The feature of the performance- related framework is that providers are not guaranteed any amount of public funding unless they perform to certain levels and show the required output. The advantage of this approach is that institutions have full or almost full freedom in the use of funds. Providers then create something similar to the free market competition for enrolments and encourage higher student achievements in order to increase their funding. They can even become a profitable organization. The requirement for performance-related funding frameworks is that the audits of enrolment and assessment of graduates should be conducted by an external institution. The approach ensures that better performers are rewarded as the providers operate in a market-driven environment [2].

Designing a funding formula involves technical issues and overlapping policy. There is a constant struggle between the necessity to have a single formula for budgeting and to take into account the individual situations of providers and their learners. To create an efficient formula several steps are needed.

1. Determine the available budget and establish the resources to be allocated.

The allocation of funds using a formula implies an agreed budget and necessitates a high level of transparency. There are two main approaches to calculate the amount of funding: base unit cost is pre-determined, or the formula calculates the total costs.

If a budget-driven formula is used, the budget is simply divided by the number of given units to calculate the unit cost, and it's possible that the unit cost will not be equal to actual learning costs. If a cost-driven formula is used, the total amount calculated as multiplying the units to a pre-decided cost-base can then exceed the available budget. In that case, basic estimates need to be made for the base unit costs measured by the average costs based for example on previous allocations.

2. Determine what will be funded by the formula. The policymakers can use a single funding formula to distribute the whole VET budget or several sub formulae for different budget lines. For example, Denmark allocates block grants for various budget lines. England combines several public education budgets to finance both academic and vocational education. The formula uses mostly a base unit with attached weighting coefficients.

3. Define the criteria for allocating funding. It is not recommended to use a single flat-rate unit in a formula, as it will not account for specifics of courses, providers, and students. VET courses are different in length, teachers and trainers needed and equipment required. Some providers are situated in challenging locations, such as remote areas or cities where staff wages and retention is more expensive. Some students need additional support. A formula should include a range of equalization factors representing the variations of courses, students and providers. To do this, a unit weighting should be increased for a given variable, or a fixed-rate allocation can be used for a certain factor.

4. Use the formula to impact policy aims. The fixed and variable factors represented in the formula are determined by policy makers, usually after efficient consultation with VET providers and other stakeholders. The formula can contain certain priorities by assigning a proportion of funding to them.

5. Define the relationship between performance-related funding and funding formula. Formula funding has the purpose to improve the quality of learning measured by a performance indicator. This measure can be represented by outputs, meaning the number of students with completed course or gained qualification; or by outcomes, such as the number of students achieving employment upon completion of the course [3].

The introduction of formula funding represents potential advantages and disadvantages mentioned above as well as additional risks. Among those risks are the creation of perverse incentives, and limitations of statistical nature and data.

1. Perverse incentives. The purpose of the reform of the way in which financing is allocated is to affect behaviours. A formula based primarily on student numbers will create incentives for providers to increase those numbers. This may be the intended goal of implementing a formula, as a provider should aim to attract students. But it requires accurate records and constant course and quality standards, to prevent the miscount of student numbers or reduce the provision of more expensive courses.

2. Statistical and data limitations. Not every indicator can be accurately measured. A formula includes proxy indicators, estimates of data, and averages. For instance, a formula can include some differences in location and can take this into account as the factor weightings or costings. Factors can also be based on proxy indicators for the socio-economic state that correlate rather than a cause. Incorrect assumptions, and proxy indicators, can negatively impact training provision [4].

A formula must be assessed to ensure that it stimulates the right kind of behaviour and represents current policy priorities. The formula should undergo frequent reviews and data analysis to assess for unintended change (see Table).

Formula funding creates an objective and impartial way to standardize provider funding, according to agreed criteria which takes into account the dynamics of the VET system and policy priorities.

The impact of the VET funding formula mostly depends on the features of the wider policy environment they are included in: first, the proportion of resources allocated through a formula, meaning the comprehensiveness of the formula. Secondly, how autonomous the institutions are in managing the allocated funds. Thirdly, the existence of targeted programs outside the given formula. Fourthly, the nature of the education market competition if it exists [5].

