The Paradox of School Funding: Decline in the Number of Students, Education Infrastructure Tax and the Role of PPPs

Tirana, like many urban centers, supports through a significant part of its budget the financing of projects related to education. The municipality collects a tax specifically intended for educational infrastructure, creating a seemingly logical connection between tax revenues and infrastructural development. However, a closer examination of the revenues of the Municipality of Tirana over the years through the temporary tax for educational infrastructure , expenditures and various projects in recent years reveals a paradoxical situation.

On the one hand, the municipality continuously collects significant funds from these dedicated taxes, which aim to address the infrastructural needs of the education system, and, on the other hand, these projects are not primarily financed by the income from this tax, but rely on international funds and public-private partnership (PPP) schemes.

Author: Marina Zela

"Instead of doing 3-4 schools a year, we will be able to do 20 to 25 schools in the first year..."

The Mayor of Tirana, Erion Veliaj

On December 21, 2015, Erion Veliaj spoke about the 2016 budget plan. In this plan, the green tax would be turned into a tax on educational infrastructure and the PPP construction scheme would be used for the construction of schools, which theoretically means that schools will begin to be built immediately, but payment for them could be made after several years.

By decision of the Municipal Council, this tax began to be applied in May 2016. All families and businesses that reside and exercise economic activity within the territory of the Municipality of Tirana are subject to it. This obligation is recorded in the water consumption bill and the payment is made together with the water bill.

"The income from this temporary tax will be used for the purpose for which it was decided, for the reconstruction of educational facilities, schools and kindergartens, as well as the educational infrastructure of the Municipality of Tirana, which requires the construction of schools and of new kindergartens, as well as interventions for the reconstruction of existing ones", - it is stated in the report of the Municipality of Tirana.

On August 9, 2022, Erion Veliaj stated: "The moment we complete the 7-year long-term plan to build these 40 schools, then there will be no more taxes on educational infrastructure ."

Pano Soko, economic expert, says that temporary taxes are destination taxes, which have a specific mission in space and time.

"A temporary tax is raised for a mission that has a beginning and an end and is a mechanism that is provided by law for such cases. The problem is not the law, but the spirit of its implementation."

We are already at the end of 2023 and this tax, which should have ended in 2022, continues to be applied, becoming more expensive for taxpayers even in 2024, as a result of the change in the reference price of property values ​​and the Municipality of Tirana does not gives no deadline, if the day will come, when the "temporary" tax will turn into a permanent one or will cease to exist.

The money collected from the tax and the number of students

From the information received from the municipality regarding the revenues collected from this tax, it seems that every year the collection of revenues from the educational infrastructure tax has been increasing. On the other hand, from the information received from the Ministry of Education and Sports, the number of students in schools is constantly decreasing. According to the figures made available by the ministry, from 2018, compared to 2023, we have 2.255 fewer students registered in public and private schools.

The information that the municipality made available to us regarding the spending of money collected from the educational infrastructure tax is filled with numbers, but there is no concrete data on where this revenue has specifically gone.

"The revenues from the temporary educational infrastructure tax have been invested by the Municipality of Tirana for the construction of new educational facilities, such as schools, kindergartens and nurseries, for the reconstruction or rehabilitation of existing ones, as well as for the ongoing maintenance of educational facilities. More specifically, during the period 2016-2022, a total of 4,786,796,301 lek was spent for investments in the construction of new schools, for reconstruction and rehabilitation interventions in 48 educational facilities, for the purchase of equipment and furniture for the furnishing of educational structures, as well as an amount of 833,185,581 lek for the maintenance of educational facilities," - it is written in the response of the Municipality of Tirana.

According to the Municipality of Tirana, the main purpose of the application of this tax over the years was precisely the disappearance of schools where shift teaching is practiced, but from the data made available by the Ministry of Education, 3 schools still conduct shift teaching today. ; respectively, the 9-year school "Mervete Peza", the 9-year school "Jeronim De Rada" and the 9-year school "Emin Duraku".

Aranita Brahaj, Executive Director of AIS , which manages the open data profile, Open Data , says: “This tax should never have been imposed. The municipality collects quite a few taxes from citizens, residents, businesses and other entities. An extra tax is a form of burden that is not justified. Above all, after seven years of application, the tax has not marked any moment of success in the capital. We are still lacking capacities and with schools working in shifts.”

The revenue collected from this tax is expected to increase even more in the coming years. As a result of the increase in the reference price, we had an increase in the liability for the building tax and this has also increased the value of the revenue that will be collected from the tax on educational infrastructure.

Zef Preçi, an economic expert and Executive Director of the Albanian Center for Economic Research , tells ACQJ that this tax is illegal.

"It is set as temporary, but we are entering the eighth year of its harvest. It constitutes an abuse, which leads to the poverty of the family budget in Tirana. This is also due to the fact that education in the whole world is a national tax, it is also in our legislation and it cannot be local at the same time and, secondly, it includes all layers of the population."

Public-private partnership, also in schools

On April 27, 2023, Erion Veliaj, on the show Opinion, counted 40 schools built, according to him, by the Municipality of Tirana, given that it was before the local elections.

From the information received from the municipality regarding these schools, we note:

9 schools were built with PPP contracts;

6 have been reconstructed in cooperation with embassies or international organizations;

5 schools have been rebuilt/reconstructed through UNDP funds;

11 are reconstructions and 9 are constructions carried out by the Municipality of Tirana.

It should also be noted that, although the mayor's constant refrain has been used: "We have built 40 new schools for Tirana", in fact 26 schools were existing and the 2019 earthquake became a golden opportunity to reconstruct most of them through international cooperation, reconstruction grants , and funds made available by international donors.

