Technical Assistance Consultant’s Report

Project Number: 40595 June 2008

Republic of : Facility for Economic Infrastructure Management (Financed by the Special Fund)

Prepared by Polytechnics International New Zealand Wellington, New Zealand

For the Government of Palau Ministry of Finance

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

June 2008 Project Number: 4929-PAL

Medium-Term Sustainable Financing Strategy - Education

Final

Prepared for Prepared by Government of Palau and Judy Otto Asian Development Bank Social Development Specialist, PINZ

ACRONYMS

ADB - Asian Development Bank

AHEC - Area Health Education Center

BMS - Belau Modekngei School

CBO - Community Based Organization

CMS - Catholic Mission Schools

CNMI - Commonwealth of the Northern Mariana Islands

COFA - Compact of Free Association

DOI - U.S. Department of the Interior

FSM - Federated States of Micronesia

FY - Fiscal Year (October 1 - September 30 is the official Palau FY)

GDP - Gross Domestic Product

GED - General Education Development (Diploma) m - million

MHS - Mindszenty High School (Catholic Mission High School)

MOE - Ministry of Education

MTDS - Medium Term Development Strategy (Project)

NGO - Non-Government Organization

NMDP - National Master Development Plan (“Palau 2020”)

ODA - Official Development Assistance

OEK - Olbiil Era Kelulau ()

PCAA - Palau Community Action Agency

PCC - Palau Community College

PEC - Palau Evangelical Church

PELL - Basic Education Opportunities Grant

PHS - Palau High School

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PINZ - Polytechnics International of New Zealand

PMA - Palau Mission Academy (High School)

PNC - Palau National Code (of law)

PNSB - Palau National Scholarship Board

PSC - (MTDS) Project Steering Committee

PTA - Parent Teachers Association

RMI - Republic of the Marshall Islands

ROP - Republic of Palau

SDA - Seventh Day Adventist (Church and School)

SY - School Year

TBD - To Be Determined (in finance tables)

WIA - Workforce Investment Act (of the United States)

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CONTENT

Executive Summary ...... 1

A. Purpose of this Paper ...... 1 B. Vision and Goals ...... 1 C. Current Situation in Education ...... 2 1. Overview ...... 2 2. Overview - Pre-Primary Sub-Sector ...... 3 3. Overview - Elementary and High School Sub-Sector ...... 4 4. Overview - Post-Secondary Education and Training Sub-Sector ...... 5

D. Strategic Plan for Sustainable Financing ...... 6 1. Balancing Financial Needs against Resources ...... 7

I. Introduction ...... 18

A. Overview ...... 18 1. Planning Environment ...... 19

II. Situation Overview ...... 23

A. Expenditure Overview ...... 23 B. Students ...... 24 C. Pre-Primary Education ...... 24 D. Elementary and High Schools ...... 26 1. Introduction ...... 26 2. Expenditures per Student ...... 27 3. Other key issues ...... 29

E. Post-Secondary Education ...... 34 1. Introduction ...... 34 2. Palau Community College (PCC) ...... 34 3. Palau National Scholarship Board (PNSB) ...... 37 4. Vocational Technical Programs ...... 43

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III. Projecting Future Demand for Education ...... 45

A. Number of School-Aged Children ...... 45 B. Distribution of School-Aged Children ...... 46 C. Student Population ...... 47

IV. Financial Sustainability ...... 49

A. Cross-Cutting Issues ...... 49 B. New Expenditure Requirements ...... 49 1. Capital Expenditures ...... 49 2. New Operations Spending ...... 50

C. Opportunities to Reduce-Redirect Public Expenditures for Education ...... 53 1. Focus on “core” processes ...... 53 2. Efficiency Measures ...... 55 3. Other Cost-Savings and Efficiency Options ...... 57

D. Increase Revenues ...... 58 E. Potential for Education to become a Revenue Generating Industry ...... 59 F. Consolidation of Financing Options ...... 60 G. Framework for Planning ...... 62

ANNEXES

Annex 1 – NMDP on Education ...... 73

Annex 2 - Recommendations for Education ...... 75

Annex 3 – Education Master Plan 2006-2016 ...... 77

Annex 4 – Calculating the Cost of Education Per Student ...... 79

Annex 5 – References ...... 82

Annex 6 - Matrix 22: Sustainable Financing of Education Action Plan – Updated December 2009 ………………….…………………………………………………………………………...... 85

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EXECUTIVE SUMMARY

A. Purpose of this Paper

1. This working paper is one of a series produced by PINZ, a consultant firm engaged by the Asian Development Bank (ADB) under the ADB-Republic of Palau (ROP) Facility for Economic and Infrastructure Management Project. Collectively, the papers in the series propose economic policies and institutions needed to improve national development on a sustainable basis over the medium term (FY 2009-2013). Sustainable national developed is defined as:

a sustained and widespread improvement in general standards of living while preserving the cultural and environmental values of the people of Palau. 2. The focus for the paper is the formal education sector comprised of three subsectors - pre- primary, elementary and high school, and post-secondary. Each sub-sector in turn is comprised by multiple educational institutions. Formal education is defined as:

instruction and related support services provided in an institutional setting that lead to formal credentials recognized in Palau and abroad. This paper summarizes the current situation across the sector and identifies options for:

i) Financing future development of the sector, sub-sectors, and educational institutions; and ii) Implementing macro-economic fiscal adjustments as necessary.

3. It is important to recognize at the outset that in education, the impetus for fiscal adjustment comes first and foremost from within. Ambitious goals have been set in the strategic plans already adopted or under development within the sector. Most of these plans call for new expenditures. Prospects, however, for substantially increasing recurrent revenues from traditional funding sources – Olbiil Era Kelulau (OEK) appropriations and U.S. Federal grants – are limited. If plans are to be implemented, funding must come from within – through efficiency measures, user charges and other new revenue sources, and reallocation of funds between and within sub- sectors. The size of the fiscal adjustment needed to meet internal sector targets is significantly greater than the sum of even the worst-case externally-imposed macro-economic fiscal adjustment scenario.

5. This is a summary of the working paper. The working paper is not a sustainable financing plan but rather a step toward planning. The actual plan will evolve through further discussion of priorities and options by stakeholders.

B. Vision and Goals

6. The overall vision for national development set forth in the National Master Development Plan, NMDP (“Palau 2020”) serves as the vision for the MTDS:

To substantially enhance the quality of life of Palauans and future generations of Palauans.

7. Education is an essential strategy for realizing this vision both for individuals and collectively, for the nation. It is proposed that the vision of the Education Master Plan 2006-2016 is applicable sector-wide:

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Our students will be successful in the Palauan society and the world.

8. This vision captures the dual obligation of educators – to individual students and to the nation - and the multiple demands placed on educators – to ground students in Palauan custom, tradition, values and language while simultaneously preparing students for domestic and global labor markets. Key strategies for achieving this vision include:

Enhancing children‟s readiness to learn prior to school entry;

Enhancing the ability of parents and guardians to provide effective support for children throughout the educational process;

Progressively improving the quality of classroom instruction and assessment across all levels of schooling while providing a balanced educational experience that imparts:

Basic skills in literacy, numeracy, civic and scientific knowledge;

Practical life skills;

Knowledge of Palau‟s history, culture, natural environment and core values;

Essential workforce readiness skills; and

Providing access to post-secondary schooling that imparts higher level skills needed in the workforce together with lifelong learning opportunities.

C. Current Situation in Education

1. Overview

9. In FY 2007, Palau spent $19.1m for education, 91 percent from public funds. This was equivalent to 11 percent of gross domestic product (GDP), a rate of expenditure more than twice the global average. (4.9 percent of GDP represents the average expenditure for education across all countries).1 Although expenditure levels are high, funding has declined since independence in nominal terms, in relation to GDP, and in relation to total government current account spending. New spending needs have also been identified that include:

i) An immediate and urgent need for $1m in additional recurrent financing for public

schools identified by the Ministry of Education;

ii) An additional $2m in one-time project funding needed to fully implement the Education Master Plan 2006-2016;

iii) New capital and recurrent financing needed to expand and strengthen vocational-

technical education across all levels of schooling;

iv) Capital costs for a new public high school in that when built, will add

1 International comparison of expenditures in relation to GDP must be approached with caution for a country like Palau where aid constitutes a significant source of income.

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$325,000-$375,000 to the Ministry of Education‟s recurrent budget; v) New capital investments needed to progressively upgrade Palau Community

College and to fully capitalize the PCC endowment; vi) Possible new recurrent funding needed to implement the new PCC strategic plan, now under development.

10. It is probably realistic to expect that funding for infrastructure and trust fund capitalization can be derived from external sources – COFA, overseas development assistance (ODA), and private donations. In view of the prevailing macro-economic and political climate, it is probably unrealistic to expect that significant new recurrent funding will be forthcoming. Planned improvements in education, including higher standards for teacher and administrator certification and commensurate increases in compensation, will need to be funded primarily from within the sector – through cost savings, enhanced efficiency, reallocation of funds between and within sub- sectors, and where permitted by law, user charges.

2. Overview - Pre-Primary Sub-Sector

11. Pre-primary education is provided by the private and quasi-government sectors. In the private sector there is one private pre-school and two private kindergartens all serving students in - and all receiving a modest government subsidy. Fourteen quasi-public Head Start centers provide comprehensive services to students in Koror-Airai and eight other rural states.2 Approximately 75 percent of age-eligible children participate in pre-primary education. The per- child cost averages $2,539 (School Year, SY 2006-2007) ranging from a low of $963 at Gospel Pre-school to a high of $2,780 in the Head Start program. Issues in pre-primary education include:

i) Perception by some people that pre-primary education is less important than “higher” levels of schooling when research actually shows the opposite - that economic returns on investment at pre-primary levels exceed returns on investment at other level of schooling; ii) Relatively high costs and high levels of dependency on U.S. Federal grants; iii) Less than universal participation, a factor that undermines system-wide efficiencies that could result from a universal system; iv) Ongoing struggle to identify, train, and retain teachers; and v) Lack of a child tracking system and Palau-specific data that charts the impact of pre-primary education on individual children and society as a whole; this information would help to guide policy.

12. The pre-primary sub-sector is vulnerable to changes in the macro-economic environment. Services to preschool children are not included under the constitutional mandate for free publicly- financed education. Ninety percent of funding for pre-primary comes from U.S. Federal grants, an additional eight percent from OEK appropriations, and only 2 percent from private tuition. In the event that U.S. Federal funds were to be significantly reduced or eliminated, this sub-sector would collapse without a large influx of new funding. The minimum funding required to support a network of public kindergartens serving 5-year old children is about $0.63m ($0.5m more than current OEK appropriations). Were this sub-sector to be left to private initiatives, there would be a gradual expansion of private facilities over a multi-year period but no realistic possibility of achieving

2 Head Start is referred to in this paper as “quasi-public” because funding is from public sources but the program is managed by the non-profit Palau Community Action Agency (PCAA).

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3. Overview - Elementary and High School Sub-Sector

13. Palau has 26 elementary3 and high schools that served 3,906 students in SY 2007-08.4 Per student costs for SY 2007-08 are estimated:5

Elementary schools High schools Public schools, $2,961 Public schools, $2,841 Private schools, $1,291 Private schools, $2,071

14. Issues in elementary and high school education include:

i) 10-13 percent of age-eligible children are not in high school. ii) Most children not in school are drop-outs while others are “push-outs;” “push- outs” are suspended or expelled from school and cease their studies because there are no alternative programs for children under the age of 18 who do not attend traditional classes. iii) Palau students in general do not perform as well as their U.S. counterparts on standardized tests in the core subjects. iv) A significant proportion of teachers (29 percent) do not have an associate degree, considered to be the minimum credential required. Although the law requires that teachers take U.S. level standardized examinations as a pre-requisite for licensure, the testing center has been established but is not operational due to lack of funding. v) Palau has a large number of schools relative to the population. Many schools are cost-inefficient; per-student costs at some of the smallest schools exceed $6,000 per student per school year. vi) Operating revenues for education (in nominal dollars and as a percent of GDP) have declined since independence (FY 1995). vii) The proposed new high school in Babeldaob will incur additional operating costs.

15. The private sector contributes actively to the elementary and high school sub-sector with 7 schools operated by 4 religious organizations. Private schools serve nearly 20% of the elementary student population and nearly 40% of the high school student population. Private schools operate in a manner similar to “charter” schools in the United States. They are charted by the MOE, given a partial public subsidy ($360 per student in grades 1-8 and $800 per student in grades 9-12 for SY 2007-08), and enjoy wide flexibility to design and manage their own programs contingent upon maintaining basic standards for instructional days, graduation credits, and content of core courses. Private schools operate at much lower cost per student then do public schools mainly because they do not have a nation-wide service mandate and can use a variety of creative measures to lower their wage bill. All but one of these schools, however, depends on the government subsidy to help finance core operating costs.6 In the event the government subsidy to private schools were to

3 There is one additional public elementary school on that is operated only when children are present on the island; it is not in operation for SY 2007-08. 4 Student numbers vary across the school year as students enter and leave the system. The number shown is based on the MOE data base (as of December 7, 2007) and a telephone survey of private schools conducted by PINZ- ADB staff in March 2007. The student census taken at the beginning of the school year in August 2007 found an additional 56 students enrolled at that time. 5 Annex 4 documents the method used to derive these estimates. 6 Only Palau Mission Academy has been able to earmark the government subsidy for developmental and project purposes. Emmaus has started the process of reducing dependency on government grants by expanding food

Medium-Term Sustainable Financing Strategy – Education 4 June 2008 drop, schools would have no choice but to raise tuition. Tuition hikes would result in a significant (although unknown) number of students transferring to public schools. At least until a new high school is built, public schools cannot accommodate a significant inflow of new students. While the paper recommends that government aid to private schools continue as this is a cheaper option than expanding public schools, it is also recommended that private schools act to reduce their dependency on the government grant. Ideally, the government grant would be earmarked for developmental projects and supplementary activities rather than core instructional costs.

4. Overview - Post-Secondary Education and Training Sub-Sector

16. Palau Community College (PCC). PCC is the leading on-island provider of post- secondary education and training. PCC offers 18 academic and vocational degree programs7 and a wide range of non-degree courses. PCC operates two permanent campuses – one in Koror and one in Ngaremlengui - and offers classes in other states where there is sufficient demand. The college also offers distance learning courses within Palau and provides facilities and administrative support for Palau-based students to participate in distance learning offered by off-island institutions. With more than 600 full-time equivalent students on campus each semester, costs per full-time equivalent student are about $3,140 per year. This cost compares favorably to that of similar institutions in the United States.

17. With its roots in vocational and technical training, PCC has undergone significant change since it was chartered and accredited as an independent community college in 1993. It is now the post-secondary institution of choice for a majority of Palau‟s high school graduates and continues to attract students from the FSM and RMI. While the PCC master plan for 1997-2007 has concluded and a new plan has not yet been finalized, it is expected that the new plan will reflect the following priorities:8

i) Full capitalization of a trust fund established in 1997 to build financial sustainability; ii) Maintenance of and progressive improvement in academic standards; iii) Completion of the new library and associated educational technology (in progress); iv) Construction of a new student services center; v) Development of new laboratory facilities in support of tourism studies; vi) Expansion of mariculture facilities, research, and instructional programs; and vii) Progressive development of new programs according to market demand.

18. The major challenge facing PCC is its high level of financial vulnerability. Approximately 40 percent of operating revenues are derived from Compact Section 221 and an additional 40 percent are derived from U.S. Federal programs, including U.S. Federal PELL grants to low-income students. PCC‟s continued eligibility for U.S Federal funds is subject to review and possible modification during COFA Phase II. In 1997, recognizing the need for financial sustainability and independence, the College launched a drive to create a $10m trust fund projected to yield annual returns on investment of $1m. The trust fund has generated enthusiastic support from the community albeit mainly in the form of small donations from students, staff, and alumni. After ten years, the fund has amassed only $1.7m – an impressive sum but below target. The financial outlook for the college will be greatly enhanced if it can attract several large donations that will

production and small businesses on campus. 7 Two additional programs in Palauan Studies and STEM (science, technology, engineering, and math) disciplines will come on line in August 2008 bringing the total number of PCC programs to twenty. 8 PCC senior staff, personal communications, February 2008.

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accelerate capitalization of the fund and thus provide the college with a stable source of non- government revenue.

19. Scholarships and Loans. The Palau National Scholarship Board administers $1.2m annually in Palau-government appropriations for financial aid to post-secondary students together with about $300,000 in student aid provided by private and external donors. Over the past decade, the Board has taken steps to enhance efficiency that have resulted in increasing graduation rates, declining default rates, and an increasing number of students returning to Palau to work after finishing school. Still, there are continuing issues:

i) Graduation rates need to increase still further, especially at off-shore institutions; ii) Human resource development priorities need to be updated and priorities used to guide financial awards; and iii) Reorganization of the Board as a non-profit corporation would facilitate private donations toward scholarships and loans.

20. Vocational-Technical Education. Development of vocational-technical education has not kept pace with development in other areas of education. A 2008 study by the Forum Secretariat recommends new investments at every level – elementary schools, high school, and post- secondary. At the post-secondary level, the study recommends that the PCC School of Technical Education be re-developed into the Micronesia Sub-Regional TVET center.

D. Strategic Plan for Sustainable Financing

21. The MTDS vision for education is the same as that of the Master Plan for Education – “Palau‟s students will be successful in the Palauan society and the world.” The overarching goal in support of this vision is:

To provide Palau students with access to quality educational opportunities from pre-school through to post-secondary schooling at a cost affordable to families and to government.

22. In support of this vision and goal, 13 strategies and 27 actions have been identified. Strategies include:

Sector-wide strategies:

To develop a sector-wide plan for sustainable education financing;

To develop a coordinated public-private strategy for expanding high school capacity while reducing drop-out rates.

Pre-primary sub-sector strategy:

To achieve and sustain universal participation in quality pre-primary education.

Elementary and high school sub-sector (public schools) strategies:

To minimize expenditures for non-instructional purposes;

To maximize efficiency in school operations;

To increase revenues (where allowed under the constitution).

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Elementary and high school sub-sector (private schools) strategy:

To reduce dependency on the government-aid to private schools grant.

Post-secondary sub-sector (vocational-technical) strategy:

To strengthen voc-tech education by progressively expanding training capacity focused around a small number of high priority fields.

Post-secondary sub-sector (Palau Community College) strategy:

To enhance financial sustainability by reducing dependency on government revenues.

Post-secondary sub-sector (Palau National Scholarship Board) strategies:

To better align student assistance awards with current national development priorities;

To diversify funding for student awards;

To enhance efficiency in board operations.

Post-secondary sub-sector (cross-cutting) strategy:

To critically assess a proposal put forth in 2007 to develop educational products targeting the Asian market demand for instruction in English.

1. Balancing Financial Needs against Resources

23. In preparing the working paper, the author had three objectives:

i) To identify options to enable sector development to be financed internally; ii) To identify options to enable the sector to withstand macro-economic adjustments of up to 12.5%; and iii) To subject options identified to the “SID” (support-impact-do ability) test – - Options are SUPPORTED by communities, professionals, and leaders; - Options IMPACT on financial sustainability without undermining outcomes; - Options are DO-ABLE to implement efficiently.

24. By the end of the MTDS period, implementation of the strategies and actions identified in the working paper are projected to enable the education sector to fund internal developments while withstanding macro-economic adjustments of about 10 percent. This assumes, however, that the proposed new public high school on Babeldaob will not open during the period. Should the new school open, it will be necessary to make additional adjustments in the sector budget (or elsewhere in the government budget) to accommodate the recurrent expenses required for school operation.

25. Table 1 summarizes the key elements of a sustainable financing plan. Remaining chapters of this paper provide additional details about the education sector and adjustment options. Section Three provides an overview of the sector and the macro-economic environment. Section Four examines education financing in greater depth. Section Five projects future demand for educational services - a function of population growth rates among school-aged children and school participation rates. Section Six investigates options for fiscal adjustment. The annexes provide supportive information that expands on the text of the papery of the paper.

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Table 1. Strategic Plan for Sustainable Financing – EDUCATION Vision. Palau‟s students will be successful in the Palauan society and the world. Goal. To provide Palau students with access to quality educational opportunities from pre-school through to post-secondary schooling at a cost that is affordable to families and to government. Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank10 Average9 (1-5) (1-10) Target: Sector-wide 1. Develop 1.1. Facilitate cooperative planning by 8.5 1* Minister & Nil 2008 or sector-wide plan all education providers leading Director of as soon for sustainable toward sector-wide sustainable Education to thereafter education financing implementation plan facilitate as financing. based on the working paper and collaboration possible this matrix. 1.2. Create permanent sector-wide 5.2 5 Voluntary Nil 2009 or organization (e.g. Palau Educator‟s initiative by as soon Association) to: professional thereafter - Monitor progress across educators as sector (financing & other) possible - Facilitate sector-wide coordination and planning - Advocate for children and education.

9 To calculate SID, each action is rated according to a 10-point scale for S (support), I (impact), and D (do-ability). In obtaining the weighted average, support and do-ability are each given 25 percent weights and impact is given a 50 percent weight. See Table 21 that shows ranking of each action according to the three SID components. 10 In general SID rankings determine priority level. SID 9+=priority 1; SID 8-8.9=priority 2; SID 7-7.9=priority 3; SID 6-6.9=priority 4; SID<6=priority 5. An asterisk in priority column indicates action has been given different priority ranking than indicated by SID scores. Generally this is done because action is a pre-requisite to other high priority actions.

