Analysis of the 2008-09 Budget Bill: Education

Special Education

In 2006–07, 680,000 students age 22 and under were enrolled in special education programs in California, accounting for about 11 percent of all K–12 students. Special education is administered through a regional planning system consisting of Special Education Local Plan Areas (SELPAs). Currently, there are 120 SELPAs.

Figure 1 summarizes the Governor's budget proposal for special education in 2007–08 and 2008‑09. The budget provides a total of $4.5 billion for special education in 2008‑09. This reflects a decrease of $189 million, or 4 percent, from the current–year level. Under his proposal, General Fund support for special education would decrease by $231 million, or 7.3 percent. The General Fund reduction is partly offset by an expected increase in local property tax revenue.


Figure 1

Special Education Funding

(Dollars in Millions)


Revised 2007‑08






General Fund





Local property taxes





Federal funds











a  Reflects most recent estimate of federal grant.


Governor's Proposal Violates Federal Maintenance–of–Effort Requirement

We recommend the Legislature reject the Governor's proposal to reduce special education funding. Such a reduction would violate a federal Maintenance–of–Effort (MOE) requirement, resulting in a dollar–for–dollar loss in federal funding, as well as put a financial strain on local education agencies.

The Governor proposes to reduce special education funding as part of his across–the–board budget balancing reductions. From his workload budget for special education (which assumed a 4.94 percent cost–of–living adjustment and 0.51 percent decline in student enrollment), he proposes a reduction of $358 million. As mentioned above, the actual year–to–year reduction would be $189 million. The Governor offers no rationale for this reduction other than General Fund savings and does not provide guidance on how to make cuts within special education.

Governor's Proposal Violates IDEA Requirements. Under the federal Individuals with Disabilities Act (IDEA), states must not reduce state funding for special education below the amount of state funding provided in the previous fiscal year. This is known as a MOE requirement. According to federal regulations, if a state does not meet its MOE requirement, federal special education funding for the following fiscal year is to be reduced dollar–for–dollar. That is, the federal allocation is reduced by the same amount as the prior–year reduction in state funding. As shown in Figure 2, we estimate that the Governor's proposal falls $189 million short of meeting its MOE requirement. As a result, the state would lose that amount of federal special education funding in 2009–10. (The Department of Finance [DOF] estimated the shortfall at $278 million, but that point–in–time estimate has since been updated.) To avoid losing federal funds, the state could try to obtain a waiver from the MOE requirement, but such a waiver has never been granted. (See box below.)


Figure 2

Maintenance-of-Effort (MOE) Shortfall

(In Millions)





State fundinga 




Growth adjustmentb




  MOE Shortfall





a  Includes General Fund and local property taxes, both of which count toward the state's MOE
requirement. Excludes $25 million in settlement funds that do not count towards the state's MOE.

b  Student enrollment in California is projected to decline in 2008‑09 by 0.51 percent, resulting in
savings of $16.6 million.


Makes Flawed Assumptions. The administration assumes districts can backfill the state reduction in special education funding, thereby allowing the state to meet its MOE requirement. That is, DOF believes both state and local funding combined can be counted towards the state MOE requirement. We believe the Governor's assumption is incorrect. Federal regulations do not permit states to count local funds in calculations of its MOE—only funding allocated by the state for special education purposes can be counted. If the state cuts special education funds, it directly violates its MOE because the amount of state support falls below the previous–year level. Thus, districts backfilling the drop in state funding for special education will not prevent the state from losing federal funds.

Federal Waiver Possible but Unlikely

The Individuals with Disabilities Act allows for a waiver if it “would be equitable due to exceptional or uncontrollable circumstances such as an unforeseen decline in the financial resources of the State.” Although the Governor has declared a fiscal emergency, California is not experiencing a year–over–year decline in state revenues. That is, growth is lower than expected, but state revenues have not declined from the previous year. Therefore, it seems very unlikely the federal government would grant California a waiver. In response to an inquiry from the California Department of Education during a more severe fiscal crisis in 2003–04, the federal government indicated it would not grant a waiver under the existing circumstances. Furthermore, the Office of Special Education has never granted a waiver from maintenance–of–effort requirements due to financial hardship.

Puts Financial Strain on LEAs. The IDEA requires local education agencies (LEAs) to develop and implement an individualized education plan (IEP) for each special education student. They cannot legally reduce the special education services outlined in a special education student’s IEP. Although districts could try to provide services using fewer resources, districts likely would have to backfill some of the loss in state funds by redirecting funds from other activities. The reduction in state funds therefore would translate into a redirection of districts’ general purpose funds, thereby affecting all students.

Given these concerns, we recommend the Legislature reject the Governor's proposal. As discussed earlier in “Proposition 98 Priorities,” we recommend funding special education at roughly its 2007–08 level (with a reduction of $16.6 million to account for a slight decline in student enrollment). Total funding for special education in 2008‑09 would be $4.7 billion. Of this amount, $3.1 billion would be General Fund support. Federal funding would not be compromised, as the state would meet the MOE requirement.

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