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Special Education Finance | What We Know About Special Education Spending | Excess Costs and the Appropriations Index | Children with Disabilities Who are the Most Expensive to Educate | The Need for More Research | State and Local Flexibility | Conclusion
The Commission’s recommendations relating to the finance of special education represent several important shifts in how federal, state and local governments pay for special education services. Central to these recommendations is a revised calculation of “excess costs,” which essentially are those costs that exceed the annual average per-pupil expenditure (APPE) in a local education agency during the preceding school year. A revised calculation of excess costs should include improved estimates of expenditures necessary to provide appropriate results for students with and without disabilities, and estimates of per-pupil revenues available to the typical general education student with no special needs (i.e., a non-disabled student not eligible for Title I remedial services under the No Child Left Behind Act, English language learner or other federal education programs). These data should conform to the most current education finance information available.
Recommendation—Increase Discretionary Part B Federal Funding and Establish a Definable Threshold Percent of Excess Costs. Discretionary federal funding for special education has significantly increased during the past seven years. This trend has compensated for historical under-funding of special education at the federal level. The Commission believes that the trend of increased federal funding for special education should continue up to a specified threshold expressed as a percent of the estimated “excess cost” of special education borne by local education agencies.
Recommendation—Link Future Funding Increases Above the Threshold Percent to State Plans to Improve Accountability for Results. Cost accountability is fundamental to program accountability. IDEA should increase federal funding to a state for special education above the established threshold percent only if the state has submitted a state improvement plan, consistent with No Child Left Behind, for implementing a new accountability system that encompasses a broad range of measures of results for students with disabilities. Funding in future years should be contingent on achievement of results in that plan.
Recommendation—Target Funds for Direct Services. IDEA should direct that 90 percent of Part B funds should flow-through to local education agencies, and prioritize remaining Part B funds, retained at the state level, consistent with a set of national priorities and additional recommendations contained in this report.
Recommendation—Funding Should be Increased for Part C and Section 619.
Recommendation—Increase State and Local Flexibility. IDEA should eliminate or revise any financial structures in IDEA that hamper state and local education agencies’ ability to focus on results for eligible students with disabilities. Year-end unexpended local education agency federal funds and a fixed percent of Part B flow-through funds should be used to establish and maintain risk management pools to serve high-cost students such as those who have significant disabilities.
Recommendation—Focus on High-Need Children. IDEA should allow and encourage states to address the impact of students with significant disabilities on state and local districts through the use of safety net funding.
Once a threshold obligation of definable excess cost is established, incremental increases above the threshold must be linked to improved results for students with disabilities receiving special education. Changes can also be made to maximize the use of available federal funds without compromising the supplemental nature of federal funding. These changes seek to place greater flexibility in the hands of states and localities and balance the shared responsibility for financing special education. Rules and regulations created 30 years ago when schools fought against the entitlement of special education may now create unintended consequences. The antiquated policies also serve as an impediment to the appropriate allocation of resources.
Unintended consequences and improper fiscal incentives within IDEA must be actively discouraged. The concentration of students with autism, emotional disturbance or other significant disabilities in LEAs with outstanding special education programs or medical care facilities or the distribution in some small towns of these high-need students with disabilities creates disproportionate obligations for these localities to provide expensive services. The costs of these services should be appropriately shared across a larger population. These high-need children are precisely the children IDEA seeks to protect and who states and localities should serve.
What We Know About Special Education Spending
National expenditures for special education services in 1999-2000 totaled an estimated $50 billion. An additional $27.3 billion was spent on regular education services and an additional $1 billion was spent on other federally funded special needs programs (e.g., Title I, English language learners or Gifted and Talented Education). Thus, total estimated spending to educate students with disabilities found eligible for special education programs was approximately $78.3 billion.
Composition of Expenditures for U.S. Students With Disabilities Eligible For Special Education 1999-2000
In per-pupil terms, total spending used to educate the average student with a disability was an estimated $12,639. This amount includes $8,080 per pupil on special education services, $4,394 per pupil on regular education services and $165 per pupil on services from other federal, special needs programs. The total including only the regular and special education services amounts to $12,474 per pupil.24
Based on these 1999-2000 figures, total spending to educate students with disabilities including regular education, special education and other special needs programs combined represents 21.4 percent of the $360.6 billion total spending on elementary and secondary education in the United States. Total special education spending accounts for 13.9 percent of total spending and 15.4 percent of total current spending.25
While these data provide an indication of expenditures associated with providing special education and related services to students with disabilities, the data do not provide any indication of the available revenues that could have been used to offset the reported expenditures. For example, general education expenditures of $4,394 per special education pupil only accounted for a portion of the general education revenue available to non-disabled students. The distinction between “available revenues” (equivalent shares of state and local general education funding as well as any local enhancements) and legitimate expenditures is important in determining and defining excess costs and the federal share of those costs. Eligibility for special education should in no way diminish or dilute a student’s right to a general education.
