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%

McCleary v State: Embedding Cost Correlation in the Budgetary Process

This is the fifth in a series of posts on the recent Washington Supreme Court decision,  McCleary v. State, enforcing the State's constitutional requirement to assure appropriate funding for public education.  You can jump to prior posts in the series using links below.  McCleary v. State deals with a number of important issues in education finance jurisprudence.  But I've been posting on one aspect of the decision, the part that holds that the State does not meet its constitutional obligation to public education, when it sets funding based on politics rather than a data based costing system.  Unless the state legislature bases funding on credible efforts to determine the cost of required programs, it is acting irrationally and irresponsibly.

This common sense articulation of  one component of the constitutional test for education funding says that a legislature does not perform its constitutional duty unless education funding formulas "correlate to the real cost of amply providing students with the constitutionally required education.  The McCleary court explained:

The evidence at trial showed that the State’s now-abandoned basic education funding formulas did not correlate to the real cost of amply providing students with the constitutionally required “education.” As a result, the State has consistently failed to provide adequate funding for the program of basic education,

In the last post, I explained that courts usually take an extremely permissive, hands-off, approach to reviewing  state legislation when a constitutional right is not impaired.  When applying this relaxed hands-off standard, the Court simply asks if there is any possible rationale that could support the decision that the legislature made.  Under this relaxed standard, the legislature need not actually go through the motions of acquiring data to support its decision.  The defenders of the State law can actually supply a rationale that the legislature didn't even consider.   Courts like Minnesota (Skeen) and Washington (McCleary), however, have held that this hands-off review of education funding does not apply when the right to an adequate education are implicated.

How then should the Courts fashion a principled approach to judicial review of whether the education funding formulas "correlate to the real cost of amply providing students with the constitutionally required education?"   The purpose of this post is to begin an exploration of a couple of approaches to the correlation process. .

De Novo Costing Out Approach:    One approach to evaluating whether funding is correlated to the real cost of education would be to conduct a "de novo" trial in which the trial court takes testimony from superintendents, state officials, and professional education costing experts.   There are a number of such experts.   University of Wisconsin professors Odden and Picus,  Augenblich  Palaich and Associates often testify for the plaintiffs, and Eric Hanushek of Stanford often testifies for the State defendant.  The result is a lengthy and costly battle of experts resulting in a trial court decision as to what it really does cost.

Under this de novo costing out approach, the Court determines the amount of shortfall in legislative funding and then orders the legislature to come up with a solution to the funding shortfall in a reasonable time.   The resulting court order typically leads to a complex litany of subsequent litigation in which the parties contest whether legislative changes in funding do, or do not, comply with the letter and spirit of the Court's order, and we could easily spend ten blog posts on the complexities posed by the de novo costing out approach and still not cover the topic adequately.

Legislative and Executive Cost-Out Approach   Another alternative would be to require both the governor and the legislature to follow their own business like costing out approach as they prepare the biennial education budget.   Under this alternative, the courts would require both governor and legislature to engage in certain minimum good faith data-based efforts to correlate the real cost of the education required by state law.    How would that work?   What would prevent the legislature from double crossing the court's mandate by making up phony numbers.  What would prevent the Governor to present a bogus budget that dramatically understates the cost of education under current law?      If a legislature can pretend that science doesn't support climate change, then what is to stop the legislature from adopting a completely bogus correlation between its funding formula and the real cost of amply providing students with the constitutionally required education?  

Let us begin to answer this question by acknowledging that our current legislature and governor make absolutely no pretense of conducting this correlation process, and neither did Governor Pawlenty and the DFL legislature which proceeded the current incumbents.  A system under which the governor submitted a cost-correlated budget and the legislature adopted a cost-correlated budget would be vastly superior to the current system in which everyone involved proceeds on the common understanding that they will not even attempt to cover the true cost.   A requirement that the legislature and governor actually go through the motions of covering the full cost of state required education would force the State Department of Education to engage in a costing out approach using actual data, something that simply is not done today in the budgetary process.  How can we possibly solve a problem as weighty as education funding when we begin our work agreeing not to determine the true correlated cost?

