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Journal Issue: Special Education for Students with Disabilities Volume 6 Number 1 Spring 1996

Special Education for Students with Disabilities: Analysis and Recommendations
Donna L. Terman Mary B. Larner Carol S. Stevenson Richard E. Behrman

How Should Appropriate, Individualized Services Be Funded?

Funding special education is a shared responsibility of the federal government, states, and local school districts. However, most budgeting for the needs of special education students occurs at the local level. Current funding structures create fiscal incentives for certain diagnoses or placements, which may not be in the best interests of the individual child. The majority of states are now in the process of examining their mechanisms for funding special education, with many states expressing interest in removing funding restrictions, maximizing local flexibility in the design of special services, and maintaining existing accountability mechanisms. This trend is based on limited practical experience.

Funding Sources

Nationally, the federal government pays for about 8% of the cost of special education. The division between states and local school districts varies widely. On average, the states pay 56% of the cost, though the range of state contributions is from 95% to 11%. The remainder comes from local school districts. In this journal issue, Parrish and Chambers list the most recent available data (see their Table 1).

The federal government and about half the states require categorical funding. That is, special education funding from those sources must be used solely to benefit special education students.

Existing Incentives

Special education could be described as a local responsibility, shaped by state funding structures and federal due process requirements. Accountability within the federal system is based on requirements of due process. State systems, on the other hand, most frequently require accountability for fiscal management. Neither encourages schools to be accountable for educational outcomes. Considerations at each level, but especially at the state level, affect decisions about what services to provide for each individual child.

Parrish and Chambers, in their article for this journal issue, report that 15 states have reformed their special education funding in the past five years, and 32 states are currently considering major changes. What would motivate such widespread interest in reform? When surveyed, state education officials cited a common theme of fiscal stress: as governmental and school budgets tighten, concerns about the expense of special education have grown. At the same time that special education's cost is under scrutiny, complaints were expressed about the perceived inadequacy of current special education services and about the restrictions placed on funding. There is a common perception that local school districts could provide better services if given more flexibility in the use of funds. (This idea, though of great political currency, has not been tested by research.) One of the most common complaints was that current funding structures often created fiscal incentives for more restrictive placements.

Federal funding for special education is based on the number of special education students in the state. State funding structures may base special education funding on the number of students identified for special education; the category of disability (for example, a school district may receive more funding for a student with hearing loss than for a student with learning disabilities); a percentage of the costs of expenditures in certain categories (for example, the state may pay a share of the salary for each special education teacher); or the student's placement (for example, the state may provide more funding for a student in a separate special education classroom than for a student receiving equivalent services in the regular classroom). Recently, six states have revised their laws to base funding on the total enrollment in the school district, regardless of disability.

All of these funding mechanisms are likely to affect program decisions. Funding based on the number of students identified for special education encourages states to identify children for special education rather than provide the same services to the student without first finding a disability. States may pay a larger share of the salary of a special educator who works in a separate setting than for one who works with the regular teacher in the regular classroom or who works with all students, regardless of IDEA eligibility. Such mechanisms can encourage local districts to focus special services outside the regular classroom and to rely on expensive evaluations for eligibility determination.

Most states have some mechanism to provide additional support for children with severe disabilities requiring extensive services. In a number of states, districts receive more assistance from the state when they assign students with intensive special needs to private special needs schools than they would if they were to establish a comparable program within the district.48

Removing existing incentives can create new, but not necessarily better, incentives. A student with autism may benefit from specialized programs available under contract from a qualified private school. However, if the state eliminates funding mechanisms to pay a large share of the cost of such placements, the student's school district may be motivated to serve the student locally and provide fewer services—a less desirable outcome for the student.

Budgeting Challenges

The fiscal implications of special education, especially for students with "mild" disabilities such as LD, are profound. The population of students with mild disabilities is large and impossible to clearly differentiate from the population as a whole. Yet, minimal interventions for students with mild disabilities have a dismal history, as discussed by both Hocutt and Lyon in this issue. Intensive interventions in some cases appear more promising, but they are expensive.

Budgeting is a particular challenge at the local level because of the school district's legal obligation to provide services, even if unanticipated. As the federal court determined in a pivotal 1972 case,2 school districts are prohibited by the U.S. Constitution from budgeting for special services in advance and offering them on a "space available" basis because each student with disabilities is entitled to a free, appropriate public education, regardless of whether the school district had anticipated that student's needs.

Can cost even be considered in determining what services a student with disabilities will receive? As discussed by Martin, Martin, and Terman in this issue, where a service is necessary for an individual student, cost considerations will not allow a school district to escape its obligations. However, in instances where more than one appropriate configuration of services is available to meet the student's needs, the cost of different alternatives is an allowable consideration.

Ideally, program decisions should be based upon each student's needs, and funding mechanisms should respond to and support those programmatic decisions. At the same time, real limitations on school budgets make it essential to control total costs. To some extent, this fact makes it inevitable that the needs of individual children will be weighed against one another and against the fiscal needs of the rest of the school.

Flexibility with Accountability

To what extent can funding mechanisms be made incentive-free? There is a growing interest in census-based funding as a nominally incentive-free funding mechanism. Under census-based funding, funding for special education programs is based on the total enrollment of the school, not on the number of children identified for special education. (At this same time, census-based funding could constitute a negative incentive. Where other funding systems assist districts in providing expensive services, census-based funding, in effect, rewards districts that provide fewer services, by allowing them to spend the money on other priorities.) Six states have recently implemented some form of census-based funding for special education. Arguments for and against census-based funding are discussed by Parrish and Chambers in this issue. These authors also provide a descriptive list of criteria for evaluating state special education funding formulas.

If categorical restrictions are removed, then schools have maximum flexibility to deliver special services without requiring that they be restricted to students with disabilities. In theory, this will make it easier for schools to implement programs that more thoroughly integrate special and regular education, for example, a program in which a special educator co-teaches a class with a regular teacher and can work with any student, with or without disabilities.

Advocates for students with disabilities fear that dropping categorical restrictions will result in fewer special education services. The best protection against this would be to maintain the current accountability mechanisms contained in the IDEA: students with disabilities must receive a free, appropriate public education in the least restrictive environment, with due process requirements concerning evaluation, individualized education programs (IEPs), parental participation, and right of appeal. These mechanisms provide an enforceable right to an appropriate education.

As schools increasingly experiment with inclusion and with changes in funding mechanisms, one challenge will be to create accountability mechanisms based on student outcomes. Each student with disabilities has an individualized education program (IEP) which provides a list of goals for that student. Goals vary widely, depending on the student's needs, and may include items such as being able to name the countries of North America on a map, walking unassisted, contacting a dozen companies about a summer job, or being in the classroom for three consecutive days without disruptive behavior. In theory, the individual student's improvement on specific outcomes could be measured as barometers of success.

Such a change should be approached carefully: the end result should not be to create artificially low goals for students to guarantee success. Perhaps states could design a two-tiered system of minimal and optimal goals. Schools could be responsible for outcomes for at least the minimal IEP goals (which should still be set at a sufficiently challenging level) and would also be responsible for delivering services designed to help students attain their more challenging optimal goals.



  • Funding structures, especially at the state level, must be designed to support schools in making decisions about placement and services based on students' individual needs. States should also investigate ways of basing accountability on measurable student outcomes.