Student Opportunity Gaps

Special Education Funding Formula Reform

By March 17, 2013 No Comments

A major recommendation of the Education Finance Working Group was Special Education Funding Reform.  The working group made four recommendations:

  1. Significantly increase special education aid to reduce cross subsidies
  2. Replace the current expenditure reimbursement formula with a new formula based partly on school district enrollment and number of students in high-cost, low-incidence special education programs
  3. Improve the special education excess cost formula
  4. Require the serving school district or charter school to share in funding excess special education costs for open-enrolled students with the resident district

HF 630 and SF 453 successfully incorporate all four of these reforms.

The Increase

First, there is a $151 million aid entitlement increase in FY ‘15. While not the $194 million aid increase proposed by the working group, it is still a significant increase. Combined with an efficient use of Federal Funds, as recommended by MDE, statewide reimbursed special education costs will be 78.7 percent.

The new special education formula has two ways to calculate regular special education costs, and the excess cost calculation will cover 75 percent of the gap costs, which has its own calculation. Without going into details, the formula is flexible and robust enough to catch most district-district variation with equitable funding. For details, view this presentation by Tom Melcher.

All formulas will use the previous year’s data. That will make planning much clearer than in the current system, but also require districts to maintain a fund balance as all unexpected costs in a school year are theirs until the recalculations in the next fiscal year.  While that may seem harsh, the current system never catches up within the fiscal year and necessitates retroactive adjustments. This adds unnecessary uncertainty and opacity to what should be a publicly transparent finance system.

Non-Reimbursed Costs

Finally, in open enrollment, the serving district is responsible for 10 percent of the non-reimbursed costs and the resident district 90 percent.  This is designed to prevent any “piling on” of non-reimbursed costs for open enrolling students. Districts who wish not to be subjected to these costs can close their district or grade levels to open enrolled students. Districts cannot close their district to only special education students.

The resident district responsible for 100 percent of the unfunded costs for students who are placed in another district by the resident district under a tuition agreement and cooperatives and intermediates still get to claim 100 percent. MDE’s tuition billing system has the details needed to separate the open enrolled students from the students placed under an agreement.

Analysis by Size

The results are pretty impressive in achieving the goal to increase the percentage of special education costs reimbursed by state and federal funds. The state average for reimbursed costs is 78.7 percent and in the MDE strata analysis:

  1. Non metro districts larger than  2000 students                            79.0%
  2. Non metro districts between 1000-2000 students                      83.9%
  3. Non metro  districts with fewer than 1000 students                   83.2%


School size matters when the results are analyzed by the size of the cross subsidy, which is defined as the non-reimbursed costs divided by the Average Daily Membership (ADM).  Twenty-three of the 32 districts with the largest cross subsidy are rural and 19 of these have fewer than 500 students. Even with an average of 83 percent reimbursement, small districts that fall below the average reimbursement have very few students over which to spread the non-reimbursed costs.  Therefore their cross subsidy per pupil can climb quickly. View the results for your district by downloading this Excel spreadsheet.

Many of these districts qualify for sparsity aid and are exempt from the referendum cap.  This is another reason Minnesota needs to maintain the exemption from the referendum cap for our more remote rural school districts, most of whom are MREA members, and to continue Small School Revenue for all small districts.

Looking Forward

Overall this is good work and addresses one of the major planks of the MREA platform to “increase special education funding and reduce the cross-subsidy costs to local districts.”

MREA supports the special education funding portions of HF 630 and SF 453.