VII. Special Education Financing

Determining appropriate public financing for Special Education services.

Special Education Financing

Context

Public financing should be fair, adequate, equitable, rational, and coherent. Public officials are elected or hired to ensure these things. Yet special education financing in California often seems to be none of the above.

In part, this current imbalance is understandable. Among all of the state’s obligations related to education, special education financing may be one of the most complicated; it’s saddled with multiple mandates, grandfathered funding patterns, and seemingly countless competing interests and agendas. However, with sufficient public will and a commitment to what the money and the educational system were originally and ultimately designed to do—educate those of our children who need and deserve special supports in order to become productive citizens—special education financing can be redesigned to actually be fair, adequate, equitable, rational, and coherent.

Challenges

The federal Individuals with Disability Education Act (IDEA) mandates that states and school districts provide “specially designed instruction, and related services . . . to meet the unique needs of a child with a disability.”⁷⁵ During the 2012–2013 school year, school districts and charter schools spent a total of $10.7 billion on those services, which works out to an average cost of $22,300 per student, far more than the $9,600 spent, on average, to educate students without disabilities.⁷⁶ While students with disabilities represent approximately 11.31 percent of the student population in California, special education consumes more than 20 percent of the state’s education budget—and more than 40 percent of all education-targeted dollars during the last decade.

Underfunded Federal Mandate

IDEA legislation promised the federal government to fund “up to” 40 percent of the “excess costs” of these services, with state and local funds making up the rest. Congress regularly insists that it is moving toward that goal but has never allocated anything close to the promised 40 percent. Currently California’s IDEA grant covers approximately 11.5 percent of the costs, and the state contributes approximately 46 percent. Over the past seven years, the money that Local Educational Agencies (LEAs) have had to spend on special education, over and above state and federal contributions, has increased from 35 percent to 43 percent.

Special Education Local Plan Areas

California distributes the federal special education funds it receives, as well as the state’s contribution, through 130 Special Education Local Plan Areas (SELPAs). Most of the SELPAs are made up of multiple districts and charter schools; but in large districts, the SELPA is one single, large school district, typically located in an urban setting (Los Angeles, for example). The formulas that drive the distribution of money among the SELPAs are, in great part, the source of the funding challenges for special education: they are decades out of date, do not reflect the rising costs of special services, and are starkly inequitable from one SELPA to the next.

Average Daily Attendance

Average Daily Attendance (ADA) refers to the number of students who attend school in any given school district or LEA. The number is used to ensure that schools are adequately funded according to student population. However, some SELPAs receive twice the state special education money per average daily attendance unit (i.e., per student) as others. For example, Plumas County receives $470 per student annually while Modoc County receives $917.⁷⁷ This variance is not due to differences in the cost of special education services from one SELPA to the next but rather to how much each SELPA received in 1997. Prior to that, what was spent on special education services in 1979 in each separate SELPA was used as the baseline for determining the money each of those SELPAs received. The historical funding pattern in each SELPA trumped actual need. Over time, the state has tried to even out these disparities; but, for many reasons having to do with antiquated funding formulas, the disparities remain.⁷⁸

The state annually calculates the amount each SELPA is to receive under the current funding formula and includes it in the state budget. If actual enrollment is higher, SELPAs do not receive additional money unless the legislature takes action to augment the original budget. This creates a significant hardship for schools, as it shifts costs to LEAs based on the state’s underestimation of the Americans with Disabilities Act (ADA) and thus the actual funds needed. The problems don’t just stop here. If the state underestimates the amounts needed for any one of a number of other specific “pots of money”—base amount, cost of living allowances (COLA), equalization, growth, low-incidence disabilities, out-of-home care, infant funding, and others—SELPAs find themselves with a shortfall of funds unless the state specifically takes action.

General education, thanks in part to the Local Control Funding Formula (LCFF), works differently. It provides a “continuous appropriation” that automatically increases funding when enrollment increases, even after the state budget has been finalized. Special education, unfortunately, does not have this kind of sensible system.⁷⁹ First, it’s important to establish that using ADA as a basis for determining special education funding makes good sense. The other option would be to base the funding on the identified needs of students; but that has been shown to create an incentive, conscious or not, of over-identifying students in order to secure extra funds.

