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Meet the cross-subsidy, an increasingly painful way to pay for special ed

The special-education funding deficit is the primary reason Minnesota school districts face funding challenges year after year, public-school advocates say.

Autism specialist Jason Backes sits in a swing which allowed an Intermediate District 287 student the constant movement that kept him calm enough to work.
MinnPost photo by Bill Kelley

This is the third in a series of articles addressing a largely hidden crisis: A decade of social-service cuts and rising poverty have left Minnesota schools —which turn no child away —struggling to serve a growing number of students whose severe mental-health issues and cognitive disabilities aren't being addressed anywhere else.

The scrimping, finessing and begging that Keith Lester has done during the eight years he has been superintendent of Brooklyn Center Schools would be comical if it didn’t involve the fates of children and the livelihood of teachers.

His three schools are attractive, so much so that 40 percent of the district’s 2,600 students are open-enrolled from other communities. Lured by a holistic approach to supporting kids and International Baccalaureate programming, they bring precious state tuition dollars.

Test scores are on the rise, in no small part because of his efforts to get outsiders to provide a full array of in-school supports including medical, dental and mental-health care and all-day preschool.

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Still, his budget does nothing but shrink. In a good year he has to find about $1 million to cut. In the bad years — most of them since state financing began shrinking a decade ago — it’s more like $2 million.

Lester spends a lot of time thinking out of the box. The first five years he was there, there were no librarians in his three schools. In 2010 he got a grant to hire one —for a single academic year.

In 2008, he lost a teacher budget line but got a grant to hire a teacher. The grant was for arts instruction, though, so even though he hired a dance teacher he had to lay off an English teacher.

Painful cuts, impoverished students

In 2011, he had to cut all 11 of the teachers who coached the district’s struggling elementary pupils in math and reading. Their intensive work had been paying off with rising test scores.

The district has been in statutory operating debt — a bureaucratic way of saying financial life support — since 2000. He gets $2,000 a head less state aid for his 1,700 pupils than Minneapolis and St. Paul, even though his student body is just as impoverished.

And Brooklyn Center’s property tax base is modest, to put it kindly. Lester had to go to voters nine times to get his last levy — the lowest in the metro area — renewed.

When he started in 2005, about 12 percent of Lester’s students needed special education services. Meeting their needs typically costs about twice as much as general ed students, but it can be much, much more.

Even if it were a place where Lester thought to cut, he couldn’t. Disabled children can be convenient political targets, so the law is set up to protect their rights. All are entitled to a free and appropriate education, no matter its cost.

Many chose his school for its supports

Many of the families that have chosen Lester’s schools in part because they need the health-care and other supports they can find literally just down the hall from their child’s classroom are particularly needy. Special-ed students now make up more than 20 percent of the district’s population.

Never mind that the special-education services are mandated by law, neither the state nor the federal government has ever reimbursed schools anything approaching the true expense.

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And so to meet the needs of his most vulnerable kids, Lester has always had to shift money from the state aid he gets for all students. Because of the rest of the budgetary landscape, over the last 10 years the amount he’s had to divert has risen 163 percent to about $1,000 per pupil.

In fact, the amount Lester has to shift from general ed to special ed is typically more than his overall budget deficit. In 2011, he needed to make up a $2 million shortfall. The gap in special-ed reimbursement that year was $2.233 million.

If the state filled the gap ...

Expressed another way, if the state of Minnesota began paying full freight the district could get back in the black for the first time in 15 years. Lester could hire a librarian, recall the laid-off English teacher and bring back the literacy coaches.

Lester is retiring at the end of the year. The payback of this most hidden of school funding shifts would mean he could hand his successor a school system poised to become the envy of its wealthier neighbors.

* * *

Barring some budget-healing magic, Minnesota schools this year are poised to skitter off a fiscal cliff few people know exists. Between rising need and lagging state aid, the amount of funding they will be forced to divert to pay for special education will reach an average of $834 per student.

Even schools that are far wealthier than Brooklyn Center’s will have no choice but to use, on average, 16 percent of the $5,224 per pupil the state gives them to make up for a shortfall that is projected to keep growing. That’s money that cannot be used to prevent teacher layoffs, reduce class sizes or restore disappearing “extras” like art and music.

