DRAFT-POLICY BRIEF: FINANCING THE NEW OWN FUNCTIONS … · [email protected] We would...

FINANCINGTHE NEW OWNFUNCTIONS OFLOCALGOVERNMENTSIN ALBANIA

USAIDPLANNINGANDLOCALGOVERNANCEPROJECT

PLANNING AND LOCAL

GOVERNANCE PROJECT

DRAFT-POLICY BRIEF: FINANCING THE NEW

OWN FUNCTIONS OF LOCAL GOVERNMENTS

IN ALBANIA

June 2018

This publication was produced for review by the United States Agency for International

Development. It was prepared by Tetra Tech ARD.

ACKNOWLEDGEMENTS

Prepared for the United States Agency for International Development, USAID Contract Number AID-182-C-12-00001, Albania Planning and Local Governance Project (PLGP)

This draft-policy brief was prepared by: Tony Levitas and Elton Stafa

Tetra Tech ARD Home Office Address:

Tetra Tech ARD 159 Bank Street, Suite 300 Burlington, Vermont 05401 USA Telephone: (802) 658-3890 Fax: (802) 658-4247 www.ardinc.com

Tetra Tech ARD Contact: Adrienne Raphael, Senior Technical Advisor/Manager [email protected]

PLGP Contact: Kevin McLaughlin, PLGP Chief of Party [email protected]

We would like to thank Fran Brahimi of the Ministry of Finance and Economy and Florian Nurçe of the Ministry of Educa�on and Sport for cri�cal support in the prepara�on of this policy brief.

DISCLAIMER

The author’s views expressed in this publica�on do not necessarily reflect the views of the United States Agency for Interna�onal Development or the United States Government.

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Contents

Execu�ve Summary ....................................................................................................................................... 3

1. Purpose of this Brief .................................................................................................................................. 5

2. The Origins of the Current Situa�on .......................................................................................................... 6

3. The Fundamental Problems ....................................................................................................................... 7

Social Welfare Centers .......................................................................................................................... 8

Recommenda�ons for Social Welfare Centers ..................................................................................... 9

Dormitories ......................................................................................................................................... 10

Recommenda�ons for Dormitories .................................................................................................... 11

Fire Protec�on, Agriculture and Irriga�on, Forestry .......................................................................... 11

Recommenda�ons for Fire Protec�on, Agriculture and Irriga�on, Forestry ...................................... 13

4. Local Governments, Preschool Educa�on, and Per Pupil Funding .......................................................... 13

Overview Preschool Educa�on in Albania .......................................................................................... 14

5. The Specific Challenges of Developing a Per-Pupil Formula for Preschool Educa�on in Albania Today 18

Recommenda�ons for Preschools Educa�on ..................................................................................... 24

USAID PLANNING AND LOCAL GOVERNANCE PROJECT DRAFT-POLICY BRIEF: FINANCING THE NEW OWN FUNCTIONS OF LOCAL SELF-GOVERNMENTS IN ALBANIA 3

Executive Summary

The 2015 Law on Local Self-Government (LSGL) substantially increased the role of democratically-

elected local governments in Albania by assigning to them a number of new own-functions. The

most important of them is the responsibility for financing and managing preschools. Others

include fire protection, irrigation and drainage, providing counselling services to farmers, and

managing and maintaining forests, pastures, and rural roads.

As “own functions” municipalities should have sufficient legal authority to over these services to

deliver them in ways that are aligned with the preferences and priorities of their electorates.

They must also be able to finance them from their general revenues and not from conditional

grants from the national government.

When the LSGL was passed, however, it contained a provision that allowed these new own

functions to be financed by conditional grants –Specific Transfers—for three years. This

transitional period was put in place to give the national government time to both harmonize

sectoral legislation and to introduce changes in the intergovernmental finance system that would

allow municipalities to pay for these new responsibilities from their general revenues.

This transition period expires at the end of this year, and in 2019, it is expected that municipalities

will not only exercise greater managerial control over these functions, but that they will start

financing from their general revenues –meaning out of some combination of the unconditional

transfers that they receive from the national government and the revenues they derive from local

fees, charges and taxes.

Figuring out how local governments should get these general revenues is however a big challenge

for at least three reasons. First, the national government is currently spending more than 8.5

billion lek to finance these functions through Specific Transfers. This is equal to more than 20%

of total local government revenues, and more than 50% of today’s Unconditional Transfer. As a

result, municipalities will need to see a very substantial increase in their freely disposable

revenues if they are to finance the existing costs of these functions –functions which to greater

or less degree have been underfunded for years.

Second, while there is undoubtedly room for Albanian municipalities to improve the collection of

their own tax revenues, there is little chance that such improvements could significantly offset

the costs of these new functions in the foreseeable future. As a result, and in the immediate, the

only viable way to provide local governments with the necessary funds to finance these functions

will be to substantially increase the size of the Unconditional Grant.

Third, and most importantly, it will be almost certainly necessary to increase the size of the

Unconditional Grant by more than the 8.5 billion ALL that the national government is currently

spending on these functions through Specific Transfers. The most fundamental reason for this is

that the ways these functions are currently being provided and financed by the national


government does not reflect any objective measure of the need for these services across the

country as a whole. The clearest illustration of this is with fire protection because in many areas

of the country the national government simply did not build or staff fire stations. But similar

problems exist with all of the concerned functions. For example, while all local governments

currently have preschools some have many more than others in relationship to the number of

preschool children they have to educate.

What this means is that if the same amount of money that is currently being spent on these

functions (through Specific Transfers) is allocated to local governments on the basis of more

objective measures of need --such as a municipality’s population, or the number of preschool

children it serves-- then municipalities who currently have relatively more of these institutions

than others, will receive less funding through the Unconditional Transfer than they did through

conditional grants Indeed, in some cases so much less funding that they may not be able to

provide the service at all, or will have to radically reorganize how they deliver it.

As a result, moving from a system in which the national government provides conditional grants

to individual local governments on the basis of the existing costs of the institutions located on

their territories, to one in which the national government allocates Unconditional Transfers to all

local governments based on objective measures of their relative needs almost always requires

increasing the size of the Unconditional Transfer by more than current level of conditional grants.

In following, we discuss the dilemmas of moving from conditional grants to unconditional

transfers for each of the new functions that have been assigned to local governments by the

LGFL. But we pay particular attention, to preschool education because it is by far the costliest

responsibility that the Government of Albania (GoA) has assigned to municipalities, and arguably

the most important for the country’s future.

Here, we argue that while it would probably have been best to consider preschool education as

a shared-function, it is possible to integrate a fair and equitable (weighted) per pupil formula into

the Unconditional Transfer. But doing so will also requiring a) adding new funds into the system

b) phasing in the introduction of the formula and c) providing municipalities with legal authority

and technical support to reorganize their preschool networks –not least because demographic

decline and internal migration will force at least some municipalities to close facilities and

redeploy teachers in their preschool systems.