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 2. Develop a 2.1. Providers of secondary education 7.5 3 MOE to facilitate Planning = nil Planning coordinated to come together to: with private new costs; to begin public-private - Examine need for providers (CMS, Implementation 2009 or strategy for expansion PEC, SDA, costs TBD; as soon expanding high - Examine need for BMS) Benchmark: thereafter school capacity alternative education new public as while reducing programs for students who high school possible drop-outs do not thrive in traditional capital cost settings =$12m; - Examine expansion plans operating costs by various service =$0.3-$0.4m providers per year - Develop coordinated strategy for expansion. Target: Pre-primary Subsector 3. Achieve and 3.1. Increase public awareness of 9.0 1 Early Childhood Nil 2009- sustain universal benefits of early childhood Consortium 2013 participation in education quality pre- - Intensify information and primary education education programs 3.2. Facilitate research to generate 7.3 3 Early Childhood Nil 2009- Palau-specific data on educational Consortium, 2013 and economic impacts of different Head Start, forms of early childhood MOE education.11

11 Research can be conducted by designated provider groups. Alternately, provider groups can facilitate research conducted by others (professional researchers, graduate students, etc).

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 3.3.A. Option 1 – If status quo continues 6.0 4 PCAA, MOE, Additional 2010- with Head Start the main service Early Childhood costs to be 2013 provider but with “cap” on Consortium determined enrollment - Develop training, support, and incentives for NGOs and CBOs to expand private services reaching out to children not served by existing providers. 3.3.B. Option 2 – If alterations in status 8.0 1* PCAA, MOE, Public 2010- quo due to COFA-induced Early Childhood kindergartens 2013 changes in Head Start funding or Consortium cost=$500,000 administration: Incentives & - Expand services: support to  Create network of CBOs & NGOs public Cost kindergartens =$100,000  Provide training, support, and incentives to NGOs/CBOs for services. Target: Elementary and High School Subsector - Public Schools 4. Minimize 4.1. Fully recover cost of school lunch 9.0 1 Minister & Savings by 2009- expenditures for program: Director of change in 2013 non-instructional - Change cooks from full- Education status of cooks purposes. time to part-time = $120,000 employment status Develop income New revenues guidelines for through fees = free/reduced-cost lunches $400,000 - Progressively increase fees (add $0.25 per year).

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 4.2. Reduce costs associated with 6.8 4 Minister & Savings by 2010- school transportation Director of change in 2013 - Change bus drivers from Education driver status = full-time to part-time $40,000 status (short-term measure) Savings from - Privatize school bus privatization services through TBD contractual arrangements (medium-term measure). 5. Enhance 5.1. (All options) Implement public 10 1 MOE Nil 2009 efficiency in consultation and education Management public school program to gain support of Team operations. Babeldaob parents and communities for consolidation. 5.2. (All options) With Public Service 7 1* MOE Nil 2009 System plan for reduction-in-force Management to bring staff levels in line with Team requirements as consolidation progresses. 5.3. Choose from among three options 8.5 1* MOE Nil 2010- for consolidation of schools on Management 2013 Babeldaob and proceed to Team implementation. 5.3.A. Option 1 – Regionalize schools 8.5 1* Savings 2010- (grades 1-4 remain in villages; $335,000 2013 grades 5-8 consolidate into 3 regional schools). MOE 5.3.B. Option 2 – Implement official 8.5 1* Management Savings 2010- 1999 consolidation plan resulting Team $430,000 2013 in 5 schools in rural Babeldaob plus Airai.

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 5.3.C. Option 3 – Implement expanded 8.5 1* Savings 2010- consolidation resulting in 3 $570,000 2013 schools in rural Babeldaob (in addition to Airai). 5.4. Gradually expand use of multi- 7.0 3 Savings of up 2011- grade teaching to enhance to $100,000 2013 efficiency in small schools: per year may - Target small schools to be possible; MOE train in multi-grade Additional Management techniques costs for Team - Gradually increase use of training multi-grade teaching as to be existing staff resign, determined retire, or are redeployed. 6. Increase 6.1. Institute charges for ancillary 7.3 3 MOE Additional 2009- revenues (where services provided to non-students Management revenues to be 2013 constitutional) (e.g. use of MOE facilities and Team determined equipment, services by MOE personnel, etc). - Work with OEK to gain authorization for charges - Identify opportunities for revenue generation - Develop system of charges and procedures for collection.

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) Target: Elementary and High School Subsector - Private Schools 7. Reduce 7.1. Take actions to enable schools to 8.5 2 Management & Nil 2009- dependency on meet recurrent costs from Boards of 2013 government aid revenues while gradually Directors of the to education earmarking government aid for various schools grant development. - Critically assess operations and implement efficiency measures - Identify new revenue- generating services to be offered - Diversify funding sources beyond government aid and tuition. Target: Post-secondary Subsector - Vocational-Technical 8. Strengthen 8.1. Develop human resource strategy for 6.8 4 Palau Training Costs to be 2010- voc-tech by increasing Palauan participation in Council, PCC, determined 2011 progressively vocational and technical fields MOE, Chamber expanding - Identify priority fields to of Commerce training capacity target for increased Palauan focused on a participation12 small number of - Develop holistic strategy for priority fields. action (training, support, policy).

12 In determining priorities for vocational-technical training, it is recommended that consideration be given to: projected workers to be needed over long-term; salary prospects; career development prospects; and fields where Palauans have a natural competitive edge over “guest” workers.

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 8.2. Strengthen vocational-technical 7.5 3 Palau Training Study 2009 & training Council, PCC & proposes new ongoing - Review 2007-08 Voc-Tech MOE investments = study recommendations $1.5m in (study by Forum public schools Secretariat) & $4.5m in - Accept or modify PCC recommendations - Implement as modified. 8.3. Assess feasibility of developing a 6.0 5* PCAA with Initial new 2011- civilian apprenticeship training Training costs $50,000 2013 program focusing on fields not Council, currently included in military (“CAT”) Chamber of apprenticeship program: Commerce, - Assess current PCC, MOE apprenticeship program with CAT team to distill elements that make this program so successful - Identify opportunities for civilian apprenticeship program in one or more of priority fields (see 6.1) - Implement pilot project; monitor, assess, and expand as appropriate. Target: Post-secondary Subsector - Palau Community College 9. Enhance 9.1. Progressively increase charges per 9.5 1 PCC President Cumulative 2009- financial credit hour until charges are in line & Board of new revenues 2013 sustainability by with the average of community Trustees $2.25m reducing reliance colleges across the U.S. affiliated (based on on government jurisdictions of the Western Pacific. $10 per credit revenues hour increase (Federal & OEK) per year)

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Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 9.2. Fully capitalize PCC Trust Fund: 9.5 1 PCC President Target capital 2009- - Aggressively seek new private & Board of in-flow of 2013 and bilateral donors Trustees $8.3m - Seek designation as a “501(C)3” non-profit (under U.S. tax laws) Once  Option 1 – direct capitalized designation through COFA fund will  Option 2 – affiliate with U.S. generate up to based non-profit partner. $1m per year. Target: Post-secondary Subsector - Palau National Scholarship Board 10. Align 10.1. Update list of priority fields of study 8.5 2 PNSB Board of Estimated cost 2009- scholarship - Create public-private Directors with of study 2010 awards with partnership task force to carry- partner $15,000 national out HRD study (PNSB, PCC, organizations development MOE, OEK, Chamber of priorities. Commerce, and other interest groups) - Seek OEK endorsement of outputs of the study - Set aside a portion of scholarship funds for students studying in priority fields. 11. Diversify 11.1. Amend law to designate PNSB a non- 8.5 2 OEK Nil 2009- funding sources. profit corporation. (This will facilitate 2010 private funding).

Medium-Term Sustainable Financing Strategy – Education 15 June 2008

Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 11.2. Attract new non-ROP funding for 8.5 2 PNSB Board of Nil 2010- scholarships and loans: Directors & Staff 2013 - Develop a marketing plan - Develop multi-year plan that sets targets for non-ROP scholarship and loan funds - Aggressively implement marketing plan to increase funding for scholarships and loans from non-traditional sources (bilateral, multi-lateral, and private). 11.3. Institute new requirements for a portion 8.5 3* PNSB Board of New revenues 2009- of student loans to be repaid in cash; Directors to be 2010 this money to be designated for new determined awards. 12. Enhance 12.1. Increase graduation rates: 9.3 1 PNSB Board of Short-term 2009- efficiency in - Conduct desk review of student Directors & Staff technical 2010 operations. records to identify correlates of support may success be needed - Survey students and former (estimate one- students to further identify time $10,000) correlates of success - Integrate information derived from research into policies and procedures designed to improve success rates.

Medium-Term Sustainable Financing Strategy – Education 16 June 2008

Strategy Action Action SID Priority Responsibility Cost Timing Number Weighted Rank Average (1-5) (1-10) 12.2. Increase proportion of first and second 7.8 3 PNSB Board of Costs – Nil 2010- year students who attend PCC Directors & Staff 2011 - Develop communications strategy Increase to gain support for policy revision graduation from students, parents, and policy rates makers - Implement changes in policies and procedures to limit 1st & 2nd year awards to PCC except where PCC does not offer necessary coursework for student‟s intended field of study. 12.3. Assess feasibility of channeling more 7.0 3 PNSB Board of Costs – Nil 2010- students to lower-cost Asian institutions for Directors & Staff 2011 tertiary studies. with program Potentially - Form a committee (PNSB, PCC, partners increase # MOE, Ministry of State, diplomatic study awards community) to assist in identifying offered affordable “schools of excellence” with programs directly relevant to Palau‟s human resource needs - Identify strategies and incentives to encourage students to consider Asian institutions. Target: Post-Secondary Subsector - Cross-Cutting 13. Assess 13.1. Create task force to further develop 7.0 3 Office of the ROP Costs 2010- proposal for Palau concept, identify pitfalls, and undertake President $20,000- 2011 to develop preliminary feasibility assessment; $25,000 for educational information to be used in determining if initial products targeting full feasibility assessment warranted. assessment Asian market for (short-term instruction in technical English assistance and some travel)

Medium-Term Sustainable Financing Strategy – Education 17 June 2008

INTRODUCTION

E. Overview

26. As a nation, Palau values education, invests heavily in education, and has developed an extensive education infrastructure. Within the local community, there is an expectation that most children will complete high school and many will continue education at post-secondary levels. Progressive development of the sector is a prerequisite for social and economic development in an increasingly competitive global economy. Expenditures for education, however, have been declining since 1996 (in nominal terms and as a percent of GDP) although Palau still spends more than the global average (in relation to GDP).13 With expenditures approaching $3,000 per student in the public sector, Palau spent $19.1m on education in FY 2007, 91 percent of this sum from public resources. As a sector, education represents the single largest expenditure item in the national budget outside of general government administration. It is impossible to talk about the macro economy and possible fiscal adjustment without considering the education sector.

27. This working paper is one of a series produced by a consultative team engaged under the ADB-funded Facility for Economic and Infrastructure Management Project in collaboration with the Palau Ministry of Finance. This paper summarizes the situation within the sector, identifies current and emerging challenges, and suggests options for fiscal adjustment. Fiscal adjustment is necessary first and foremost to finance sector development but may also become necessary to accommodate reduced revenue flows. This paper is not a sustainable financing plan but a step toward planning. The plan will evolve through continued discussion of options by stakeholders.

28. This paper addresses only formal education defined herein as „instructional and related support services provided in an institutional setting leading toward formal credentials recognized in Palau and abroad.” The decision to focus on formal education does not negate the importance of non- formal education but rather, establishes manageable parameters for analysis and discussion.

29. The education sector is comprised of three sub-sectors:

Pre-primary education sub-sector (preschools and kindergartens) Elementary and high school sub-sector (grades 1-12): - Ministry of Education (nineteen public schools); - Private schools (seven schools operated by four religious organizations); Post-secondary education sub-sector: - Palau Community College; - Palau National Scholarship Board; - Vocational-technical education and training.

30. Each sub-sector consists of several autonomous or semi-autonomous service providers (Table 2). There is no central focal point for sector-wide planning, collaboration, and policy formulation and no mechanism, apart from the public sector budgetary process, for setting sector-wide priorities.

13 Expenditures as a percent of GDP must be interpreted with caution in a country like Palau with high levels of overseas development aid.

Medium-Term Sustainable Financing Strategy – Education 18 June 2008

Table 2. Institutional Players in the Sub-Sectors Sub-Sector Public and Semi-Public Entities Private Entities

Pre-Primary  Ministry of Health (Early  Palau Community Action Agency Childhood Consortium) (Head Start Program)

 Child Care Center at Palau  Gospel Preschool (Koror Evangelical Community College Church)  Maris Stella Kindergarten (Catholic Mission Schools)  SDA Kindergarten (Seventh Day Adventist Schools) Elementary  Ministry of Education (19  Maris Stella School (operated by the Schools public schools) Catholic mission) (Grades 1-8)  SDA Elementary School (operated by

the SDA mission) High Schools  Ministry of Education (1 public  Mindszenty High School (Catholic (Grades 9-12) high school) Mission)  Emmaus and Bethania High Schools (Palau Evangelical Church)  Palau Mission Academy (SDA Church)  Belau Modekngei School (Modekngei Religion) Post-Secondary:  Palau Community College  Palau Community Action (management

Vocational-  Apprenticeship program of the authority for the apprenticeship Technical Civil Action Team of the U.S. program) Navy and Air Force  Palau Community Action Small  U.S. Job Corps Business Development Program  Workforce Investment (WIA)  Small Business Development Program at PCC Post-Secondary:  Palau National Scholarship  Private scholarship providers (12 Academic Board providers in SY 2006-2007)

 Palau Community College

31. An assumption that underlies this paper is that existing strategic and operational plans at the sub-sector level, themselves products of extensive consultative processes, reflect the best thinking about future directions given available information and socio-political realities. Except where there is clear incompatibility between plans and financial realities, strategic debates laid to rest at the time sector plans were formalized, are not reopened.

1. Planning Environment

32. Options for financing education are constrained by the Constitutional mandate that gives the national government responsibility for education and requires that education be mandatory and free for citizens.14

14 Education is mandatory for persons aged 6-17 or until high school graduation, whichever comes first (PNC 22).

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The national government shall take positive action to … (provide) public education for citizens that shall be free and compulsory as prescribed by law (Palau National Constitution, Article VI). 33. A constitutional amendment has been proposed to clarify what has been the generally accepted interpretation of this clause – that mandatory and free provisions apply only to elementary and high school levels of schooling.15

34. The education sector carries a substantial burden for Palau‟s future economic and social development. Expectations for education are set out in the Education Act (Palau National Code, PNC Title 22) which states:

It is hereby declared and found to be the policy of the national government to provide for an educational system which shall enable the citizens of Palau to participate fully in the progressive development of the Republic as well as to gain knowledge in all areas. To this end, the purposes of education in the Republic are to increase citizen participation in economic and social development, to unify the Republic by giving the people the knowledge of their islands, economy, government, and world, and to provide citizens of the Republic with the knowledge and skills required for self-development and the development of the Republic. These skills include professional and vocational, as well as social and political, abilities (PNC 22.101). 35. In striving to meet these challenging expectations, money (or lack of money) is a sector-wide concern. Even though Palau outspends many other countries, educators still identify spending shortfalls as did the Palau leadership meeting in national consultative forums in 2006 and 2007 (see Annex 2).16 The Ministry of Education estimates that for the existing public schools system to function optimally, an annual operating budget of $11m (including $9m in local appropriations and $2m in U.S. Federal funding) is needed.17 This is approximately the level of funding available pre-Compact but is $2.5m less than FY 2007 allocations, a 23 percent shortfall. In addition, there are one-time project spending requirements identified in the Education Master Plan 2006-2016 that total more than $5m (of which about $2m remains unfunded) and capital spending requirements identified outside of the plan, including construction and operating costs associated with a proposed new public high school in Babeldaob.

36. Beyond immediate financial short-falls, the sector confronts an uncertain macro-economic environment. U.S. Federal categorical grants for education may be subject to change as a part of the ongoing COFA review. These grants supplement national appropriations but most support essential, as opposed to discretionary, services. Two sub-sectors – pre-primary and post-secondary – rely heavily on Federal grants and would face serious challenges in the event that Federal funds were reduced or discontinued. Palau lost eligibility for some U.S. Federal grants when the COFA came into force. Over the first fifteen years of COFA, U.S. Federal funding for public schools was reduced by more than one-half (nominal dollars). Although OEK appropriations increased (nominal dollars), the increase was not enough to offset the loss of U.S. Federal funds resulting in a reduction in total expenditures for public schools in nominal terms (Figure 1-A) and as a proportion of GDP (Figure 1- B).

15 Amendment was proposed by the 2006 Constitutional Convention; subject to ratification in November 2008. 16 Participants in the State-National Leadership Symposium (2006) and the National Economic Symposium (2007) called on the OEK to formally declare education as a national priority and for government funding for education to increase. The OEK is now considering both recommendations. 17 MOE Budget Office, personal communications, April 2008. This does not include operating costs associated with the proposed new High School in Babeldaob.

Medium-Term Sustainable Financing Strategy – Education 20 June 2008

37. As a proportion of GDP, expenditures for public schools have dropped by 39% over the past eleven years. In contrast, total government current account expenditures for all purposes have dropped by 30% over the same period. Clearly education, especially public schools, has taken a financial “hit.” The sector therefore embarks on a possible new round of fiscal adjustment at a disadvantage to other sectors that have enjoyed more stable funding since independence.

38. The medium-term financial outlook depends in large measure on the outcome of the Compact review now in progress. Compact review could change the way that U.S. Federal grants for education are allocated and managed. Compact review could also change the absolute level of financial resources available for education either directly, by changing the value of U.S. Federal grants (inclusive of $2m appropriated under COFA Section 221 now earmarked for Community College operations) or indirectly, by changing the value of the total aid envelop available to Palau. Analysts generally concur that the most probable change will be toward declining funds available for all public purposes, including education. A reduction in public funding of up to 12.5 percent has been suggested.

39. The challenge for sustainable financing of education is four-fold.

i. First, there is the challenge of adopting a sector-wide approach in which priorities are explicitly set across the sector as well as within subsectors.

ii. Second, there is the challenge of funding un-funded or under-funded priorities already identified in strategic planning documents.

iii. Third, there is the challenge of doing more with less as the government struggles to implement across-the –board macro-economic adjustment.

iv. Fourth, there is the challenge of gaining clear political support for internal adjustments necessary to reduce costs while still protecting core instructional services.

40. To address current and projected financial shortfalls, a multi-strategic sustainable financing plan is needed with the following features:

Sector wide in approach; Clearly identifies priorities between and within sub-sectors; Chooses among revenue generating options; Chooses among cost-savings and efficiency options; Incorporates an implementation strategy; Incorporates a communications strategy that involves stakeholders (educators, the public, and political leaders) in planning and subsequently, enlists their support for implementation.

Medium-Term Sustainable Financing Strategy – Education 21 June 2008

Medium-Term Sustainable Financing Strategy – Education 22 June 2008

SITUATION OVERVIEW

F. Expenditure Overview

41. In FY 2007, Palau spent $19.1m for education from all sources, equivalent to $950 per resident and 11 percent of GDP18 (Table 3). Public funds accounted for 91 percent of expenditures (Figure 2). Seven percent of expenditures were for pre-primary education; 48 percent for elementary and high school education; and 36 percent for post-secondary education (Figure 3).

Table 3. National Expenditures for Education (FY 2007 Estimates in USD) Expenditures COFA U.S. Sub-Sector Other OEK Section Federal Private Total External 221 Grants Pre-Primary Public $115,000 0 $1,300,000 0 0 $1,415,000 Private $29,972 0 0 0 $114,365 $144,337 Sub-total $144,972 0 $1,300,000 0 $114,365 $1,559,337 Elementary and Secondary Public $6,301,791 0 $2,265,135 0 0 $8,566,926 Private $577,719 0 0 0 $1,224,681 $1,802,400 Sub-total $6,879,510 0 $2,265,135 0 $1,224,681 $10,369,326

18 In comparison, global average spending on education is 4.9 percent of GDP; the U.S. expenditure is 5.9 percent of GDP. Source of comparative data http://www.nationmaster.com (most recently available statistics).

Medium-Term Sustainable Financing Strategy – Education 23 June 2008

Post-Secondary PCC $385,000 $2,000,000 $991, 703 $1,557,190 0 $4,933,893 Scholarships $1,270,000 0 0 $270,000 $21,000 $1,551,000

Other $375,000 0 0 0 0 $375,000 Sub-Total $2,030,000 $2,000,000 $991,703 $1,827,190 $21,000 $6,869,893 Cross-cutting 0 0 0 0 $328,458 $328,458 SECTOR TOTAL $9,054,482 $2,000,000 $4,556,838 $1,827,190 $1,688,504 $19,127,014 Sources: FY 2007 National Budget Act; Head Start; Ministry of Finance; PCC Annual Report for 2006; Palau National Scholarship Board; Household Income & Expenditures Survey 2006; private expenditures for private schools derived from tuition charges multiplied by enrolled students.

Note: Private expenditures are under-estimated as fees and tuition paid privately to PCC are included here under “other”, a category that also includes U.S. Federal assistance to students (PELL Grants and Federally subsidized work study). It is probable that much of the private tuition paid to off-island colleges is not reflected in this table.

G. Students

42. The 2005 census found 5,107 Palau residents enrolled in school, an increase of 22 percent since 1990 (average annual increase, 1.4 percent). Of the enrollees, 89 percent were ethnic Palauan and 79 percent attended public schools, proportions virtually unchanged since 1990.

H. Pre-Primary Education

43. While some people may still consider pre-primary schooling (preschools and kindergartens) to be an optional component of the education system - maybe even a luxury for the affluent - there is a very strong body of research evidence that demonstrates pre-primary education makes a significant and long-lasting impact on a child‟s later success – in school and in life. For every dollar invested in pre-primary education, it has been estimated there is a seven dollar return in increased productivity

Medium-Term Sustainable Financing Strategy – Education 24 June 2008 and reduced social welfare costs.19 Research shows pre-primary education is particularly beneficial for children who are at educational risk.

