Funding Special Education by Capitation: Evidence from State Finance Reforms

AUTHORS: Stephen Lipscomb and Elizabeth Dhuey

PAGES: 43     DATE: August 2009

ABSTRACT: This study measures how state capitation reforms in special education finance affected student disability and placement rates for the school years 1991–92 to 2003–2004. We find that disability rates tended to fall after capitation reforms took place, primarily in subjectively diagnosed disability categories and in early and late grades. This association appears immediately in less severe disability categories but in severe categories, it appears gradually. Falling disability rates in high school are partly explained by the fact that more high schoolers left disability programs altogether. In addition, capitation is associated with a rising local share and a falling state share of funding. Among those with severe disabilities, the evidence supports an increased use of outside school placements—consistent with an incentive-based response. We find little evidence that capitation raised the average request rate for dispute resolution in states adopting the reform. Finally, we present evidence of the differential effects of capitation reforms based on both the pre-reform system and the strength of the incentive change.

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