Perverse Incentives, High Costs and Poor Outcomes

Understanding and Improving Special Education in New York


Much of New York’s highest-in-the-nation education spending is driven by a single category: special education. Of the $66.2 billion spent on K-12 education in New York in 2017-18, $15.8 billion went to special education instructional services. No other state spends more. The state’s current and projected fiscal condition make this an appropriate time to examine what drives high special education spending in New York, how it’s serving children and how it can be improved.

New York’s funding system has created perverse incentives that encourage school officials to place students in special education to draw increased revenues. Thanks to these incentives, 19.2 percent of students in New York are placed into special education, the highest share of any state and 40 percent higher than the national average of 13.7 percent. And students, once designated as needing special education, are less likely than students in other states to return to normal education programs.

More students getting special education services and higher spending has not translated into better results. Federal reports find many New York students with disabilities (SWDs) receive low-quality services. Indeed, SWDs in New York score below the national average on the National Assessment of Educational Progress (NAEP), a nationwide assessment that facilitates comparison of learning outcomes across states.

State lawmakers could reduce costs by restructuring special education funding so that districts have weaker financial incentives to place students in special education. They could also lower costs and improve quality through the implementation of a means-tested voucher for SWDs in New York City, which has a particularly poor track record of serving SWDs.

In fact, amid the low quality of special education services in public schools, a backdoor voucher system already exists for some New York City families. The City reimburses the private school tuition of thousands of SWDs whose parents filed suit due to the inability of the district to provide an “appropriate” education. Families with greater means appear to disproportionately receive reimbursement. A means-tested voucher for SWDs would level the playing field and provide a much-needed lifeline to the city’s most vulnerable students—while still saving money.

High Costs

New York is an outlier on special education spending. Statewide, special education instructional expenditures amount to $15.8 billion to serve 489,198 students, or $32,359 per pupil. A highly conservative back-of-the-envelope estimate which assumes non-instructional costs are evenly spread across all students indicates that the total cost of educating SWDs in New York amounts to roughly $18.7 billion, or $38,170 per student. The conservative total spending estimate exceeds the K-12 spending of all but seven states.

Acceleration of special education instructional spending has slowed in recent years compared to rapid acceleration during the 2000s. Between 2011-12 and 2017-18, per-pupil special education instructional expenditures averaged only 1.2 percent annual growth. The number lags behind the 2.5 percent annual growth in general education per pupil instructional expenditures during the same period, and is easily dwarfed by 7.5 percent annual growth in per-pupil special education instructional expenditures in the preceding decade.

However, in terms of overall fiscal obligation, the deceleration in per-pupil special education instructional spending has been offset by increases in the share of students enrolled in special education. Indeed, the total share of instructional expenditures devoted to special education increased 8 percent between 2011-12 and 2017-18 due to stagnation in general education enrollment and increases in special education enrollment.

Perverse Incentives

New York’s highest-in-the-nation special education spending stems largely from having the largest proportion of students enrolled in special education.

New York’s special education funding formula ensures that per-pupil funding for children in special education is uniformly weighted, regardless of severity of disability. For the school to receive extra funding, the student must receive one of the following accommodations:

  • Placement for 60 percent or more of the school day in a special class;
  • Home or hospital instruction for a period of more than 60 days;
  • Special services or programs for more than 60 percent of the school day;
  • Placement for 20 percent or more of the school week in a resource room; or
  • At least two hours per week of direct or indirect consultant teacher services.

Only in exceptional cases will districts receive more state aid if a child’s needs are especially great.

Many students placed in special education have physical and/or mental impairments that clearly necessitate their placement in special education. For others, however, “there is often a substantial subjective component to the diagnosis of mild disabilities, which opens the door for strategic diagnosis.”

Studies demonstrate that schools strategically place students in special education to manipulate testing outcomes. In Florida, the implementation of a high-stakes accountability test induced schools to “systematically” place low-performing and underprivileged students into special education categories exempt from the accountability system.

Districts also strategically respond to financial incentives to place children in special education. For example, states that employed special education funding systems with financial incentives to diagnose disabilities exhibited faster than average growth in the share of students diagnosed with disabilities from 1991-92 to 2000-01. In Florida, meanwhile, the availability of vouchers for SWDs decreased the likelihood that a public school student would be diagnosed with a mild disability. The state’s public schools are funded according to enrollment, and administrators presumably did not want students to qualify for the voucher.

