Page 10 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.78, # 1, 2021, pp. 4-25

Funding schools by formula is quite commonly used method to determine school
budgets. Previously the budgeting was based on a very simple formula assuming
that the amount receive by schools is based on the previous year and adjusted by a
small percentage typically upwards (cf. Jones, 1996). In Europe, in the early 2000s
13 countries employed formula based school funding regimes along with significant
financial delegation to schools (Levacic, 2008b). Since that time the formula funding
regimes have changed substantially by being extended and in many cases becoming
more complicated. Nevertheless, there are some clear trends in how formulas are
constructed: countries are moving away from simple, pupil number-based formulas
towards taking into account differences in learning needs of students, varying
curriculum goals of education programmes, and different cost of schools sites (cf.
Levacic and Ross, 2000).

Levacic states that formula funding for schools is a mathematical formula which
“contains a number of variables (items such as number of pupils in each grade, area
of school, poverty […]), each of which has attached to it a cash amount” (Levacic,
2008b, p. 206). Caldwell gives another formulation of formula funding as: “an
agreed set of criteria for allocating resources to schools which are impartially
applied to each school” (Caldwell et al., 1999, p. 9). In compliance with the first
formulation of the definition, formula funding can be applied to more centralised
education systems as well; the key is the mechanism of allocation rather than how
the money is spent. It excludes formula funding schemes between different levels of
government. The impact of formulas on incentives and school finances can be
clearly distinguished from other allocation mechanisms whereas this is not the case
when redistribution by formula takes place between different levels of government.
It also excludes the question of how the total education budget is determined and
focuses on the distribution of available public money (Fazekas, 2012).

There are four main groups of variables used in school funding formula in OECD
countries (Levacic and Downes, 2004):

(1) basic, student number and grade level-based,

(2) needs-based,

(3) curriculum or educational programme based,

(4) school characteristics-based.

Each of these may serve different policy goals:

10