1. Purpose of this Brief

In 2015, the Government of Albania (GoA) consolidated 373 municipalities and communes into

61 larger municipalities. The creation of these larger municipalities was the first step in a broader

plan to increase the role of democratically-elected local governments in the country’s system of

public administration1.

Once local governments had been consolidated, the GoA passed a new framework law on Local

Self-Government (LSGL)2. This law transferred important service responsibilities to municipalities

as own-functions. In accordance with the basic definition of own functions, municipalities should

have sufficient legal authority to deliver the services associated with own-functions in ways that

are aligned with their preferences and priorities. Indeed, they should be free not to provide a

service related to an own-function if they see fit, and so long as they are not violating other laws.

Finally, own functions should be financed from general revenues and not from conditional grants

whose terms and conditions are set by the national government.

But despite defining municipalities’ new responsibilities as own-functions, the LSGL put in place

a three-year transition period during which municipalities would receive conditional grants –

Specific Transfers-- to finance them. This transition period ends this year, and the expectation is

that beginning in 2019 municipalities will not only be given greater managerial control over these

newly decentralized functions, but that they will start paying for them through some combination

of local taxes and fees, and the Unconditional Grant that they receive from the national

government.

The purpose of this Brief is to explain the most important challenges that need to be addressed

in order to move to the unconditional funding of these new services, and to recommend way that

this might best be done. First, we trace the origins of the current situation and briefly

characterize the most important problems that need to be addressed. We illustrate these

problems by discussing the non-educational functions that have recently been decentralized and

outline some recommendations about how their financing might be treated going forward.

Finally, we focus most of our attention on preschool education because as we shall see it is by far

the costliest responsibility that the GoA has assigned to municipalities, and arguably the most

important for Albania’s future.

1 Government of Albania, National Crosscutting Strategy for Decentralization and Local Governance 2014-2020 December 2014, Tirana, pp 1-34 2 Law no. 139/2015, On Local Self-Government (LSGL)


2. The Origins of the Current Situation

Before the passage of the LSGL, territorial agencies of the GoA financed and managed fire

protection, agricultural services, irrigation, forestry and road maintenance. Line ministries set the

budgets of these agencies, directly hired and fired their directors, and were --at least in theory—

responsible for ensuring that services of a reasonably similar standard were provided across the

country as a whole. In most cases, this was not achieved and the poor quality and uneven

provision of many of the services that are now being decentralized is –as we shall see-- important

for understanding the current situation. But for the moment, the main point is that prior to 2016,

these were all pure national government functions.

The situation in education, and in a few select social services, however, was different. The

previous framework law on local self-government had defined education as a shared function,

and local governments had been given ownership of all schools located in their jurisdictions. As

owners, they were assigned responsibility for maintaining and improving school facilities and for

paying the costs of all school utilities out of their general revenues.

In the early 2000s, the GoA delegated the responsibility for paying the wages of all non-

pedagogical staff to local governments. This was done by (non-transparently) tacking on to each

local governments Unconditional Transfer, a conditional grant for the wages of school support

staff. The value of these conditional grants was determined by adding up the number of support

staff actually employed in a local government’s school system and then multiplying it by the

average national wage of such workers. As a result, these conditional grants did not reflect the

need for support staff as determined by some standard or formula. Instead, they were based on

the number of workers the Ministry of Education, Sport and Youth (MoESY) had recently allowed

schools to employ.

In 2008, the GoA delegated responsibility for managing and financing 27 school dormitories, as

well six social welfare centers to local governments. Again, this was done by tacking onto the

Unconditional Transfer the total amount of money that the national government had recently

spent on these institutions. Both in the case of school dormitories and in the case of social welfare

centers –which included some orphanages and old age homes—these institutions largely served

people who did not come from the local governments in which the institutions were located. As

a result, there was little political incentive for the local governments to improve their operations.

With the passage of the LSGL, fire protection, maintaining and improving irrigation and drainage

systems, providing counsel services to farmers, and maintaining local roads were all made local

government own-functions. Municipalities were also made fully responsible for preschool

education, meaning now they had to finance not just the wages of support staff but those of

teachers as well.

LSGL, however, contained provisions that allowed the GoA to finance these new responsibilities

through conditional grants –now called Specific Transfers-- because it was not clear how these


functions could be financed through the Unconditional Transfer, a grant which was also being

restructured at the time. As before, these conditional grants received were calculated by

summing-up what the national government said it had previously spent on these institutions.

Table I below, shows that in 2018 the total amount of Specific Transfers that municipalities will

receive is greater than 8.5 bln lek, a sum equal to almost 20% of total municipal revenue and

more than half the value of the Unconditional Transfer. Cleary how these monies are allocated

to local governments in the future is of critical importance to the financial well-being of Albania’s

municipalities. Moreover, their most costly new function is their responsibility for paying the

salaries of preschool teachers. These salaries, combined with those of non-pedagogical

employees in all schools account for well over 60% all specific transfers. As such, the most

significant problem facing policy makers is how monies intended for education should be

allocated to local governments once the provisions for Specific Transfers expire.

Table 1 Specific Transfers Broken Down by Category in 2018

Source: MoFE and MoESY

3. The Fundamental Problems

Once the provisions for Specific Transfers expire at the end of the year, local governments will be

expected to finance their new own functions from their general revenues, meaning through some

combination of their own tax revenues and the monies they receive through the Unconditional

Grant. In theory, a significant portion of the costs of these new functions could be covered by

giving local government some combination of new tax powers, new shares of national taxes as

well as by expecting municipalities to do a better job collecting the taxes they already control.

In practice, however, not much can be expected from any of these options in the immediate

future: There is no high yielding tax that national government can reasonably give to local

governments. The base of the Personal Income Tax is too unevenly distributed across the country

as a whole to expect that it could finance functions as costly as teachers wages in most

municipalities. And while, local governments can and should improve the collection of their own

revenues, there is no chance that this can be done overnight or on anything like the scale that

would be required to significantly offset the costs of the new functions.

Wages:

Preschool Teachers

Wages: Support Staff Pre & Prim.

Schools

Wages: Support

Staff Sec. Schools

Fire Prot.

Irrigation, Drainage, &

Agric. Support

Forestry Rural roads

Dorms Soc.

Centers Total

mln ALL 3,609 1,015 469 1,185 847 276 516 514 88 8,519

% of Total 42% 12% 6% 14% 10% 3% 6% 6% 1% 100%

# employed 4,410 2,186 797 1,167 328 261 ? ? ? na

# of LGs with instit. 61 61 57 (47) 61 61 58 58 27 6 na


As a result, the only realistic way of providing local governments with the funds they will need to

finance their new own functions is through the expansion of the Unconditional Transfer. And

here there are three critical issues:

• How much should the Unconditional Transfer be expanded in order to ensure that the

total amount of funding local governments receive is adequate with respect to the costs

of their new responsibilities?

• On what objective measures of relative need should the Unconditional Transfer by

allocated to local governments to ensure the overall equity of the system.

