Figure 3 | ||
New Special Education Funding Model Compared with Current Model | ||
|---|---|---|
| Function | Current Model | Proposed Model |
| Area-wide cooperation | Requires area-wide planning. Requires Special Education Local Plan Areas (SELPAs) to distribute units. | Requires area-wide planning, shared responsibility, and accountability among member local education agencies (LEAs). Requires SELPAs to distribute funds. |
| Distribution of funds |
|
Distributes funds directly to SELPAs for distribution among constituent LEAs, consistent with a local plan that assures appropriate services to all eligible pupils. |
| Funding equalization | Widely varying funding levels. No equalization process; in fact, method for distributing cost of living adjustment funds exacerbates inequities. | Over time, brings virtually all SELPAs to an equal per-capita funding amount. Exceptions are a very few extremely sparsely populated SELPAs. |
| Program flexibility | Dictates how services must be delivered. | Allows LEAs to configure programs based on local pupil needs and individual strengths of local staff. |
| Accountability | Emphasis on assessing whether the proper number and type of education settings are being operated. | Emphasis on assessing whether pupils are receiving and benefiting from special education services. |
| Nonpublic school and agency placements [except for children residing in licensed children's institutions(LCIs)] | Open-ended funding of all placements, shared 70% state/30% LEA. | All current state funds (the 70%) include in the "base" to be distributed and equalized as indicated above. |
| Licensed children's institutions [(LCIs) placements by noneducation agencies] | Open-ended 100% funding of placements that are (1) made by courts or (2) outside the pupil's home district. | Funding adjusted to account for the varying impact of LCIs. |
The Supplemental Report of the 1994 Budget Act directed the Superintendent of Public Instruction, the Director of Finance, and the Legislative Analyst to develop a new funding mechanism for special education programs and services offered in California. The Legislature directed that these three agencies consult with teachers, parents, and administrators of both general and special education programs, members of the Advisory Commission on Special Education, and other interested parties in developing this new funding mechanism. The legislative language also directed that the funding mechanism include, but not be limited to, the following:
In fall 1994 the three agencies met throughout the state with individuals and groups to discuss alternatives to the current funding model and to see firsthand a wide variety of programs offered for students with disabilities. We issued a preliminary report in January 1995 based on these meetings. In March 1995, we issued a preliminary proposal for phasing in the funding model. We used these documents to stimulate discussion as we continued our consultation throughout the state in winter and spring 1995.
This is our final report. This final report represents a general consensus of the three agencies; the individual agencies are in general agreement with the approach but may disagree with some of the specific details of the proposed model.
The report has four chapters. In the first chapter we discuss the current special education program. In addition, we provide information on special education enrollments; federal, state and local funding; and the current funding model and problems associated with it. Chapter 2 addresses the directive from the Legislature to develop a new funding model and how the three agencies organized to meet that mandate. Chapter 3 outlines the guiding principles that the three agencies used to develop the new model. The final chapter presents the new model.
This chapter describes the current special education program and identifies problems with the funding model. Readers familiar with the current model may wish to turn to Chapter 2.
In the same period, the Congress enacted PL 94-142 at the federal level. This federal legislation has been amended several times, most recently in 1994 by PL 103- 328, the Individuals with Disabilities Education Act (IDEA). The next reauthorization is scheduled for 1995.
Federal law defines disabilities that qualify a child for special education and mandates school responsibilities and parental rights. Federal law sets out three basic principles that apply to children with disabilities: (1) all children with disabilities must be provided a free, appropriate public education, (2) each child's education must be determined on an individualized basis and designed to meet his or her unique needs in the least restrictive environment, and (3) the rights of children and their families must be ensured and protected through procedural safeguards.
Consistent with these federal requirements, the MPSE requires assessment of each child's unique educational and service needs and consideration of a range of service delivery options for each eligible child. Under the MPSE, a child is assessed to determine if special education is necessary or if the child can be served within the general classroom, with modification of the general instructional program and related services. If specialized instruction or services are needed and the child meets eligibility guidelines, an individualized educational program (IEP) is written for the child that specifies the services to be provided. The aim is to place the child in the least restrictive educational setting (environment) that will best meet the child's educational needs. The MPSE requires participation of parents as part of this process and establishes specific due process procedures to protect the rights of the child and parents.
The MPSE established an area-wide approach to the delivery of special education services. The current areas are called Special Education Local Plan Areas (SELPAs). The intent of the SELPA structure is to deliver special education services in an efficient and cost-effective manner. Differing population densities call for SELPAs that consist of a number of counties, single counties, a number of school districts within a county or single school districts. In 1994-95, there were 116 SELPAs. Of these, three were multi-county SELPAs; 33 were county-wide SELPAs; 48 were multi-district SELPAs; and 32 were single district SELPAs.