Brooklyn Center is not the only community where the subsidy has topped $1,000 per pupil for several years. A $147-a-head increase is expected this year alone. By 2015, the shortfall is anticipated to have mushroomed to $2 billion per budget cycle.

A primary reason for continuing funding challenges

Known in education circles as the cross-subsidy, the special-education funding deficit is the primary reason Minnesota school districts face funding challenges year after year, public-school advocates say. Eliminating the cross-subsidy would do more to put schools back in the black than repaying 2011’s budget-balancing shift, putting more money into the general fund or passing operating levies.

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How has a problem — and potential solution — of this magnitude largely stayed hidden from public view for years? The short answer is because it is a terrifically complicated, politically expedient place to hide the true extent to which funding for Minnesota schools has been cut over the last decade.

Gov. Mark Dayton’s proposed budget would put $125 million toward closing the funding gap as well as a number of structural changes that will help direct the 13 percent boost to the districts with the most need.

It’s a welcome start, said Scott Croonquist, the executive director of the Association of Metropolitan School Districts and the person who is best able to describe the cross-subsidy’s many wrinkles. Policymakers should adopt the budget, but they should also begin to address problems that have plagued special ed since its inception.

A look back

Until 1975, most of the country’s then 4 million children with disabilities were either warehoused in “classrooms” where little education took place, or in institutions where it wasn’t even paid lip service.

Most of these kids had profound and obvious disabilities like Down syndrome. Most children who would now be diagnosed with autism or a mental illness were simply written off as difficult or badly behaved.

In the wake of the civil rights movement, federal courts decreed that all students — including those in a coma and those considered uneducable — were entitled to an education, and in the least restrictive environment. The laws that were subsequently written took pains to protect disabled children.

Administrators could not decide that meeting a particular student’s needs was too costly and, to eliminate any incentive to rid their budgets of red ink by chopping spending on the vulnerable, they must maintain their overall special-ed budget.

A sweeping mandate, but few federal dollars

In short, the federal government created a sweeping mandate — one that most people approved of — but it has never paid more than a fraction of the cost. Initially the U.S. Congress set a goal of paying for 40 percent of the cost of the new programming, but only once in the ensuing four decades have reimbursement levels topped 20 percent.

Flush with new education funding from the 1971 Minnesota Miracle, Minnesota already served disabled kids. The state’s commitment makes it responsible for 68 percent of special-ed teacher salaries and 50 percent of the main services as well as hefty chunks of costs like transportation.

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It should have been enough. But like Congress, the Legislature has never appropriated enough money to reimburse schools. Instead, it budgets a fixed amount that’s pro-rated by districts’ enrollment, rather than the number of special-ed students served or the complexity of their disabilities.

This has always created two funding shortfalls: A gap between the state’s legal commitment and the amount of aid the Legislature appropriates for distribution; and a larger gap between what districts are obligated to spend and the global funding available.

An uneven burden, with disincentives

Adding to the pain, the burden is uneven and disincentives abound. Some districts have disproportionate concentrations of needy kids. They may serve an impoverished, fragile population, they may serve as a sort of regional hub for kids with complex issues or a reputation for getting good outcomes may have made them a magnet for families in search of help. But the separate pot of “excess cost” aid that was supposed to smooth the iniquities also has been underfunded.

Until 2003, the gap between the true cost and federal and state aid hovered around $350 million. High though the budget hit was, it at least held fairly steady. That year, however, a combination of structural changes to Minnesota’s tax system crafted by former Gov. Jesse Ventura and subsequent cost-cutting by then-Gov. Tim Pawlenty started the cross-subsidy’s upward spiral.

An attorney with expertise in education finance, Jerry von Korff serves on the St. Cloud Area School Board. Because the district was one of the aforementioned regional magnets for kids needing specialized services, its cross-subsidy was the largest of any of the state’s districts of substantial size.

In 2004, St. Cloud was forced to divert $569 per student to make up a total special-ed deficit of more than $5 million. The district immediately started looking for ways to freeze expenditures, and von Korff began talking to lawmakers and other education policy types.

An expedient place to obscure the extent of defunding

Legislators listened, said retired Sen. Mindy Greiling, the Roseville DFLer with perhaps the best institutional memory of recent school funding issues —and mostly shrugged. The cross-subsidy, she said, became the most expedient place to obscure the extent of the defunding.