Once the executive and legislature actually began to attempt to build an education budget based on the correlated cost of state mandated education, a number of positive changes might well result.  First, the legislature and governor would have to begin to develop a modicum of expertise in the actual cost of education, and that expertise would give new meaning to the legislative process.   Many of the key legislators in both parties show remarkable, even appalling, ignorance of even fundamental costing issues.   This ignorance results, I believe, from a process in which the actual cost of educational programs is deemed irrelevant to the ultimate result. Why learn something that doesn't matter?   In today's process, the key knowledge for legislators is to understand the "runs" produced at funding time that explain how much their own district is going to receive as compared to other legislator's districts, so that the legislator can explain to the home folks that our district is in just as bad financial shape as other legislators' districts.
  


Second, when mandates are imposed, the legislature's new-found interest in the actual cost of those mandates might create a far more cautious approach to imposing mandates in the first place.  The current practice which disregards cost correlation tends to breed irresponsibility in the legislative process. 

Once we actually began to use costing information in the budget building process, there are a variety of safeguards that could be imposed in the budget building process to assure a modicum of integrity in the process.  I'm trying to keep these posts to a manageable length.  In subsequent posts, I'll suggest some further approaches to the correlation process that might preserve a proper relationship between the legislature, executive, and judiciary.



Links
McCleary v State, Washington's Groundbreaking School Finance Decision

 McCleary v. State, Part I  

McCleary v State Requires Legislature to Base Funding on Actual Cost
Jvonkorff on Education McCleary v. State, Part II
McCleary v State and Determining the Cost of Education
Jvonkorff on Education McCleary v. State, Part III
 McCleary v. State: what level of scrutiny is appropriate for legislative funding decisions
Jvonkorff on Education McCleary v. State, Part IV
Correlating the cost of education: fund the child.
Jvonkorff on Education  McCleary V. State Part V
Summary of Decision Network for Excellence
Washington Supreme Court Blog  
JvonKorff on Education, The Rose Decision 
Minnesota's School Finance System is Unconstitutional, Part I
Minnesota's School Finance System is Unconstitutional, Part II
Minnesota's School Finance System is Unconstitutional, Part III
Minnesota's School Finance System is Unconstitutional, Part IV

McCleary v. State: what level of scrutiny is appropriate for legislative funding decisions

This is the fourth in a series of posts on the recent Washington Supreme Court decision,  McCleary v. State, enforcing the State's constitutional requirement to assure appropriate funding for public education.  You can jump to prior posts in the series using links below.  McCleary v. State deals with a number of important issues in education finance jurisprudence.  But I've been posting on one aspect of the decision, the part that holds that the State does not meet its constitutional obligation to public education, when it sets funding based on politics rather than a data based costing system.  Unless the state legislature bases funding on credible efforts to determine the cost of required programs, it is acting irrationally and irresponsibly.

We can agree, can't we, that respect for the constitutional requirement to provide a "thorough and efficient system of public schools throughout the state" as the Constitution provides, should afford some level of due diligence, some factual basis, to support the connection between the cost of  education and the revenues provided.   If the legislature were to mandate the construction of a bridge across the Mississippi River, and order that it be built for half of the cost necessary to keep that bridge from collapsing under the weight of traffic, surely we would all recognize that the legislature would be failing to meet its public responsibilities.   When the bridge collapsed, it would hardly be a defense to say, that the bridge was built at half price, because of political considerations.  How would we feel if legislators said,   "We couldn't build a safe bridge in Minneapolis, because we had to spread the money around to St. Paul and Mankato."   If the State orders a bridge built, it had better appropriate enough money to build it to state standards.  

If there is a role for the judiciary to play in policing this concept:  that the state must fund the cost of education that it mandates as part of the "general and uniform system of public schools,"  how should that scrutiny be exercised.   When judges review a law to determine that it is constitutional, they apply different levels of scrutiny, depending on the circumstances.   Suppose for example that the legislature sets the speed limit on trunk highways at 65 miles per hour.  Suppose a citizen is arrested for speeding at 67 miles per hour, and the citizen attacks the speed limit as arbitrary and capricious.  Suppose the citizen claims that the legislature had no reasonable basis to set the speed limit at 65, that the legislature held no hearings, performed no studies, had no data showing a lower accident rate at 65 miles per hour than 70 miles per hour.  Constitutional jurisprudence requires us to apply what is called the "rational basis test."