But how the growth of “average daily attendance” is calculated represents a challenge in California. Currently, ADA is calculated across entire SELPAs rather than in each LEA that the SELPA serves. For example, if enrollment increases in one district in the SELPA by 100 students and falls by 100 students in another, the amount the entire SELPA receives does not change. The growing school district’s costs go up, but it does not receive additional funding, in part because the SELPA does not have the power to move resources, such as a needed teacher, from one district to the other. But neither do the costs of the district with declining enrollment necessarily go down, because the decline at any particular school may be too small to justify a reduction in workforce, and also because ADA is calculated too late in the year to alter employment contracts. These discrepancies create particular problems for charter schools and small school districts.

Calculating the amount of funds that SELPAs receive and accounting for all of the various aspects of the special education funding formulas are complex tasks and currently require a significant number of CDE staff, often talented individuals whose time could be better spent on other activities. As well, the existing data systems are overly cumbersome and complex, restricted in their design, reflective of little thoughtful coordination, and preclude any nimble response to the often-adjusted state and federal requirements, all of which often lead to the unintended consequence of delaying payments to SELPAs.

Distributing among SELPAs the funds they need to provide mandated services to students with disabilities would do a great deal more than simply ensure services. Sufficient money to SELPAs would release the general education dollars that are currently being used for special education, and that money then could support the very things that ensure quality education for all students: early intervening services, targeted and ongoing professional learning opportunities, the implementation of a multi-tiered system of supports, and general education-special education collaboration.

The LCFF has become an educational financing model that’s envied nationally for “bringing educators closer to their communities and providing insight into what the state’s neediest students require.”⁸⁰ Parts of the current special education funding model also have realized some success in supporting local control—while acknowledging the various needs that SELPAs experience. Some of these needs include the continuance of the funding for small SELPAs, which allows SELPAs with an ADA that is less than 15,000 to still generate an allowance of $225,000 to pay for their operations; funding for educationally-related mental health services, which is currently $71 per ADA; and the funding for out-of home care services, which is based on the number of beds in a SELPA and the level of intensity of need for each facility.

Early Intervening Services

School districts and regional centers are responsible for identifying infants, toddlers, and preschool children who have disabilities and who are showing signs of developmental delay and then arrange for these children to receive early intervening services. The research in support of the effectiveness of early intervening is conclusive, confirming the cost-effectiveness of these services. In one study, early intervening services for potential behavioral disorders showed the benefit to exceed the costs by a ratio of 7:1.⁸¹ For some students, these services are delivered through LEAs, and for others through a network of providers under contract with Department of Developmental Services Regional Centers. Yet access to these critical services—and the very existence of the services themselves—varies widely across the state. In some parts of the state there are virtually no services available to families; in others, the needs of young children are addressed comprehensively. As noted in the Early Learning section of this report, the need for these services to be delivered at an early age is critical. Equity is again lacking.

Low-Incidence Disabilities

In addition to funding per ADA, SELPAs receive money to support students who have what are called “low-incidence” disabilities,⁸² such as blindness, deafness, or “severe orthopedic impairments.”⁸³ It is estimated that less than 1 percent of California students have these disabilities. These students have an equal right to an education that will help them realize their full potential. The services these students need may include one-on-one support, interpreters, medical supports while in school, or assistive technology—and these are all costly. SELPAs receive only $457 to provide each of these students with specialized materials and services. This amount is woefully inadequate to support many of the costs associated with serving these students’ needs; this amount should be increased.⁸⁴

The federal definition of “low-incidence disabilities” includes students with a “significant cognitive impairment” or any other “impairment for which a small number of personnel with highly specialized skills and knowledge” are needed to provide early intervention services.⁸⁵ For the purposes of funding, California’s definition is narrower; as a result, many schools do not receive the funding they need to adequately support these children in their learning.