44. In Palau, pre-primary education is provided by the private and quasi-public sector.20 Participation is voluntary. The Master Plan for Education 1996-2006 (“Palau 2000”) called for a publically-funded network of public kindergartens attached to elementary schools with participation mandatory for 5 year old children. This proposal was not implemented due to funding constraints and has been deleted from the Master Plan for Education for 2006-2016.

45. There are six pre-primary programs serving children aged 3-5 years:

Early childhood consortium, a home and community program that aims to upgrade the knowledge and skills of parents as the child‟s first educators; this is a multi-partner initiative led by the Ministry of Health and funded by U.S. Federal programs;

Palau Community College Childcare Center, a subsidized day care program serving the low-income members of the college community and the general public;21

Gospel Kindergarten, a preschool program operated by the Koror Evangelical Church, serving children 3-5 years of age;

SDA and Maris Stella kindergartens operated by the Seventh Day Adventist and Catholic churches and serving children 5 years of age;

Head Start program and network of 14 community-based pre-school centers serving children 3-5 years of age.

46. Of these, the four preschool and kindergarten programs (Gospel, Maris Stella, SDA, and Head Start) meet the definition of “formal” education. Combined, these programs serve (SY 2007-8) 614 children through 17 centers (including14 head start centers). This represents about 75 percent of the population aged 3-5 years.

47. Per child cost in the private schools averages $1,000 per year while per child cost in the quasi- public Head Start program is about $3,000. These costs, especially in Head Start may appear high, but in the United States average per child cost of Head Start is $6,934 (FY 2002 data). Cost for all types of preschool programs in the United States typically range between $2,000 and $10,000 per child.22 Comparing costs across countries, programs, or centers is difficult because program designs vary and costs are based on many factors – population served and resulting economies of scale, participation rates, duration of the program (half day or full day); competitiveness of staff salaries and required qualifications; free-standing centers versus those integrated within other facilities; scope of services; and extent and cost of program support. Palau‟s Head Start costs are high because it is a free-standing nation-wide program that provides comprehensive services to children and families according to U.S. standards.

19 Palau Ministry of Education Master Plan for Education Improvement (“Palau 2000”) 20 “Quasi-public” is used to describe the Palau Head Start program funded by U.S. Federal grants and a small local match but managed by the non-profit Palau Community Action Agency. 21 This too is a multi-partner consortium with PCC providing the facilities, Ministry of Health providing the training and supervision, and Palau Community Action Agency subsidizing the tuition (from a Federal grant). 22 Source of U.S. comparative data National Prekindergarten Center, FPG Child Development Institute, University of North Carolina at Chapel Hill. “NPC Prekindergarten Framework,” http://www.fpg.unc.edu. March 5, 2008.

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Table 4. Pre-Primary Sub-sector Cost Private Service Children Public Cost 23 Total Cost Per Program Cost Population Served Child Local24 U.S. Federal Gospel Ages 3-5 71 15,240 0 53,125 68,365 $963 Kindergarten Koror-Airai Maris Stella Age 5 40 7,112 0 26,640 33,752 $844 Kindergarten Koror-Airai SDA Age 5 40 7,620 0 34,600 42,220 $1,055 Kindergarten Koror-Airai 25 Ages 3-5 463(a) $2,780 Head Start 115,000 1,300,000 0 1,415,000 National 509 (b) $3,056 Total 614 144,972 1,300,000 114,365 1,559,337 22,539

In contrast, private programs are attached to schools, serve urban populations and focus primarily on cognitive and social development of students.26

48. Major issues in pre-primary education today include:

High costs and dependency on U.S. Federal grants;

Less than universal participation which undermines efficiency by requiring elementary teachers to gear instruction toward children who have not had a pre-primary experience;

Ongoing struggle to identify and train teachers who meet minimum qualification standards (defined as an associate degree with coursework in early childhood development and education); and

Lack of a child tracking system to generate Palau-specific data that charts the impact of pre-primary education on individual children and the education sector as a whole.

I. Elementary and High Schools

1. Introduction

49. Palau‟s elementary and high schools are modeled after those of the United States. Elementary school extends from grade one through eight. High School extends from grade nine through twelve. (Palau does not have middle schools). There are 26 elementary and high schools in Palau - 19 public schools and 7 private schools. All private schools are owned by religious groups and operated as non-profit corporations.27

23 Private cost is estimated based on tuition charged multiplied by number of children enrolled. 24 Local (public) costs for the private centers are part of the annual OEK appropriation for aid to private schools. Amount shown represents allocations for FY 2007. 25 Head Start has capacity for 509 children but typically serves 5 percent-7 percent fewer. Costs per child are shown according to (a) capacity of 509 and (b) actual enrollment (2006-2007 School Year). 26 It is a Federal requirement that a community have at least ten age and income eligible children prior to opening Head Start Center. 27 Palau tax laws contribute to a vibrant private education sector. Under the law, donations to non-profit corporations are eligible for tax rebates of up to 10 percent of the total tax paid on earnings. Tuition and fees paid to private schools qualify for rebate. This represents an indirect government subsidy to private schools.

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Table 5: Schools in Palau Public28 Private Elementary 18/19 2 High School 1 5

50. Public education is centralized within the Ministry of Education headed by a Minister appointed by the President. Private schools operate somewhat similar to the “charter school model” with schools licensed by the Ministry and a modest public subsidy provided.29 Private schools enjoy wide latitude in designing and managing their own programs provided these meet minimum standards set by the Ministry for instructional days, graduation credits, and content of core courses.

2. Expenditures per Student

51. In the elementary schools, expenditures per student averaged $2,655 in FY 2007 ($1,291 in private schools and $2,961 in public schools). Expenditures per student in public schools vary by region from a low of $2,325 in Koror to a high of $4,690 in Babeldaob (Table 6). Expenditures at some of the smallest schools are in excess of $6,000 per student. Per student expenditures in the two private schools averaged $1,291 but this figure can only be compared to expenditures in the Koror public schools since the cost of educating students in widely scattered rural communities is obviously higher than in compact urban communities. Expenditures per student at Palau High School were $2,841 while expenditures in the private high schools ranged from $1,867 per student at Palau Mission Academy to $2,727 at Belau Modekngei School.30 Comparison of expenditures between public and private high schools, however, should be made with caution since there are important differences between the schools, for example:

As a public school, Palau High School must accept every applicant; this results in a diverse student body in terms of ability, interest, and discipline. By contrast, private schools can be selective in the students they accept. Mindszenty, for example, requires applicants to sit an entrance exam and accepts only high-scoring students. Typically Mindszenty turns away one- third of applicants. Palau High School offers a vocational/career orientation program that is expensive to operate and is not replicated in any of the private schools. Wages in the private schools are lower than in the public schools. PMA relies on volunteer mission teachers. The Protestant schools draw staff primarily from their faith community and pay salaries well below those paid in the public system. Mindszenty benchmarks its salaries at 75 percent of salaries in the public system and recruits mainly from public school retirees and from the Philippines. Belau Modekngei School also makes extensive use of Filipino and volunteer teachers.

52. While Palau‟s per student expenditures are low by U.S. standards (average per student expenditures in the U.S. were $8,701, FY 2005),31 expenditures are high by standards of the Pacific islands and developing countries in general.

28 There is one additional public school on Hatohobei, a remote Southwest Island; this school operates when there are children present on the island. It is not operating during SY 2007-08. 29 The level of government financing for charter schools varies among each of the U.S. states; typically charter schools receive a higher level of public subsidy than do Palau‟s private schools. 30 The BMS cost for FY 2007 is artificially inflated by the large government grant for that year. In addition to regular aid to private schools, this sum also included a one-time grant to help the school pay down prior-year debts and support urgently needed capital improvements. 31 Source of comparative data http://www.nationmaster.com (most recently available statistics).

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Table 6. Cost of Elementary and High School Education Program Children Public Cost32 Private Total Cost Cost Per Child Served (USD) Cost33 (USD) (USD) SY 2007- (USD) 2008 Public Elementary Schools (Number in parenthesis indicates number of schools in region) Koror (3) 1,351 3,140,982 0 3,140,982 2,325 Airai (1) 179 452,640 0 452,640 2,529 Babeldaob (9) 430 2,016,756 0 2,016,756 4,690 Islands (5) 158 661,185 0 661,185 4,185 Sub-total Public 2,118 6,271,563 0 6,271,563 2961 Private Elementary Schools Maris Stella 244 89,115 216,916 306,031 1,254 SDA 232 82,236 226,200 308,436 1,329 Sub-total Private 476 171,351 443,116 614,467 1,291 All Elementary Public and Private 2,594 6,442,914 443,116 6,886,030 2,655 High Schools Palau High (1) 808 2,295,363 0 2,295,363 2,841 Private High Schools BMS 37 75,000 Instruction 100,900 2,727 25,900 Boarding 9,450 255 9,450 Bethania 79 67,728 Instruction 156,603 1,982 88,875 Boarding 60,040 760 60,040 Emmaus 62 51,480 Instruction 116,270 1,875 64,790 Boarding 74,400 1,200 74,400 Mindszenty 212 160,752 $296,800 457,552 2,158 PMA 114 51,480 161,310 212,790 1,867 Instruction 1,044,115 2,072 Sub-total Private 504 406,440 637,675 All High Schools Total All High 1,312 2,701,803 Instruction 3,359,410 2,561 Schools 657,607

Source: Ministry of Education database and private schools. For detailed information about sources and methods of calculating costs, see Annex 4.

32 Local (public) costs for the private centers are part of the annual OEK appropriation for aid to private schools. Amount shown is for FY 2007. 33 Private cost is based on tuition charged multiplied by number of children enrolled.

Medium-Term Sustainable Financing Strategy – Education 28 June 2008

3. Other key issues

53. Purpose of Education. Schools the world over continuously struggle to define and re-define the purpose of education in a rapidly changing global economy. Palauans want their children to be grounded in Palauan tradition, language, and culture, but at the same time, educated to compete in the world. The Ministry of Education has summed up this dichotomy in the Master Plan for Education 2006-2016:

Vision for Education: Our students will be successful in the Palauan society and the world.

54. In line with this vision, Palauan studies curriculum has been significantly strengthened in recent years with new texts produced for Palauan history, government, and orthography. Some instruction in practical skills, however, has weakened. For example, agriculture, once taught in virtually all schools, is now taught as an elective in only a few rural schools.

55. Drop-outs and push-outs. The law requires children between ages 6 and 17 to attend school. Although enforcement is sporadic, it is generally believed that enrollment at the elementary level is in the range of 98-99 percent. There are anecdotal reports of some children who are not enrolled and some children that are enrolled do not attend consistently. While drop-out rates between elementary and high schools have declined, drop-out rates within high school continue to be high. Table 7 illustrates attrition with data drawn from Palau High School where each year about 300 students enter the freshman class but less than half graduate four years later. While most of the “missing” students are drop-outs, some are “push-outs”. Palau has no alternate program for children suspended or expelled from school. Adult education programs accept only Table 7: Palau High School Students students 18 years of age or older who have been out of school for one year. Job Corps and the U.S. military Male Female Total apprenticeship program also require students to be 18 Grade 9 162 129 291 years of age. There is need for an alternative program for children who do not “fit” into the traditional classroom, an Grade 10 99 116 215 issue not addressed in the Education Master Plan. Educators are reportedly concerned that an alternative Grade 11 78 80 158 program will attract students otherwise capable of Grade 12 66 78 144 completing the standard high school curriculum thereby increasing costs and encouraging additional children to Source: Palau High School self-study, 2006. drop-out.

56. Student performance. Instruction in all schools centers around five core subjects – Palauan studies, English, math, science, and social studies. In the public schools, instruction revolves around curriculum frameworks developed centrally that form the basis for standardized quarterly tests and the annual Palau Achievement tests. These tests are the primary means that educators and the public use to judge the performance of students, teachers, and schools. Private schools have their own curriculum frameworks and assessment measures. The OEK has mandated that the SAT-10, a U.S. normative test, be used as the benchmark for gauging progress of all Palau students against their U.S. counterparts. By law, this test is to be administered once every six years but private students sit the test every year. Test results are difficult to interpret because there is wide variation in performance across subjects, grades, and schools. On the basis of the first (and so far only) nationwide testing

Medium-Term Sustainable Financing Strategy – Education 29 June 2008 performed in 2004, private school students out-performed public school students34 and elementary students performed better than high school students.

57. Use of the SAT-10 test is controversial among Palau‟s educators. Because the SAT was designed for an entirely different student population whose schooling is based on different curriculum frameworks, it does not necessarily test what is taught in Palau‟s schools. Demographic variables in Palau‟s student population, such as lower family incomes and almost universal use of English as a second language, further complicate comparison between Palau students and the U.S. normative population. The main argument in favor of testing is that if Palau students are to compete with U.S. counterparts in higher education and Palau is to compete with the United States in the global marketplace, Palau students need to have educational preparation similar to that of their U.S. counterparts. It is not reasonable, however, to expect Palau students to perform at U.S. normative levels unless Palau‟s curriculum frameworks are aligned with U.S. curriculum frameworks. Alignment with U.S. curriculum may or may not meet Palau‟s own educational objectives for students to be grounded in Palauan values and culture while still competent to compete globally.35

58. While Palau schools are struggling to improve performance in the basics, the world is changing. Students of the future will need many new skills including the ability to use technology, find and analyze information, engage in critical thinking, and work in teams. There are no benchmarks at present to measure how well Palau schools are doing in equipping students with these more qualitative skills.

59. Human resources for education. There are 345 teachers employed in Palau‟s elementary and high schools. Table 8 shows the distribution of these teachers together with their qualification

34 Comparison between public and private schools should be made with caution. Better performance by the private schools may reflect a selection bias. At the elementary level, parents who are more highly educated and higher income may tend to select private schools. At the high school level, there is competition for admission to some private schools that may select only academically elite students. 35 While the value of the SAT-10 is subject debate, it is universally agreed among educators that testing, if it is to be done, must be performed annually or at least biennially. The rationale behind the legal requirement for testing to be done every six years is unclear.

Medium-Term Sustainable Financing Strategy – Education 30 June 2008 levels. The large number of high school graduates employed in teaching positions is a legacy of a mandatory public service retirement law that came into force in 2003 (retirement at 30 years of service or 60 years of age). This law decimated Palau‟s teaching force by forcing many teachers out of the public service system at relatively young ages (50-55 years of age). A later amendment allows the Ministry to re-employ teachers for up to five years if there are no qualified applicants for their positions. A further amendment to extend this option to ten years has been introduced into the Senate where its passage is uncertain.

60. At the time mandatory retirement came into effect, there were few qualified applicants for the vacated positions. To fill positions, the Ministry of Education was forced to employ high school graduates whom they equipped with an intensive summer “crash” course in education. Once employed, the Ministry of Education pays (from U.S. Federal program funds) for their enrollment in the Palau Community College‟s associate degree program in education and upon successful completion of an associate degree, enrollment in a bachelor‟s program offered at PCC in cooperation with San Diego State University. None of the private schools provide comparable educational benefits for their faculty. Head Start teachers without degrees participate in the same intensive preparatory education course as their Ministry of Education colleagues and are also eligible for financial assistance for degree studies paid for from Head Start program funds.

Table 8: Classroom Teachers and Qualifications (School Year 2005-2006; Ministry of Education Data) Total Qualifications Teachers Not in High Associate Bachelor Master MOE Data School Degree Degree Degree Base Public Elementary 20 78 61 29 0 188 Public High School 7 8 20 26 6 67 Private Elementary 19 10 7 5 1 42 Private High School 4 5 4 29 6 48 Total 50 101 92 89 13 345 All Schools (14.5%) (29.3%) (26.7%) (25.8%) (3.8%)

61. Recruitment and retention of qualified teachers is a sector-wide challenge primarily because: (a) education is not ranked as a “priority” field for scholarship/loan support; and (b) the “best and brightest” of Palau‟s students are not choosing education careers. Of 759 post-secondary students who received scholarship or loan assistance from October 1994 to October 2007, only 24 (3 percent) majored in education and only 6 are currently working in Palau in the field of education (Palau National Scholarship Board, FY 2007 Performance Report).

62. Facilities for education. In the public sector, Palau has a large number of small, scattered schools many of which date to the post-war era and are difficult to maintain. Additionally several of the schools occupy private land and are the focus of land disputes. The Ministry has been trying to obtain clear title to these properties through various means and failing this, to relocate schools to government land.

63. While land and maintenance are ongoing issues, the two pressing current issues are consolidation of public elementary schools and construction of a second public high school. Both issues are specific to Babeldaob. In the immediate post-war era, villages built and managed their own elementary schools. A school for each village made sense then because village populations were

Medium-Term Sustainable Financing Strategy – Education 31 June 2008 larger and there was no easy or reliable transportation between villages. The Compact Road has revolutionized inter-village access; travel time from Airai to is little more than an hour via an all-weather road. It is no longer necessary to maintain small community schools that are expensive to operate and that limit the educational experience of students. In anticipation of the road, an official plan for consolidation was approved by the OEK in 1999 to:

Consolidate into (completed); Consolidate two Ngarchelong schools into one (completed); Consolidate three schools into one (completed); Consolidate Ibobang into Ngaremlengui (pending); Consolidate into Ngaraard (pending); Consolidate and into (pending); Leave Airai unchanged.

64. Issues in consolidation will be further discussed in Section 6 of this paper. It is sufficient to note here that many parents in Babeldaob oppose further consolidation. After almost eight years, Ngatpang parents, for example, are still advocating with the Ministry for permission to re-establish Ngatpang Elementary. While the MOE has developed a communication plan to take the case for consolidation to communities, the plan has not been implemented. As the experience in Ngatpang demonstrates, consolidation will only work smoothly if parents are convinced that it benefits their children. If consolidation is to move forward and its many benefits realized, it is imperative that the Ministry move quickly to implement the communication strategy.

65. The prospect of a second public high school is also specific to Babeldaob because it is in Babeldaob where population growth is most likely to occur over the coming decade. Palau‟s existing six high schools have a combined capacity of 1,505 students. At the beginning of SY 2007-08, there were 1,379 students enrolled with Palau High School at capacity (851 students).36 Enrollment could exceed total capacity by SY 2015-16 depending on participation rates. If participation rates remain at around 87 percent-90 percent (meaning the drop-out rate continues as at present) and the number of non-resident, non-citizen students remains stable, the number of high school students in 2015 will be about 1,460, still below current capacity. If, however, participation rates begin to approach 100 percent, the number of students can quickly exceed capacity.

66. The Ministry of Education and the OEK have recognized for several years the need for a second public high school and proposals for sites in Ngaraard and Ngaremlengui have been floated. Recently, however, the State of Ngchesar has identified a public land site appropriate for a school and the President announced in his 2008 State of the Republic address that plans are moving forward to construct a combined high school and consolidated elementary school on the site. Funding, however, has still not been secured for the project that is estimated to cost at least $12m. While the administration hopes the school will be operational as early as SY 2010-2011, the timeline is funding dependent. Given the early stage of planning, there are no official estimates of operating costs. Preliminary estimates made for this report suggest the new school will add $325,000-$375,000 per year to the MOE operating budget (see Section 6).

67. While discussion in the public sector has centered around where and when to build a new public high school, private schools are also planning for expansion. Palau Mission Academy and Belau Modekngei seek to increase the number of students enrolled on their existing campuses. The Catholic Mission, already nearing capacity at Mindszenty after only six years in a new building, is contemplating construction of a new school in Babeldaob. Given the lead time required to plan, fund, and construct a new facility and the opportunity costs involved in operating a high school, this is an

36 By mid-year high school enrollment had declined to 1,312, a drop of 5 percent, most of the decline occurred at Palau High School where enrollment fell from 851 to 808, (MOE database).

Medium-Term Sustainable Financing Strategy – Education 32 June 2008 issue where it is imperative that stakeholders come together to jointly explore needs and agree on a coordinated plan of action. If the private sector is prepared to expand commensurate with increasing demand, government may be able to defer construction of the second public high school until the macroeconomic climate is more favorable.

68. Other issues. There are a large number of other issues facing the elementary and high school sub-sector as highlighted in Figure 7 that summarizes the priorities of the Education Master Plan 2006-2016.

Figure 7: Issues in Public Education - Education Master Plan for 2006-2016

Governance and Policy Strengthen governance and resolve the issue of the Board of Education

Implement teacher and school administrator certification systems

Strengthen partnerships with BEEA and BFSCA

Implement effective teacher-student ratios

Develop and implement handbooks for students, parents and teachers

Curriculum and Instruction Strive for high teacher quality, salary, and benefits

Strengthen Palauan language and culture curriculum

Implement a comprehensive student evaluation and tracking system

Improve student achievement on standardized tests (PAT and SAT)

Conduct regular school involvement training for parents

Establish Health Academy at Palau High School to strengthen math and science

Establish curriculum for gifted and academically challenged students

Reinstate physical education including character education

Incorporate service learning curriculum into high school

Upgrade technology education

School Administration and Management Resolve school land issues and the school consolidation issue

Conduct school facilities renovation as needed

Construct new facilities in Babaldaob for the consolidated Ngardmau-Ngaraard elementary school and a high school

Provide social workers for all schools Medium-Term Sustainable Financing Strategy – Education 33 JuneHave 2008 uniform classroom/facility standards for all schools that include disability access

Personnel Management

J. Post-Secondary Education

1. Introduction

69. Students have several options when they leave high school:

Enter the workforce either in Palau or the United States; Join the U.S. military (subject to passing the military entrance examination); Seek admission to one of few on-island vocational-technical training positions; Enroll at PCC in either academic or vocational programs; Apply for admission to off-island universities, colleges, or trade schools with the possibility of partial financial support from the Palau National Scholarship Board and/or student financial aid programs of the United States (e.g. PELL and collegiate work-study programs).

