Evaluation of the sustainability of ECE services during the implementation of Pathways to the Future: Ngā Huarahi Arataki Publications
This report assesses the sustainability of ECE services during the early implementation of the ECE Strategic Plan. It complements the stage 1 evaluation undertaken by the New Zealand Council for Educational Research (NZCER) and Te Kōhanga Reo National Trust (TKRNT).
Author(s): Julian King, Health Outcomes International.
Date Published: August 2008
A ten-year strategic plan for early childhood education (ECE): Pathways to the Future – Nga Huarahi Arataki, was launched in September 2002. A new funding system for ECE was introduced in April 2005, together with substantial increases in Government funding for ECE services. Health Outcomes International (HOI) was engaged by the Ministry of Education to evaluate the sustainability of ECE services in the context of these changes. This complements the evaluation of outcomes with regard to quality, participation and collaborative relationships undertaken by the New Zealand Council for Educational Research (NZCER) and Te Kohanga Reo National Trust (TKRNT) for Stage 1 of the evaluation of the Strategic Plan, which involved case studies in a sample of 46 ECE services across eight localities.
In the context of this evaluation, the term ‘sustainability’ refers primarily to the financial sustainability of ECE services – that is, the ability of services to cover their costs on an ongoing basis. However, it needs to be acknowledged that ECE services require more than positive cashflow to remain sustainable. Ultimately, ECE services are only sustainable to the extent that there is demand for the services offered. Thus, sustainability depends on providing a service that families and whanau want (and can afford) to utilise. Sustainability also depends on supply factors such as teacher supply and a cost-effective regulatory framework. These considerations inextricably tie the issue of sustainability to issues of participation, quality and collaborative relationships.
This evaluation of sustainability assesses:
- Changes in patterns of expenditure and revenues of ECE services that may be associated with the implementation of the Strategic Plan;
- Whether services have become more sustainable since the introduction of the Strategic Plan and the new funding system;
- Whether the new funding system is having the intended effects of avoiding cost increases to parents and providing incentives for teacher-led services to meet teacher registration targets; and
- The impact of sustainability on quality and participation outcomes.
A multi-method evaluation was conducted, comprising three key data sources: consultations with sector stakeholders from umbrella groups and national organisations; analysis of existing data sets maintained by the Ministry of Education and Statistics New Zealand; and collection of financial data from locality-based case studies using a survey administered with the assistance of NZCER and TRKNT field researchers, with the financial data being analysed in conjunction with NZCER/TKRNT outcome indicator data.
Changes in Expenditures and Revenues
The implementation of the Strategic Plan has brought cost increases for teacher-led ECE services as anticipated. The most marked cost increases are associated with the implementation of targets for registered qualified teachers in teacher-led services. National data and stakeholder feedback concur that the new funding system is largely meeting these increased teacher salary costs. The teacher shortage is said to be impacting on teacher salary costs in some regions. Although this was not evidenced in the 2006 operating cost survey, further monitoring is warranted.
Some of the costs associated with implementing the Strategic Plan (as well as other factors) are not financial, but nevertheless represent a risk to the quality and sustainability of ECE. Additional administrative work is often being absorbed by existing staff and/or volunteers in both teacher-led and parent-led services, causing stress and fatigue. Insufficient time and conditions to support effective teaching and learning processes, and high volunteer workloads have also been identified by NZCER and TKRNT as impediments to improving quality.
Changes in Sustainability
Sustainability has been assessed against a range of indicators. These indicators suggest that the ECE sector as a whole is sustainable, and perhaps becoming gradually more so. Education and Care services (ECSs) have shown the greatest overall changes in capacity, participation, quality (employment of registered teachers), revenues, and costs. Meanwhile, indicators of sustainability for ECSs have remained relatively stable or improved. This analysis has relied heavily on data from community-based ECSs due to the relative unavailability of private sector data.
Key findings are:
- The overall capacity of the sector, in terms of numbers of licensed services and child-hours, has been steadily increasing since the early 1990s, suggesting that service operators project a financially sustainable outlook for their services. The strongest growth has been in the capacity of all-day ECSs. Home-based ECE has also been trending upwards. Kindergarten capacity has remained static since 2002, and the capacity of playcentre and kohanga reo has decreased. These trends echo the trends in participation over the same time periods.
- Overall the number of service closures attributed in Ministry data to financial reasons or forced closure/declining roll has decreased in recent years. Approximately 14-15 services per 1,000 closed for these reasons each year during 2000-2002, while the rate during 2004-2006 was in the range of 3-6 per 1,000. The small numbers involved provide a strong indication of the sustainability of ECE services, and the reduction in financial/roll-related service closures since the implementation of the Strategic Plan is a positive indication of improving sustainability in the sector but must be interpreted with caution due to the relatively short time series and possible coding anomalies.
