Michigan Policy Wonk

In June 2016, when Governor Snyder signed legislation to provide a financial bailout for the “old” Detroit Public Schools and set up a “new” debt-free school district, many lawmakers were hopeful that the long running fiscal problems of Michigan’s largest and most challenged school district were now in the rearview mirror. Yet that hope is far from reality. A problem left unaddressed in the legislative package was Michigan’s approach to financing special education services, and that omission has the real possibility of derailing the fresh start provided to Detroit’s primary public school option.

Mandated Services, Unfunded Costs

Students with individual education programs (IEPs) are entitled to free and appropriate educational services in the least restrictive environment. A complex web of both federal and state laws largely mandate special education services that districts must provide to these students, often without consideration of the costs involved.

While the state effectively mandates service provision, it only funds a portion of the overall costs that districts incur. The current financing system has its roots in a series of state Supreme Court decisions in the late 1990s and early 2000s (commonly referred to as the Durant cases). Under these decisions, the state must fund approximately 29% of service costs and 70% of transportation costs. This leaves districts responsible for the remainder of costs. Statewide, state reimbursable costs (excluding federal costs and associated funding) for servicing special education students in the 2015-16 school year eclipsed $2.6 billion.

Because state resources have never covered the full amount of special education costs, local districts finance some of their share with dedicated special education millages levied by intermediate school districts (ISDs) at the regional level. But, even with the ISD millage resources factored in ($957 million in 2015-16), all districts have costs unfunded by dedicated sources. Their general funds provide the only place they have to turn to make up the difference.

Michigan’s special education financing system creates a problem known as “encroachment,” a term that implies that money spent on services for students with disabilities reduces or “encroaches” on support for general education students in a district. This problem is not limited to Detroit— local districts across the state must use general fund revenues to cover the costs of special education. 

School Choice and Encroachment

The problem of encroachment is amplified in Detroit, where school choice continues to shape the education landscape with disproportionate impacts on special education enrollment in the traditional K-12 public schools serving Detroit students. Families in Michigan, and particularly in Detroit, have many free public school options, including traditional local public schools, charter schools, and inter-district choice. For parents of children with special needs, these choices may be more constrained, as not all competing schools provide the same menu or level of service. Many Detroit parents are left to sort through multiple schooling options and decipher information to find the best school for their children.

Consider the educational needs of a deaf child or a child with autism. Although all types of public schools in Michigan are required to provide services to any child—including those who qualify for special education services—a parent may be hesitant to enroll a deaf child in a school that is not currently equipped with resources and instructional materials to serve that child. In Detroit, the majority of special education students are enrolled in the Detroit Public Schools Community District (DPSCD), with a particularly high share of students requiring the most costly services. In part, this is a function of the extensive services provided by many schools within DPSCD—schools that are specifically designed to serve children with high needs. Additionally, research by the Center on Reinventing Public Education shows that many parents of students with special needs are unsure whether their children are eligible to enroll in charter schools.

The Challenges in Detroit

While the 2016 financial rescue package for Detroit Public Schools relieved the district of its legacy debts, it did nothing to address the challenges associated with Michigan’s special education financing system generally and the encroachment problem, specifically. Left unchecked, this represents both a financial and educational time bomb.

In Detroit, students who qualify for special education services accounted for 18% of DPSCD’s total 2016-17 enrollment. Statewide, special education students account for about 12% of the total public school enrollment (See Table below).

Source: Center for Educational Performance and Information (CEPI)

For the 2016-17 year, 56% of Detroit residents who qualify for special education services enrolled in DPSCD compared to 37% of non-special education students that chose DPSCD schools. Parents of children who do not have special needs are more likely to choose charter and suburban schools, while the reverse is true for families with children who do have IEP’s. As a result, special education enrollment in DPSCD is nearly two times larger than that of charter schools – 18.1% compared to 9.2% (see Table).

Given DPSCD’s disproportionate special education population, encroachment is a much more significant financial burden for the district relative to its competitors operating in the region (both traditional and charter schools). For the 2012-13 school year, Detroit Public Schools had $45 million in unfunded special education costs, requiring the district to divert an average of $970 per general education student to finance special education services. This cost compares to an average of $770 per general education student for other traditional school districts and just $281 per student for charter schools in Wayne County.

