A Critique of the SES Funding Model for Private Schools

The Federal Minister for Education, Julia Gillard, has announced that a review of school funding arrangements will commence in 2010 and conclude in 2011. The review will examine the funding of all schools – government and private.

A key part will be a review of future funding for private schools. The case for change is compelling.

The SES model has delivered massive taxpayer funds to schools serving the wealthiest families in Australia. It is truly an upper class welfare scheme. These funds could be better and more equitably used by being diverted to private and government schools that serve low income, Indigenous and other students in need.

The scheme is capricious, incoherent and inequitable because private schools with the same or a similar SES index score can receive significantly different levels of funding. A funding link to government school costs means that increased funding for disadvantaged students, Indigenous students and students with disabilities in government schools automatically flows on in part to private schools even if they have none or few of these students.

The SES Funding Model

The Socio-Economic Status (SES) funding model for private schools was introduced in 2001 by the Howard Government. It replaced the previous method which was based on a measure of school resources called the Education Resource Index (ERI).

In the 2001-2004 funding quadrennium, all Independent schools, including non-systemic Catholic schools, were funded by the Commonwealth Government under the SES funding arrangements. Catholic systemic schools were included in the SES arrangements from 2005.

The SES model uses a measure of the socio-economic status of school communities as the basis for Commonwealth Government funding of private schools. The SES of each school is determined by linking student residential addresses to the Australian Bureau of Statistics national Census data on the socio-economic status of areas known as ‘collection districts’. Each school is given an SES score based on the average SES of the collection districts from which their students are drawn, weighted according to the number of students from each district.

Under the model, per capita funding rates are set for each point on an SES index with the mean set at 100. The funding rates range from 70% of Average Government School Recurrent Costs (AGSRC, the average cost of educating a child in a government school) for private schools serving the poorest communities to 13.7% of AGSRC for schools serving the wealthiest communities.

AGSRC is a cash-based measure of state government expenditure on government schools, excluding capital, capital related expenditure (such as depreciation) and superannuation. It also excludes Commonwealth government grants to government schools. It is calculated separately for primary and secondary school students.

The AGSRC is a derived measure of expenditure as cash based expenditure on government schools have not been published since 2001 when reporting moved to an accruals based measure. AGSRC is calculated by applying the year-on-year movement in accruals expenditure to the AGSRC estimate for the previous year.

Per capita funding rates are adjusted annually in line with increases in AGSRC. That is, private school funding increases as government school recurrent costs increase.

The actual per capita funding rate for many private schools is higher than their SES rate because they are subject to special arrangements – a ‘no losers’ guarantee (termed ‘funding maintained’ or FM status), which has applied since 2001, and the ‘funding guaranteed’ (FG) status introduced in 2005. Over 50% of private schools in Australia are funded at above their SES rate.

The no-losers guarantee provided that no school is financially disadvantaged by the move to the SES funding system. Schools which would otherwise have had their funding reduced under a strict application of the SES funding model were able to maintain their previous levels of funding. In effect, the FM provision preserved the funding received under the previous ERI scheme.

The inclusion of Catholic systemic schools in the SES model introduced two types of FM schools. A different base is used for annual indexation increases to Catholic and Independent FM schools. Classification of all Catholic systemic schools to ERI category 11 meant that the base for future indexation was set at the per capita rate for this category in 2000, except in the ACT where it was set at the rate for category 10. In contrast, the classification of Independent schools was more diverse with many assessed at below ERI 11, and they therefore received smaller annual increases in funding.

The ‘funding guaranteed’ status ensures that schools which were re-assessed at a higher SES score for the 2004-2008 and 2008-2012 quadrenniums did not immediately have their per capita funding reduced to the rate applying to the higher SES score. They were ‘funding guaranteed’ at their 2004 or 2008 per capita entitlement until AGSRC indexation brings the funding rate of the lower SES score up to the same rate as the new score. Their funding is effectively frozen for this transition period as they are not given the annual AGSRC indexation increases.

The different conditions operating under the SES funding arrangements mean that there are four broad types of funding available for schools: strict SES funding; Independent funding maintained; Catholic funding maintained; and funding guaranteed.

The SES Model has Delivered Massive Taxpayer Funds to the Wealthiest Families in Australia

When the SES model was first introduced, it gave massive increases in funding to the wealthiest schools, those which received least under the previous ERI model. The 62 wealthiest schools in Australia received a huge windfall gain of $50 million through the increase in their funding rate.

Many of these wealthy schools now get over $4 million a year under the scheme. Haileybury College in Melbourne with Year 12 fees of over $20 000 a year receives $12 million while Caulfield Grammar receives $9 million a year. Geelong Grammar, the most expensive school in Australia, gets nearly $4.5 million.

