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ACT Party, Bill Courtney, Charter Schools, Education, School Funding

The Villa PR Push: Let’s look at the Funding

This is the second in a series of postings following up an op-ed written by Don Brash published in the NZ Herald.

Our first response discussed what motives might lay behind what we feel is a concerted PR push by Villa Education Trust, the Sponsor of South Auckland Middle School.

In this piece we will look at the statement made in the op-ed about funding, as this remains one of the real sticking points about the early charter schools.

Ah yes, critics argue, but partnership schools get a lot more money from the taxpayer than other schools do.  Absolute nonsense.

Sorry, Dr Brash, but charter schools do get more OPERATIONAL FUNDING than the local schools get.  Especially when their funding is compared to the larger schools in South Auckland, where SAMS is located.

In a nutshell, SAMS received total operational funding of approx. $12,800 per student in 2015 compared to Manurewa Intermediate (the intermediate school used in the article) which received approx. $5,600 per student.

To understand how this large discrepancy arises, we need to look at the original charter school funding model.  The single biggest policy mistake it made was to try and work out the equivalent funding that a stand alone State school of the same size and type might receive.

But, in practice, the charter schools are being created in places like South Auckland where there are larger, more established schools that receive much lower average per student funding.  This means that the larger schools could not possibly recreate the conditions such as class sizes of 15 that the smaller charter schools can.

One recent story on Radio NZ described the pressure on some South Auckland schools that saw many of them using their libraries and halls as teaching spaces.  One school had plans to start teaching next year in the staffroom!

So, is it any wonder that when given the option of class sizes of 15, free uniforms and free stationery, that parents may be choosing the charter school?

Let’s look briefly at the original charter school funding model, noting that this model has already been changed for the third round schools that have just been announced.

The original model had two essentially fixed components per school: Base Funding and Property & Insurance.  The property component is fixed for the first 3 years (unless the school changes size or teaching year levels) and the base funding component varies by type of school (secondary, middle or primary) and is indexed each year.

Variable Funding comes in two parts: a Per Student Grant and Centrally Funded Services.  The two variable components are then multiplied by the number of students on the roll or the Guaranteed Minimum Roll (“GMR”) whichever is the greater.  So, if the actual school roll is less than the GMR, the Sponsor gets paid for at least the GMR number of students.

In 2015, SAMS operated at its Maximum Roll, which was originally 120 students.

So, putting all the components together the SAMS financial statements show revenue from Government Grants of $1,536,016, or an average government funding figure of approx. $12,800 per student, in 2015.

money showerSo let’s walk through the SAMS financial statements for 2015 and see what Villa does with its $1.5 million of funding.

First, it pays the rent, which is $150,000 per annum.  If we are generous, and include all Property expenses, including utilities, we find these amounted to $194,776 in the 2015 financial statements.

This would then leave a total of $1,341,240, or $11,177 per student after we have acquired and maintained the school premises.

What do we do next?  We would look to hire the teachers necessary to deliver on the 1:15 class size ratio.

For a school of 120 students, we would need 8 teachers, at a round number cost of $75,000 per annum each.  That should cost us approx. $600,000 and we find that teacher salaries in the 2015 SAMS accounts came out at pretty much that amount: $584,883.  Add in the other curriculum related costs, such as classroom resources – including those free school uniforms and stationery – and total Learning Resources amounted to $869,846.

That leaves us with $471,394 to pay for the administration of a 120 student school.

Plenty of money to pay for a full-time Community Liaison Manager – nice if you can afford it – pay for all the office and other admin costs and allow for depreciation and you spend a total of $263,906.

And what does that leave room for?

That’s right: the Management Fee payable to the Sponsor of $140,000.  That’s the cost of hiring a full-time principal at a much larger school!

For comparison, let’s see how Manurewa Intermediate is getting on.

The Find A School application on the Education Counts website has summary financial information for State and State-Integrated schools.

In 2015 Find A School showed Manurewa Intermediate’s Staffing Entitlement figure was $2,510,958 and its Operations Grant figure was shown as $1,431,808.  So, let’s cash this all up and make an OPERATIONAL FUNDING total of $3,942,766.

But straight away we have a problem.  Manurewa Intermediate has 704 students.  So we start our comparison with average per student government funding of only $5,600 per student.

Its property is owned by the Crown, so it doesn’t pay rent in cash.  So we can skip straight to the teacher costs.

To engineer class sizes of 15, we would need to buy 47 teachers.  At a cost of $75,000 each we would need $3,525,000.

That would leave us with only $417,766 or $593 per student to pay for everything else necessary to run a school of 704 students which is nearly 6 times the size of SAMS!

Out of that amount, we would need to pay for all classroom and curriculum resources, all the non-teaching staff, all the administration costs, the utilities and property maintenance costs and the depreciation to cover the replacement of all the furniture, equipment and ICT resources.

Hopefully you can see from this comparison that it would be virtually impossible for Manurewa Intermediate to have class sizes of 15 with the level of government operational funding it receives.

You could also arrive at the same conclusion with a simple rule of thumb calculation.

Based on a teacher cost of $75,000, in a class size of 15 each student needs to contribute $5,000 to pay for their teacher.  SAMS had $11,177 after paying for the premises; Manurewa Intermediate started with $5,600.

In summary, what readers interested in understanding charter schools funding need to appreciate is the significant influence of the fixed cost components of their funding model.

Even at its initial maximum roll of 120, the fixed components of SAMS’ funding comprise 57% of its total funding: base funding was $578,021 and the property component was $303,681.  That is why the charter schools are proving to be more expensive than their local counterparts: they are small schools with high fixed cost funding.

But they are being compared to larger, longer established schools where the fixed costs are spread over a much greater number of students.

This is what economists call economies of scale.

It is a major reason why direct comparisons between schools with significantly different funding streams should be treated with real caution.

Research shows that the effects of smaller class sizes are positive and of real help, especially when dealing with students who need more intensive support.

Smaller class sizes are an expensive policy to engineer; but wouldn’t it be great to see class sizes of 15 in all our low decile schools, not just those favoured by the flawed charter school funding model.

~ Bill Courtney, Save Our Schools NZ

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