70. Because Palau high schools have to-date not implemented a student tracking data base (work in progress), there are no statistics about the choices students are making. Given, however, the number of applications processed each year by the Scholarship Board and the number of new admissions to Palau Community College, it appears that the vast majority of high school graduates do progress to post-secondary schooling. Drop-out rates are high, however, resulting in relatively low post-secondary graduation rates.

2. Palau Community College (PCC)

71. On-island post-secondary education is available at PCC, an institution that traces its roots back to 1927 and the Japanese vocational school then established to teach carpentry skills to Palauan boys. After the war, PCC retained its vocational training orientation, initially as an independent institution and subsequently, as the Micronesian Occupational Center, a part of the College of Micronesia system. In 1993, the College was charted as an independent community college and gained accreditation by the Western Association of Schools and Colleges. In 2003, PCC opened a second campus at Ngaremlengui that provides specialized teaching and research facilities for agriculture, aquaculture, and marine studies.

72. Today, PCC offers certificate, career-specific diplomas, and two-year associate degree programs supplemented by specialized non-degree courses. Approximately 75 percent of degree- seeking students are from Palau with the balance from the FSM and the Marshalls. In addition to Palau-based activities, PCC also operates specialized programs in Yap.

73. Non-degree programs include: continuing education courses based on demand; adult high school; small business development courses for entrepreneurs; and supplemental programs for high school students to prepare low-income or educationally at-risk students for college (Upward Bound, Upward Bound Math & Science, and Talent Search). With the exception of general continuing education, non-degree programs are funded from U.S. Federal grants.

74. As a community college patterned after U.S. counterpart institutions, PCC has multiple objectives including:

Life-long learning for students of all ages; Certificate and degree level education; Preparation for students intending to transfer to four-year colleges; and Development of Palau‟s workforce.

Medium-Term Sustainable Financing Strategy – Education 34 June 2008

Table 9. Programs at Palau Community College Associate of Applied Associate or Science Both AAS and AS/AA Other Programs Science (AAS) or Arts (AS or AA) Degrees Degrees Degrees  Air conditioning &  Business accounting  Agriculture science  Certificates refrigeration  Business  General electronics (completion, subject  Automotive administration  Library and competence, mechanics  Criminal justice information services academic subjects)  Construction  Education  Nursing  Technical studies technology  Environmental or  Tourism and within liberal arts  Electrical technology marine science hospitality (music, arts,  Office administration  Information physical education,  Small engine and technology Palauan studies) outboard marine  Liberal arts  Bachelor degree in technology  Science, technology, education (joint with and engineering and San Diego State math discipline University)  Architectural drafting  Continuing and design education (non- degree)  Adult high school  Upward Bound & Talent Search college-prep programs  Other specialized programs in cooperation with partners (e.g. OMIP program with U.S. DOI; AHEC programs with Ministry of Health, & others) Source: PCC Annual Report for FY 2006.

75. As Table 10 and Figure 8 show, the number of new students enrolling at PCC has remained stable over the past decade but the total number of students on-campus has steadily increased. Graduation rates average 47 percent of new enrollees, somewhat higher than comparable figures at U.S. Community Colleges.37

37 Source of comparative data http://www.nationmaster.com (most recently available statistics).

Medium-Term Sustainable Financing Strategy – Education 35 June 2008

Table 10. PCC Enrollment and Graduates Fiscal Year New Average Graduates Student Students/ Semester FY 1997 151 344 71 FY 1998 190 381 67 FY 1999 200 512 71 FY 2000 240 612 72 FY 2001 223 573 82 FY 2002 235 686 62 FY 2003 190 687 138 FY 2004 155 648 159 FY 2005 183 638 103 FY 2006 180 617 53 Source: PCC Annual Report for FY 2006.

76. In FY 2006, operating expenses at PCC totaled $4,889,863 or $3,140 for each full-time equivalent student. This is comparable to per student costs at U.S. community colleges (see Footnote 32). The college, however, has a high level of dependency on U.S. Federal funding which in turn is largely dependent on the outcome of COFA review. Funding directly affected by COFA includes:

COFA Section 221 funds ($2m) account for 40 percent of operating revenues (FY 2007);

Grants by the U.S. Department of Education to the college for tuition of qualified low- income students (e.g. PELL, Supplemental Education Opportunities Grants, and Work- Study Grants);

Special purpose Federal grant programs many targeting low-income, at-risk students (e.g. Talent Search, Upward Bound, and Upward Bound Math and Science) or to subsidize specific programs (e.g. Vocational-Technical education, health sciences education, and agriculture and aquaculture research and training).

77. Because grants to the community colleges in the RMI and FSM were not affected by the COFA review, PCC leaders are reasonably confident that federal funds will continue at or near past levels for the next Compact period. The PCC Board of Trustees, however, is cognizant that continued reliance on public funds – OEK and/or Federal – renders the college vulnerable to macro-economic shocks and changing political priorities. As early as 1997, when Palau was still “flush” with Compact monies, the Board launched a drive to create a $10m endowment to generate investment income of $1m per year to offset future reduction in public appropriations. The endowment has been very successful in attracting broad-based support from faculty, staff, alumni, and the general public but most donors make only small bi-weekly pledges while others

Medium-Term Sustainable Financing Strategy – Education 36 June 2008 donate to special fundraising events.38 Unfortunately, the fund has not attracted many large donations. After ten years, the fund is valued at $1.7m - impressive but short of the $10m target.39 Efforts to accelerate growth of the trust lie at the core of the College‟s strategy for financial sustainability.

78. The most recent strategic plan for the college covered the period 1997-2007. A task force is now working on a new five year strategic plan with priorities expected to include:

Trust fund capitalization; Progressive upgrading of academic standards; New library and related educational technology infrastructure (work in progress); New student life center; New laboratory facilities for tourism studies; Expanded mariculture research, instruction, and extension facilities; and Development of new programs of study based on market demand.

3. Palau National Scholarship Board (PNSB)

79. The PNSB was established by Title 22 of the Palau National Code for the purpose of administering public funds (loans and scholarships) appropriated to assist Palau citizens pursue post-secondary education at home and abroad. Although the primary mandate of the Board is to administer public funds, the Board is also authorized to administer non-public funds upon request by donor(s). The purposes of public financial assistance for post-secondary education are both social and developmental (PNC Title 22).

From a social perspective, the Government has determined that it is an appropriate use of public funds to provide financial assistance to citizens who are pursuing post-secondary education and training. From a developmental perspective, the Government has determined that special assistance is warranted for those students training in high priority fields. These fields are currently identified as medicine, law, and engineering.

80. To the extent that funding is provided to students studying at or through Palau Community College, public scholarships and loans also help to develop and finance the domestic post-secondary education sub-sector. This purpose is, however, incidental to the stated purposes under current law.

81. Because post-secondary education is expensive and funds limited, the law recognizes that students and their families are primarily responsible for financing post-secondary education. Students are encouraged to seek financial assistance from a wide range of sources including those U.S. Federal grants, loans, and any other forms of support for which they are eligible.40

38 PCC‟s annual Thanksgiving fundraiser typically generates $30,000-$35,000 in small donations from the public. 39 The PCC administration has requested the Palau Compact review team to incorporate eligibility of Palau-chartered institutions for non-profit status under the U.S. tax code. This action, which would make donations to PCC eligible tax credits in the United States for U.S. taxpayers, is believed to be necessary if PCC is to attract large donations from U.S. donors. 40 Low-income Palau students are eligible for PELL grants when enrolled in a PELL-approved institution; Palau students are also eligible for Federal work-study awards at qualified educational institutions. Students may also be eligible for private scholarships awarded through their institution of study.

Medium-Term Sustainable Financing Strategy – Education 37 June 2008

Table 11. Scholarships and Loans Administered by PNSB ROP-Funded Non-ROP Funded  Congressional Scholarship (one-time  Shell Palau Scholarship $5,000 award to the top 10 graduates from  Bank of Hawaii Scholarship Palau‟s high schools each year)  Speaker Tadao Ngotel Scholarship  Palau grant  State Scholarship  Palau scholarship (juniors & seniors only)  Rotary Club Scholarship  Palau student loan  Palau Shipping Scholarship  Scholarships for non-traditional college  Didil Belau Scholarship (female students in programs (e.g. distance learning) their junior or senior year of college)  Monbusho (Japan) Scholarships (professional training, undergraduate, and post-graduate scholarships)  Australia Scholarship (undergraduate and post-graduate studies in Fiji, Samoa, and Vanuatu)  New Zealand Scholarship (undergraduate and post-graduate)  Taiwan Pacific Islands Forum Scholarships (undergraduate and post-graduate)  Taiwan Government Scholarship (undergraduate only) Source: Palau National Scholarship Board Performance Report, for FY 2007.

82. Since implementation of the Compact, the OEK has allocated $1.2m annually for student scholarships and loans and $70,000 annually for Board operations. This is twice the level of funding appropriated pre-Compact although real value has eroded due to rapid inflation in the post-secondary education sector of the United States, destination for most Palau students. Non- Palau funds for post-secondary education administered by the Board originated from 12 donors and were valued at $281,000 (2007-2008 academic year). While most non-government grants are small ($500-$2,000), several provide 100 percent multi-year financing for studies at selected institutions (e.g. scholarships awarded under the Overseas Development Aid programs of Japan, Australia, New Zealand, and Taiwan). Private donors set their own requirements. PNSB awards include grants (undergraduates), scholarships (junior and senior years only), and loans (available to all students including those enrolled in graduate programs). By regulation, PNSB awards are based on need considering both the financial situation of the student and his/her family and the cost of the intended course of study; and

Awarded only to Palauan citizens who graduate from a Palau High School (public or private) or if not graduating locally, have at least one parent or legal guardian resident in Palau for at least two years or if resident outside of Palau, employed by the Palau government (this provision extends eligibility to children of Palau‟s diplomatic corps);

Awarded only to full-time students accepted by or enrolled in an accredited institution of higher learning (or the non-U.S. equivalent of accreditation) who have declared a major and who maintain a 2.0 grade point average.

Medium-Term Sustainable Financing Strategy – Education 38 June 2008

83. Although the Board recognizes non-traditional studies (e.g. internet based courses), students receiving financial aid for non-traditional programs must enroll in programs operated through PCC, the sole agent recognized by PNSB to oversee non-traditional studies in Palau.

84. By regulation, students receiving financial aid are expected to repay funds received either in cash or service.

All students not returning to Palau upon completion of study must repay awards in cash over a five year period.

All students not completing their study must pay back 50 percent of funds obtained within two years of leaving school.

Students must return to Palau and work for a minimum of three years commencing not less than two years after completion for undergraduates or three years after completion for graduate students unless continuing to a higher level of schooling.

Students who have received loans may receive service credit in lieu of cash repayment provided they are employed in the Republic.

All students must have a locally resident guarantor who assumes responsibility for repaying funds if the student defaults.

85. While the regulations are strict, enforcement is challenging. Students who leave school and stay in the U.S. are difficult to trace. While every student must have a guarantor residing in Palau, there is no requirement for guarantors to submit evidence of ability to pay at the time awards are issued. In many cases, the guarantors are elderly and on limited income and are not able to pay. The Attorney General‟s office is responsible for taking legal action against defaulters but the office has a heavy workload; action against student aid defaulters is not always a priority. By the end of 2007, the Board had disbursed approximately $4m in grants and loans but had collected only $200,000 in cash and $1m in service credit – a cash repayment rate of only 5 percent and a total repayment rate of only 30 percent.

86. PNSB has been progressively moving toward a business style of operation and over the past five years has made a number of changes in policy and procedure to enhance efficiency including:

Implemented a student tracking system;

Increased the number of students returning to Palau upon completion of studies by providing service credits as an alternative to cash payments;

Required all students (both scholarship and loan recipients) to repay funds awarded if they fail to return to Palau following completion of studies;

Decreasing default rates on student loans;

Instituted a single application form for all publicly financed aid that allows students to simultaneously apply for all funds for which they are eligible without completing multiple forms.

87. Tables 12 and 13 contain performance indicators.

Approximately two-thirds of applicants receive some financial assistance.

Medium-Term Sustainable Financing Strategy – Education 39 June 2008

Business is the most popular field of study followed by the social sciences and vocational- technical fields.

Average award amounts ($2,500 for scholarships and $2,600 for loans) are small in relation to the cost of off-island education although adequate for education at Palau Community College where tuition for full-time study for one year is about $2,100 ($70 per credit hour).41

Overall graduation rates are 45 percent. Graduation rates are significantly higher for students attending PCC (66 percent) than for those enrolled overseas (51 percent). Graduation rates vary widely according to course of study. Students enrolled in the health sciences have the highest graduation rate (75 percent) while those enrolled in liberal arts and other general study programs have the lowest rate (33 percent).

The rate of graduates returning to Palau is high; most graduates who do not return to Palau are continuing students.

41 In 2008, the Board of Trustees has agreed to raise PCC tuition by $10 per credit hour each academic year until fees reach $150 per credit hour.

Medium-Term Sustainable Financing Strategy – Education 40 June 2008

Table 12. Scholarship, Grant, and Loan Recipients, 2000-2006

Graduates Graduate Degree Outside Location Palau

ide ide School Year Applicants Recipients Approval Rate Value ofAward Average Total Graduates Graduation Rate Certificate or Associate Bachelor Master Ph.D. or Professional In Palau Outs Student Employment

Statistics for Scholarships and Grants 2006- 239 161 67% $2,500 Unavailable at time report was prepared in 10/07 2007 2005- 273 189 69% $2,099 5 4% 3 2 0 0 3 2 1 1 2006 2004- 225 134 60% $3,500 10 5% 2 5 3 0 3 7 4 3 2005 2003- 326 192 59% $3,429 24 12% 13 10 0 1 10 14 12 2 2004 2002- 330 202 60% $3,385 7 3% 2 3 2 0 4 3 3 0 2003 2001- 324 201 62% $4,970 30 9% 11 15 4 0 24 6 6 0 2002 2000- 362 177 51% $5,840 24 7% 10 10 4 0 19 5 5 0 2001 1999- 439 280 63% $2,360 37 10% 30 7 0 0 30 7 2 5 2000 TOTAL 2518 1536 61% $3,510 137 9% 71 52 13 1 93 44 33 11 Statistics for Loans 2006 220 116 51% $2,631 5 4% 3 2 0 0 3 2 1 1 2005 220 112 51% $2,651 11 8% 1 7 3 0 6 5 4 1 2004 234 120 51% $2,112 33 28% 8 23 2 0 20 13 9 4 2003 165 91 55% $3,436 21 23% 7 10 4 0 17 4 2 2 2002 174 102 57% $3,727 31 30% 11 17 3 0 21 10 8 2 2001 196 78 40% $3,063 34 44% 14 18 2 0 27 7 5 2 2000 270 95 35% $2,813 57 61% 37 12 6 2 47 10 7 3

Total 1479 718 48% $2,919 192 27% 81 89 20 2 141 51 36 15

Source: Palau National Scholarship Board Annual Report, 2007 Notes: In 2004-2005 application forms were consolidated into one form; information on applicants, recipients, and approval rate are comparable only for 2004-5, 2005-6, & 2006-7. Prior to this, each form of assistance required a separate application form and thus many applicants and/or awardees are double counted.

Table 13. Tracking Student Aid Recipients (1994-2007) by Destination and Field of Study All Student Graduation & Drop- Continuing Aid Graduates Drop-Outs Out Rates for Students Recipients Completed Students # % # % # % # % Graduates Drop-Outs

Medium-Term Sustainable Financing Strategy – Education 41 June 2008

All 907 100% 310 34% 346 38% 251 28% 55% 45% Tracking Information by Destination PCC Students 224 25% 106 47% 63 28% 55 25% 66% 34% Overseas Students 683 75% 204 30% 283 41% 196 29% 51% 49% Tracking Information by Field of Study Social sciences & 172 19% 67 39% 68 40% 37 21% 64% 36% humanities Natural Sciences 56 6% 12 21% 33 59% 11 20% 52% 48% Liberal Arts, Undeclared & 105 12% 22 21% 39 37% 44 42% 33% 67% General Studies Business 269 30% 100 37% 90 34% 79 29% 56% 44% Information 58 6% 14 24% 20 35% 24 41% 37% 63% Technology Professions (other 79 9% 19 24% 39 49% 21 27% 48% 52% than health) Health Professions 55 6% 27 49% 19 35% 9 16% 75% 25% Vocational/Technical 113 12% 49 43% 38 34% 26 23% 65% 35%

Source: Palau National Scholarship Board Annual report for FY 2007.

88. Issues in Post-Secondary Student Financial Aid. Three current issues in post- secondary student financial aid are: (a) establishing priorities; (b) increasing graduation rates; and (c) enhancing overall efficiency.

89. Priorities. Current law requires that the Board give priority to students in the fields of medicine, law, and engineering. These priorities are based on a 1988 human resource study that is now outdated. (There is now an adequate supply of doctors and a reasonable supply of lawyers although the shortage of Palauan engineers remains). The NMDP (“Palau 2020”) recommended new priority fields that favor private sector development - tourism, marine resources, agriculture, business, and public administration - but this recommendation has not been acted upon. The National-State Leadership Conference (2006) recommended that education be declared a priority field for scholarships and loans. While projecting future human resource requirements is more art than science in a small population such as Palau, there is certainly value in conducting a new formal human resource needs assessment and developing a system to systematically revisit and update the assessment at regular intervals. A study of this nature would be most efficiently undertaken as a collaborative effort of the PNSB, PCC, the Ministry of Education, the Labor Office, the Chamber of Commerce and specialized bodies (e.g. Belau Tourism Association and professional groups).

90. Graduation rates. Although graduation rates have improved, still more improvement is needed. Anecdotal reports say that the main reasons students drop-out of post-secondary studies are: (a) inadequate high school preparation especially in math and science, and (b) finances. A study to confirm or expand on anecdotal information could yield valuable information for policy and program development.

91. Efficiency. Public funding for post-secondary financial aid doubled at the advent of the Compact but could decline in future years if resources are redirected into basic education where economic returns on investment are generally considered to be higher. While the PNSB has taken measures to increase efficiency, it makes additional recommendations that require OEK endorsement, including:

Medium-Term Sustainable Financing Strategy – Education 42 June 2008

Amend PNC 22 to change the status of the Board to an independent non-profit corporation; this would facilitate private donations since these would be tax deductable; Amend the COFA to allow Palau-based non-profit corporations to apply for and receive tax exempt status under United States laws as this would facilitate new funding from foundations, corporations, and private donors (including Palauans resident in the U.S.) who would then receive tax credit for donations made to eligible Palau-based entities;42 Fund an updated human resource study and align awards based on findings; Modify service credit to require all students to repay at least some portion of their financing in cash instead of the current policy that allows 100% of obligations to be repaid in service credit; Obtain better support from the Office of the Attorney General in pursing defaulters.

92. In addition to these changes which the Board has already endorsed, there are three additional strategies recommended here for consideration:

i. Develop a more aggressive marketing strategy to further diversify funding for scholarships and loans.

ii. Channel more students into PCC for their first two years of post-secondary schooling by granting financial aid for off-island study only if there is no PCC program of study that meets prerequisites for a student‟s proposed course of study. This would (a) improve overall graduation rates that are higher at PCC than off-shore; (b) increase the number of students benefitting from financial aid; and (c) use financial aid monies to strengthen capacities at PCC.

iii. Expand partnerships with non-U.S. institutions, particularly those in the Philippines and other nearby Asian destinations, where there are excellent programs at a fraction of the cost of comparable programs in the U.S.43

93. Recommendations regarding PCC and Asian institutions may meet with resistance from students and parents. Both recommendations will need supportive “sales” strategies. Nevertheless, their potential to enable more students to receive assistance with the same or less money makes them attractive options.

4. Vocational Technical Programs

94. Vocational training at Palau High School. Palau High School is the largest provider of Vocational-Technical training in Palau as it requires all 800+ students to enroll in one of six career academies: tourism and hospitality; agriculture; business; construction technology; automotive technology; and arts and humanities. Students enroll in one unit of career development in each of the 9th and 10th grades and two units of vocational-technical courses in each of the 11th and 12th grades. Practical on-the-job work experiences include:

10th grade – six-hour job shadowing;

11th grade – forty-hour career mentoring;

12th grade – 240 hour career practicum;

42 Eligibility for U.S. tax exempt non-profit status was “frozen” at the time the COFA came into force. The only Palau non-profit with U.S. tax exempt status is PCAA that received this status prior to the freeze. 43 PCC has recently entered into a partnership arrangement with the University of the Philippines for engineering. Students will undertake the first two years of pre-engineering studies in Palau and complete their three-year professional studies in the Philippines.

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One summer work experience (320 hours).

Construction and automotive technology courses have been aligned with PCC courses so that students graduating from Palau High School in these career academies can receive credit for high school studies when enrolling in the same degree-level program at PCC.

95. A recent study by the Fiji-based Forum Secretariat has recommended new investments in Voc-Tech training totaling $1.5m (about $300,000 in recurrent costs and $1.2m in one-time capital costs) to:

Expand and strengthen the high school program;

Develop complementary programs in elementary schools; and

Expand inter-school articulation (e.g. elementary-to-PHS and PHS-to-PCC).44

96. Vocational training at PCC. PCC with its eleven vocational certificate or degree programs is the largest provider of post-secondary vocational-technical training in Palau. The Forum Secretariat study found that the TVET capacity at PCC is greater than that which Palau can utilize given the small population. The study recommends further investment in the PCC program ($4.9m) to transform the School of Technical Education into the Micronesian Sub- Regional TVET Center. Most of the recommended investment ($4.2m) is envisaged to take the form of an endowment that will facilitate financial sustainability. Senior education officials are still reviewing this report and its recommendations. No decisions have yet been made regarding its acceptance or implementation.