• And how can the system be made stable and predictable over time as these needs

change.

In the following we examine these issues with respect to each of the new functions that have

been assigned local governments. Here, we argue that answering these questions is complicated

by a problem that has thus far been little discussed by Albanian policy makers. In short, the

functions that that are now being decentralized to local governments have never been provided

or financed by the national government in accordance with any objective measure of the need,

or any clear set of service standards. As a result, the array of institutions that currently provide

these services, as well as the number of people they employ and the quality of their buildings

and equipment, differs significantly from place to place as do the quality of the services they

provide.

Before focusing on education, as the costliest of the new functions, it is worth briefly examining

these issues in a few of the other, less weighty, sectors in which municipalities have been

assigned own-functions. Here, what we are trying to illustrate is the tension between delegating

to municipalities managerial control over particular institutions and decentralizing to them

broader sectoral responsibilities as own-functions.

Social Welfare Centers

As can be seen from Table 1, six municipalities receive Specific Transfers worth a total of 88

million ALL to support Social Welfare Centers for children with disabilities and old age homes.

This constitutes 1% of all Specific Transfers and is thus a small part of the problem, but one that

nonetheless expresses in miniature issues that reappear elsewhere.

The central tension lies in the fact that only six municipalities currently have social welfare

centers while the LSGL requires all local governments to provide services to disabled children and

the elderly. If we assume, with the LSGL that all local governments should provide these services,

then it is unfair to give special treatment to those municipalities that happen to have them now.

Instead, the money currently being spent on these centers should be shared by all municipalities.


This would argue for putting the 88 million ALL into the Unconditional Grant and allocating it by

population or by the number of disabled or elderly people living in each municipality.

Doing this, however, will give municipalities that don’t have Social Welfare Centers a little more

money than they received before, but not enough to actually provide any significant social

welfare services, to say nothing about building (and staffing) a new social welfare center.

Meanwhile, the six municipalities that currently have centers will get significantly less money

than before, and certainly not enough to keep their centers open without adding in additional

funds.

Faced with this dilemma, municipalities may well choose to close the centers they and spend the

monies they receive through the Unconditional Grant on other functions. Moreover, the

incentive to close the centers will be particularly strong if the centers in fact serve large numbers

of children and elderly who actually come from other municipalities. Worse, the national

government will have weak legal grounds for preventing these closures, precisely because as an

own-function financed through freely disposable monies, municipalities should be free not to

provide a service if they think it doesn’t serve the best interests of their electorates.

In this case, in other words, there two central problems: The first is the tension between the

unequal distribution of the current institutions and finances associated with the function. And

the second is whether in fact the current institution really shouldn’t be considered local

government institutions at all because they were designed to serve citizens from all of the

country.

Recommendations for Social Welfare Centers

1. Determine which if any of the social service centers actually serve national populations.

These centers should not be decentralized to local governments as “own-functions”.

Instead they should continue to be considered delegated responsibilities and financed

with conditional grants, or better, made into private, non-profit institutions financed

through per client payments from the national budget.

2. The funds that currently go to centers that primarily serve the residents of the

municipalities in which they are located should be placed into the Unconditional Grant

allocated to all municipalities on a formula basis.

3. As with any Specific Transfers folded into the Unconditional Grant, the size of the grant

has to be increased be an equivalent percentage of GDP to ensure that the services are

accounted for in future years.

4. The national government should not object to the closing of centers that municipalities

have been assigned responsibility for as an own-function.


Dormitories

A similar set of dilemmas exist with respect to school dormitories which exist in only 27

municipalities and which are currently being financed through Specific Transfers equal to about

514 million lek (6% of total Specific Transfers). 3

These dormitories were initially delegated to municipalities before Albania consolidated its local

governments. It is therefore likely that most of the pupils who initially used them came from the

surrounding communes. This is problematic because the host municipality was essentially being

asked to provide services to children whose parents voted and paid taxes in another local

government. Thus, while municipalities were legally obligated to keep these dorms open and to

spend their conditional grants on them, they had little incentive to improve conditions by

contributing their own money.

With territorial consolidation this particular problem may have been more or less resolved

because it is now likely that most of the pupils using the dormitories come from the municipality

that is responsible for financing and managing them. But there are still only 27 dorms in the

country. As a result, putting the 514 million lek of Specific Transfers that are currently earmarked

for dormitories into the part of the Unconditional Grant that allocates funds to local governments

on the basis of population and population density will cause the same sorts of problems that we

encountered with social welfare institutions: Local governments that do not have dormitories

will get money they never saw before, while those with dormitories will get much less than they

need to keep their facilities open.

But unlike with social welfare institutions, monies designed to support dormitories could be

relatively easily targeted towards those municipalities that have them and at least in theory

without discriminating against those that don’t. This is because the rules governing the

Unconditional Grant already set aside a percentage of the total grant for educational purposes

(5% of the grant or c. 1 bln lek in 2018). This part of the grant is then allocated to municipalities

on the basis of the number of primary and secondary school students in their schools.

What could be done here is to add the 514 million lek currently designated for dormitories into

Unconditional Grant by increasing the value of the grant by an equivalent percentage of the GDP.

This will ensure that financial support for this function stays in the unconditional grant going

forward. Then share of the grant earmarked for educational purposes would be increased by a

percentage of the total grant that yielded the same 500 million lek. Finally, as new coefficient

would be added to the formula that gave local governments a specific amount of money for every

student housed in a dormitory, living outside of his home in order to attend another school.

3 It is important to note that dormitories have been decentralized with Decision of the Council of Ministers in 2008 and are not included in the LSGL as an own local function


The base calculation for the per pupil amount would be made simply by dividing the 514 mln lek

currently spent on dorms by the total number of pupils currently residing in them. Municipalities

would then get this amount multiplied by the number of students living in their dorms. The

resulting sum would inevitably differ from the amount of the Specific Transfers municipalities

currently receive, with some getting more and some getting less. But the system would be

reasonably fair. Moreover, legal provisions might be developed to allow similar per pupil

amounts to be paid to municipalities who created possibilities for students to live with local

families if they did not have dorms or if their dorms were overenrolled. As such, the system would

not discriminate against those municipalities that did not have dorms already.

But again, it should be noted that because the responsibility to provide student housing has been

assigned to municipalities as an own function, local governments would remain (legally) free to

spend whatever money they got through the grant as they saw fit. Indeed, they would remain

free to close dormitories and indeed not to provide student housing at all --though if they did

they would obviously lose their per pupil payments. Finally, if such as system is introduced, it

would be incumbent on the Ministry of Finance to introduce a budget circular that clearly defined

how the Unconditional Grant is being calculated, and in particular how much is been calculated

to support functions related to education.

Recommendations for Dormitories 1. Increase the share of the GDP used to define the Unconditional Grant by a percentage

equal to the 514 million lek currently being used to finance dormitories through Specific

Transfers.

