Special Education Fiscal Review

Transcription

1 Palo Alto Unified School District Special Education Fiscal Review August 20, 2010 Prepared By: Michele Huntoon, CPA Associate Vice President Jannelle Kubinec Associate Vice President

2 Palo Alto Unified School District Special Education Fiscal Review August 20, 2010 Prepared By: Michele Huntoon, CPA Associate Vice President Jannelle Kubinec Associate Vice President Copyright 2010 by School Services of California, Inc L Street, Suite 1060 Sacramento, CA (916) FAX (916) All rights reserved. These materials may not be duplicated in any way without the expressed written consent of School Services of California, Inc., except in the form of brief excerpts or quotations or as a teaching guide to employees of the school agency or organization that contracted for this report. Making copies of this report or any portion for any purpose other than your own or as noted above, is a violation of United States copyright laws.

3 TABLE OF CONTENTS INTRODUCTION... 1 Revenues and Contributions... 2 Third Party Billing... 4 Program Expenses... 4 Utilization of Unrestricted Funding... 5 Federal Nonsupplanting Requirement... 7 Recommendations and Options to Consider... 8 CONCLUSION... 10

4 1 Introduction Palo Alto Unified School District (District) requested that School Services of California, Inc., complete a comprehensive review of its special education program, which included consideration of the financial, program, organizational, and management aspects of the District s special education program. This report provides findings and recommendations regarding the financial aspects of the District s special education program. Specifically, it provides an overview of the budget for the special education program, including the manner in which federal stimulus funds have been accounted for and their impact on the District s federal maintenance-of-effort (MOE) requirement. Findings and recommendations regarding the programs structure and management are included in a separate report. The District, like virtually every other district in the state, has a significant gap between special education income and expenditures. The gap has grown from $13.4 million in to a projected $13.8 million in A large portion of the persistent and growing gap between income and expenditures is attributable to the underfunding of special education, especially by the federal government. Other factors that have contributed to this imbalance include: Contract negotiations for salary, benefits, and other costs include all staff, but funding for general education has grown faster than that for special education, leading to growth in the gap Growth in the number of higher-cost disabilities, such as autism, and services to preschoolage children Increases in the costs incurred through placements in alternative programs and nonpublic schools In , the District was identified by the California Department of Education (CDE) as having significant disproportionality (SD) as it relates to the Individuals with Disabilities Education Act (IDEA). This designation is applied to districts where the population of students with disabilities is overrepresentative of minorities, English learners, and/or low income students. There are several requirements and restrictions placed upon an SD-designated district, which include providing additional data. The most significant impact of being identified as an SD district is the inability to exercise available flexibility with new federal funding, which allows for the reduction of the local contribution based on 50% of the increase in IDEA Part B funding in any given year. The increase in the American Recovery and Reinvestment Act (ARRA) funding in provided an opportunity to take advantage of this flexibility, but, given the District s SD status, it is unable to do so and is instead required to use 15% of its federal funding for early intervening services.

5 2 Revenues and Contributions The funding provided to the District to support its special education program is based on an allocation made from the Santa Clara County Office of Education: Area 1 SELPA (SCCOE 1), which is the District s Special Education Local Planning Area (SELPA). The SCCOE 1 receives funds on behalf of its four member school districts and uses these funds to support regional services and programs, program specialists, and other specialists that provide support to member districts. After SSCOE 1 services and supports are funded, the remaining funds are allocated on a per-student basis to the member districts. The District s enrollment was 11,430 in Student enrollment has progressively increased over time. In , the enrollment was 8,347. Since special education revenue is based on counts of all students, the District s increase in student enrollment is a positive contributing factor to the funding for special education for the District. Figure 1 provides an overview of the District s state and local revenue that supports the District s special education program. During this period, federal funding has fluctuated somewhat, with a major increase attributable to the ARRA funds in The ARRA IDEA funding provided a one-time increase that more than doubled the District s IDEA income for over the funding level. District Special Education Funding Sources Federal Sources $1,982, $2,079, American Recovery and Reinvestment Act 210, ,004, State Sources 4,437, ,057, Local Sources 2,896, ,808, Special Education Transportation* 590, , Total Special Education Revenue $10,117, $11,423, * These amounts do not include local transportation fees received by the District $181, $203, Figure 1: Special Education Funding Sources for , and The overall cost to support the special education program has risen steadily, which has resulted in increases in the amount of local contributions made by the District to support the special education program over time. As Figure 2 shows, the District s contribution from its unrestricted general fund to support special education program services and related transportation costs is estimated to reach nearly $13.8 million in

