Special Education Finance in California

California’s system of special education served about 718,000 students in 2014-15, or about 11.5 percent of the K-12 population. It is expensive, consuming some $12 billion in federal, state, and local dollars annually. And special education operates within a legal framework that sets it apart from the rest of the K-12 system.

The state’s enactment of the Local Control Funding Formula (LCFF) in 2013 consolidated most state categorical programs into district base grants in order to move decision making to the local level. However, special education was preserved as California’s largest remaining categorical grant operating mostly outside the LCFF governance framework.

This report examines California’s special education finance system in light of the principles that underlie LCFF-local control and accountability, transparency, and equity. It also draws on the findings of the 2015 Statewide Special Education Task Force report, which makes several recommendations to improve California’s system. The task force envisioned a unified system in which general and special education are part of a seamless program of student services.

California’s main program for financing special education, AB 602, was developed nearly two decades ago. We find several positive elements in AB 602. Most importantly, because it distributes funds based on census counts of all students, not counts of students with special needs, it avoids creating financial incentives to identify students for special education services. In other respects though, AB 602 falls short:

• It funds local programs at widely different rates.
• The overall funding level has not kept pace with rising numbers of students with disabilities or the growing share of high-cost disabilities.
• Distributing AB 602 funds through Special Education Local Planning Areas (SELPAs) runs counter to LCFF principles of transparency, local control, and accountability.

In order to align California special education with the principles of LCFF and move towards a more seamless system of K-12 education, we recommend:

• Funding districts directly including special education funding as part of a district’s LCFF allocation.
• Preserving AB 602-s census count method of distributing special education dollars, but developing ways to make funding more equal on a per-student basis. A plan to equalize funding across districts would result in an additional $670 million every year in special education spending. This would partly address rising special education caseloads and the increased incidence of severe disabilities that has occurred over the past decade.
• Developing new ways to protect small districts and charter schools from extraordinary special education costs by encouraging pooling arrangements or insurance programs.
• Better support for local infant and preschool special education programs, ensuring that the needs of young children with disabilities are served.

We believe these changes would help achieve the Task Force’s vision of providing special education services as part of a coordinated set of student supports. In addition, our recommendations will take fuller advantage of LCFF’s principles of accountability and local control.