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‘We can’t sustain this’: special-ed shortfalls strain Minnesota districts as lawmakers struggle to find long-term solution

The state automatically allocates more money toward special education costs every year, but can’t keep up with rising costs. “It just shows the skyrocketing, escalating cost of special education,” said state Sen. Carla Nelson.

With more Minnesota students enrolling in special education services and public aid failing to keep pace with the cost of providing those services, the shortfall that school districts have to cover by tapping into general education dollars continues to grow.

State Sen. Carla Nelson
State Sen. Carla Nelson
Data show that shortfall — known as the cross subsidy — totals $724 million this year in Minnesota. Without any new state action, the Education Department projects that will grow to $858 million by 2023.

The state automatically allocates more money toward special education costs every year, but it still can’t keep up with rising cost, said Sen. Carla Nelson, R-Rochester, who chairs the Senate E-12 Finance and Policy Committee. “It just shows the skyrocketing, escalating cost of special education,” she said. 

Legislators and the governor say they want to budget enough new money for special education this session to prevent school districts from subsidizing even more over the next two years. But they don’t yet have a long-term plan for chipping away at the shortfall.

The governor hopes to convene an education funding task force to tackle those bigger questions. House Education Finance Committee Chair Jim Davnie, DFL-Minneapolis, said he thinks that would be a good place to dive into special-ed enrollment and funding trends. “We know there’s rising demand, there’s rising costs, and that it’s really challenging school districts across the state to be able to plan and manage their budgets responsibly,” Davnie said. “Those dynamics just demand more conversation, more attention.” Nelson said a task force could be helpful, but it would depend who was on it.

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Many districts are in untenable positions. Waconia Public Schools Superintendent Pat Devine said up to 20 percent of the general education funding his district gets from the state now goes to special education, affecting class sizes, support staff levels, and program offerings. Voters passed a new operating levy for the district in the fall. They also cut the budget by $1.26 million, he said. But an audit shows the cross subsidy increased more than expected and now Devine is looking at more cuts if the state doesn’t do something. “There’s a lot of districts that are hurting,” Devine said. “It’s become unmanageable. We can’t sustain this.”

‘Falling short in education’

Overall costs of special education are going up because of enrollment. State data shows 147,605 students were enrolled in services at Minnesota schools during a count on Dec. 1. That’s 16,719 more than in 2015. The increase has been felt at nearly all types of schools, including suburban and Greater Minnesota schools of all sizes.

davnie portrait

State Rep. Jim Davnie

Minneapolis and St. Paul aren’t seeing the same increases in enrollment, as students from those districts needing special education services often opt to go to charter schools or enroll outside the district. But the districts’ costs are still increasing. They get billed 90 percent of unfunded special education costs by those charter schools or other districts where residents of the two cities are enrolled.

Schools are seeing the largest growth in the number of students with autism spectrum disorder or developmental delays. There is also notable growth in the number of students with other health disabilities, learning disabilities, and emotional or behavioral disorders.

The trend baffled some legislators at a committee meeting in January. Davnie said that lawmakers will need more information to understand the factors contributing to the rise in enrollment as they determine a long-term strategy for funding special education.

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Nelson agreed. In addition to examining enrollment, lawmakers need to look at state mandates and other underlying influencers. She supports taking steps like reducing paperwork requirements for teachers. “We are not going to win the money race,” Nelson said. “We have to do a better job of understanding what’s driving our special education costs.”

In the meantime, school districts whose special education programs attract families are covering those higher costs with money that could go to expand programs for all students in his district that meet other state concerns: workforce training, student mental health, and others that they’re doing at a “minimal level.”

“I know where the priorities are for our state, our country, as we prepare kids for the job market ,and I feel like we’re falling short in education a little bit,” he said.

He said the cross subsidy used to take 10 to 12 percent of his district’s general education budget from the state, which was more manageable. “In an ideal world, it would be nice if they paid for all their mandates … but bring it back to a percentage of our budget.”


Minnesota Department of Education
Special Education Funding Trends, FY 03–FY 23, Federal Aid, State Aid and Cross Subsidy – Current $ in Millions, November 2018 Forecast

Making up the missing federal dollars

Special education funding is supposed to come from a combination of state and federal aid. But school districts have had to cover the shortfall between how much they get from those sources and how much their programs cost since Congress set mandates for programs in the 1970s.

In large part, that’s because the federal government never lived up to its promise to pay 40 percent of the costs. Federal aid has mostly stayed below 15 percent, with the exception of 2010. A recession recovery funding package doubled special education aid that year, covering 30 percent of the costs before falling back to normal, low levels the next year.

There have been small fluctuations in federal funding, with a general upward trend, but it hasn’t been enough to offset rising costs, according to state data from 2003 to this year, which the Education Department presented to legislators in January. As a result, federal aid covers a smaller and smaller portion of total special ed costs every year. It chips in $182 million this year, or just over 7 percent.

