Estimating Incremental Cost Indicators for Remote Communities

1. Estimating Incremental Cost Indicators for Remote Communities Presentation to AFN Funding Forum

2. Background

3. Co-Developed Policy Proposal • The National Joint Collaboration process (AFN Resolution 65/2017) developed a New Interim Funding Approach for First Nation Education which formed the basis of a federal Memoradum to Cabinet on education transformation • The two main elements of the co-developed Policy Proposal are: • The immediate option for negotiation of Regional First Nation Education Agreements (REA) and, • Implementation of an Interim Funding Approach in 2019-20 for those First Nations that have not concluded a REA.

4. Provincial Comparability • A key principle underlying the current Funding Transformation process with AFN and ISC, is that of comparability with funding provided for elementary and secondary education in provincially funded schools • In addition to funding comparability a number of other areas were identified as incremental to provincial funding comparability (e.g. First Nation languages and culture) • Ensuring appropriate funding is provided for First Nation schools in remote, isolated and fly-in locations is an accepted joint objective

5. Current Remote Funding Approaches • With the exception of Ontario and Newfoundland, remoteness calculations for First Nation schools are currently based on provincial practices for provincial schools in remote locations. • In Ontario, the Province has only four remote schools for which they are responsible. These schools are funded on the Provincial base funding formula (GSN) plus actual incremental costs incurred because of remoteness • In most other provinces, remote school funding is a combination of a remote formula base and includes community by community adjustments

6. Remote & Isolated Funding Principle • The accepted funding principle is that each remote and isolated community would have specific remoteness calculations that reflect the actual costs incurred by that First Nations that are incremental to those incurred by non-isolated First Nations • The challenge is to develop a methodology that meets that objective and which can be bench-marked to provide assurances to funders

7. Interim Funding Approach • For First Nations which are not part of a Self-Government Agreement or a Regional Education Agreement, funding for 2019-2020 is being provided on an Interim Funding Approach • Negotiations are continuing with respect to the development of methodology for all funding for First Nation education including for the unique incremental costs incurred by remote and isolated communities • This presentation outlines the Interim Funding Approach that has been used to calculate funding the remote and isolated communities in Ontario and proposes a methodology to further refine that approach. • It also provides a framework which may be applicable to First Nations in other provinces.

8. Remote & Isolated Education Funding Approach

9. Ontario Interim Funding Approach (IFA) • The Ontario Interim Funding Approach (IFA) consists of five main components: • Funding formula based on provincial funding formula (Grants for Student Needs– GSN) • Additional funding (on top of GSN base) for language and culture and full day kindergarten (FDK) • Targeted funding for 2nd level services • High Cost Special Education • Supplementary Supports • Remote and Isolated Factors

10. Current Remote Funding Approaches • With the exception of Ontario and Newfoundland, remoteness calculations for First Nation schools are currently based on provincial practices for provincial schools in remote locations. • In Ontario, the Province has only four remote schools which are funded on actuals • In most other provinces, there are formulas for remote school funding made up of a combination of formula base plus community specific adjustments • ISC’s position is that the Comparability Principle - which Funding Transformation is based upon - will apply in areas where a province has a methodology to fund provincial schools in remote and/or isolated locations

11. Remoteness Components • The basic components of the Remoteness Calculation include: • Additional costs incurred by Education Staff because of Remoteness • Additional costs for all non-salary materials, supplies, fuel, maintenance for the school • In most educations systems the cost breakdown between Staff Costs versus Supplies & Maintenance is 70% Staff – 30% Non-Staff • The Interim Funding Approach treats these two elements separately

12. Staff Component • The Living Cost differential is to determined using the Isolated Post Allowances provided to federal employees working in remote and isolated Communities and adjusting this factor to apply to the overall salary component. • The Travel Costs have been calculated based on two return trips per year for staff not normally resident in the community

13. Staff Component Salary • Because the IPA is specific to salary, we reached agreement to use Level 5, five years of experience from the average Ontario provincial salary grid • The IPA was applied to this average salary. • The percentage increase generated by the application of the IPA was calculated. • This percentage was applied to 70% of the total GSN calculated amount less the remoteness component in the GSN

14. Non-Staff Component • The increment for the 30% of education expenditures not related to staff was to be calculated on a community by community basis • However due to time constraints, the Interim Funding Formula for Ontario applies an adjustment factor estimated by ISC based on the IPA Cost of Living and shipping cost differentials and applies it only to the School Facility Operation component of the non-salary component of the funding formula. This is a very small share (4-5%) of the 30% component. • The objective of the current study is to construct a methodology to recognize the extraordinary costs in the balance of the 30% for remote and isolated communities.

15. Remoteness Calculation Interim Methodology

16. Principles for Remoteness Methodology • Recognition of actual incremental costs for remote, isolated and fly-in First Nation communities. • Use of Provincial Comparability for calculating the non-adjusted base • Community by Community adjustments based on Isolated Post Directive • Increases based on changes to IPA over time

17. Remoteness Calculation for Each Community • Government of Canada classifies communities as isolated posts based on the following three factors, set out in Appendix H of the Isolated Posts & Government Housing Directive Document: • Population, • Climate, and • Availability of commercial transportation or access by all-weather roads. • Points are assigned to each one of the above factors and the total points determine the degree or level of isolation.

18. Population Factor:

19. Climate Factor: The features of this factor are the degree of wind-chill, darkness, annual precipitation and temperature

20. Access factor: Recognition is applied to two situations: 1. Posts with no all‑weather road access, and 2. Posts with all‑weather road access.

