1. Special Education Funding Tom Melcher Education Finance Working Group August 20, 2012 “Leading for educational excellence and equity. Every day for every one.”

2. Topics for Discussion Trends in Special Education Enrollments, Expenditures and Revenues National Perspective on Special Education Funding Changes Proposed in 2011 Working Group Report Draft Proposal for Special Education Funding Reform education.state.mn.us 2

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4. December 1 Child Count Birth through 21 Totals education.state.mn.us 4

5. December 1 Child Count Birth through 21 By Disability Type education.state.mn.us 5

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11. Funding Formula Types Criteria for Evaluating Funding Formulas Sources: National Association of State Directors of Special Education (NASDSE), Financing Special Education: State Funding Formulas, April 2012 Center for Special Education Finance, State Special Education Finance Systems, 1999-2000 National Perspective Special Education Funding education.state.mn.us 11

12. Multiple student weights: Funding (either a series of multiples of the general education amount or tiered dollar amounts) allocated per special education student that varies by disability, type of placement or student need. Single student weight: Funding (either a single multiple of the general education amount or a fixed dollar amount) allocated per special education student. Census-based: A fixed dollar amount per total enrollment of average daily membership (ADM) Funding Formula Types education.state.mn.us 12

13. No separate special education funding: Funding to support special education is rolled into the overall funding levels. Resource-based: Funding based on payment for a certain number of specific education resources (e.g., teachers or classroom units), usually determined by prescribed staff/student ratios that may vary by disability, type of placement or student need. Funding Formula Types (continued) education.state.mn.us 13

14. Combination: Funding based on combination of formula types. Percentage reimbursement: Funding based on a percentage of allowable, actual expenditures. Block grant: Funding based on base-year or prior year allocations, revenues and/or enrollment. Funding Formula Types (continued) education.state.mn.us 14

15. Special Education Formula Types 2000 vs. 2009 education.state.mn.us 15 # of States Formula Type 2000 2009 ------------------------------------------------------------------------------------- Student weights (both single and multiple) 18 19 Census-based 9 7 No separate special education funding 2 7 Resource-based 6 6 Combination 5 5 Percentage reimbursement 6 5 Block grant 4 1

16. Adequate Equitable Understandable Predictable Reasonable reporting burden Flexible Identification/placement neutral Fiscal accountability/cost control Outcome accountability Connection to regular education funding Political acceptability Criteria for Evaluating Funding Formulas education.state.mn.us 16

17. Education for All Handicapped Children Act of 1975 (P.L. 94-142) FAPE a legal right for all children with a disability. Authorized federal funding for up to 40% of national average excess cost of special education. Reauthorized in 1991, 1997 and 2004 as IDEA FFY 2011/SFY2012 Allocations to Minnesota: Part B, Section 611 (age 3-21)$187.8 million Part B, Section 619 (age 3-5)$ 7.3 million Part C (birth-2)$ 7.1 million Federal Special Education Funding education.state.mn.us 17

18. Federal Special Education education.state.mn.us 18 Part B, Section 611 Funding to Minnesota in Relation to 40% “Full Funding” Level FY $ (Millions) % of Excess Cost 1982$ 19.6 11.7% 1990 27.0 8.2 2000 73.3 10.7 2009180.4 15.8 2010378.3 29.9 2011188.5 14.4 2012187.8 13.9

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20. Federal Special Education Funding education.state.mn.us 20 Part B, Section 611 Funding for FFY 2011 (SFY 2012) - Minnesota Allocated to LEAs on formula - $166.8 M State Administration 3.7 M State Set-Aside – Discretionary 17.3 M Total 187.8 M

21. Base Funding (block grant): $55 million (FFY 1999 funding level) Allocated based on 1998 child count For districts with newly opened, closed or significantly expanded charter schools, $ are reallocated within district based on current year child count Increase Over Base (census-based formula): $133 million 85% on total PK-12 enrollment 15% on poverty (free and reduced lunch count) (From current year October 1 MARSS data and enrollment reported by nonpublic schools) Federal Special Education Funding Part B, Section 611 (ages 3-21) education.state.mn.us 21

22. Base Funding (block grant): Allocated based on 1996 child count For districts with newly opened, closed or significantly expanded charter schools, $ are reallocated within district based on current year child count Increase Over Base (census-based formula): 85% allocated based on total PK-12 enrollment and 15% allocated based on free and reduced lunch counts (from current year, October 1 MARSS data and enrollment reported by nonpublic schools) Federal Special Education Funding Part B, Section 619 (ages 3-5) education.state.mn.us 22

23. Can only be used to pay the excess costs of providing special education. Must be used to supplement not supplant state and local funds. –Before 1992, this was applied to specific line items. –IDEA Regulations changed in 1992: as long as an LEA meets Maintenance of Effort (MOE) requirements, it can replace state funding with federal funding for specific line items. Uses of Federal Funds education.state.mn.us 23

