Funding formulas are the mechanism by which governments distribute funds to serve
difficult-to-educate students. Special-education finance scholar William T. Hartman
identifies seven types of state-level funding models: flat grant, unit, personnel,
percentage, weighted student, resource-cost model. Some of these models may also be
applicable to at-risk education, and to a lesser extent corrections education. Each type
of formula creates incentives influencing how children will be served; no funding formula
is perfect. Hartman encourages policy makers to analyze the motivational effects of each
formula to determine how local, state, and federal administrators will respond.131
(See Table 5.) Typically, regulations are used, with varying degrees of success, to combat
some of the adverse incentives inherent in each model.
In addition to the type of model used, the degree to which those agencies making the
placement decision are also responsible for paying the costs will also influence how
students are served. Writes Hartman:132
(L)ocal agencies will exhibit greater restraint in incurring special-education costs
if they are responsible for a share of those costs. The belief is that the greater the
districts share, the more cost conscious the local agencies will be. Consequently,
funding systems that incorporate a high local contribution to the cost of special
education are thought to provide a greater incentive to control costs than those in which
the local share is low.
Hartman cites as an example the case of Pennsylvania, where the state paid all excess
costs generated by special education. Says Hartman, "the local districts had little
incentive to control costs, and the state had funding shortfalls of $60 million to $100
million for years."133 In response, the state implemented a new formula,
which capped the amount of available state aid.