Financing Special Education - Princeton University

121

Financing Special Education Thomas B. Parrish Jay G. Chambers Abstract The best available data indicate that approximately 12% of K–12 public education budgets are allocated to special education and that the cost per student is about 2.3 times the cost of regular education. About 8% of special education funds come from the federal government, 56% from state governments, and the remainder from local school districts. However, the division of fiscal responsibility between state and local sources varies considerably from state to state. Fiscal pressures on special education have increased markedly in recent years as a result of increasing overall school populations, increasing proportions of students found eligible for special education services, and increasing fiscal pressures on schools. At least six states have recently adopted, and the federal Department of Education has recently recommended, special education funding based on census counts of total school populations rather than on the number of students identified for special education services. Proponents of census-based funding foresee greater efficiency of services, while opponents fear a loss of services targeted to individualized needs. An additional proposal is that census-based funding be modified to increase funding to jurisdictions with higher rates of poverty. Criteria for evaluating state special education funding formulas are proposed.

O

ver the past 20 years, services for students with disabilities have become a major component of public education in the United States, by some estimates accounting for 12% of public school expenditures.1 What started as a patchwork of programs for students with disabilities began to be transformed into a truly national system of services with the passage of the Education for All Handicapped Children Act (Public Law 94–142) in 1975. First, this article describes what is known about current funding levels and funding sources for special education. With the growing movement to integrate special education services into the general education classroom, in many jurisdictions it is no longer possible to divide expenditures accurately between special and general education. Second, projected trends of The Future of Children SPECIAL EDUCATION FOR STUDENTS WITH DISABILITIES Vol. 6 • No. 1 – Spring 1996

Thomas B. Parrish, Ed.D., is principal research scientist and codirector of both the Education and Public Sector Finance Group (EPSF) and the national Center for Special Education Finance (CSEF) at the American Institutes for Research in Palo Alto, CA. Jay G. Chambers, Ph.D., is senior research fellow and co-director of both the Education and Public Sector Finance Group (EPSF) and the national Center for Special Education Finance (CSEF) at the American Institutes for Research in Palo Alto, CA.

122

THE FUTURE OF CHILDREN – SPRING 1996

increasing demand for special education services are discussed. Third, issues driving current efforts to reform the funding of special education are examined. Fourth, arguments are presented for and against funding based on total school enrollment (“census-based funding”) rather than on special education enrollment. Modification of census-based funding is proposed, to provide supplemental funds for jurisdictions with higher rates of poverty. Finally, criteria for evaluating the appropriateness of state special education funding formulas are listed.

Current Financing Structure for Special Education Levels and Sources of Funding Special education services are paid for with a combination of local, state, and federal funds. While expenditures for special education services in the United States are known to be considerable, exact current expenditures are unknown. One estimate is $31.8 billion, or 12% of 1995–96 expenditures for K–12 public education nationally.2 No more precise estimates of current national expenditures are available because the states were last required to report these amounts for the 1987–88 school year and because the last independent national special education cost study was based on 1985–86 data. Table 1 shows the 1987–88 total special education expenditures by state and the percentage shares at the federal, state, and local levels. Based on these data, the United States in 1987–88 spent a total of $19.2 billion for special education and related services from federal, state, and local sources. Overall, federal aid comprised 8% of total expenditures for special education and related services, 56% was derived from state coffers, and 36% was derived from local sources. However, this ratio varied considerably from state to state. Federal aid ranged from 65% of total special education expenditures in Kentucky3 to 3% of costs in Minnesota and New York. Eleven states received more than 12% of total support from federal sources, while seven states received less than 5%. State expenditures for special education varied even more widely, from approximately 90% (or more) of total expenditures (in the District of Columbia, Hawaii, Idaho, Missouri, New Mexico, and Rhode Island) to 17% (or less) of total costs (in Kentucky, New Hampshire, Oregon, and Virginia). Local

revenues as a percentage of total special education expenditures ranged from 3% (or less) of total (in Alabama, New Mexico, and Oklahoma) to over 70% (in Michigan, New Hampshire, Oregon, and Virginia). One reason the federal government stopped collecting these data may have been the difficulty many states had in obtaining information from school districts and the corresponding lack of reliability. In a recent survey conducted by the Center for Special Education Finance (CSEF), fewer than onehalf of the states had in place fiscal reporting systems that break out separately all expenditures related to special education. A number of states do not require separate accounting for special education because of the complexity of this type of separation. For example, a resource teacher may work part time in the regular classroom, providing supplemental assistance to both special education and regular students. Some states would not require the district to divide that teacher’s salary between special and regular budgets. Thus, while it is often reported in the popular media that special education costs are rising (“rocketed” according to a recent U.S. News and World Report feature article)4 and that special education expenditures are rising at a rapid pace, in fact current data are not available to substantiate this claim.

How Funds Are Used The most recent and reliable assessment of special education expenditures, with a nationally representative sample, used 1985–86 data. It showed that, on average, expenditures for students receiving special education services were 2.3 times as great as for general education students.1 However, expenditures vary considerably by type of disability and the nature of the

Financing Special Education

123

Table 1 Total Expenditures for Special Education and Related Services, 1987–88 Percentage Total Federal