97. Apprenticeship training. A very successful on-island vocational-technical training is the apprenticeship program of the U.S. military Civic Action Team (“CAT”). This 12-month program accepts 14 students each year in 12 fields of study. To date, 231 Palauans have enrolled; 91 percent have graduated; and 83 percent of living graduates are in Palau, most working in their field of study or a closely related field (PCAA data base). Although some apprenticeship graduates have or are continuing their education at PCC, the program is not articulated with PCC nor is it a prerequisite for admission into formal apprenticeship programs in the United States or its territories. Unfortunately, despite its success, this particular program cannot expand beyond the current enrollment of 14 students a year.

98. Job Corps. Palau citizens are eligible for admission to the U.S. Job Corps program. Admission is coordinated locally by the Youth Service Division (Ministry of Community and Cultural Affairs). The program is open to youth ages 18-24. The program involves up to two years of fully funded study (GED and technical training) at one of three U.S. Job Corps centers (Honolulu, Utah, and Nevada).Between March 2006 and end-2007, thirty Palauans were accepted into the program; one graduated; 2 were involuntarily dropped from the program; and 2 others voluntarily withdrew because of family problems. Between December 2007 and February 2008, another 138 Palauans submitted applications. The level of interest in the program clearly suggests that the demand for vocational-technical training far exceeds the number of training slots available.

99. Workforce Investment. Palau receives funding under the U.S. Federal Workforce Investment Act (U.S. Department of Labor). This program serves unemployed individuals by providing job training (short-term classroom and on-the-job), counseling, and subsidized employment during a training period. This program also funds summer work experience training

44 Palau Vocational-Technical Training Study (a part of a Pacific Regional Study), Forum Secretariat, 2008. Neither the MOE nor PCC have yet formally endorsed the study recommendations.

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for high school students. Because this program does not meet the definition used in this paper for “formal training,” no further analysis of the program is included herein.

100. Entrepreneurial training. The Palau Small Business Development Center, funded by the U.S. Department of Labor, and housed at Palau Community College, provides training and mentoring for Palauan entrepreneurs. A similar program operates through the Palau Community Action Agency. The Palau Chamber of Commerce has recently launched the Junior Achievement Program in Palau. This program provides entrepreneurial training and hands-on experience to high school students. The first program (January-April 2008) has been very popular with over 100 student participants. None of these programs meet the definition of “formal education.”

101. Issues in vocational-technical training. Palau depends heavily on foreign “guest” workers to meet workforce needs in vocational-technical fields. This dependency is the result of several factors, including:

i. Negative attitudes allegedly held by some young people about certain occupations, especially those involving manual labor;

ii. Negative attitudes allegedly held by some employers about Palauan workers who are considered to be less reliable and more expensive than “guest” workers;

iii. Limited number of places available in vocational-technical training to develop the Palau workforce; and

iv. Labor laws that set a minimum wage for Palauan workers but no minimum for “guest workers” hence creating financial incentive for employers to hire abroad.

102. There is a clear need to expand training opportunities in vocational-technical fields but any development initiative cannot be just about training. Rather, a comprehensive workforce development strategy is needed that addresses attitudes and perceptions of prospective students and their supervisors. In addition there is need to reform labor laws and policies to ensure a “level playing field” for all workers and employment opportunities that pay “living wages.”

PROJECTING FUTURE DEMAND FOR EDUCATION

K. Number of School-Aged Children

103. Any plan for education, including a plan for sustainable financing, must begin by projecting the size of the target population for the different levels of schooling. Table 14 sets out medium-term projections based on historic trends and assumptions about future demographic variables. These assumptions include:

Declining fertility rates for Palauan women through to 2015 with fertility stabilizing thereafter at a total fertility rate of 2 children per woman;

Infant and child mortality not a significant determinant of school-aged populations;

Net migration by ethnic Palauan children now approaching zero;45 and

45 Since the 1960‟s Palau has experienced negative out-migration (more Palauans left each year than returned). By 2005, this had reversed with more Palauans returning to Palau.

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Stable population of` non-Palauan children (10 percent of the total child population).46

L. Distribution of School-Aged Children

104. For many years, Koror has been the economic center of Palau and a magnet for the working age population. The concentration of population in Koror peaked in 1995 (71 percent of the total) and has declined subsequently (70 percent of residents in 2000 and 64 percent in 2005). The distribution of school-aged populations has historically followed closely that of the total population resulting in a decrease in Koror‟s share of school-aged population and a concurrent increase in Babeldaob‟s share. This dispersal of population is projected to continue and possibly accelerate with completion of the Compact Road and improvement in secondary roads. The pace of population re-distribution, ultimate endpoints, and distribution of population across the ten Babeldaob states, are difficult to forecast. Table 15 shows past trends and presents two possible scenarios for the medium-term future. The “rapid dispersal” scenario reflects pre-road social impact assessment (Palau Resources Institute, 1996) but may over- estimate the speed of population movement away from Koror, especially in view of escalating fuel prices.

Table 14. School-Aged Population 1990-2020

Actual Population Projected Population 1990 1995 2000 2005 2010 2015 2020 Total Population 15,122 17,225 19,129 19,907 21,651 22,122 22,593 Preschool (age 3-5) Number 1,000 1,017 946 818 780 750 750 Percent of Total Population 6.6% 5.9% 4.9% 4.1% 3.6% 3.4% 3.3% Elementary (age 6-13) Number 2,399 2,456 2,578 2,791 3,031 3,080 3,080 Percent of Total Population 15.9% 14.3% 13.5% 14.0% 14% 13.9% 13.6% High School (age 14-17) Number 1,271 1,111 1,234 1,347 1,472 1,510 1,536 Percent of Total Population 8.4% 6.4% 6.5% 6.8% 6.8% 6.8% 6.8% Post-Secondary (age 18-21) Number 1,037 1,019 928 971 Percent of Total No Projection Population 6.9% 5.9% 4.9% 4.9% Note: Post-secondary population not projected as numbers subject to rapid change in response to job opportunities at home and abroad. Source: Population data derived from Palau census reports, Office of Planning & Statistics. Projection of total population for 2010-2020 also by OPS (Census 2005 Monograph). Projection of child populations prepared by the author based on demographic assumptions outlined in text.

46 Although migration by non-Palauans is a major influence on the overall population, migration by non-Palauan children is less significant. Non-Palauan children have comprised about 10% of the total student population in Palau since 1990 with only modest inter-census variation.

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M. Student Population

105. For pre-primary, elementary, and high schools, total national demand for education is a function of the school aged population and school participation rates.

Student population = School aged population X school participation rate

106. Forecasting demand for post-secondary education is more challenging. While the formula above is technically valid, the school-aged population is broad, ranging from 18-60 years or even older and participation is influenced by many factors, most outside the control of the education sector.

107. Using available data, current participation rates for “basic” education are estimated to be:

i). Preschool (ages 3-5) – 75 percent ii). Elementary school (ages 6-13) – 100 percent iii). High school (ages 14-17) – 87 percent-90 percent

108. Moving the high school participation rate closer to 100 percent is a national priority. As previously discussed, assumptions about changes in high school participation rates, not population growth, determines when new infrastructure will be needed.

109. Distribution of students. While the school-aged population and school participation rates determine total national demand for education, distribution of demand is also influenced by parent and student preferences. Palau does not have a school zoning regulation;47 parents are free to send their children to any school and some choose not to use their local community school because of convenience, perception that education standards are higher elsewhere, and personal considerations.

110. Although Koror has a larger share of elementary students than school-aged population, data show this is primarily due to the presence there of the two large private elementary schools. It is also known that a significant number of Airai students attend Koror schools because of proximity to their parents‟ place of work. Most parents in Babeldaob and the outlying islands who use public schools, choose their local community school. This suggests that as the population shifts from Koror to Babeldaob, student populations will shift in a similar manner (Figure 9).

111. The two private schools in Koror are near capacity. Without investment in new infrastructure, these schools will continue to absorb a combined total of approximately 500-600 students, most resident in Koror and Airai.48 The projected number of elementary school-aged children in 2015 is 3,080. Assuming 100 percent participation and 600 children attending the two

47 The Ministry of Education has tried in the past to enact a school zoning requirement but this was not easily enforced and has subsequently been dropped. 48 SDA Elementary plans to double existing capacity over the medium term planning horizon.

Medium-Term Sustainable Financing Strategy – Education 47 June 2008 private schools, enrollment in public elementary schools will be about 2,480 students. Koror is projected to host 50 percent of the elementary student population or 1,240 students, a decrease of 207 students (equivalent to 8-10 classrooms) over the 2005 student population (then 1,447 students). Airai is expected to host 15 percent of the elementary student population or 372 students, an increase of 162 students (or 6-8 classrooms) over the 2005 student population (then 210). Babeldaob will attract 25 percent of the total or 620 students, an increase of 156 students (equivalent to about 7 classrooms) over the 2005 elementary student population (464 students). The outlying islands will attract 10 percent of the total or 240 students, an increase of 72 students over the 2005 (then 168).

Table 15: Distribution of School-Aged Population by Region

Actual Projected 2015 Region Straight Alternate Yr 1995 Yr 2000 Yr 2005 Line “Rapid” Projection Dispersal Pre-Primary (Ages 3-5) Koror 68.60% 66.10% 61.10% 54% 50% Airai 8.20% 11.30% 11.00% 14% 15% Babeldaob 15.50% 16.40% 16.70% 18% 25% Outlying Isl. 7.80% 6.20% 11.10% 14% 10% Elementary (Ages 6-13) Koror 65.80% 64.60% 60.1 54% 50% Airai 9.30% 10.30% 11.00% 13% 15% Babeldaob 18% 17.50% 20.30% 23% 25% Outlying Isl. 6.90% 6.80% 8.60% 10% 10% High School (Ages 14-17) Koror 75.70% 69.40% 65.60% 55% 58% Airai 6.50% 8.60% 12.20% 18% 15% Babeldaob 13.70% 18.60% 19.00% 25% 25% Outlying Isl. 4.10% 4.0% 3.20% 2% 2%

Note: “Babeldaob” Region includes the nine rural states on the island but excludes Airai. These two regions are treated separately because they have different demographic and social characteristics. Source: Actual distribution data are derived from census reports; Palau Office of Planning & Statistics. Projections are prepared by the author based on (a) straight line projection using 10-year trends and (b) accelerated out-migration from Koror favoring the rural states of Babeldaob.

112. At the high school level, there is one public high school and five private high schools. Three of the private schools also serve non-resident students from off-island. If the school aged population in 2005 (1,347) is compared to the student population (1,218), the resulting participation rate ranges between 87 percent-90 percent. (The lower rate adjusts for non- resident, non-Palauans from the FSM and the Marshalls who attend Emmaus and Bethania, and from China who attend PMA). Assuming that participation rates increase to close to 100 percent and that the number of non-resident, non-Palauan students increases to about 100,49 the demand for high school places in 2015 increases to 1610, an increase of 20 percent over the

49 In 2007, PMA has 23 boarding students from the China mainland but has capacity to accommodate 40 boarding students. Emmaus and Bethania actively recruit students from the FSM and RMI with combined non-resident non- Palau student populations of about 50. Capacity to absorb non-resident, non-Palau students is then about 90-100 students.

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SY2006-2007 (and about 7 percent higher than current school capacity). Balancing demand and capacity, however, must take into consideration ability/willingness to pay private school tuition rates and to affiliate/non-affiliate with particular schools on religious grounds. These considerations could mean that demand for high school places is not evenly distributed across the various schools and would probably result in heightened demand for public school places.

113. Demand for post-secondary education. Without a student tracking system, it is difficult to estimate school participation rates for the prime post-secondary population (ages 18-21). It is clear, however, that demand will continue to grow in the face of increasing technological complexity and globalization. This demand will not come just from the “traditional” student age- group but from across the age spectrum as workers must continually “re-tool” their skills throughout their working lives.

FINANCIAL SUSTAINABILITY

114. Financial sustainability is about balancing available resources with needs and demands. This section of the paper examines:

i) New spending needed to meet demand and implement sub-sector plans; ii) Opportunities to increase efficiency, reduce costs, or reallocate expenditures; ii) Opportunities to increase revenues; iv) Long-term options for which feasibility assessment should begin during the MTDS period.

N. Cross-Cutting Issues

115. Palau‟s education sector is comprised of three sub-sectors that in turn are comprised by multiple autonomous and semi-autonomous service providers. This diversity creates competition and should generally be considered a strength of the system. Because Palau is small, however, decisions by one service provider can reverberate throughout the system. It would be advantageous if there was an educational forum that facilitated collaborative planning and research, inter-provider consultation, and advocacy for children. For such a forum to be effective, participation must be voluntary and equitable. A specialized professional forum similar to the Palau Chamber of Commerce or Belau Tourism Association might be appropriate for meeting the need while avoiding domination by any one provider or provider group.

O. New Expenditure Requirements

1. Capital Expenditures

116. New capital investments needed over the medium-term are shown in Table 17. In addition to infrastructure, new investments are needed to fully capitalize the PCC Trust Fund (outstanding balance to be raised, $8.3m). Based on experience since independence, it is reasonable to expect that capital investments over the medium-term can be obtained through a combination of external sources – COFA, ODA, international development banks, and private donations – provided there is proper attention to preparing proposals with adequate justification and expenditure detail and diligent attention to identifying and collaborating with potential donors.

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Table 17. Medium-Term Capital Investment Requirements

Project Scope Time Line Estimated Funding Source Costs Pre-primary None or minimal N/A N/A N/A Airai Elementary 8 classrooms Progressive over $800,000 OEK funds School MTDS period in supplemented by line with demand ODA grants New Babeldaob High school SY 2010-2011 $12 million ODA grant High School facilities to (Office of the accommodate President, Consolidated 250-300 students; estimate 2008) Elementary School elementary facilities to accommodate consolidation of 2- 3 schools Palau Community To be determined Building to come To be determined Private donation or College student on-line circa 2012 ODA grant center TVET Investment Ministry of Progressive over $1.2 million Not identified (proposed in Education MTDS period Forum Secretariat Study) PCC School of Progressive over $4.8 million Proposed to be Technical MTDS period shared by ROP, Education RMI, FSM & ODA grants

2. New Operations Spending

117. Pre-primary. In the pre-primary sector, the goals are to: (a) encourage 100 percent participation by 5-year old children and (b) make pre-primary opportunities available to 100 percent of 3-4 year old children. It is only when pre-primary participation approaches 100 percent that efficiency benefits will be fully realized.

118. There are adequate resources – physical, human, and financial – to achieve these goals in those states where Head Start facilities are located. The challenge is to serve children in sparsely populated states that do not meet the minimum criteria for hosting a Head Start center. (U.S. Federal regulations require a minimum of ten children). On Babeldaob, from a financial perspective, busing is the most cost-effective option for increasing participation although, in the past, busing has not been well accepted by parents. This may change now that the Compact Road is complete, secondary roads are being improved, and parents are becoming accustomed to the new ease of travel.

119. An alternative is to provide technical support and small incentive grants to nongovernment organizations (NGOs) and/or community-based organizations (CBOs)50 to develop community-based pre-primary programs. This option would require modest additional local funding (estimate $10,000-$20,000 per year) since Head Start funds can only be used to support the Head Start program model of service. (Possible changes in the way U.S. Federal grant funds are administered during the second phase of COFA could open the door to use of federal monies to implement alternative models of pre-primary education).

50 NGOs are chartered non-government organizations. CBOs are community-based organizations recognized in the community but operating without a formal government-issued charter.

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120. Public Schools. According to the Ministry of Education, local appropriations for public schools are inadequate. Table 18 summarizes the short-fall. The Ministry is preparing a request to the OEK for an increase in the recurrent budget of $1m to meet urgent needs including: reclassification and upgrading of professional salaries; preventive maintenance; and teaching materials. In addition, the recent Forum Secretariat report on TVET recommends new recurrent spending of $300,000 and a new high school in Babeldaob will require an additional recurrent expenditure of at least $325,000-$375,000.

121. In addition to local appropriations, MOE spends over $2.2m in U.S. Federal grants each year for “core” operations, including:

Educational technology – hardware, software, operations, connectivity, and teacher training

Staff development – tuition support for long-term degree-level training, short-term workshops and courses;

Vocational-technical education at Palau High School;

Curriculum development, textbooks (supplement), and teaching materials; and

All services to at-risk students inclusive of special education.

Already the MOE management team reports that U.S. Department of Education officials have informed MOE that grants will “sunset” effective FY 2010 unless there are specific provisions for renewal incorporated in the second phase of COFA. In the event that U.S. Federal funding ceases or declines significantly, the functions now supported by these grants will still need to be implemented but will require local resources.

122. In addition to recurrent spending, the Education Master Plan 2006-2016 calls for new project spending (not included in recurrent estimates) of about $5.5m of which at least $2m remains unfunded.

123. Palau Community College. Public funding for Palau Community College has averaged $2m over the past decade with only slight annual fluctuations. During this period, the college has expanded its programs and plans to continue to do so but without significant new inflows of locally appropriated public revenues. Approximately 80 percent of the PCC operating budget is subject to possible modification based on the COFA review. While recognizing a degree of vulnerability, PCC trustees and managers express confidence that few actual changes will result (Tellei, remarks at sector consultations and at MTDS Forum on June 25, 2008). They base this confidence on the language of the current COFA as well as the experience of the community colleges in FSM and RMI where college funding was not significantly impacted by changes in the COFA provisions. Over the medium-term, the Trust Fund is the college‟s sustainable financing strategy of choice. As previously noted, however, fund capitalization has progressed more slowly than originally envisaged. Accelerating fund growth is a short and medium-term priority as is new infusions of operating revenues (see Section 6.4. for discussion of options).

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Table 18. New Funding Needed for Public Schools Recurrent Target Cost Start Date Additional Funding for Immediate Needs (Not currently funded from any source) Conditions of employment Teacher salary upgrade 600,000 SY 2008-09 Administrator salary upgrade 100,000 SY 2008-09 Maintenance Facilities 100,000 SY 2008-09 Equipment 30,000 SY 2008-09 Transportation 25,000 Urgent need Addition to current Books and Teaching Materials 150,000 allocation of $300,000 MOE has requested $1m in Subtotal – New Spending for Immediate Needs 1,005,000 new funding from OEK New recurrent spending for Voc-Tech education in public Recommendations not yet schools (Recommendation by Forum Secretariat, 2008) 300,000 approved by MOE or PCC

Estimated Operations Cost Associated with a new High School in Babeldaob ** Staff costs 300,000 SY 2010-11 Utilities 16,000 SY 2010-11 Maintenance 30,000 SY 2010-11 Subtotal – Babeldaob High School 346,000

Federally Funded Activities 2,265,000 FY 07 expenditures

Unfunded Projects proposed in Education Master Plan (not included above) 2,000,000

** Staff costs associated with new High School are estimated based on 250-300 students; curriculum identical to that at PHS; 20-25 students per class; and continuation of block scheduling. Total staff are projected at: 16 teachers (8 transferring from or shared with PHS); 2 administrators; 2 technical support staff; 2 counselors; 2 facilities staff; 1 office clerk; and 3 drivers. Salaries are based on PHS SY2007-8.

124. Vocational-Technical. Expansion of vocational technical education will occur in the context of the public schools and the college. (No new dedicated voc-tech facility is envisaged). While a significant capital investment in TVET has been recommended by the Forum Secretariat, it recommends that expansion be financed sustainably through a designated Trust Fund. Modest recurrent costs in the range of $140,000 are projected in addition to staff salaries already paid by the College.

125. Post-Secondary Scholarships and Loans. No new public funding is projected for student scholarships and loans although the Board hopes to increase private and bilateral funding for student aid.

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P. Opportunities to Reduce-Redirect Public Expenditures for Education

126. Because of the need for new investments in education to implement sector plans (Section 6.2) and a limited range of options for expanding revenue streams (Section 6.4), fiscal adjustment will need to take place primarily from within. The challenge is to implement adjustments without undermining the quality or quantity of core educational services. Two broad strategies are considered:

Strategy 1: Focus on “core” educational processes by minimizing expenditures for non- instructional purposes;

Strategy 2: Enhance efficiency.

1. Focus on “core” processes

127. “Core” processes are those activities essential for achieving desired instructional outcomes. Eliminating or reducing expenditures for “non-core” activities can help to achieve fiscal targets without significantly undermining the quantity or quality of educational services or educational outputs.

128. School lunch. The school lunch program is a legacy of the Trust Territory administration. The program, a part of the U.S. Federal anti-poverty program, was extended to Palau and other Micronesian jurisdictions in the 1970‟s and even at that time was controversial with critics charging it would foster dependency and undermine local foods. The U.S. Federal grant that funded school lunches phased-out over the 1994- 1996 period but the program has continued with OEK funding. In FY 2007, expenditures totaled $531,000 or 9% of total Ministry expenditures. This represents an average cost of $1.25 per meal served.

