We analyze Georgian education finance and show that it is embedded in the overall structure of Georgian rayon finances, reflecting all their weaknesses: inequalities, lack of transparency, unmanageability, room for corruption. The budgetary and political independence of rayons is very limited. The steep fiscal inequalities between rayons are only partially and ineffectively addressed by the system of transfers. The transfers moreover are heavily negotiated and non-transparent. Thus education finances depend on general income of the rayons, which effectively determines the level of financing. At the same time, however, the role of the rayons in the management of the sector is very limited. The actual spending patterns for Georgian general education schools are very closely related to per capita income of the rayons without the transfers (about 75% of education spending), and to student teacher ratio (about 25% of education spending). The dependence of the education system on rayon wealth is our main empirical finding, and it contradicts widespread belief among Georgian education professionals. It is not surprising therefore that the education sector in poorer and in mountainous rayons with very low student teacher ratio has to adapt to this situation. It responds by reducing the number of teachers per class, thus lowering standards of service delivery despite high per student costs. The first step required to change this situation is to increase budgetary independence and education management role of rayons. Without strong local governments it will not be possible to decentralize Georgian education. Moreover the influence of fiscal inequalities on education finance should be broken by taking it out of general rayon income and by basing it on a per student education grant to rayons (education subvention). This would lead to significant redistribution of public funds in Georgia. Such a move needs to be carefully prepared. It is necessary to subject education subvention to buffer mechanisms, in order to protect rayons from drastic changes to their present education spending patterns. Moreover, Georgia should begin thinking about a per student formula for education subvention, which recognizes unavoidable higher per student costs of providing education in different geographical and social settings.