State

Local

$ 245,327,616 94,759,808 190,541,825 79,743,473

11.58 4.84 11.38 16.28

85.39 69.95 44.94 56.93

3.04 25.20 43.67 26.79

1,760,879,250 229,034,857 414,328,000 51,678,931

6.20 7.65 4.74 12.89

78.60 40.21 38.89 62.47

15.20 52.14 56.37 24.64

39,032,732 807,441,711 424,778,788 83,996,111

10.32 5.76 6.56 4.46

89.68 61.92 75.02 95.54

na 32.32 18.42 na

58,549,239 1,465,759,516 251,729,322 195,667,724

10.16 7.52 14.98 7.62

89.84 42.12 52.55 75.58

na 50.37 32.46 16.80

Kansas Kentucky Louisiana Maine

175,397,831 223,524,336 259,438,868 78,910,940

6.86 65.30 6.91 13.90

51.19 11.30 69.81 49.72

41.95 23.40 23.29 36.38

Maryland Massachusetts Michigan Minnesota

347,740,452 671,473,211 633,397,752 399,023,000

7.57 6.88 7.30 3.70

39.27 36.49 21.89 66.82

53.17 56.63 70.81 29.48

Mississippi Missouri Montana Nebraska

118,586,585 288,736,260 38,943,312 73,514,055

13.69 9.64 10.11 11.11

79.93 90.36 71.54 78.89

6.38 na 18.34 10.00

Nevada New Hampshire New Jersey New Mexico

91,601,889 92,815,443 500,491,873 119,614,213

5.39 5.37 10.66 8.37

55.69 17.42 78.46 90.64

38.93 77.22 10.88 0.99

3,341,610,000 277,869,119 42,667,948 1,189,440,634

3.17 13.11 7.33 4.90

46.91 73.68 27.60 56.65

49.92 13.21 65.07 38.45

Oklahoma Oregon Pennsylvania Rhode Island

287,856,953 201,238,104 717,513,364 104,963,770

9.60 8.70 11.03 5.58

87.69 17.08 59.47 94.42

2.71 74.22 29.50 na

South Carolina South Dakota Tennessee Texas

168,715,167 36,957,818 171,758,872 825,837,026

13.70 9.73 14.27 11.94

55.78 34.77 63.20 56.11

30.52 55.49 22.53 31.95

Utah Vermont Virginia Washington

87,892,414 49,953,033 372,139,534 306,849,849

14.24 9.18 7.17 6.31

81.43 41.30 17.38 70.16

4.33 49.52 75.45 23.53

West Virginia Wisconsin Wyoming Puerto Rico

121,976,310 468,972,759 51,702,710 48,234,267

11.98 6.12 4.46 30.27

73.69 59.21 79.07 69.73

14.33 34.67 16.47 na

7.86

55.88

36.26

Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Dist. of Columbia (DC) Florida Georgia Hawaii Idaho Illinois Indiana Iowa

New York North Carolina North Dakota Ohio

States, DC, and PR

$19,204,055,632

Sources: Office of Special Education Programs. Implementation of the Individuals with Disabilities Education Act: Fourteenth Annual Report to Congress. Washington, DC: U.S. Department of Education, 1992, pp. A209–10, Table AH1; Parrish, T.B., and Verstegen, D.A. Fiscal provisions of the Individuals with Disabilities Education Act. Policy Paper No. 3. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, 1994. Reprinted with permission.

124


Table 2 Average Per-Pupil Expenditures for Special Education Programs by Individual Handicapping Condition and Program Type Program Type Handicapping Condition Preschool

Self-Contained

Resource

Speech impaired

$3,062

$7,140

$647

Mentally retarded

3,983

4,754

2,290

Orthopedically impaired

4,702

5,248

3,999

Multihandicapped

5,400

6,674

na

Learning disabled

3,708

3,083

1,643

Seriously emotionally disturbed

4,297

4,857

2,620

Deaf

5,771

7,988

na

na

20,416

na

Hard-of-hearing

4,583

6,058

3,372

Other health impaired

3,243

4,782

na

Autistic

6,265

7,582

na

Visually impaired

4,068

6,181

3,395

Noncategorical

3,686

3,684

1,731

Deaf-blind

Source: Moore, M.T., Strang, E.W., Schwartz, M., et al. Patterns in special education service delivery and cost. Washington, DC: Decision Resources Corporation, 1988, p. 86.

services received. Table 2 shows the range of expenditure, for 1985–86, for differing types of students in varying settings. For example, while the average expenditure for a student with speech impairment in a self-contained setting was $7,140, the average expenditure for such students served in a resource room setting was only $647. The students with speech impairments served in the selfcontained class undoubtedly had much more intensive needs and were served for the majority of the day in a small special education classroom. Perhaps the student-toteacher ratio in this class was something like eight to one. The resource room configuration is generally a much less intensive service where the teacher case load will often exceed 30 students. The largest variable affecting per pupil costs is the use of personnel. The 1985–86 study reported 62% of the special education dollar going to direct instruction, 13% to special education assessment involving special and general education students, 11% for such support services as program administration, 10% for related services such as

physical therapy and social work services, and 4% for transportation.1

The Federal Share of Funding Federal funding under Part B of the IDEA, the state grant-in-aid program, is based on each state’s count of children receiving special education services. Federal funding is not affected by the disability categories of the children, their placement, or the services provided. Part B limits the number of children who may be counted for federal funding purposes to 12% of the general schoolage population. However, a state must provide special education programs and services to all eligible children with disabilities. The federal allocation for special education is based upon the national average per pupil expenditure (APPE) for all educational services. In 1978, the first year of federal funding, the federal allocation was set at 5% of APPE and was authorized to rise to a high of 40% of APPE by 1982. However, federal aid allocated to students with disabilities has never exceeded 12.5% of the national APPE and reached fully authorized levels only dur-

125

Financing Special Education ing the first two years that the program was effective.