129. Several options have been examined in regards to future financing for the school lunch program.

i) User fees. In SY 2006-07, MOE was authorized by the OEK to institute a lunch fee. Alternative costing options were examined ($0.25 and $0.50 per meal) as was the feasibility of having a “free lunch” category for low income students. Ultimately it was decided to institute a $0.25 fee across the board fee. The fee has been well accepted by parents and generates about $87,000 per year which off-sets the cost of food purchased for the first academic quarter (before new fiscal year funds become available in October). Because this change has worked well, MOE officials believe it is feasible to progressively increase user fees so that by the end of the MTDS period, program costs are fully recovered. For this to occur, officials believe it will be necessary to institute a “free or

Medium-Term Sustainable Financing Strategy – Education 53 June 2008 reduced cost meal” category for low income students. Based on current program costs and a progressive increase in fees by $0.25 each year, it will take about five years to achieve full cost recovery. ii) Employment conditions – cooks. MOE employs thirty school cooks at a total salary of $238,545. Cooks are employed as regular, full-time public servants even though they only have work when students are physically present (180 days per school year although in some rural schools parents prepare meals on selected days). In the past, cooks were contract employees paid only for 180 days. New procedures were instituted about eight years ago with cooks thereafter treated as full-time civil servants. Putting cooks back on contract (with summers off) would save about $60,000 per year. Putting cooks on contract for four hours per school day would save about $120,000 per year. The MOE believes that a 75% contract (e.g. summers off) is feasible. When combined with a lunch fee, this strategy will reduce the time until full cost recovery from five to four years. iii) Abolish the school lunch program. If the school lunch program were abolished, virtually the entire cost of the program would be saved effective immediately. The Ministry would opt to retain a nutrition advisor on-staff to assist schools in developing and implementing other meal options such as contracting with venders to sell food in the schools. While the MOE management team is not opposed to this option, their preference is for a fee-based program leading toward self-sufficiency as they believe this options is more likely to receive support from parents and policy makers.

130. School transportation. At present, the MOE operates school transportation systems for Koror, Aimeliik, Ngatpang (students bused to Aimeliik), Ngaremlengui, Ngaraard, Ngchesar, Ngarchelong, and . Operation of the bus system costs $250,000 per year including twenty staff salaries, gas, and essential maintenance.51 Nineteen bus drivers are paid as full-time employees in lieu of overtime payments for work before 7:30 and after 4:30. In addition to the costs borne by the MOE, the Ministry of Justice provides transportation services for PHS students commuting from Babeldaob. This is a popular service for which students pay $1 per trip as it eliminates the need for students to board with relatives in Koror. Because this service is the personal initiative of the Minister of Justice and involves combined public-private partnership, it is likely that with a change in government administration, there will be demand for MOE to absorb the program.

131. Options for financing transportation services are similar to those for food services although evaluation of these options must consider the potential impact of school consolidation on demand for services. i). Fee system. Students using the service could be charged a fee (perhaps a “fuel surcharge”) similar to the school lunch fee. Ridership averages about 134,000 one-way trips per year. A per trip fee of $0.25 or roundtrip fee of $0.50 would generate about $30,000 in revenue which could help offset rising fuel costs. Especially with younger children, however, a fee system could be administratively burdensome and for this reason, the MOE Management Team does not favor this option. ii). Employment Conditions – Drivers. Like cooks, drivers are paid as full-time civil servants although unlike cooks, when not actually transporting students, they are supposed to assist with school maintenance tasks. If drivers were placed on a contract and paid for the 4-6

51 Due to financial constraints, there is very little preventive maintenance of buses. As a result, the useful life of buses is reduced. Koror for example used to have nine buses but now “makes do” with five. New tires costing $22,000 were identified as needed in FY 2007 but deferred until FY 2008 and have been deferred yet again to FY 2009.

Medium-Term Sustainable Financing Strategy – Education 54 June 2008 hours of actual working time on 180 school days, this would result in savings of $40,000-$80,000 per annum (16 percent to 30 percent of the cost of the service). iii). Contract School Transportation to Commercial Carriers. Under this option, the MOE would still be responsible for providing transportation but would contract with outside carriers to provide the service. There is no data base to enable savings from this option to be projected, but it is reasonable to believe that it would be no more expensive than current arrangements (and possibly less expensive) and would relieve the MOE of the burden of purchasing and maintaining a fleet of buses. It would have ancillary benefits of providing business opportunities for small entrepreneurs, especially in rural states, and could stimulate development of public transportation. This is the transportation option preferred by the MOE Management team. iv). Abolish School Transportation Services. The MOE management team does not consider this option to be feasible or acceptable because (a) the law requires the Ministry to provide transportation whenever possible and (b) proposed consolidation of schools will increase, not decrease, demand for transportation.

2. Efficiency Measures

132. Due to the large number of small schools and resulting high personnel costs, Palau has a very inefficient education system. Opportunities for increasing efficiency are best considered at the Regional level. Measures to increase efficiency include consolidation of small schools on Babeldaob, expansion of multi-grade teaching in outlying rural schools, and increasing teacher- student ratios in Koror schools.

133. Consolidation. Staff costs for all eighteen public elementary schools totaled $3.6m in SY 2007-08. To accommodate the modest increase in the number of students projected and the re- distribution of students among the regions, staff costs are projected to increase to $3.9m in SY 2015-16. (Estimate excludes cost increases associated with teacher and administrator reclassification). In anticipation of the Compact Road, the OEK approved a consolidation plan in 1999.

134. Because of delays in completing the road and opposition from communities, only the first phase of the plan has been implemented. Three options for consolidation have been considered as part of this working paper: regionalization; the official consolidation plan; and expanded consolidation. Table 19 compares these options. i). Regionalization. This proposal originated in discussion with school principals and recognizes there is significant opposition within communities to consolidation because: (a) parents do not like the idea of busing young children outside of their village; and (b) communities do not want to relinquish their schools - symbols of the community. Regionalization would respond to these concerns by consolidating only upper grades (5-8) while leaving younger children (grades 1-4) in their communities. Support staff (principals, technical officers, and facilities staff) based in consolidated schools would supervise feeder schools. This could be considered a second phase of consolidation preliminary to more comprehensive consolidation at a later time when communities are ready for this step. This option would require 88 staff and result in annual savings of $334,000.

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Table 19. Impact of Alternative School Consolidation Options on Babeldaob Staff Staff Costs Savings from Option Description Schools (Effective (Effective SY 07-08 12-7-07) 12-7-07) Base Base Year 18 Total 294 3,568,930 N/Applicable SY 2007-08 Base Year for Babeldaob 9 Babeldaob 116 1,402,221 N/Applicable (excluding Airai) Consolidate grades 5-8; leave grades 1-4 in 18 Total village; support staff 9 Babeldaob Regionalization (principal, technical, and 6 with 88 1,067,836 334,385 grades 1-4 facilities) responsible for 3 with consolidated school plus grades 1-8 feeder schools. Consolidate Ibobang into Ngaremelengui; Ngardmau into Ngaraard; 14 Total Official plan Ngchesar and Ngiwal 78 971,683 430,538 5 Babledaob into Melekeok; leave Aimeliik and Ngarchelong unchanged. In addition to official plan, consolidate Aimeliik into 12 Total Expanded Ngaremlengui and 62 832,392 569,829 3 Babeldaob Ngarchelong into Ngaraard. ii). Official Consolidation Plan. The official plan already approved by the OEK will result in a total of 14 elementary schools, five on Babeldaob. Required staffing levels for Babeldaob will be reduced by 24% resulting in annual savings of $430,000. iii). Expanded consolidation. Under the official plan, there are five schools on Babeldaob but two of these – Aimeliik and Ngarchelong – will still be small. An expanded option would consolidate these two schools into Ngaremlengui and Ngaraard. This option would result in 62 staff and an annual savings of $570,000.

135. In considering any of the consolidation plans, it is important to recognize that savings can only result if staffing levels are adjusted to reflect actual requirements under the new arrangements. Politically, it may be difficult to reduce staff except through attrition. In the first phase of consolidation affecting Aimeliik, Ngatpang, Ngaraard, and Ngarchelong, MOE administrators report that it took seven years for attrition to result in appropriate staffing levels in the newly consolidated schools.52 The MOE management team reports that the only way under current regulations to hasten this process is to institute a “reduction in force” which will result in staff being terminated on the basis of seniority rather than qualifications. This could mean that some teachers with higher degrees are terminated while others with only high school credentials are retained unless the process is revised to reward credentials and performance instead of seniority.

52 Information about the experience under Phase I consolidation derives from MOE administrators (personal communications, 2008).

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136. Expand Multi-Grade Teaching. Multi-grade teaching is the norm in many remote communities of the Pacific but has never been as widely practiced in Palau as elsewhere in the region. To implement successfully, multi-grade teaching requires experienced well-trained teachers who are given specialized support to adapt teaching methods to this more complex classroom environment. In Palau, multi-grade teaching is practiced on a limited basis mainly in the outlying islands. If school consolidation does not proceed, there is considerable scope for expanding multi-grade teaching as an alternative efficiency strategy. With consolidation, there is less scope for expanding multi-grade although review of student numbers in the outlying schools suggests additional savings of up to $100,000 per year may be possible with this strategy. Because multi-grade teaching can impact educational output especially when teachers are not well-trained, the MOE management team recommends this option be used only selectively.

137. Increase Teacher-Student Ratios. The official MOE policy is to maintain effective teacher-student ratios in the range of 1:20 to 1:25. Only in Koror do schools begin to approach this ratio. In SY 2007-08, there were 1,351 students in Koror‟s public elementary schools and 79 teachers yielding a teacher-student ratio of 1:17. The teacher numbers included, however, special education teachers. If these teachers are removed from the total, the MOE management team reports that teacher-student ratios will rise to within the target range. Even if it were considered appropriate to increase the teacher-student ratio, classrooms have been constructed to accommodate no more than 25 students.

138. At Palau High School, there were 851 students at the beginning of the school year and 808 students by mid-year. There were a total of 67 teachers employed yielding a teacher-student ratio of 1:13. Again, this appears to be a low ratio but actually reflects: (a) block scheduling which benefits student learning but is less efficient in utilization of teachers than traditional scheduling; (b) a large number of elective and specialized courses; and (c) the vocational- technical program that requires more staffing than traditional academic subjects. The MOE management team does not believe it is feasible to significantly increase the average teacher- student ratio at PHS.

139. Reduction-in-force within the Ministry of Education. As of December 2007, the Ministry employed 115 staff at Headquarters at a total cost of $1.6m. Forty-one (36 percent) of these staff were employed under the U.S. Federal Special Education grant and actually provide services to children with special needs Palau-wide. An additional nine staff were bus drivers for Koror schools but assigned to headquarters for efficiency purposes. Twelve staff were curriculum specialists and 13 staff were technical specialists – all involved in direct school support functions. The number of actual administrative staff and supervisors, including support personnel and the Minister‟s direct staff, was only forty persons. The Management Team reports that Headquarters has been operating under a “reduction in force” for some time and that low staff levels are beginning to impede efficiency. While the management team believes there may be modest savings still to be realized in some support personnel categories, they do not believe these are significant in the context of the cost of the overall public school system.

3. Other Cost-Savings and Efficiency Options

140. Private Schools. There are two mutually incompatible options that might be considered over the long-term with respect to private schools. i) Reduce or eliminate government aid to private schools. In FY 2007, the OEK allocated $607,619 in government aid to private schools. This money could be re-directed toward the public school system. This action would require private schools to raise tuition and is likely to result in an unknown but significant number of students transferring to public schools. Right now, the public system cannot absorb a significant inflow of new students either in Koror

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elementary schools or in PHS. It is therefore, not in the best interest of the country to reduce government aid to private schools at this time. The strategy can be re-examined after the new Babeldaob high school has opened since the public system presumably would be able to absorb new students at that time.

ii) Expand “charter” schools. Existing private schools operate in a manner similar to “charter” schools in the United States. Charter schools are owned and operated by private entities under a government charter. They receive partial public funding on a per capita basis contingent upon meeting specified performance criteria. Since most of Palau‟s private schools do a good job in educating students at about half the cost of public schools, it is reasonable to at least consider offering incentives to private entities that would expand the network of charter schools or alternatively, to consider the option of contracting with a private entity (or entities) to operate public schools under contract to the Ministry. Although both measures are somewhat “radical” and require careful study, it may be useful to examine the feasibility of both options – chartering and contracting - over the MTDS period.

141. Expand cost-sharing between locally and U.S. Federally funded services. With traditional U.S. Federal programs, there are only limited opportunities for sharing costs and services between local and federal programs. This is because the two largest U.S. Federal programs – Head Start and Special Education – have rigid guidelines that sometimes result in duplication of services.53 A more flexible approach could result in savings in the range of 5 percent-10 percent of Federal grant values ($178,000-$350,000) – monies that could be used to improve other elements of the system. This is, however, outside the control of MOE.

142. Efficiency in post-secondary student financial aid. Several strategies have been identified in this paper to increase efficiency in the PNSB program. The most important efficiency measure is to increase graduation rates, a measure that will not directly result in financial savings but will reduce costs per graduate. A strategy that could save money and increase graduation rates is to restrict first and second year study awards to PCC (except where PCC credits will not be accepted in the student‟s intended course of study at the bachelor degree level). Over the period 1994 to 2007, approximately 70 students (40 percent of the total) receiving financial assistance earned a certificate or associate degree at outside institutions. Only 13 of the 78 students were enrolled in programs not available at PCC. Further research is needed to estimate savings that would result from this option, therefore no potential savings estimates are presented in this paper.

Q. Increase Revenues

143. Palau‟s constitutional requirement for free public education to be provided to citizens seriously constrains options for meeting fiscal targets through increased revenues. The NMPD (“Palau 2020) recommended fees be instituted for high school education but this was soundly rejected by the community as evidenced by the proposed constitutional amendment that will clearly disallow such a measure. The possibility of charges for ancillary services (meals and transportation) has already been discussed. Fees to cover the cost of instructional materials might be considered but there is a good chance that this would be ruled unconstitutional. Sport and extracurricular fees are possible and may be constitutional but are unlikely to be efficient strategies for achieving adjustment targets. It has been suggested in various forums, that

53 As just two examples of externally imposed inefficiency, Special Education, Head Start, and the Ministry all operate independent student transportation services. While a small number of Special Education students require specialized transportation, most could use the regular school bus. Head Start and the schools operate independent food services with their own cooks and administrative operations to procure food even though in most cases, the Head Start centers are located either within or adjacent to public elementary schools.

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charges be instituted for non-citizens attending public schools.54 This, however, may be considered “discrimination” and contrary to the International Convention on the Rights of the Child, to which Palau is a party. This could also jeopardize Federal grants which require that educational services be offered equitably to all persons without regard to race or citizenship. Because there is a good chance that this option would ultimately cost Palau far more than the revenues derived, it is not recommended in this paper.

144. There is a modest opportunity for deriving revenues from services delivered by MOE to non-students. These services include space rental, use of specialized facilities (e.g. PHS gym), use of equipment, and services provided by MOE staff (e.g. video filming, printing, etc). At present the law does not allow MOE to charge for these services. Although the revenues derived are not large, it is recommended that the law be amended and a system of charges be instituted for services to non-students.

145. The most significant opportunity for increasing revenues is at PCC. With charges of $70 per credit hour, charges are far below cost and below fees charged by comparable institutions in the north Pacific Region. Every $10 per credit hour incremental increase in charges would yield approximately $150,000 in new revenues. Instituting an incremental increase every other year during the MTDS would raise $1.3m in new revenue over the five-year period; an incremental increase every year would raise $3.1m.55

R. Potential for Education to become a Revenue Generating Industry

146. In his keynote address to the 2007 National Economic Symposium, Dr. Wali Osman, Economist at the U.S. Department of the Interior challenged Palau to think about capitalizing on its proximity to Asia, its English language heritage, and its relatively well developed education infrastructure by creating an educational industry that responds to the virtually unlimited demand in Asia for English language instruction delivered in a pleasant and safe environment.

147. In a small way Palau Mission Academy (SDA high school) is testing this recommendation. PMA has recruited 23 students from China who want to pursue their high school studies in English. These students pay a higher tuition rate than local students and by so doing, provide a modest subsidy for Palauan students. PMA is also developing a summer language institute that will recruit students from China to make use of campus facilities during the summer months when they are otherwise vacant.56 While Dr. Osman undoubtedly had a much larger initiative in mind when he spoke at the symposium – an initiative that would have the explicit endorsement of government – PMA is demonstrating that at least on a small scale, the concept is viable.

148. In discussing this option with stakeholders, it became apparent that people have very different “visions” of the type of development Dr. Osman had in mind. Some imagine developing PCC into a four-year institution with a strong academic reputation that attracts Asian students into the regular studies programs. Others envisage a stand-alone institution. While others envisage institutions that are foreign financed and controlled with Palau deriving benefits primarily in the form of taxes and fees. Further discussion obviously requires that options are clearly articulated and their feasibility assessed. To do this, it is suggested that a multi-sector

54 In May 2008, Senate Santy Asanuma introduced a bill into the Senate requiring non-citizen children attending public schools to pay a tuition fee. At this writing, the MOE has not taken an official position on this proposal. 55 In May 2008, the PCC Board of Trustees acted to introduce tuition increases at PCC of $10 per credit hour per academic year until charges reach $150 at which time rates will be reassessed. 56 While these strategies have a revenue generating benefit for the school, the primary purpose from the school‟s perspective is to strengthen Christian evangelism in Asian countries. Students are not required to be Christian to attend the PMA program, but they are required to take Bible classes and through the program, are exposed to evangelical activities.

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task force be established to prepare an initial feasibility assessment which can form the basis of a more rigorous study should results warrant.

S. Consolidation of Financing Options

149. Table 20 summarizes the information and options presented in this Section of the working paper. As noted, the education sector, and especially the public schools sub-sector, embarked on a period of adjustment over a decade ago. From FY 96 until the present, expenditures have declined in relation to GDP and in relation to total current account government expenditures. As a result, the sector is not well-positioned to make further adjustments. The relatively conservative and progressive adjustments set out in this paper will enable the sector to generate new revenues internally that can fund critical “gaps” in service and emerging needs while responding to possible macro-economic adjustments. The ability to withstand macro-economic adjustments, over the MTDS is dependent on deferred action on Babeldaob High School until after the current MTDS period. This will mean that the goal of 100% high school participation will also have to be deferred, unless the private sector is able to expand to meet increased demand.

150. This table does not calculate the cost-revenue implications of more “radical” adjustments strategies that might include:

Shift in resources away from post-secondary education to basic education where economic returns on investment are generally considered to be higher by:

Enhancing efficiency by channeling more students to PCC;

Enhancing efficiency by channeling more students to lower-cost Asian institutions;

Shifting more of the financial burden to individuals and families;

Develop an outward looking education industry as a revenue-generator for the sector as recommended during the National Economic Symposium in 2007;

Explore the feasibility and acceptability of a fundamental change in the relationship between the public and private education sectors with the possibility of an expanded role for “charter” schools in providing basic education services;

Expand cost-sharing between local and U.S. Federally funded programs should the system of grant pooling now used in the FMS and the RMI be applied at some future time to Palau.57

151. It must be recognized that potential revenues and savings identified in this paper will require broad-based political commitment and some adjustment in standard procedures within the government administration, especially in the civil service. Without strong political commitment, none of the strategies outlined herein can be implemented.

57 In the FSM and RMI, U.S. Federal grants to public schools (excluding Special Education) and Head Start were “pooled” into a “superblock.” Grants to the community colleges were unaffected. The “superblock” was accompanied by a 10% reduction in funding.

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Table 20. Consolidation of Costs, Savings, and New Revenues Across MTDS (Thousands of U.S. Dollars; No Adjustments for Inflation) Base Yr FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2007

1. Base Year Public Expenditures – Education Sector OEK 9,054 Grants 6,114 Compact 221 2,000 Total 17,168

2. Adjustments to Base Year Less one-time grants 1,715 Less discretionary U.S. Federal Grants (15%) 768 Adjusted Base 14,684 14,684 14,684 14,684 14,684 14,684 14,684

3. Add New Recurrent Spending Public Schools 1,000 1,000 1,000 1,000 1,000 1,000 Unfunded Master Plan 200 200 200 200 200 200 Voc-Tech Recurrent (50% Recommendation) 220 220 220 220 220 220 Babeldaob Assumes Babeldaob High will not be operational during MTDS High School Subtotal 1,420 1,420 1,420 1,420 1,420 1,420

4. Less Savings and New Revenues Lunch Fees -174 -261 -348 -435 -522 -522 Cooks‟ Conditions of Service -60 -60 -60 -60 -60 -60 Transportation Contract 0 -60 -60 -60 -60 -60 Consolidation “Regionalization” 0 -67 -134 -200 -267 -334 PCC Tuition Hike -150 -300 -450 -600 -750 -900 Subtotal -384 -748 -1,052 -1,355 -1,659 -1,876

5. Balance (Line 2 + Line 3 – Line 4) Balance 15,976 15,612 15,052 14,749 14,445 14,228

See page following for interpretative notes on the table.

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(1) Overall: This table makes no adjustments for inflation.

(2) Section 1. Shows public spending for the education sector in FY 2007, designated as the base year.

(3) Section 2. Shows adjustments to base year spending: (i) Deduction for one-time special purpose grants made in the base year (ii) Deduction for 15% of the value of U.S. Federal Grants. This deduction recognizes that while most grants support essential “core” education activities and inputs, some grants do support important albeit discretionary programs.

(4) Section 3. Shows additional new spending needed by the various sub-sectors as discussed in the working paper. This new spending includes: urgent requirements for public schools including reclassification of teachers and administrators; an allowance for unfunded portions of the master plan for education; and 50% of recommended new recurrent spending for Voc-Tech. Since funding has not been identified yet for the new Babeldaob High School, it is assumed it will not become operational during the MTDS period. The Forum Secretary Voc-Tech report is new and has not been formally reviewed and accepted by the Ministry of Education, PCC, or counterparts in the FSM and the RMI. It is generally recognized, that additional spending is needed for Voc-Tech so even if the current report is not accepted, some provisions for further spending are made in the table.

(5) Section 4. Adjusts for cost-savings and new revenues identified in Section 6 of the working paper.