The SELPAs are required to provide for a continuum of program options to meet the needs of pupils with disabilities. Generally, these options are provided in one of three basic education settings: (1) designated instruction and services (DIS) such as speech and language services, adapted physical education, or other specialized services; (2) resource specialist programs (RSPs), in which the child is educated primarily in a general education classroom and is served by a resource specialist teacher in the areas of need; and (3) special day classes or centers (SDCs) that provide special education services for a majority of the school day. Generally, these settings are for students whose disabilities are less severe (DIS), of moderate severity (RSP), or more severe (SDC).
Within the MPSE, placement is also available in a nonpublic school if the child cannot be served appropriately in a public school setting. In addition to these settings, the state provides support for two schools for the deaf, one school for the blind, and three diagnostic centers.
The upper part of Figure 4 shows the number of children enrolled in special education by disability category for the period 1987-88 through 1993-94. Of all K-12 pupils, 9.4 percent were enrolled in special education in 1993-94 compared to 8.8 percent in 1987-88.
The lower part of Figure 4 shows the number of children enrolled in special education by placement, for the same period.
Figure 5 shows the distribution of federal, state and local expenditures for special education. Figure 5 does not include expenditures for the state special schools, which totaled $49 million in 1993-94. The state special schools are not included because they are funded outside the current funding model and are, therefore, outside the scope of this report. Figure 5 was compiled from reports by local school districts (J-380/580 reports). In addition to costs that are directly attributable to operations of special education programs, these reports also include educational costs that are allocated to special education for accounting purposes, such as costs for instructional administration, instructional media, school administration, pupil services, central data processing, plant operations and maintenance, and lease/rent of facilities. The amounts exclude funding and expenditures for special education transportation.
Figure 5 shows that in 1992-93 the state provided 70 percent of total funding for special education services. State support includes allocated local property taxes. Local support constituted about 25 percent of total outlays in 1992-93. Local support is general-purpose funding that is used by districts for special education.
Federal funding provides about 5 percent of total funding. Congress passed PL 94-142 in 1975, with the intent of paying 40 percent of the national average excess of cost of special education by 1981. Federal aid, however, has never exceeded 12.5 percent. (Excess cost is defined as the average amount needed to provide an appropriate education to a student with disabilities that exceeds the expenditure for a general education student.) By 1992-93, Congress provided only about 8 percent of the estimated national average excess cost of special education services. For California, this shortfall was about $745 million in 1992-93 (based on the 40 percent intent). According to estimates developed by the federally sponsored Center for Special Education Finance, if congressional intent were adjusted to reflect current data, California's 1992-93 shortfall would increase to slightly over $1 billion.
The state special schools are provided direct appropriations through the annual Budget Act. The other programs are funded from state aid, federal aid, and local revenues available for some programs. Specifically, the state aid amount is calculated based on the entitlements for these programs less the following amounts:
The MPSE funding model is inadequate in several respects. Among other problems, the funding model (1) contains unjustified variations in funding across LEAs, (2) is too complex, (3) inhibits local innovation and response to changing requirements, and (4) contains inappropriate fiscal incentives. We discuss these in detail below.
Funding Variations Are Not Justified. Three key components point out the inequities of the current funding model. These are (1) unit rates for instructional personnel service units, (2) support service ratios, and (3) the LGFC. All three of these factors are based on reported actual expenditures of local education agencies in 1979-80. This, in itself, might not be a problem except that the 1979-80 reports contained numerous inconsistencies, primarily because (1) it was the first year for which expenditure reports were required of all education agencies and (2) at the time the reports were prepared, the state's expressed interest in them was informational only. The unit rates have been adjusted over time, primarily due to changes in the cost of living. In special education, cost-of-living adjustments are applied to each LEA's entitlement using a percentage increase factor. This has the effect of increasing funding discrepancies over time. In contrast, for general education, cost-of-living adjustments are applied using a constant dollar amount, with the effect of narrowing funding variations over time.
Unit rates are intended to provide funding for the salary and benefits of the average teacher and, in some cases, one or more aides as well. While some variation in these rates is to be expected, the actual variation is enormous. The CDE reports that in 1993-94, unit rates for DIS varied from $17,300 to $60,300, with an average of $39,500. Unit rates for RSPs and SDCs (without aides) varied from $22,100 to $56,500, with an average of $39,400. The reasons for the wide variation include faulty reporting in 1979-80, employment by districts of lower-paid "permit" teachers in 1979- 80 rather than fully credentialed teachers, and the varying mix of new versus experienced teachers in the base year.