New York’s special education funding formula is intended to provide for the average cost of education and related services (e.g. speech therapy, transportation, counseling) for SWDs. If the cost of providing for a student in special education is less than the estimated average cost (as would often be the case for students with mild disabilities), districts could have financial incentives to place students in special education or not dispute mild disability diagnoses.

New York’s uniform weighting system for special education funding may explain in part why New York public schools feature the nation’s highest proportion of students served by Individuals with Disabilities Education Act (IDEA) Part B. The federal statute guarantees that school-aged children with disabilities receive a Free Appropriate Public Education (FAPE) and provides states with federal aid to fulfill that obligation.

New York’s high rate of disability diagnosis and accompanying high spending might be defended with arguments that the proportion of students who truly have disabilities demanding special education placement has risen in recent decades, or that clinicians have simply become better at diagnosing disability. There is evidence that neither is true.

The incidence of physical health conditions underlying special education needs has decreased. Indeed, the increase in youth and adolescent disability diagnoses is driven by neurodevelopmental and mental health conditions, such as attention deficit/hyperactivity disorder. A recent meta-analysis (i.e., compilation of studies) found “significant evidence of overdiagnosis of ADHD” among children and adolescents.

Other states weight their special education allocation to districts according to severity of disability, which may limit the temptation for districts to strategically place students in special education or advocate for disability diagnoses for enhanced revenue. Georgia, for example, uses five categories of disability severity. More severe disabilities are associated with greater funding.

Twenty-seven states use a funding system other than weighting formulas. In Wyoming, for example, districts can receive full reimbursement for special education expenditures up to 100 percent of what was spent in the previous school year. The model ensures that districts do not have strong financial incentives or disincentives to advocate for disability diagnoses.

New York’s lucrative uniform weighting system for special education funding may explain in part why 19.2 percent of New York public school students receive disability services, the highest share of any state and 40 percent higher than the national average of 13.7 percent.

Low Quality

As of 2012, the state had 227 mandates for special education that went above and beyond what is required by IDEA. However, higher regulatory standards do not assure positive results. New York has historically struggled to adequately provide for SWDs. In June 2020, decades of struggle culminated in the federal Department of Education concluding that New York “needs intervention” when it comes to fulfilling IDEA Part B obligations. New York was one of only two states (along with Vermont) designated in need of intervention.

The Department of Education judgement cites several specific outcomes which primarily explain New York’s failing grade.

In terms of compliance, the report implicates New York for excluding too many SWDs from state reading and math assessments, longstanding noncompliance (i.e. uncorrected noncompliance identified in 2013 or earlier), and failure to hear due process complaints (i.e. formal complaints that a school failed to provide an “appropriate education”) in a timely manner. The conclusions highlight that despite New York’s numerous mandates and lofty promises, statutory obligations often go unfulfilled. Indeed, schools routinely struggle to implement the accommodations set out in Individualized Education Programs (IEP), a contract between families and public schools which prescribes how a school can meet the unique needs of a child placed in special education.

In terms of performance, the Department of Education specifically cites the math NAEP achievement of SWDs.

Among New York SWDs who participate in the National Assessment of Education Progress, the so-called nation’s report card, 39 percent are deemed “basic” or higher in math and 27 percent are deemed “basic” or higher in reading. Those tallies trail the national average by 11 and 3 percentage points, respectively. The outcomes are worse than they appear when factoring in the liberal diagnosis of disability among students in New York. Likely, many students who are diagnosed with disabilities in New York would not have been diagnosed with a disability in another state, which suggests that their capacity for achievement is higher than the general population of SWDs.

Other performance metrics paint a similarly bleak picture.

SWDs in New York are among the least likely to be transferred from special education to regular education. In 2017-18, the 1,666 transfers from special education to regular education in New York accounted for only 2.8 percent of transfers nationally. Overall, SWDs in New York were 2.7 times less likely than the national average to be transferred from special education to regular education. The statistic plausibly reflects both poor quality of services and imprudently devised financial incentives. Indeed, districts might be tempted to keep students in special education for the same reason they advocate for their placement there.

