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Table The Rise in Budgetary Expenditure per 1 Budgetary Student and Tuition Fees for Paid Students in 20002000 2001 2002 2003 Budgetary expenditure at public universities per 1 student 7.0 10.0 13.6 16.3 18.(annual averages, as RUR Thousand) Growth rate in budgetary expenditure at public universi 100 142.9 136.0 119.9 110.ties per 1 student (as % to the prior year) Tuition fees at public universities (annual averages, as 14.0 17.0 21.2 24.4 27.RUR Thousand) Growth rate in tuition fees at public universities (as % to 100 121.4 125.3 115.1 114.the prior year) Tuition fees at non public universities (annual averages, 16.6 19.0 22.6 23.8 25.as RUR Thousand) Growth rate in tuition fees at non public universities (as % 100 114.4 118.9 105.3 107.to the prior year) Meanwhile, the rise in the populations incomes in 20032005 was such that at the time public universities were still able to partly compensate for the shortage of budgetary funds at the paid students expense, for the average annual income growth rates were ahead of the growth rates in tuition fees. (see Tables 9 and 10).

It should be noted that this has played an extremely negative part in the experiment on introduction of the public nominal financial obligations (PNFO). In 2003, in the second year of conduct of the ex periment, the tuition fees were raised drastically as a result of the tax agencys requirement, how ever, the population perceived that as a direct consequence from the introduction of PNFO.

Section Social Sphere Table Dynamic of the Populations Average Monetary Incomes per Capita in 2000 2000 2001 2002 2003 2004 The populations average monetary incomes per capita 2281 3062 3947 5170 6410 (monthly), as RUR Growth rate in the populations average monetary incomes per 100 134.2 128.9 130.9 124.0 125.capita (as % to the prior year) Source: Rosstat.

The fundamental change in situation has begun since 2005, with the budget ary expenditures on educational activity per 1 student practically catching up with the average tuition fee charged by public universities, while the population, which by the time had found itself already involved in the system of paid high education, began to exhaust its possibilities to for catching up with the price rise, as the growth rates in tuition fees at public universities began to outpace those of the populations average incomes per (see Tables 10 and 11):

Table The Rise in the Budgetary Funding of Universities and Estimated Increase in Tuition Fees at Public Universities in 20052005 2006 Budgetary expenditures at public universities per 1 student 25.6 37.5 54.(annual averages, as RUR Thos.) Growth rate in budgetary expenditure at public universities 100 146.1 138.per 1 student (as % to the prior year) Tuition fees charged by public universities (annual aver 31.2 38.7 (estimated) 54.5 (forecasted) ages, as RUR Thos.) Growth rate in tuition fees by public universities (as % to the 100 124.0 137.prior year) As the 2007 tuition fees charged by public universities must exceed on aver age RUR 54,500 will lay an overly burden on the population, which may radically change the situation in the university education area.

The situation will, of course, vary across the RF Subjects, but one should take into account that a great part of the populations educational costs on the whole and those for the high education in particular, falls on the capital cities Moscow and St. Petersburg, as well as Moscow, Tyumen and Sverdlovsk oblasts. In other regions, fueled by the growing budgetary funding, a compulsory increase in paid tuition services may result in a situation in which a considerable proportion of the population would be gradually deprived of these services. The process forms a real threat primarily to the subsidized regions, whose populations average incomes per capita remain low. Our computations on 2004 and 2005 show that growth rates in RUSSIAN ECONOMY IN trends and outlooks average incomes per capita in 32 regions were lower than the respective average nationwide index36.

Thus, all these regions have found themselves in the zone of risk, except Moscow, where the average income level (in absolute terms) still allows withstand ing a rapid rise in tuition fees, but a household has to spend an increasingly grow ing share of its income on payments for educational services (and not necessarily the universitys ones). In addition, the noted group will be joined by the RF Subjects (another 6 regions) where the growth rate of average monetary income per capita has lately outpaced the average nationwide one, while the absolute value of the in comes remained low. Thus, yet in 2005 as many as 37 regions have entered the zone of risk with respect to the populations payments for the high education37.

In 2006, the increment in the populations average per capita income was 23.5%, while the increment in the budgetary expenditures on education per 1 stu dent posted a 46% plus growth. Assuming the growth rates in the populations av erage per capita incomes across the RF Subjects should not experience any con siderable change in the annual average terms (and the data for the first half year prove this assumption), most Russian regions have already begun entering the zone of risk in terms of accessibility of the paid high education services. In compli ance with the 2007 budget, the increment in the budgetary expenditures on educa tion per 1 student should make up, as noted above, 38.4%, which will make this tendency yet more visible.

Accordingly, the government should shortly forge a certain policy in high edu cation the area with regard to the public universities paid educational services. It seems that against the backdrop of the fall in the number of students at high school and the already started contraction in the budgetary admission the stake was made on keeping a fairly huge number of paid students. But, as already noted, the rise in the budgetary funding may begin to restrict the access to paid educational services for residents of many Russian regions. The combination of these two fac tors may result in a rise of social tension in certain Subjects of the Federation and affect the financial situation of many regional universities.

This context may give a rise to a sound solution, that is, promotion of the con cept of educational loans, which so far has been debated in a very general form (albeit some experiment in this area was already announced).

While considering the problem of promotion of the educational loans system, one should take into account that today in many depressive regions universities form a sort of social safeguard for the local youth. This is associated with high unemployment rates. Should the access to the high education be restricted in such So far as 2006 is concerned, Rosstat so far has provided the respective data only through Sep tember.