Support ratios also exhibit great variation. The support entitlement provides funding for psychologists and nurses, equipment and supplies, administration and overhead, and so on. The support services entitlement is calculated as a percentage -- or ratio -- of each agency's unit entitlement. This ratio was originally based on each agency's reported expenditures for support services in the 1979-80 base year, but ratios above the statewide average of 52 percent were "squeezed" down later. Support ratios now range from zero to 78 percent with ratios above the statewide average applying only to programs serving severely disabled pupils. The amounts are the result of numerous historical factors.
The third factor is the local general fund contribution (LGFC). As indicated above, the LGFC is one of the revenue sources that is deducted from the district's entitlement to arrive at the state aid amount. The LGFC is calculated from a district's 1979-80 general fund support for special education. Current LGFCs range from zero to over $300 per ADA. The amounts are the results of numerous historical factors.
Too Complex. In 1983 the LAO noted that since the adoption of the MPSE in 1980 the entitlement system had grown increasingly complex. At that time the CDE entitlement form for special education, referred to as the J-50, was 28 pages long. The LAO also reported that staff from the CDE were conducting workshops throughout the state to teach local special education directors and business managers how to fill out the form correctly.
In the 12 years that have passed since 1983, the J-50 form has grown from 28 pages to 39 pages. A private consultant industry centered on the J-50 has emerged. Consultants offer "beginner" and "advanced" workshops on how to complete the J-50 to maximum advantage. The funding model should be readily understandable to educators and parents, without the need for such workshops.
Inhibits Local Innovation and Response to Changing Requirements. The special education funding formula inhibits local innovation and response to changing requirements because it is based on providing services under one of three program models, each with a certain array of associated staff and, in some cases, a prescribed number of pupils per staff member. While these models may reflect "best practices" at a certain time in history, they severely restrict how services may be delivered. For example, the funding model does not easily accommodate unique programs deploying staff in different ways, or the practice of including severely disabled pupils in general classrooms. These situations are handled through waivers of existing funding rules. In the case of inclusion, these restrictions on service delivery impede compliance with evolving federal requirements.
Contains Inappropriate Fiscal Incentives. The special education funding model contains incentives for schools to act in ways that are not in the best interests of students. First, because it allocates funds based on the number of students identified as needing special services, the current model creates an incentive for schools to identify students for special education whose educational needs could be met without being so identified. Thus, it encourages "identification" for funding purposes. In the same way, the funding system encourages educators to retain pupils in special education even after they could move back to general education.
Second, there are incentives to spend more than necessary. For example, schools generate support dollars when they hire aides, prompting them to hire more aides than may be needed in some cases.
The method for funding nonpublic agencies provides a third example of an inappropriate fiscal incentive. This program supports the costs of services (primarily physical and occupational therapy) purchased from nonpublic agencies. The program funding mechanism provides a financial incentive for districts to serve students through nonpublic agencies rather than serving them directly, even if the cost of direct services is significantly less. Specifically, an LEA is responsible for 30 percent of the cost for nonpublic agency services. In contrast, LEAs pay 100 percent of the costs for direct services at the margin if (1) the services are provided to pupils placed in SDCs or resource specialist programs or (2) the services are provided to pupils placed in designated instruction and services (receiving related services only), but the number of pupils served exceeds the number funded under the current funding model. Even if the pupil can be accommodated within the funding model, LEA costs could exceed the 30 percent share because the state funding provided for certain types of staff is often substantially less than the actual cost for salaries and benefits for these professionals.
Based on this recommendation, and with the agreement of the Departments of Finance and Education, the Legislature adopted language in the Supplemental Report of the 1994 Budget Act directing the three agencies to develop a new formula. The legislative language also directed that the funding mechanism include, but not be limited to, the following:
The Legislature further directed that the three agencies consult with teachers, parents, and administrators of both general and special education pupils, members of the Advisory Commission on Special Education, and other interested parties. Appendix A provides the complete text of the supplemental language.
In July and August 1994 we reviewed various reports written on special education since the passage of the MPSE. During this period we also made plans for travel throughout California to review specific programs and seek suggestions from a broad array of interested parties on ways to reform the funding mechanism. In order to ensure that the input we received was consistently heard by each agency, we decided that as a general rule we would seek information in written form and that staff of all three agencies would attend all field visits and meetings.