2. Increase the share of the Unconditional Grant calculated on the basis of the number of

pupils attending schools in each municipality and add a coefficient for pupils residing in

dormitories or otherwise being housed outside of their normal place of residence in order

to attend school.

3. Calculate a base per pupil payment for students attending school outside of their place of

residence by dividing the 514 million currently being spent on dormitories by the total

number of pupils living in them.

4. Determine the student housing component of each local governments Unconditional

Grant by multiplying the number of students residing in a municipality’s dormitories (and

other forms of student housing) by the base per pupil payment.

Fire Protection, Agriculture and Irrigation, Forestry

Taken together Fire Protection (14%, 1,185 mln lek), Agriculture and Irrigation (10%, 847 mln lek)

and Forestry (3%, 276 mln lek) account for 2,308 mln of all Specific Transfers (27%). As with Social

Welfare Centers and Dormitories, the distribution of the institutions which provide the services

associated with these functions is extremely uneven.


In 2016, there were only 39 fire stations in the country, meaning that 22 of the newly

consolidated municipalities lacked the basic infrastructure to provide the key services that had

just been made a local government own-function. To its great credit, the national government

used the three-year transition period to build 22 new fire stations in the municipalities that didn’t

have them, increase the number of staff and make several municipalities comply with the legal

standard on the number of firefighters.4

The situation in Agriculture, Irrigation, drainage and Forestry is much less clear. For these

functions we have not been able to identify a specific set of institutions that provide similar

services throughout the country. Nor have we been able to identify any inventory of the

institutions that are currently being funded by Specific Transfers. As such, it is very hard to say

what exactly these institutions do, or how unevenly the services they provide are distributed

across the country as a whole.

This of course does not mean that municipalities have all the infrastructure they need to

adequately serve their citizens. On the contrary, there has been underinvested in these sectors

for many years and it is entirely likely that no municipality really has either the capital stock or

the human resources to provide adequate services. Nor does it mean that municipalities have

similar shortcoming or deficits. What can be said, however, is that in general, the human and

capital endowments associated with these functions are inadequate, and that their current

distribution across municipalities is very uneven and unfair.

These disparities are important to understand because they bringing all municipalities up to a

similar and adequate level of service capacity represent a national challenge. And in some

respects, the transfer of these responsibilities to municipalities as own functions — like many

aspects of the decentralization process — expresses the national governments’ preference to off-

load some of its own problems to the local level. This is unfair. But it is not unreasonable in as

much as one believes that local knowledge and local priorities can produce better outcomes if

they are combined with some real measure of local power and locally controlled resources.

For these reasons, we think that it is desirable to fold the Specific Transfers currently used to

fund these functions into the general component of the Unconditional Grant, and to allocate

these funds more or less in accordance with the formula’s coefficients for population and

population density because both are reasonable ways to measure local governments need for

services in fire protection, irrigation, agricultural and forestry. That said it is difficult to determine

how this will impact the budgets of individual municipalities without running simulations and

adjusting coefficients to test different scenarios.

4 The report accompanying the draft-Annual Budget Laws for 2016-2018


Recommendations for Fire Protection, Agriculture and Irrigation, Forestry

1. Increase the share of the GDP used to define the Unconditional Grant by a percentage

equal to the 2,308 million lek currently being used to finance fire protection, irrigation,

forestry and agricultural services through Specific Transfers.

2. Allocate these monies to municipalities on the basis of population and population

density because these are reasonable measures of a municipalities need for the

services.

3. Discuss with the line ministries whether there might be additional objective measures of

need that might reasonable introduced into the formula

4. Run scenarios simulating the impact of different coefficients on individual budgets to

determine whether the existing formula can be improved.

4. Local Governments, Preschool Education, and Per Pupil Funding

Preschool Education is by far the costliest responsibility that the LSGL has decentralized to

municipalities as an own-function. The wages of kindergarten teachers alone account for 42% of

all Specific Transfers (3.6 bln lek) and when combined with the wages of support staff working in

pre-schools, primary schools, and secondary schools a total of 60% of all Specific Transfers (5.2

bln lek). Because early childhood education is particularly important to Albania’s future, special

attention and effort should be made to ensure that its transfer to municipalities as an own

function, financed by freely disposable revenues works to improve the quality of the nation

kindergartens.

In many countries, financing and managing kindergartens is a local government own-function.

The main reason for this is that kindergarten attendance is rarely --if ever-- compulsory, making

the demand for kindergartens heavily subject to parental choice. As a result, national

governments often leave it up to cities and towns to determine how many kindergartens they

should run, and how they should be paid for.

Over the last few decades, however, the way people see kindergartens has changed dramatically.

Through the 1970s, nursey schools and kindergartens were seen less as educational institutions

than as institutions designed to increase female rates of labor market participation. Indeed, in

many countries, nursery schools and kindergartens were financed or run by social welfare and

labor ministries, and not ministries of education.

Since the 1980s, a huge body of scholarly literature has demonstrated that early childhood

education is particularly important for improving the educational and life chances of children

from poor or disadvantaged households. This has encouraged people to see nursery schools and

kindergartens not as labor market institutions by as integral components of the larger

educational system. Not surprisingly, national governments have become increasingly concerned


with improving both the quality of preschools and kindergartens and access to them. As result,

in most countries national governments now regulate the basic parameters of preschool

education, including teacher qualifications, wages, and class sizes, while also promoting

enrollment through increased financial support of the sector. Thus, even in countries where

preschool education is legally considered a local government own-function, the practical realities

that arise from conceptualizing early childhood education as an integral part of the larger

educational system, make it de facto a shared function.

Overview Preschool Education in Albania

Albania inherited from its communist past a reasonably well developed national network of

kindergartens. Over the last 20 years, the GoA has struggled to maintain spending on preschool

education, which has fallen as a share of total education spending. Nonetheless, the government

has not closed preschools, and this combined with demographic decline has actually made it

possible for preschool enrollment rates to rise from about 40% in 1992 to above 60% in 2013.

This is low by European standards (c.75%) but is close to double the rate in Macedonian (29%)

and higher than the rate in Serbia and Croatia (45%), both significantly wealthier countries5.

Table 1 below shows total public spending on all levels of education by all sources in 2017. As can

be seen from the Table, about 59% (27.12 bln lek) of all public education spending went to Basic

Education, which includes both preschools and primary schools. Unfortunately, it is difficult to

determine exactly how much of all Basic Education spending goes to primary education and how

much to preschool education because the government has not introduced into the Chart of

Accounts separate program codes for each level.

Table 2: Public Spending on Education by Level and Source of Funding in 2017 (bln lek)

MoESY/ MoFE

Local Gov.

Spec. Tran.

RDF Total % of

Educ. Expend.

% of Public

Expend.