State and Local Shares of Funding All 50 states have provisions in their public education funding formulas that acknowledge the cost of educating special education students. In each instance, they are designed to provide for some share of the excess cost associated with special education. State categorical funding formulas for special education encompass a wide variety of approaches, including the following: ■ reimbursing a fixed percentage of actual special education expenditures (11 states), ■ pupil “weighting” systems in which special education students generate a fixed multiple of the general education pupil allocation, such as two times as much (18 states), ■ systems that fund specific special education resources such as teachers (11 states), and ■ fixed dollar grants per student (10 states). A relatively new and important variation in funding formulas is census-based funding, which is based on a count of all students in a district rather than just the special education count. This approach to funding offers significantly more flexibility to local schools but has raised concerns among some about accountability.

Trends in Special Education Populations and Financing Needs5 The number of students served by special education has increased steadily from 3.7 million in 1976–776 to 5.3 million children and youth ages 3 through 21 being served in 1993–94.7 Based on sociodemographic variables present in the overall school population, continued growth in the special education population is anticipated. Since the passage of Public Law 94–142 in 1975, states and localities have been greatly aided in their ability to fund an expanding special education population by a substantial decrease in the size of the school-age population. Total national K–12

enrollment in public schools dropped from 43.5 million students in 1977 to around 39 million in 1982 and then held steady through 1986.6 This decline reduced the fiscal pressures associated with supporting regular education programs and probably reduced the rate of growth of special education populations. The situation is changing. Beginning in the mid-1980s, overall student enrollment has increased each year, rising to 44 million students in 1994 and projected to rise to 49 million by 2002.8 This growth creates escalating costs in both general and special education programs and mounting infrastruc-

The special education population is expected to include increasing numbers of students with high-risk characteristics, including poverty, low birth weight, substance abuse, and HIV infection. ture requirements for facilities, equipment, and personnel.9 At the same time, fiscal stress across the full spectrum of social services is widespread, generating pressures on federal, state, and local governments. The economic outlook suggests a minimum of new services and a continued restructuring of current programs in an effort to achieve greater budget efficiencies.10 The special education population is also expected to continue to grow as a result of (1) increasing numbers of young children eligible for services following the enactment of the 1986 Amendments, which added the Preschool Grants Program and the Infants and Toddlers with Disabilities Program to the IDEA; (2) the addition in 1990 of two new disability categories (autism and traumatic brain injury) extending special education eligibility; and (3) the rising rates of sociodemographic indicators present among the new school-age population, which often act as predictors of disabilities in children and youth.11–13 This population is expected to include increasing numbers of students with high-risk characteristics that are related to learning problems and developmental disabilities, including poverty,14 low birth weight,11 substance abuse,15–17 and HIV


126

Table 3 Special Education Finance Reform in the States State Special Education Dollars for Target Population Only

Implemented Reform Within Last Five Years

Considering Major Reform

✔

✔

✔

Current Funding Formula

Basis of Allocation

Flat Grant

Special Education Enrollment

Alaska

Pupil Weights

Type of Placement

Arizona

Pupil Weights

Disabling Condition

Arkansas a

Pupil Weights

Type of Placement

✔

California

Resource-based

Classroom Unit

✔

Colorado

Flat Grant


✔

Connecticut

Percent Reimbursement

Actual Expenditures

Delaware

Resource-based

Classroom Unit

Florida

Pupil Weights

Disabling Condition

Georgia

Pupil Weights

Disabling Condition

Hawaii

Pupil Weights

Placement and Condition

Idaho


Actual Expenditures

Illinois

State Alabama

✔

✔ ✔ ✔ ✔

✔

✔ ✔ ✔

For 90% of funds

✔ ✔

✔

✔

Resource-based

Allowable Costs

Indiana

Pupil Weights

Disabling Condition

✔

Iowa

Pupil Weights

Type of Placement

✔

Resource-based

Number of Special Education Staff

Kentucky

Pupil Weights

Disabling Condition

Louisiana


Actual Expenditures

✔

Maine


Allowable Costs

✔

Maryland

Flat Grant


Massachusetts

Flat Grant

Total District Enrollment

Michigan


Allowable Costs

✔

✔

Minnesota


Actual Expenditures

✔

✔

Mississippi

Resource-based


Missouri

Resource-based


Montana

Flat Grant


Nebraska


Allowable Costs

Kansas

a Formula

amounts now frozen and are based on allocations in prior years.

✔ ✔ ✔

✔ ✔ ✔

✔

✔

✔

✔ ✔

✔

✔

127


Table 3 (continued) Special Education Finance Reform in the States

Current Funding Formula

Basis of Allocation

State Special Education Dollars for Target Population Only

Resource-based

Classroom Unit

✔

New Hampshire

Pupil Weights

Type of Placement

✔

New Jersey

Pupil Weights

Placement and Condition

✔

New Mexico

Pupil Weights

Services Received

✔

New York

Pupil Weights

Type of Placement

✔

North Carolina

Flat Grant


North Dakota

Flat Grant


State Nevada

Implemented Reform Within Last Five Years

✔

Considering Major Reform

✔ ✔

Resource-based

Classroom Unit

✔

Oklahoma

Pupil Weights

Disabling Condition

✔

Oregon

Pupil Weights


Pennsylvania

Flat Grant


Rhode Island


Actual Expenditures

South Carolina

Pupil Weights

Disabling Condition

For 85% of funds

South Dakota


Allowable Costs

✔

✔

Tennessee

Ohio

✔ ✔

✔ ✔ ✔

✔

Resource-based

Classroom Unit

Texas

Pupil Weights

Type of Placement

✔

✔

Utah a

Pupil Weights

Type of Placement

✔

✔

Flat Grant


Virginia

Resource-based

Classroom Unit

Washington

Resource-based

Classroom Unit

✔

West Virginia

Flat Grant


✔

Wisconsin


Allowable Costs

✔

Wyoming


Actual Expenditures

Vermont b

✔

✔

✔

✔

Table Key Pupil Weights: Two or more categories of student-based funding for special programs, expressed as a multiple of regular education aid. Resource-based: Funding based on allocation of specific education resources (for example, teachers or classroom units). Classroom units are derived from prescribed staff-student ratios by disabling condition or type of placement. Percent Reimbursement: Funding based on a percentage of allowable or actual expenditures. Flat Grant: A fixed funding amount per student or per unit.

a Formula

amounts now frozen and are based on allocations in prior years.

b Vermont’s

special education funding formula also contains a substantial percent reimbursement component.