6 3 District Contributions Special Education Program $12,268, $12,483, Federal Special Education 22, , Special Education Transportation 1,129, ,281, Total Contributions $13,420, $13,816, Figure 2: Special Education Funding Sources for , and At the time of our review, the budget reflected a contribution from the unrestricted general fund to the some of the federal special education resources (SACS Resource Code 3315 and 3320) of approximately $51,366, which equates to an increase of more than 100% over the fiscal year contributions to the federal programs. The federal funds within these resources are used to pay for certificated salaries and benefits, which may be considered ongoing costs. One observation that we made was the reduction in the funding for both of these programs in the fiscal year over the fiscal year, which may be contributing to the necessity for the contributions. In some instances, a local match may be required under the grant and the contribution will be necessary. However, the federal programs noted here did not require a local match. The District s contribution to all of the special education programs, including special education transportation, increased by 3% in the fiscal year. While revenues for the programs increased by 13%, accounted for by the increase in ARRA and state funding sources, special education transportation funding decreased by 30%. The District has indicated that the state transportation funding for Home-to-School includes nonsevere special education student services. Therefore, state transportation funding appears to be for the service of nonsevere and severe special education students only. The District does provide minimal transportation services to students who pay a fee for transportation and the mandatory transportation for statutory transfers of students into the District. Funding for the Home-to-School program and the special education program are tracked and accounted for in two state resource codes for reporting purposes to the California Department of Education. We noted that there was a reduction in the original budgeted expenditures in the special education program of $1 million without a contribution to balance out that particular resource code. There was an adjustment to the expenditures for this program addressed at the end of the fiscal year that reduced the expenditures to $500,000. The overall expenditures of the two programs did not change. The District currently monitors the expenditures for the two separate transportation programs as one program. A prudent measure to ensure that there is no risk of overexpending in either of the transportation programs or no additional impact on the unrestricted General Fund would include monitoring of each program by resource code throughout the fiscal year to ensure that the risk of errors and/or impacts on other budgets are

7 4 minimized. The District experienced a 12.2% reduction overall in transportation funding between and , which impacted the required contribution. There was an increase of 14% for the special education contribution in Third Party Billing School agencies are allowed to bill third party agencies for health-related services provided to students with disabilities. This type of reimbursement is referred to as Medi-Cal and Medi-Cal Administrative Activities (MAA) reimbursement. Reimbursements may be requested for any of the following services: Audiology Psychology services Nutrition services Service coordination/case management Nursing services Social work services Occupational therapy Speech and language services Physical therapy Transportation The District is currently not filing reimbursements for the Medi-Cal and MAA reimbursement programs. The District has indicated that this is something that will be addressed during this next year to ensure that all applicable revenues are obtained and appropriate reimbursements are filed through a process to be set up. Both types of reimbursements can be volatile revenue sources because the success of the programs relies in large part on the buy-in of employees taking the time to file the reimbursement claims. Program Expenses The District s total spending for its special education program is anticipated to reach approximately $24.8 million in the fiscal year. Expenses have increased by approximately 74% since Figure 3 provides a breakdown of program expenses for by type.