Yet, Commonwealth funding continues to increase. Funding per secondary student in 10 of the richest schools in NSW increased by 113% between 2001 and 2010 while funding for 12 of the richest schools in Victoria increased by 190%.

In comparison, total Commonwealth and State government expenditure per secondary student in NSW government schools increased by 47% over the seven years from 2000-01 to 2007-08, the latest year for which figures are available. It increased by only 41% in Victorian government schools over the same period.

These are massive subsidies for the wealthy. It was claimed that the SES funding model would direct government funding according to need. However, it has conspicuously failed in this regard. Rather than being a ‘needs-based’ scheme, it is an upper class welfare scheme.

There can be no justification for providing government funding to schools that are the preserve of the wealthy. It means that less funding is available for schools serving the most disadvantaged students, Indigenous students and students with disabilities. The diversion of millions of dollars a year to schools least in need while those most in need are denied the full funding they require is an indictment of the SES funding scheme.

The “No Losers” Guarantee Protects the Wealthiest Schools

The “no losers” guarantee ensures that private schools which would otherwise have had their funding reduced under a strict application of the SES funding model have been able to have their funding maintained in real terms. A study published by Save Our Schools shows that only 46% of private schools in Australia in 2007 were funded according to their SES score; 54% were over-funded and 64% of all private school students were over-funded.

Total cumulative over-funding for private schools was $1.52 billion for 2005-2007 and increased by 21% over the period. The study estimated that total over-funding will exceed $2.5 billion during 2009-2012.

Private schools serving the highest income families received the highest amounts of over-funding per student during 2005-2007. Schools in the higher SES score ranges received the highest levels of overfunding per student; some received nearly $3000 per student in over-funding. In contrast, private schools serving the poorest families did not receive any overfunding.

The SES Scheme is Capricious and Incoherent

The implementation of the SES model is capricious and incoherent. Schools on the same or similar SES category can receive significantly different levels of funding.

At least four different levels of per capita funding can apply to schools on the same SES score. They may have different levels of funding depending on whether they are subject to funding according to their SES score, an Independent FM school, a Catholic FM school or a funding guaranteed school. While FM schools are protected from having their funding reduced to that indicated by their SES score, new schools with the same SES score are funded according to that score.

The differences in funding are often substantial. For example, in 2007, there were four funding different levels for schools qualifying for FM status on the SES score of 109 ranging from $4839 to $6187 per student. This amounts to a difference in government funding of nearly $1.5 million for a school of 1000 students.

In practice, schools on the same SES score may have a range of different funding levels because the no losers guarantee maintains previous funding levels determined by the classification of schools to different ERI categories. For example, in 2007, there were nine different levels of funding for schools on the SES score of 116 and seven different levels of funding for schools on the SES scores of 109, 114 and 118.

Funding is Linked to Government School Costs Without Regard to Need

Linking private school funding to average government school costs means that any funding for targeted equity groups in government schools automatically flows on in part to private schools even if they do not enrol any of these students, enrol a much lower proportion than in government schools or reduce their enrolment of these students.

Government schools enrol higher proportions of students with complex learning needs that incur higher costs. Students from low SES families, Indigenous students and students with disabilities comprise a much higher proportion of government school enrolments than they do in private schools, especially the wealthiest private schools. Yet, the costs of meeting the needs of these students in the government sector are a source of funding for private schools by virtue of the link with AGSRC.

This link provides private schools with another funding advantage. Because they have lower proportions of disadvantaged students, Indigenous students and students with disabilities in the government sector, private schools are effectively better funded for these students and can divert additional funding to other students.

The SES Scheme Should be Abolished

The Prime Minister and the Federal Minister for Education cogently argued the flaws in the SES funding scheme back in 2000 when the legislation was debated. They both stated that the scheme is unfair in providing windfall gains to the wealthiest schools in Australia.

The Prime Minister said that he had “grave problems” with the “windfall allocation” the SES model provided to the wealthiest schools, a “category of school that does not need this money”. He said that the scheme does not “….reflect a fair outcome for this nation’s future funding of the school system and need[s] to be redressed”.

Julia Gillard said that the large increases in funding delivered to the wealthiest private schools by the SES scheme “…ought to concern anybody in this place who is worried about fairness and equity in our school funding models”.

She said the model has “a gaping flaw” because it makes no allowance for the amassed wealth of many prestige schools and that this flaw is “….one that needs to be addressed. She added that “….this SES model is not the powerful tool we need”.

Their analyses remain as cogent today. The SES scheme should be abolished and replaced by a scheme which better links government funding for private schools to need.

Trevor Cobbold

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