% of GDP

Basic Education 19.62 2.28 4.12 1.10 27.12 59% 5.8% 1.7%

Secondary Education 6.06 0.72 0.36 0.36 7.49 16% 1.6% 0.5%

Vocational Education (MoEF) Na Na Na Na Na Na Na Na

University Education 9.81 9.81 21% 2.1% 0.6%

Science & Sport 0.67 0.67 1% 0.1% 0.0%

MoESY Budget 0.67 0.67 1% 0.1% 0.0%

Total 36.81 3.00 4.48 1.46 45.76 100% 9.8% 2.9%

% of Public Spending 7.8% 0.6% 1.0% 0.3% 9.8%

% of GDP 2.4% 0.2% 0.3% 0.1% 2.9%

5 See Mimoza Gjukotaj, “Albania: The Situation of PreUniversity Education,” (Tirana 2013), The Global Campaign for Education, pp. 1-78 and Saber Country Report “Albania: Early Childhood Development” World Bank, Tirana 2015, pp 1-25. Gjukotaj puts the enrollment rate at 55%, the Saber report at 69%.


Distinct codes for pre-school education should be introduced as soon possible because not only

is it important to know how much money is being spent on preschool education per se, but

because it will be impossible to really understand the role of local governments in the sector

unless their spending on preschools can be distinguished from their spending on primary schools.

Table 3 below presents the composition of local government education expenditure broken

down by level of education and with the Specific Transfer separated from spending funded from

the general revenues of municipal budgets. As can be seen from the Table municipalities

increased spending from their general revenues on both Basic and Secondary education at the

moment that they started receiving Specific Transfers. Why they did this is unclear. But the fact

that they did suggests that the transfer to them of new payroll obligations increased their sense

of responsibility for their schools: Approximately a third of all municipal spending on education

is now funded form their general revenues and going forward, it will be important to monitor

both the size of this contribution, and its distribution across municipalities.

Table 3: The Composition of Local Government Education Spending 2015-17 (in thsd lek)

2015 2016 2017

% of 2017

Basic Education 1,888,876 5,959,684 6,402,598 100%

Wages 448,692 313,332 792,344 12%

Operating 1,090,806 1,008,479 856,954 13%

Investment 349,378 686,622 628,861 10%

Specific Transfer for Wages na 3,951,250 4,124,438 64%

Secondary Education 80,440 1,067,223 1,081,428 100%

Wages 44 274,238 268,935 25%

Operating 39,030 380,188 348,607 32%

Investment 41,367 61,355 107,140 10%

Specific Transfer for Wages na 351,442 356,745 33%

All Education 1,969,317 7,026,907 7,484,025 100%

Wages 448,736 587,570 1,061,279 14%

Operating 1,129,836 1,388,667 1,205,562 16%

Investment 390,744 747,977 736,002 10%

Specific Transfer for Wages na 4,302,692 4,481,184 60%

Source: Data from MoFE

More important, however, is what cannot be seen in the Table: From the accounts of

municipalities we cannot see how much they spent on the wages of pre-school teachers as

opposed to how much they spent on the wages of support staff in kindergartens and primary

schools. This will become increasingly important as both preschool education, and full

responsibility for maintaining primary and secondary are transformed into own-functions of local

governments. In short, both national and local governments, as well as the citizens at large, will

need to know how much is being spent on each expenditure category in order to monitor the

education policies of municipalities. Thus, and as with the distinction between pre-school and

primary education, new codes should be introduced into the Chart of Accounts so that the wages

of pedagogical workers in the school system can be distinguished from those of support staff.


For the moment, however, we can still determine this breakdown from the descriptions of the

Specific Transfers contained in the annual budget resolution of the national government. These

descriptions tell us that in 2016, 2.93 bln lek of the Specific Transfer for Basic Education was

earmarked for the wages of kindergarten teachers, while 1 bln went to the wages support staff

working in kindergartens and primary schools (75% of 3.91 bln lek)6. By 2018, however the share

of the Specific Transfer for Basic Education that was earmarked for the wages of kindergarten

teachers had risen to 3.6 bln lek, or 78% of the Specific Transfer for Basic Education while the

same 1 bln lek was earmarked for the wages of support staff (4.63 bln lek, see Table I).

What this means is that between 2016 and 2018 the national government increased the pool of

funds earmarked for kindergarten teachers by 700 million lek or 22%. This was because the

MoESY allowed schools to hire 252 new teachers between 2016 and 2018, and MoF agreed to

fund the new position7. This increase in employment was not problematic under the current

system of Specific Transfers, because MoESY continues to be fully responsible for determining

the number of teachers employed in every school. As such, and at least for the moment, it is fair

to say that municipalities are doing little more running MoESY payroll system for kindergarten

teachers.

But this will have to change when the Specific Transfer is folded into the Unconditional Grant,

and when --as an own-function-- local governments assume greater responsibility for managing

preschools. These managerial rights can be defined in many ways, and constrained –for better

and worse-- by all sorts of sectoral regulation. But local governments cannot be said to have been

given responsibility for preschool education either as shared or own-function if MoESY remains

fully responsible for the hiring and firing kindergarten teachers, or for the opening or closing

preschools.

Most importantly, there is a fundamental contradiction between national government control

over preschool employment, and the financing of preschool education through the Unconditional

Grant. This is because the basic definition of an unconditional grant requires that local

governments be free to spend the monies they receive through them anyway they like, including

on functions other than preschool education.

To be sure, the behavior municipalities with respect to preschool education can –indeed, must--

be regulated, and the fact that the law specifies that preschool education is an own-function does

not mean that local governments can do whatever they want in the sector. The national

government should determine minimum standards of service provision by –for example--

defining teacher qualifications, maximum class sizes, curricula, and the physical conditions of

preschools. Rules can also be put in place that require ministerial approval of municipal decisions

to close schools, or which radically reduce the access of children to kindergartens. But the

national government can neither require municipalities to maintain existing levels of teacher

6 2016 Annex on Specific Transfers of the 2016 Annual Budget Statement of the GoA

7 Date from the Ministry of Education, Sports and Youth.


employment, nor hire new teachers, unless it is guaranteeing the funds to pay for these services

through conditional grants. At the same time, however, and equally importantly, municipalities

cannot expect the national government to take direct responsibility for paying the wages of

teachers that are already employed in kindergartens, or for ones they would like to hire, at the

moment when the conditional funding of preschool education ends.

Instead, both levels of government must agree that to create a mechanism that ensures that the

unconditional grant allocates sufficient funds to local governments for them to provide

reasonably similar levels of preschool education to the children living in their municipalities. The

first condition of such an agreement is that at least the full value of the current monies spent on

the sector through Specific Transfers are added into the Unconditional Grant. This requires

increasing the definition of the size of the Unconditional Grant by value of these monies

expressed as their current share of the GDP.

The second, and more difficult condition requires the development of a funding formula that is

not based on the number of teachers a municipality employs but on the number of pupils

attending its schools. Indeed, developing a per-pupil funding formula for preschool education

is not only necessary to decentralize the function to local governments but part of a broader

legal obligation: According to Albania’s Basic Law on Pre-University education the funding of all

schools should be based on some sort of per pupil formula8. Unfortunately, however, this has

never been done.

