In this chapter we present our proposal for a new special education funding model. Figure 2 in the Executive Summary lists major components of the proposal. As noted earlier in this report, the supplemental language directed the three agencies to reach an overall consensus on a new funding model, but not necessarily consensus on each component of the model. 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.
We propose that the state first recognize a shared responsibility for funding special education. State and federal special education funding is intended to support a portion of LEA costs for providing supplementary services for children with special needs. There is and will continue to be a local funding share from revenue limits in providing education to these children.
We propose to continue the area-wide approach to special education service delivery embodied in the current SELPA system. We also propose changes in requirements related to SELPA structure to ensure that these organizations are effective and accountable.
We propose that special education funding be distributed to SELPAs based on a uniform amount per pupil, and that SELPAs be allowed to configure programs based on local pupil needs and individual strengths of local staff. When fully phased in, the per-pupil amount would be adjusted on an ongoing basis in a manner consistent with revenue limit funding. Special education funding would be adjusted for declining enrollment consistent with the methodology used in general education.
This proposed population-based funding model has the following advantages over the state's current funding model:
We propose that the new model be phased in over time and that during phase-in all funding provided for cost-of-living adjustments (COLAs) and all increases in federal funding be used for equalization. The phase-in would be accomplished by increasing the per-capita allocation for lower-funded SELPAs while allowing the per- capita allocation for the higher-funded SELPAs to remain essentially unchanged. All SELPAs would receive a uniform per-capita amount for any growth in the school population.
In moving to a population-based formula and providing additional flexibility in delivering services, we recognize that there is a potential to not serve or underserve children who need special education services. Accordingly, we believe that specific attention must be given to assuring that LEAs are delivering services and delivering them in such a manner as to benefit the children receiving them. Due process safeguards and the current requirement that special education funding be used only for identified special education students would continue. In addition, we propose a change in oversight to hold SELPAs accountable for assuring that services are provided to children who need special education. The 1995 Budget Act directs the CDE to develop a specific accountability proposal by January 1, 1996.
We also propose that state support for nonpublic school/agency placements and services be rolled into the base allocation to be distributed along with other state support.
Due to the uneven impact licensed children's institution (LCI) placements have on SELPAs, we believe that services for disabled children residing in LCIs should not be funded based on total pupil population. We propose to adjust SELPA funding using data on subgroups of these children to account for the varying impact of LCIs.
Below we discuss each of the major components of our proposal.
The SELPA system allows for tailoring the organizational structure to differing population densities and allows local flexibility to plan and provide services. However, the current model requires program planning in the form of distribution of units, rather than the distribution of funds, at the SELPA level. 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 stated in Chapter 3, we believe that a direct allocation of state and federal funds to SELPAs will produce more effective collaboration among the multi-district SELPAs than the current model. A direct allocation to SELPAs will put new emphasis on joint decision-making and joint accountability for services.
Chapter 1668, Statutes of 1984 (SB 585, Seymour), requested the CDE to conduct a study of the governance, size, and scope of SELPAs. Among the conclusions of that study was that "SELPAs have demonstrated that the regional concept does work and that it is necessary to adequately serve identified students." This study offered a number of recommendations that continue to be relevant. Two areas of particular note are conflict resolution and governance issues.
The first tier should be mediation, wherein parties to the dispute would select a mediator from outside the SELPA. If mediation is unsuccessful, the SELPA would be required to move to arbitration. Arbitration would be conducted by the CDE with the decision final and binding on all parties.
Current law requires SELPAs to submit plans every four years (with addenda as necessary in the intervening years) that specify the governance structure of the SELPA and describe the service delivery system. The plans must be approved by each constituent district governing board. In practice, however, these plans are not useful for determining what specific decisions have been made regarding availability of services and who is accountable for these and other decisions. In response to these problems, the SB 585 study recommended that provisions in current law regarding SELPA governance and local plans be enforced.
We concur with that recommendation. We also propose to strengthen current requirements regarding the content of these plans by requiring submission of additional information on (1) the governance structure of the SELPA and (2) the service delivery system.
