For the past four years, the Massachusetts Association of School Superintendents has been monitoring the impact on school districts of the increasing cost of special education. This year 2000 report builds on and updates the analysis and data collected for an extensive report published by the Association's Special Education Task Force in February 1997.

The trends we observed in 1997 continue to hold. Our predictions of increased costs and enrollments are now emerging. The urgency for reform in special education finance and policy is more pressing than ever.

Our analysis of special education enrollment and cost data from 1990 to 1998, and 1999 where possible shows that:

• The percent of students in special education declined between 1992 and 1997 due to district efforts to implement new eligibility standards. However, the exceptional increases in children with more significant disabilities observed in Early Intervention and public pre-school programs throughout the 1990s has now resulted in significant increases in the percent of students in special education. The percent of students in special education declined from 17.4% in 1992 to 16.6% in 1997. However, within the past two years it has again returned to 17.3%. We project that this trend will continue.

• In spite of declining special education enrollment as a percent of total enrollment for most of the decade, the cost of special education has continued to increase at a significantly greater rate than that of regular education. Special education consumes a significantly higher percentage of most school districts' budgets and a disproportionate share of new funds allocated to education. In 1990, 17.2% of school department expenditures were allocated to special education statewide. By 1998 this rose to 19.4%. This difference in percent of expenditures is the equivalent of $115 million for 1998.

• Increases in the number of children and the severity of disability of children served by Early Intervention and special needs preschool programs indicated that costs would continue to increase in the future.

• The financial challenges facing districts as a result of rising special education costs are exacerbated by a foundation funding formula that underrepresented the costs of serving special education students. Not only does this formula set unrealistically low percentages for students in special education, but allocates less than half of what it would require to pay for services for these students.

• The increase in special education costs has not been a result of school district policy and practice. Instead it has been due to such medical, economic, and social factors as the advances in medical knowledge and technology, the deinstitutionalization of special needs children, the consequences of a higher percentage of children living in poverty, and the increase in families experiencing social and economic stress.

As a result of the 1997 study's findings the MASS made a number of recommendations for policy changes and reform in the financing of special education expenditures. Many of these recommendations were incorporated into legislation filed during that year's legislative session.

Special education is again on the legislative agenda and we felt it important to update the data we analyzed three years ago. The data from the original study came largely from the Department of Education, the Department of Social Services, and the Department of Public Health. In 1997, we were able to analyze financial and student population data through FY95. We have now updated most of the data in that report with data through FY98 and, where possible, FY99.

The Task Force reviewed data on all school districts in the state. However, the analysis that follows does not include vocational-technical, trade, or agricultural schools. Their special education expenditures are not comparable to other districts. First, the costs for students placed in collaborative, residential, or private day special education placements revert back to the home district. Second, these schools enroll a higher percentage of special needs students in their vocational programs but do not specifically delineate costs as special education related. Therefore, the majority of findings reported below are for the 300 city, town, and regional academic districts in the state.

We have found that the patterns we observed in our first report have continued and that our findings and conclusions are stronger today than three years ago. In fact, our predictions are becoming reality.

ENROLLMENT

Special education enrollments as a percent of total enrollment reached a high in FY92 of 17.4% (chart 1). Beginning in FY93 and continuing through FY97 enrollment declined to a low of 16.6%. In FY98, enrollment rose slightly to 16.7% and the FY99 enrollment rose to 17.3%. We had predicted an upward trend in our 1997 study due to rising special education preschool enrollments. In fact, current special education increases are being driven by significant increases in preschool special education. Between FY89 and FY99, special education preschool enrollments rose by 83.6%. Other special education enrollments increased by only 15.0% in contrast to an increase in total enrollment of 15.6% (chart 2). As we reported in 1997, school districts continue to contain costs and to effectively apply the eligibility standards but are seriously pressed by a greater number of more seriously involved children entering the system at age 3.

SPECIAL EDUCATION COSTS

Special education costs continue to rise at a significantly higher rate than regular education expenditures. Total expenditures on regular education increased by 44.5% from FY90 to FY98 while special education expenditures rose by 70.9% (table 1). However, the contrast is even more stark when viewed from the perspective of per pupil costs. Per pupil costs for special education rose by 47.9% during those years, in contrast to an increase of 27.2% for regular education (chart 3). These rates are consistent with national trends. According to the Center on Special Education Finance, special education costs are rising at rates that are twice as high as regular education nationally. This means that special education continues to consume an ever larger percentage of school district budgets. In FY98, special education consumed 19.4% of total school expenditures in Massachusetts, up from 17.2% in FY90 (chart 4). Although this appears to be only a 2.2% difference from FY90, it represents over $115,000,000 in additional expenditures for just FY98.