So, one way to look at that current situation is to see the transfer of preschool education to local

governments, and the legal requirement to eliminate Specific Transfers as an opportune moment

to begin a process that probably should have started long ago. Secondly, developing a per-pupil

funding formula for preschool education is also necessary: Falling birthrates, emigration, and

rapid urbanization have radically changed the demand for schools and teachers across the

country as whole and their current geographic distribution is now poorly aligned with where

most people actually live and need to be served. Per pupil formulas are designed to prevent this

sort of situation be ensuring that resources follow enrollment, and not where teachers are

currently employed.

The new per pupil formula, however must be weighted so that it takes into account the fact that

in mountainous and sparsely populated areas preschool classes will be smaller than in urban

centers, and that as a result the per pupil costs of providing the service will be higher.

The use of a per pupil formula to allocate unconditional funds to local governments will

necessarily result in municipalities receiving different levels of funding than they currently

receive through Specific Transfers. It is thus extremely important that the formula be clear and

8 Article 37 of the 2012 Law on Pre-University Education reads: The financing from the state budget shall be scheduled based on the formula "per student", in accordance with the separate indicators of the educational levels and conditions of the public educational institutions.


transparent, and that the national government inform each municipality of the exact amount of

money that has been calculated to support preschool education, and which they will receive as

part of their Unconditional Grants.

Finally, and perhaps most importantly, it must be understood that while per pupil formulas can

be designed to mimic an existing allocation of funding, they cannot reproduce it entirely. In short,

in some cases there will be quite significant differences between what a municipality received

through Specific Transfers and what it should receive through the new formula. A number of

different strategies, however, can be used to prevent adjustment shock. The simplest and most

systemic is for the national government to increase the size of the pool of funds calculated to

support preschool education. Other strategies include phasing in the formula over a number of

years, and/or setting aside reserve funds for municipalities whose conditions are so exceptional

that it is clear that they will not be able to provide reasonable levels of preschool service without

exceptional national government support.

5. The Specific Challenges of Developing a Per-Pupil Formula for

Preschool Education in Albania Today

To better understand the challenges of developing and implementing a per pupil system of

preschool finance in Albania today, it is necessary to look a little closer at the effects of the

existing system of funding kindergartens. In particular, it is necessary to examine the disparities

in both the access to, and the quality of preschool education across the country as a whole

because these disparities at once illustrate why moving to per pupil funding is both increasingly

necessary and difficult.

Pre-school enrollment rates in Albania range somewhere between 55 and 70 percent of all 3-5

year-olds depending on who is doing the estimate.9 This is well below the average for the

European Union, but nonetheless surprisingly high for a poor country, and significantly higher

than some of Albania’s immediate neighbors (e.g. Macedonia).10

Unfortunately, however, there are no official assessments of preschool enrollment rates by

municipality. This situation should be corrected by MoESY and Instat because monitoring changes

in the access to preschool education will become increasingly important as the function is

decentralized to local governments. There is however, good data on the number of pupils

attending all types of public schools in every municipality, as well as the number of teachers those

schools employ.

9 See footnote 5 and for comparison with other European countries

10 EuroStat http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=educ_uoe_enrp07&lang=en

http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=educ_uoe_enrp07&lang=en


In the following we use pupils per teacher as a crude measure of school quality11, and preschool

pupils as a percentage of total pupils as a proxy measure for enrollment rates and access. So the

higher percentage of preschool pupils is to total pupils, the better we consider the access to

preschool education is. Table 4 below, presents both these measures for the 10 municipalities

with the lowest levels of preschool access in the country (left hand side of the table) and the ten

municipalities with highest levels of access (right hand side of the table).

Table 4: Municipalities with the Highest and Lowest Rates of Access to Preschools in 2015-16

Local Gov's with Least

Access

Pupils in

Public Schools

Pupils in Public

Preschool

Preschool Pupils as % of All Pupils

Pupils per

Teacher

Local Gov's with

Most Access

Pupils in

Public Schools

Pupils in Public

Preschool

Preschool Pupils as % of All Pupils

Pupils per Teacher

Shkodër 19,876 2,140 10.8% 16.1 Vorë 3,604 737 20.4% 17.5

Durrës 30,892 3,432 11.1% 22.7 Memaliaj 1,901 397 20.9% 11.0

Belsh 3,371 403 12.0% 13.9 Gjirokastër 4,725 1,010 21.4% 12.3

FusheArrëz 1,396 171 12.2% 8.6 Himarë 1,201 258 21.5% 17.2

Kamëz 22,382 2,840 12.7% 27.3 Devoll 4,510 976 21.6% 15.5

MalësiEMadhe 4,959 652 13.1% 12.3 Konispol 922 200 21.7% 25.0

Krujë 11,763 1,550 13.2% 31.6 Libohovë 542 128 23.6% 25.6

Tirane 93,080 12,297 13.2% 25.4 Tepelenë 1,716 431 25.1% 11.6

Peqin 4,427 593 13.4% 15.2 Finiq 657 182 27.7% 18.2

Tropojë 4,482 619 13.8% 13.8 Pustec 262 88 33.6% 12.6

Total Group 196,628 24,697 12.6% 22.3 Total Group 20,040 4,407 22.0% 14.4

Albania 491,601 76,627 15.6% 18.4 Albania 491,601 76,627 15.6% 18.4

Source MoESY data

As can be seen from the table, many of the ten municipalities with the lowest level of access to

public preschools are among the largest municipalities in the country, and collectively they

represent almost a third of all preschool students. Meanwhile, the ten municipalities with the

highest levels of access are all relatively small, collectively representing just over 10% of all

preschool pupils. Moreover, the difference in access between the two groups is very significant,

with preschool pupils representing only 12.6% of all pupils in the low access municipalities

compared to 22.0% in high access municipalities.

Indeed, if we assume that the national enrollment rate is 55%, and that this is more or less equal

to the national average of our proxy rate for access –that 15.6% of all public-school pupils attend

preschool—then it seems that about 44% of 3-5 year olds who attend preschools in low access

municipalities, while about 77% attend them in high access municipalities. And while not all the

low access municipalities are large -indeed a few of them like Fushe Arrez and Belsh are quite

11 Measuring the quality of educational institutions is always difficult, and pupil teacher ratios (class sizes) alone obviously tell us nothing about other important factors like facilities, equipment and teacher qualifications. Nonetheless, it should be clear that municipalities with average class sizes two or three times than those of other similar local governments cannot be said to be providing preschool education at a similar standard to those of their peers.


small-- what is most striking about the table is that access to preschool education seems to be

most problematic in some of Albania’s largest municipalities, including Tirana.

This is unusual because in most countries access to preschool education is significantly higher in

urban jurisdictions than it is in rural ones. In Poland, for example, the national enrollment rate

for preschool education is about the same as in Albania (c. 60%). But enrolment rates in cities are

much higher (c. 80%) than in more rural areas (c. 40%) --so more or less the opposite of what we

see in Albania.