Governance Structure. We propose that local plans identify in detail how decisions within the SELPA are made, and how members of the public, including parents, can gain access to and/or influence the decision-making process. The plan should identify a governing body (in multi-district SELPAs) or a single individual (in single-district SELPAs) having ultimate responsibility for SELPA decisions. The plan should also identify the elected officials to whom members of the governing body or the individual report. This governing body or individual would also be accountable to the state in cases where sanctions must be imposed.
There are a number of well-functioning SELPAs that have a superintendent's council as a governing body. This model would meet the criteria for accountability that we identify.
Service Delivery System. We propose that local plans include enough detail for the lay reader to understand the location and nature of each service provided. In addition, local plans should be updated annually with a budget supplement that would identify the allocations to and expenditure plans for each constituent district, and the budget for SELPA administrative functions.
It is beyond the scope of this report to specify detailed requirements for the contents of local plans or the plan approval process. As mentioned earlier in this report, the 1995 Budget Act directs the CDE to develop a specific accountability proposal by January 1, 1996 to complement our funding proposal. These issues should be addressed by the CDE in its report.
We propose that declines in enrollment be adjusted in the same manner as in general education. With K-12 revenue limits, LEAs experiencing average daily attendance declines are held harmless in the year of the decline. This "hold harmless" provision allows districts time to make staffing adjustments related to the decline. We believe that the same provision should be made for special education for the same reason.
Our choice of a "population-based" approach to allocate state support for special education was made after consultation with national and local researchers and practitioners. Our analysis concluded that this approach is superior to other possibilities that are in practice in other states. According to national researchers, this population-based approach is growing in both justification and use. The U.S. Department of Education has proposed and the Congress is now considering a population-based approach for the distribution of federal aid for special education.
However, we propose to allow SELPAs with a high proportion of their school- age population attending private school to obtain additional funding. Specifically, these SELPAs could obtain additional funds based on the number of pupils attending private school in excess of 200 percent of the statewide average. To obtain these funds, they would have to submit an annual audit documenting the number of pupils residing in the SELPA who attend private schools. The number of children above 200 percent of the statewide average would be adjusted based on the statewide relationship between enrollment and ADA, and added to the SELPA count for special education funding purposes.
The remainder of this section discusses the findings from our research and the specific proposals we are making to address concerns regarding a population-based funding model.
Random Variability. We identified the problem of random variability among LEAs in our preliminary report. To address this problem, we propose that state funds be allocated to SELPAs. An area-wide delivery system, such as the current SELPA system, will help to even out random variability in the student population.
We recognize that there may be some extremely sparsely populated SELPAs in which aggregating pupils on a county-wide basis may not completely eliminate problems of random variability. These SELPAs may also experience unique cost factors (for example, the cost of serving a child in a remote location). We note that some of the SELPAs which are potentially affected by these problems are currently funded at a per-pupil level that is significantly higher than the statewide average. Under our proposal, this group of SELPAs would continue to have per-pupil funding allocations significantly higher than the statewide average at the end of the five-year phase-in period. By including these SELPAs in the phase-in model, we do not intend to imply that they eventually should have per-pupil allocations equal to the statewide average, nor that the funding model provides a solution to these problems if and when they occur.
Licensed Children's Institutions (LCIs) and State Hospitals/Developmental Centers. Licensed children's institutions are not evenly distributed throughout the state. To address this problem, we propose funding adjustments to account for the varying impact of children residing in LCIs. This separate allocation system also addresses population variability associated with the location of state hospitals and developmental centers. Our specific proposal is discussed later in this chapter.
High Quality Programs. In our discussions, we found that most SELPAs have high quality programs in certain areas that attract parents of children with special needs. Therefore, most are affected by some parents moving to a SELPA for a particular high quality program. It would be very difficult to single out one or a group of SELPAs for special consideration based on high quality program offerings. Accordingly, we do not propose any special adjustment related to location of high quality programs.
Poverty. With respect to the link with poverty, research indicates that poverty is associated with the need for compensatory education services, not special education. Thus, we do not recommend an adjustment in special education funding for high poverty areas.