Special education and related services have been especially poor during the COVID-19 pandemic. A federal lawsuit filed in the Southern District of New York in September alleges that New York City, among other districts, defrauded special needs students by depriving them of face-to-face therapy. Some parents of special needs students claim that the district neglected to even provide virtual therapy.

Empirical evidence suggests families of special education students agree that their children are not well served in New York. Families can pursue legal recourse if they believe that the state has failed to fulfill FAPE obligations. The most recent data show that nearly 46 percent of FAPE due process complaints filed nationally originated in New York—home to just five percent of public school students.

Most years, more than 90 percent of New York’s due process complaints are filed in New York City. A report issued by the State Education Department last year concludes, “The high number of due process complaints filed in New York City—the majority of which are resolved in favor of parents, as indicated by, for example, New York City’s $280 million payout—raises valid questions of the school district’s ability to offer free appropriate public education to its students with disabilities.”

The volume of due process complaints fails to fully convey the frustrations of parents seeking a better education for children with disabilities. As POLITICO details:

DOE can take months to reimburse neuropsychologists for the time-consuming evaluations used to determine a child’s individual needs, one of the earliest steps in the special education process…The more the process bogs down, the gap between low-income families and wealthy ones becomes more pronounced. Those with money have the option to hire lawyers, neuropsychologists and other experts to help them build their case, or pay for pricey private schools with tuition that can exceed six-figures and seek reimbursement from the city.

New York’s Backdoor Voucher Program

The high volume of due process complaints also is partially attributable to reforms by Mayor Bill de Blasio. He made it easier for New York City families to receive reimbursement for private school tuition and other education expenses necessary to educate a child with disabilities. New York City now spends more than $325 million annually to send students with disabilities to private schools.

New York City families can receive reimbursement for private school tuition if they can prove that public schools failed to provide an “appropriate education.” Some observers worry that the program is more accessible to middle- or upper-class families. For example, Meghan Whittaker, policy director for the National Center for Learning Disabilities, opines that “[i]t takes a parent who really knows the options available to them and knows their rights and can navigate the process.” Moreover, families must often front the money for private school tuition while the outcome of their case against the district is pending. Many families simply cannot afford the cost or risk of an unsuccessful lawsuit.

The State Education Department refuses to share demographic data about the students that the city pays to receive education in private schools. This elevates concerns that the system is disproportionately used or abused by families with greater means.

To be sure, there is instructive precedent for affluent families demonstrating greater ability to secure disability diagnoses and accommodations for their children.

Section 504 of the federal Rehabilitation Act of 1973 requires accommodations for individuals with disabilities in education and employment. 504 plans—blueprints for how schools accommodate SWDs—often permit additional time for testing, allowing students to perform better. Such accommodations have encouraged commoditization. Parents of all types of students, including the academically gifted, lobby for a 504 plan in the hope of giving their child a competitive advantage. The phenomenon gained widespread media attention in 2019 when it was revealed that the mastermind of the celebrity college admissions scandals instructed clients to pay tens of thousands of dollars to receive disability diagnoses.

As the New York Times notes, demand for 504 plans became particularly strong after 2003 once the College Board and ACT stopped notifying admissions officers of whether a student was provided with testing accommodations.

Securing a 504 plan can cost thousands of dollars in diagnostic testing, often paid for out of pocket. Consequently, students in the wealthiest one percent of districts in the country are more than twice as likely to be on a 504 plan compared to all other districts. In Scarsdale, one of the wealthiest towns in the country, 20 percent of students are eligible for extra time or another accommodation for taking college entrance exams. Among the district’s high school students, 99 percent rank proficient in reading and math on state assessments, and the average SAT score of 1380 exceeds the score of 95 percent of test-takers nationally.

Families in districts like Scarsdale are more successful in procuring 504 plans because they enjoy comparative advantages in resources, connections and disposable time. Wealthy families in New York City are almost certainly more successful in obtaining private school reimbursement for the same reasons.

Policy Recommendation One: Restructure Special Education Funding

Moving forward, policymakers should work toward ensuring that provision of services, accommodations and money tied to disability diagnosis more closely aligns with objective clinical determinations of disability. This task would be largely achieved through restructuring the state’s special education funding model so that special education placement is closer to revenue neutral for districts.

