Australian cities will continue to face growing demand for school places in their established areas; most notably in their inner areas, as urban renewal activities underpin ongoing population growth.
Unfortunately for state (and private) school planners, land prices in established areas have risen dramatically over recent decades; meaning that securing school sites is costly. Moreover, a new generation of school buildings is required as:
- Sprawling campuses are financially impossible to deliver, and
- Surrounding communities are increasingly demanding access to school facilities for afterhours/ non-school activities.
These issues are of increasing concern to government and to communities. Under each State’s Education Act, all children are entitled to a high quality public education if their parents choose to send them to a state school. This entitlement covers all ages across the pre-, primary- and high-school age groupings.
The fundamental impact of the base case
Traditionally in business cases seeking capital funding for new/ expanded school projects, alternative investment options are assessed against a ‘base case’ option. The specification of this base case option is very important because all the costs and benefits of moving from this base case to each of the alternative project options are systematically identified, assessed and measured to establish how each of the project options perform.
Some may think it’s just theoretical nonsense, but the specification of the base case can fundamentally affect the assessed viability of new/ expanded school projects.
SGS has recently worked with state government agencies to
examine how the specification of this base case option fundamentally affects
the business case for school funding proposals. In this work, the following
base cases were developed:
Base Case 1: Do Nothing
Under this option, government would simply not provide any further places for students. Theoretically this would cause overcrowded schools to ration school places, with potential reductions in places for some age groups. For example:
- Primary schools might reduce the number of kindergarten places (if provided) offered to ensure all children can be accommodated in Years 1 to 6
- High schools might limit Year 12 places to ensure all young people can complete school up to Year 11, causing some students to miss out on Year 12.
The intention of developing this base case was to identify the incremental costs and benefits of meeting legislative requirements under each of State’s Education Act.
Base Case 2: Do Minimum
Under this base case, government would install demountable buildings to increase the supply of student places for the lowest capital cost. Often this is the default base case option. However, in adopting this base case, it is assumed that available school sites have the physical capacity to accommodate demountable buildings even though this is often unworkable (and it displaces alternative uses of school space such as playground areas).
What are the costs and benefits of establishing new/expanding existing schools?
If new school places are funded (i.e. the project option),
the incremental costs and benefits will vary depending on which base case is
Base Case 1: Do Nothing
A project which is assessed against a ‘Base Case 1: Do Nothing’ has the following incremental costs:
- Capital works costs (once off)
- Ongoing capital asset costs (school maintenance, cleaning, utilities, etc.), and
- Ongoing school operations (teacher salaries, overheads and administrative costs).
The main benefit of the project providing additional school places is that no child misses out on school; meaning that legislative compliance is maintained and higher education attainment is achieved. This improved education attainment is associated with higher lifetime earnings, with there being a measurable difference in average lifetime earnings for people who have completed Year 12 compared, for example, to people who have only completed Year 11.
Moreover, there is also evidence that: a) children who
attend pre-school are better equipped to deal with the challenges that school
presents, positioning them better to thrive throughout their school years; and
b) school students benefit from studying in a modern and up to date school,
with the improved quality of infrastructure underpinning better education
outcomes for all enrolled students, not just those who would have missed out on
a place in under Base Case: Do Nothing.
Base Case 2: Do Minimum
If Base Case 2: Do Minimum is applied (i.e. a base case of installing demountable buildings), costs that are relevant to the project include only the incremental capital works and ongoing capital asset costs. That is, under both the base case and project options, student places are assumed to meet demand.
The benefits of the project include:
- The expected educational benefits to children studying in purpose-built, up to date facilities, as opposed to learning in demountable buildings. Australian evidence  shows that up to date school infrastructure can result in higher quality teaching, which leads to improved test scores in children, which in turn leads to higher earnings later in life.
- Children being able to go to a school closer to where they live, reducing travel costs; i.e. if demountable buildings cannot be provided locally due to the sheer physical capacity constraints at available school sites.
Quantitative impacts on project performance
While SGS cannot provide the official results of the cost benefit analyses undertaken, we can reveal that the specification of the base case had marked impacts on the assessed viability of the new/ expanded school projects tested. One project tested moved from generating a benefit cost ratio (BCR) of approximately:
- 0.2 when the Base Case 2: Do Minimum was applied; meaning the costs considerably outweighed the quantified benefits, to
- 1.4 when the Base Case 1: Do Nothing was applied; meaning the quantified benefits considerably outweighed the costs.
Clearly these different results would impact the likelihood of project funding. It is therefore imperative that school funding agencies think hard about how they position their projects, especially in established areas where the Base Case 2: Do Minimum option is physically impossible to deliver.
 Hattie (1999) Influences On Student Learning. Inaugural Lecture: Professor of Education. 2 August. University of Auckland.
 Hattie, J (2009) Visible Learning: A Synthesis of Over 800 Meta-Analyses Relating to Achievement. Routledge.
Urbecon is edited and published by SGS Economics and Planning Pty Ltd. Articles are written by SGS team members drawing on project work and research undertaken by SGS. For more information about the policy areas discussed in articles, please contact one of our National Area of Service Leaders.
Copyright (Free To Share) and Disclaimer. Users are welcome to copy and distribute the information contained in this bulletin provided acknowledgement is given to SGS Economics and Planning Pty Ltd as the source. Although every effort has been taken to ensure information contained in this bulletin is accurate, SGS Economics and Planning Pty Ltd accepts no responsibility for inaccuracies. Any action taken by a user or third party in reliance on this information without advice from SGS Economics and Planning Pty Ltd is at the sole risk and expense of that party.