Special Education Finance

1. Special Education Finance Overview SEAP Friday, April 5, 2013 Iowa Department of Education

2. Iowa Funding of Special Education • Foundation Formula • Weighting • Grants-in-Aid (IDEA) • Medicaid Services • Other State/Federal categorical aid & allocations Iowa Department of Education

3. Foundation Formula • Iowa is one of 36 states with a foundation formula • Pupil driven system (Pupils x Cost Per Pupil = Regular Program Budget) • Sets spending limit/ceiling = budget authority • Praised for its equity Iowa Department of Education

4. Equity in Expenditure Horizontal Vertical Property Tax Relief Equalize Taxation Uniform State Aid Allocation Formula Predictable Simple Pupil Driven Provide for Local Discretion/Incentives Establish Maximum Spending Control One Funding Formula AEA + K-12 Provides Adequate Funding Goals and Principles Iowa Department of Education

5. Horizontal Equity • All students treated equally. • All students are FIRST regular education students. • All students have equal funding behind them. • Referred to as “1.0” funding • Comes from October 1 certified enrollment count Iowa Department of Education

6. Vertical Equity • Iowa is one of 20 states that weights per pupil • Creates weight (Pupil FTEs) based on need • Purpose is to equalize educational opportunity • Provides additional funding for certain populations of students Iowa Department of Education

7. Weighted Enrollment Funding Pupil Driven System • Weights “Adds” Pupils (FTEs) • Weights x District Cost Per Pupil = Additional Categorical Funding Iowa Department of Education

8. Weighted Enrollment Funding Pupil Driven System • Weights • Provide funding to cover additional instructional cost • Special Education • English language Learners • Shared Teachers/Students/Regional Academies • At-Risk Students • Called Categorical Funding Iowa Department of Education

9. Vertical Equity in Special Education • 3 Levels of Special Education Weighting • Level 1 = 0.72 • Level 2 = 1.21 • Level 3 = 2.74 Iowa Department of Education

10. Annual Growth to Cost Per Pupil Allowable Growth Allowable Growth Rate xState Cost Per Pupil = Growth Per Pupil 2012-2013 2.0% x$5,883 = $118 Per Pupil $5,883 + $118 = $6,001 Iowa Department of Education

11. AEA Program Funding • AEA Funding • Pupil Driven • Flows Through Local District Budgets • Special Education Support Services • Media Services • Educational Services Iowa Department of Education

12. Revenue - Foundation Formula • Required Local Levy - Uniform Levy • Minimum Local Tax Effort • State Aid • Equalizing • Foundation Level • Total funding is the same in all district—just source changes (property tax or state aid) • Additional Levy Iowa Department of Education

13. State Aid • Increase Funding for Districts • “Fair” Method to Distribute State Aid • Provide Property Tax Relief • Equalizes Effort Iowa Department of Education

14. Foundation Formula Additional Levy Foundation Level State Aid 87.5% of State Cost ($6,001) = $5,251 Per Pupil Uniform Levy $5.40 Per $1000 Valuation Iowa Department of Education

15. Foundation Formula Property Rich District Property Poor District Foundation Level Foundation Level Additional Levy Additional Levy State Aid State Aid Uniform Levy $5.40 Uniform Levy $5.40 Iowa Department of Education

16. Foundation Formula Special Education AEA Special Regular Program Instruction Education Support Additional Levy Additional Levy Additional Levy 87.50% Foundation 79% Level Foundation State Aid Level State Aid State Aid Uniform Levy Iowa Department of Education

17. SE is Unique Among Categorical Funding • Student Count for SE weighting is late October rather than October 1 like all others • Results in possible 1.0 and wtg in different districts • Requires a Local Match • Portion of the 1.0 becomes categorical • Balance of 1.0 remains general purpose • Different portions for each wtg level • Makes it difficult to budget Iowa Department of Education

18. SE is Unique Among Categorical Funding • SE weighting is not the final amount like all others—more like an estimated advanced • Focus is SE is NOT on balance • Focus is on meeting every IEP need • May cost less than wtg—may cost more than wtg • If less • “Use it or Lose it” is WRONG in SE • Excess over 10% of receipts goes to other districts that need it—does NOT revert to the state Iowa Department of Education

19. SE is Unique Among Categorical Funding • If more • Called “deficit” • District may levy additional property tax • Unlimited funding—whatever it takes to meet IEP needs Iowa Department of Education

20. SE is Unique Among Categorical Funding—Creates Issues • If less: • Districts have “Use it or Lose it” concept • Try to spend needlessly to prevent sharing with other districts • If more: • Unlimited funding can cause district to lose incentive to be good financial stewards • Unlimited funding causes districts to be victims of those who perceive them as “deep pockets”—whatever the market will bear attitude Iowa Department of Education

21. SE is Unique Among Categorical Funding -- AEAs • If less: • Revert to the state treasury special education support services balances greater than 10% of expenditures • If more: • Iowa Code allows special education support services to scoop funding from education services and media services to ensure that all special education support services needs are met Iowa Department of Education

22. School Budget Review Committee’s Role in SPED “Manage” Foundation Formula • Adjust Special Education Weights • Approve Positive & Negative Balances • Direct Payment of Supplemental Aid • Grant Authority to Charge Administrative Costs to Special Education Weighted Funding Iowa Department of Education

23. SBRC Action • Special Education Deficits approved • More on this later • Weightings did not change • Special Ed Admin Costs – generally ok • More on this later Iowa Department of Education

24. Special Education Reviews & Audit of Provider • Special Ed deficits increased from $19 million in FY11 to $55 million in FY12. • SBRC wanted to know more on the ground about this trend • Visited four locations: Cedar Rapids, Dubuque, Waterloo, Atlantic • Reviewed expenditure detail Iowa Department of Education

25. SE Review (cont.) • Findings • 1) Loss of ARRA funds negatively impacted balances • 2) Little or no allowable growth magnified deficits • 3) DE’s rubric for qualifying students pushes more students toward a level II service vs. level I • 4) High growth in paras Iowa Department of Education

26. SE Review (cont.) • Will always find some expenditures coded incorrectly • Concerns with third party billings • Concerns with Special Education Admin • Iowa law does not allow any expenditures for SPED other than instructional program expenditures pursuant to IEP Iowa Department of Education

27. Audit • Key finding – Third party provider was including nonpermissive items in billing • Responsibility for both implementing special education programming (at any site) and to ensure legal spending lies with the district • District must ensure there is enough detail to know whether billable expenditures are legal Iowa Department of Education

28. What’s Next – SPED Issues • General Deficit • Property Taxes vs. state aid • SPED Counts • SPED Counts vs. Actual Enrollment • AEAs vs. direct to DE • Certified Enrollment vs. SPED Count • IMS vs. RTI • General Purpose Percentage • General purpose costs are never accounted for on a student basis or student classification basis. Iowa Department of Education

29. What’s Next – SPED Issues • Transportation • Only allowable if in IEP • Carryover Provision • Limit of 10% • Supplanting • SPED Students always general ed first, then weighted next if IEP • Claims and timing of revenues Iowa Department of Education

30. What’s Next – SPED Issues • Rules • In need of updated guidance on SPED finance • Mixed classrooms • Need for additional guidance • Audits • Need for additional training of local auditors • Look Back Rule • Already fixed – look back to October Iowa Department of Education