Deciding upon the features of the formula itself such as indicators used still leaves several key questions of a formula funding regime open which greatly impact the performance of the funding framework. Among them, the most crucial one is how comprehensive the formula is, meaning which budget lines are funded within the formula. However, in most states formula funding accounts for a much smaller proportion of expenditures, the most important issue usually is teacher salaries since they can reach around 65-95% of the total institution budget. In some cases, the financing formula includes only a small percentage of VET institution budgets.

As was mentioned, VET institutions can be funded through formula in both decentralized and centralized management systems but it has a crucial impact on how the funding regime shapes the behaviour of institutions and eventually the results of teaching. Besides, even if VET institutions have the autonomy to manage their own resources for a decentralized education system, certain elements of the funding formula can be earmarked for specific purposes (divided formula) which constrains the financial autonomy.

Table

Advantages and disadvantages of using formula funding

Stakeholder	Advantages	Disadvantages
Financing agencies	Objective method (without negotiation) Funding criteria are learner demand, performance requires less management if delegated Stays the same during each year Allows to collect a variety of learner data Able to connect to wider policy aims	Offers less budget control dependent on the method learner demand can have a higher cost Expenditure is more difficult to control In-year adjustments are difficult Allows to define, collect and analyze data Wider policy targets difficult to achieve
Providers	It is possible to adjust services pr vision, enrolment, staff аutonomy for their own budget Budget certainty and annual planning Can plan provision	Regulatory constraints limit autonomy Inability to manage іn-year changes cause budget uncertainty Unstable formula leads to hindered planning
Teachers	The flexibility of delivery options Movement between providers Negotiations for better pay and conditions	Existing delivery constraints Job security and impact on tenure Salary structure is unequal
Learners	Changing their provider сan identify what services they are funded to receive	Only if open enrolment services may be reduced without a clear funding line

Created by the author.

Since in some countries VET institutions have wide autonomy in how they spend the allocated public funds, a crucial question is how they can spend it. It is of particular interest whether those institutions actually spend the additional funding they receive for teaching students from a low socio-economic background on the stated purpose. For example, several adjustments to the English formula derive from the government not being satisfied with the ways institutions spend their resources. This resulted in a great number of targeted programs outside the funding formula accompanied by stronger accountability measures.

School funding formulas and self-management of schools are frequently part of an education quasi-market which puts pressure on schools to compete for pupils to differing degrees. The formula is typically the centrepieces of such markets since it determines the financial framework for competition and the benefits derived from attracting additional pupils. Adjusting the formula to attach more benefit for educating pupils with learning disabilities or of disadvantaged families is a typical tool for policy makers to advance equity objectives within a competitive framework.

Any funding distribution mechanism should be designed to fit the governance and policy context for the school system. There may be different goals that are more important than others depending on the overarching policy objectives.

There are three broad functions that funding formulas can support:

- Promoting equity (both horizontal equities, i.e. the like treatment of recipients whose needs are similar, and vertical equity, i.e. the application of different funding levels for recipients whose needs differ). This is one of the most important functions of a funding formula. To ensure horizontal equity it is crucial to ensure the same basic allocation per student differentiated by year level. Differential amounts can be added to the basic allocation according to the assessed degree of educational need to promote greater vertical equity.

- A directive function to promote certain behavior in funding recipients. This can be a tool for central, state, regional or local authorities to set certain incentives and support particular policies. For example, an additional amount can be added to the basic allocation to support schools with lower student enrolments or to support the provision of teacher professional development in policy relevant areas.

- Market regulation (supporting broader school choice policies). The more this function is emphasized, the greater the proportion of total funding to schools is allocated on a per student basis. The formula can establish the per student amount for each child and depending on the system this would be channeled directly to parents as a «voucher» to purchase school education or directly to the school.

