Technical Assistance Consultant’s Report Project Number: 40595 June 2008 Republic of Palau: Facility for Economic Infrastructure Management (Financed by the Japan 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 (Palau National Congress) PCAA - Palau Community Action Agency PCC - Palau Community College PEC - Palau Evangelical Church PELL - Basic Education Opportunities Grant PHS - Palau High School Medium-Term Sustainable Financing Strategy – Education i June 2008 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) Medium-Term Sustainable Financing Strategy – Education ii June 2008 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 Medium-Term Sustainable Financing Strategy – Education iii June 2008 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 Medium-Term Sustainable Financing Strategy – Education iv June 2008 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