Specifically, the state should eschew their current single weighting formula in favor of a sliding scale formula, such as the one used in Georgia. Insofar as milder disabilities are less expensive to accommodate and vice-versa, the sliding scale formula allows for a more sensible, targeted match between student needs and student funding. Moreover, insofar as the type of students who historically might be placed into special education due to financial incentives are disproportionately diagnosed with less severe disabilities at the low end of the scale, the proposed formula would tamp down on pressure to place students in special education for fiscal benefit.

Policy Recommendation Two: Introduce a Means-Tested Voucher Program for SWDs in New York City

New York does not have a formal voucher program for SWDs. As noted earlier, families can secure private school tuition reimbursement if they can show students were not adequately accommodated or educated in public schools. By its design, the process for obtaining tuition reimbursement favors families with greater resources of time and money. The playing field could be leveled through the implementation of a voucher program.

Other states have launched voucher programs for SWDs, including Ohio, Georgia, Utah and Florida. Florida’s McKay Scholarship Program for Students with Disabilities is particularly robust in scale, as eligibility requirements are liberal. In 2018-19, more than 31,000 Florida students attended a participating private school.

Evaluations of the McKay Scholarship Program indicate overwhelmingly positive results for SWDs. A 2003 evaluation of the program highlights benefits for program participants:

  • “92.7 percent of current McKay participants are satisfied or very satisfied with their McKay schools; only 32.7 percent were similarly satisfied with their public schools”
  • “Those participants also saw class size drop dramatically, from an average of 25.1 students per class in public schools to 12.8 students per class in McKay schools”
  • “Participating students were victimized far less by other students because of their disabilities in McKay schools. In public schools, 46.8 percent were bothered often and 24.7 percent were physically assaulted, while in McKay schools 5.3 percent were bothered often and 6.0 percent were assaulted”
  • “McKay schools also outperformed public schools on our measurement of accountability for services provided. Only 30.2 percent of current participants say they received all services required under federal law from their public school, while 86.0 percent report their McKay school has provided all the services they promised to provide”
  • “Behavior problems have also dropped in McKay schools. 40.3 percent of current participants said their special education children exhibited behavior problems in the public school, but only 18.8 percent report such behavior in McKay schools”

A subsequent report also found evidence that the program benefited SWDs who did not participate. Among SWDs who remained in public schools:

  • “Public school students with relatively mild disabilities made statistically significant test score improvements in both math and reading as more nearby private schools began participation in the McKay program. That is, contrary to the hypothesis that school choice harms students who remain in public schools, this study finds that students eligible for vouchers who remained in the public schools made greater academic improvements as their school choices increased.”
  • “Disabled public school students’ largest gains as exposure to McKay increased were made by those diagnosed as having the mildest learning disabilities. The largest category of students enjoying the greatest gains, known as Specific Learning Disability, accounts for 61.2 percent of disabled students and 8.5 percent of all students in Florida.”
  • “The academic proficiency of students diagnosed with relatively severe disabilities was neither helped nor harmed by increased exposure to the McKay program.”

School voucher programs can be designed to generate cost savings.

A voucher system’s fiscal impact is primarily determined by two factors: The voucher allotment, and the share of participants who would have attended private schools in the absence of a voucher program. A voucher program in New York could offer significant cost savings if it conservatively caps the allotment and is made specifically available to families who could otherwise not afford to enroll their children in private schools.

Vouchers for SWDs would almost certainly produce cost savings if the allotment is set equivalent to average per pupil expenditures in the district where the student resides. Specifically, savings would be roughly equivalent to the difference between the voucher allotment ($24,040, on average) and the cost for a public school to educate a student in special education (conservatively, $38,170, on average), or $14,130 per participant.

The voucher program could also reduce costs and reach students with greatest need if eligibility is means-tested. Specifically, vouchers might be made available to families falling below the poverty line who can rarely afford private school tuition costs out of pocket.

A voucher program could also prove economically beneficial beyond reductions in the cost of educating students. A recent evaluation of Milwaukee’s voucher program found program participants were less likely to be involved in paternity disputes and less likely to commit crime. The evaluators posit the difference is likely due to the character-building focus of many private schools.


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