Distribution of Disability Subgroups. We examined data (statewide totals and specific data from San Diego County SELPAs) regarding the distribution of students reported by federally defined disability categories. As indicated earlier, a population-based funding model assumes comparable incidence of need for special education services among SELPAs. If the incidence of need varies too much, population-based funding allocations would not reflect the need for services and consequently, would not be fair to all SELPAs. Comparable incidence of need does not mean that the incidence of each disability category must be precisely the same everywhere. Rather, it means that children with disabilities, especially children with "high-cost" disabilities, are distributed evenly enough so that no area of the state experiences significantly greater costs, calculated on a per-population basis, than other areas as a result of differences in incidence.
We found that no federally defined disability category, or subgroup of categories, encompasses all children with high-cost disabilities. Children with high-cost disabilities were present in varying proportions in all categories. Second, we observed that all disability categories, to varying degrees, allowed LEAs latitude in whether or not to identify pupils with special needs, and which category to use once the pupil is identified. In fact, what we observed is referred to by some national researchers as the difference between "true incidence" and "reported incidence." Reported incidence is defined as the number of disabled students identified by each LEA. True incidence is defined as the number of students that would be identified if all LEAs used the same criteria to identify students with disabilities.
Reported incidence can be significantly more or less than true incidence, and can be influenced by both the interpretations of disability definitions by the LEA and by the amount of funds available or allocated by the LEA. The researchers indicate that the definitions of nearly all disabilities allow LEAs a degree of latitude in deciding which students will be identified. Given this situation, any examination of actual distribution data is of questionable value, because we cannot know how close the "reported incidence" is to the "true incidence."
National researchers also caution that because most disability definitions have a high degree of latitude, a state allocation plan that singles out any particular category for funding may create a financial incentive to identify more students in that category. We tried to minimize the fiscal incentive to place pupils in particular categories by limiting our inquiry to those categories in which LEAs had little discretion in identification (for example, deaf and visually impaired). However, these categories represent only a very small proportion of students with high-cost disabilities. In addition, the number of students in disability categories where LEAs have little discretion in identification is very small in comparison to the overall population and may not have a relationship to the number of high-cost pupils. In the absence of agreement involving all "high-cost" disabilities, it does not appear appropriate to "adjust" a funding formula based only on a very limited number of students.
Therefore with the above noted exceptions, we find that on balance, the best available indicator of need for special education services is the number of students residing in the region. Given the variability in most definitions of disabilities and the seemingly limited number of students in categories where definitions are more precise, we recommend that the Legislature not elect to single out any particular category or categories for special funding at this time. This area should be reexamined if researchers and practitioners determine more precise definitions. We caution, however, that the definitions must be precise enough to yield "true incidence." If any latitude is left, students may be identified to generate additional funds rather than to meet educational needs.
To further minimize disruption during the phase-in period, our proposal (1) would provide nearly all SELPAs an increase in special education funding and (2) would not reallocate existing funds. We propose that all funding provided for cost-of- living adjustments (COLAs) and all additional federal funding above the current level be used to increase funding for the lowest-funded SELPAs. Providing augmentations in excess of this amount would speed up the phase-in.
Because we do not propose reallocations of existing funds during the phase-in period, achieving uniform per-capita allocations of funds is dependent on the availability of COLA funding and additional federal funds. If, at the end of the phase-in period, the per-capita amounts allocated to SELPAs are not reasonably comparable, the Administration and the Legislature may choose to consider further measures to achieve uniformity, such as extending the phase-in period. The Administration and the Legislature could also choose to accept some continuing funding variation.
The remainder of this section discusses the specific phase-in model we propose. Additional detail is provided in Appendix C.
In the model, each SELPA starts with a base-year funding amount calculated by subtracting its initial LCI allocation from its total funding. Each SELPA receives growth funding equal to the statewide target multiplied by the SELPA's increase in ADA. SELPAs with declining ADA are held harmless for one fiscal year. (This is the identical adjustment made for revenue limit funding.)
