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A complex machine

Sustained by taxation, educational funding systems like FUNDEB, which will end in 2020, represent a new challenge for the federal government

Elisa Carareto

Brazil invested R$304.8 billion in public education in 2015. Of this total, R$212.3 billion (69.6%) came from state and municipal authorities, while R$92.6 billion (30.4%) was from the federal treasury. Despite collecting the largest amount through taxes, the federal government contributes less than a third of all public money invested in education. According to the latest data from the Brazilian Ministry of Education (MEC), most of the funding (R$253.3 billion, or 83%), went to basic education (compulsory elementary, middle, and high school), while R$51.6 billion, or 17% of the total, was spent on higher education. One of the many challenges facing the new administration is the pressing need to rethink how to fund the country’s 184,000 public schools. The principal funding mechanism for basic education in Brazil is the Basic Education Maintenance and Development Fund (FUNDEB), whose R$150.6-billion budget covered approximately 40 million students in 2018 and represented around 60% of all money allocated to public basic education. The problem is that the fund is due to close at the end of 2020.

The 1988 Federal Constitution and the 1996 National Guidelines and Bases for Education (LDB) establish that federal, state, and municipal governments must jointly fund the different stages of public education. According to data from the School Census by the Brazilian Institute for Educational Studies and Research (INEP), an agency linked to the MEC, municipal authorities are responsible for managing 47.5% of basic education students through the provision of early childhood education (nursery and preschool) and primary education (elementary school), which accounted for 8.7 million and 27.2 million students respectively in 2018. The states and the Federal District meanwhile, are primarily responsible for the later primary years (middle school) and secondary education (high schools)—there were 7.7 million children enrolled in the latter in 2018. The federal government is responsible for providing higher education and ensuring funds are allocated fairly across state and municipal education networks, which can also create their own higher education initiatives.

Basic education
The Brazilian Constitution states that the federal government must invest a minimum of 18% of tax revenue into the development and maintenance of education; the equivalent percentage for states and municipalities is 25%. However, the 95th Amendment to the Constitution, passed in 2016 and known as the ceiling amendment, determined that from 2018 onward, federal spending on education would be limited to the amount spent the previous year plus inflation. This means that since last year, education funding no longer rises in line with increased taxation, and the government does not necessarily reinvest at least 18% of tax income. “These percentages must be allocated to the maintenance and development of education, known as MDE actions, with the federal, state, and municipal education departments organizing how the money is distributed,” explains Camillo de Moraes Bassi, a planning and research technician at the Institute for Applied Economic Research (IPEA).

Some examples of MDE actions include paying staff salaries, building new schools, renovating existing infrastructure, and purchasing teaching materials, but actions directly related to the pedagogical process are not covered, such as providing school meals and implementing social assistance programs. About 60% of the yearly average of R$253.3 billion spent on basic education (which also includes schools for young adults and people with special educational needs, as well as all compulsory education to age 17) comes from FUNDEB, which will run until 2020 and was created by a 2006 Constitutional Amendment to replace the Primary Education and Teaching Maintenance and Development Fund (FUNDEF).

Regarding the future of FUNDEB, Caio Callegari, project manager at nonprofit organization Todos pela Educação (All for Education), believes the fund’s distribution mechanism needs to be adjusted so that municipalities with lower tax incomes receive a larger portion of the money. “Only 20% of the taxes collected by states and municipalities is redistributed by FUNDEB,” he says. He points out that congress is currently considering a Proposed Constitutional Amendment (PEC) that would incorporate FUNDEB into the Constitution, making it the country’s permanent education fund with no closure date.

Bassi, from IPEA, notes that another target for 2020 is to increase the amount invested by the fund, but no sources for the extra money have yet been named. He highlights the fact that municipal taxes (IPTU, ISS, ITBI) do not contribute to FUNDEB, only state taxes (ICMS, IPVA, ITCMD) and federal investments. The municipalities contribute via their share of ICMS and IPVA. “In summary, 60% of FUNDEB resources come from the states, 30% from municipalities, and 10% from the federal government,” he explains. Bassi notes that currently, 5% of the constitutional minimum does not go through FUNDEB, but would do so if the right changes are made. He also suggests incorporating municipal taxes into the fund. “These actions would compel the federal government to increase its contributions to the fund because it is legally obligated to invest the equivalent of 10% of its total value,” says Bassi.