ASSOCIATED HEALTH COSTS

Another cost trend has come to our attention since the 1997 report that is having a significant impact on school districts is the increase in health and nursing expenditures. Over the past three years many school districts have experienced significant increases in the number of medically-involved students who require nursing and other health-related care. These children are not necessarily classified as special education, although they often receive extensive services. They are classified under "504" plans for which the Department of Education does not collect data. However, in analyzing the data on state-wide health expenditures by school districts, we found that costs have increased by 87.4% between FY90 and FY98 (chart 10). A portion of these costs pay for health educators but the remainder pays for nursing services. Health education costs funded through the state's Health Protection and Smoking Cessation grants are not included in this data. At this point, we have not been able to secure data on how much has been expended for health education versus nursing services. However, we believe that the primary driver of costs in this area is the increasing number of students needing medical attention. This was not anticipated when the foundation formula was developed and remains an area of serious underfunding in the formula.

OMINOUS TRENDS

In 1997, we observed trends that we believed would continue to drive special education costs. The special needs preschool trend is being driven by significant increases in the number of 0 to 3 year old children with significant disabilities served by the Department of Public Health's Early Intervention Program. In FY92 Early Intervention served 9,809 children. In FY98, just six years later, the number of children in Early Intervention Programs had grown by 86.8% to 18,322. In addition, the severity of disability of these children had markedly increased. In FY92, 59.3% of these children were considered to have moderate to severe delays. By FY98, the percent of children with moderate or severe delays had increased to 81.2% of the children served (charts 5 and 6). The number of children with moderate to severe delays served by Early Intervention increased from 5,818 in FY92 to 14,882 in FY98, an increase of 156% over the six years and an average increase of 26% a year.

A second ominous trend is the increase in child maltreatment. Child maltreatment--neglect, sexual abuse, substance abuse, etc.--often leads to children requiring special needs services. Reviewing data from the Department of Social Services, we found that maltreatment had dramatically increased in the past decade. Between 1983 and 1997, the number of maltreatment reports increased by 186% and the number of supported investigations that found maltreatment increased by 138% (chart 7). Examining the 1993 to 1997 data shows that supported investigations increased by 23.3% (chart 8). In terms of foster placement, although these have declined in the 1996 and 1997, they are still 50% above the level of the mid-1980s (chart 9). These trends indicate that costs for special education will continue to rise.

SPECIAL EDUCATION AND EDUCATION REFORM

The foundation formula continues to exacerbate the problem by locking in an enrollment percentage that is much lower than actual enrollment and by seriously underestimating costs for special education. The foundation formula assumes that only 14% of students will be in special education. In FY99, however, 17.3% of students were receiving special education services. The formula also limits allocation for out-of-district enrollment to 1% of the student enrollment. However, this can vary widely among districts from just under 1% to 3%.

More significant, the formula underestimated the cost of services to these students. For example, the formula provided $2,295 for a special education pre-school student in FY98, yet the statewide average cost for a special education pre-school student was $9,589. The formula allocated $16,618 for the tuition costs of an elementary age special education student enrolled in a private day or residential placement. However, the FY98 statewide average cost for a private day placement was $34,242 and for a residential placement was $43,473. In fact, when examining the foundation budget for the entire state in FY98, only 11.9% of the foundation budget was allocated to pre-school, in-district, and out-of-district special education costs at a time when actual expenditures from school district budgets were averaging 19.4%.

Because of the variability of impact that special education has on districts, especially small and medium size districts, the increases in special education have exceeded 100% of new education reform aid for many school districts in Massachusetts. Others have experienced increases that are equivalent to a large percentage of their new education reform dollars. Clearly, the State's failure to adequately fund the costs of educating students with severe disabilities is compromising school districts' ability to implement the kinds of instructional improvements intended in the Education Reform Act.

