A Primer on Financial Aspects of Special Education
By Jeff Wulfson, Associate Commissioner, Department of Elementary and Secondary Education
Reprinted from the September 2008 issue of the Department of Revenue's "City and Town" newsletter.
One out of every six public school students in Massachusetts has some type of disability that affects the student's ability to make effective educational progress and requires special education services. School districts are required to provide these special education services by both state law (M.G.L. chapter 71B, first enacted as chapter 766 of the acts of 1972) and federal law (the Individuals with Disabilities Education Act (IDEA), originally enacted in 1974). The Department of Elementary and Secondary Education (ESE) is responsible for providing financial and technical assistance to districts and ensuring compliance with special education requirements.
Special education services can be provided in a wide range of settings. Some students receive services in a general education classroom, in some cases through an aide assigned to assist one or more students in that class. A student may receive services in a pull-out program for a portion of the school day while spending the remainder of the day in a general education classroom, or the student may be in a substantially separate program for all or most of the day. Many districts have joined together to form educational collaboratives to provide substantially separate special education programs on a regional basis, providing for the student and for effective cost control through economies of scale. Students with significant disabilities may require placement in a private special school (commonly referred to as a "766" school), either in a day program or a residential program.
Parents, school officials, and in many cases outside experts work collaboratively to determine the services needed by each student, and these are documented in an individual education program (IEP) for the student. The Bureau of Special Education Appeals (BSEA) within DESE provides assistance when parents and school officials cannot reach agreement. BSEA can provide either informal, non-binding mediation or formal hearings with a binding decision issued by a hearing officer.
State and Federal Funding Sources for Special Education
The cost of special education services is substantial and growing. In FY07, Massachusetts school districts spent $1.9 billion, or just under 20 percent of their total budgets, on special education. The state and federal governments provide financial support for these services through four main funding streams: chapter 70, circuit breaker, IDEA, and MuniMed.
The foundation budget used in the chapter 70 state aid program includes allotments for both in-district and outof- district special education costs. Statewide, these allotments total just over $1 billion in FY09, or about 12 percent of the total foundation budget. The state's share of the foundation budget varies from community to community, based on each municipality's fiscal capacity.
Districts also receive a federal IDEA entitlement grant, which can be used to pay for special education services. In FY09, we will be distributing approximately $240 million under this program. The amount which each district receives is based on a complicated formula that includes a base amount (tied to the district's FY99 IDEA allocation) plus additional amounts reflecting the total number of students and the number of low income students in the district.
The municipal Medicaid (MuniMed) program provides reimbursement for certain medical services provided by school districts to eligible students, many of whom are also receiving special education services. MuniMed reimbursements exceed $100 million annually. These are treated as general fund revenues by either the municipality (in the case of municipal school districts) or the regional school district. Although not required to do so, many municipalities appropriate all or part of their MuniMed reimbursements back to their local school district to help defray future special education costs.
Circuit Breaker Program
The state special education reimbursement program, commonly known as the circuit breaker program, was started in FY04 to provide additional state funding to districts for high-cost special education students. In FY08 approximately $200 million was paid to districts under this program.
The threshold for eligibility is tied to four times the state average foundation budget per pupil as calculated under the chapter 70 program, with the state paying 75 percent of the costs above that threshold. In FY08, the state average foundation budget per pupil was $8852, so if a special education student cost a district $50,000, the district's eligible reimbursement for that student would be ($50,000 - (4*$8852))*.75 = $10,944.
For children placed in a school district outside their home town by the Department of Transitional Assistance or the Department of Children and Families, and for children who have no parents or guardians in the commonwealth, the reimbursement is 100 percent above the threshold rather than 75 percent. (The Department of Children and Families is the new name for the Department of Social Services.)
Circuit breaker reimbursements are for the district's prior year's expenses. Each summer, districts submit claim forms to DESE listing the types and amounts of special education instructional services provided to each student during the previous fiscal year. Administrative and overhead costs are not reimbursable. Standard rates for each type of service are established annually by DESE based on statewide surveys and are used to calculate the reimbursable cost for each student; this simplifies the claim process and minimizes the documentation which needs to be submitted. For students attending private 766 schools, the eligible cost for reimbursement is based on the approved tuition rate set by the state's Operational Services Division.
