IDEA Authorized Funding Streams

Under the Individuals with Disabilities Education Act (IDEA), federal special education funds are distributed through three state grant programs and several discretionary grant programs. Part B of the law, the main program, authorizes grants to state and local education agencies to offset part of the costs of the K-12 education needs of children with disabilities; it also authorizes pre-school state grants. Part C authorizes infant and toddler state grants for pre-kindergarten programs and early intervention services. Part D and Part E authorize discretionary grants to state and local education agencies for a variety of "national" special education activities, including research, evaluation, and the training and recruitment of personnel.

The most significant funding stream is that permanently authorized by Part B, and the greatest part of IDEA funding goes to Part B grants. In fiscal year 2008, which covers the school year 2008-2009, total IDEA funding will be $11.98 billion, of which $10.95 billion is dedicated to IDEA Part B state grants. When advocates say that IDEA programs are under-funded, they are most often referring to Part B state and local grant aid.

Distribution of IDEA Part B Grants

Like many federal education program formulas, "new" and "old" IDEA Part B funding is distributed according to different formulas. The bifurcated mechanism reflects the policy desire to alter the distribution of funds and a political interest in maintaining past levels of support for specific local school districts.

Hence, IDEA Part B funding at present is distributed as follows: each state is guaranteed base funding equal to the amount it received in FY 1999.1 Of the remaining federal funds made available at a level above the previous fiscal year aggregate amount, 85 percent is allocated to the states based on their relative share of children within the age range served by IDEA and 15 percent is allocated to the states based on their relative share of children within that age range living in poverty. If the appropriation is not greater than the previous fiscal year's appropriation, each state's grant is equal to its FY 1999 allocation, plus a share of the additional funds proportionate to its share of total funds from the preceding fiscal year. There are also several minimum and maximum grant restrictions.2 Before distributing subgrants to local education agencies, states may reserve a portion of their Part B grants for state administrative costs and up to 10 percent of the grant for "other state-level activities," such as monitoring, professional development, and establishing risk pools.3

New money is distributed in this manner to avoid encouraging special education over-identification, that is, to prevent schools from wrongly identifying low-performing students as "disabled" in order to secure a greater share of federal funding. Setting a base and adjusting it according to population changes removed any incentive to over-identify students as disabled.

Calculating the "Excess Cost" of Educating Children with Disabilities

When IDEA was enacted, it was estimated that children with disabilities cost approximately twice as much to educate as other children. Congress took that estimate figure into account when setting the maximum federal contribution at 40 percent of state average per pupil expenditure. Estimates of excess cost have not changed much over time. A recent study, using data from the 1999-2000 school year, found that schools spent 1.9 times more in total expenditures and 2.08 times more in current operating expenditures on student with disabilities. Rising special education spending is primarily the result of an expansion of the student population identified as "disabled," and less the result of a disproportionate increase in the cost of special education services.

The "Full Funding" Debate

IDEA is not "fully funded." In the IDEA legislation, Congress set a maximum target for the federal contribution to special education spending equal to 40 percent of the estimated excess cost of educating children with disabilities. Thus, if the program were "fully funded," the states would receive their maximum grants, calculated at 40 percent of the national average per pupil expenditure (APPE) times the number of children with disabilities served in the school year 2004-2005, adjusted for population changes.4 Under the act, the count of children with disabilities cannot exceed 12 percent of the state’s total school population.

For FY 2008, IDEA federal funding covered 17.1 percent of the estimated excess cost of educating children with disabilities, the same as in FY 2007 and less than in FY 2006 when federal funding covered 17.7 percent of the cost. The FY 2006 funding represented a significant decrease from the FY 2005 appropriation, which covered 18.5 percent of the excess cost—the first decrease in the federal special education contribution since FY 1996. IDEA Part B "full funding" for FY 2008 would have amounted to approximately $25.47 billion, or roughly $14.54 billion more than was actually appropriated. The shortfall in IDEA funding has been assumed by the states and local school districts.

1. 1. If aggregate IDEA Part B funding is cut below FY 1999 levels, individual state funding is ratably reduced.
2. 2. States cannot receive less than: (1) the FY 1999 foundation grant plus 1/3 percent of the increase in funding from FY 1999; (2) an increase in funding less than the overall annual appropriations growth rate, minus 1.5 percentage points; or (3) 90 percent of the overall percentage increase in appropriations over the previous year. States also cannot receive more than: (1) the maximum, fully funded grant (40 percent of APPE, times an adjusted count of children with disabilities in the state); or (2) an increase in funding that is greater than the overall annual appropriations growth rate, plus 1.5 percentage points.
3. 3. The maximum amount that a state can reserve for administrative costs is the state’s FY 2004 maximum administration set-aside, or $800,000, whichever is greater. These numbers are adjusted for inflation each year. For "other state-level activities," after FY 2006 the maximum set-aside will be the maximum FY 2006 amount (up to 10 percent of the FY 2006 grant), adjusted by inflation each year.
4. 4. The maximum amount that a state can reserve for administrative costs is the state’s FY 2004 maximum administration set-aside, or $800,000, whichever is greater. These numbers are adjusted for inflation each year. For "other state-level activities," after FY 2006 the maximum set-aside will be the maximum FY 2006 amount (up to 10 percent of the FY 2006 grant), adjusted by inflation each year.