Less than 50 years ago, students in the United States with Down syndrome, autism, cerebral palsy, dyslexia, and other conditions were routinely turned away from school because of their disabilities. Today, they are entitled to a free and appropriate public education.
New Jersey was a pioneer. As early as 1911, New Jersey lawmakers required local public schools to provide special classes and equipment for students who had fallen behind. The law required the local board of education to pay for it, but a year later, in 1912, the state added a budget item to help districts cover the cost. In 1959, the Beadleston Act further protected New Jersey students with disabilities by guaranteeing their right to special education. It is regarded as the predecessor to the federal legislation that would follow.
In 1974, the Education for All Handicapped Children’s Act (now, the Individuals with Disabilities Education Act, or IDEA) was signed into law. IDEA guarantees all children with disabilities the right to a “Free Appropriate Public Education.” Local school districts must identify students who need special education, provide an assessment, develop an individualized plan to meet their needs, and provide necessary services and supports, all at no cost to parents.
While special education may be free to families, it is certainly not free. Of all areas of school funding, special education is perhaps the most vexing. It can also be divisive, in part because the costs can be high.
Because funding is so opaque and fragmented, it is poorly understood. Very few stakeholders and government leaders have a full understanding of the systems. Most understand only the aspects that are relevant to their constituents.
“While special education is free to families, it is certainly not free.”
Federal Funding: A History of Unkept Promises
When IDEA was enacted, the federal government promised to pay 40 percent of the excess cost of special education (that is, the cost above what it costs to educate a student without a disability). Unfortunately, that never happened. Today, nearly half a century later, the federal government is still covering less than 15 percent of the excess cost.
IDEA is one of the largest programs overseen by the U.S. Department of Education. The 2022 federal budget funds $15.5 billion for services to students with disabilities under IDEA. This represents a $2.6 billion (19 percent) increase—the first in eight years.
States receive federal funding in the form of a state grant, but in order to get that money, they must demonstrate compliance with key areas of IDEA. Some of the money in the state grant is used by NJDOE to administer and oversee the program, but the majority of the funds are “passed through” to local school districts. In 2019, New Jersey received more than $381.8M in federal funds for IDEA.
Using Funding to Shape Policy and Practice
IDEA-funded grants are also used to drive policy and advance best practices. In 2020, NJDOE funded a 5½-year, $8M initiative to promote the inclusion of students with disabilities into Pre-K through 12th grade general education classrooms in local public schools. In recent years, NJDOE has also used federal funds for grants to advance practices around the effective use of positive behavioral supports, effective transition planning for integrated employment, and improving parent engagement of children with disabilities in schools.
In addition to IDEA funding, Medicaid is another source of federal funding that can be used to pay for special education services for qualifying students. The Special Education Medicaid Initiative (SEMI) funds school districts providing health-related services. SEMI is separate and unique from other Medicaid programs because it is limited to services provided in an educational setting. New Jersey law requires school districts to maximize their participation in SEMI. Districts must apply for the funds on a student-by-student basis, and carefully track the delivery of services. Districts receive 35 percent of the Medicaid revenue generated, while the rest goes to the state. The paperwork and bookkeeping are seen as onerous by many districts, and some claim it costs more to administer the program than they receive in reimbursement.
But federal funding is only a small part of the puzzle. State, local, and sometimes county tax dollars make up the bulk of special education funding in New Jersey.
State Funding: A Balancing Act
The School Funding Reform Act of 2008 (SFRA) established a new way of distributing state education aid to local school districts. The new formula also dramatically changed the ways in which special education dollars are allocated.
Prior to 2008, special education students in New Jersey were funded based on their level of need through the Comprehensive Educational Improvement and Financing Act (CEIFA). Each student was counted and placed into one of four “funding tiers,” with higher levels of state aid for students with greater needs. For example, a student with severe autism would generate more state aid than a student with dyslexia. Districts received state aid based on the actual number of students they served in each tier. But a 2003 study by the Center for Special Education Finance showed that New Jersey had higher per pupil spending for special education than the national average. It recommended switching to census-based special education funding to help the state control spending.
SFRA’s “census approach” to special education funding was supposed to discourage “over-classification”—that is, districts identifying students as eligible for special education in order to collect state funds. Under SFRA, state special education aid to districts is not based on the number of special education students in a district. Instead, the formula uses a statewide average rate of classification (currently calculated to be 15.9 percent) regardless of how many special education students a district actually serves.
The amount of special education aid is also based on a “statewide average” excess cost, which is calculated annually ($19,524 in the 2023 NJ State budget). Unlike the system of tiers in CEIFA, SFRA funds a student with severe autism at the same level as a student with dyslexia.
In practice, this funding scheme has not worked to decrease classification rates, nor has it held down costs. Since SFRA was enacted in 2009, the statewide average classification rate has increased, and the statewide average excess cost for special education is up 44 percent. The full cost per pupil for special education services has increased 67 percent, from $19,519 in 2009 to $32,674 in 2023.