24. Cannot be used to cover unreimbursed cost for expenditures partially funded with state categorical funds: –e.g., staff salaries, contracts, supplies, equipment –using federal funds to “backfill” costs partially funded with state aid would be “double dipping.” (Only the portion of an expenditure not funded with federal funds is eligible to be claimed for state aid.) Uses of Federal Funds education.state.mn.us 24

25. Maintenance of Effort (MOE) State-level, LEA level Separate MOE calculations for Birth – 2 and Part B Section 611 (3-12) (Feds not required to maintain effort – sequestration looms for FY 2014)) Requirement for Federal Funds education.state.mn.us 25

26. LEA Maintenance of Effort Exceptions: Decrease in enrollment of children with disabilities Change in status of a high cost student Elimination of one-time expense (e.g., major equipment purchase) Voluntary departure or departure for just cause of staff while maintaining FAPE Requirements for Federal Funds education.state.mn.us 26

27. LEA Maintenance of Effort Exceptions: 50% Rule –LEAS may treat up to 50% of the increase in IDEA Part B funds over the previous year as local funds (shifts funding from state/local to federal) –This lowers the LEA’s MOE requirement for subsequent years to the new reduced MOE amount, until the LEA increases the level of state/local special education expenditures –Local funds “freed up” must be used to carry out activities that could be supported with funds under ESEA –Interconnected with 15% for EIS provision Requirements for Federal Funds education.state.mn.us 27

28. Coordinated Early Intervening Services (CEIS) 15% Rule LEAs may use up to 15% of IDEA Part B funds, less any amount used for 50% rule, for CEIS For students in K-12 not identified as needing special education services but who need additional academic and behavioral support to succeed in a general education environment LEAS determined to have significant disproportionality based on race and ethnicity for three years must set aside the maximum 15% of CEIS (eight LEAs identified in FY 2012 are affected in FY 2013) Requirement for Federal Funds education.state.mn.us 28

29. Under the Tydings Amendment: Funds must be obligated within 27 months and expended within 30 months –Example: funds becoming available in SFY 2012 must be obligated by September 20, 2013 and liquidated by December 31, 2013 Requirement for Federal Funds education.state.mn.us 29

30. Federal payments are based on current year approved expenditures Local education agencies (LEAs) submit reimbursement requests through SERVS Financial MDE draws down federal funds when LEAs submit reimbursement requests Any funds not obligated within Tydings period are reallocated with the written permission of the LEA to other LEAs, or returned to the federal government. Federal Payments education.state.mn.us 30

31. General Education Revenue –Students with a disability receive the same general education revenue as other students Categorical Revenue –Regular special education aid –Excess cost aid State Funding - Minnesota education.state.mn.us 31

32. Salaries of essential personnel Contracted services (supplementary services) for students Contracted services – student placements Transition-disabled – contracted services – vocational evaluation Instructional supplies and equipment Special transportation expenditures Transition-disabled – teacher travel Special education bus depreciation Tuition adjustments What is Eligible for Inclusion in State Special Education Funding Formulas education.state.mn.us 32

33. Salaries of essential personnel – 68% Contracted services for students – 52% (supplementary services) Contracted services (student placements) – 52% of difference between: 1.Cost of contract 2.General education revenue attributable to student for time in contract Special Education – Regular Aid Components of Initial Aid education.state.mn.us 33

34. Instructional supplies and equipment – 47% –Up to a cap of $47 per student Transportation Costs – 100% –(Finance Codes 723 and 728) Special Education Bus –100% over eight years for regular and 100% over five years for Type III Additionally, Transition-Disabled Initial Aid –Equipment 47% - no cap –Teacher travel 47% –Instructional supplies 47% –Up to cap of $47 per student –Contracted services for vocational evaluation 52% Special Education – Regular Aid Components of Initial Aid (continued) education.state.mn.us 34

35. State total special education is capped in law Statewide adjustment factor = State Aid Cap/State Total Initial Aid For FY 2012, statewide adjustment factor is 88.9% For FY 2013, statewide adjustment factor is 90.1% Aid may be further limited by proration (e.g., if a portion of funds appropriated are needed for prior year corrections) Special Education – Regular Aid Statewide Adjustment Factor education.state.mn.us 35

36. Special Education Aid = Special Education Initial Aid X Statewide Adjustment Factor X Proration, if any, + or – Tuition Adjustments Example: Salary of $50,000 X.68 = $34,000 $34,000 X.889 statewide adjustment factor = $30,226 $30,226 X.99994 proration = $30,224 + tuition adjustments Special Education – Regular Aid education.state.mn.us 36

