Saturday, April 7, 2012

Special Education Update

Recently, the St. Cloud  Daily Times reported on  a study commissioned by our school district on our special education programs.  The report looked at the delivery of services, at cost of service, and compared what we are doing to other similar school districts.  The reason that the School Board commissioned a special education study is that special education is a very significant part of our district's budget, and because like all other school districts in Minnesota, we are compelled by the state to operate the program at a significant deficit.   Over the next months, our district will be examining the recommendations in this report and will be discussing how to address those recommendations.

In this post, I want to share some background information about trends in special education finance in Minnesota with some information as well about how our school district fits into those trends.

The total cost of special education in Minnesota has risen from $937 million in 1999 to $1.827 billion in 2011, essentially a doubling in 12 years time.    During that time, state and federal revenue provided to Minnesota school districts has increased from $584 million to $1.231 billion.  The total state shortfall between expenditures and revenues has thus grown from $353 million to $596 million.  The disparity in recent years has fluctuated partly because the legislature provided temporary relief from the rapid increase in deficit in 2007, and partly because of temporary special education relief in federal stimulus legislation.   By 2015, special education expenditures are expected to exceed $2 billion, while total revenues are projected to rise only to $1.38 billion.  By that time, the shortfall per biennium will have grown to substantially over $1 billion. 

This special education deficit is not equally distributed among school districts.  Different school districts have substantially different special education student percentages, reflecting differences in poverty, racial and ethnic makeup, differences in identification practices, location of hospital and youth treatment centers within districts, and proportion of students in private and charter schools.   Minnesota does not fund school districts based on the number of students with disabilities and degree of difficulty.  The funding formula begins by assuming that all school districts have the same proportion of students with disabilities, funding the district based on the number of students regardless of disability.  It then seeks to accommodate differences in cost by providing excess cost assistance, but that excess cost assistance is significantly less than the true excess cost for most districts.  The excess cost assistance provided has historically been appropriated based on a flat dollar amount, which is then prorated amongst districts with a claim on the excess aid.  As a result, school district have been receiving a smaller and smaller percentage of the excess cost aid to which they would otherwise be entitled.

The shortfall in revenues is generally reported based on total net cross subsidy divided by the number of all students in the district.    This cross subsidy per student is a measure of how many dollars must be pulled out of the regular student aid for each student (non-disabled and disabled) to fund the district’s special education shortfall. 

Before 2003, the State had been maintaining the total shortfall in special education funding at around $350 million.   The State has never sought to actually fund total special education expenditures.  No governor has ever proposed a budget that fully funds the state mandated expenditures, nor has either house of the legislature done so.  But, at the beginning of the Pawlenty administration the governor’s budget began to propose budgets which significantly increased the special education deficit, while at the same time, the Minnesota Department of Education began to increase its efforts to push districts to spend more.  Following 2003, the total shortfall in funding and the typical cross subsidies began to rise significantly.   In 2007, the legislature passed some temporary relief from projected increases, but still district special education shortfalls and cross subsidies have continued to rise.

The attached table shows selected larger school districts representative of the range in cross subsidy per student.  In 2004, our own St. Cloud school district had the highest special education cross subsidy of any of the state’s school districts of substantial size.  Its cross subsidy was $569 per student.  With just under 10,000 students, that meant that the school district was carrying a total special education deficit of $5 plus million dollars.  Historically, without a special education discretionary levy, the district, like many others, essentially covered the shortfall with an operating referendum of about the same amount, about 5.5 million dollars. Other representative school districts had cross subsidies ranging from $250 per student on up into the mid $500 range.

With the rising shortfall in special education funding, St. Cloud sought to find ways to limit its special education deficit by freezing its expenditures in most years.  Despite these efforts, however, our special education deficit rose to $801 per student, an increase of 41 percent.   The District’s operating referendum was no longer sufficient to cover the cross subsidy.    However, many other districts cross subsidies rose at a more rapid rate, and by 2011, St. Cloud no longer exhibited the highest cross subsidy of the significantly sized school districts, having been surpassed by Columbia Heights, Richfield, Minneapolis, Osseo, White Bear Lake, Robbinsdale, Burnsville, St. Paul, and Duluth.   These trends result from several hard facts.  The first is that state and federal maintenance of effort requirements have historically made it very difficult for any school district to actually decrease what it spends on special education.  The second is that state excess cost revenues have been gradually "pro-rated" so that even districts that attempt to cap expenditures can find themselves with larger and larger deficits.  I'll write more about issues in special education finance in future posts.

The table below shows that the growth in special education cross subsidy for many districts has a deleterious impact on a district's regular education formula increase.  During the period 2004-2011, the general education formula increased 11 percent, whereas almost all of the selected school districts experienced substantially greater percentage increase in cross subsidy.  The formula increased from $4601 to $5124, an increase of $523 in that seven year time period.   But many school districts lost $300 to $400 as a result of increased cross subsidy.   After subtracting the net cross subsidy loss, for example, St. Louis Park experience an effective formula increase of only $115 dollars.   In other words, over that seven year period, St. Louis Park's effective total seven year formula increase, after deducting the losses from special education cross subsidy increase, was only 2 percent.  White Bear Lake's effective net formula increase was only $108.  St. Cloud's was $232 or a seven year total net formula increase of about 4.5%.  In short, these districts are receiving formula increases, after deduction of cross subsidy that is in the neighborhood of 1/2 percent per year or less. 

Selected Districts Cross  Subsidy

2004 2011  Increase
St. Cloud 742 $569 $801 141%
St. Louis Park 283 $540 $655 121%
Minneapolis $529 $905 171%
Moorhead $522 $682 131%
St. Paul $490 $837 171%
White Bear Lake $462 $877 190%
Anoka $446 $697 156%
No St. Paul $431 $743 172%
Duluth $422 $801 190%
Sartell $392 $428 109%
Sauk Rapids $390 $389 100%
Rochester $351 $518 148%
Forest Lake $344 $532 155%
St  Michael $308 $399 129%
Cambridge-I $265 $368 139%

$431 $642 148%

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