The data on pupil teacher ratios –class sizes-- is less surprising but still revealing. As can be seen

from the table, class sizes are higher than the national average in most but not all of the low

access municipalities, while they are significantly lower than the national average in most of the

high access municipalities. This is more or less what one would expect because it is hard to

transport small children over large distances in sparsely populated or mountainous jurisdictions.

Nonetheless, a few aspects of the class size data are curious. First, there are a number of small,

high access local governments with average classes that are surprisingly large (Konispol, Libhove,

Finiq). What is going on here is unclear. It could be that in these municipalities there are one or

two preschools in the town center with extremely large classes, and then smaller facilities in a

few rural areas. But the situation in these local governments is obviously very different than in

the small, but very high access town of Pustec where classes are half the size, or from the small

but very low access Fushe Arrez where classes average only 8.6 pupils per teacher –meaning that

there are almost certainly classes in which there are 3 or 4 children.

The other important aspect of this data is simply that in a number of large primarily urban

municipalities the average class size is over 25 pupils. Such classes are probably already too large

for kindergartens to really be preschools, and instead are really functioning as social welfare

institutions that make it possible for both parents to work. And again, if the average is 25 or 30

pupils per teacher, this means that in these municipalities there must be a significant number of

classes that have well over 35 pupils.

In short, the data suggests two things. First, Albania has not been able to adjust the distribution

of its preschools --or the teachers working in them-- to the growth of at least some of its most

important urban centers. And second, a combination of migration, demographic decline, and the

historically uneven distribution of schools and teachers has produced a complicated and unclear

pattern of both access and quality that has left some municipalities with many preschools and

teachers, but few students, while others have been less fortunate.

Further research into the actual distribution of schools and teachers may yield evidence that

these at least some of these apparently arbitrary patterns are being driven by underlying forces

that need to be teased out of the data. But at the moment, much of what is seems to be going

on here resembles a variation of the fire-station problem that we have discussed earlier. In short,

the national government has been unable to provide many areas of the country with


reasonably similar levels of preschool services, and these disparities are now going to be

decentralized to local government.

These disparities are clearly unfair and should be corrected over time. Indeed, in theory the

national government might take it upon itself to equalize both access to preschool education and

its quality before transferring the function to municipalities. This however is unlikely and

probably undesirable: Unlikely because the national government doesn’t have the funds

necessary for the task, and undesirable because local governments almost certainly have a better

idea where underutilized facilities can be closed or consolidated, and where new ones ought to

be built and staffed. Indeed, while difficult and painful, this precisely why a system of per pupil

finance is necessary: Without money flowing to local governments on the basis of a more

objective measure of need, municipalities with low access and large classes will have little chance

to meet the growing needs of their citizens, while municipalities with high access and small

classes will have little reason to adjust their school networks to meet falling demand.

Table 5 below, presents the same measures of preschool access and class sizes for all

municipalities, as well as the value of their Specific Grants for teachers’ wages expressed in both

per teacher and per pupil amounts. The table illustrates in financial terms the general –but not

universal trend—of under-providing preschool services in large more urban municipalities, as

well as the harder to explain patterns of service provision elsewhere. Municipalities in the table

are ranked by the amount of Specific Transfers they received expressed in per pupil terms in

2015-16, with those who received most appearing at the top of the table, and those who received

least at the bottom.

As can be seen from the table, all municipalities received the same amount of funding per

teacher. This is exactly what we would expect, and at the same time precisely the phenomena

that cannot be reproduced at the moment that Specific Transfers are folded into the

Unconditional Grant. Or put another way, ending Specific Transfers for preschool education will

necessarily change the existing allocation of funds in the sector. The question therefore is not

whether some municipalities will receive more or less money than before, because this is

inevitable. Instead, the question is on what basis they should receive this money, and whether

the amounts they receive are sufficiently similar to what the currently get so that over time they

can rationally adjust how they use teachers and facilities to best meet the needs of their citizens.

Coming up with such a formula will not be easy. In part this is because in general smaller

municipalities receive two to three times the amount of funding per pupil (60-80,000 lek) than

many more urban jurisdictions do (25-35,000 lek. But if this was the only problem, a reasonable

if not perfect solution could be found by providing significantly more money per pupil to all small

and sparsely populated local governments, as most per pupil funding formulas do.


Table 5: The Specific Transfer for Preschool Teachers’ Wages in Per Pupil Terms: 2015-