Source: Chambers, J.G., Parrish, T.B., Hikido, C.S., and Dueñas, I. Comprehensive study for the Commonwealth of Massachusetts. Final report. Palo Alto, CA: Center for Special Education Finance, American Institutes of Research, November 8, 1995.

128

THE FUTURE OF CHILDREN – SPRING 1996 infection.18 Arguably, continued expansion of the special education population may also be driven by such general education reforms as raised academic standards.

Concerns About the Current System The Center for Special Education Finance (CSEF) recently completed a survey of all states regarding special education finance. The survey revealed that 15 states had implemented some type of finance reform in the previous five years (4 of these states were again considering reform) and that 32 states are currently considering major changes in their special education funding policies. This extraordinarily high level of reform activity raises major questions about the issues driving these changes. Table 3 summarizes this finance reform movement by state. The type of funding formula and the basis utilized for allocating funds are displayed in columns 2 and 3. The bases on which state special education funding allocations are made are important to an understanding of the policy implications of funding alternatives. For example, alloca-

Thirty-two states are currently considering major changes in their special education funding policies. tions based on type of student placement tend to limit the flexibility of local decision makers with regard to how special education populations are served. In contrast, allocations based on placement-neutral criteria, such as total district enrollment, allow much more discretion in the placement of students. Another important provision relating to flexibility in the use of special education funds is whether state special education funds must be spent exclusively on special education students (column 4). Although such a restriction favors fiscal accountability, it tends to reduce local control. Interestingly, while this type of restriction is often presumed to exist, 28 states report that they do not require that all special education funds be spent exclusively on special education services.

Issues Driving Reform The consensus among state education officials surveyed was that (1) greater flexibility was needed in the provision of special education services and (2) disincentives for least restrictive placements had to be eliminated. Reforms are also being driven by (3) fiscal stress, (4) the need for accountability, (5) the desire to simplify formulas, (6) the inadequacy of current services, and (7) the requirement to improve equity. Rising special education costs and enrollments have driven reform in some states. For example, Pennsylvania faced a $100 million deficit in special education funding before reform. Under the state’s prior reimbursement system for special education, which was much more liberal in its funding than the regular education system, some districts had identified up to 36% of their students for special education.

State Level Fiscal Incentives for More Restrictive Placements19 While funding policy should be designed to foster the state’s programmatic priorities, the reality is often the opposite. Programmatic decisions (such as how to provide services or which children will be determined eligible), although made by local officials, are often affected by the incentives created through the state’s funding system. State funding formulas, which inadvertently create fiscal incentives for more restrictive special education placements, have been a special target of reform efforts. All special education funding systems contain some types of placement incentives, and some reward more restrictive placements. This pattern was documented in Tennessee by researchers20 who tracked special education placement patterns before and after state finance reform. There appears to be no evidence that states are deliberately designing their funding formulas to foster more restrictive placements. Rather, these types of incentives appear to be artifacts of funding systems that were much more focused on other finance issues, such as the adequacy and equity of funding and the ability to track and audit federal funds. Many states are recognizing that state formulas may be fostering restrictive placements and are actively engaged in attempts to correct this problem.

Financing Special Education Incentives for restrictive placement are most likely to be found in funding systems that are tied to the location in which services are provided. This type of incentive will occur any time that a more restrictive placement will generate more state aid in relation to local costs than its less restrictive alternative. For example, if a district will receive full state support for placing a child in a high-cost and more restrictive setting but only partial or no support for a less restrictive placement, the cost to the district is minimized through the high-cost placement. A recent report from the National Council on Disability cites Illinois as only reimbursing districts at the rate of about $2,000 per child if served locally but meeting all excess costs beyond $4,500 when that same child is served in a separate, private special education school.21 Many states are now examining their special education funding systems to see if they contain financial disincentives to inclusionary practices. In Vermont, for example, the state director describes several decades in which statewide commissions and workshops had a limited impact on state goals for educating students with disabilities in less restrictive settings. However, after Vermont moved to its new funding system, where dollars were not tied to more restrictive placements, according to the State Director of Special Education, the sentiment supporting restrictive, high-cost placements diminished considerably.22 Conversely, new incentives may be created for less costly placements under some of the newly developed funding systems, as found in Oregon, Pennsylvania, and Vermont. This may be beneficial if these lower-cost services remain sufficient to meet the needs of the student. However, some educators argue that placement in regular classrooms, without appropriate levels of funding to ensure adequate support mechanisms, may in fact be more restrictive for students with special needs. A central aspect of current reform activity is the widespread interest in more inclusionary educational practices, which have been endorsed by several national organizations and states. For example, the National Association of State Boards of Education (NASBE) in 1992 released a strong policy statement, Winners All: A Call for Inclusive Schools.23 It

129 advocates a shift in education policy to foster the development of well-integrated services for all students. It argues that the linkages between funding, placement, and disability labels, which have traditionally provided the foundation for special education funding, must be broken. Other organizations have taken a more cautious approach to inclusion. (See the article by Hocutt in journal this issue for a list of the positions taken by professional and advocacy organizations.)

