Family & Community Special Communities
Special Education

Progress Report to the Legislature on the Implementation of the Special Education Reimbursement ("Circuit Breaker") Program

I am pleased to provide the following progress report on the implementation of the special education reimbursement ("circuit breaker") program, as requested by the Legislature pursuant to St. 2003 c.140 s.128.

Legislative history

The circuit breaker program was enacted by the Legislature four years ago [St. 2000 c.159 §.171] as part of a series of amendments to the state's special education law. The program's goal was to provide additional state financial assistance to school districts for high-cost special education placements. The program was initially scheduled to begin in fiscal year 2003, but this was delayed until fiscal year 2004. The statutory requirements for the program are codified at MGL c.71B s.5A, with implementing regulations at 603 CMR 10.07.

The circuit breaker program replaced a long-standing special education reimbursement program known as the "50/50" program. State financial assistance under the 50/50 program was only provided for special education students who were placed in residential schools for educational reasons. Under the circuit breaker, state assistance is provided for all high-cost special education students, regardless of their type of placement.

In implementing and funding the circuit breaker in FY04, the Legislature and the Governor added more than $50 million to the $70.6 million that was appropriated for the 50/50 program in FY03 [see state budget line item 7061-0012].

Summary and analysis of initial claims submissions

As shown in the following chart, districts submitted claims for more than 10,000 students in the initial data collection cycle this past fall:

Instructional costs for in-district students were reported in the following categories (dollar amounts in millions):

The Department has developed an audit protocol for reviewing in-district claims and has field-tested the protocol in two districts with relatively high claims. As a result of this audit, eligible costs in the two districts were reduced by a total of $1.3 million, primarily due to data entry errors resulting from unfamiliarity with the new data collection forms. Additional guidance will be provided to all districts in the next data collection cycle to minimize these errors. In addition, we have recently hired a staff auditor for the circuit breaker program and expect to audit approximately ten percent of the in-district claims during the remainder of this fiscal year. These audits will focus on the highest cost claims throughout the state. Any adjustments will be reflected in the third and fourth quarter payments.

The initial audits also identified one service category (certified occupational therapy assistants) with an inappropriately high rate. This rate will be changed in FY05, but this is not expected to have a material impact on the program's overall cost.

FY04 available funding and estimated reimbursement rate

The FY04 appropriation for the circuit breaker program is $121.6 million. After deducting set-asides for the EOHHS pilot programs, the audiotape textbook program, payment of final FY03 50/50 claims, and program administration, $104.6 million is available for payment of FY04 circuit breaker claims.

The circuit breaker threshold (four times the statewide average foundation budget per pupil) is $29,320 for FY04. A preliminary reimbursement rate of 35% was established in the fall for the purpose of calculating the initial payments. State reimbursement for each student is determined by applying the reimbursement rate to the eligible costs that exceed the threshold.

There are several reasons why the preliminary rate is significantly below the statutory 75% rate:

• Claims for high-cost students in in-district settings were significantly higher than expected. Prior to the implementation of the circuit breaker, detailed cost information was not regularly collected from districts on this group of students. We did attempt to estimate these costs through the use of voluntary surveys, but it appears that our estimates were low.

• In the FY04 general appropriations act, the reimbursement formula was changed, with the rates for out-of-district placements increased and the rates for in-district placements decreased. Because out-of-district placements (day schools and residential schools) tend to be more expensive than in-district placements, this added to the overall cost.

• The underfunding of the 50/50 program in FY03 and prior years left an accumulated deficit. (The 50/50 program was treated as an entitlement program, unlike the circuit breaker, which is subject to appropriation.) This deficit was funded through a combination of grant funds and, with legislative approval, funds from the FY04 circuit breaker appropriation. To date we have paid $6.3 million in prior year 50/50 claims from the circuit breaker appropriation and have an additional $1.06 million in claims that are still being verified.

• We are carrying a ten percent contingency for additional circuit breaker claims and for extra payments required for state wards and abandoned children.

Even with a 35% reimbursement rate, most districts are expected to receive more funding in FY04 under the circuit breaker than they did in FY03 under 50/50. The projected payments to each district have previously been published on the Department's website at http://finance1.doe.mass.edu/seducation/.

A final reimbursement rate will be established at the end of the year, after all claims and adjustments have been received and processed.

Payment procedures

Claims for the circuit breaker will be collected at three points during the year: September, March, and July (for the year just ended). Initial claims are submitted in September, and the March and July filings will include updates and corrections. Districts will be provided with updated payment estimates after each data collection cycle.

The Board of Education has promulgated regulations defining eligible instructional costs [603 CMR 10.07]. In general, eligible costs for private school placements are equal to the approved tuition rates. For in-district costs, the regulations define various categories of service and authorize the Commissioner to annually establish standard rates for each category. Districts report the level of services provided to each student in each category, and the standard rates are applied to these service levels. All claims must include the student's state assigned student identification number (SASID), which allows the Department to identify potential duplicate claims.

The circuit breaker statute provides for four quarterly payments, coinciding with the end-of-quarter local aid distributions. In future years, the September payment will be based on fifty percent of the estimated reimbursement for the year; the December payment will represent sixty-five percent; the March payment eighty percent; and the June payment one hundred percent. This payment schedule was modified for this initial year because of the difficulty in making accurate projections. The first two payments were made in November and January and the last two payments will be made in May and August, with each payment representing approximately twenty-five percent of the estimated reimbursement for the year.

The Department's School Business Services unit has worked with the associations representing school business officials (MASBO), special education directors (ASE and the Massachusetts Urban Project), and approved private schools (maaps) to develop efficient data collection and payment procedures which minimize the workload for staff at school districts and private schools. The overall response has been positive, with some constructive feedback that will be incorporated as improvements next year. We very much appreciate their cooperation and assistance in implementing this complex new program.

One particular area for improvement relates to payments to private schools for residential placements. The circuit breaker statute assumed that these payments would continue to be made directly to the private schools by the state, as was done under the 50/50 program. With the assistance of maaps and MASBO, we have implemented a pilot program in which residential tuition payments are made by the responsible school district, with subsequent reimbursement by the state. This revised payment procedure has the potential to ensure more timely payments for the schools as well as reduced paperwork for both the schools and the districts.

FY05 projections

The Legislature enacted a tuition rate freeze for approved private school programs for FY04 [St. 2002 c.26 §.646], and the Governor has proposed extending this freeze into FY05 [House No. 1A, §.380]. These provisions do permit rate increases if needed to provide extraordinary relief. No detailed analysis has been done yet on the actual impact of this freeze.

Assuming the final eligible costs for FY04 will range somewhere between $269 million and $296 million, and assuming an inflationary increase between 1% and 4%, we estimate the total eligible costs in FY05 will range between $272 million and $308 million. Full funding at the 75% statutory rate would in turn require an appropriation level of between $213 million and $241 million (including set-asides).

If you need any additional information, please feel free to contact me, associate commissioner for school finance Jeff Wulfson (781-338-6500), or school business services manager Jay Sullivan (781-338-6594).