(6) Section 5. Shows the cumulative effect of new spending and savings/revenues on adjusted base year funding. By the last year of the MTDS period, savings/revenues will exceed new spending by 11%, just under the 12.5% macro-adjustment target.

T. Framework for Planning

152. The MTDS vision for education is “Palau‟s students will be successful in the Palauan society and the world.”

153. The MTDS goal for the sector is:

To provide Palau students with access to quality educational opportunities from pre-primary through to post-secondary at a cost affordable to families and to government.

154. In support of this vision and goal, 13 strategies and 27 actions have been identified for implementation over the five-year MTDS period. Each strategy and action has been assessed according to the “SID” criteria. “SID” is an acronym that stands for:

S = Support (by parents, educators, and policy makers) I = Impact (in addressing financial sustainability) D = Do ability (or ease of implementation).

155. Each criterion is rated on a 1-10 scale with “10” the most favorable rating. Weights are assigned with support and do-ability weighted at 25 percent each and impact weighted at 50 percent. The rationale for weighting is that if a recommended action will have a high impact on financial sustainability, it may be worth developing strategies to increase support or do-ability if required to move forward with implementation. Table 21 on the pages following contains the same strategies and recommendations as shown in Table 1 along with their ranking according to the three “SID” criteria.

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156. Based on the strategies and action steps (see Tables 1 and 21), key performance indicators are identified to monitor progress in implementation.

Strategy 1 – Cooperative planning for sustainable financing - Indicator – Permanent sector-wide educators‟ forum established - Indicator – Sector-wide sustainable financing plan developed and endorsed by educator‟s forum and the OEK

Strategy 2 – Expanding high school capacity - Indicator – Strategy for achieving universal high school participation developed and endorsed by secondary education providers

Strategy 3 – Achieving universal participation in pre-primary education - Indicator – Proportion of children 3-5 years of age who participate in pre-primary education programs

Strategy 4 – Minimizing expenditures for non-instructional purposes in public schools - Indicator – Proportion of school lunch program costs recovered in user fees - Indicator – Cost of school transportation

Strategy 5 – Enhancing efficiency in public schools - Indicator – Number of schools consolidated on Babeldaob - Indicator – Teacher-to-student ratio in rural schools

Strategy 6 – Increasing revenues for public schools - Indicator – Revenues collected from ancillary services provided to non-students

Strategy 7 – Reducing dependency on government grants in private schools - Indicator – Number of private schools that earmark a portion of the government grant to private schools for developmental purposes as opposed to operations

Strategy 8 – Strengthening vocational-technical education - Indicator – Number of Palauan students enrolled in and completing vocational- technical training programs at home or abroad

Strategy 9 – Enhancing financial sustainability at Palau Community College - Indicator – Proportion of instructional costs recovered through student fees - Indicator – Proportion of $10m target for PCC Trust Fund received

Strategy 10– Aligning post-secondary student assistance with national priorities - Indicator – Student assistance priorities aligned with MTDS

Strategy 11- Diversifying funding for post-secondary student assistance - Indicator – Legal status of PNSB changed to non-profit corporation - Indicator – Funding for scholarships and loans provided by donors other than the Palau Government

Strategy 12- Enhancing efficiency in post-secondary student assistance - Indicator – Graduation rates for students receiving post-secondary financial aid - Indicator – Percentage of first and second year students attending PCC - Indicator – Percentage of post-secondary students attending Asian institutions

Strategy 13- Assessing the feasibility of education products that target the Asian market - Indicator – Formal report on feasibility of Asian-oriented education industry.

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Table 21. Strategic Plan for Sustainable Financing – EDUCATION Actions Rated According to “SID” See Annex 6 for updated Action Plan as at December 2009 Vision. Palau‟s students will be successful in the Palauan society and the world. Goal. To provide Palau students with access to quality educational opportunities from pre-school through to post-secondary at a cost affordable to families and to government. Strategy Action Action Support Impact Do-ability Weighted Comments Number weight weight weight Average 25% 50% 25% Target: Sector-wide 1. Develop 1.1. Facilitate cooperative planning by all 7 9 9 8.5 sector-wide plan education providers leading toward for sustainable sector-wide sustainable financing Substantial education implementation plan based on the benefits over financing. working paper and this matrix. long-term but - strong 1.2. Create permanent sector-wide 4 6 5 5.2 resistance on organization (e.g. Palau Educator‟s part of many Association) to: service - Facilitate sector-wide providers. coordination and planning - Advocate for children and education. 2. Develop a 2.1. Providers of secondary education to 6 8 8 7.5 Scope of coordinated come together to: benefits from public-private - Examine need for expansion collaboration to strategy for - Examine need for alternative be determined; expanding high educational experiences for pressures for school capacity students who experience MOE to work while reducing difficulty in traditional alone drop-outs settings considering only - Examine plans of each “public school service provider to expand solution” to - Develop coordinated constraints in strategy for meeting secondary sub- expansion needs over sector. medium-term.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number weight weight weight Average 25% 50% 25% Target: Pre-primary Subsector 3. Achieve and 3.1. Increase public awareness of 9 9 9 9.0 sustain universal benefits of early childhood education participation in - Intensify information and quality pre- education primary 3.2. Facilitate research to generate 8 7 7 7.3 education Palau-specific data on educational programs and economic impacts of different forms of early childhood education.58 3.3.A. Option 1 – If status quo continues 6 6 6 6.0 with Head Start the main service provider but with “cap” on enrollment - Develop training, support, and incentives for NGOs and CBOs to expand private services reaching out to children not served by existing providers. 3.3.B. Option 2 – If there are alterations in 8 8 8 8.0 status quo due to COFA-induced changes in Head Start funding or administration: - Expand government and private services by:  Creating network of public kindergartens affiliated with elementary schools  Providing training, support, and incentives for NGOs and CBOs to expand private services.

58 Research can be conducted by designated provider groups. Alternately, provider groups can facilitate research conducted by others (professional researchers, graduate students, etc).

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) Target: Elementary and High School Subsector – Public Schools 4. Minimize 4.1. Fully recover cost of school lunch 8 10 8 9.0 Expect some expenditures for program: opposition to non-instructional - Change cooks from full-time to changing status purposes. part-time employment status of cooks. (working only when students are present) - Develop income guidelines to identify students qualifying for free/reduced-cost lunches - Institute progressive increase in lunch fees (add $0.25 per year) until full cost recovery is achieved (estimate 4-5 years). 4.2. Reduce costs associated with school 6 7 7 6.8 Expect opposition transportation to changing - Change bus drivers from full- status of drivers; time to part-time status (short- privatization will term measure) require new roles, - Privatize school bus services policies, through contractual procedures for arrangements (medium-term Ministry. measure). 5. Enhance 5.1. (All options) Implement public 9 10 10 10 No impediments efficiency in consultation and education program to to discussing public school gain support of Babeldaob parents and consolidation with operations. communities for consolidation. communities. 5.2. (All options) Work with Public Service 3 10 5 7 Expect lot of System to plan for reduction-in-force to opposition but bring staff levels in line with key to receiving requirements as consolidation benefits of progresses. consolidation.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) 5. Efficiency 5.3. Choose from among three options for continued… consolidation of schools on Babeldaob and proceed to implementation. 5.3.A. Option 1 – Regionalize schools (grades 8 8 10 8.5 Less savings 1-4 remain in villages; grades 5-8 from this options consolidate into 3 regional schools). but more support. 5.3.B. Option 2 – Implement official 1999 7 9 9 8.5 More savings but consolidation plan resulting in 5 schools less support. in rural Babeldaob plus Airai. 5.3.C. Option 3 – Implement expanded 6 10 8 8.5 Most savings but consolidation resulting in 3 schools in least support. rural Babeldaob (in addition to Airai). 5.4. Gradually expand use of multi-grade 7 7 7 7.0 Low level of basic teaching to enhance efficiency in small teacher training in schools: many small - Target small schools to train in schools will be an multi-grade techniques impediment - Gradually increase use of multi- grade teaching as existing staff resign, retire, or are redeployed. 6. Increase 6.1. Institute charges for ancillary services 9 5 10 7.3 revenues (where provided to non-students (e.g. use of constitutional) MOE facilities and equipment, services by MOE personnel, etc). - Work with OEK to gain authorization for charges - Identify opportunities for revenue generation - Develop system of charges and procedures for collection.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) Target: Elementary and High School Subsector - Private Schools 7. Reduce 7.1. Take actions to enable schools to meet 8 10 6 8.5 dependency on recurrent costs from revenues while government aid gradually earmarking government aid to to education program development. grant - Critically assess operations and implement efficiency measures - Identify new revenue- generating services to be offered - Diversify funding sources beyond government aid and tuition. Target: Post-Secondary Subsector - Vocational-Technical 8. Strengthen 8.1. Develop human resource strategy for 6 8 5 6.8 voc-tech by increasing Palauan participation in progressively vocational and technical fields expanding - Identify priority fields to training capacity target for increased by focusing on a Palauan participation59 small number of - Develop holistic strategy for priority fields. action (training, support, policy). 8.2. Strengthen vocational-technical training 8 8 6 7.5 Actual impact is - Review 2007-08 Voc-Tech still to be study recommendations determined. (study by Forum Secretariat) - Accept or modify recommendations.

59 In determining priorities for vocational-technical training, consideration should be given to: projected workers to be needed over long-term; salary prospects; career development prospects; and fields where Palauans have a natural competitive edge over “guest” workers.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) 8. Voc-Tech 8.3. Assess feasibility of developing a 6 7 6 6.5 May not be seen continued… civilian apprenticeship training program as a priority but focusing on fields not currently included success of CAT in military (“CAT”) apprenticeship program suggests program: worthwhile to - Assess current apprenticeship strive for program with CAT team to replication. distill elements that make this program so successful - Identify opportunities for civilian apprenticeship program in one or more of priority fields (see 6.1) - Implement pilot project; monitor, assess, and expand as appropriate. Target: Post-Secondary Subsector - Palau Community College 9. Enhance 9.1. Progressively increase charges per 9 9 10 9.5 financial credit hour until charges are in line with sustainability by the average of community colleges reducing across the U.S. affiliated jurisdictions of reliance on the Western Pacific. government 9.2. Fully capitalize PCC Trust Fund: 10 10 8 9.5 Strong support & revenues - Aggressively seek new private high impact but (Federal and and bilateral donors implementation OEK) - Seek designation as a challenging. “501(C)3” non-profit (under U.S. tax laws)  Option 1 – direct designation through COFA  Option 2 – affiliate with U.S. based non-profit partner.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) Target: Post-Secondary Subsector - Palau National Scholarship Board 10. Align 10.1. Update list of priority fields of study 9 8 9 8.5 Impact dependent scholarship - Create public-private on political & awards with partnership task force to carry- administrative national out HRD study (PNSB, PCC, “will” to prioritize development MOE, OEK, Chamber of awards based on priorities. Commerce, and other interest HRD priorities. groups) - Seek OEK endorsement of outputs of the study - Set aside a portion of scholarship funds for students studying in priority fields. 11. Diversify 11.1. Amend law to designate PNSB a non- 8 8 10 8.5 funding sources. profit corporation. (This will facilitate private funding). 11.2. Attract new non-ROP funding for 8 9 8 8.5 scholarships and loans: - Develop a marketing plan - Develop multi-year plan that sets targets for non-ROP scholarship and loan funds - Aggressively implement marketing plan to increase funding for scholarships and loans from non-traditional sources (bilateral, multi-lateral, and private). 11.3. Institute new requirements for a portion 6 9 10 8.5 of student loans to be repaid in cash; this money to be designated for new awards.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) 12. Enhance 12.1. Increase graduation rates: 10 10 7 9.3 Do ability may be efficiency in - Conduct desk review of student challenging operations. records to identify correlates of success - Survey students and former students to further identify correlates of success - Integrate information derived from research into policies and procedures designed to improve success rates. 12.2. Increase proportion of first and second 5 8 10 7.8 Expect strong year students who attend PCC opposition from - Develop communications students, parents, strategy to gain support for and politicians. policy revision from students, parents, and policy makers - Implement changes in policies and procedures to limit 1st & 2nd year awards to PCC except where PCC does not offer necessary coursework for student‟s intended field of study. 12.3. Assess feasibility of channeling more 5 8 7 7.0 Impact is still to students to lower-cost Asian schools. be determined - Form a committee (PNSB, during process of PCC, MOE, Ministry of State, feasibility diplomatic community) to assessment. identify affordable “schools of excellence” with programs relevant to Palau. - Identify strategies and incentives to encourage student acceptance of option.

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Strategy Action Action Support Impact Do-ability Weighted Comments Number (weight (weight (weight Average 25%) 50%) 25%) Target: Post-Secondary Sub-Sector (General) 13. Assess 13.1. Create task force to further develop 7 8 5 7.0 Strategy & action proposal for concept, identify pitfalls, and undertake are for Palau to develop preliminary feasibility assessment; assessment; valid educational information to be used in determining if SID rating of products full feasibility assessment warranted. options not targeting Asian possible until market for assessment instruction in complete. English

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ANNEX 1 – NMDP ON EDUCATION

157. Chapter 14 of the NMDP of 1996 addressed education and human resource development. The proposed outputs and action steps for the sector are shown in the table following together with a brief statement of implementation status by end-2007.

Outputs Action Steps What has Happened? 14.4.2.1. Education services  Operational plan to  Consolidation plan approved by OEK in rationalized and self-funding rationalize services taking into 1999 but delay in road completion mechanisms established. account Compact Road (e.g. prevented early implementation. consolidate).

 MOE appropriations to be  Performance based budgeting based on performance criteria instituted in all ministries.  New programs to be funded  MOE funding has declined in real terms from savings within Ministry or and as proportion of GDP. Federal new charges. programs have enabled new programs to move forward (e.g. School to Work and Career Academies, Gear-Up and others).  Reduced funding to PCC  OEK funding for PCC has been stable with self-sufficiency achieved by in real dollars. Self-sufficiency mechanism 2020 of choice is trust fund that has been slow to capitalize.  Secondary school fees to be  This recommendation rejected by instituted community.  Full cost boarding  Boarding is the responsibility of the established. extended family; boarding facilities have been considered by no action taken. 14.4.2.2. Governance  Decision made about board  No decision yet made. strengthened & streamlined of education. 14.4.2.3. Personnel & certification  Staff transferred to  Proposal submitted to OEK but system established. performance-based contracts. pending.  Personnel certification &  System established but not yet testing system established. operational as awaiting special-purpose appropriation. 14.4.2.4. Partnership planning  Belau Family, School, Community groups established. Association established; only moderately active.  Belau Educators & Employers Association established to guide school-to- work program; remains active. 14.4.2.5. Standards, instruction &  Revised graduation  Achieved curricula improved. standards.  Revised student  Achieved assessment benchmarks.  Compulsory school  Achieved attendance extended until age 17.  Operational career plan for  Achieved each student. 14.4.2.6. Formal kindergarten and  Mandatory kindergarten for  Head Start already provides these preschool education 5 year old children. services although participation is voluntary, implemented.  Optional preschool system not mandatory. for children aged 3-5 years. Outputs Action Steps What has Happened? 14.4.2.7. Education facilities  Implement recommended  Program is still in progress with upgraded. program of construction and completion of most projects in 2008. upgrading.

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14.4.3.1. PCC budget  Funding for PCC stepped  Goal of self-sufficiency by 2020 appropriations reduced. down to achieve self- remains but Trust Funds needs sufficiency by 2020. additional capital if this is to be achieved.  PCC administration to  Partially implemented. take actions to lower costs and/or increase revenues. 14.4.3.2. PCC performance  Increase skill levels of  Ongoing targets improved. students to higher international standards and align programs with needs of Palauan economy.  Address low graduation  Graduation rates have increased; and high drop-out rates. more improvement still needed.  Upgrade educational  Implemented. counseling system. 14.4.3.3. Education advisory  Palau training council established committee established. as part of PCC; moderately active.

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ANNEX 2 - RECOMMENDATIONS FOR EDUCATION

National Economic Symposium 2007

158. The National Leadership has considered the state of education in two recent meetings:

i) The State and National Leadership Conference of 2006; ii) The National Economic Symposium of 2007.

159. Recommendations made in these forums are summarized in the table following.

Issue Recommendations for COFA Recommendations for Domestic Action Review  Federal  Negotiate continued eligibility for  Government to give priority to education in the programs for existing Federal programs for national budgetary process. education education (including K-12, Head Start and other pre-elementary, and post-secondary).  Negotiate expanded access to programs for which Palau is not currently eligible. Expanded access to Federal funds for education will facilitate implementation of the Master Plan for Education.  Quality of  See recommendation above  Increase the educational level of teachers; Education regarding Federal programs for reduce the proportion of teachers who do not (General K-12) education. have a post-secondary degree.  Conduct comprehensive student assessments annually in order to monitor quality of teaching and learning.  Address issues in remuneration of the teaching workforce to attract and retain qualified teachers; remunerate teachers at levels commensurate with similarly qualified professionals in other sectors.  Implement recommendations for education made in the 2006 National Leadership Conference: - Executive branch to (a) designate Education as a national priority; (b) increase government spending in education; (c) institute incentives for teachers; (d) invest in expanding and upgrading educational institutions. - OEK to (a) repeal mandatory retirement for teachers; (b) appropriate full scholarships for education fields and others of utmost importance to the nation; (c) make Palau National Scholarship Fund flexible to support student applications to schools that do not follow U.S. enrollment cycle. - The MOE and PCC to (a) hire more skilled teachers and provide additional training to all

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teachers; (b) reduce class sizes and the number of classes taught by each teacher; (c) refine evaluation systems for both students and teachers; (d) improve courses in math, science, and vocational fields; (e) align vocational and other training programs with national priorities and labor needs; (f) expand PCC into a four-year college; (g) implement programs that guide students into the teaching fields; (h) assist parents to maximize their children‟s educational potential.  Quality of  See recommendation above  Develop partnership arrangements in which Education – regarding Federal programs for resources from outside the Ministry of Math, Science, education. Education are used to enhance teaching in Technology these and other specialized subjects; resources include those in the Ministry of Health, PICRC, EQPB (science), CIP (math and engineering), private sector (technology, math, engineering).  Create incentives for individuals that will encourage qualified government and private sector personnel to teach part-time in these and other specialized fields.  Provide tax incentives for companies that allow their staff to teach part-time.  Remove legal, policy, and regulatory barriers to delivery of classroom instruction by non-MOE personnel.  Multiple  None  Design and test alternative models of education Educational with multiple tracks that recognize students Tracks to have many types of aptitudes and “one style of Recognize education does not fit all”. (For more information, Dr. Tellei recommended that Multiple reference be made to the Singapore model). Student Aptitudes  “Brain Drain”  See recommendation under  Through the Scholarship Board require that Taxation to negotiate for return to Palauans who receive government grants for the Palau treasury of all income education either return to Palau to work for a taxes paid by Palauans living and specified period of time or repay their grant working in the United States. monies.  Build a sense of commitment among young Palauans to “give back” to their country by working domestically.  Educational  None  Concern was raised that Palauan boys appear Success of to be disadvantaged at every level of education Boys pre-school through college; no recommendations were made to address this issue.

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ANNEX 3 – EDUCATION MASTER PLAN 2006-2016

160. The first truly Palauan Master Plan for Education was finalized in 1996 encompassing the ten- year period, 1996-2006. The successor plan was released in 2006 encompassing the period 2006- 2016. This plan identified a number of new funding requirements – both project funding and recurrent funding – as summarized in the table following.