- Ministry analysis has found that services that closed had a lower than average occupancy rate (the ratio of utilised child-hours to maximum available child-hours) compared to other similar service types. Average occupancy rates have remained relatively stable for each service type over the past six years. However, Ministry analysis found that the proportion of licensed ECE services with low occupancy rates has declined (improved) every year since 2001 and was around 8 percent of services in 2005.
- Operating surplus/deficit (the net difference between an ECE service’s revenues and expenditures for a year) provides a relative indication of the capacity of a service to sustain itself over the longer term. Analysis of this indicator shows that the year-end financial positions of individual services can fluctuate from year to year, but the proportion of services running a deficit each year is relatively stable for the population of community-based ECSs (the only segment for which reliable data was available).
- The working capital ratio (the ratio of a service’s current assets to current liabilities) provides an indicator of the financial reserves held by services, which provide a buffer for unanticipated expenses or a temporary and unexpected drop in revenues. A ratio of less than 1.0 means that the service has more current liabilities than current assets and is therefore unable to meet its short-term commitments. The proportion of community-based ECSs with working capital ratio of less than 1.0 has not changed markedly since the introduction of the Strategic Plan, but does show a slight reduction (improvement) since 2002. The majority of these ECSs are in a relatively strong working capital position, with 60 percent of services having assets equal to or greater than 1.5 times liabilities.
These findings accord with the Ministry’s provisional ECE Monitoring Framework finding that the majority of ECE services in NZ are operating at a sustainable level, and with the NZCER/TKRNT evaluation which found overall sustainability was mostly adequate or better in both 2004 and 2006. Sector stakeholders generally considered that the Strategic Plan and the new funding system had not had a noticeable effect on the sustainability of ECE services.
The ongoing decline in the utilisation of parent/whanau-led services does not appear to have been impacted by the implementation of the Strategic Plan. Playcentre stakeholders believed the Strategic Plan should be doing more to promote parent/whanau led ECE as a high quality option.
There is a gradual trend toward clustering of services within community-based umbrella organisations and corporate entities. Clustering of services can improve sustainability by realising economies of scale and providing access to managerial and other expertise that stand-alone services would struggle to afford. It was also suggested that some of these benefits could be realised through less formal networking of services – for example, clustering new services with more established services with experienced managers.
Effects of the Funding System
The available data did not provide direct evidence of whether the increased funding through the new ECE funding system is covering cost increases brought about by the Strategic Plan. Analysis of Statistics New Zealand data for the two years following the introduction of the new funding system shows that on average, growth in ECS and home-based prices has been less than growth in the general cost of living and in average hourly earnings. Meanwhile, participation in ECE has continued to increase. Both of these findings support the proposition that services have not passed cost increases on to parents.
Stakeholder feedback and quantitative evidence are in agreement that incentives to meet teacher registration targets appear to be working. Based on these findings (including increased employment of registered teachers, continued increases in participation, stable or improving sustainability, and low average growth in fees), it can be cautiously concluded that the funding system is having the intended effects overall.
A shortage of teachers may be responsible for the increased teacher turnover following implementation of the new funding system, and has also been identified by NZCER and TKRNT as an impediment to improving quality. The teacher shortage is creating opportunities for rapid progression for new teachers. Stakeholders identified potential risks associated with having relatively inexperienced teachers in leadership positions, and suggested that these transitional risks may be managed through appropriate PD, mentoring, advice and support.
Impact of Sustainability on Quality and Participation Outcomes
Sustainability of ECE services is an important precondition to participation and quality. The majority of additional ECE funding during the period of this evaluation was associated with quality (registered teachers) and the available evidence suggests this funding has been successful in increasing the proportion of registered qualified teachers while avoiding negative impacts on participation. Free ECE funding (from 1 July 2007) represents a significant investment in participation, the impacts of which will only be known after further monitoring and evaluation.
The available data did not permit the evaluation to determine how sustainable an ECE service has to be, in order for financial factors not to be an impediment to achieving the goals of the Strategic Plan. However, findings across the sustainability indicators suggest that somewhere in the order of 5-10 percent of ECE services may not be comfortably sustainable.
If common characteristics of less sustainable services can be identified, strategies can be developed to improve their sustainability. Risk ratios could be calculated for a range of factors (such as service type, ownership structure, rurality, socio-economic status, number of years ECE service has been in operation, percentage of registered teachers, teacher turnover, head teacher years of experience, financial expertise of manager/treasurer, and other factors). This would require further analysis against existing data sets, supplemented by primary data collection.
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