Efficiency Concerns Concerns about the efficiency of special education services have also stimulated discussions of reform. For example, some studies show only about 62% of special education dollars are being used for direct special education instructional services.1,24 For students with mild disabilities in resource room programs, an average 22% of all funds for special education services were spent on assessment and 15% on special education program administration.24 Questions are being raised about whether some of these dollars might be better spent on direct services. Such concerns particularly extend to special education assessment and program administration. For example, the average assessment cost per special education student of $1,206 (an estimated $1,648 in 1995–96 dollars), as reported by Moore and colleagues,1 is used primarily to determine whether a student does or does not qualify

Some studies show only about 62% of special education dollars are being used for direct special education instructional services. for special education services. Upon placement, special education teachers often report that their first activity is to reassess the students to determine their instructional needs because the expensive eligibility assessment is not useful for this purpose.24 Based on the belief that some students with special needs could be served as effectively, and much less expensively, outside special education, many states are turning to prereferral interventions for students with special needs. However, under federal guidelines

130

© David Young-Wolff/Tony Stone Images


and some state guidelines, such prereferral interventions are not eligible for reimbursement, a clear disincentive for local districts. Efficiency concerns are also raised about the relatively strict categorical nature of special education services. As noted by the Director of Special Education in the state of Florida, “When over one-half of our students qualify for at least one type of special, categorical program, it is no longer clear that it makes sense to refer to them as special.”25 The separation of educational programs through strict categorical provision is being increasingly challenged, for example through some of the provisions specified in the federal Goals 2000 legislation and for “schoolwide projects” under the federal Title 1 program. Specifically, the efficiency of the multiple administrative and service structures required by this type of program separation is questioned.26,27 Last, efficiency questions are most likely to inspire public discussion in the few extreme examples of costly and controversial services. One such example was recently reported in New York State, where each week a 12-year-old student with disabilities rides over an hour to get to the local airport to be flown to a special residential placement located at the opposite side of the state. At the end of the week he repeats this route, at a cost to the state in excess of $100,000. This

continues despite the obvious hardship on the student and the arguments presented by the student’s district of residence that appropriate services could be provided at home at a much lower cost.28 Questions are being raised about the ability of such segregated services to meet the needs of students with disabilities, as well as whether these transportation costs could not be better used to make local school services more accessible to students with special needs.29

Census-Based Funding One of the predominant proposals for special education fiscal reform is census-based funding.30 Over the past few years, at least six states have adopted state special education funding systems that are primarily, or exclusively, based on total district enrollments (that is, census based), rather than on special education child counts.31 The U.S. Department of Education also recommended a census-based approach to Part B funding to Congress in the current IDEA reauthorization proceedings. The purported advantage of censusbased funding is that it reduces the need for formal procedures for determining program eligibility. When appropriate, students can be served outside special education, thereby (1) saving the high costs of identification and assessment, (2) focusing the allocation of resources on instructional and

Financing Special Education related services, (3) increasing flexibility for local decision makers, and (4) avoiding the stigma to the student of being labeled as having a disability. Opposing arguments include the following: (1) students with legitimate needs may not be identified or served if special education is de-emphasized, (2) current funding levels for special services may drop if they are integrated into regular education, and (3) jurisdictions with disproportionately large numbers of students with disabilities will lose the most funding.

Movements Toward CensusBased Funding At the State Level Greater emphasis on local flexibility is a common characteristic of state reform efforts. Census-based funding generally offers the most flexibility to local school districts in their use of special education funds. In some states, reform has resulted in a reduction in the rate of identification of special education students.32 This has been accomplished through innovations in local practice such as allocating resources for prereferral services and utilizing special education resources in regular education classrooms. Generally, reform states feel that this reduction in the count of special education students is a change for the better and express concern that current federal policies run counter to their efforts.5 Because the IDEA allocation is based on the number of students identified for special education services (up to 12%), states that are serving special needs students outside the special education system are losing federal funds as their counts of identified students drop. At the Federal Level Reformers argue that the federal government should also adopt a census-based approach to Part B funding. This proposal was included in the U.S. Department of Education’s recommendations to Congress in relation to current IDEA reauthorization proceedings. However, although this proposal is strongly supported by some states and some professional organizations,23

131 other states and organizations have refused to embrace it.33 As there are important tradeoffs involved in this type of change, some major arguments for and against census-based funding are discussed below. In reviewing these arguments, it is important to note that they are meant to reflect sentiments often expressed in discussions on the potential merits and demerits of such a system. As such, they do not necessarily reflect the opinion of the authors, nor are they necessarily based on fact. Where research is available to support these assertions, citations are provided.

Arguments in Favor ■ Working outside special education is less costly. As suggested earlier, the special education assessment and referral process is costly, and studies show that, in many instances, the tests and methods for classifying students provide little information that is useful in planning instructional programs for these students.34–36 ■ Some students may be better served outside special education. Special education programs as they have been traditionally designed tend to isolate students in more segregated placements (for example, pull-out programs or special classes). Labeling students tends

Census-based funding generally offers the most flexibility to local school districts in their use of special education funds. to stigmatize them for the remainder of their schooling experiences and perhaps throughout their lives.5 Once students are placed in special education, they tend to stay in the program.24 ■ Overidentification is now the major issue. Before the passage of Public Law 94–142, large segments of the special education population were being underidentified and/or underserved.5 Now, however, states are reporting that overidentification rather than underidentification is their major concern.37 ■ Procedural safeguards would remain in place. Movement to a census-based funding system would not jeopardize any of the procedural

132

THE FUTURE OF CHILDREN – SPRING 1996 safeguards under the IDEA. In addition, all students with disabilities would continue to be protected under Section 504 of the Rehabilitation Act and by the Americans with Disabilities Act (ADA) whether they are labeled as special education students or not. (See the article by Martin and Martin in this journal issue.)