SELPAs whose per-capita amount is less than the statewide target receive equalization funding. This would consist of all funds provided for a COLA plus any increase in federal funds. This funding is distributed so that each SELPA below the target "makes up" the same proportional distance to the target. In other words, the amount required to lift each of these SELPAs to the statewide target is calculated, and summed statewide. If the amount of equalization funding is, for example, 20 percent of the total necessary to achieve phase-in, each SELPA receives 20 percent of the amount needed to reach the statewide target.
What About Federal Funds? Federal funds are included in the statewide per-capita amount, along with General Fund support and special education's share of property taxes. Each year's COLA and growth amounts are calculated based on total program funding, including federal funds and local property taxes, not just the General Fund amount. Because the amount of federal funds and property taxes varies by SELPA, the General Fund is the "balancer" used to achieve uniformity in per-capita allocations.
Under this proposal, during the phase-in period, any increase in federal funds does not offset the General Fund appropriated for growth or COLA, but rather is "passed through" to SELPAs and used for equalization. After the phase-in period, increases in federal funds would contribute to growth and COLA adjustments for the overall program as they do now.
First, movement to a population-based, rather than an identified student-based, funding system would not alter or jeopardize any of the due process safeguards under current law. Similarly, the compliance review and complaint resolution process would remain in place.
Second, we propose retaining the existing requirement that state and federal special education funds be used solely for special education services provided to pupils with IEPs. Compliance with this requirement would be ensured through modification of existing state monitoring and periodic audit procedures.
Third, we propose that oversight of special education programs focus on whether LEAs are delivering services to children who need and are eligible for them, and are delivering them in such a manner as to benefit the children receiving them. For purposes of implementing the proposed new funding model, we recommend that, specifically, the CDE modify its oversight to assure that (1) services are planned, developed, organized, and delivered in a manner that provides accountability and (2) the additional flexibility provided by the new funding model does not result in an erosion of compliance with current state and federal law in any SELPA, LEA, or school site. This new oversight would replace the portion of the existing process aimed at monitoring the number and type of instructional settings operated.
The CDE is currently developing a proposal to ensure accountability for all education programs along the lines we suggest for special education. The specific changes we propose would not conflict with this effort; in fact, they are an integral part of broader reforms.
It is beyond the scope of this report to develop a specific proposal for oversight of local programs. However, the 1995 Budget Act directs the CDE to develop such a proposal by January 1, 1996. Thus, the report would be complete before the Legislature takes action on the proposed new funding model. The CDE has convened a group to work on this project, and has held several public input sessions.
We propose that the accountability system changes be linked to the programmatic flexibility provided in the new funding model. In other words, SELPAs would be able to use the programmatic flexibility once they submit a detailed local plan as discussed in the previous section on governance. Before they have submitted a satisfactory plan, they would be required to submit J-50-like reports documenting that they operated the services for which they were funded.
We propose that SELPAs be required to convert to the new accountability system at the time they would be required to submit their next local plans in the existing planning cycle (once every four years). A SELPA should be allowed to convert to the new accountability system earlier, if it wishes to, by submitting a detailed local plan amendment under existing procedures.
Below we examine the reasons for rapid growth in nonpublic school/agency costs, and discuss the rationale for our proposal, first for nonpublic agencies, then for nonpublic schools. We also discuss our recommendation to protect LEAs from extraordinary costs related to individual nonpublic school placements.
In general, nonpublic schools provide both education and related services to children with exceptional needs, while nonpublic agencies provide only related services, such as occupational therapy, physical therapy, and psychotherapy.
The incentive created by the current funding model to use nonpublic agencies whenever possible has contributed to rapidly escalating costs for nonpublic schools/agencies. (Another factor is difficulties LEAs are having obtaining related services from noneducation agencies.) Just as important, the use of nonpublic agencies for the delivery of related services has greatly reduced the capacity of LEAs to provide these services themselves. In fact, some LEAs have encouraged regular employees to terminate employment for the purpose of contracting as nonpublic agencies. In recent years the practice of using nonpublic agencies for service delivery has been extended to resource specialist services and special day classes. Reforms enacted in Ch 939/93 (AB 2355, Eastin), which deny reimbursement for contracting with an ex-employee as a nonpublic agency within 365 days after that employee leaves the LEA, discourage these practices. However, the incentive to use nonpublic agencies for special education services still exists, and contracts already in existence were not affected by the enactment of AB 2355.
