Special Education Crisis Part II

I've begun a series of posts that summarize my comments to the Office of Legislative Auditor on how to address the crisis in special education finance.   My hope is that the OLA's focus on this problem will lead the legislature to make far-reaching and comprehensive revisions to the way in which Minnesota manages special education finance.   The crisis is indeed grave.  In the next biennium, many Minnesota school districts are staving off back breaking staffing and program cuts by running sizable operating budget deficits.   In my first post on special education, I explained that the total special education deficit for all school districts combined has risen from about$300 million to $700 million in the last decade.   The special education deficit is one of the primary causes of  the financial crisis in public education.   Solving that deficit should be among the primary objectives in the next legislative session.

A few examples will put the special education deficits of school districts in context. These examples show  that unless the State acts next year to provide substantial relief to school districts, school districts that run a deficit this year will be forced to make huge cuts, and that solving the special education deficit would allow school districts to avoid those cuts, provided that districts use that money to balance their budgets responsibly.  

• Stillwater.  After implementing a series of major reductions over the past several years, the Stillwater school district is drawing from its unassigned fund balance by $5 million to keep from making further cuts.  That represents an operating deficit of approximately 6 percent  in 2013 on an $81 million budget.   Stillwater's adjusted net special education funding deficit is approximately $6.2 million as of 2011.  That means that if the State had fully funded Stillwater's $14 million special education budget last year, Stillwater could have balanced its budget this year, with room to spare.  

• Lakeville. After implementing major spending cuts, Lakeville school district felt that it could not justify further cuts, and so adopted a budget that runs a $1.4 million dollar deficit.  Lakeville has a $9.4 million special education deficit. If the state had fully funded Lakeville's special education programs, Lakeville could roll back some of the prior year's cuts, and balance its budget with room to spare.  

• White Bear Lake.  White Bear Lake has an $8 million unassigned fund balance for a $78 million general fund budget. It had budgeted a $4 million deficit in 2011-2012.  But,  White Bear Lake has an $8.2 million special education deficit.  If the State fully funded WBL's special education program, WBL could have balanced its budget with $4 million to spare.  

• Osseo.  Osseo  shows a budget with $198 million in revenues.  Its budget projects  an $8 million deficit, even though it made $2,032,463 of staffing reductions to align with enrollment and the $1 million  reduction in programs and services. But  Osseo had a $9 million special education deficit, or about $900 per student.  If the State had fully funded Osseo's special education budget, Osseo could have balanced its budget and eliminated its program reductions.  

• Roseville.  Roseville had a June 30, 2012 unassigned fund balance of $4.4 million (bolstered by $2 million in unexpected  special education revenues ) with general fund revenues of about $66-69 million.  Rosevill's budget overspends its revenues by about $3 million next year, lowering its fund balance to $1.4 million.  Roseville runs an annual special education deficit of about $6.6 million.   If the State fully funded Roseville's special education budget, Roseville could have balanced its budget with $3 million to spare. 

I'll have more to say about the special education crisis in my next posts.

Presentation to Legislative Auditor on Special Ed

This year, the legislature asked Minnesota's Legislative Auditor, James Nobles, to conduct a review of Minnesota's Special Education system.   Likely, the legislature has become frustrated with the intractable and growing special education deficit that is threatening the solvency of Minnesota school districts.     The Legislative Auditor has provided outstanding thoughtful non-partisan advice to the legislature in many areas, including reports on Minnesota charter schools and the use of Integration Revenues. Many of us across the spectrum in public education are hopeful that the special education report will highlight the nature of the problem, but also will stimulate the legislature, finally, to pass a permanent and courageous solution.

As part of the OLA's research, we at District 742 were offered an opportunity to make a presentation on how the special education crisis is impacting us, what we are doing to try to manage it, and what we believe that the State of Minnesota should do to provide a statewide solution.   During my next few posts, I'm going to provide snippets from my presentation to the OLA.  The great challenge is to find a way to  provide quality education to all students, including students with disabilities, and to provide sufficient funding to accomplish that objective.   The core of my message to the OLA was that  (a) Minnesota school districts must  receive far greater support from the Minnesota Department of Education to implement cost control in special education, (b) the legislature must fully fund the special education mandate, which now is underfunded to the tune of 700 million dollars per year. 

 Our district, like many others across the state is struggling with a growing special education deficit.   The deficit has grown despite our best efforts to control costs.    When I joined the school board, in 2004 our special education cross subsidy was slightly over $500 per student, the second highest in the state of Minnesota among the largest165 school districts.   The special education "cross subsidy" is a measure of the deficit in funding.  It measures the difference between total state mandated spending on special education and the combined state and federal revenues  provided to meet that deficit.   When a district says that it has a "cross subsidy" of $500 per student, that means that it has to transfer $500 per student out of the general fund revenues intended for all students and transfer it to cover the shortfall in special education.   In 2003, Since our district had nearly 10,000 students, our special education deficit totaled $500 times 10,000, or about $5 million.  

