Overview of Special Education Funding Models – Legislative Analyst’s Office

Overview of Special Education Funding Models – Legislative Analyst’s Office

Summary

Since the 1970s, federal law has required public schools to provide special education services to students with disabilities that interfere with their ability to learn. Schools in California cover special education costs through a combination of local unrestricted, state categorical, and federal categorical funding. Trailer legislation from the 2021‑22 budget package specifies that state special education funds will only be allocated in the 2022‑23 budget if statutory changes designed to improve the academic outcomes of students with disabilities are included in the budget. These changes may include modifications to the existing funding allocations, clarification of different roles and responsibilities within the special education system, and expansion of inclusive practices.

To help inform future discussions, this brief provides an overview of special education models used by California and other states and provides the Legislature with a framework for evaluating these models. The brief begins by providing background on the state’s current funding allocation formula for special education. California provides most special education funding based on overall student attendance, with roughly 16 percent of state special education funding provided through other programs based on alternative formulas and/or for specific types of special education services, including those for students with higher‑cost disabilities. The brief also describes the four primary models used by states to distribute special education funding to schools—census‑based, weighted, reimbursement, and resource‑based.

Next, the brief sets forth a simplified framework that describes three key criteria for evaluating special education funding models: (1) appropriate fiscal incentives, (2) alignment of funding and costs, and (3) transparency and ease of implementation. These criteria were developed based on our review of the academic literature. The brief concludes by offering some issues for the Legislature to consider. Specifically, we note that (1) all funding models have specific strengths and weaknesses, (2) legislative policy priorities and state context should drive changes to the funding formula, (3) the state can also make changes within its existing funding system, and (4) other changes are likely required to address key policy priorities.

Special Education Supported by Combination of Local, State, and Federal Funding. Schools receive billions of dollars each year (mainly as local general purpose funding from the Local Control Funding Formula) to educate all students, including students with disabilities. These funds can be used for any educational purpose but primarily cover general education costs such as teacher compensation. Beyond these general education costs, schools incur additional costs to serve students with disabilities (for example, to provide specialized instructional support and adaptive equipment). To help cover these additional costs, in 2021‑22, schools received about $6 billion combined from state and federal categorical funding specifically for special education. These fund sources together cover roughly one‑third of the additional cost of special education services. Schools cover remaining special education costs with their local general purpose funding.

California Provides Most Special Education Funding Based on Overall Student Attendance. The state allocates most special education funding (84 percent in 2021‑22) through a base rate formula commonly called AB 602 (after its enacting legislation). The formula distributes funding based on total student attendance in Transitional Kindergarten through grade 12— regardless of the number of students receiving special education, the specific disabilities of those students, or the types of services those students receive. Roughly 16 percent of …….

Source: https://lao.ca.gov/Publications/Report/4486

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