We could not identify any reason to provide a higher level of funding to LEAs when they contract with private agencies to provide a service than when they provide the service directly. Accordingly, we propose to eliminate the fiscal incentive by rolling nonpublic agency funding into base allocations for special education. This proposal is consistent with the principle of programmatic flexibility. LEAs that wish to continue current contracts will have the state's contribution for these contracts folded into their base allocation. These funds would still be available for nonpublic agency contracts. LEAs that wish to explore other options, such as hiring personnel to deliver services, negotiating with health maintenance organizations to deliver services, or combining resources at the SELPA or county level to negotiate with nonpublic service providers, will be able to do so.
Fiscal Incentives. Many LEAs experience a fiscal advantage by placing a child in a nonpublic school. The size of the advantage--and whether it exists at all--depends on the interplay of the tuition costs of the nonpublic school, the unit rates of the LEA, the number of unfunded units (if any), and the cost of the services needed by the pupil. This fiscal advantage, where it exists, is part of the cause of rising nonpublic school costs.
Program Management. Based on our field visits, program management decisions are responsible for a portion of rising costs. For example, in some SELPAs pupils may be placed in nonpublic schools by local school sites without adequate review of whether the SELPA itself could offer comparable services at a lower cost. Such school site decisions might be justified within the limited context of an individual pupil. However, the school site may not be aware of similar pupil needs at other sites that may justify offering the services within the SELPA.
Litigation. There are anecdotal accounts of parents forcing LEAs to enroll their children in nonpublic schools through litigation or threat of litigation. Although litigation may explain the rapid increase in costs in some LEAs in some years, based on an examination of the evidence we conclude that the incidence of litigation is a relatively small factor in explaining the rapid increase in statewide nonpublic school costs.
Reversing current trends in nonpublic school placement may present administrative difficulties. In some areas, both public and nonpublic school administrators have come to expect that special education students with troublesome behavior will be served in a nonpublic setting. If LEAs are to decrease the rate of placement in nonpublic schools, they must have the resources to meet student needs in a public setting. Combining the current state funds allocated for nonpublic schools in the base allocation makes resources available to meet student needs in public schools that serve these children. Therefore, we propose including the current state contribution for the costs of nonpublic schools in the base allocation for SELPAs.
Similar to the situation with nonpublic agencies, we believe that including funding for nonpublic schools within the base allocation could lead to the development of new special education programs within the public schools. SELPAs will have state funding for their current contracts included in their base allocation, so those SELPAs that wish to continue the current level of utilization of nonpublic schools will have funds to do so. Alternatively, SELPAs that wish, over time, to decrease their nonpublic school placement rates will have funds available to develop their own programs. While all funds will be subject to the equalization provision of the phase-in plan, discussed above, the state would not reduce funding, as it does in the current model, if students are moved from a nonpublic school to a public school placement.
We propose two types of protection from extraordinary costs associated with nonpublic school placements. First, we propose that the state create an extraordinary cost pool, to be funded by annual appropriations, to protect SELPAs from extraordinarily high-cost single placements. We recommend that SELPAs be responsible for costs up to 250 percent of the statewide average cost for a nonpublic school placement. Based on the current average, SELPAs would be responsible for up to approximately $50,000. Under our proposal, the state would pay all costs in excess of this threshold.
We propose to begin with an appropriation of $1 million for the extraordinary cost pool.
Second, we propose to protect SELPAs from being liable for costs for children placed in nonpublic schools whose parents move into the SELPA during the school year. Current law requires the new SELPA to pay as soon as the move is complete. We propose a requirement in cases where the parents of a child in a nonpublic school placement move to a different SELPA, that SELPAs continue to fund placements that they initiate for the remainder of the school year.