New Spending for Public Elementary & High Schools Proposed by MOE in Education Master Plan 2006-2016 Project Scope Timeline Estimated Cost Fund Source GOVERNANCE & POLICY Designate Across-the-board 2007 and $3.7 million education as a OEK funding increase ongoing ($370,000/year) national priority MOE policy Revise policies & create $20,000 2007-08 OEK manual manual (one time cost) Annual Strengthen planning & 2006 and $50,000 operations OEK monitoring capacity ongoing ($5,000/ year) plans SUBTOTAL $3,770,000 CURRICULUM & INSTRUCTION Curriculum Revise frameworks & $200,000 frameworks strengthen student 2006-2011 OEK, Federal ($30,000/yr) assessment Literacy, Improve curriculum numeracy, life teaching materials, $100,000 OEK, Federal, 2007-2010 skills, Palauan student assessment ($25,000/ year ) Other studies Technology Student technology education skills; integrate $200,000 OEK, Federal , 2007-2010 technology into ($25,000/ year ) Other instruction Career Strengthen career $300,000 OEK, Federal , academies academies at PHS; add 2006-2016 ($30,000/year) Other health & education Student Strengthen assessment $200,000 OEK, Federal, assessment & use of results in 2006-2010 ($50,000/ year) Other teaching Extracurricular Progressive expansion $200,000 OEK, Federal , 2007-2011 programs ($50,000/ year) Other SUBTOTAL $1,200,000 OPERATIONS & MAINTENANCE Resolve land Delineate school issues boundaries; all schools 2006-2011 $1,000,000 OEK on public lands School Community $300,000 consolidation consultations; finalize 2006-2010 OEK ($60,000/year) plan & implement Instructional Evaluate classroom $30,000 2006 OEK, Federal delivery instruction (one time cost) Monitoring Strengthen monitoring 2006 & $30,000 OEK, Federal system ongoing (one-time cost) Student tracking Develop & implement 2007 & $150,000 OEK, Federal, ongoing (one-time cost) Other

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School Develop and implement $5,000 2006-2009 OEK, Federal handbook (one-time cost)

Project Scope Timeline Estimated Cost Fund Source Accredit public Schools conduct self- $100,000 schools study & host 2006-2016 OEK ($10,000/year) accreditation teams Partnerships School, community, $50,000 business, NGO 2006-2016 OEK, Federal ( $4,000/year) partnerships SUBTOTAL $1,665,000 PERSONNEL Retirement Extend mandatory teacher retirement for 2006-2007 $0 additional 5 years Teacher Testing & certification $300,000 2006-2007 OEK certification system in place (start-up costs) Administrator Testing & certification 2006-2008 & $100,000 OEK certification system in place ongoing (start-up costs) Personnel In-service training & 2006-2016 & $1,000,000 evaluation upgrading of salaries & OEK ongoing ($100,000/year) benefits Personnel Develop $10,000 2006-2008 OEK manual (One-time cost) SUBTOTAL $1,410,000 FACILITIES Upgrade $500,000 physical 2006-2016 OEK, Other grants (One-time cost) facilities Counseling & Expand counseling 2006-2009 & $200,000 OEK health services ongoing ($20,000/year) Technology Increase technology $500,000 (One- OEK, Federal , resources & improve 2006-2009 time upgrade Other classroom use costs) Transportation Improve policies & 2007-2008 $200,000 OEK procedures School Lunch Move toward parent $10,000 2006-2007 OEK subsidized lunches (start-up costs) SUBTOTAL $1,410,000 TOTAL $9,455,000 LESS CAPITAL ($ 500,000) TOTAL $8,955,000 OPERATIONS

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ANNEX 4 – CALCULATING THE COST OF EDUCATION PER STUDENT

Calculating Per Student Costs at Public Schools FY 2007 Estimates (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) Supply Cost Per Staff HQs staff Food Equipment Other Total Students Student Region School Assigned to allocated Books Dec-07 School to School Operations, POL Maintenance, Energy Direct Indirect Direct Indirect Direct Indirect Koror KES 640 688,493 361206 36,792 4,378 5,241 0 54,991 71,469 241,046 1,463,616 2,287

GBH 497 535,766 280499 28,649 3,388 4,155 0 42,687 55,500 187,188 1,137,832 2,289 214 274,818 120778 17,188 2,046 1,876 0 18,330 23,898 80,600 539,534 2,521 Subtotal 1351 1,499,077 762483 82,629 9,812 11,272 0 116,008 150,867 508,834 3,140,982 2,325

Airai Airai 179 227,933 101025 15,078 1,790 3,316 774 15,317 19,989 67,418 452,640 2,529

Babel- Aimeliik 72 188,040 40636 10,555 1,247 6,177 1,488 6,277 8,040 27,118 289,578 4,022 daob Ibobang 23 88,175 12981 2,714 320 0 2222 2,009 2568 8,663 119,652 5,202 Ngaremlengui 55 201,073 31041 9,349 1,119 2,373 2,222 4,771 6,142 20,715 278,805 5,069 Ngardmau 28 145,256 15803 4,524 543 0 2977 2,511 3127 10,546 185,287 6,617 Ngaraard 61 148,851 34427 11,761 1,407 3,211 2,977 5,273 6,812 22,975 237,694 3,897 Ngarchelong 54 161,799 30477 10,555 1,279 5,375 2,977 4,520 6,030 20,338 243,350 4,506 Ngiwal 47 161,106 26526 9,349 1,087 0 2,222 4,017 5,248 17,702 227,257 4,835 Melekeok 39 143,805 22011 7,238 831 0 2,222 3,264 4,355 14,689 198,415 5,088 Ngchesar 51 164,116 28784 9,349 1,087 2,722 1,488 4,269 5,695 19,208 236,718 4,642 Subtotal 430 1,402,221 242686 75,394 8,920 19,858 20,795 36,911 48,017 161,954 2,016,756 4,690

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Calculating Per Student Costs at Public Schools FY 2007 Estimates (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) Islands Kayangel 18 94,937 10159 5,730 671 0 1,734 1,507 2,010 6,779 123,527 6,863 Peleliu 95 186,895 53616 11,460 1,343 314 8,932 8,289 10,609 35,780 317,238 3,339

Angaur 28 126,199 15803 8,142 959 0 2,666 2,511 3,127 10,546 169,953 6,070 Pulo Anna 6 11,364 3386 0 670 2,260 17,680 2,947 11 20,204 6208 1,004 1,228 4,143 32,787 2,981 Subtotal 158 439,599 89172 25,332 2,973 314 13,332 13,311 17,644 59,508 661,185 4,185

PHS PHS 808 1,205,229 456022 71,171 8,471 140 0 69,552 180,458 304,320 2,295,363 2,841

Total All Public 2926 4,774,059 1,651,388 269,604 31,966 34,900 34,901 251,099 416,975 1,102,034 8,566,926 2,928 Notes: Schools are classified according to (a) level (elementary or high school) and (b) geographic region.

School locations are as shown.

Student data derived from MOE data base, December 2007.

Direct staff costs are the costs of all staff (including U.S. Federal program staff) assigned to the school; derived from MOE data base for December 2007.

Indirect staff costs are the costs of Headquarters staff prorated to the schools based on (a) main school of assignment or (b) as a proportion of total students enrolled in that school.

Direct operations, maintenance, and energy costs are derived from MOE data base circa FY 2007.

Indirect operations, maintenance, and energy costs are derived from MOE data base circa FY 2007 and allocated to the schools as a proportion of total MOE building square footage represented by the school.

Direct POL charges are derived from MOE data base circa FY 2007.

Indirect POL charges are derived from MOE data base circa FY 2007 and allocated to outlying schools according to percent of outlying students

Medium-Term Sustainable Financing Strategy – Education 80 June 2008 enrolled in that school.

Food costs are derived from MOE data base circa FY 2007.

Supplies, Equipment, Books are derived from the MOE data base circa FY 2007 and prorated to each school based on proportion of total students enrolled in that school; adjustment made for PHS (student numbers given double weighting) to reflect higher costs of secondary school supplies.

Other costs not elsewhere classified are derived from the FY 2007 MOE budget and allocated to schools according to proportion of total students enrolled in that school.

Per student costs are derived from total costs divided by the number of enrolled students.

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ANNEX 5 – REFERENCES

Asian Development Bank (2008). Pacific Studies Series: Republic of Palau 2007: Achieving Sustainable Development (draft). Manila, Philippines: Author.

Belau Modekngei School (2007). Performance Report for FY 2007. Report to the President of the Republic of Palau. Unpublished document.

Compact Review Commission (2007). Final Report: National Economic Symposium – 2007. Koror, Palau: Author.

Hoachlander, G., Sikora, A. C., Horn, L. (2003). Community College Students: Goals, Academic Preparation, and Outcome. National Center for Education Statistics, Education Statistics Quarterly, 5:2.

Japan International Cooperation Agency (2000). Study for Promotion of Economic Development in the Republic of Palau. Tokyo, Japan: Author.

J. Scott Magliari Company (2007). Palau Community College: Report on the Audits of Financial Statements in Accordance with OMB Circular A-133: Years Ended September 30 2007 and 2005. Koror, Palau: Author.

National Center for Education Statistics (2008). Comparative Statistics. Available at http://www.nationmaster.com.

National Center for Education Statistics (2007). The Condition of Education in 2007. U.S. Department of Education: Washington, D.C.

Palau Community Action Agency (2007). Head Start National Reporting System: 2006-2007 Program Report. Koror, Palau: Author.

Palau Community College (2008). PCC in Focus: Graduating Student Exit Survey Report for Academic Year 2006-2007. Koror, Palau: Author.

Palau Community College (2007). Annual Report FY 2006. Koror, Palau: Author.

Palau Community College (2007). Focused Midterm Report Submitted to the Accrediting Commission for Community and Junior Colleges of the Western Association of Schools and Colleges. Koror, Palau: Author.

Palau Community College (2007). Report of the Ten-Year Master Plan for September 20, 2004- December 31, 2006. Koror, Palau: Author.

Palau Community College (2007). Stanford Achievement (SAT) 10 Test Results for Private Schools – Spring 2007. Koror, Palau: Author.

Palau Community College (2006). Annual Report FY 2005. Koror, Palau: Author.

Palau Community College (2005). Annual Report FY 2004. Koror, Palau: Author.

Palau Community College (2004). Annual Report FY 2003. Koror, Palau: Author.

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Palau Community College (2003). Institutional Self-Study. Koror, Palau: Author.

Palau High School Faculty and Staff (2006). Self-Study Report: Focus on Learning. Koror, Palau: Author.

Palau Ministry of Education (2006). Education Master Plan for 2006-2016. Koror, Palau: Author.

Palau Ministry of Education (1996). Palau 2000: Master Plan for Education Improvement. Koror, Palau: Author.

Palau Ministry of Education (2007). Performance Report for FY 2007. Report to the President of the Republic of Palau. Unpublished document.

Palau Ministry of Education (2008). Extracts from budget data for FY 2004, FY 2005, FY 2006, FY 2007, FY 2008. Unpublished data.

Palau Ministry of Education (2008). Unpublished data base schools, students, and personnel as of December 7, 2007.

Palau Ministry of Finance (2008). Extracts from expenditure data for 2007. Unpublished data.

Palau Ministry of Health (2007). Health and Vital Statistics Yearbook and Monograph. Koror, Palau: Author.

Palau National Committee on Population and Children (1997). Sustainable Human Development (in Palau): Progressing with the Past. Suva, Fiji: UNDP.

Palau National Committee on Population and Children (1997). Population and Development: Toward a Palau National Policy for Sustainable Development. Koror, Palau: Author.

Palau National Scholarship Board (2008). Performance Report FY 2007: Report to the President of the Republic of Palau. Unpublished data.

Palau Office of Planning and Statistics (2006). 2005 Census of Population and Housing. Koror, Palau: Author.

Palau Office of Planning and Statistics (2006). 2005 Census of Population and Housing – Volume II Monograph. Koror, Palau: Author.

Palau Office of Planning and Statistics (2001). 2000 Census of Population and Housing. Koror, Palau: Author.

Palau Office of Planning and Statistics (1996). 1995 Census of Population and Housing. Koror, Palau: Author.

Palau Office of Planning and Statistics (1991). 1990 Census of Population and Housing. Koror, Palau: Author.

Palau Resources Institute (1998). Pathways to Change: A Social Impact Assessment of the

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Palau Compact Road. Honolulu, Hawaii: Department of the Army, U.S. Army Engineering District.

Rechebei, E. D. (2006). Report: Stanford Achieve Test (SAT 10) Spring 2006 Results for Palau Private Schools. Koror, Palau: Palau Community College.

SAGRIC International Pty Ltd. (1996). Palau National Master Development Plan. Adelaide, Australia: United Nations Development Program and U.S. Department of Interior.

Stoney, L. and Mitchell, A. (2006). Smarter Reform: Moving Beyond Single Program Solutions to Early Care and Education System. Alliance for Early Childhood Finance: USA. (Available at http://www.earlychildhoodfinance.org.)

U.S. Department of Education, National Center for Education Statistics, Common Core of Data (2008). National Public Education Financial Survey, FY 2005. Author: Washington, D.C.

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ANNEX 6 - MATRIX 22: SUSTAINABLE FINANCING OF EDUCATION ACTION PLAN – UPDATED DECEMBER 2009

Vision. Palau‟s students will be successful in the Palauan society and the world. Goal. To provide Palau students with access to quality educational opportunities from pre-school through to post-secondary at a cost available to families and to government. Strategy Action No. Action Current status Issues 1. Develop 1 Facilitate cooperative planning by all sector-wide education providers leading toward sector- plan for MOE wide sustainable financing implementation sustainable plan based on the working paper and this education matrix. financing. 1.2. Create permanent sector-wide organization School Consolidation Task (e.g. Palau Educator‟s Association) to: Force currently exists to MOE - Facilitate sector-wide coordination and facilitate sector –wide planning planning and coordination on school - Advocate for children and education. consultation; report is due Dec. 09 2. Develop a 2.1. Providers of secondary education to come coordinated together to: School Consolidation Task Elementary and high school public-private - Examine need for expansion Force is currently undertaking enrolment has been on decline strategy for MOE - Examine need for alternative educational study for school consolidation. in the last four years expanding experiences for students who experience high school difficulty in traditional settings Education Awareness Week PRIDE Project that promoted capacity while - Examine plans of each service provider to programs involve kids from educational awareness was a reducing drop- expand different villages, to promote one time aid from NZ and EU; outs - Develop coordinated strategy for meeting friendship and understanding so counsellor shortage; shortage expansion needs over medium-term. as to minimize conflicts among in counsellor training school children, thereby reducing drop out cases 3. Achieve 3.1. Increase public awareness of benefits of Early Childhood Consortium Possibility for termination of and sustain early childhood education has evolved into public law; federal assistance universal PCAA Intensify information and education Head Start education and

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Strategy Action No. Action Current status Issues participation in awareness exist: a) pre- service PCAA is in process of including quality pre- training and b) recruitment services to pregnant women primary programs are conducted and babies so that pre-primary education throughout the school year as care covers maternity to head programs well as transition program to 1st start age; funding issue with grade for teachers and parents federal grant- 3.2. Facilitate research to generate Palau-specific PCAA has run the Head Start there is the possibility for data on educational and economic impacts program for over 30 years and termination or significant of different forms of early childhood attests to its effectiveness, one reduction in federal grant PCAA education. of which is increased rate of kids completing and on to completing college vs. non Head Start kids. 3.3.A. Option 1 – If status quo continues with the Current “cap” on eligibility- Additional costs to be Head Start main service provider but with based on minimum of 7 kids in determined PCAA “cap” on enrolment order for a Head Start Center to - Develop training, support, and incentives be established for NGOs and CBOs to expand private services reaching out to children not served There are currently 509 kids by existing providers. participating in the Head Start program, 10% of whom are from high income households so cap is needed should there be changes in the status quo. 3.3.B. Option 2 – If there are alterations in status quo due to COFA-induced changes in Head No discussion yet on the PCAA Start funding or administration: creation of network - Expand government and private services by: Assists non governmental Creating network of public kindergartens agencies to expand private affiliated with elementary schools services Providing training, support, and incentives for

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Strategy Action No. Action Current status Issues NGOs and CBOs to expand private services. 4. Minimize 4.1. Fully recover cost of school lunch program: $0.25 lunch fee per student was Lunch fee is 1/5 (est.) of full expenditures - Change cooks from full-time to part-time implemented in current school lunch cost; delays in payment for non- MOE employment status (working only when year- ongoing 3 yrs; by parents; lunch fee became instructional students are present) possible by legislation, purposes. -Develop income guidelines to identify otherwise as a public service students qualifying for free/reduced-cost provider, it would not be lunches possible for MOE to institute -Institute progressive increase in lunch fees charges on its own (add $0.25 per year) until full cost recovery is achieved (estimate 4-5 years). 4.2. Reduce costs associated with school Cooks and bus drivers remain At time of study bus drivers transportation full time were operating in Koror and MOE -Change bus drivers from full-time to part- Airai areas and there was time status (short-term measure) likelihood of putting them on -Privatize school bus services through part time but as of school year contractual arrangements (medium-term ‟09, coverage now includes measure). whole of Babeldaob and no possibility for going back to part time; political pressures compel MOE to maintain cooks and bus drivers on full time basis. 5. Enhance 5.1. (All options) Implement public consultation School Consolidation Task efficiency in and education program to gain support of Force is currently undertaking public school MOE Babeldaob parents and communities for public consultation on school operations. consolidation. consolidation 5.2. (All options) Work with Public Service Task Force assessment in System to plan for reduction-in-force to bring progress MOE staff levels in line with requirements as consolidation progresses. 5.3. Choose from among three options for Task Force assessment in

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Strategy Action No. Action Current status Issues MOE consolidation of schools on Babeldaob and progress proceed to implementation. 5.3.A. Option 1 – Regionalize schools (grades 1-4 Task Force assessment in MOE remain in villages; grades 5-8 consolidate progress into 3 regional schools). 5.3.B. Option 2 – Implement official 1999 Task Force assessment in consolidation plan resulting in 5 schools in progress rural Babeldaob plus Airai. 5.3.C. Option 3 – Implement expanded Task Force assessment in consolidation resulting in 3 schools in rural progress Babeldaob (in addition to Airai). 5.4. Gradually expand use of multi-grade teaching to enhance efficiency in small Additional training is needed. MOE schools: MOE is currently undertaking Additional costs for training to - Target small schools to train in multi-grade multi-grade teaching at small be determined techniques schools - Gradually increase use of multi-grade teaching as existing staff resign, retire, or are redeployed. 6. Increase 6.1. Institute charges for ancillary services MOE provides ancillary revenues provided to non-students (e.g. use of MOE services free- legislation is (where MOE facilities and equipment, services by MOE required to enable instituting of constitutional) personnel, etc). charges - Work with OEK to gain authorization for charges Requires legislation as in - Identify opportunities for revenue instituting the lunch fee generation - Develop system of charges and procedures for collection. 7. Reduce 7.1. Take actions to enable schools to meet Subsidized lunch program has dependency recurrent costs from revenues while been instituted; some bus More revenue generating on gradually earmarking government aid to services within the main town of actions can be undertaken

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Strategy Action No. Action Current status Issues government MOE program development. Koror have been discontinued. once legislation is in place aid to - Critically assess operations and implement education efficiency measures - Identify new grant revenue-generating services to be offered - Diversify funding sources beyond government aid and tuition. 8. Strengthen 8.1. Develop human resource strategy for Palau Training Council, PCC, voc-tech by increasing Palauan participation in vocational MOE, Chamber of Commerce progressively PCC and technical fields expanding - Identify priority fields to target for increased Automotive courses, agriculture, training Palauan participation business information and capacity by - Develop holistic strategy for action (training, tourism are in place and being focusing on a support, policy). articulated with PCC so that a small number student does not repeat same of priority courses when entering PCC fields. Vocational and technical There is lack of interest in training available at PCC students enrolling in vocational training 8.2 Strengthen vocational-technical training Palau Training Council, PCC & - Review 2007-08 Voc-Tech study MOE The challenge is lack of MOE. recommendations (study by Forum interest and incentive for Secretariat) Same response as for 8.1 vocational training due to - Accept or modify recommendations unattractive wages in - Implement as modified. vocational sectors; in the 1980‟s, the start up wage for a carpenter was $2.00/hr. Today, some 27 years later the same wage level still prevail due to these jobs being filled by low paying foreign labor. According to PCC, wages in vocational

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Strategy Action No. Action Current status Issues areas need to increase through instituting of minimum wage laws in order to attract more students to enrol in vocational training. 8.3. Assess feasibility of developing a civilian PCAA with Training Council, apprenticeship training program focusing on Chamber of Commerce, PCC, fields not currently included in military MOE Program is for 6 months; PCAA (“CAT”) apprenticeship program: tailored to engage drop-outs w/ - Assess current apprenticeship program Training is in place coordinated minimal capacity to read and with CAT team to distil elements that make by PCAA. write; future success of this program so successful participants is uncertain - Identify opportunities for civilian apprenticeship program in one or more of priority fields (see 6.1) - Implement pilot project; monitor, assess, and expand as appropriate. 9. Enhance 9.1. Progressively increase charges until in line PCC President & Board of financial with the average cost of community colleges Trustees sustainability across the U.S. & affiliated jurisdictions of by reducing the Western Pacific. PCC is currently implementing reliance on this scheme. government revenues (Federal and OEK) 9.2. Fully capitalize PCC Trust Fund: Seek new PCC President & Board of donors; Seek designation as a “501(C)3” Trustees non-profit (under U.S. tax laws) -- Option 1, direct designation through COFA; Option 2, Capitalizing of PCC Endowment affiliate with U.S. based non-profit partner. Fund is in place and ongoing

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Strategy Action No. Action Current status Issues “501 ( C ) 3”- under negotiation as part of CRC negotiations which PCC President is party to. 10. Align 10.1. Update list of priority fields of study: - scholarship Create public-private partnership task force PNSB has made the study; Difficulty recruiting interested awards with to carry-out HRD study (PNSB, PCC, MOE, report is available as of June students; under consideration national OEK, Chamber of Commerce, and other ‟09; priorities identified are are incentive packages development interest groups) - Seek OEK endorsement teaching, nursing and medicine. designed to attract students priorities. of outputs - Set aside a portion of scholarship funds for students in priority fields.

11. Diversify 11.1. Amend law to designate PNSB a non-profit According to PCC, there may funding corporation. not be a need to make PNSB a sources. non- profit corporation. 11.2. Attract new non-ROP funding for PNSB Board of Directors & scholarships and loans: Develop a marketing Staff plan; Develop multi-year plan that sets targets for non-ROP scholarship and loan funds; Aggressively implement marketing plan to increase funding for scholarships and loans from non-traditional sources (bilateral, multi-lateral, and private). 11.3. Institute new requirements for a portion of student loans to be repaid in cash; this money to be designated for new awards. 12. Enhance 12.1. Increase graduation rates: Desk review of efficiency in student records and survey of current & operations. former students to identify success factors; Integrate research information into policies and procedures designed to improve

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Strategy Action No. Action Current status Issues success rates. 12.2. Increase proportion of first and second year students who attend PCC: Develop This concept is fully endorsed communications strategy to gain support for by PCC policy; Implement changes in policies and procedures to limit 1st & 2nd year awards to PCC except where PCC does not offer necessary coursework for student‟s intended field of study. 12.3. Assess feasibility of channeling more students to lower-cost Asian schools: Form a PCC has reached an committee (PNSB, PCC, MOE, Ministry of agreement with Philippines to State, diplomatic community) to identify negotiate programs to channel affordable “schools of excellence” with Palauan students to attend programs relevant to Palau; Identify schools in the Philippines strategies & incentives to encourage student acceptance. 13. Assess 13.1. Create task force to further develop concept, proposal for identify pitfalls, and undertake preliminary PCC has developed a program Palau to feasibility assessment; information to be to offer English courses to develop used in determining if full feasibility Asians starting with the Uighers educational assessment warranted. products targeting Asian market for instruction in English

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