21. Access factor: Posts with all-weather road access

22. Isolated Posts Classification Level:Rising level of posts results in greater income allowance

23. Isolated Communities in Canada • Using the above three criteria (Environment, Population and Access), NJC designates about 300 communities in Canada as isolated. • These are communities where the federal government has employees. • However, the same criteria can be used to evaluate whether any community is isolated or not. This has been done by using the closest designated isolated community as a proxy.

24. Remoteness Components & Adjustment Factors • The basic components of the Remoteness Calculation are: • Additional costs incurred by Education Staff because of Remoteness & Isolation, • Travel amount for out-of-community staff, • Travel amounts for students in private home placements, • Additional costs for materials, supplies, fuel, maintenance and transportation for the school. • In most educations systems the cost breakdown between Staff Costs versus Supplies & Maintenance is 70% Staff – 30% Non-Staff. • Provincial comparability requires adjustment to the above two cost components to reflect incremental cost of providing services in remote & isolated communities.

25. Staff Component • First, the average teacher salary based on the provincial guidelines would be determined on an annual basis. • Then, using the Federal Government's Isolated Post Allowance, a community by community adjustment factor can be calculated based on the average amounts for • Environment, • Living Cost differentials, and • Individual Fuel & Utilities cost differentials • This generates an adjustment factor for the staff component for each community. • This factor is then applied against 70% of the provincial amounts (the portion which can be considered as salary-related).

26. Staff Travel Amounts • By using the Isolated Post Directive Vacation Travel Assistance, a travel rate and frequency can determined for each community.  • Frequency is currently two return trips annually. • This amount is applied to 80% of the school's staff on the assumption that 80% of the staff are not permanent community residents.

27. Non-Staff Component • The increment for the 30% of education expenditures not related to staff has to be calculated on a community by community basis • The Interim Funding Formula for Ontario applies an adjustment factor estimated by ISC based on the IPA Cost of Living and shipping cost differentials and applied it only to School Facility Operation component of the non-salary component of the funding formula. • In what follows, we provide a methodology and an example to be applied to the total non-salary (30%) components of the education budgets.

28. Main Incremental Cost Factors: Manitoba’s Frontier Division Relative to Provincial Averages

29. Incremental Cost Factors • The per pupil cost was used to calculate a weighted average incremental cost factor. Average provincial cost of each category has been used as the benchmark. Above Table shows that, excluding salaries of teaching staff, the average cost of operating remote schools is at least 2.279 times greater than the cost of non-remote schools. • Therefore, using the Frontier School Division as Proxy to represent remote and isolated schools in other provinces, the cost adjustment factor to be applied to the 30 percent non-salary component must equal 2.279.

30. Incremental Cost Multiplier Estimation • To estimate cost factor multipliers applicable to the 30 percent of the operating expenditures (non-salary components) in remote and isolated communities, two sets of information were required: • The share of each of the non-salary expenditure categories in the total operating expenditures of remote schools. • The incremental cost of each expenditure category relative to non-remote schools.

31. Using Frontier School Division as a Proxy(Using Four Expenditure Categories)

32. Assumptions To estimate cost factors for fly-in and all-weather road remote communities, the above shares were used, and the following four assumptions made: • The differential cost of supplies is directly related to the differential cost of shipping to various remote communities from the point of comparisons determined by ISC. • The differential cost of O&M is directly related to the differential cost of fuel and utilities estimated by the government of Canada for various Isolated Posts.

33. Assumptions • Transportation cost per kilometre in remote schools is similar to the cost per kilometre in the Frontier division ($4.82/km) compared to the average cost per kilometer in all school divisions in Manitoba ($2.47/km). • Professional & staff development cost per pupil in remote schools, is similar to the per pupil cost in the Frontier division ($141 per pupil) compared to the provincial average of $127 per pupil.

34. Average Incremental living cost differential ($) in remote communities calculated based on IPA estimates

35. Percentage Incremental Cost of Shipping in Remote Communities calculated based on ISC estimates

36. Percentage Incremental cost of fuel and utilities in remote communities calculated based on IPA estimates

37. Incremental Cost Multiplier Estimates

38. Use of Cost Proxy • In the absence of community based data, we needed to use a proxy that would mirror the incremental cost multipliers for each remote community. • We note that O&M and Transportation comprise 25.6% of total education expenditures and 75.5% of the non-salary components. • Fuel & Utilities accounts for the most significant share of incremental costs related to O&M and Transportation expenditures. • Our estimates also reveal that the cost of fuel and utilities are highly correlated with the total incremental cost factors in fly-in and remote all-weather communities in various regions. In many cases, there exists a perfect correlation between the two factors.

39. Recommendation • Based on the IPA, we have estimated the average cost multiplier of fuel and utilities in remote all-weather road and fly-in communities to equal 166.1 and 204.0 respectively. • This is very conservative given the cost multipliers on the previous slide which incorporate ISC shipping costs are 187.7 and 206.7. • Given the perfect correlation between Fuel & Utilities and the overall Incremental Cost Factors, it is reasonable and conservative to use the differential cost of Fuel and Utilities as calculated by the government of Canada to adjust the total 30 percent non-salary expenditures until the detailed information on various categories of expenditures in different provinces is available.

40. Recommendation • Incremental costs of fuel & utilities are available from IPA for about 300 communities. Thus, those communities can adjust the non-salary component using the available data. • We have estimated models that can be used to calculate the percentage incremental cost of Fuel and Utilities for communities not included in IPA. • Therefore, in the interim, we have available data and an approach that can be used to adjust both the salary and non-salary components of costs for all remote and isolated communities.