SFRA is also not equitable. Classification rates vary widely from district to district. Some of New Jersey’s 600+ school districts identify fewer than 10 percent of their student population as having a disability, while others identify nearly 30 percent as having a disability. A handful of districts reported no special education students at all. Districts who “under identify” (that is, serve less than the statewide average) may be “overfunded,” while those who “over identify” (serve more than the statewide average) may be “underfunded.” County vocational districts also receive census special education funding, but have an average classification rate of just 10.4 percent.
While the funding may be called “categorical special education aid” is it not “dedicated aid,” which means districts are free to spend the funds as they wish.
Once a district’s state special education aid has been calculated, there is still another step: wealth equalization. Two-thirds of the aid is adjusted for local wealth, with poorer districts getting all of the aid or a large percentage, and wealthier districts getting less, or none at all. The remaining one-third of the aid is provided to all districts in the form of special education categorical aid. This ensures that every district in New Jersey receives some level of state aid for special education.
While state special education aid may be called “categorical,” it is not “dedicated,” which means districts are free to spend the funds as they wish.
Paying for Out-of-District Placements
When the IEP team agrees that a student’s needs cannot be met in the local program, that student has the right to placement in a specialized out-of-district program. These public and private schools charge tuition to the local sending school district—often more than $70,000 per student. But the tuition rate does not tell the whole story. A private school’s tuition rate reflects all costs. But in public programs, costs associated with pension, social security, health care benefits for retirees, and other items are paid by state tax dollars. This allows public programs to set a tuition rate that is lower than their actual costs.
In addition, county-based Special Services School Districts are subsidized by more than $30M in county taxes, which helps to offset the tuition that the local district must pay. These two accounting practices create a funding incentive for districts to place students in public programs.
According to John Mulholland, Executive Director of ASAH, a statewide association of private special education schools, the result is unfair to local school districts and to students.
“The funding and accounting system for all placements, public and private, should be the same and it should be placement neutral. That way, IEP teams can make decisions about what is right for a student, not what is right for the local budget,” said Mulholland. “The current accounting system for tuition setting is inherently unfair to local boards of education when they have a student who needs a private school.”
Another area of inequity is SFRA’s assumption that using the “average excess cost of special education” is fair to districts. In practice, costs vary widely. For example, districts with a well-respected autism program or progressive transition program can have much higher costs per student than other districts offering fewer intensive services. And for a very small district with a few “high need/high cost” students, the effect on the local budget can be significant.
“Extraordinary Aid” in Special Education
Extraordinary Aid for special education was first provided in New Jersey in 1996 through CEIFA. The popular program was preserved when the funding formula was revised in 2008 under SFRA. Extraordinary Aid allows New Jersey school districts to be reimbursed by the state for a portion of high cost/high intensity special education services. The program has complex cost thresholds, along with a list of intensive services that must be in a child’s IEP in order for the district to qualify.
The cost threshold is not placement neutral, meaning that certain placements will generate more state reimbursement. In addition, for each placement type, a different set of costs counts toward the threshold. The state reimburses only for costs above the threshold; the district is responsible for all costs under the threshold. But much like the federal aid promised for special education, this provision in the law has never been fully funded, so districts only get a percentage of the aid to which they are entitled.
| Placement Type | Cost Threshold | Percentage of cost above the threshold that can be reimbursed |
| In-district public-school program with non-disabled peers, whether run by a public school or by a private school | $40,000 for direct instructional and support services | 90% |
| Separate public school program for students with disabilities | $40,000 for direct instructional and support services | 75% |
| Separate private school for students with disabilities | $55,000 for tuition costs | 75% |
The program has grown dramatically. In 2009, approximately 4.4 percent of the students classified for special education met the threshold for reimbursement under extraordinary costs. By 2020, the percentage nearly doubled to 8.25 percent.
County Funding
In New Jersey, there are eight county-based Special Services School Districts serving roughly 3,900 students with disabilities in specialized public schools. These programs also provide shared services to local school districts, bringing expertise to help them serve students locally. County freeholders allocate nearly $3M in county tax dollars to support these programs, offsetting tuition rates they charge to local school districts.
Local Taxpayer Role
The local school district is ultimately responsible for braiding together the federal, state, and local funds to pay for the services each eligible child needs. They are expected to spend at least the same amount they are spending on general education, plus whatever else is needed to implement each student’s individual education program (IEP).
Often, special education is a large portion of the local school budget. A single student with high cost needs can cost more than $90,000, plus transportation. Even after school district budgets have the stamp of approval from local taxpayers, a child may move in who needs high cost services, throwing the budget into turmoil.
Betsy Ginsberg is the Executive Director of the Garden State Coalition of Schools (GSCS), a statewide, grassroots, volunteer-based association that represents roughly 100 New Jersey school districts and their communities.
“Year to year, or even month to month, districts don’t know what their special education costs will be. It is hard to plan. This presents hardships not only for districts, but also, inevitably, for families too,” she said.
“Anything that can help to relieve the tension on all sides would be helpful, and that usually means more resources,” she said.
Advocating for Adequacy, Efficiency, and Equity
In February 2022, the New Jersey Senate Education Committee approved legislation (S-354) to establish a task force to study, evaluate, and suggest changes to SFRA. Special education funding is of particular interest to the bill’s sponsor, Senator Vin Gopal, who chairs the Senate Education Committee. In a press statement, Gopal noted, “Districts get the same aid whether they have large populations of students with disabilities or not, and regardless of whether they are spending as much as they should or providing the special education their students need.”