37. Pays a portion of special education costs that are not reimbursed through special education – regular aid. State Total Excess Cost Aid is also capped in law. Statewide adjustment factor = State Aid Cap/State Total Initial Aid For FY 2012, statewide adjustment factor is 63.9% For FY 2013, statewide adjustment factor is 64.9% Excess Cost Aid education.state.mn.us 37

38. Special Education Excess Cost Aid = Unreimbursed Cost – 4.36% of general education revenue X 75% statewide adjustment factor X proration, if any. Excess Cost Aid education.state.mn.us 38

39. For FY 2012 and later, growth factors are set at 4.6% for special education – regular and 2% for excess cost. Growth Factors for Statewide Caps education.state.mn.us 39

40. The amount of additional state funding that would be required to fully fund the state’s special education – regular and excess cost aid formulas: FY 2011$93 million FY 2012 93 million FY 2013 89 million FY 2014 88 million FY 2015 92 million Cap Gap education.state.mn.us 40

41. Minnesota state law makes the district of residence responsible for reimbursing the serving district for the unfunded cost of special education and related services. MDE calculates the tuition on behalf of the districts and adjusts aid payments. Special Education Tuition Billing education.state.mn.us 41

42. Adequacy : –Reduce cross subsidies by increasing special education funding for all districts. Equity: –Reduce the variation in cross subsidies among districts and regions by better targeting of state aid to districts with the highest cross subsidies. –Include all special education costs eligible for tuition billing (e.g., fringe benefits) in excess cost aid calculations Special Education Funding Reform Goals / Strategies education.state.mn.us 42

43. Stability / Predictability: –Calculate funding based on prior year data, instead of current year data. –Allocate a portion of funding based on student counts rather than expenditures. –Roll a portion of voter-approved referendum levies into a new school board-approved special education cross subsidy levy. Simplicity: –Use one common definition of special education expenditures for both excess cost calculations and tuition billing. –Pay aid directly to cooperatives and intermediates, to avoid the need for cost allocations and reduce reliance on tuition billing. –Use of prior year data simplifies budgeting Special Education Funding Reform Goals / Strategies (Continued) education.state.mn.us 43

44. Efficiency: –Require serving district or charter to share a portion of unreimbursed costs. –Allocate a portion of aid based on total district enrollment and enrollment in high cost disability types rather than strictly on special education expenditures Consistency: –Allocating a portion of funding based on student counts rather than expenditures aligns special education funding with other components of Minnesota’s school finance system. Special Education Funding Reform Goals / Strategies (Continued) education.state.mn.us 44

45. Time and funding constraints limited the scope of special education finance reform proposed in the 2011 Working Group report. Recommendations: –Change tuition billing so that resident district is responsible for 90% of unfunded costs and serving district/charter is responsible for 10% for open-enrolled students. –Does not apply to students placed by the resident district (e.g., at an intermediate), or served at a charter school with very high special education concentration. Special Education Funding Changes Proposed in 2011 Working Group Report education.state.mn.us 45

46. 1.Special education-regular aid –Current percentage reimbursement model replaced with a new formula combining census-based funding for high incidence / lower cost programs and weighted student funding for low incidence / higher cost programs 2.Excess cost aid –Continues to cover a portion of excess costs 3.Tuition billing –Continues but serving district/charter covers a portion of unfunded costs 4.Special education levy –Up to $400 / PU of referendum levy converted to board-approved special education levy to cover a portion of remaining cross subsidy Special Education Funding Reform MDE Draft Proposal -- Formula Structure education.state.mn.us 46

47. Replace current percentage reimbursement formula with a combined formula using: –census-based funding for higher incidence/lower cost programs; and –a weighted student formula for lower incidence/higher cost programs. Use prior year data instead of current year data (except for 1 st year charter schools). Pay weighted student aid directly to coops and intermediates Special Education Funding Reform MDE Draft Proposal Special Education – Regular Aid education.state.mn.us 47

48. Census-based funding is provided for the following disability types: These disability types account for 54% of special education child count and 34% of special education expenditures. Special Education Funding Reform MDE Draft Proposal Census-Based Funding Component of Regular Aid education.state.mn.us 48

49. Formula for census based funding was derived using regression analysis. Funding per ADM served equals: –a basic rate per ADM, plus –an adjustment based on district poverty concentration (high poverty districts have higher incidence of special education students and higher average cost per ADM for special education), plus –an adjustment based on district size (large districts have higher average cost per ADM) Special Education Funding Reform MDE Draft Proposal Census-Based Funding Component of Regular Aid education.state.mn.us 49

