Opinion | A big boost in special education funding does not mean more services

Late last week, Governor Whitmer signed the $19.6 billion Fiscal Year (FY)2023 School Aid budget. It is another “historic” investment in the state’s public schools, at least in terms of the total financial outlay approved in the budget. An additional $246 million directed to support programs and services for the state’s nearly 200,000 students with disabilities, a population whose learning has been particularly hard hit by the ongoing pandemic, is among a slew of major funding increases included in the approved spending plan.

However, the boost in special education funding is not likely to increase, in any material way, the amount or scope of programs and services students with disabilities will receive next school year. That is because the additional quarter billion dollars will offset what districts already spend from their general funds to cover these services. By freeing up these existing resources, districts across the state will be able to redirect these general fund dollars to other priorities. Or not spend the money next year at all, but put it into their savings.

It is a big understatement to say that Michigan’s system of funding special education is complicated. The nearly $3 billion spent annually on special education services is governed by a number of labyrinthine federal and state laws and regulations, as well as a major 1997 Michigan Supreme Court ruling that created a funding floor that the State of Michigan must meet each year. While the funding system is extremely complex, we’ll try to keep the explanation that follows simple and focused on the new dollars added to the FY2023 budget.

The first thing to understand about special education funding is that students with disabilities are entitled to services under both federal and state laws. Specifically, students are guaranteed a free appropriate public education (FAPE) that must meet each student’s unique needs and provide an educational benefit in the least restrictive environment. Fulfilling this mandate is not conditioned on the availability of funding, but rather each student’s individualized education program (IEP). Effectively, a student’s IEP determines the financial obligation that a school has to serve the unique needs of each student.

For school district finances, this means if the amount of dedicated funding from federal, state and local sources is not sufficient to meet the services outlined in an IEP, schools must dip into their general fund dollars to make up the difference. For the vast majority of Michigan’s 800-plus districts, traditional and charter, the amount of dedicated federal, state and local funding has never been sufficient to cover the full costs of services. Statewide, it is estimated that schools covered nearly 23 percent ($700 million) of the total special education spending ($3 billion) with their general fund dollars.

Proponents of additional school spending often argue that this means special education is “underfunded”. But this suggestion could not be further from the truth because federal and state law mandate that special education services must be fully funded. Rather, it is the case that schools must “top off” their special education budgets with general fund dollars. And, when schools are provided with additional discretionary special education dollars through the state budget, they are able to reduce their general fund contributions on a dollar-for-dollar basis.

This is going to be true for the additional $246 million added to the FY2023 School Aid budget.

How do we know? Because the new School Aid budget does not condition receipt of the additional $246 million to any requirement that districts must use the money to supplement existing services and programs to students with disabilities. In the absence of such a directive, schools are likely to do what they have always done and supplant existing spending with the new dollars the state appropriates. Simply put, there is no legal obligation for schools to enhance the services and programs special needs students receive.

Because of the way Michigan’s special education financing system works, and due to the lack of a prohibition on supplanting existing local dollars going into the system, the FY2023 budget increase is a bit of “smoke and mirrors.” It appears to be an “increase” for special education when, in fact, it really serves to offset existing local resources.

Further, schools are under no obligation to even spend these freed-up dollars for services benefiting their current students, either those with special needs or those attending general education classrooms. Given this flexibility, along with the other boosts in funding schools are slated to receive in the budget, it is likely that a substantial amount of the additional special education dollars will not be spent at all next year.

This is similar to what districts are doing with a portion of the $6 billion in federal COVID-19 relief funds they are receiving. In part because of approaching deadlines to spend the federal funds, but also because of the flexibility accompanying these resources, schools are able to supplant their current general fund dollars with the federal funds. And those freed-up discretionary general funds, as we noted previously, are not being spent at all, but instead helping to build up many districts’ budget reserves.

If policymakers really wanted this money to help students with special needs, they could have conditioned receipt of these resources on schools’ commitments to use the dollars to supplement their special education budgets. What this looks like does not have to be the same across the state but could be left to local discretion. The key is to tie the added resources to some amount of service enhancement, not merely an offset to general fund dollars. This would be entirely appropriate given the heightened unmet academic and other needs students have coming out of the pandemic. Lawmakers often link additional state funding to enhanced local services.

Without such a requirement, we know schools are merely going to use the money to supplant their existing local dollars. And, with schools getting a $450 per-student bump in their foundation allowance, it is very likely that much of the $246 million will not be spent on services at all. Rather, public schools are more likely to use the additional state money to effectively build up their savings, something they appear to be doing with their federal pandemic relief funding.