In 2004, our Board of Education wanted to determine if we could make changes that could reduce our special education deficit.  Accordingly, we first first sought assistance of the Minnesota Department of Education.  A financial expert from the MDE met with our Board and told us, essentially, that we were doing great work, and identified no significant financial issues in our program that needed improvement.  This seemed hard to accept.    We had a 5 million dollar deficit in spending, yet the experts at the Department of Education could not identify anything that we could do to reduce that deficit.  It seemed, almost, that the MDE simply accepted the deficit as a permanent fact of life.   Perhaps it is unfair, but based on that experience, I concluded that the MDE is not doing an adequate job of assisting school districts to manage the growing special education deficit.

Our next step was to conduct an outside financial and statistical study that compared our financial and staffing statistics to those of comparable school districts.  That study showed us that our student-teacher and student-paraprofessional staffing ratios both were at the high end as compared to other school districts.  That outside scrutiny, led us to attempt to bring our staffing patterns more in line with comparable districts, and over the ensuing years, we implemented significant reductions in teaching and paraprofessional staffing.  This last year, we again commissioned an outside study to take another hard look at our special education staffing patterns and also to obtain further recommendations on whether we could make improvements in our delivery model.

Now the special education system makes it a bit more difficult to address financial management than it might at first appear.   Basically, it is contrary to state and federal law, for a school district to reduce  its special education spending, except under special circumstances.  If you violate the so-called "maintenance of effort" requirement, a penalty is imposed that completely wipes out any savings that you otherwise realize from the cuts.   Consequently, one needs to impose reductions more cautiously and over a longer period of time, and that's what we began to do:  we tried, as hard as we could, to keep our special education spending as close to constant as we could, and to make that happen, when compensation costs went up, we reduced staff by a corresponding amount.

The following table shows a history of our revenues and expenditures over a ten year period.   The second to the last column shows the rate of increase in the St. Cloud School District revenues and expenditures during that 10 year period, and the last column shows the rate of increase for the entire state.   As the table shows, over the ten year period, the total state and federal revenues provided to the St. Cloud District increased by 15%, or about 1.5% per year  By way of comparison, total state and federal revenues provided to all school districts in Minnesota increased by 56%, or about 5.6% per year.   One reason for the difference is that other school districts were increasing their special education spending at a significantly higher rate than we were.  As this happened, the State weighted its special education formula in a way that provided significantly more relief to some districts than others, and that system seems to have penalized school districts for trying to manage their spending.

St. Cloud School District Revenues and Expenses Special Education  

District 742	2002-2003	2007-2008	2012-2013	Inc 10 Ye	State MN 10 Ye. Inc.
Federal	$  1,686,789	$2,700,440	$2,356,000	40%
State	$ 12,394,966	$ 12,575,382	$ 13,922,620	12%
Total State/Fed	$ 14,081,755	$ 15,275,822	$ 16,278,620	15%	56%
Total Exp	$ 22,820,442	$ 25,482,138	$ 26,846,548	17%	64%
Deficit	$4,959,989	$6,455,956	$7,142,928	44%	82%

Look at the table closely.   In the first 5 columns, you will see a ten year trend in special education revenues and expenditures for our district.  During that ten year time period, our special education spending increased at an average annual rate of about 1.7 percent per year.   The last column shows that total special education spending by school districts across the state rose at an annual rate of 6.4% per year.   Thus, we were increasing our special education spending at 1/3 the rate of increase at the state average.   During this same time period, the revenues provided to us, by state and federal government combined, rose at the rate of 1.5% per year, on the average, while the revenues provided to all school districts in the state increased at the rate of about 5.6% per year.   

Despite the fact that our expenditures were growing significantly below the state average, during this ten year time period, our special education cross subsidy rose from about $5 million to $7 plus million, or 4.4% per year.    The total education deficit for all school districts rose 82% during this time period, or 8.2% per year.  Thus, while our problem has been growing, you can see that the problem is growing at a much higher rate, on the average, throughout Minnesota.   During this time period, a number of school districts have surpassed St. Cloud in the rate of growth in their special education spending, and in the magnitude of their deficit measured on a per student basis.   In later posts, I'll provide a table showing the rate of growth in special education cross subsidy in selected school districts and discuss the impact that this has on public school finance.

I'll continue with a summary of my presentation to the OLA in my next post.  In those posts, I'll discuss the reason why special education costs are rising, why the number of students needing services has risen nationwide, and make some suggestions for reform of the special education system in Minnesota.