State aid accounts for nearly 64 percent this year, leaving almost 30 percent up to school districts to cover.

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State lawmakers have discussed how to pressure Congress to pay its share of these costs. A resolution introduced in the state Senate, with support from ranking DFL and Republican senators in the E-12 committee, urges the federal government to do its part.

“I know there’s been some informal conversation about the House doing the same thing because of the significant frustration,” Davnie said. “It is a significant part of the shortfall. … If they came up with the full 40 percent promise, that would be amazing. Any progress toward that 40 percent would be more than welcome.”

One route is through Minnesota’s congressional delegation. U.S. Reps. Pete Stauber and Angie Craig said this week that they’re backing a bill to increase federal aid, according to a news release. The Individuals with Disabilities Education Full Funding Act would incrementally increase federal special education spending over the next 10 years to cover 40 percent of total costs.

The Trump administration just released its 2020 education budget proposal, which includes cuts totaling $7.1 billion – or 10 percent of its 2019 budget. But the plan, which resembles previous budget proposals by the president, is unlikely to be embraced by Congress.

Minnesota Education Commissioner Mary Cathryn Ricker said the state could ask an education funding task force to consider how else to press the issue at the federal level. But that doesn’t give the state a pass. “If we want to hold the federal government to meet its responsibility, then we as a state need to meet our responsibility.”

Funding a new formula

The state attempted to address issues with the special education funding formula in 2012.

Under the old formula, the state covered a portion of salaries, supplies and equipment, and other costs. It didn’t cover employee fringe benefits, didn’t account for inflation, and capped aid growth, Tom Melcher, school finance director with MDE, told legislators in January. A working group recommended a new formula aimed at reducing cross subsidies, making funding more predictable, and ensuring schools receive equitable amounts of aid.

Funding the new formula would require increasing state special education aid by $150 million to $200 million a year, the work group determined. Then-Gov. Mark Dayton called for adding $126 million for fiscal year 2015 and included additional increases in his 2016-17 budget. But in the deal ultimately reached, the state only kicked in another $40 million per year.

Without full funding, the state Education Department implemented a “scaled-down version” of the recommendations, Melcher said. That includes using different methods to calculate how much aid a district receives, depending on what works best for each district. It has produced a complicated result.

Minnesota Department of Education
Special Education Enrollment, Birth–21(Unduplicated December 1 Child Count – Public and Nonpublic Shared Time)
“The reason we’re doing some calculations on the old [formula] and some on the new was the constraint we had,” Melcher told legislators who asked how to simplify the formula. “What we tried to do is move in the direction of the committee recommendations. But what could we do for $40 million instead of $150 million? So, we ended up somewhere in between and we’re kind of stuck there right now. It would take a significant infusion of new dollars into the formula to simplify significantly without creating winners and losers.”

The state recommends further tweaks to the formula, as well as more funding, to address concerns over how the state calculates aid based on student needs and previous levels of funding and how much charter schools and other districts bill back to a student’s home district for unfunded special education services. The state analyzed costs and found that those costs tend to be higher than the school would pay if they were served in the home district.

“We’re still in conversation as to which of those items can we deal with,” said Davnie, the committee chair.

Freezing the cross subsidy

The state Education Department estimates that it will take $91 million in addition funding – that’s over the inflation already accounted for in the formula – to freeze the cross subsidy for the next two years. Spending more than that would allow the state to start reducing the average cross subsidy paid per student, which is $830 this year.

Commissioner Mary Cathryn Ricker
Commissioner Mary Cathryn Ricker
The House Education Finance Committee has heard several bills aimed at tackling the issue, including one, HF 194, calling for $481 million in new funding for 2021 and another $1 billion for 2022-23. That one’s a “moonshot,” Davnie said. But the committee, which aims to have its bill put together shortly, will aim to meet the governor’s request to keep the cross subsidy from rising.

That would combine with increases to the state’s general education funding with the hope that districts struggling under rising special ed costs would actually feel the general funding increase, Ricker said.

Though Devine doesn’t expect legislators to pass a level of funding like what’s in HF 194, other legislative proposals take “a band-aid approach,” he said. “I want a long-term fix. I’m not sure that I’ve seen a bill that does that.”

Rep. John Huot, a DFL freshman from Rosemount, says he was sent to the Capitol because his district’s schools are drawing people to the area, in part because of a good special education program, he said. They are dealing with a $29 million cross subsidy.

It’s a critical time for the district, he said. His son is a high school freshman taking an honors civics class with 42 kids in it. He suspects they’ll lose teachers with classes that large. “I’m afraid we’re not going to be able to do enough,” he said. “You freeze it at $29 million, it’s still $29 million. Right now I’ll take anything so it doesn’t grow.”