The use of a funding formula, if well designed, can promote greater equity and efficiency Within a funding formula, coefficients should adequately reflect different per student costs of providing education. This is a difficult task in systems where there is great variation in class size due to schools in rural or isolated locations. Different programs and types of the educational provision will also entail different costs. Recent reviews of funding allocation mechanisms in Australia and the United Kingdom generally aim to distribute the major share of funding according to the student rather than institutional requirements, with a preference for core funding per student supplemented by bands of funding to target particular needs [6]. formula financing professional education

There are four main components which are the building blocks of a formula. Each component relates to the main purpose of allocating funds to schools. Different weightings assigned to each of the major components below will be crucial in balancing the relative importance of the different policy functions for a funding formula (market regulation; promoting equity; directive function).

A basic allocation: This could be an allocation per student or per class. If the unit is class, then the formula will include assumptions about the maximum permitted class size before an extra student demands the forming of two classes. There would be a year-level supplement differentiated according to the school year (grade level) or stage of schooling (e.g. primary, lower secondary, etc.). Setting a fixed amount per student in a particular year uses the assumption of the costs of educating a student with normal educational needs. This requires an analysis of expenditure requirements, e.g. activity-led costing. This - particularly with a per student unit - strongly supports the market regulation function.

An allocation for curriculum enhancement: This component would adjust for the costs of providing a specific educational profile and would only apply to selected schools or students. For example, this could be the offer of a specialized curriculum such as a focus on the arts, sports or different vocational fields. It could also be the offer of an adjusted curriculum designed to meet specific educational needs of the school's student group. This allocation can support the directive function, helping to promote areas of the curriculum favored by policy makers.

An allocation for students with supplementary educational needs: This would aim to adjust for different student characteristics which would require additional resources to ensure the same level of access to the required curriculum. This allocation plays a major role in supporting the equity function.

An allocation for specific needs related to school site/location: This would aim to adjust for structural differences in school site operation costs that are generally beyond the school management's control, e.g. schools located in rural or remote areas with significantly lower class sizes, schools with higher maintenance costs (linked to local economic factors and/ or specialized equipment needs). School size is an important determinant of unit cost. Fixed costs (e.g. school leadership, premises, providing a selection of subjects) do not diminish with the number of students. Here it is key to define the «minimum efficient size» which represents the minimum size of a school at which average cost per student approaches its lowest feasible value. This involves a judgment about the extent to which small schools should be supported by additional allocations. This allocation can support the equity and directive functions [7].

This case of the UK has been chosen as one of the most transparent and longest-running examples of formula funding for VET. Formulae drive the allocation of all public financing for young people (defined as 16-19-year-olds) and adults in England regardless of where they choose to learn. The case provides information on two formulae for education and training for young people aged 16-19 who are fully funded; publicly funded adult education which may be fully or co-funded (with additional funding from individual participants and/or their employers).

Providers include schools (for 16-19-year-old), Further Education Colleges (for both young people and adults), Higher Education Institutions and Providers for Traineeships (for unemployed young people and adults). All providers receive their funding according to their formula allocation. The funding for apprenticeships changed in 2017.

Many providers (except schools) are free to decide their own profile of provision in both academic and vocational qualifications for young people and adults. They operate as public corporations and are governed by a board. Whilst they have significant management autonomy, they must meet quality standards attested through both inspections and external accreditation of the qualifications they deliver. All providers must deliver recognized qualifications and courses to secure public funds. Students and trainees can choose whether they attend a school, college or other publicly funded provider and in some parts of the country schools are oversubscribed and there is intense competition between providers. Each year, qualification performance tables are published.

The newly-merged Education and Skills Funding Agency (ESFA) distributes the budgets for young people and adults according to two separate formulae. Characteristics of the funding system include:

- Budgets underpinning formula distribution are decided through centralized public procedures.

- The formulae are decided each year and published in statutory regulations.

- The funding agency is an intermediary body which also is the point of communication between providers and the Department for Education.

- Formulae can change each year and there are protections for individual provider budgets.

- The formula is used as a steering mechanism to promote quality and equity and to target specific groups of people and/or qualifications provision.

- As a steering mechanism, the formula is an important means to achieve VET policy.

Centralized funding formulae for education and training have been widely used in England for the past 30 years. There are various rationales, including:

- Simplicity. There is one formula either per budget line or per stream of providers, which has universal applicability.

- Transparency. All providers know why their budget is what it is.