Payments are made to districts on a quarterly basis. Because the program is subject to appropriation, the first quarter's payments are usually calculated using an interim reimbursement rate of less than 75 percent. After all the claim forms have been received and reviewed, and DESE verifies that there are sufficient appropriations to pay all claims, the reimbursements are recalculated using the full 75 percent rate. The program has been fully funded every year since FY05, its second year of operation.
In addition to the regular circuit breaker reimbursements, the "extraordinary relief" program provides up to $5 million to help districts experiencing a significant increase in their special education costs. Under this program, districts may file an additional claim form in February for the current year's estimated expenses. If the expenses have increased by 25 percent or more over the prior fiscal year, then the district will be eligible for an additional extraordinary relief payment to help fund the increase.
Circuit breaker claims are audited by ESE, and adjustments are made to future payments in the event of disallowed costs. The single biggest reason for costs being disallowed is that the services have not been clearly documented on the student's IEP. Only services that are required by the IEP are eligible for reimbursement.
Circuit breaker reimbursements should be deposited into a special education reimbursement account. These funds may be expended by the school committee in the year received or in the following fiscal year for any special education- related purposes, without further appropriation. As with all special revenues, the appropriating authority can and should consider the projected reimbursements for the following fiscal year when deliberating on the school district's general fund budget.
Assignment of Local Fiscal Responsibility
In general, special education costs are the responsibility of the district where the student resides or, if the student is living in a residential program, where his or her parents reside. In cases where the student has no parents or legal guardian in the commonwealth, or where the residency of the parents is in dispute, DESE's Office of Special Education Planning and Policy will make a determination.
If a student is attending a vocational, charter, or Metco school, and the student needs services which can be provided within the school setting, the district that the student is attending is required to provide and pay for those services. However, if it is determined that the student needs a placement in a private 766 school, then the fiscal responsibility reverts back to the student's home district.
If a student is attending another district under the inter-district school choice program and is receiving special education services, the costs of those services can be billed back to the sending district. The service rates for the circuit breaker program are used to determine the chargeback amount.
A small number of severely disabled students attend state hospital schools. These students remain the fiscal responsibility of their home district. Charges for these students are assessed on line D2 of the Cherry Sheets.
The "move-in" law (M.G.L. c.71B, s.5) applies to students in private 766 placements who move from one Massachusetts town to another during the course of the year. The fiscal responsibility for these students remains with their prior district until the end of the fiscal year. In addition, if the move takes place between April 1 and June 30, the fiscal responsibility remains with the prior district for not only the current year but the following fiscal year as well.
Special Education Transportation
Many special education students require special transportation services, which the district must provide if it is included in the student's IEP. Transportation costs are not currently reimbursable under the circuit breaker program, and a separate statewide reimbursement program for special education transportation has not been funded since FY03.
The most expensive component of special education transportation is service for students attending private 766 day schools. Traditionally, each district has arranged its own transportation to each private school, even though other nearby districts would also be sending students to those same schools. In FY06, DESE began a pilot program under which these transportation services are coordinated on a region-wide basis by one of the existing educational collaboratives. An evaluation of the pilot by the Donahue Institute at the University of Massachusetts will be published shortly; the preliminary results confirm that this coordinated approach can offer significant cost savings. The FY09 state budget contains funding to expand the pilot to cover additional areas of the state. The Massachusetts Organization of Educational Collaboratives (MOEC) will be coordinating the expansion under a grant from ESE. The FY09 state budget also contains $2 million to provide partial reimbursement of special education transportation costs for districts participating in the pilot. Plans for the distribution of these funds are currently under development.
Additional information on special education finance is available on the DESE school finance webpage or by contacting the DESE School Business Services unit at 781-338-6585.
Editors note: Since DESE regulations allow communities and school districts to carry forward up to one year's worth of state reimbursement, DLS advises communities build balances in their SPED circuit breaker accounts in years when actual costs compare favorably with the budget so that in years when SPED costs increase unexpectedly or the circuit breaker reimbursement drops, there will be some circuit breaker revenue to cover any unforeseen costs. Building a circuit breaker balance is a good management practice as it eliminates some of the risk associated with these unpredictable SPED costs.