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

Financing Special Education
Thomas B. Parrish Jay G. Chambers

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, allocations 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.

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 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 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 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 "school-wide 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