- Fairness and objectivity. No provider can negotiate an advantage over another (or conversely be disadvantaged).

In terms of the formula itself, the rationale for its design has a number of factors, including:

• The primary budgetary allocation is based on the number of learners.

• There is a reflection of disadvantage, both of learners and providers.

• It rewards high performance.

• It can be adjusted to promote government priorities.

The 16-19 funding budget covers all provisions for any student aged 16-19 (excluding those pursuing an apprenticeship) attending a school, further education college, higher education institution, independent specialist providers, commercial or charitable provider.

Total program funding = (student numbers x national funding rate per student x retention factor x program cost weighting + disadvantage funding + large program uplift) x area cost uplift [8].

There are seven key aspects to the funding formula.

1. The number of students. The starting point for the formula, based on lagged data from the previous year, is specified for each provider type. The principle of the formula is that it is driven by student numbers and that funding follows the student. If a student transfers to another provider, the money follows them, based on detailed tracking data.

2. National funding rate per student. All full-time students are funded at the same basic rate per year based on the planned hours in a study program, derived as a proportion of a full-time rate11. Each enrolled student should have a core learning aim which defines whether the programs are academic or vocational.

3. Program cost weighting. These are applied to reflect that some programs are more expensive to deliver than others. There are 4 program weighting factors (base = 1.0, medium = 1.2, high = 1.3, and specialist = 1.75).

4. Retention factor. Providers receive only a proportion of funding if the student leaves the course before completion.

5. Disadvantage funding. There are two blocks of funding for disadvantage, Block 1 is based on general economic deprivation and is calculated by the residence of the learner. Block 2 funding provides uplifts for students with low levels of previous attainment recognizing their additional learning costs. There is more than one definition each of which triggers an additional per learner payment.

6. Large program uplift. For a certain larger program that stretches students, additional funding is available (10-20%), for example, for studying qualifications to progress to university.

7. Area cost allowance. A budget uplift is available to recognize the additional costs of the provision in certain areas of the country, ranging from 1% to 20% depending on location.

Budgets are calculated based on the information submitted by each provider which in some cases is lagged. Each provider submits individual learning records (or, for schools, a census) to the EFSA, which processes the data and calculates the budget. The data used is visible to providers to allow them to validate the calculation. Any changes to those individual learning records must be reported - for example, if a student leaves the provider, changes course, or enters employment. There are detailed regulations and guidelines for how the data should be presented and for the funding implications of changes, including the implications of not reporting them.

Once the budgets of each provider have been calculated on the basis of the data submitted, there are rules concerning the timing of distribution and the proportion of the budget which is released.

Allocations for young people as well as for adults distribute funding based on:

1. Funding start. A learner who attends the provider for a certain number of days, depending on course length, attracts a proportion of funding. If the learner leaves before the end of the qualifying period, the provider receives nothing. A funding start can vary from one day for a course fewer than 14 days, to 42 days for a course lasting 168 days.

2. Monthly instalments. Providers receive their earnings monthly, minus the funding starts. The months are calculated on an «n + 1» basis to allow a double payment for the first month to recognize start-up costs.

The distribution of funding for adult learning holds back 20% of the budget allocation on the basis of achievement of the course and/or qualification.

Some points to note about the formula operation include:

1. Performance-related funding. The adult education formula specifies a 20% payment upon learner results, and for providers that enable unemployed trainees to enter employment. The formula for young people no longer includes an output or outcome-related payment. After many years of using an output-related element within the formula, it was removed due to concern that it was skewing provision towards easier to achieve courses. Instead, the formula for young people is experimenting with incentives for better provision and delivery.

2. Formula factors. The basis for each formula differs. For young people, it is learner numbers, whereas for adults it is learning aims. Different approaches have been tried.

3. Funding standardization versus learner differentiation. Both formulae attempt to standardize the type of additional needs which a learner and a provider can experience. This is done through standardized formula additions, either uprated weightings or fixed allocations, on both the provider and learner sides. There are numerous additional payments available through the formula to reflect disadvantage, both generic proxy measures and tailored to the individual situation.