Mindy Greiling
Mindy Greiling

Even as class sizes were mushrooming and teachers disappearing, legislators frequently voted in small increases in general education funding. Back in their home districts after each session, they would tout any small upticks — the last two were $50 a head—as proof that education remained a priority, without mentioning that the hundreds of dollars their community was spending on its cross-subsidy.

“Lawmakers quickly learn there’s no political profit in addressing the cross-subsidy,” she said. “It leaves you less to put on the formula.” The formula being the bottom-line, annual minimum dollar amount the state reimburses districts for every student.

Nor were school administrators ready to acknowledge to a frustrated public that the bare-bones cutting was because up to 20 percent of each child’s funding was being spent on a small number of intensely needy kids.

'School districts can't talk about this'

“School districts can’t talk about this,” said Greiling. “If you say there’s plenty of money for the schools but for the cross-subsidy, then you set up a dynamic of ‘why should they get a class size of 12 while my kid is in this overstuffed classroom?’”

Over the last decade, the before-inflation special-ed shortfall has eaten all but half a percent of increases in overall state school funding, according to von Korff’s research. During that time, the cross-subsidy has almost doubled, rising to $600 million in 2011. (For purposes of simplicity, these numbers correspond to calendar years. State reports often use fiscal years, and educators often account for costs according to academic years.)

And arguably that figure is artificially low. In 2007, the Legislature provided some temporary relief. And in 2011, an influx of federal stimulus aid — again, one-time money — offset the shortfall by almost $150 per pupil.

Even with the federal aid on board, in 2011 St. Paul Public Schools had the largest cross-subsidy at $36 million, or $838 per student, compared to $505 in 2004. The Anoka-Hennepin’s $31 million gap required a shift of $697 a head, vs. $446 in 2004.

Minneapolis Public Schools’ $34 million diverted $904 per student, up from $533. Rosemount-Apple Valley Eagan’s $23 million shortfall created a cross-subsidy of $720, compared to $440 in 2004.

Columbia Heights had highest shift in metro

As a per-pupil deficit, Columbia Heights had the highest shift in the metro area at nearly $1,100 per student, more than three times the $334 it diverted in 2004.

image of map showing varying cross-subsidy growth among school districts

Cross-subsidy growth map

Explore an interactive map showing how much the special education cross-subsidy has grown in Minnesota school districts between 2004 and 2011.

Among the several Greater Minnesota districts with eye-popping shortfalls, Red Lake stands out. In 2004, its cross-subsidy was $352. By 2011, the amount had risen to $1,144.

All told, 11 Minnesota districts shifted more than $900 per student into the cross-subsidy and 22 more than $800. With the stimulus dollars gone and Dayton’s proposed relief theoretically arriving in the second year of the next budget, those shortfalls are guaranteed to skyrocket.

* * *

At the moment, the accepted answer to spiraling costs and funding shortfalls is to do more with less. And the hardest part of the cross-subsidy conversation education advocates are attempting to start at the Capitol this year is explaining that in recent years educators have found lots of efficiencies — and costs have still mushroomed.

When the laws mandating special-education services were written, the majority of the institutionalized students who were to be welcomed into schools had developmental disabilities. Little was known about brain disorders like autism, and legions of kids with challenging behavior were perceived as disciplinary cases, not students struggling with mental illness.

Hand-in-glove with the cross-subsidy, caseloads have shot up in recent years. Between 2001 and 2011 the number of Minnesota children with autism spectrum disorders, which can present some of the thorniest neurobiological challenges, rose from 3,800 to almost 15,000.

Nearly 125,000 children now qualify

Overall, the special-ed student population has risen from 13 percent to 15 percent of the state’s student body over the last decade. Nearly 125,000 children now qualify for services.

Source: AMSD/MDE
The percentage of students who qualify for special education services is on the rise.

During the same period, cuts to social services and health care mean schools are also scrambling to meet the needs of a mushrooming number of kids with severe mental illnesses. Many of them have special-education diagnoses.

“We can’t do more with less because we’re getting better at identifying kids [with unmet needs] and at serving them,” said Greiling. Nor is eliminating the “maintenance of effort” laws (which is fraught with small caveats) that require districts to maintain spending levels the answer.

