Fix our Broken Special Education Finance System Part 2

In my last post, I began a discussion on Minnesota's special education deficit, the difference between school district mandatory expenditures for special education services and the total of state and federal reimbursement for those services.   I pointed out that this deficit is increasing at a rate faster than inflation, and that it requires school districts to take money out of the general fund appropriations for all students and transfer those funds to cover the deficit.  We generally measure the impact of the deficit on each district by looking at amount of the cross subsidy per student, that is the number of dollars subtracted from each student's general education dollars to cover the deficit.

For example, the special education cross subsidy for the Minneapolis school district is $1397 per student taken from each of 38,248 students.   Minneapolis's per student cross subsidy, as the chart below shows, is $330 per student more than that of St. Cloud, which in turn has a cross subsidy of $1,067 per student.  St. Cloud's cross subsidy is $565 per student greater than the cross subsidy experienced by the Little Falls School District.   Table 1 below lists the cross subsidies for the 12 school districts with the largest cross subsidies.   Table 2 below shows the cross subsidies for districts with much lower special education deficits.

Table 1

Districts with the Highest Cross Subsidies

These selected other districts have cross subsidies significantly lower than the top 10.

Table 2

Districts with lower Cross Subsidies

    What is fair about this system, that the students in Albert Lea should have more than $1000 taken out of the funds for their education, while the students at Rocori have only $500 taken from their education?  Why indeed should our system of school finance be financed this way, at all.    What is the sense behind funding special education by taking differing amounts out of the funding for students, with no rhyme or reason how much.  

Special Education Deficit Must Be Repaired (Part 1)

Over the last 15 plus years, the deficit in special education funding to public school districts has been on the rise.  Part of the increase may be attributable to inflation, but a significant part of the rising deficit must be attributed to the rising costs of compliance with the federal and state special education mandates and shortfalls in the appropriations to cover those costs.

Services to special education students, mandated by federal law, are paid for by a combination of federal special education funds (funneled through the State Department of Education) and state special education funds.  Total funding to state school districts is determined by the state budget. The state must, under the constitution, find a way to provide adequate funding for these mandatory services, but in each budget year, the state fails to do that.  The formula for funding provided to local district is calculated according to a complex, somewhat arcane, set of formulas. Those formulas intentionally are built to create a deficit in reimbursement, and that deficit is rising.    (In addition, students receiving special education are entitled to receive regular education services, just like all other students.) The education provided to a hypothetical special education student in a teacher's classroom includes (1)  teaching and other services funded by the regular education formula, and (2) extra special education services funded by state and federal special education funds.

The Figure below displays the total mandated special education expenses for all school districts in Minnesota in hundreds of millions of dollars (blue line) and the total combined state and federal funds provided to meet those expenses (red line).   The red line is beneath the blue, because the mandated spending is hundreds of millions of dollars less than the funds provided. The total deficit in funding is currently running at $1.4 billion per biennium and it is scheduled to rise.  

 These two sources of state and federal funding don't add up to the mandated cost of special education.  This leads to three major problems for public schools.  

• First, the shortfall in funding is rising, and as it rises, public school district's ability to meet other important objectives are compromised. 
•  Second, the shortfall in funding falls on different districts differently, placing some districts at a financial disadvantage, unless they can find an alternate funding source to cover the deficit. 
• Third, districts must invade funding intended for regular education to cover the deficit.   
  
  We call this transfer of funds out of general funds to cover the deficit in special education funding the "special education cross subsidy."  In my own school district, St. Cloud, the average cost of special education services per special education student is about $13,570.   Most SPED eligible students receive services that cost far less than this average, of course, but a subset of students with special needs require very costly services, and those services are mandated by federal law or state law, or both.  The average state and federal revenues to cover these costs is about $8,000, a deficit (on the average) of about $5,500 per special education student.   To cover this deficit, our district must pull about $1000 per student out of the general education revenues intended for all students to "cross subsidize" the deficit. 

The abovd table shows the the combined state and federal revenues provided to school districts statewide in the odd numbered fiscal years.  For example combined special education revenues provided to all districts in fiscal year 2017 was $1,537,000,000, or $1.5 billion.   In that same year the combined special education expenses of all school districts was $2,235,000,000, or $2.2 billion.   This deficit in funding was absorbed by individual school districts, each of which in turn must transfer money out of their general fund budget to cover the mandate deficit.  The total of all deficits for 2017 equaled  $743,000,000, or $743 million dollars.   The total deficit for a biennium would be over $1.48 billion, and the deficit is rising, unless something is done.   In the next post, I'll provide some alarming statistics showing that this deficit is not distributed equally to school districts, but instead is disproportionately allocated, making some districts have significantly larger than others.