A memo prepared by the Minnesota legislative House Research explains:   "A rational basis test applies to economic regulation not involving suspect classifications and, thus, to most of the classifications involved in the tax laws.  In general, a classification has a rational basis and is constitutional, if it reasonably related to or has some rational relationship to the objective the legislature sought to achieve.  The rational basis test gives the legislature considerable flexibility in creating classifications."  

This rational basis test, if it applies, has several aspects to it.  One aspect is procedural.  We don't require the legislature to make specific findings to demonstrate that 65 miles per hour is a really good speed limit.  We don't require the legislature even to hold hearings on the speed limit, or to make a record of the data that supports the speed limit adopted.    We don't require that the legislature reviewed specific reports, or that it interviewed specific experts.  When the legislation is challenged in Court, the State can defend by offering evidence that the legislature did not consider.  As an on line law journal article explains, "In Beach Communications v. FCC, for example, the Court explained that “if there is any conceivable state of facts that could provide a rational basis” for a challenged law, it will survive rational basis review. And because the Court “never require[s] a legislature to articulate its reasons for enacting a statute, it is entirely irrelevant . . . whether the conceived reason for the challenged distinction actually motivated the legislature.”  Thus, not only is the government invited to dream up entirely post hoc rationalizations for challenged legislation, it has “no obligation to produce evidence” in support of those rationalizations either".

Now at in a later post, I am likely to argue that Minnesota's current funding process does not even pass muster under this minimum test, the lowest of all low levels of scrutiny, save the level that says, the Courts don't even afford judicial review of any kind.   But in Minnesota, as in the State of Washington, public education is a fundamental right.   The Constitutional education clause calls upon the judiciary to scrutinize legislative funding decisions more closely than that.   And so, one of the most important topics of discussion that we can have in this arena, is to examine levels of scrutiny that seem to make sense... that assure that the constitutional mandate is enforced, without the judiciary completely supplanting the legislative role altogether.  
We'll discuss some ideas for how the judiciary in Minnesota might exercise that function appropriately in the next post.

Links
McCleary v State, Washington's Groundbreaking School Finance Decision

 McCleary v. State, Part I  

McCleary v State Requires Legislature to Base Funding on Actual Cost
Jvonkorff on Education McCleary v. State, Part II
McCleary v State and Determining the Cost of Education
Jvonkorff on Education McCleary v. State, Part III
 McCleary v. State: what level of scrutiny is appropriate for legislative funding decisions
Jvonkorff on Education McCleary v. State, Part IV
Correlating the cost of education: fund the child.
Jvonkorff on Education  McCleary V. State Part V
Summary of Decision Network for Excellence
Washington Supreme Court Blog  
JvonKorff on Education, The Rose Decision 
Minnesota's School Finance System is Unconstitutional, Part I
Minnesota's School Finance System is Unconstitutional, Part II
Minnesota's School Finance System is Unconstitutional, Part III
Minnesota's School Finance System is Unconstitutional, Part IV

Lane Improvement a Cost Component in School Finance

I've been writing recently about the budget issues that our school board faces. The financial cost drivers that I am describing are not unique to our district, at all. But I've been using the particularized costs that we face over the next several years, in hopes that it will propagate a better understanding of the way school finance works under our current state system.

Today, our Board of Education will conduct a workshop to begin the budgeting process for budget year running from July 1, 2011 through June 30, 2012. In my first post, I explained how the governor and legislature added increased retirement costs, $250,000 per year, to the District's obligations in each of the next four years, without providing compensating revenue increases, so that unless the State legislature provides revenues to offset these increases, we will have to find a total of $1 million of offsets over the next four years. In the second post, I explained how the so-called excess cost aid pro-ration formula subtracts $350,000 in revenue from out district each year. As a result, unless and until the State corrects this problem, we will lose $350,000 in special education revenue each year, but will be prohibited from making compensating cost adjustments in special education to balance that budget.

Today, I'm going to talk about automatic lane compensation increases and how it drives up our compensation costs without regard to state funding. The average increased cost to the district resulting from lane improvement compensation is about $190,000 per year, so that it contributes to about $380,000 in increased costs for the biennium in our district.