Which is not to say that costs cannot be addressed. St. Cloud’s systematic efforts to hold costs steady, for example, has gone from having one of the worst cross-subsidy problems in the state to a fairly commonplace one. Still, its relatively modest 41 percent increase means it must shift $801 per pupil.

* * *

The first Friday after New Year’s, Jason Backes got a new student. An autism specialist in a program where he works for kids with severe disabilities and mental-health needs, Backes had been prepping for Thomas’ arrival for some time.

When the bus arrived, the boy was so agitated he tried to hit, kick and bite anyone who got near him. Backes climbed on board, armed with an iPad.

The staff “innovation coach” at a program for students with multiple, intense challenges, Backes had spent some time getting to know Thomas (who has been given a pseudonym) on paper. He had a plan for delivering the teacher a relatively settled, teachable kid.

According to the information supplied by Thomas’ home school district, which couldn’t meet his needs, he needed visual and not verbal cues, and was calmed only by physical activity. So Backes made him a movie.

Costs are astonishingly high

The exact details of Thomas’ situation would identify him, but for the sake of illustration assume that like many of his classmates he has a long ride on a bus where he is the only student and that he has both a driver and an aide to keep him safe, a teacher who works exclusively with him—and perhaps another aide — and a dedicated, specially equipped classroom.

The free and appropriate education Thomas is rightfully entitled to under U.S. law is astonishingly expensive. All that one-on-one staffing can cost upwards of $100,000 a year. Other kids who can be transported together and can work in small-group classrooms may require an outlay of $40,000-$50,000.

In generations past, kids with such intense needs didn’t go to school. They were institutionalized — warehoused is a more honest way of putting it — at a cost to taxpayers that was every bit as steep. Meanwhile, the human cost was incalculable.

In the past, educators have protectively shied away from talking publicly about kids like Thomas. They are vulnerable, and rhetorical support for their right to be included as full members of society has always outpaced the willingness to confront the scope of the need.

Frightful though the cost of these specialized interventions is, there are ways, such as clustering kids with “low-incidence” diagnoses in specialized programs, to simultaneously hold down costs and provide services that are effective.

Intermediate District 287
MinnPost photo by Bill KelleyNorth Education Center in New Hope, where a consortium of west metro school districts operates the Students with Unique Needs program.

Backes’ movie showed what it’s like to go to school at the North Education Center in New Hope, where a consortium of west metro school districts operates the Students with Unique Needs program. Its pupils typically have more than one neurobiological issue or mental illness, including profound autism, fetal alcohol syndrome, anxiety, obsessive-compulsive and bipolar disorders and schizophrenia.

Other programs operated by Intermediate District 287 serve children who have a complex mix of cognitive disabilities and mental illnesses. The brand-new North Education Center is the crown jewel of its facilities.

It has innovative features like walls that can be reconfigured at a moment's notice to accommodate a constantly changing population. There are spaces that can be made soothing to kids who have sensory challenges. There is state-of-the-art security, shatter-proof glass and doors that can’t be slammed.

Concentrated expertise

Most important, there’s concentrated expertise. The sooner a student’s needs are identified and addressed, they greater the chance they can be returned to “regular” school and the higher the likelihood they will earn a high school diploma and enter the work force.

While a very few kids always will need intensive support, in his seven years with District 287, Backes has graduated numerous Thomases back into less restrictive, less costly programs.

Backes filmed the doors Thomas would walk through and the hallway on the other side, where colored strips of carpeting delineate paths for students who need hyper-structured routines. His trip would end in a room where a swing hangs from the ceiling. Unlike a conventional desk, the setup would allow him the constant movement that keeps him calm enough to work.

Backes had sent the video to Thomas’ family, so the boy already had seen it when he arrived at school. As Backes screened it again — and again, and again — on the iPad on the bus in front of the doors in question, Thomas slowly stopped lashing out.

“Once he got involved in some physical activity, once he got into the classroom and into the swing, he was able to calm himself,” said Backes. “After half an hour, he was comfortable and ready to try school.”

What Thomas and his teachers need most is a paradigm shift among policymakers. Unless they are willing to confront the true cost of educating Minnesota’s most fragile students, they say, the unmet need will swamp public education.