Does Dayton's Education Budget Attack the Growing Special Education Deficit

When the MDE issued its summary of the Dayton budget's impact, it contained no mention, even, of special education. There was new spending for all day kindergarten; new spending for some initiatives promoting improvements in education. But not a word about the special education funding crisis. Does this mean that the Dayton team ignored special education or, like Pawlenty before him, decided that the problem was so difficult to solve, that they should kick it down the road? The truth of the matter is that the budget is so complicated that its going to take a few days to figure out, but at first blush, it doesn't look like the Dayton budget is any more courageous that Pawlenty's budget in addressing the most significant financial difficulty facing public education today.

The chart below shows that from 2003 to 2013, the Minnesota Department of Education projects that total special education spending for all districts in Minnesota is expected to rise by $800 million per year from $1.2 billion per year to just over $2 billion per year, an increase of 69 percent, or nearly 7 percent per year. During that time period, unless Dayton and the legislature fix this problem with fundamental reform, the revenues provided by State and Federal Government combined will increase by only $400 million per year from $818 million to $1.28 billion per year. Thus, in the same period where state - mandate expenses will increase by $800 million, the revenues paid to districts to reimburse these expenses will rise by only one half that amount, nearly doubling the total "special education deficit" apportioned amongst school districts.

Will the Dayton budget reverse this trend, which is driving school districts to the bring of financial ruin --- will it use his proposed new revenues to make a dent in the growing special education deficit problem, or will Dayton, like Pawlenty before him, continue the practice of funding other priorities (tax relief or new programs) on the backs of the special education deficit and on the backs of those districts that have specially high costs? That is what we are waiting to find out as we wade through the detail of the Dayton budget.

But this hemorrhaging of the special education deficit is just the beginning of the problem. Special education responsibilities are not equally divided across the state. School districts are not primarily reimbursed based on the number of students or the severity of disabilities that they serve. Rather, they are funded based on a formula that counts the number of students attending public school in that district. If the District has a small percentage of students with disability attending the district, then the district loses money, but not nearly so much. Many of these districts are the ones who claim to be "frugal districts" with large fund balances. In fact, many are districts with vastly fewer high cost students--and thus lower special education deficits to make up. If, on the other hand, the District has a very large percentage of students with disability attending the district, then the district loses lots and lots of money and it absorbs a much larger of the statewide deficit -- the difference between the blue and red lines below.

Four major factors increase the special education responsibilities of particular districts such that the revenue shortfalls are vastly different from district to district. They are (a) the percentage of families whose children attend parochial schools (increases the percentage of students receiving district provided special education significantly) (b) in smaller districts, whether there are a few students with disabilities that are tremendously expensive to address, (c) the rate of poverty amongst children, and (d) whether the district is a regional medical care center like St. Cloud, Duluth, Rochester, and so on.

Now many years ago, the legislature recognized that the state funding formula for special education was fundamentally unfair. It was so unfair, that a few districts across the state had begun to hemorrhage special education deficits that threatened to sink their regular programs, because the regular programs would have to siphon money over to pay what the state would not take care of. And so, the State added an "excess cost aid" reimbursement provision which would provide funding for districts with very high special education expenditures in comparison to state and federal reimbursement.

There was a catch, however. The State decided to appropriate a fixed fund for that purpose. If more districts sought reimbursement out of the fund, then the fund would be "pro-rated," and the reimbursement would fall year after year, until finally someone woke up and said, hey, we have to fix this.

But politicians, Republicans and Democrats alike, hit upon the idea that they could evade this problem by claiming that they were holding school districts harmless by appropriating the same excess cost fund, year after year, even though the fund was falling increasingly short as more and more districts took money out of the fund. As the blue line --- total costs in the State rose, more and more districts would become eligible for the excess cost aid, and then the districts receiving it would be reimbursed less and less, even though their need was rising. The Governor and legislature would publicly claim that they were holding the special education budget constant, thereby holding districts harmless, but actually, they were sinking the higher cost districts under a mountain of deficit spending. Governor Pawlenty was a master at doing this. His Education Department actively pushed up the blue line--constantly ruling that districts had to provide more and more costly services. At the same time, his budgets would continually push down the red line, creating larger and larger special education deficits. But since nobody looks at the special education shortfalls, the media would report that the Governor was preventing cuts in education.

Now we are waiting to find out, through analysis of the Dayton budget, whether Dayton has engaged in the same shell game. If he has chosen simply to keep the special education budget constant, and especially if he has failed to provide significant increases to special education excess cost aid, then our district and many others like it are due for another financial squeeze from a Governor who is claiming to provide us with an increase.

The operation of Minnesota's special education funding system is particularly venal. In our district, even though we have tried to freeze our expenditures at 2005 levels, still, our special education deficit has been rising. It is against the law for us to cut any further, but the state keeps reducing our excess cost aid, as it shares the limited pool, with more and more districts. As a result, our deficit keeps going up, and there is absolutely nothing we can do about it.

Now you understand, why we are waiting to find out if the change in governors will result in an end to the special education shell game. Will Dayton's budget, at long last, recognize the fundamental bankruptcy of the way Minnesota deals with special education costs and revenues, or will his budget continue the Pawlenty approach, and inflict further deficits on districts like ours? We're pouring through the Dayton budget. I'll write more on this topic, when we get the answer.