4. Change. The formula can be re-designed and has been on many occasions. Changes to the formula lead to transitional protection for providers who lose funds. The current formula includes such protection until 2020 due to changes made to the base calculation.

5. Accuracy and data. The formula relies on data submitted by providers which are based on verifiable information. In turn, providers can see the basis for their budget calculation and can appeal or change this data, if found to be incorrect.

6. Base unit for the calculation. This differs between the formulae. For the formula for young people, the base unit is student numbers, whereas for adults it is a learning aim. In practice, they are similar.

7. Using the formula as a policy steering mechanism. The current formulae have a number of steering elements within them, including additional funding for adult learners to incorporate basic and advanced qualifications in Maths and English. For young people, an extra allocation is available for programs that prepare learners for higher education.

Data submitted by providers and patterns of provision are evaluated each year to look for unexpected changes in data. The reasons behind data discrepancies are explored to see if there are misunderstandings in data recording or if provision is changing due to the formula, whether intended or not. This evaluation feeds into the future formula design and the regulations. The use of a funding formula is, in itself, not questioned; rather, it is the design and operation of the model which is examined.

Formula funding is embedded into the English VET funding system. The following points are among the characteristics that contribute to its success:

1. Providing choice. A provider can operate in a range of markets, and a learner can choose between providers. There are limitations for some within the model, and in certain areas, there is little choice, but the principle of autonomy exists.

2. Establishing data monitoring. Systems have been built over a number of years to collect correct and verifiable data.

3. Conducting a regular review of the formula. Are the factors operating as expected? Are there unintended consequences? Can it respond to provider and learner particularities? Does it promote prevailing policy?

4. Maintaining a quality framework. A robust system of qualifications, certifications, accreditation, and inspection enables the formula to operate.

5. Allowing mitigation for change. The choice of formula will impact budget allocations to many providers. Without budgetary increases, there will be winners and losers. There must be a clear strategy for those providers who lose [9].

A series of reforms in post- compulsory education funding took place in Denmark in the 1990s. The principle was to give VET and higher education providers more autonomy to adjust provision and be more responsive to student and learner needs. The funding approach was changed from a supply-side to a demand-side system. Budgets that had previously been calculated from staff-student ratios and linked to program areas were reformed.

The reform took place in 1992, with the following rationale:

- promote efficiency and become more results-oriented and customer- focused;

- link the allocation of providing grants to student numbers and performance;

- implement a system that is simple, fair, transparent and objective;

- promote quality-based competition among providers.

Reform was to focus on protecting educational standards and quality. The reform comprised a new funding system with delegated management. The main changes were:

- introduction of block grant funding calculated through the taximeter principle;

- introduction of a planning process with four-year agreements based on the total number of study places per institute, rather than a single year, whereby providers can choose how they allocate student places per study program to meet local demand. A few expensive programs continue to have nationally planned admission.

The characteristics and aims of the funding regime were to encourage:

1) Demand management: money follows the learner and creates incentives for providers to meet their requirements and to increase educational activity levels. There is also an incentive to improve institutional efficiency, for example through providers linking to deliver smaller courses.

2) Productivity management: allows providers to decide their own provision and adjust to demand, rather than being required to provide courses where enrolment is falling.

The self-governing education and training institutions have three sources of revenue.

Activity-led block grants. Some 80 % of the total budget is distributed through grants based on forwarding planning of expected student numbers (full-time equivalent calculations), and programs that are grouped in bands and given an annually decided taximeter weighting. There are three activity-led grants calculated through a taximeter rate: The teaching grant, to cover salaries, educational equipment and materials; a buildings and maintenance grant, for capital expenses, including building finance and maintenance; and the collective expenses grant, to cover non-educational expenses - primarily administrative costs. A proportion of the block grant funding is held back until the end of the year based on the achievement of the activities specified (or, outputs). Block grants provide 92% of institutional budgets.

Own income, including participant fees. In addition, providers can enter private training markets and use these funds to initiate new activities.

Basic (fixed) and supplementary grants and loans. The basic grant supplements the activity-based grants at a fixed rate and protects smaller providers and those located in remote areas. Other supplementary grants include, for example, research and development funding and other ad hoc funds to meet various policy priorities. Loans are available, under strict supervision, to support providers in financial difficulty and restructure their provision.