Transition to Adulthood

According to IDEA, all students with disabilities between the ages of 16 and 22 years old (up to high school graduation) have a right to such transition services as counseling and coaching to help them gain the skills they need to succeed in postsecondary education or employment. The U.S. Department of Education has notified California that the schooling and services the state provides are inadequate in this area.⁸⁶

There is some irony here. In 1982, California created a program called WorkAbility to provide these services to students with moderate to more significant disabilities, helping them become aware of their career possibilities and potential, complete their high school education, learn important employment skills, and accrue direct work experience (both paid and unpaid) and ultimate job placement, all the while giving employers the opportunity to recognize and value the contributions that individuals with disabilities can make to their communities.

In addition to providing occupational classes in the specific skills needed for employment, WorkAbility teaches students the “softer” employment skills—how to look for jobs and how to keep jobs. These kinds of programs pay for themselves in that they help students grow and become independent, self-supporting, tax-paying adults to the degree they are most capable. WorkAbility became a national model almost overnight. But some SELPAs receive funds for WorkAbility; others do not. There is no rational basis for this inequity.

Transportation for Students with Disabilities

Another challenge involves how the transportation of students with disabilities is funded through LEAs. Current funding levels once again bear no relationship to the cost of providing the services, nor—again—are the services available equally across the state. Historically, the amount each LEA received for special education transportation was based on how much that agency spent on these services in the early 1980s. In 2013–2014, this funding was rolled into the base funding of each LEA under the LCFF. However, special education funding was not included in the LCFF because of the aforementioned wide funding disparities among LEAs in the state; thus no reasonable means could be developed that would ensure equity and fairness.

In fact, special education transportation should not be included within the LCFF because it varies significantly among LEAs and therefore distorts the LCFF. In general, transportation for students with disabilities is a mandated service that has historically been underfunded, and the amount of the shortfall has only increased as LEAs’ costs have risen. According to the Legislative Analyst’s Office,⁸⁷ the transportation cost for each student with a disability can be as much as six times that of a general education student.

IDEA requires districts to provide a free and appropriate public education (FAPE) to students with disabilities. When an IEP team determines that transportation is necessary for a student to access his or her education, that transportation becomes a mandated related service, regardless of the cost. This mandate and its cost present a particular challenge for many rural school districts and LEAs. And while the number of students with disabilities has remained relatively stable over the past few years, the number of students with more significant disabilities has increased dramatically, with these students often requiring extra assistance, specialized equipment, and longer bus routes. These students typically have transportation listed as a related service on their IEP, leaving districts with the requirement to fund the additional transportation costs.

Again, giving SELPAs sufficient money to provide these mandated services would serve to release general education dollars, which could then support the development of a robust and unified general education system, one that is replete with early intervening services, targeted and ongoing professional learning opportunities, a multi-tiered system of supports, and general education-special education collaboration.

Alternative Dispute Resolution

Special education procedures and bureaucracies can be cumbersome and frustrating for parents, students, and educators. In an ideal world, everyone involved collaborates and, in the face of misunderstandings or disagreements, works together to find common ground and reasonable solutions. But sometimes people simply disagree about the best way to resolve complaints or about what exactly is due under the law. Sometimes collaborative efforts are then undermined and adversarial relationships result; hard-and-fast positions are staked and formal complaints are filed; due process proceedings take place; people go to court.

Alternative dispute resolution (ADR) has shown itself to be one successful way to resolve disagreements and avoid expensive, formal legal action. The results of ADR processes have often been positive and lead to facilitated collaborative problem solving among those working with children, including parents and school and district personnel. Yet only 20 SELPAs currently receive grants to help pay for costs related to ADR. The dozens of remaining SELPAs are without the very supports that can effectively and constructively secure partnerships with parents, avoid costly litigation, and most importantly ensure the provision of appropriate services and supports for children.

Facilities

The provisions of least restrictive environment (LRE) in federal law extend beyond ensuring evidence-based practices to ensure that students with disabilities are educated to the greatest extent appropriate with their nondisabled peers. School facilities also bear on the availability of these options. Several barriers related to physical school facilities exist which hamper the ability of students with disabilities to learn alongside their general education classmates or at least in specialized settings on general education sites.