From September through December we made field visits and met with individuals, organizations, and local education agencies (LEAs). (A list of our fall meetings is in Appendix B.) We attempted to identify all groups who might have suggestions on a new funding formula and met with as many as we could. For our field visits we selected a broad cross section of programs from throughout the state. In addition we visited some districts with unique programs. In several areas (San Diego, Concord, Auburn, and Red Bluff) we arranged to meet with representatives from several districts and counties. We met with general and special education teachers and administrators, school board members, and parents of general and special education pupils. We visited many classrooms and we talked with the teachers and aides. We also talked with many students. Finally, we sought input from individuals that we could not contact directly via the special education and general education computer networks.
To obtain the federal perspective, we met with the Assistant Secretary for the Office of Special Education and Rehabilitative Services in the U.S. Department of Education. We also met with the directors of the federally sponsored Center for Special Education Finance in Palo Alto to discuss the strengths and weaknesses of special education formulas in operation throughout the United States.
We released a preliminary report in January 1995 and a phase-in proposal in March 1995. The purpose of issuing the preliminary report and phase-in proposal was to stimulate discussion as we continued our consultation. We devoted the period February through May to additional meetings with a broad cross section of individuals, organizations, and LEAs (many of whom we had spoken with in the fall). We held 11 regional meetings throughout the state and in addition met with 23 other groups. Each session generally lasted for three hours with the first half devoted to presentation of the model and the second half to questions and answers about the model. (A list of our winter and spring input sessions is in Appendix B.)
This is our final report. It is based on our preliminary report, with extensive modifications based on our winter and spring meetings.
We believe that our meetings yielded very useful information. We used that information to develop principles to guide the development of our preliminary proposal. We used input from our winter and spring meetings to refine the principles. These principles are discussed in the next chapter.
Any funding formula has basic principles that guide its development, although these principles are often unstated. We want to explicitly state our guiding principles. We developed these principles based on input from our field visits, previous work by various agencies on both special and general education, and a review of the literature in special education finance.
This chapter provides an overview of each of the principles we identified. (A list is also provided in Figure 1 in the Executive Summary.)
A principle of our proposal is that federal, state, and local education agencies will continue to share responsibility for funding special education. State and federal funding is intended to support a portion of LEA costs for providing special education for children with identified needs. There will continue to be a local funding share in providing education to these children.
The SELPA system allows for tailoring the organizational structure to differing population densities. The structure allows local flexibility to plan and provide services in an efficient and cost-effective manner. However, the current model requires program planning in the form of the distribution of units, rather than the distribution of funds, at the SELPA level. Funding is then claimed by LEAs based on the number of units distributed and operated. For single-district SELPAs (32 in 1994- 95), planning and funding are integrated; for the other SELPAs (84 in 1994-95), this is not necessarily the case. As a guiding principle, we believe that a direct allocation of state and federal funds to all SELPAs, for distribution to LEAs providing services, will lead to more effective collaboration among the multi-district SELPAs than the current model has engendered. A direct allocation to SELPAs will put new emphasis on joint decision-making and joint accountability for services.
In addition, some areas have a disproportionate number of pupils residing in licensed children's institutions -- who are placed by agencies other than LEAs and many of whom are outside their home area. These areas would have a higher-than- average proportion of children needing special education.
Consequently, we concluded that funding based on population would be reasonable, assuming that the entity funded has a large population base (for example, a SELPA or region rather than a district) and assuming that adjustments are made for areas affected by placements in licensed children's institutions. (See the next chapter for additional discussion of this issue.)
Accordingly, we propose to equalize funding over time. Any new funding formula should be phased in on a gradual basis so as not to disrupt educational services to students enrolled in general and special education programs.
A principle of our proposal is that the model should not provide a financial incentive for identifying pupils or categorizing pupils by disability category.
A principle of our proposal is that the model should not inhibit innovation nor provide a financial incentive for a particular type of program delivery system.
A principle of our proposal is that SELPAs should be accountable for delivering services to children who need and are eligible for them, and delivering them in such a manner as to benefit the children receiving them.
During budget hearings on the 1995 Budget Bill, the three agencies recommended that the CDE develop an accountability system to complement our proposed funding model. Based on this recommendation, the Legislature and Governor adopted language in the 1995 Budget Act directing the CDE to present a preliminary report on an accountability model by January 1, 1996. The CDE has already held several public meetings to gather ideas, concerns, and suggestions on the design of a new accountability system. (See the next chapter for additional discussion of this issue.)
A principle of our proposal is that the funding formula should be understandable. The concepts underlying the formula and the procedures to implement it should be straightforward and should avoid unnecessary complexity.
We considered each of these criteria in outlining our proposed funding model.
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