Minimum Service Delivery Standards for Decentralized Education Functions: Fiscal Needs, Financing Options, and Policy Implications

Summary: This paper develops and implements a simple model for estimating local government physical infrastructure and fiscal requirements associated with attaining minimum participation standards in education. The initial empirical evidence suggests that an increase in physical capital of just over 15 percent might be required to meet the minimum participation rate of 80 percent for primary, junior secondary, and senior secondary levels of education. In addition, the results indicate that kabupaten/kota might also need to increase routine education expenditure by about 5.5 trillion rupiah per year in order to reach the desired level of participation; this level of spending implies a rise of nearly 20 percent over current amounts. It is important to stress that these estimates reflect fiscal implications associated with increasing access to education only. Estimates produced elsewhere suggest that needed enhancements to the quality of education would require significantly more resources—perhaps on the order of an additional 10 trillion rupiah annually (for just primary and junior secondary levels). Obviously, attaining quantity and quality standards in the local education sector would not be inexpensive. While it is premature to make a definitive judgment regarding the affordability of minimum standards in education, and more generally, if fiscal requirements for other sectors are anything like those estimated here for education then securing needed finance across all obligatory functions will prove more than a little difficult. Categorical grants probably offer the most feasible means for financing standards in education. Most analysts argue that such specific-purpose transfers are, from a technical point of view, the most suitable instruments for supporting central government objectives regarding the achievement of minimum standards. Obtaining the necessary funding would be hard but if MoNE were willing to exchange its significant regional DIPs for a new DAK, then the chances of acquiring at least a portion of the needed finance would increase. A resolution to the issue of financing minimum standards in education depends, therefore, very much on what MoNE itself is willing to do. The possibilities of financing new categorical grants to support minimum standards in other sectors through DIP-DAK swaps requires further examination. In any case, a decision one way or the other on the question of creating and funding new sectoral categorical grants does not absolve MoF of its responsibility to provide regions with greater access to and control over important local tax bases, such as that for property. Such funds would prove invaluable in financing more and/or better local public services—in education and other in sectors. If securing finance for the full array of minimum standards proves as problematic as it seems, then only two options present themselves regarding the further development, use, and financing of standards. The first option involves a series of three possible actions: reduce the number of minimum standards within sectors, focusing only on those of highest priority; (2) lower the levels at which “minimum” standards are fixed; and (3) prioritize some subset of obligatory functions for immediate action. A fewer number of standards, set at lower levels, for a more limited range of obligatory functions would be relatively more affordable, all things considered. If achieving some realistic combination of these three actions proves impossible, then only a second option remains. This alternative posits that minimum standards function simply as general guidelines or targets for national and regional governments to employ in the context of planning, monitoring, and evaluation. Employing minimum standards in this fashion may prove very constructive, of course, if taken seriously but this seems not to be what many actors involved in the standard-setting process have in mind. Some of these participants have ∗ The author currently serves as senior adviser to the Ministry of Finance (MoF) under a project financed by the United States Agency for International Development (USAID). The views expressed here are those of the author and should not be attributed to either MoF or to USAID. The author would like to thank Mira Kestari for research assistance and Gabe Ferrazzi and Michael Sinclair for useful comments on an earlier version of the paper.