Funding for Special Education

A thorough review of how special education funding works in Michigan reveals the challenge of consistently and effectively providing these services. Like many other elements of school finance, special education funding is complex — revenues come from a variety of sources and are purposed for a variety of targeted programs. Altogether though, spending on these services comprise a large but difficult to measure portion of what Michigan taxpayers spend on public education.

The state’s recent $400,000 education finance study, or “adequacy study,” could not completely account for special education spending among districts, and recommended a better tracking system. Although an incomplete figure, the state reports that local districts spent $2.7 billion in 2016 providing special education services. This figure does not include certain expenses, including those already covered by federal dollars.

More than 197,000 Michigan students — about 13 percent of total public school enrollment — were classified as having special needs in 2016. The need for special services is determined by a student’s Individualized Education Plan. Most students with identified learning disabilities still spend a significant part of their time in a general classroom setting.

School districts receive a foundation allowance on behalf of each special needs student they enroll, just like they do for every other student. The foundation allowance provides schools with a minimum, per-pupil funding amount. Additional dollars help fund the special education services prescribed by a student’s IEP. But providing enough funds to cover all the special services called for by the plans for these 197,000 students is a challenge.

The bulk of the funding comes from local property taxes collected by one of Michigan’s 56 intermediate school districts. These entities are charged with overseeing and standardizing special education services among their constituent districts, and they also directly serve some special needs students. ISDs levy special education millages, one of the five types of millages they can levy on local property, to pay for the special education services they provide directly or that they pay other school districts to provide.

There is a cap on what ISDs can levy for their special education millage — it cannot exceed 1.75 times their 1993 rate, as approved by local residents. Since the amount ISDs raise through these millages depends on the value of the property in their district and these values differ greatly from ISD to ISD, there can be significant disparities in special education per-pupil spending among ISDs.

State funding helps alleviate some of these disparities, yet another layer of special education funding. Supplementing ISD millage revenues, a $37.8 million categorical provides lower-funded ISDs with extra funds. ISDs receive greater payments for having less valuable property to tax and higher local tax rates.

The state makes additional payments to fund special education as a result of a Michigan Supreme Court decision in the 1990s. The court order requires the state to pay local districts and ISDs for about 70 percent of transportation-related expenses and 29 percent of all other approved, special education expenses. The state has set aside about $910 million to ensure all public schools are reimbursed at these court-ordered levels.

However, for a tiny fraction of special education students — typically those placed in an institution by a court or state agency — the state reimburses districts for 100 percent of approved expenses. This cost the state about $10 million in 2016.

A handful of districts receive another layer of funding: so-called “hold-harmless” payments. These payments guarantee that these districts’ special education funding doesn’t fall below their 1997 levels. The total hold-harmless obligation budgeted by the state for 2017 is a little more than a million dollars.

While the combination of state and local allocations outlined above represent most special education funding, federal funds support these services too. The lion’s share of federal funds for special education come from the Individuals with Disabilities Education Act and the Medicaid-funded School Based Services. Michigan’s total federal allocations for these two programs were $370 million and $110 million in 2017, respectively.

Any remaining special education costs are covered out of the general fund of a local district, charter school or ISD. Previous research has estimated that general fund dollars finance between 20 and 25 percent of these expenses. Much of the difficulty in providing a precise determination or comparison of total special education spending results from this “cross subsidy” of general-use dollars.

The complete picture of Michigan special education financing remains difficult to assess. Since these programs are largely administered and funded locally, a thorough review would require investigating each of the 56 ISDs individually and perhaps each of the 540 districts and 300 charter schools as well. Nevertheless, the many pieces of funding that can be observed highlight the difficulty of matching dollars to student needs.