Arguments Against ■ Census-based federal or state funding would not be equitable to states or school districts with higher identification rates. Identification rates of students eligible for special education vary widely across jurisdictions. (See the article by Lewit and Baker in this journal issue.) States and districts might exhibit higher percentages of special education students because of real differences in the characteristics of students that lead to disabilities.11–13 Even where student populations are comparable, states

Current levels of funding for special education services may well diminish when funds can no longer be attributed to specific special education students with legal entitlement. and districts may have been especially proactive in setting up programs for special needs students; a census-based funding system would penalize those very districts that have been most responsive to the call to identify and serve all special education students. ■ Procedural safeguards cannot be maintained if students are not identified as having special needs. Advocates argue that census-based funding would create fiscal incentives to underidentify students with disabilities or to provide few services, abridging their right to a free and appropriate education. ■ Students with disabilities would be underserved. Advocates for students with disabilities have long argued that, when categorical funding restrictions are removed, resources tend to be reallocated “to benefit the whole classroom” rather than to meet unusual individual needs. (See the article by Martin and Martin in this journal issue.) ■ A retreat from the traditional federal role of fostering and promoting special education services would occur. The federal role in special edu-

cation has been one of leadership for, and protection of, students with disabilities. A census-based federal funding system would send a message to states and communities that the federal government is backing away from this position. ■ Fiscal accountability would be jeopardized. Because funds would not be earmarked for the exclusive use of disabled students, a census-based funding system would reduce assurances of fiscal accountability at a time when such controls are seen as increasingly important by taxpayers. ■ Current levels of special education funding would be threatened. Current levels of funding for special education services may well diminish when funds can no longer be attributed to specific special education students with legal entitlement.

“Hold Harmless” Funding Agreements for States or Schools with Approved Reform Plans The arguments on both sides of the censusbased funding issue are compelling. Concerns regarding loss of accountability and potential erosion of financial support for special education are real. In addition, if one were to redistribute existing federal special education dollars using a census-based formula, states currently identifying more special education students than the national or state average could lose substantial federal funding over time.5 For these reasons, federal or state reformers may prefer to proceed with reform on a case-by-case or trial basis. Rather than moving to a census-based funding system nationwide, an alternative federal policy could be to maintain federal funding at some specified prereform levels in selected states or localities making specific reform efforts. Exactly such an experimental “hold harmless” funding agreement is an integral part of current proposals to reform special education in New York City schools.38

Poverty Adjustment The census-based funding approach assumes equal incidence of students requiring special education services across jurisdictions. In contrast, the current IDEA funding for-

Financing Special Education mula (based on the number of identified students) and some state funding formulas are predicated on the notion that some jurisdictions serve greater numbers of special education students than others and, therefore, should receive larger allocations of federal special education aid. It is clear that identification rates vary substantially (for example, Massachusetts has a rate more than twice that of Washington, D.C., or Hawaii); but it is unknown to what extent this reflects true differences in need, that is, there may be a marked difference between true need and the rate of identification. While the concept of allowing for varying needs in the funding formula is compelling, the number of students identified may be as much a matter of school officials’ choice as of student need. If the number of identified special education students is a poor measure of true need and if such a system creates incentives for increased identification, what alternative measures might be adopted? The most prominent suggestion heard is that special education funding should be adjusted to reflect variations in poverty rates across jurisdictions. As discussed earlier, substantial evidence suggests that sustained and intensive poverty results in conditions (for example, poor health and nutritional care, as well as high levels of drug and alcohol abuse for expectant mothers) that lead to larger proportions of the school-age population needing special education services. (This line of reasoning does not suggest that poverty equals disability for individual children. Indeed, a related equity issue may be the disproportionately low number of children in poverty receiving gifted and talented education services.)39 What has been suggested is that special education funding could be census-based with an adjustment for variations in poverty. Such an adjustment might be equally useful at the federal and at the state level. While some form of poverty adjustment to special education funding is worthy of serious consideration, it brings into further question the most appropriate relationship between special education under the IDEA and compensatory education under the federal Title 1 program of the Elementary and Secondary Education Act. Title 1 is

133 designed specifically to allocate supplemental federal funds to schools in poverty areas; a poverty adjustment under the IDEA may further confuse the unique roles of these two federal programs. However, a poverty adjustment under the IDEA may appeal most to those policymakers and scholars who have called for a more coherent education policy that provides an integrated approach across all programs and to those who find preventive services imperative if the growth in special education is to be curtailed.

Criteria for Reform A critically important principle in developing funding mechanisms is that they support the state’s instructional program objectives. Even the simplest funding systems contain incentives and disincentives that directly influence the orientation, quantities, and

Provisions that increase flexibility will often decrease accountability and may also bring standards of program adequacy into question. types of services provided at the local level. What criteria, then, should be used as a basis for designing and evaluating special education funding systems? Box 1 presents a set of criteria for use in evaluating alternative ways of allocating special education aid. States attempting to forge new special education finance structures will repeatedly encounter tension between these types of competing policy criteria. A major focus on one criterion may come at the expense of one or more of the others. For example, ■ Provisions that increase flexibility will often decrease accountability and may also bring standards of program adequacy into question. ■ A formula that is easy to understand and that reduces the local reporting burden may not be the most effective at allocating limited special education resources where they are most needed. ■ A highly equitable system might be considered to be one that is tightly linked to


134

Box 1 Criteria for Evaluating State Special Education Funding Formulas Understandability The funding system and its underlying policy objectives can be easily understood by all concerned parties (legislators, legislative staff, state department personnel, local administrators, and advocates). The concepts underlying the formula and the procedures to implement it are straightforward and “avoid unnecessary complexity.”