I have several more cost and revenue items to explain in this series of posts. I want to emphasize again, that as I examine personnel costs I am not in any way disparaging the need for adequate compensation for public school employees. But we need to discuss these costs, if we are to understand them.

A lane is earned when a teacher adds, generally, 15 credits beyond a basic degree in university coursework. The cost of the automatic lane adjustments to the district depends upon the number of teachers in a given year who earn enough credits to move into a new lane. (They are called lanes because the salary grid for a school district is a chart with horizontal rows that are "steps," and vertical columns that are lanes. A teacher moves from one row to the next by increasing the number of years of service, and from one column to the next by earning sufficient lane credit.) As I have said, the total increased cost of lanes to the district would be about $190,000 in additional compensation cost a year. If reaffirmed in the new agreement, then, the total lane adjustment costs amount to total cost increases of about $380,000 for a two year collective bargaining agreement.

Teacher compensation in Minnesota has for decades been based on training and experience. Training has been recognized by lane movement. Experience has been recognized by step improvement. For many years, the State actually encouraged this system by providing equalizing revenue to provide additional compensation to districts with more highly experienced teachers and more highly trained teachers. As you can imagine, a district that is older, and has not been recently growing, has a larger percentage of its teachers with advanced degrees, and a larger percentage of teachers with longevity and earning step improvement pay. On the other hand, a district that was recently small, and is in a major growth spurt, has a very high percentage of its teachers on the lower level lanes and the lower level steps. As a result, those districts make a profit on the revenues provided in the general formula, and begin to build up reserves, whereas the districts with declining enrollment have lots of teachers bunched at the top steps and lanes, and start to run a deficit. So the training and experience revenue was designed to make up for that disparity. However, the State ultimately concluded that training and experience revenue should be discontinued, probably as an incentive to districts to change their system, or possibly as a raw cost saving measure. But all across the state, the system has persisted.

Now in many districts, including ours, lane improvement raises continue beyond the end of the collective bargaining agreement, while the new contract is being negotiated. Under Minnesota law, public employee contracts have a termination date at the end of two years. Our current contracts, for example, run from June 30, 2009 to July 1, 2011. Now under the current bargaining law, when a contract expires without a replacement contract, all permanent employees work under a so-called "continuing contract." The old collective bargaining agreement continues in force, beyond its expiration date. When that happens, all teachers and other employees work at the rate of compensation established by the old agreement.

The question of whether teachers get lane improvement compensation under the continuing contract is governed by the old collective bargaining agreement. And in most districts it is. It is a form of automatic increase that drives up compensation costs automatically before the new contract is signed. Why do we, and many other districts, agree to make these increases automatic during the continuing contract? The answer is that until recently, the legislature has generally provided us with enough funding so that we could cover that cost. In addition, the teachers who are moving up the ladder of lane improvement have put in a significant amount of work, so we have generally been able to cover the cost of lane improvements out of increased revenues from the State.

There is a significant body of research that suggests that the lane compensation system is not really all that good for school districts, nor all that good for the teaching profession. What I mean is, if you are going to spend the $190,000 more each year for teachers, there are ways to spend that money that would actually be better for everyone involved, and here I don't mean compensation based on test results. The lane credit is expensive for teachers. They have to spend a significant amount of money in tuition to earn 15 credits, and frankly, there is very little evidence that the education that they receive in the coursework they take has a significant professional benefit, let alone a benefit in the classroom. From time to time, we've suggested that it would be better to replace the lane credit system with something that was less costly to the teachers earning their lanes and of more benefit to children in the classroom. For example, teachers could earn lane credits by taking on new leadership responsibilities. But that idea has never garnered support on the other side, for some reason.

Incidentally, I would encourage you to become familiar with a new resources that allows you to view not only our agendas online, but also the attachments to those agendas that provide valuable background information on what the board of education will be discussing at its upcoming meeting. You can also review past meetings and look at the backup material in this way. You can get to the materials by going to the District 742 website and choosing the menu selection for the school board, and foll wing the links to the meetings and agenda sections. Or, you can get directly to the public board-book side by clicking this link: Click Here.