In 2015, a special education task force recommended that New Jersey reevaluate the school funding formula with a particular focus on special education. They suggested a new funding formula that stabilizes general and special education funding, and ensures that state aid follows students eligible for special education and related services as well as general education students. This was never done.
In a 2011 report commissioned by the NJDOE, school finance experts found clear differences in the types and costs of special education classifications among districts, mostly along the lines of local district wealth. They advised the state to consider funding special education based on actual enrollment, differentiating funding levels by disability categories, and examining whether the special education funding system is fair and equitable. This has not been done.
Since 1996, the New Jersey Coalition for Special Education Funding Reform has been advocating for a state funding formula that is adequate, efficient, equitable, predictable, flexible, transparent, fully placement-neutral, and accountable for both spending and student outcomes. The Coalition, a broad-based group of 13 advocacy and provider organizations, has recommended that New Jersey conduct a scientifically-validated, longitudinal outcomes study to examine the lives of adults who, as students, received special education services in New Jersey.
Peg Kinsell, a founding member of the Coalition, serves as chairperson of the New Jersey Council on Developmental Disabilities’ subcommittee on Children and Youth, and is Director of Public Policy at SPAN Advocacy.
“We invest millions of dollars in educating students with disabilities, but objective data on these students in adult life is absent,” said Kinsell. “We need a study to identify variables that affect positive outcomes in order to make informed decisions about education policy and funding.”
Mulholland, whose group is also a founding member of the coalition, says his organization also urges an outcomes study, along with a cost study to look at the full excess cost of special education.
Many advocates and education stakeholder groups agree that the current formula needs reform.
John Burns, Esq. is Senior Legislative Council for the New Jersey School Boards’ Association (NJSBA). He notes that a good starting point for reform would simply be to fund the current formulas at the federal and state levels. In 2007, NJSBA sponsored a study that found that local school districts supported 57 percent of the costs, with the remainder coming from state funds (34 percent) and federal aid (9 percent).
“The verbal commitments are far larger than the money we [the state of New Jersey and the Federal Government] have been willing to put behind it. And we are asking our local districts to do more,” noted Burns.
Burns believes that New Jersey does more for students with disabilities than most states, but funding is “stacked against districts that do a good job in special education.”
“The formula assumes a certain percentage of classified students, but if your district has a good reputation and serves more students than that, funding is inadequate,” said Burns.
“Revisiting the special education census formula must be a central focus of such an analysis. To continue to fund districts under the false pretense that the incidence and cost of disabilities are evenly distributed across the state is unfair and harmful to all students.”
– Danielle Farrie, PhD, Research Director, Education Law Center
One of the leading voices for change is Education Law Center (ELC). Widely recognized for groundbreaking court rulings on behalf of at-risk students, ELC promotes educational equity. According to Danielle Farrie, PhD, ELC’s Research Director, New Jersey has had many opportunities to examine and revise the special education funding system, but has failed to do so. Under SFRA, the governor must issue an Education Adequacy Report (EAR) to the Legislature every three years, with recommendations for updating certain elements included in the formula. The most recent report was issued in March of 2022, but ELC and other groups have urged a more comprehensive analysis.
“Revisiting the special education census formula must be a central focus of such an analysis. To continue to fund districts under the false pretense that the incidence and cost of disabilities are evenly distributed across the state is unfair and harmful to all students,” said Farrie.
Ginsberg from Garden State Coalition of Schools agrees.
“To say that every district has the same percentage (of special education students) is ridiculous. It needs to be reevaluated,” said Ginsberg.
There is also broad agreement among stakeholders that a comprehensive cost study is needed before funding reform can occur.
Jonathan Pushman, Director of Government Relations at New Jersey School Boards Association believes an independent cost study would be “an appropriate next step.”
“When the challenge of how to fund special education comes up, there is often a task force, but they don’t necessarily have the data they need. Without data, how can you figure out how to fund it or how much you need? This is one area where there is a lot of consensus in the education community,” he concluded.
“Whenever we try to change this flawed formula, the objection [from government] has always been that it will cost more money. But maybe special education DOES cost more,” said Ginsberg.
“Whatever and whenever reform happens, it is going to be a Herculean task,” Ginsberg continued. “We cannot design an effective funding system until we know the real costs. We need real numbers, for a real funding system, and for real solutions.”
Suggested Reading
- New Jersey State Education Aid – Education Adequacy Report (2023)
- School-based Medicaid
- New Jersey Coalition for Special Education Funding Reform
- IDEA Series – Broken Promises: The Underfunding of IDEA (2018)
- New Jersey School Boards Association – Task Force on Special Education Report (2014)
- School Funding in New Jersey: A Fair Future for All
- New Jersey Task Force on Improving Special Education for Public School Students (2015) Final Report
- FAQ Special Education Extraordinary Aid (NJ) (2021)
- Analysis of New Jersey’s Census-Based Special Education Funding System (2011)
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