State Integrated Schools - Policy 2 Assistance
Introduction
It is always the proprietor’s decision to establish a new school and apply for integration. Likewise it is the proprietor’s decision to apply for a maximum roll increase and expand the capacity of an existing integrated school. However, in some circumstances the proprietor will be eligible for assistance towards the capital costs.
This web page explains the Policy 2 Assistance available for state integrated schools. Features of the policy that are explained include:
What is “Policy 2”
In 1998 a new property funding regime for state integrated schools was introduced by the Ministry of Education comprising two components as follows:
- capital replacement (major maintenance) allocated to proprietors on a per pupil basis (proprietors call this Policy 1 funding); and
- discretionary funding to provide new accommodation to support roll growth where there will be offsetting savings to the Crown in local school networks (Policy 2 funding).
The quantum of Policy 1 funding is based on the annual school depreciation expense and allocated to proprietors on a per student basis.
Policy 2 was reviewed in 2005. Prior to 1998 the policy was very much the subject of annual application process by proprietors. The quantum of Policy 2 funding is now based on area strategies or forward planning for new schools and new classrooms in existing schools required to support school age population growth. These strategies determine how to cater for the demand for additional accommodation capacity in both the state and state integrated school sectors and what the Ministry of Education will fund. In this respect the Ministry adopts an even handed approach across the state and state integrated sectors.
Proprietors are still able to establish new schools and apply to integrate them, and apply for increases in the maximum rolls of existing integrated schools. In this respect the requirements of the Private Schools Conditional Integration Act 1975 and individual integration agreements are unchanged and take precedence. However, if proprietors wish to seek Ministry of Education assistance towards the capital costs of new schools and classrooms they will need to comply with the Policy 2 framework.
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How is eligibility for assistance decided?
In the Ministry of Education’s accommodation planning work (known as area reports and strategies) the demand arising from various segments of the local demographic make-up for new integrated schools will be explicitly included. This process, which involves consultation with communities, takes the form of a ten year rolling plan showing areas where new integrated or non-integrated accommodation is required. The outcome will confirm if a new school is required and the type of school to be provided. Where a new integrated school is proposed the planned opening date, to meet the overall network requirements, will be scheduled.
To qualify for Ministry of Education capital assistance several thresholds need to be reached. These are:
- the local school network shall be defined;
- current demand within that network’s capacity is greater than 85%; (i.e. the ratio of classroom accommodation occupied to that actually available within the local school network, exceeds 85%);
- state schooling demand projections will exceed the current capacity of the network within ten years time; and
- a state school is likely to be required within ten years if an integrated school is not provided.
Should the fourth threshold not be met then only classroom funding will be provided.
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Funding – how much and when?
Whole School assistance
If all thresholds are reached then the capital assistance will be based on current equivalent cost of constructing a new school at the time of construction. That is classrooms plus the balance of the Ministry of Education school property guide entitlement (infrastructure) . This scenario is called the Whole School assistance option.
Classroom Only assistance
If only the first three thresholds are met then the equivalent cost of only those classrooms required to fully meet demand over the planning period will be provided. In this context the Ministry of Education is indifferent to whether or not the proprietor was building a new school or expanding existing schools. This scenario is called the Classrooms Only assistance option.
How does this work in practice?
If projected primary school age population projections, based on a medium growth scenario, in a school network total 5,000, a state-integrated proprietor plans to provide accommodation for 400 students and state school actual and planned capacity is 4,600, then the Ministry will provide assistance to that proprietor for the 400 students. If that roll difference means the Ministry will not have to provide a new school itself, then the assistance will be based on the whole school assistance option (equivalent cost of new school construction).
Capital Assistance
The level of assistance under both assistance options would be based on the Ministry’s standard classroom cost based on the construction of state schools. These rates are reviewed annually to take account of changes in the capital goods price index. However, assistance will be discounted by 15% to reflect the beneficial ownership provided to proprietors, compared with Crown owned buildings, where there is the ability to dispose of the property and retain the proceeds. 15% is estimated to be the residual value of a classroom based on comparative sale history.
The Whole School option recognises the cost of infrastructure as the Ministry is saved from building a new school, but excludes land related costs.