The sources of these barriers are oftentimes understandable. It can be difficult to project what building needs will be over the long term because of the fluctuating needs of students and the length of time that a facility will serve to meet those needs, particularly with respect to low-incidence populations. Often small districts in particular don’t have enough students with low-incidence disabilities to fill a class, so they get together with other area districts and create a program that a county office of education (COE) may operate and house, but is provided on a general education campus; this makes the students essentially “guests” on that campus. Given this guest status, the schools and districts have little leverage to ensure that the facilities are appropriate to serve their students. And finally, there exists no policy with the necessary clout to require school districts to consult with COEs or SELPAs when they are designing schools or modernizing existing facilities.

The challenge extends to facilities for very young children, as well. There are no state funds to support infant and pre-school facilities to serve infants and toddlers with disabilities. As well, there are no standards that detail provisions for the construction of facilities to serve our youngest children with disabilities. As a result, many infants, toddlers, and school-age children and youth have a difficult time accessing the very places that are legally mandated to welcome and accommodate them.

Medi-Cal Funds for LEA Billing Option Program

The May 2012 Local Educational Agency Medi-Cal Billing Option Program Report to the Legislature from the California Department of Health Care Services (DHCS) explained how many jurisdictions use federal Medicaid reimbursements as a crucial source of revenues for providing necessary health services to students. That program reimburses California’s school districts and COEs for health services provided to Medi-Cal eligible students.

Yet a report published by the United States General Accounting Office (GAO) in April 2000 estimated that California ranked in the bottom quartile of states with school-based Medicaid programs based on the average claim per Medicaid-eligible child. Senate Bill (SB) 231 (Ortiz, Chapter 655, Statutes of 2001), added Section 14115.8 to the Welfare and Institutions (W&I) Code in an effort to reduce the gap in per-child recovery for Medicaid school-based reimbursements for California and the three states that recover the most per child from the federal government. SB 231 was reauthorized in Assembly Bill (AB) 1540 (Committee on Health, Chapter 298, Statutes of 2009.) The LEA Billing Option (LBO) program that provides reimbursement for direct services to children with an IEP has been going through an overhaul and is expected to have some additional changes to integrate with new documentation requirements by the beginning of the 2015–2016 school year. A workgroup is currently being formed to work on many of the issues identified. In the meantime, significant challenges to secure reimbursements persist.

Since 2009–2010, the LBO program has generated between $130 million and $147 million (on average) annually to approximately 531 LEAs. This number is expected to substantially decrease for 2014–2015 because of an increase in the requirements for supporting documentation that were put in place by DHCS. These requirements have forced districts to stop billing for certain services because they add an administrative burden that makes claiming for services a process that is so difficult and cumbersome that it essentially eliminates any appropriate return on investment. While the DHCS has made attempts to address some of the concerns related to the LBO program, the agency has not yet tackled the specific areas that promise a direct benefit to schools: revising program requirements to not exceed those determined by the federal government and expanding the list of eligible services to be in line with the rest of the nation.

Medi-Cal Funds for Administrative Activities Program

Another area of concern related to Medi-Cal services is the Medi-Cal Administrative Activities (MAA) Program, which has operated in California for nearly 17 years. The program was created to help LEAs provide Medi-Cal outreach and referral to their students. It is administered by DHCS, with intermediaries known as Local Educational Consortiums (LEC) and Local Governmental Agencies (LGA) working as the direct supervisors over LEAs. The purpose of this structure was to provide regional support to DHCS, which did not have the capacity to deal with the nearly 1,000 individual agencies that are eligible to take advantage of the available services.

Over the years, the emphasis has been on compliance, without a parallel focus on the effectiveness of operations and benefits for parents and students. In addition, there has been an avalanche of added administrative burdens, which has contributed to LEAs becoming more and more frustrated with the MAA, to the point where between 30 and 40 percent of them have pulled out with a subsequent loss in funding resources.