It should be noted that in 2003 (the last year on which the official data are available) the average annual tuition fee charged by the Moscow based public universities) was RUR 42, 200 vis vis the average nationwide figure of 24,200 (1.7 times more) and under the budgetary expenditure per student totaling RUR 16,300 (2.6 times more). With a rapid rise in the budgetary expenditures, even Moscow will unlikely to keep up with this correlation, and in all likelihood the costs of the budgetary education and those of the paid one should begin to gradually converge.

Section Social Sphere regions, it may fuel generate dramatic social challenges, such as a stagnant unem ployment within the noted group, coupled with the rise of criminal and extremist groups, drug addiction and alcoholism. Because of these threats, the problem of accessibility of the high education and preservation of the university network in the regions needs to be addressed in a very balanced and cautious way.

This equally necessitates a careful and well thought out selection of possible avenues for the promotion of educational loans and the government participation in them. As concerns the possible arrangements, those worth a particular attention are:

1) privileged educational loan, to be disbursed under the governments guarantee to paid students (enrollees) in the regions in which the local residents capacity in terms of payment for educational services is close to exhaustion;

2) the budgetary admission to be extended in the most problematic regions, while residents in other regions are granted an easier access to educational loans;

3) the budgetary admission to the leading national universities (university centers) is extended, while the youth in problem regions is granted a facilitated access to student loans (i.e. the ones to cover expenses associated with education, to be disbursed under privileged terms);

4) there also exists a possibility to practice a combination of the aforementioned approaches.

Each of the above options has its pluses and minuses, and accordingly, their social, economic, legal and educational effects need to be examined in every de tail.

3. Introduction of the standardized per capita financing in the general educa tion. This idea dates back to the Soviet time, specifically, 1998.

Later, Art. 41 of the 1992 statute On education declared that the funding of educational institutions should be exercised on the basis of standards computed per capita by each type, kind and category of educational institutions. But the Act in question has failed to provide answers to some questions, without which an intro duction of the novelty was extremely problematic. More specifically, unanswered remained the following questions:

Is the per capita standard determined by the need in funds or by the capacity of the budget In other words, whether the standard of financing fully meets the educational institutions need in funds, or it merely secures as much funds as the budget can afford allocating for the educational process Does the standard in question fix a minimum need in funds per student, or a normal, i.e. the existing standard Does the standard ensure the most efficient consumption of budgetary funds by a given educational institution, or is it an economic mechanism allowing the most efficient distribution of budgetary funds between educational institutions Should the standard be unified across all the schools, or should it be differenti ated (if one abstracts from the objective regional differentiation).

As a result, the said Article of the Act had been vegetating in oblivion for more than a decade, as without a clear answer, financial agencies interpreted the stan RUSSIAN ECONOMY IN trends and outlooks dard in question exclusively as the standard of needs, that is, the volume of fi nancing which should fully secure the schools per student needs. However, lack ing such volumes of funds, the financial agencies continued to finance educational institutions operations according to the current practice.

On August 29, 2001, the State Council of RF ruled that the obligation to exer cise expenditures on the general education should be divided between the Federa tions Subjects and municipalities: while the former had to supply funds to finance the educational process (and, primarily, teachers salaries), the latter became re sponsible for maintenance of buildings and facilities belonging to institutions of general education.

Underlying this decision was constant and growing ware arrears to teachers and teachers strikes. The decision was legitimized by Federal Act No. 123 FZ of July 7, 2003, On introducing amendments to individual legislative acts of the Rus sian Federation in the part concerning institutions of general education, and since 2004 some regional budgets have begun an experiment by allocating subventions to local budgets for the sake of implementation of the educational process38. In 2005, the transition towards this system started in most Subjects of the Federation.

That helped improve the situation with financing in the sector as a whole, albeit wage arrears still exist there. The process continued in 2006.

Meanwhile, the allocation of subventions on education to municipalities from regional budgets raised the problem of principles underlying distribution of the re spective funds and de facto fueled the transition towards the standardized per capita principle of financing of the general education. The subventions began being calculated proceeding from the number of students in a given municipality, i.e. ac cording to the per capita principle. But that exposed a problem namely, while re gions allocate subventions basing on the per capita principle, local administrations, as a rule, distribute the funds between schools to cope with different challenges, such as preservation of the schools network and their cadres, among others. Note that because of demographic reasons, the contraction in the number of students leads to an annual contraction in the number of schools and teachers roughly at 1 2%. The process would be far more intense, were the funds be allocated in a strict adherence to the standards.

Thus, it is possible to draw a conclusion that while the regional level of man agement of the educational system has begun to rest its operations upon the net work optimization principles, the municipal level pursues the task of social stability, rather than increase in economic efficiency of the use of resources in the general education area.

The year 2006 saw the launch of an experiment on testing the mechanism of standardized financing of the SVE institutions. The experiment will be conducted for three years (2006 2008). In 2006, there existed only the legal basis of its con In addition to the three Subjects of RF that had earlier launched the experiment (Samara and Vo ronezh oblasts and the Republic of Chuvashia). Beyond the experiment framework and practically simultaneously with Voronezh oblast and the Republic of Chuvashia the practice of the standardized per capita financing was launched by Yaroslavl oblast.

Section Social Sphere duct, but the Statute on conditions of its conduct makes it evident that its results are going to be fairly limited, for the experiment centers exclusively on the system of budgetary financing of SVE institutions.

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