Due to the uneven impact LCI placements have on LEAs and SELPAs, we believe that services for disabled children residing in LCIs should not be funded based on total pupil population. Instead, we have developed a method for adjusting SELPA funding to account for the varying impact of LCIs, using data on the population and the relative incidence of need for special education services in distinct subgroups of LCI pupils. In each subgroup, we propose to define the population in a manner that does not depend on identification of these pupils for special education. Consequently, basing the funding formula on the number of these pupils would not create an incentive for SELPAs to identify pupils to maximize funding for special education.
We propose to apply this funding methodology to two additional types of facilities not now defined as LCIs: health facilities serving developmentally disabled children and juvenile court schools.
Below we discuss the five distinct subgroups we identified and how the proposed funding model would work.
There is a natural division of this group corresponding to the incidence of need for special education services: children in group homes classified at foster care rate levels 13 and 14, children in group homes classified at lower levels, and children in foster family homes. These are our second, third and fourth subgroups.
The second subgroup we identify is pupils in group homes who have been classified at foster care rate levels 13 and 14. Children in this group have, without exception, been previously assessed as seriously emotionally disturbed and in need of special education services.
The third subgroup we identify is pupils in group homes who have been classified below level 13. Not all of these pupils need special education, although we expect the incidence of disability among these pupils to be higher than the incidence among the general school population. The fourth subgroup is pupils residing in foster family homes. We expect the incidence of disability to be higher among the foster family home pupils than among the general school population, but lower than the incidence among the group home pupils. We base these conclusions on discussions with SELPAs and examination of data on group home and foster family home placements.
Our fifth subgroup is children in county juvenile court schools. Although these facilities are not categorized as LCIs, the funding issues are similar. Based on discussions with county administrators, we expect the incidence of disability among these pupils to be around the same as in foster family homes.
All of the information necessary to allocate funds in this manner is available at the state level.
Although these funds would be allocated based on the population of pupils residing in LCIs, there would be no requirement that the funds be used only for those pupils. Consistent with the principle of flexibility, SELPAs would be able to use these funds to provide services to any pupil with an IEP. Neither is the amount of funds allocated for LCIs intended to cover all services required by all pupils residing in LCIs. Funding for students residing in LCIs is also included in the amount each SELPA would receive based on total student population.
Finally, the weights that are attached to each subgroup are our best estimates regarding the relative incidence of need for special education services. If circumstances change, we would suggest that the weights be reconsidered.
Many individuals cite the extent to which LEAs spend their general-purpose (revenue limit) funds on special education as an indication of the size of the funding shortage. We discuss this issue--termed "encroachment"--in Appendix E.
There are two issues related to special education transportation. First, LEA representatives questioned whether special education transportation should be funded differently from home-to-school transportation given its status as a federal mandate. Second, there was anecdotal evidence that the circumstances under which transportation is included in a pupil's IEP vary considerably from LEA to LEA. Further clarification of state and federal law regarding when special education transportation is required might prove helpful in administering the special education program.
Report on New Funding Model for the Master Plan for Special Education. It is the intent of the Legislature that the Superintendent of Public Instruction (SPI), the Director of Finance, and the Legislative Analyst, or a designee of each of these persons, shall develop a new funding mechanism for special education programs and services offered in this state. The new funding mechanism shall include, but not be limited to, the following:
In developing the funding mechanism the SPI, the Director of Finance, and the Legislative Analyst, or a designee of each of these persons, shall consult with teachers, parents, and administrators of both regular and special education pupils, members of the Advisory Commission on Special Education, and other interested parties.
The three agencies shall reach an overall consensus on a new funding model, but not necessarily consensus on each of its components, and shall submit the new funding model to the appropriate chairs of the committees that consider appropriations, the appropriate policy committee chairs, and the Chair of the Joint Legislative Budget Committee on or before May 31, 1995.
Continue on to New Funding Model for Special Education -- Part III
Return to New Funding Model for Special Education -- Part I
Return to New Funding Model for Special Education Table of Contents