Monday, January 18, 2010

School Budgeting: Special Education Deficit Back on the Rise, leading to local school district financial problems

Yesterday, I started a discussion of the District 742, St. Cloud area school district budget. I said that during this year of financial crisis for public education, as we confront union difficulties and difficulties at the State, I hear from a number of people who assert that its simple to make cuts. "Just do it," they say. So I thought it might be useful to take a look at some of the options that people will suggest from time to time. I think it might be useful to scrutinize it with a heavy dose of reality. In the next few days, I want to post some information about our budget and what we do to try to analyze whether it is at appropriate levels. Yesterday, I talked about the components of the general fund budget and placed each component of the budget in historical perspective. I showed that in the last 8 years, the regular instruction component of the that budget has grown faster than the growth of the general fund formula and that the district and school administration component has grown only slightly, far less than the formula, or of course the rate of inflation.

Today, I want to talk about special education in more detail. Several years ago, the Board of Education asked that our annual budget contain a special report on our special education revenues and expenses. This report is place in summary portion of the budget, so that the Board, the public, the staff, and our legislators can track what is happening in this important budget area. We decided to do that, because Special education is more than 25% of our total general fund budget, but also because it consistently operates at a deficit. When I first joined the Board of Education, I got a pit in my stomach every time I looked at the special education budget. Your natural instinct, when you are budgeting responsibly is to cut expenses so that they equal revenues, or to obtain new revenues to cover the deficit. Since 2004-2005 our special education deficit, the difference between our expenditures and revenues has fluctuated between $5.9 million and $6.5 million. I'm just not used to being associated with a business enterprise, or any enterprise that operates a major component of its operations at a deficit, and here, the deficit is over 25% of the special education budget, and about 7.5 percent of our general fund. We have to do something about this, I thought.

Now nothing in my discussion of special education today deals with the merits of the program itself. Special education is an important weapon in our arsenal of services to education all children. There are many many children who grow to be productive adults precisely because they have received the special services that special education provides. On balance, like all of our educational services, dollar for dollar, the expenditures pay dividends in the long run. The problem is that the state and federal government have created a program that costs more than either the state or federal government are willing to pay for, and so they pay for it with the financial crippling of regular education services for children.

The awful truth is that the law places us in a straightjacket that radically limits our options. It is against the law, in most circumstances, to reduce our total expenditures on special education. This is the so-called "maintenance of effort" law. The only practical way that we can reduce is to keep total expenditures from increasing. As compensation rates increase, we can reduce teaching and non-teaching staff, holding expenditures constant. We've been doing his over the last three years, eliminating a large number of teaching and non-teaching positions. Our total special education budgeted expenditures was $21.8 million in 2002-2003, $24.5 million in 2005-2006 and the budget for 2009-2010 is $23.2 million. Several years ago, the Board of Education conducted a two year comprehensive study of our special education finances. With outside help, we determined that our special education caseloads for both teachers and non-teachers were lower than other comparable districts. The administration recommended, and we agreed, to make staffing cuts to bring those ratios more in line with comparable school districts. Through the processes of keeping expenditures relatively constant, even though rates of compensation increased, as described above, we began reducing positions. .

Our total special education revenues are almost completely beyond our control. The federal government and the State government each allocate funds to us, based on formulas that intentionally under pay us for special education services that the state and federal government both mandate. Minnesota provides special education revenues based on the number of students (all students) attending public schools. They don't count the number of private school students in the district. This is a huge problem for school districts that have high private school populations--and we have one of the highest in the State. The reason is that private school families send their regularly abled children to private school, but their disabled children are provided special education at public expense. That means that the funding formula pretends that the students with private school families don't exist for purposes of calculating the revenues provided to the district, but still the district must provide those services without the revenues.

Now the state provides some excess funding to take care of this problem called "excess cost aid." The problem is that the State caps the amount of cost aid, and "pro-rates" it across school districts, so that as more and more districts need the aid, a smaller and smaller amount of aid is provided. Figure 1 below is a chart taken from the February 2009 Report to the Legislature. It shows the historical difference between total state expenditures on special education and the total of state and federal revenues to fund these programs. The cost of special education is going up, but the revenues from state and federal government are not going up as fast. Our expenditures are driven by federal special education requirements, but as I have said, the State of Minnesota is not content with the federal mandates. The legislature and Department of Education have heaped additional mandates in special education on top of the federal mandates, and in St. Cloud, that results in about $1 million in extra costs per year. The image below doesn't fit perfectly. So just click on the image to view it in a separate, enlarged window. The numbers are in millions of dollars, so 1,068 means one billion and 68 million dollars:

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If you are dissatisfied with the fact that this huge deficit exists statewide or in your local school district, don't beat up on your school board or your Superintendent. The primary driver is the failure of the State fully to fund its obligation to local districts, and the addition of further mandates by the State.

If you have read this post and you are still saying we should "fix" special education by just making cuts, then you haven't been paying attention. Minnesota and federal law won't let us "make the cuts," and doesn't provide us with the revenues. The State legislature won't remove even the extra state mandate that is placed on top of the federal mandate, and so far, we haven't been able to find any state legislators willing to remove that mandate (or close the deficit).

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