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States Rethink How To Pay For Special Ed.

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When New York state Commissioner of Education Richard P. Mills called for big changes in the way the state pays for special education earlier this month, he was traveling a well-worn path.

Nearly two-thirds of the states are working to change the way they pay for special education, according to the Center for Special Education Finance in Palo Alto, Calif.

Faced with pressure to make more out of flat budgets, states see the rising cost of special education as a pressing concern. Reports that show a big share of new education dollars going to special education and a steady flow of news stories about the high costs of specialized schooling for some students with disabilities have helped push the case for change.

New York officials have seen statewide enrollment in special education grow from 266,000 in 1983 to 363,000 this year. Special education students have gone from representing just over 9 percent of school enrollments to just over 11 percent in the past four years. Special education costs--$3.6 billion a year--consume nearly a quarter of what the whole state spends on instruction, officials estimate.

"We've seen a steady increase in the numbers of students identified and the associated costs," said Tom Neveldine, New York's director of special education. "It's a concern of the governor, the legislature, and school boards in our state to get some reasonable controls on the system."

Mr. Mills' proposal for New York typifies the direction many states are going when it comes to special education finance reform.

Rather than sending money to districts based on the number of special education students they can identify, the plan assumes that 12 percent of a district's students will need special education services--roughly the current proportion of special education students statewide. The change is seen as a way to discourage districts from over-identifying special education students, while encouraging them to plow any savings reaped for not hitting the 12 percent mark into other intervention programs. Mr. Mills' plan would adjust aid to districts based on local poverty and cost-of-living figures.

The plan emphasizes preventive efforts and envisions stemming special education enrollment growth. It would bolster general education aid so students with less severe needs--particularly learning disabilities--could be schooled without having to be labeled as needing special education.

And the formula would no longer connect where a special education student is educated--such as a resource room or a separate class--to how much aid the district gets.

Perception or Reality?

While special education costs have become a hotly debated issue, some experts caution that there may be more smoke than fire.

"The prevailing perception is that special education costs are skyrocketing," said Thomas B. Parrish, a co-director of the Center for Special Education Finance, a nonprofit research group supported by the U.S. Department of Education. But how accurate that perception is remains unclear.

Many states do not know exactly how much they spend on special education, which makes it difficult to prove that special education costs are out of control and eating away at other education programs, Mr. Parrish said. Only 13 states responded to a recent center survey by saying they could report their special education expenditures with a "high degree of confidence."

What is clearer, experts say, is that special education enrollments are growing at a faster clip than those in general education. While states generally have seen their spending on special education rise, the state share of special education costs in some states has gradually declined, and the districts' share of the bill has increased.

"States are looking at ways to establish ceilings," Mr. Parrish said. "They aren't saying they want to do less, they're saying they want to control growth."

Under a 1975 federal law, schools must provide students with disabilities a "free, appropriate public education." Who pays for what parts of that education is the subject of frequent tussles.

For example, school districts in New York were in an uproar earlier this year when Gov. George E. Pataki proposed that they pick up nearly $250 million in preschool special education programs--programs the state and counties historically have paid for. His plan failed, but state officials are hoping reforms in preschool programs will work toward containing costs instead of merely shifting them.

With special education viewed as a runaway line item in modest state budgets, the attention on the programs is not likely to diminish.

"It has led to states really looking at what are the real costs and where are they going in the future," said Mary F. Fulton, a policy analyst with the Denver-based Education Commission of the States. "Legislators and governors' offices and state education departments are not seeing an end to this. It's becoming a major concern."

Setting Ceilings

Several states are already taking a hard look at the issue.

In Nebraska, a special education commission in September released recommendations for overhauling the special education finance system. The panel, created by the legislature, called for a clearer definition of educational services and costs, as distinguished from health and medical services; more preventive services; greater equity; and, as in New York, a formula that de-emphasizes placement.

The Nebraska legislature made cost containment the panel's primary goal, an effort to keep special education cost increases in line with those in general education.

In the years leading up to the panel's creation in 1993, state appropriations for special education had been growing by about 11 percent annually--twice as fast as for general education. Last year, lawmakers capped the growth of state appropriations for special education at about 3 percent through 1998.

Under California's complex finance system, schools are supposed to receive cost-of-living and growth adjustments in state special education aid.

But for years, the state's economic recession made that impossible, according to the Coalition for Adequate Funding for Disabled Children, a nonprofit advocacy group made up of California special education administrators. As a result, the state has left more than $800 million in costs to local school districts, the coalition estimates.

Attempts to revamp California's special education funding--a system critics call inequitable and inflexible--failed last year, but lawmakers are expected to try again in 1997. In the meantime, the coalition last month asked Gov. Pete Wilson to add an anticipated $80 million increase in federal special education money on top of the current state funds. In the past, the state has used federal increases to reduce its contribution.

In New Jersey, the state supreme court ordered the state to come up with a new education finance formula by year's end.

As part of that larger reform, lawmakers are expected to sort through dueling proposals to revamp special education finance in a state that has the nation's second-highest rate of students classified with disabilities.

Commissioner of Education Leo W. Klagholz's proposal would cap full funding of special education costs at 10 percent of a district's total enrollment. If a district had more than 10 percent of its students in special education, the state would provide aid at a lesser rate. Lawmakers, education groups, and disability advocates say a cap would discourage schools from providing needed services.

"This artificial ceiling will result in school districts diverting funds from their regular education programs to cover special education costs," Robert E. Boose, the executive director of the New Jersey School Boards Association, said.

Reconsidering Standards

State special education standards that came about in healthier budget times--or in the wake of public outcry over the lack of educational resources for disabled children--are being revisited.

In Michigan, a 16-year-old lawsuit claims the state has underfunded special education and improperly shifted costs to local school districts. Gov. John Engler is asking the state courts to reconsider rulings that have called for the state to pay 84 districts between $500 million and $600 million in retroactive state aid.

The state argues that it has provided substantial funding increases that are not being counted toward the state's effort.

Some fear the debate might lead Michigan officials to cut the state's program for serving older students with disabilities. Michigan law serves such students through age 26, while federal law requires services for students only through age 21.

Massachusetts added an enrollment limit to its finance formula in 1993 in part to rein in the biggest chunk of its special education costs.

But many observers expect the legislature to debate another approach: scaling back state special education standards that call for schools to serve children with disabilities at a level where they can reap the "maximum feasible benefit."

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