Infographic Ana Paula Campos

Although FUNDEB is the main origin of funding for public basic education, it is not the only source. Another important system is the teacher salary fund, which is subsidized by companies via a 2.5% payroll tax. Of the total generated by this tax, 10% goes to the National Education Development Fund (FNDE), an MEC agency, 30% goes to the federal government, and the remaining 60% is transferred directly to state and municipal education departments every month, in proportion to the number of students. The money received by the FNDE is used to pay for school meals, maintenance and purchasing of school vehicles, infrastructure improvements, and other initiatives. Bassi, from IPEA, notes that the 2019 FNDE budget is about R$27.6 billion. According to the researcher, the total value of the teacher salary fund made available to municipalities, states, and the Federal District in 2018 was approximately R$13.1 billion, with São Paulo, for example, receiving R$5.1 billion.

José Marcelino de Rezende Pinto, former president of the Brazilian Association for Education Funding Research (FINEDUCA) and professor at the Ribeirão Preto School of Philosophy, Sciences, Languages and Literature at the University of São Paulo (FFCLRP-USP) explains that the remainder of public education funding comes from resources linked to state and municipal taxes that are not part of FUNDEB, as well as federal grants made via programs created by the MEC.

Higher education
About 20% of the Brazilian population between the ages of 18 and 24 is enrolled in a higher education institution, and this stage of education receives 17% of the country’s investment in public education. Brazil’s 63 federal universities, attended by 1.2 million students, are primarily funded by the National Treasury  and the MEC, in accordance with the Annual Budget Law (LOA). In 2018, the total investment was R$46.8 billion, including funds raised through contracts and agreements with state and municipal authorities to execute specific projects, as well as other complementary sources. “Universities establish agreements to meet specific demands, such as advising a public agency during the development of certain policies,” says Emmanuel Zagury Tourinho, dean of the Federal University of Pará (UFPA) and former president of the Brazilian Association of Directors of Federal Higher Education Institutions (ANDIFES).

According to the constitution, federal universities are financially autonomous, but this is not always the case in practice, says Tourinho. They submit annual budget proposals for approval by the federal government. Among the factors that the budget must take into account are scientific papers published, patents filed, the number of staff and students, and the duration of the courses. “The Education Department budget for 2018 was about R$109 billion, of which 43% went to federal universities,” says Thiago José Galvão das Neves, coordinator of the ANDIFES Planning and Administration Forum. According to him, the National Treasury funds the regular activities of these institutions, including staff salaries and pensions, utility and telephone bills, office materials, teaching equipment, and the construction of new classrooms and laboratories. “Around 25% of the federal university budget is spent on pensions, as if they were an investment in education,” he says. The MEC budget covers the salaries of professors and researchers, but not direct scientific research activities. As a result, institutions rely heavily on funding agencies such as the Brazilian National Council for Scientific and Technological Development (CNPq), the Brazilian Funding Authority for Studies and Projects (FINEP), and state agencies that fund research projects by both professors and students.

Infographic Ana Paula Campos

Tourinho explains that until 2015, the federal university budget was adjusted annually based on teaching and research activities and the number of students. “This provided a certain level of predictability, enabling institutions to plan their development. But in 2015, there were funding cuts and the MEC budget was frozen,” he reports. According to him, when taking inflation into account, the austerity measures generated reductions of approximately 20% in federal university budgets and 70% in funding, while the number of students enrolled in higher education continued to grow as the result of the federal university expansion process started in 2004.

At the same time, other stages of education, such as early childhood and secondary education, showed significantly larger funding increases between 2000 and 2015 than higher education. According to Renato Pedrosa, a professor at the Science and Technology Policy Department of the University of Campinas (UNICAMP), funding for early childhood and secondary education increased by 49% and 75% respectively between 2009 and 2015. “Higher education funding increased by just 18% over the same period, despite the considerable growth of the federal network of universities and technology institutes (IFETs),” he points out.

Although investment in higher education has been lower than basic education, investment per student has matched some European countries, reaching an annual average of US$11,700 compared to US$11,800 and US$12,500 in Portugal and Spain respectively. “But in Brazil, a quarter of the money goes to social security expenses, something that does not happen in these European countries,” says Tourinho. According to the Organisation for Economic Co-operation and Development (OECD), Brazil spends US$3,800 annually per student in the first phase of primary education (up to the 5th grade), which is about half of the average US$8,700 spent by OECD-affiliated countries.