MASS RECOMMENDATIONS FOR CHANGES IN SPECIAL EDUCATION

MASS recommends changes in both special education policy and financing. Policy changes must be part of the long-term solution to the financial issues; however, alone they will not adequately address the financial issues facing school districts. The increase in the seriousness of disabilities in the population and the increase in the number of young children with disabilities will require greater expenditures in special education in the future. A long-term solution requires shared responsibility for costs between the State and local school districts.

In FY98, the state funded 26.4% of all special education costs. This includes direct expenditures by the state on special education as well as the 11.9% of Chapter 70 aid that is allocated under the foundation budget to special education. The federal government provided for 6.2% of the costs. Local communities provided over two-thirds (67.4%) of the total expenditures on special education in Massachusetts (Chart 11). In comparison, the Center for Special Education Finance reports that the national average for federal, state and local expenditures for FY94, the last year for which they have data, was 7% federal, 53% state and 40% local (Chart 12). Because of the degree to which the foundation budget underestimates special education expenditures, increases in special education costs fall largely on local school districts.

Local communities cannot bear the burden of special education increases alone. Communities, especially smaller communities, cannot meet the needs of children who cost the district over $20,000 without compromising other programs. Currently, whatever those costs are, they must be borne within the financial capabilities of the community. This places an unfair burden on local communities when the responsibility for these children is best addressed through the collective efforts of all Massachusetts citizens state-wide.

Even though districts are making their best efforts to provide regular education programs and services as an alternative to substantially separate special needs programs, these regular education programs and services require additional resources. Learning disabilities do not disappear just because a child is not classified as a special education student. These are realities policy makers need to face.

In 1997, MASS made a number of recommendations for changes in the financing of special education as well as changes in policy related to special education. During the past three years several of these recommendations have been implemented. The Department of Education has adopted the changes in Federal special education regulations related to student discipline and increased the number of days a child with disabilities can be suspended before convening a meeting to determine whether the behavior was related to the child's disability. These are improvements that enhance a school's ability to provide equitable and uniform discipline for all students. In addition, the state is funding the placement costs for state wards at almost the full cost of these students. Although this is a very important improvement, these costs are reimbursed in the year following the one in which the costs are incurred and this presents budgeting problems for school districts.

In order to address the remaining financial and policy issues related to special education, MASS recommends the following changes in legislation and regulations:

• Provide shared responsibility for children with special needs so that when the cost of services exceeds three times the foundation budget for either in-district or out-of-district students, the State provides 90% of the additional cost.

• Adjust the foundation formula to more adequately reflect the real costs of special education, especially in special needs enrollment, in-district and out-of district average costs, and special needs preschool costs.

• Fully fund special education transportation.

• Fund the placement costs for State wards in the year the cost occurs.

• Provide emergency funds to be allocated for special needs students who enter the district from another state or country and require an unanticipated out-of-district placement.

• Adjust the SBAB formula to provide incentives for inclusion of space for collaborative special needs programs so that collaboratives can continue to provide cost-effective services.

• Adopt the Federal standard for special education services.

• Provide a definition of effective progress and common definitions of disabilities.

• Amend statute to define eligible children as "children with disabilities" rather than "children with special needs".

• Use federal definitions for learning disability and emotional disability.

• Require school-based IEP Teams to make written determination whether children have a disability and ensure that teams are fully knowledgeable about eligibility requirements.

• Strengthen pre-referral processes and programs (regular education modifications made before referral to special education).

• Provide technical assistance to school districts that have special education enrollment rates that deviate substantially from state averages and to other districts upon request.

• Amend the independent evaluation regulations to: (1) require the hearing officer to consider bias and conflict of interest of evaluators, and (2) to provide parents with the option to use either the federal standard or the current state standard with a cost share based on a sliding fee scale.

• Increase human service agency provision of special education services.

• Increase school department ability to access insurance payment for medically necessary special education services.

• Allocate Medicaid and private insurance reimbursement for special education services to school committees.

These financing and policy changes will enable school districts to manage special education services and costs more effectively and efficiently. MASS believes that these changes will not compromise the services provided to special needs children and that districts will continue to provide students with high quality programs.

CONCLUSION

In 1997, we concluded our study by indicating that:

We believe that action is even more imperative now than it was three years ago. The recommendations we offered in the areas of finance and policy remain as viable today as they were then. We, again, encourage the Legislature to move forward on special education reform and offer our assistance in this effort.