8 5 Type of Expense Amount % of Expenses Certificated Staff $7,583, % Classified Staff 7,299, % Benefits 5,094, % Books and Supplies 129, % Services and Other Operating 3,648, % Capital Equipment 10, % Special Education Transportation 1,047, % Other Outgo % Indirect Cost % Total Expenditures $24,814, % Figure 3: Special Education Program Expenses by Type, As is the case with most programs operated within a school district, compensation for staff (salary and benefits) accounts for the vast majority (81%) of expenses. The District spends approximately 15% of its special education budget on contracted services (i.e., Services and Other Operating) and other outgo, which reflects a higher-than-average reliance on outside providers to deliver program services. The funding from ARRA IDEA is being utilized almost evenly between salaries and benefits, books and supplies, and services and operating expenses to a total of $1.1 million. While it can certainly seem that special education is an unusually high program expense of the District, this is the case for virtually every district. As reported in , special education expenditures accounted for 20.4% of the District s overall spending. Figure 4 (see next page) provides a breakdown on the areas of expenditures reported by the District compared to other similar districts. As shown, the District s level of expenditures for special education, as represented as a percentage of its total expenditures, places it just slightly below the average of the comparison districts. Utilization of Restricted Funding There are two major categories of revenue in any school district budget. The unrestricted general fund comprises largely state revenue limit funding. The District is funded by local property tax funding as a basic aid district. Most of this revenue goes toward paying operational costs, including teacher and administrator salaries. The other type of funding is restricted, or categorical, funding. While many of the state s categorical programs are now flexible, federal funding, the state s Economic Impact Aid (EIA) program, and federal Title I funding remain restricted. It is also worth noting that, while state funding cuts have affected nearly all statefunded programs, EIA was not included in cuts and Title I and other federal funding sources have remained relatively stable, if not growing. Based on our review, it appears that there may be

9 6 further opportunities to allocate available resources more efficiently to address special education program needs while alleviating the fiscal pressure on the general fund. Regular Education, K-12 % of Total Expenditures by Type/Goal Other, General Education K-12 Supplemental Education, K-12 Other District Expenditures per ADA Special Education Palo Alto Unified $14, % 20.39% 0.83% 0.40% 0.54% Mountain View-Whisman Elementary $13, % 26.84% 0.00% 0.05% 0.04% Mountain View-Los Altos Union $9, % 20.63% 7.68% 1.50% 0.99% Los Altos Elementary $10, % 20.06% 0.00% 1.40% 0.00% Piedmont City Unified $11, % 20.55% 2.83% 0.00% 0.00% San Marino Unified $9, % 23.05% 0.00% 2.79% 2.22% Comparative Group $9, % 21.82% 1.76% 0.55% 0.80% La Cañada Unified $8, % 25.22% 0.00% 0.00% 1.42% Manhattan Beach Unified $8, % 29.20% 0.03% 0.48% 0.71% San Ramon Valley Unified $8, % 19.21% 1.96% 0.21% 0.91% Figure 4: Comparison of Expenditures by Goal for, Based on the details provided by the District regarding the items funded within the special education budget, there were several areas that the District could consider funding with restricted resources. For instance, professional development related to instruction and/or program management could be funded from several sources, including, but not limited to, Title IA, Title IIA, or EIA. In a similar way, funding for instructional materials should first come from Proposition 20 funds before expending unrestricted funding for this purpose. We have included a Matrix in Appendix A that provides a list of activities and the allowable uses by program. Another area that the District should consider is how it allocates funding from categorical programs to meet the needs of students, including special education students. In some cases, the students receiving special education services are also eligible for support under Title I (at-risk students), Title III, and EIA (at-risk and English learners), and prior to the Tier III flexibility, other programs, such as the School Improvement Program (SIP general school improvement needs) and after-school programs can also be used to support special education students. The District should review how funding from these and other categorical programs is allocated. If special education students are excluded or the resources are not directed to meet their needs, a strategy for tracking and ensuring that the resources are used to proportionally and appropriately meet their needs should be developed.

10 7 One possible reason why the above programs may not be directed to meeting the needs of special education students is that, in some cases, the funding (such as SIP, Title I, and EIA) is allocated to sites for their direction to high-priority needs. Since only in a handful of cases are there large enough numbers of special education students at school sites in the District to constitute a significant subgroup, it is easy to overlook the connection between the available resources and the needs of special education students. The District may need to direct sites to create budgets that are responsive to the District s strategic plan for special education by considering the needs of special education students as part of site budgets. Federal Nonsupplanting Requirement In order to exercise these options, or any major changes to special education expenditures, the District must ensure that it meets the federal MOE requirement for special education, often called the supplement, not supplant standard (ref. Sections of Title 34 of the Code of Federal Regulations [CFR]). Pursuant to these requirements, the District must spend the same level of state and local funds (or local funds only) on special education as in the prior year. However, there are several circumstances under which a lower level of state and local support is allowed, namely: The voluntary departure of expensive staff who are replaced by lower-paid staff The termination of services to pupils who have moved out of the District, are no longer ageeligible, or no longer need the service A decrease in the enrollment of children with disabilities The termination of costly expenditures for long-term purchases To the extent of 50% of the increase in federal funds over the prior year, provided the other 50% of the growth in federal aid is spent for the purposes of the Elementary and Secondary Education Act (ESEA) program (and virtually all K-12 expenditures meet that requirement) Given that costs increase on the natural from year to year for benefit and step and column increases and also that there may be a need to expand some programs and staffing it is likely that a district will meet its federal supplement-and-not-supplant requirement, even after some budget cuts have been made and/or after some categorical funds are redirected to pay for services previously supported with special education resources. In other words, there are viable options for the District to reduce its MOE requirement so the MOE is not a barrier to implementing program cost reductions. Based on data provided by the District, it appears that the federal supplement-and-not-supplant requirement for will be met.