Excess Costs and the Appropriations Index
There is no scientific or particular public policy basis for defining full funding of the federal portion of special education at 40 percent of average per-pupil expenditure. In 1975, the congressional conferees arrived at the 40 percent funding level in reconciling differences between the House and Senate versions of their originally passed bills. The conferees tied special education funding to APPE because they believed the cost of special education was approximately twice the cost of regular education.26
Since that time, Congress has expanded IDEA eligibility to include students with high-incidence disabilities, who constitute most children currently receiving services under the Act. The U.S. Department of Education now estimates that as a nation, we are spending about 90 percent (1.9 times) more on the average eligible student for special education than we do on the average general education student with no special needs (i.e., a student who does not have a disability or who has no need for any type of compensatory education program). By using APPE as the baseline, Congress is attempting to meet a percentage of an approximation of what was believed to be the “excess costs” of special education.
Since 1975, the “up to 40 percent” APPE target has taken on symbolic value far beyond congressional intent in 1975. Many still perceive this 40 percent figure as a representation of “full funding.” Over the past several years, marked increases in IDEA Part B funding have been based on a desire to meet this “full funding” target. However, the increases to meet this target have been based on expenditure-driven data, rather than on estimates of the true excess cost of achieving excellence for students with disabilities.
The Commission believes that federal and state departments of education should undertake the serious business of determining and funding true excess costs rather than providing expenditure data that are not always comparable from state to state or district to district. In the meantime, a proxy for excess cost determination would be national, state or local APPE times the most current research-based estimate of the additional expenditures associated with providing special education (e.g., 1.9) minus the national, state or local APPE. The remainder of this equation represents our best estimate of excess costs, or those costs above the costs to educate a non-disabled student with no special needs.
After determining a more reliable value for excess costs such as the one described above, IDEA should provide that any funding beyond the set threshold percentage of definable excess costs be allocated to states based on their state improvement plans and improved academic and post-school results for students with disabilities. Both states and local districts would be responsible for designing and implementing a program of accountability as part of their state improvement plans and demonstrating definable and measurable student results and outcomes prior to receiving these additional funds. It is also important to recognize that if a percentage of the total K-12 population (such as 12 percent) is not used as an index, and other measures outlined in this report are not applied, the special education population could increase significantly within the next decade due to the potential for inclusion of students needing remedial assistance in special education.
Incremental increases based on results above the threshold percent of the cost to educate the average child in regular classroom settings should not result in any additional paperwork or reporting burdens on states and local districts. If additional data are needed to justify the increases above the threshold amount, these data should replace, not add to, existing data requirements and be consistent with other accountability recommendations included in this report and in the No Child Left Behind Act.
While the Commission believes that increasing appropriations for IDEA should remain a federal priority, it recommends keeping funding for this program discretionary. While students with disabilities receive civil rights-like protections under IDEA, it is incorrect to claim that the IDEA Part B program is an “entitlement” that should not be subject to the appropriations process. Like many other critical federal priorities—such as funding for disadvantaged students, health care research, national defense and homeland security—Congress and the Administration should have the ability to determine the appropriate federal funding level for IDEA on an annual basis.
Children with Disabilities Who are the Most Expensive to Educate
During Commission hearings, witnesses reaffirmed many of the perceptions associated with escalating expenditures in special education: The greatest concerns about costs for local districts are derived from high-need children with significant disabilities who require expensive placements within and outside of the district. Critical shortages of qualified staff in special education exacerbate these concerns.
Since high-need special education students are not evenly distributed throughout the United States, the Commission recommends that the federal government assist states and localities in funding the cost of the most expensive students. The most costly students are almost always students in which existence of the disability, the adverse impact of the disability and the need for specially designed instruction are clear and convincing. Recognition of some responsibility for funding for such students would not create any adverse categorization or funding incentives.27 Funding for identifiable high-need students would essentially ensure that students with high-need disabilities who require unusually expensive special education services receive such services without penalizing students with less severe disabilities as well as their classmates without disabilities.
At present, there are no current provisions under IDEA that provide state educational agencies with targeted resources to offset the fiscal impact on local education agencies of providing a free appropriate public education to high-need children with disabilities. States and local districts often choose not to expend their entire allocation of federal funds for fear that unanticipated expenditures will suddenly emerge and explode an already tight budget with no avenue for relief. Since cost cannot be used as a basis for denying services needed to provide children with disabilities a free appropriate public education, concerns about rising special education costs focus on the relatively few special education students who are among the most costly to educate. For example, in a prominent case in Cedar Rapids, IA, involving a child with a severe disability, the school district faced a significant financial burden to provide constant one-on-one care determined as related services under IDEA. The U.S. Supreme Court affirmed the financial responsibility of the district in this regard.28
Ultimately, state and local education agencies are responsible for providing appropriate special education and related services. Therefore, states and local districts should be provided with the opportunity to develop and implement fiscal practices that proactively recognize and deal with such circumstances without jeopardizing their entire budgets.
