Minnesota's 2013 Ed Finance Law, Part II-Special Education

This is the second in a series on the 2013 K-12 education finance legislation.  In the last post, I pointed out that the authors and governor have described the legislation as historic.  The House K-12 Policy chair explained: "This is going to usher in a new era of educational excellence. Thanks to this bill, Minnesota is poised to reclaim our role as a national leader in education.... In addition to providing badly needed new dollars for schools, the budget includes reforms to student assessments and diagnostics, teacher licensure, and integration initiatives to make sure taxpayer dollars are spent as effectively as possible."   In that first post, I  provided a table showing the history of our basic K-12 finance formula.   I showed that the basic funding formula was increased this session at almost exactly the average percentage rate of increase that has occurred over the past 20 years.    The increase in the formula is neither historically high, nor is it by any means the worst. 

In this second post, we'll take a look at the funding for special education again in the context of one of the major challenges in Minnesota's school finance system--the ever rising special education cross subsidy.

Perhaps the best summary of this year's session on special education would be the following:

• Legislative appropriations for special education are increasing during the next biennium, but not as fast as state and federal mandatory costs.  The effective increase in state funding in other areas will be blunted by increases in their unfunded special education costs.    
• The State continues its practice of mandating significantly more special education services, delivered in a more costly way, than required by federal special education law, even as school district special education costs rise faster than their revenues
• Recommendations from the Office of Legislative Auditor in a comprehensive report to the legislature so far go largely unheeded.   
• There appears to be no present prospect that either Governor or legislature has any intent to take the kind of courageous action that would be required to address the rising special education deficit, either on the revenue or cost side of the equation.   Next year is a policy year at the legislature.   It would take farsighted, deeply thoughtful, leadership to make significant inroads in Minnesota's dysfunctional special education finance system.  

In short, this year's K-12 legislation does not in any respect represent an historic attempt to attack the problems in special education.   It is by no means the worst special education bill, in recent years, that would be the 2005-2006 biennium, nor is it the best...that would be the 2007 legislation.    The K-12 finance legislation provides increases in special education funding, but Minnesota school districts are still left with gigantic unfunded special education deficits, "cross subsidy" deficits which are likely to grow even larger in the next two years. 

The total shortfall in special education funding, called the "cross subsidy" has grown markedly over the years.  The following table provides the history of the cross subsidy since 2002, and the percentage increase or decrease in the cross subsidy each year.  The last two years represent advance estimates.  We won't know the actual cross subsidy until after each of these years data is compiled.

	Cross Subsidy	Increase %
2002	$367,000,000
2003	$397,000,000	8.17%
2004	$426,000,000	7.30%
2005	$462,000,000	8.45%
2006	$520,000,000	12.55%
2007	$598,000,000	15.00%
2008	$507,000,000	-15.22%
2009	$553,300,000	9.13%
2010	$539,950,000	-2.41%
2011	$546,200,000	1.16%
2012	$595,400,000	9.01%
2013	$613,900,000	3.11%
2114	$632,900,000	3.09%
2115	$653,500,000	3.25%

A couple of features from this history are worth mentioning.  First, the special education cross subsidy reflects the difference between total special education costs and the combination of state and federal special education revenues.   Second, the large special education cross subsidy increases experienced in 2006-2007 coincide with 4% formula increases passed by the legislature and signed by Governor Pawlenty for those years.   These larger than average basic  formula increases were thus partially financed by holding down special education revenues, while state and federal mandated special education costs continued to rise.  Third, during the 2007 legislative session, the DFL legislature --especially the Senate --rebelled against this trend and insisted on attempting to reverse the trend of ever rising special education cross subsidies. A stalemate over special education relief was broken with a compromise that reduced general fund formula relief in exchange for larger special education funding.   However, despite the effort in that one session, the special education cross subsidy has continued to rise.  

No Governor, nor either DFL or GOP caucus, however, has ever proposed to come even close to fully funding the state's mandatory special education district costs.   The shortfall derives from the longstanding practice of both parties and both branches of government to add new responsibilities to local school districts before fully funding existing responsibilities.  

The next table displays state special education revenues provided to local school districts in the two major funding categories, Regular Aid and Excess Cost Aid.  This year, the Office of Legislative Auditor presented the legislature with comprehensive data and a number of recommendations on special education finance.   Neither the Dayton administration and the legislature has not yet suggested that either intend to address the problems identified in a particularly courageous way.

Looking at these figures in isolation, it is impossible to make judgments about the special education funding component of the 2013 finance law.  That's because in Minnesota, we legislate without considering the cost of the services we fund.  Instead, we focus on the increase in revenues provided, not whether the revenues we provided are enough to do the job. 

Special Education Regular and Excess Cost Revenues 2002-20115

	Regular Aid	Excess Cost	Total
2002	$507,000,000	$91,900,000	$598,900,000
2003	$490,000,000	$59,600,000	$549,600,000
2004	$513,000,000	$92,600,000	$605,600,000
2005	$552,000,000	$95,900,000	$647,900,000
2006	$559,000,000	$106,400,000	$665,400,000
2007	$528,000,000	$104,300,000	$632,300,000
2008	$667,000,000	$109,000,000	$776,000,000
2009	$717,000,000	$111,000,000	$828,000,000
2010	$609,000,000	$97,000,000	$706,000,000
2011	$749,000,000	$109,000,000	$858,000,000
2012	$768,000,000	$108,000,000	$876,000,000
2013	$856,000,000	$115,000,000	$971,000,000
2114	$916,000,000	$120,000,000	$1,036,000,000
2115	$965,698,000	$123,104,000	$1,088,802,000