Like universities, the Federal Network of Vocational, Scientific, and Technological Education (CONIF) is primarily funded by the federal government via the national treasury. This federal network involves about 600 institutions, including Federal Education, Science, and Technology Institutes; Federal Technological Education Centers; schools linked to federal universities; the Federal Technological University of Paraná; and Colégio Pedro II in Rio de Janeiro. Funding from the National Treasury is used to cover payroll expenses, including pensions for retired employees.

One of the targets for 2020 is to increase the amount of money made available through FUNDEB

Roberto Gil Almeida, dean of the Triângulo Mineiro Federal Institute (IFTM) and president of the National Council of CONIF Institutions, explains that federal institutes can receive extra investment as a result of parliamentary amendments. “There is also the possibility of raising funds through closed agreements with funding agencies or businesses to develop specific projects.” According to Almeida, about 14% (R$14 billion) of the MEC’s total budget for 2018 was allocated to CONIF. “The amount received by the institutes each year varies according to the MEC budget. In 2018, CONIF estimated that R$3.9 billion was needed, excluding payroll expenses, to ensure the network could continue operating smoothly. But only R$2.1 billion was invested,” Almeida laments.

State vocational education systems, such as the Paula Souza Network in São Paulo, also receive MEC funding. The Paula Souza Network’s budget is submitted annually to the State Planning and Management Department, which receives proposals from all government agencies. Like federal institutes, these institutions, in addition to state funding, can also receive investment from the National Program for Access to Technical Education and Employment (PRONATEC), created in 2011 by the federal government.

While federal institutions all use similar funding models, state universities use a wide range of systems to fund their activities. There are about 800,000 students enrolled in 40 state institutions across 24 states in Brazil. Haroldo Reimer, president of the Brazilian Association of State and Municipal University Deans (ABRUEM), explains that since Decree 29.598 was issued in 1989, the three state universities in São Paulo—USP, UNICAMP, and São Paulo State University (UNESP)—have received funds from the value-added tax on goods and services (ICMS). Today, 9.5% of the income generated by this tax is invested in the São Paulo state universities.

In Paraná, there are seven state universities and the budget is renegotiated annually, with the state government responsible for payroll and related fees. In Goiás, the State Constitution establishes that 2% of net revenue from taxes and transfers must be invested in the State University of Goiás (UEG), its only state public higher education institution. Retired university employees are paid by the state pension department rather than the university. “In general, most Brazilian states follow a similar model to Paraná: the state assumes responsibility for the payroll and the dean’s office seeks federal funding for the development and maintenance its activities,” explains Reimer, noting that when there is no set percentage of tax income promised to higher education, as is the case in São Paulo, state institutions and government agencies negotiate freely. “This means universities can suffer in years when tax income is lower,” he says.

Infographic Ana Paula Campos

Regarding graduate studies, Reimer explains that state universities receive federal funding for new and existing master’s and PhD courses through administrative support programs, as well as research grants from funding agencies, just like federal institutions. “About 90% of all Brazilian scientific output is generated in public universities, and state universities account for 40% of this output, which includes patents, dissertations, theses, and books,” he says. Regarding municipal universities and colleges, Reimer clarifies that despite being public institutions, they are allowed to charge monthly fees, which is their main source of funding.

In some countries, it is common for public educational institutions, mainly at the higher level, to charge annual or monthly fees. In Brazil, as well as municipal institutions, another example is community universities, which have a strong presence in certain regions. In OECD countries, payments made by individuals to public or private institutions cover almost a third of total costs, 70% of which falls on students and their families, representing an important component of higher education funding.

Investment challenges
The current relationship between public spending and student performance, which has not always been deemed satisfactory by educational assessments, has sparked a debate on how best to overcome the educational challenges faced by the country. Brazil currently spends a yearly average of 5% of GDP on education (including all compulsory education stages and higher education) according to the OECD, which Tourinho points out is close to the 6% invested by the USA. “However, the USA’s GDP, which according to the World Bank was approximately US$18.1 trillion in 2015, is much higher than Brazil’s, which was US$1.8 trillion in the same year. This means that in the US, the investment per student is much higher than in Brazil,” he emphasizes.

Andressa Pellanda, executive coordinator of the National Right to Education Campaign, highlights the fact that levels of development and quality of education differ between OECD countries. “Norway, for example, does not have to deal with 2.8 million children not attending school, like Brazil,” she points out. Pellanda says that Law 13.005/2014, part of the National Education Plan (PNE), establishes that investment in education should reach 10% of GDP by 2024. “The calculation is based on the Cost of Quality Education per Student [CAQ], an indicator created by the Right to Education campaign that lists the inputs needed by schools to provide a quality education and how much they cost, for each educational stage and school type,” she explains. According to her, more investment is needed if Brazil is to get all of its children back in school at the same time as improving the quality of public education.