At the same time, the LEA revenue history for the MAA Program has been dramatically reduced. Below is a small but representative list of the type of revenue changes that have happened over the past five to seven years:

District A:
- 2012–2013 (53 percent reduction from 2009–2010)
- 2013–2014 (40 percent further reduction from 2012–2013)
District B:
- 2010–2011 (14 percent reduction from 2009–2010)
- 2011–2012 (17 percent reduction from 2010–2011)
- 2012–2013 (48 percent reduction from 2011–2012)
- 2013–2014 (quit the program)
District C:
- 2012–2013 (52 percent reduction from 2009–2010)
- 2013–2014 (quit the program)
District D:
- 2013–2014 (38 percent reduction from 2012–2013)

Annual changes in the program are directly contributing to this decline. These changes include the elimination of both administrative support and participant support in preparing time surveys. Certain types of staff were reclassified and thus no longer considered eligible to participate in the program. The eligibility status of certain activities were also changed and thus no longer qualified for the program, and certain higher costing activities were reclassified to codes that were less revenue-generating, and on and on. In general, the program made it more difficult, more complicated, and more costly for schools and other student-serving entities to participate.

A new time-keeping system, Random Moment Sampling, was introduced for the 2014–2015 school year. There is no current data available on how this new method has affected LEAs’ revenues. However, many of the LEAs and providers of billing services assert that they will be fortunate to maintain even the lower revenue levels allocated for the 2013–2014 school year.

Early Periodic Screening, Diagnosis, and Treatment Program

An additional area of Medi-Cal billing involves the Early Periodic Screening, Diagnosis, and Treatment (EPSDT) program, which was described in detail in a program example in the “Untapped Resources” example in the Early Learning section of this report. Currently the option for using these services exists for LEAs on a very limited basis.

Innovation and Flexibility

Certain aspects of the current system of financing for special education discourage innovation or efforts to increase efficiency. Under federal law, the state and LEAs are expected to spend at least as much on special education services as they did the year before. This is known as “maintenance of effort.” The intent of the federal government was to avoid having states and local agencies increase their dependence on federal funds and simultaneously cut back on their own spending.

Maintenance of effort requirements are consistent with the original federal legislation that described a proportional sense of responsibility for paying for these services. The federal government has provided some flexibility in the definition of special education costs, such as allowing for special education funds to be used to support Response to Intervention (RtI) activities. Creating coherence between the way California accounts for special education costs and the federal definitions would assist in the goal of creating a seamless system between general education and special education and working to reduce the number of students assigned to the special education system.⁸⁸ Unfortunately, California has not allowed for the same level of flexibility, thus unintentionally discouraging many districts from serving students more efficiently, particularly through early and targeted intervention efforts.

Eligibility for Scholarships for Students with Disabilities

Another federal funding inequity related to special education is a recent change in eligibility for college scholarships, which disallows any student who has not received a general or “regular” high school diploma to receive a college scholarship. This means that any student who has received a certificate of completion because of special education status, but who is attending college and is in good academic standing, is not eligible to be considered for a scholarship or grant. As a result of this restriction, many deserving and hard-working college students are deprived of the financial supports that could lead them to a college certificate or degree and ultimately self-supporting employment.

Recommendations

California needs a system of financing that provides the resources necessary to meet the needs of all students with disabilities, encourages greater coherence between general education and special education, is sensitive to changes in enrollment, and invests in the systems and provides incentives for practices that will lead to greater success for students. Those recommended changes that will cost money—essentially anything that effectively supports the learning and development of children with disabilities—have been shown to be solid investments that provide a solid return in the form of productive, tax-paying citizens and in the avoidance of more intensive—and expensive—services and supports that would be needed later.

In support of an effective and efficient special education funding system, this Task Force recommends the following:

Recommendations for State-Level Change

Equalize the state’s support for special education across California by overhauling the system of special education financing to give schools and districts more control over how they spend their money and to hold them accountable for adequately meeting the needs of students with disabilities (a model distinct from but coordinated with and similar to the LCFF).
Ensure the availability of early intervention programs and services for all eligible students with disabilities and address the disparity of early intervention programs and services among early childhood care and education entities.
Fund SELPAs based on ADA, but increase the amount allocated per ADA so that SELPAs are more equitably funded.
Revise the special education funding formula so that the growth or decline in the enrollment of multi-district SELPAs is based on the growth or decline of ADA for each individual district, charter school, or COE instead of on these changes in the SELPA as a whole.
Secure the integrity of specific special education dollars, especially the money that small SELPAs need in order to operate, as well as funds for educationally related mental health care services and for out-of-home care services.
Update the electronic data systems that account for special education income and expenditures, thus allowing current CDE fiscal staff to devote more time to analyses, while also allowing SELPA fiscal staff to be more efficient.
Use the broader federal definition of “low-incidence” disabilities and increase allocations of low-incidence funding to SELPAs.
Increase the funding for WorkAbility programs so that all SELPAs are receiving adequate WorkAbility funds.
Provide to LEAs sufficient funds to meet their mandated special education transportation costs.
Expand alternative dispute resolution resources, supports, and services throughout the state.
Mandate collaborative efforts among school districts, charter schools, COEs, and SELPAs whenever a new school is being planned or a modernization project is being developed to ensure that facilities are available to students with moderate to severe disabilities.
Require and support availability of facilities that serve infants and toddlers with disabilities in preschool settings.