Equity Student equity: Dollars are distributed to ensure comparable program quality regardless of district assignment. Wealth equity: Availability of overall funding is not correlated with local wealth. District-to-district fairness: All districts receive comparable resources for comparable students.

Adequacy Funding is sufficient for all districts to provide appropriate programs for special education students.

Predictability Local education agencies know allocations in time to plan for local services. The system produces predictable demands for state funding. State education agencies and local education agencies can count on stable funding across years.

Flexibility Local agencies are given latitude to deal with unique local conditions in an appropriate and cost-effective manner. Changes that affect programs and costs can be incorporated into the funding system with minimum disruption. Local agencies are given maximum latitude in use of resources in exchange for outcome accountability.

Identification Neutrality The number of students identified as eligible for special education is not the only, or primary, basis for determining the amount of special education funding to be received. Students do not have to be labeled to receive services.

Reasonable Reporting Burden Costs to maintain the funding system are minimized at both local and state levels. Data requirements, record keeping, and reporting are kept at a reasonable level.

Fiscal Accountability Conventional accounting procedures are followed to assure that special education funds are spent in an authorized manner. Procedures are included to contain excessive or inappropriate special education costs.

Cost-Based Funding received by districts for the provision of special education programs is linked to the costs they face in providing these programs.


135

Box 1 (continued) Criteria for Evaluating State Special Education Funding Formulas Placement Neutrality District funding for special education is not based on the type of educational placement. District funding for special education is not based on disability label.

Cost Control Patterns of growth in special education costs statewide are stabilized over time. Patterns of growth in special education identification rates statewide are stabilized over time.

Outcome Accountability State monitoring of local agencies is based on measures of student outcomes. A statewide system for demonstrating satisfactory progress for all students in all schools is developed. Schools showing positive results for students are given maximum program and fiscal latitude to continue producing them.

Connection to General Education Funding The special education funding formula should have a clear conceptual link to the general education finance system. Integration of funding will be likely to lead to integration of services.

Political Acceptability Implementation avoids any major short-term loss of funds. Implementation involves no major disruption of existing services. Source: Adapted from Hartman, W.T. State funding models for special education. Remedial and Special Education. (1992) 13,6:47–58.

variations in local costs of providing special education services. Districts that spend more on special education services because their resource costs are higher, because they serve more students, or because they serve students with more severe needs would receive more state aid in recognition of these cost differentials. On the other hand, such a system may also have a fairly substantial reporting burden, may lack flexibility, and may not be placement neutral. In addition, it is important to recognize that, although changes in fiscal policy are necessary, they are not generally sufficient to result in program improvement. States reporting the most success in coordinating program and fiscal reform emphasize the need for financial incentives, or at least the removal of disincentives, along with the provision of a comprehensive system of professional devel-

opment and ongoing support to educators and parents to effect the desired changes. (See the article by Hocutt in this journal issue.)

Conclusion The growth in special education populations and costs, along with competing demands for limited resources, has led to widespread efforts to reform special education finance. New approaches, like censusbased funding, offer added flexibility to local decision makers, but the effectiveness of alternative services delivered in the general education classroom are as yet unproven. (See the article by Hocutt in this journal issue.) In this era of scarce resources, increased demand for services, and heightened scrutiny of education, concepts of accountability are more important than ever. As more


136 states, and perhaps the federal government, relax traditional accountability measures to allow for more flexibility and freedom in the use of special education funds, what will replace them? Even advocates who support enhanced flexibility in the use of special education funds express concerns about replacing traditional accountability measures with simple trust. At the same time, traditional accountability mechanisms have been more concerned with the legal use of funds than

with whether they are being used well. If accountability systems were devised and implemented that could clearly measure the extent to which the children for whom these dollars are intended are making educational progress, then the linkage between special education eligibility, student counts, and funding would certainly be less important. The development of such resultsbased accountability systems may well be one of the most critical components in the movement to revise special education finance policies.

1. Moore, M.T., Strang, E.W., Schwartz, M., et al. Patterns in special education service delivery and cost. Washington, DC: Decision Resources Corporation, 1988. 2. This estimate is based on a projection of $265 billion in current expenditures for K–12 public education for the 1995–96 school year. Gerald, D.E., and Hussar, W.J. Projections of education statistics to 2005. NCES 95–169. Washington, DC: U.S. Department of Education, National Center for Education Statistics, 1995. Twelve percent (see note no. 1, Moore, Strang, Schwartz, et al.) of $265 billion is $31.8 billion. 3. The 65% figure is unusual. The second and third highest percentages of federal aid contributions were 30% in Puerto Rico and 16% in Arkansas. 4. “Nationally, the bill for all special education services has rocketed from roughly $1 billion in 1977 to more than $30 billion today.” Shapiro, J.P., Loeb, P., Bowermaster, D., et al. Separate and unequal: How special education programs are cheating our children and costing taxpayers billions each year. U.S. News and World Report. December 13, 1993, p. 48. 5. This section borrows heavily from Parrish, T.B., and Verstegen, D.A. Fiscal provisions of the Individuals with Disabilities Education Act. Policy Paper No. 3. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, 1994. 6. National Center for Education Statistics. 120 years of American education: A statistical portrait. T.D. Snyder, ed. Washington, DC: NCES, 1993. 7. Office of Special Education Programs. Implementation of the Individuals with Disabilities Education Act: Seventeenth annual report to Congress. Washington, DC: U.S. Department of Education, 1995. 8. U.S. Department of Education press release. School enrollments to reach record level: Riley warns against education budget cuts. Washington, DC: Department of Education Internet Home Page (www.ed.gov), released August 11, 1995. 9. Reynolds, M.C., and Lakin, K.C. Noncategorical special education: Models for research and practice. In Learner characteristics and adaptive education. M.C. Wang, M.C. Reynolds, and H.J. Walberg, eds. Oxford: Pergamon Press, 1987, pp. 331–44. 10. Fiscal survey of the states. Washington, DC: National Governors’ Association and National Association of State Budget Officers, 1994. 11. Baumeister, A.A., Kupstas, F., and Klindworth, L.M. New morbidity: Implications for prevention of children’s disabilities. Exceptionality (1990) 1,1:1–16. 12. Hallahan, D.P. Some thoughts on why the prevalence of learning disabilities has increased. Journal of Learning Disabilities (1992) 25,8:523–28. 13. Verstegen, D.A. The economic and demographic dimensions of national education policy. In Demographic trends and cultural diversity: Challenges for school finance policy. J.G. Ward and P. Anthony, eds. Newbury Park, CA: Sage, 1991, pp. 71–96. 14. Noel, M.M., and Fuller, B.C. The social policy construction of special education: The impact of state characteristics on identification and integration of handicapped children. Remedial and Special Education (1985) 6,3:27–35. 15. Chasnoff, I.J. Cocaine and pregnancy: Clinical and methodological issues. Clinics in Perinatology (1991) 18,1:113–23.