Infographic Ana Paula Campos

“The amount spent per student each month in the public system is about a quarter of the monthly tuition of an average private school,” emphasizes José Marcelino de Rezende Pinto, from FFCLRP-USP. He also points out that Brazil has an aging population, and that the number of school-age children is therefore declining. At the end of January, INEP published the 2018 School Census, which showed that the number of children in basic education dropped by 1.3 million between 2014 and 2018. “However, the effect of this decline will only become evident after 2050, alleviating the demand for jobs in primary education, a stage at which attendance is almost universal,” warns the researcher.

The researchers justify the need for extra funding by highlighting the fact that the number of Brazilians entering higher education is still very low, at around 19.9% of the population aged 18–24, according to government figures. In higher education, Thiago José Galvão das Neves, from ANDIFES, observes that universities have been growing in recent years, with many new campuses being built and more spaces on courses, especially outside major cities.

Carlos Renato de Melo Castro, economic and fiscal studies manager at the National Treasury, says that the federal government spent R$117.2 billion on education in 2017. In 2008, total federal spending in the area was R$61.4 billion, with R$31.8 billion for higher and vocational education and R$18.9 billion for basic education. “This means that federal investment in education grew from 1.1% of GDP in 2008 to 1.8% in 2017,” he says. The data is from a study by the National Treasury released at the end of last year, which also identified that the increased federal investment in education has not led to improved school performance indicators, as already indicated by PISA (Program for International Student Assessment). Of the 70 countries evaluated in 2015, Brazil ranked 63rd in science, 59th in reading, and 66th in mathematics. “The study shows that higher federal spending on education has not been reflected in improved student performance,” he says. Naércio Menezes Filho, coordinator of the Center for Public Policy at the Insper Education and Research Institute, says that in the last 10 years, high school students have continued to score poorly on the Basic Education Assessment System (SAEB). “We believe that before raising spending on education, we have to improve the management of these resources,” he says. To this end, he suggests that municipal managers need better financial training and comparative studies are needed to identify the factors behind success and failure in schools. José Marcelino, from FINEDUCA, disagrees, stating that “the OECD itself, through its studies, has shown that to make a difference, spending per student in Brazil needs to be about four times higher than the current level.”

Spending limit

Constitutional Amendment 95, known as the “ceiling amendment,” was approved to reduce federal public spending in absolute terms. Passed in 2017, it established that from 2018 onward, federal funding would remain the same as the previous year, adjusted for inflation—thus repealing the previously existing obligation to invest 18% of net tax revenue into education. “In other words, the 2019 budget will be the same as last year’s, but adjusted for inflation,” says Jorge Abrahão de Castro, a retired researcher and technician at IPEA.

However, FUNDEB and the teacher salary fund, the main sources of funding for basic education, are exempt from the rule, meaning they are not limited to the amount spent in the previous year and can be increased if their originating sources go up. “There is also the fact that the federal government is obliged to contribute an amount equal to 10% of the total FUNDEB value, while it must also continue to direct 2.5% of its payroll to the teacher salary fund,” says Castro . Naércio Menezes Filho, coordinator of the Insper Center for Public Policy, does not believe that the new legislation will affect basic education funding, precisely because it does not cover the main sources (FUNDEB and the teacher salary fund), but that higher education will be impacted, with funding limited to the amount invested the previous year.

According to Carlos Renato de Melo Castro, economic and fiscal studies manager at the National Treasury, it is possible that spending on education will increase through “allocative decisions” in the annual budget—the federal government could decide to assign funds to education from other sources. According to Castro, education has received more than the constitutional minimum of 18% in recent years. “In 2017, 18% of net federal tax revenue was R$49 billion, but R$63.2 billion was spent on education that year, significantly above the minimum required by the constitution,” he says. In 2019, he adds, the minimum amount that the federal government must invest in education is around R$53 billion—the amount approved in the annual budget was R$121 billion.

“The new spending limit will therefore not necessarily result in a freeze on education funding, but there will be greater pressure not to increase spending too much, because other areas will be competing for the same funds,” says Caio Callegari, from Todos pela Educação. USP professor José Marcelino believes the amendment makes it impossible to comply with the goals of the National Education Plan, since a freeze on federal spending is reflected in state and municipal funding, preventing growth and improvements in public education.