Funding Recommendations for Federal-Level Change

Work statewide and nationally to increase the federal share of the excess costs of serving students with disabilities to 40 percent.
Determine how to break down the barriers that are preventing education entities from accessing and increasing Medi-Cal and Medicaid (LEA, MAA, and EPSDT) services and reimbursements.
Clarify eligibility for college scholarships, under federal guidelines, to include students with disabilities who have received a certificate of completion.

Sources

IDEA
Legislative Analyst’s Office. (January, 2013). Overview of special education in California.
This money is distributed according to a legislatively established formula (in Assembly Bill 602), which went into effect for the 1998–99 school year. AB 602 provides additional funding to SELPAs with above-average incidence of high-cost students with disabilities. Another major component of AB 602 is the Out-of-Home Care (OHC) Program.
Legislative Analyst’s Office. (February 2013). The 2013–2014 budget: Proposition 98 education analysis. (PDF; 2 MB)
Proposed legislative language for this provision: “Continuous Appropriation: Amount, specific or estimated, available each year under a permanent constitutional or statutory expenditure authorization which exists from year to year without further legislative action. The amount available may be a specific, recurring sum each year; all or a specified portion of the proceeds of specified revenues which have been dedicated permanently to a certain purpose; or whatever amount is required for the purpose as determined by formula—such as school apportionments. This will also ensure that cash flow will continue to special education under the continuous appropriations funding elements, in the same manner as the LCFF works, even if there is no state budget that has been approved.”
Diepenbrock, W. Districts frustrated by a short timeline, unavailable testing data, and shifting state regulations. The Hechinger Report.
National Early Intervention Longitudinal Study. (2007). Early intervention for infants and toddlers: Participants, services, and outcomes.
A low-incidence disability has an expected incidence rate of (e.g., it occurs in) less than one percent of the total statewide enrollment in kindergarten through grade 12. CA Definition: EC 56026.5 “Definition of Low Incidence Disability ‘Low incidence disability’ means a severe disabling condition with an expected incidence rate of less than one percent of the total statewide enrollment in kindergarten through grade 12. For purposes of this definition, severe disabling conditions are hearing impairments, vision impairments, and severe orthopedic impairments, or any combination thereof. For purposes of this definition, vision impairments do not include disabilities within the function of vision specified in Section 56338.”
In accordance with California Education Code 56026.5.
For example, according to the U.S. Bureau of Labor Statistics , translators and interpreters, including those specializing in American Sign Language, earned an average annual income of $47,920. Or consider the $1 per page cost of translating textbooks into Braille.
Federal Definition: Title I, Part D 662 c (3) Definition—In this section, the term “low incidence disability” means: (A) a visual or hearing impairment, or simultaneous visual and hearing impairments; (B) a significant cognitive impairment; or (C) any impairment for which a small number of personnel with highly specialized skills and knowledge are needed in order for children with that impairment to receive early intervention services or a free appropriate public education.”
Legislative Analyst’s Office. (February 2013). The 2013–2014 budget: Proposition 98 education analysis. (PDF; 2 MB)
Legislative Analyst’s Office. (February 2014). Review of school transportation in California. (PDF)
One exception is when students with an IEP that calls for a very expensive treatment plan graduates from high school or ages out of eligibility for special education services.

Questions: Special Education Division | specedinfoshare@cde.ca.gov | 916-445-4613

Last Reviewed: Monday, May 08, 2023