16. Chasnoff, I.J., Griffith, D.R., Frieier, C., and Murray, J. Cocaine/polydrug use in pregnancy: Two-year follow-up. Pediatrics (1992) 89:284–89. 17. Schultz, F.R. Fetal alcohol syndrome. In Mental aspects of developmental disabilities in children birth to three. J.A. Blackman, ed. Rev. ed. Rockville, MD: Aspen, 1984, pp. 109–10. 18. Diamond, C.W., and Cohen, H.J. AIDS and developmental disabilities. Prevention update. Washington, DC: National Coalition on Prevention of Mental Retardation, 1987. 19. This section borrows heavily from Parrish, T.B. State funding provisions and least restrictive environment: Implications for federal policy. Brief No. 2. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, Fall 1993. 20. Dempsey, S., and Fuchs, D. “Flat” versus “weighted” reimbursement formulas: A longitudinal analysis of statewide special education funding practices. Exceptional Children (1993) 59,5:433–43. 21. Inclusionary Education for Students with Disabilities. Washington, DC: National Council on Disability, 1995. 22. This statement is based on notes from a presentation made by Vermont’s State Director of Special Education at the State Data Managers’ Conference held in March 1993 by the Office of Special Education Programs, U.S. Department of Education. 23. National Association of State Boards of Education. Winners all: A call for inclusive schools. The report of the NASBE Study Group on Special Education. Alexandria, VA: NASBE, October, 1992. 24. Shields, P.M., Jay, D.E., Parrish, T., and Padilla, C. Alternative programs and strategies for serving students with learning disabilities and other learning problems. Final report. Menlo Park, CA: SRI International, 1989. 25. Address given to Florida Futures Conference. Tampa, September 16–17, 1994. 26. Verstegen, D.A. Consolidated special education funding and services: A federal perspective. Policy Paper No. 6. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, 1995. 27. McLaughlin, M.J. Consolidated special education funding and services: A local perspective. Policy Paper No. 5. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, 1995. 28. Schnaiberg, L. District seeks to pare $136,000 special education bill. Education Week. September 27, 1995, p. 5. 29. For a full discussion of the need to remove fiscal incentives for more restrictive placements, see Parrish, T.B. Fiscal issues in special education: Removing incentives for restrictive placements. Policy Paper No. 4. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, 1994. 30. For a more thorough description and discussion of this concept, see note no. 5, Parrish and Verstegen. 31. These states are Massachusetts, Montana, Pennsylvania, and Vermont. South Dakota and North Dakota have also adopted such systems, but they have not yet been implemented. 32. Montgomery, D.L. Profile of special education finance reform in Vermont. Palo Alto, CA: Center for Special Education Finance, American Institutes for Research, 1995. 33. See, for example, Council for Exceptional Children. Summary of Administration, House, and Senate IDEA Provisions on Major Issues with CEC Position. Handout from keynote speaker, Nancy Safer, Interim Executive Director, CEC. The International Public Policy Conference sponsored by Council of Administrators of Special Education, Inc. Scottsdale, AZ, November 16, 1995. 34. Lovitt, T.C. Assessment of children with learning disabilities. Exceptional Children (1967) 34:233–39. 35. Shepard, L., and Smith, M.L. Evaluation of the identification of perceptual-communicative disorders in Colorado. Boulder, CO: University of Colorado, 1981. 36. Ysseldyke, J., Algozzine, B., Richey, L., and Graden, J. Declaring students eligible for learning disability services: Why bother with the data? Learning Disability Quarterly (1982) 5:37–44. 37. This contention is supported by an overall 29.9% increase in the number of children served in the IDEA, Part B, and Chapter 1 Handicapped programs since the inception of

137

138


Part B in 1976 through the 1990–91 school year. The 1990–91 school year showed an increase of 2.8%, which is the largest increase in a decade. However, the larger increase in this year is primarily a result of the additional availability of early childhood programs. 38. Fruchter, N., Berne, R., Marcus, A., et al. Focus on learning: Draft report on reorganizing special education in New York City. New York: Institute for Education and Social Policy, New York University, May 19, 1995. 39. Chambers, J.G., Parrish, T.B., Goertz, M., et al. Translating dollars into services: Chapter 1 resources in the context of state and local resources for education. Washington, DC: U.S. Department of Education, Office of Policy and Planning, April 1993.