50. Special education serves a disproportionate number of students living in poverty: Statewide in 2011, 37% of all Minnesota students were eligible for free or reduced price lunches. –49% of special education students –34% of non-special education students Disability types with the highest percentages of students in poverty were: –Emotional or Behavior Disorders 65% –Specific Learning Disability 59% –Developmental Cognitive Disabilities57% Relationship Between Poverty and Special Education Incidence education.state.mn.us 50

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52. The federal census-based special education funding formula recognizes the relationship between special education incidence and poverty by allocating 15% of federal funds based on poverty. The census-based portion of the proposed Minnesota special education formula would have a similar adjustment for poverty, but the adjustment would be based on statistical analysis rather than using a flat 15% factor. Relationship Between Poverty and Special Education Incidence education.state.mn.us 52

53. Weighted pupil funding is provided for the following disability types: Cost Level 2 (24% of child count, 24% of cost): Cost Level 3 (14% of child count, 23% of cost): Special Education Funding Reform MDE Draft Proposal Weighted Pupil Funding Component of Regular Aid education.state.mn.us 53

54. Cost Level 4 (8% of child count, 20% of cost): Special Education Funding Reform MDE Draft Proposal Weighted Pupil Funding Component of Regular Aid education.state.mn.us 54

55. Census-based allowance per prior year ADM served = __% of the formula allowance (currently $____), plus __% of the formula allowance times prior year poverty concentration, plus __% of the formula allowance times prior year total ADM served. Census-based aid = allowance times prior year ADM served. Weighted pupil aid = __% of the formula allowance times cost level 2 prior year December 1 count served, plus __% of the formula allowance times cost level 3 prior year December 1 count served, plus __% of the formula allowance times cost level 4 prior year December 1 count served. Special Education Funding Reform MDE Draft Proposal Special Education – Regular Aid education.state.mn.us 55

56. Total special education-regular aid = Lesser of (Census-based aid + weighted pupil aid) or ___% of prior year non-federal special education expenditure. –This aid could be paid as a component of general education revenue with a requirement that it be reserved for special education (similar to compensatory, English Learners (EL), and gifted & talented components of general education revenue), or continue to be paid as a separate categorical. –Aid for first year charter schools will be based on current year ADM, child count and expenditure data. Special Education Funding Reform MDE Draft Proposal Special Education – Regular Aid education.state.mn.us 56

57. Similar to current excess cost formula, except: –Use prior year data –Use total special ed cost as calculated for tuition billing including previously nonreimbursable portions(e.g., fringe benefits) –Pay aid to coops and intermediates as well as districts and charter schools –Calculate aid before tuition billing; don’t recalculate based on tuition bills. Special Education Funding Reform MDE Draft Proposal Excess Cost Aid education.state.mn.us 57

58. Similar to current excess cost formula, except: –Include general ed revenue attributable to students educated 60% or more outside of the regular classroom in calculation of excess cost –Larger general education aid deduction to target more aid to districts with large cross-subsidies Special Education Funding Reform MDE Draft Proposal Excess Cost Aid (Continued) education.state.mn.us 58

59. –Resident district responsible for 90% of unfunded cost for open enrolled students; serving district or charter responsible for 10% of unfunded cost for open enrolled students. –Exception provided for cooperatives / intermediates and charters with > 80% sp ed students Special Education Funding Reform MDE Draft Proposal Tuition Billing (Same as 2011 Working Group Report) education.state.mn.us 59

60. –School districts are guaranteed to receive at least as much net special education aid in FY 2015 as they would have received under the old formula. –For FY 2016 and later, districts receiving hold harmless funds in FY 2015 will receive a transition allowance equal to the FY 2015 hold harmless per AMCPU. This will be added to the district’s existing transition revenue, aid and levy. Special Education Funding Reform MDE Draft Proposal Transition Revenue education.state.mn.us 60

61. –Beginning in FY 2016, create a new special education levy spread on referendum market value, equalized at same level as tier 1 of referendum –Revenue equals least of $400 per RMCPU, cross subsidy for FY 2015 after sp ed-regular aid, excess cost aid and tuition adjustments, or referendum revenue remaining for FY 2016 after any other referendum roll-ins, not to exceed $400 / RMCPU. Ongoing at fixed rate, no voter approval required. –Districts where referendum is limiting factor allowed to make up the difference by board action with reverse referendum. Special Education Funding Reform MDE Draft Proposal Special Education Levy (Roll-in of Referendum Revenue) education.state.mn.us 61

62. Operating referendum revenue is reduced by an equal amount. Authority expiring first is converted first. Referendum cap reduced by state average amount of roll-in. Districts with a net loss of revenue in FY 2016 due to the cap reduction receive a grandfather cap to hold them harmless. Special Education Funding Reform MDE Draft Proposal Special Education Levy (Roll-in of Referendum Revenue) education.state.mn.us 62