The calculation of the block grants is a product of multiplying:

- planned activities, based on projected student numbers and program provision;

- politically determined taximeter rates per activity unit, decided annually in the Appropriations Acts.

The block grant appropriation is not earmarked, and providers can use them as they see fit within the financial rules of expenditure. Providers are responsible for their own financial management and for aligning their programs to demand. The taximeter system and the size of the grants are linked to the provider's ability to attract students to participate in their programs, measured in full-time equivalents. They have the flexibility to reduce programs where participation is falling and to expand them where it is increasing and protect their budgets through managing adjustments and maintaining enrolment levels. This is all calculated through «activities» rather than through negotiation or administratively decided redistributions.

Budgetary certainty and stability are improved, for both the government and providers, by allocating funds on the basis of objectively defined activities and their taximeters, which gives a fixed unit cost. Providers can plan for maintaining stability. In the case of over-estimation of «activities» funding can be clawed back by the government. The taximeter rates are provided in the annual Appropriations Acts and their determination is independent of an individual institution's expenses. There is limited opportunity for pressure from interested parties and there is transparency across the rates given for program classifications.

The taximeter models have been evaluated a number of times since their introduction. The main study results are provided below, although it should be noted that the taximeter funding structure applies to both higher education and VET, albeit with some calculation differences. The evaluations looked at both types of providers. A first evaluation of the taximeter system was undertaken by the Danish Evaluation Institute (EVA) in 1995. The Ministry asked EVA to evaluate whether the model had any negative effects on educational quality. EVA concluded:

- No negative trends could be found in the evaluations of study programs. EVA found that the reform resulted in increased awareness of student needs, and a more open attitude towards students' suggestions, for instance by taking their feedback more seriously.

- In general, teachers' «professional ethic», as well as the use of external examiners, prevented them from allowing more students to pass as a response to output-based funding.

- A second, much broader evaluation of the taximeter model was carried out three years later. The overall conclusions of this evaluation were positive; the management of the education sector had improved considerably. There was an increased focus on «value for money» in buying new equipment and assessing the value of course provision. Unprofitable activities were more rapidly discontinued, and institutions improved their ability to adjust and take up new initiatives. Educational institutions were viewed as being more inclined to provide a good service to their students, and additional effort was made to reduce drop-outs. The competition had been fostered through improvements in educational quality [10].



Conclusions

In principle, the introduction of a school funding formula may bring about several desired results ranging from increased efficiency to transparency at low administrative costs. However, as empirical investigations show it is frequently difficult to balance competing goals, particularly when inherent trade-offs are present. In the case of formula funding, the most straightforward contradiction emerges between transparency simplicity and sensitivity to local conditions-complexity. As local costs of education and local specificities greatly vary, there is usually pressure on the designers of national or regional unified formulas to incorporate many detailed cost differences. Nevertheless, the alternative solution which is to allow for locally different formula designs does not necessarily escape the trade-off between transparency and sensitivity to local conditions either.



References

1. Grubb, W.N. (2006). Vocational education and training: Issues for a thematic review.

2. Bergseng, B. (2019). Vocational education and training in Bulgaria: Governance and funding.

3. OECD iLibrary. (2017). The funding of school education: Connecting resources and learning.

4. Gasskov, V. (2000). Managing vocational training systems: A handbook for senior administrators. Geneva: International Labour Office.

5. Fazekas, M. (2012). School funding formulas: Review of main characteristics and impacts. OECD Education Working Papers, 74.

6. Masson, J.R. (2006). Financing vocational education and training in the EU new Member States and candidate countries: Recent trends and challenges.

7. Hanni, M. (2019). Financing of education and technical and vocational education and training (TVET) in Latin America and the Caribbean.

8. Lang, D.W. (2005). Formulaic approaches to the funding of colleges and universities. In International handbook of educational policy (pp. 371-391).

9. Wolf, A. (2011). Review of Vocational Education.

10. Schmidt, E., Langberg, K. & Aagaard, K. (2006). Funding systems and their effects on higher education systems. Country Study - Denmark.

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