On February 19, 2018, the Municipality of Tirana announced the consortium of the companies "AGI KONS", "MET ENGENEERING" and "ZENIT&CO", as the winner of the first PPP contract for the construction and maintenance of five schools, three in Administrative Unit 11 and two in Unit 9. According to the contract, the company must build and furnish the schools with its own funds within 18 months, after which the municipality will pay the company in installments the investment made plus an annual interest of 6,28%.

Aranita Brahaj says that the decision-making of the municipality to argue the PPP construction scheme has never been sufficiently justified.

"If we look once again at the Project Planning for Educational Institutions, still today in two of the areas of the municipality the project has not started, while citizens and businesses continue to pay the solidarity tax . The first institutions should have been inaugurated in 2018, but this process has also had delays, which results in not being as beneficial as initially confirmed."

ACQJ sent a request for comment to the Municipality of Tirana and the Ministry of Education and Sports regarding the reason why it was decided that the construction/reconstruction of these schools would be done through PPP and what the benefits are for state institutions in this regard. At the same time, explanatory reports were also requested in the decision-making of the Municipal Council for the approval of this scheme, but by the time of publication of this article, ACQJ had not received either the requested report or any comments from the two institutions.

According to the table made available by the Municipality of Tirana, we see that for the construction of 9 schools in total, which were built with PPP, less than 5 billion ALL, exactly 4 414 894 586 ALL, were spent. From the data we have from the Ministry of Education, it results that in total the 9 schools built with PPP have 1.813 students.

On the other hand, we have the "Sami Frashëri" gymnasium, which has 1.274 students and half a billion lek have been spent on it, so exactly 567 lek. The schools financed by the European Union, which were reconstructed by UNDP Albania, have a total of 492 students and less than 069 billion ALL was spent on them. The doubt that arises is why a PPP scheme is chosen, which of course has more expenses for the municipality, as it has to pay the interest, when in fact the only obvious benefit from these schemes is time and these schools are not built on time, according to the contract term.

The economic expert, Pano Soko, says that the problem lies in the non-respect of the law and the rules.

"The problem is that in the school project, as in all PPP projects in Albania, the rules have not been implemented. Why are they not implemented? Because public money was used to compensate for the construction, without taking delivery of the building, that is, without making the investment. This means that the state has started to pay them before the investment ends, which means in fact that these investments are not made with private money, but with public money, so these are not they are PPP projects, but they are tenders."

Zef Preçi, on the other hand, says that there are some problems with the PPP financing scheme for schools. One of these problems concerns the selection of winning companies.

"The selection of companies is mainly done in a non-competitive manner, which means that competition is avoided, which would have been required in the case of ordinary procurements, and potential opportunities are created to invest money that originates from organized crime and corruption. high officials. So, unintentionally, construction permits are transformed into a tool that launders this money and at the same time increases it to the detriment of the common good, to the detriment of the state budget".

PPPs, need or desire, when we have educational infrastructure tax?

Aranita Brahaj emphasizes the need for a direct utilization of collected taxes to give more tangible results. She says: “The PPPs and the tax were imposed simultaneously as part of the same decision-making. If the tax collected was used directly, we would have more results. The municipality's infrastructure potential due to two direct infrastructure taxes is wasted. In these years, the municipality has collected more taxes from the educational infrastructure and from the infrastructure of new constructions, but has not used these types of income for public investments, thus marking a financial misuse".

Pano Soko delves into the intricacies of tax distribution, specifically highlighting the mismanagement of funds. “ The education infrastructure tax was created precisely to provide a special fund to repay the PPPs. So, the repayments of the PPPs would be made from the revenues that would be provided by the tax and this may stand as an argument, as logic, but the problem is that those funds never went where they were intended to go and nothing was achieved; apart from collecting some money from citizens, which made the lives of citizens, the lives of families or businesses worse, the product they got back had quite a few problems.”

Lots of money, but no school

Another problem in the whole mess of numbers and PPP schemes are the areas that do not have schools. The Astir area and the Liqeni i Thatë area have been suffering from this problem for years now, as have the 5 Maji area , Kodra e Diellit and other peripheral areas of Tirana.

Anila Çela, a parent of two children who are in kindergarten and preschool, told ACQJ that she sends her children to the "Dhora Leka" kindergarten at the Aviation Field. She said that they saw this as the only solution, since there are no kindergartens or schools in Astir where she can send her children.

"Since we don't have other gardens nearby, we saw this as the only option. It's tiring and difficult, both for us parents and for the children, too."

Parents living in the Dry Lake area also have the same problem . In this area, the closest school is "11 Janari" and parents say that the only kindergarten they send their children to is in Sauk and the conditions in this kindergarten, which is the closest, are not at all suitable.

Zef Preçi says that "the system should be used for the good management of taxes, that is, there should be as little corruption as possible, it should be used efficiently and the greatest good should be done to the majority. These are the basic concepts and the fact that we are in this situation shows on the one hand the malfunctioning of the Municipal Council and the abuse by the government of the additional resources that are created for the Municipality of Tirana."

It is still unknown whether the tax on educational infrastructure will have an end date, as well as the construction with the PPP scheme, where theoretically there is nothing wrong, but practically we see that there is abuse. At the moment, the Municipality of Tirana is proud of the fact that it has built 40 new schools, despite the fact that most of them were not built by it and are not even new, but questions arise about the fact that when the municipality's construction costs will be at the same level as international partners or when the construction of new schools will cover entire areas, where any service in the field of education is missing.

This article is part of the Investigative Journalism Laboratory project, which is financially supported by the Public Relations Office of the US Embassy in Tirana. The opinions, findings, conclusions, and recommendations expressed are those of the author(s) and do not necessarily represent those of the Department of State.