The two assistance options can be summarised as follows:
Type
Option 1: Classrooms Only
Option 2: Whole School
Primary
- Will save the Crown providing a classroom(s)
- Will save the Crown constructing a new school
- Medium growth projections < current network capacity +15 classrooms (15 classrooms represents a typical primary school size of 400)
- Medium growth projections > current network capacity +15 classrooms (15 classrooms represents a typical primary school size of 400)
Secondary
- Will save the Crown providing a classroom(s)
- Will save the Crown constructing a new school
- Medium growth projections < current network capacity +34 classrooms (34 classrooms represents a typical secondary school size of 750)
- Medium growth projections > current network capacity +34 classrooms (34 classrooms represents a typical secondary school size of 750)
- All school types Savings calculated by number students to produce number of classrooms
- Savings calculated by number students to produce number of classrooms
Standard classroom formula applied
SPG $ entitlement for whole school broken down to a per classroom rate
$ = 85% of standard classroom budget $ = 85% (standard classroom budget + SPG balance)
Capital Assistance timing
In terms of the timing for funding disbursement, approval will be sought as part of Government’s annual Budget cycle within two years of the planned opening date for primary schools and three years for secondary schools. This approach aligns with the Ministry’s own planning timetable for state schools. At this point the quantum of funding will be confirmed to an applicant proprietor.
The disbursement schedule, which may be staged over several years, will take account of Government’s annual budget demands in the context of the annual School Accommodation Business Case and when the accommodation concerned will be needed to support the network of schools.
For the Classrooms Only assistance option, disbursement will be in the financial year that provision is being made in the business case to support the projected roll concerned.
Retrospective assistance
Retrospective funding can be provided if a new school, opened between 1995 and 2005, now theoretically closed would result in the Ministry having to build a new state school. The assessment would be made on the fifth and tenth anniversary of the school’s opening. Again, any such assistance may be staged over several years to take account of Government’s budgetary demands.
The assessment of retrospective assistance will be based like any other eligible assistance on the outcome of the Ministry’s area strategies and reports. This is the same approach used to assess the need for state school accommodation. While the eligibility for assistance can be reviewed in each subsequent year after the five year milestone, it will be on the basis on whether there is, in the Ministry’s view, any fresh information that has fundamentally changed the earlier five year assessment such as roll trends, rather than an annual review for the sake of it. In this context the premise of the 2005 policy is the move to a longer term approach for planning accommodation needs in the state and integrated sectors, rather than the annual application process that was a shortcoming of the previous (1998) policy.
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Who owns the buildings?
It depends on the level of assistance and Government’s budgetary pressures.
The Ministry of Education may opt for the proprietor to own all the accommodation it is providing assistance to build. Alternatively the Ministry may opt to own the accommodation itself but if it does, then it will be for at least four classrooms.
For accommodation the Ministry decides to own, it will lease it back to the proprietor. How will this work? The proprietor will grant a ground lease to the Ministry of part of the integrated school site on which the Ministry will then provide funding to the proprietor to erect the agreed accommodation. The Ministry will then sublease the site plus improvements back to the proprietor to satisfy legislative requirements that the proprietor either owns or leases the property assets.
The ground lease will be for a term of 35 years . Both the ground lease and sublease will be at a peppercorn rental. The improvement and maintenance of the assets would be treated no differently than any other integrated assets on the site. The proprietor would be responsible for insuring the assets as he is getting beneficial use of them.
A term of 35 years roughly equates to the economic life of the assets. In the event the lease was terminated early because, say, the school closed then the proprietor would account to the Crown for the residual value of the assets proportionate to the total capital value of the school site., adjusting for the 15% discount (referred to in the next paragraph). In the event the school roll dropped during the term of the lease the Ministry would have the right to remove any surplus accommodation; an option that would only be practicable if the assets were relocatable.
For either ownership option the 15% discount applies to the level of capital assistance compared with state schools. This is because regardless of a leasehold or freehold interest, the proprietor will still have beneficial ownership of the assets for a considerable period of time and is likely to get total ownership at the conclusion of the lease itself.
Why the difference in ownership? It is considered that a lease is more practical for new schools, where significant investments are envisaged, rather than for the one-off classroom at an existing school due to the cumbersome process of creating a ground lease for just that building.
The way ahead
The Ministry wishes to work collaboratively with State integrated school proprietors proposing to participate in the provision of this policy and is happy to brief them on the implementation process.