11 8 Recommendations and Options to Consider 1. The District should ensure that its methodology to account for revenues and expenditures from one year to the next is consistent with the California School Accounting Manual. During the fiscal year, the revenues and expenditures for IDEA (SACS Resource Codes 3310 through 3345) were tracked in two different years. This type of accounting could potentially create an issue of under- or overspending, unintentionally leading to the loss of funds. This District rectified this for the fiscal year. 2. The District should review the transfer and/or charges of expenditures to salary and benefits. When there are expenditures charged to a salary line item, the corresponding benefits associated with the charge should accompany the salary charge. This type of inadvertent error can occur during the close of a fiscal year. It is important to ensure that charges for salaries are kept intact, whether they are charged directly during the fiscal year or something that occurs at the end of the year for closing. 3. The District should ensure that the costs charged to programs in one year for state and/or federal are consistent from one year to another in terms of the program that is charged. It is critically important that the supplement-not-supplant guidelines not be violated in order for the District to retain the federal funding in subsequent years. There should be consistency among the charges for a program from one year to the next. For example, if a person is charged to a federal IDEA program one year, then it would not be appropriate to charge a person that is in the same capacity and doing the same job to AB 602 in the next year. This would be true particularly if the funding in the federal IDEA program is not being reduced. 4. The District is currently in a status of SD, but is working diligently towards meeting the disproportionate test. So it would be prudent for the District to look to the future years as it relates to the 50% rule regarding the ability to rebench the MOE in any given year. The guideline for rebenching is based on the difference of IDEA, Part B, funding between the prior year and current year. The influx of ARRA IDEA funding over the past two years has highlighted the significance of this issue, but any time there is an increase between two years, the 50% guidelines are applicable. The increase in funding could be used as the benchmark for rebenching MOE. 5. Develop a plan to maximize the collection and use of third-party billing revenue. The District should include a training component for the implementation of this endeavor and encourage staff to collect data required for reimbursements. It would be reasonable to expect that revenues could increase by upward of 50% with continued effort by staff. However, while growth is likely, this remains a volatile and unpredictable resource. As a result, the best uses

12 9 for such funding are one-time costs, such as staff development, technology, and capital improvement needs. The District can increase the level of funding from this resource, but it can only do so if it collects the required data, which can be labor intensive. One practice that has proven effective in other districts is to provide a small financial incentive for staff to collect the required data. For instance, a small percentage of the collected revenues can be provided to Speech Pathologists for discretionary program use if they participate in collecting data that generates revenues. 6. Review the special education transportation program throughout the fiscal year to ensure that the budget and the actual expenditures are appropriately charged to each of the transportation programs. The District should continue to carefully monitor Individualized Education Programs (IEPs) to ensure that the transportation offered is warranted. To ensure that services are appropriately provided, include Business Office staff and Transportation staff as a resource prior to incurring expenditures in this area. There are many ways that services could be provided in an efficient and effective manner so as not to increase costs in this area. 7. Prepare for the ARRA funding cliff. ARRA funding is helpful while it lasts, but the gap between revenues and expenditures for special education are an ongoing problem for which one-time resources, such as ARRA, provide short-term relief, but do not solve the long-term problem. While there are recommendations contained in this report that will hopefully lead to ongoing and long-term cost savings, the level of local contribution required to meet program needs is likely to increase once ARRA IDEA funds are fully expended, which could be as early as Conclusion The District has developed reasonable structures for managing, reporting, and monitoring its special education budget. As is noted in this report, there are some areas where the District could improve the consistency of its budgeting practices, but we found the quality of information maintained by the District to be accurate and reasonable.