In the 2015-16 school year, DPSCD’s special education costs were estimated to be $127.3 million. State funds and the dedicated special education millage covered $80.9 (64%) million of the total, leaving about $46.4 (36%) million in unfunded costs to be funded by the district’s general fund. Encroachment on general education amounted to $1,075 for every non-special education student enrolled in the district, an amount that grew from about $970 per student in the 2012-13 school year as enrollment of general education students declined. These rising costs have the potential to negatively impact the quality of educational services provided in DPSCD, and may drive even more general education students away from DPSCD schools. For DPSCD, both enrollment and financial trends are headed in the wrong direction.

Improving Special Education Financing in Michigan

The problems with Michigan’s current special education funding model are numerous and many of them will not self-correct. In fact, the problems of underfunding and encroachment (identified here) will only continue to get worse, as Detroit has experienced.

It is clear that Michigan’s existing special education funding system is in need of improvement. Because Detroit, or any other district, must operate within the state system, it is unable to effect changes on its own. Instead, improvements will have to come through state policy changes. A recent report to Lt. Governor Brian Calley offers insights into key areas for policymakers to consider for improving Michigan’s special education funding system.

The report calls attention to the need to differentiate state funding based on students’ needs and to relieve local districts’ burdens associated with serving students with extraordinary needs, a clear problem Detroit is dealing with. One option employed in some states is the use “high risk pools” to provide extra state funding to local districts serving students with high cost special education needs. Michigan’s model, as described above, only provides partial state funding to cover these additional costs. Michigan’s system creates a financial disincentive for districts and charter schools to enroll and serve these students.

School Choice: Addressing Service Needs and Informing Families

While state level changes are required to address funding gaps, local leaders could consider strategies to improve the school choice situation in Detroit. Other urban districts in the U.S. have high levels of school choice and a large proportion of students in charter schools, such as Washington D.C., New Orleans, Los Angeles, New York City, Cleveland, Philadelphia, and Denver. Furthermore, many of these districts have faced similar problems with disproportionate enrollment of special education students in the district-run schools compared to charter schools. For example, New York City had a gap of 13.1 percent special education students in charter schools compared to 16.5 percent in district-run schools. However, in contrast to Detroit, some urban districts have made progress in closing the special education enrollment gap between districts and charter schools, rather than having it grow. It is important to note that these efforts can be accompanied by careful planning to ensure that special education students who enroll in charter schools will receive high quality services, rather than simply mandating a balance that could place children in less adequate settings for their educational needs.

For example, by the 2015-16 school year, charter schools in Denver enrolled 9.5 percent special education students compared to 10.8 percent in district run schools-- a much smaller gap than Detroit’s. In 2010, the school district and charter schools in Denver negotiated a district-charter compact. The compact included a joint commitment to ensure that both district and charter schools were equipped for students with substantial special needs. Even in districts with relative parity of special education enrollment, charters often enroll a lower share of students with the highest and most costly needs. Denver tackled this issue directly by working to open center-based programs in charter schools, including programs that serve students who require intensive supports. Parents in Denver choose among the full array of schools (both district-run and charters) in a common enrollment process. Information about schools in Denver is compiled in a single guide, which includes information about center-based programs and other supports for special education in all types of schools. In Denver, services are distributed more evenly among different types of schools and parents can obtain comparable information about services available in both district-run and charter schools.

Next Steps

The financial implications of the special education enrollment gap in Detroit present an urgent problem. No one wants to see the fiscal situation in Michigan’s largest district deteriorate again. Furthermore, the financial consequences of encroachment impacts districts statewide, particularly the poorest districts in the state.

Yet there are concrete steps that state and local leaders can take to address this challenge. State lawmakers can consider models from other states for funding special education. District and charter leaders in Detroit can work towards providing a more equitable school choice environment in the city. A common enrollment system would be a step in the right direction. Additionally, the Wayne County ISD, which organizes plans for special education countywide, could help lead efforts to engage charter schools in developing better expertise and facilities to serve high needs students. And if charter schools require more incentives to broaden their special education offerings, the Gates Foundation has announced plans to increase grants in this area. The consequences of inaction are problematic for everyone who has a stake in education, both in Detroit and statewide.

Sarah Reckhow is an Associate Professor in the Department of Political Science at Michigan State University with research and teaching interests in urban politics, education policy, nonprofits and philanthropy, and racial and ethnic politics.

Craig Thiel is Research Director of the Citizens Research Council of Michigan. He is CRC’s primary researcher of education and school finance issues.

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