2016

Municipality Pupils in

Public Preschools

Preshool Pupils as %

of All Pupils

Preschool Teachers

Pupils per Teacher

Specific Grant for Preschool Teacher Wages

Value of Grant per Teacher

Value of Grant Per

Pupil

Fushe Arrëz 171 12.2% 20 8.6 14,125 706,233 82,600

Skrapar 335 15.1% 39 8.6 27,543 706,233 82,218

Kolonjë 313 19.1% 35 8.9 24,718 706,233 78,972

Poliçan 269 17.8% 29 9.3 20,481 706,233 76,137

Mirditë 510 14.2% 52 9.8 36,724 706,233 72,008

Memaliaj 397 20.9% 36 11.0 25,424 706,233 64,041

Pukë 300 14.9% 27 11.1 19,068 706,233 63,561

Dropull 34 14.1% 3 11.3 2,119 706,233 62,315

Përmet 273 16.4% 24 11.4 16,950 706,233 62,086

Tepelenë 431 25.1% 37 11.6 26,131 706,233 60,628

Gramsh 950 19.1% 80 11.9 56,499 706,233 59,472

Delvinë 266 18.6% 22 12.1 15,537 706,233 58,410

Malësi E Madhe 652 13.1% 53 12.3 37,430 706,233 57,409

Gjirokastër 1,010 21.4% 82 12.3 57,911 706,233 57,338

Pustec 88 33.6% 7 12.6 4,944 706,233 56,178

Korçë 2,212 19.4% 174 12.7 122,885 706,233 55,554

Mat 832 15.0% 63 13.2 44,493 706,233 53,477

Tropojë 619 13.8% 45 13.8 31,781 706,233 51,342

Belsh 403 12.0% 29 13.9 20,481 706,233 50,821

Librazhd 1,150 18.2% 81 14.2 57,205 706,233 49,743

Mallakastër 872 17.2% 58 15.0 40,962 706,233 46,974

Shijak 696 16.7% 46 15.1 32,487 706,233 46,676

Peqin 593 13.4% 39 15.2 27,543 706,233 46,447

Kuçovë 939 17.0% 61 15.4 43,080 706,233 45,879

Devoll 976 21.6% 63 15.5 44,493 706,233 45,587

Kavajë 1,128 16.1% 71 15.9 50,143 706,233 44,453

Dibër 2,007 15.8% 125 16.1 88,279 706,233 43,986

Shkodër 2,140 10.8% 133 16.1 93,929 706,233 43,892

Berat 1,893 18.1% 114 16.6 80,511 706,233 42,531

Cërrik 791 17.2% 47 16.8 33,193 706,233 41,963

Bulqizë 955 14.5% 56 17.1 39,549 706,233 41,413

Himarë 258 21.5% 15 17.2 10,594 706,233 41,060

Lushnje 2,607 18.8% 150 17.4 105,935 706,233 40,635

Fier 3,216 16.8% 184 17.5 129,947 706,233 40,406

Vorë 737 20.4% 42 17.5 29,662 706,233 40,247

Pogradec 2,485 20.3% 141 17.6 99,579 706,233 40,072

Has 564 14.7% 32 17.6 22,599 706,233 40,070

Këlcyrë 160 15.5% 9 17.8 6,356 706,233 39,726

Elbasan 4,138 16.9% 228 18.1 161,021 706,233 38,913

Finiq 182 27.7% 10 18.2 7,062 706,233 38,804

Patos 713 17.8% 38 18.8 26,837 706,233 37,639

Klos 471 14.5% 25 18.8 17,656 706,233 37,486

Kurbin 1,490 15.6% 78 19.1 55,086 706,233 36,971

Sarandë 889 17.5% 43 20.7 30,368 706,233 34,160

Maliq 1,410 19.9% 67 21.0 47,318 706,233 33,559

Vau-Dejes 653 14.7% 31 21.1 21,893 706,233 33,527

Kukës 1,651 14.9% 77 21.4 54,380 706,233 32,938

Rrogozhinë 644 16.4% 29 22.2 20,481 706,233 31,802


Durrës 3,432 11.1% 151 22.7 106,641 706,233 31,073

Përrenjas 825 15.8% 36 22.9 25,424 706,233 30,817

Selenicë 484 17.4% 21 23.0 14,831 706,233 30,642

Vlorë 3,299 19.4% 141 23.4 99,579 706,233 30,185

Divjakë 1,111 16.9% 47 23.6 33,193 706,233 29,877

Lezhë 2,410 19.6% 99 24.3 69,917 706,233 29,011

Roskovec 564 14.6% 23 24.5 16,243 706,233 28,800

Konispol 200 21.7% 8 25.0 5,650 706,233 28,249

Tirane 12,297 13.2% 485 25.4 342,523 706,233 27,854

Libohovë 128 23.6% 5 25.6 3,531 706,233 27,587

Ura Vajgurore 1,014 18.4% 39 26.0 27,543 706,233 27,163

Kamëz 2,840 12.7% 104 27.3 73,448 706,233 25,862

Krujë 1,550 13.2% 49 31.6 34,605 706,233 22,326

Total Republic 76,627 15.6% 4,158 18.4 2,936,519 706,233 38,322

Source: Specific Transfer data MoFE, enrollment and teacher data MoESY

But this is not the only or most difficult problem that needs to be resolved. Instead, the real

difficulties lie in the fact that their seem to be many jurisdictions that at least on the face of it

seem to be structurally similar, but yet receive very different levels of per pupil funding. For

example, it is hard to explain why Korce should receive 55,500 lek per pupil –and have both

significantly smaller classes and greater access—than Shkoder which receives only 43,000 lek per

pupil. Or why Libohove receives only 27,000 lek per pupil and has huge class while Pustec get

57,000 lek per pupil and has classes half the size.

To be sure, further research and analysis may reveal differences across apparently similar

municipalities that could reasonably be integrated into the coefficients used to weight a per pupil

formula. For example, it may be that Korce as a municipality has a smaller urban core, and more

far flung villages than Skhoder does, making it possible to refine the formula to take into account

the settlement structure within municipalities. But it is impossible that even an extremely

sophisticated formula will be able to account for the kinds of disparities that can be seen in the

data because most of these disparities are not driven by any objective measure of need, but by

a combination of once more or less rational decisions made by different ministries of education

Albania’s rapidly changing demographics.

Indeed, in this situation it may well be better, to develop a rather simple and transparent per

pupil formula, and to phase it in over a period of five to seven years. Technically, this is relatively

easy to do. But it must be done openly and transparently and most importantly in ways that allow

municipalities to reasonably plan for the loss or increase in revenues that system will entail for

them. Such planning will require MoFE and MoESY to prepare, disseminate and discuss better

information about both the finances of the sector over time, as well as the analysis of

demographic trends at work in municipalities across the country.

At the same time, municipalities must be given the managerial powers necessary for them to

slowly adjust both their school networks and the number of teachers they employ. This will

require giving them the power to set school budgets, to have some control over the closure of

underutilized facilities, and perhaps the right to experiment with fees for households that can

afford them. It will also require support from the national government, both in terms of training


and access to at least some of the capital that will be needed to adjust school networks to the

needs of the country’s families.

Recommendations for Preschools Education

1. Increase the share of the GDP used to define the Unconditional Grant by a percentage

equal to at least the full value of all Specific Transfers for education, meaning not only

those currently earmarked for the wages preschool teachers but the wages of support

staff in primary and secondary schools.

2. Agree with local governments that this share will be periodically reviewed and adjusted

upward as preschool enrollment increases.

3. Increase the percentage of the Unconditional Transfer calculated to support local

government education responsibilities allocated on a per pupil basis by at least the value

of the amount of new money put into the Unconditional Grant for education.

4. Conduct further research on the demographic and settlement patterns that might be

used to adjust the coefficients used to allocate money on a per pupil basis, and develop

a simple, more equitable formula for allocating education monies through the

Unconditional Transfer.

5. Develop procedures to phase in the formula over a period of 5 to 7 years so that local

government have time to adjust to the new system of allocation.

6. Develop a budget circular for the Unconditional Grant that informs all municipalities of

how (the education components of) their grants have been calculated –including

enrolment numbers and explanations of coefficients and phase in provision—and which

also includes reasonable projections of what they will receive per pupil in future years.

7. Have MoF and INSTAT calculate preschool enrollment rates for all municipalities as well

as projections of the number of 3-5 year olds that will be entering the school system

over the next three to five years. Discuss the implications of this data with local

governments.

8. Carefully review the Draft Law on Preschool Education, paying particular attention to

the rights and obligations it gives local governments to set school budgets, hire, fire, and

pay teachers bonuses, open and close facilities, transport students, provide meals and

set fees for kindergartens.

9. Discuss these rights and obligations with local governments and ensure that they have

enough managerial and financial power to actually adjust preschool networks and

teacher employment to meet the changing needs of their citizens.

U.S. Agency for International DevelopmentPlanning and Local Governance Project in Albania

St. Dervish Hima3 Towers near Qemal Stafa StadiumTower No. 1, Apt. 91, Tenth Floor

Tirana, AlbaniaTel: + 355-04-450-4150Fax: + 355-04-450-4149

www.usaid.govwww.plgp.al

Date post:	13-Oct-2020
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DRAFT-POLICY BRIEF: FINANCING THE NEW OWN FUNCTIONS … · [email protected] We would...

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