A relatively small number of children and youth with disabilities (approximately one-half of one percent) require special education services that can cost more than $100,000 per year. Some states have established extraordinary cost funds to assist local school districts with offsetting the fiscal impact of these high-cost students. Examples of state reimbursement formulas include:
• Maryland: Costs that exceed three times the average per-pupil expenditure in the district;
• New York: Costs that exceed four times the average per-pupil expenditure in the district or $10,000, whichever is lower;
• Missouri: Costs that exceed five times the average per-pupil expenditure in the district;
• Utah: Costs exceeding $15,000;
• New Jersey: Costs that exceed $40,000;
• Vermont: Costs that exceed $50,000; and
• Washington: Costs that exceed $15,000 when a district can demonstrate that all legitimate expenditures are exceeded by all available revenues.
However, a number of states with high-cost student formulas have not met the fiscal obligations incurred under their formulas and have either under-funded or ceased funding when the budgeted amount is exceeded. This practice has resulted in a significant financial burden on local school districts and has raised concerns that in some cases, due to cost, appropriate services may not be provided.
The Commission recommends IDEA include models for funding the costs of high-need children and allow local education agencies to proactively prepare for incurring unanticipated fiscal obligations associated with the provision of special education. First, IDEA should permit states to use federal funds to develop and maintain safety net programs to help pay the cost of high-need children.29 Second, IDEA should allow local education agencies to retain a portion of their unspent federal IDEA funds at a local or regional level for the purpose of creating risk management pools to deal with other unanticipated costs of providing special education.30
“We must allow states greater flexibility to financially manage their short-term and long-term financial responsibility. Federal policy with respect to IDEA funding must give states more discretionary ability to direct funds that best serve children with disabilities in their state rather than a prescribed set of requirements that do not take unique local conditions and needs into account.”
—Commissioner Douglas Gill
The U.S. Department of Education has no data or other information needed to address questions about the costs, expenditures and fiscal planning to better inform how well states and localities allocate funds to provide special education services. The Department should undertake research that begins to help understand the relationship between definable student outcomes and results, and the investment of educational resources. We find the need for more data collection and analysis is crucial to inform the nation about the costs and expenditures of special education and related services.
Currently, special education finance studies are conducted about once every decade by OSEP. Given the importance of this information, the Commission suggests that OSEP conduct studies on special education spending and spending on general education and other special needs programs for students with disabilities on a more frequent basis to be determined by the director of the Office of Special Education Programs in conjunction with the assistant secretary for Special Education and Rehabilitative Services. In addition, efforts should be made to coordinate with the National Center for Education Statistics to improve ways of collecting such information on a continual basis.
Based on the comments of experts, Commissioners and others, the Commission recommends that data be collected and analyzed for use by policymakers in the following areas:
• Use of a census-based formula for distribution of special education funds;
• Determination of the costs and necessary resources for student achievement of identifiable outcomes and results;31
• Influence of eligibility parameters and uses of other federal funds for high-need students;
• Impact of state special education high-need reimbursement models and risk management pools on service delivery models and settings in special education;
• Influence of pooling Part C and section 619 funds on early intervention success; and
• Impact of fiscal reforms in special education on the general education program.
To better balance the competing needs of localities to fund special education and states to ensure special education services benefit children within their borders, the Commission further recommends IDEA be amended to require that a full 90 percent of Part B state grant funds be passed through to local school districts. IDEA should allow states to use a fixed percent of the flow-through funds to supplement the creation of risk management pools and use the balance of remaining grant funds under Part B for discretionary, administrative and high-need student reimbursement purposes.32
“The federal government should assume a significant responsibility for funding of the most expensive students.”
—Commissioner Jay G. Chambers
Further, IDEA should allow states and local districts to pool existing Part C infant and toddler program funds and section 619 preschool funds with Part B to create seamless systems of early intervention services. States and local districts should also be allowed to use Part B funds to provide pre-referral services.
The recommendations proposed in this section of the report represent significant cornerstones in the revision and improvement of special education finance. When taken in aggregate, the recommendations can serve to move the financial debate in special education from an argument of under-funded mandates to a focus on reimbursement for results. The Commission believes that the proposed changes in this section can also serve to wring many other inappropriate fiscal incentives from public education finance systems. Some examples may include, but are not limited to, finance structures that encourage minority over-identification, cause districts to operate special education programs solely on the basis of available excess funding, thwart parental choice, drive special educators from their field and discourage local innovation.