State education officials warn special-education costs and outcomes require systemwide fixes

MONTPELIER, Vt. — State education officials told a joint hearing of the Vermont House and Senate education committees on May 9 that special education spending is rising and that systemwide changes are needed to improve outcomes and manage costs.

The Agency of Education’s report and presentation showed a substantial increase in students eligible for extraordinary-cost reimbursements and persistent achievement gaps: “the number of students requiring extraordinary cost reimbursements is rising, significantly,” Agency of Education Secretary Zoe Saunders said, and agency assessment data show that “students with IEPs consistently scored 30 to 40 percentage points lower” than their peers on statewide assessments.

The testimony matters because special-education spending is a major driver of education budgets and property tax impacts. Agency staff described a multiyear effort to strengthen monitoring, build a more coordinated system of supports and training, and analyze how recent funding changes interact with local budgets and service delivery.

Agency overview and federal monitoring

Zoe Saunders, secretary of education, framed the session and said the agency will pursue a “multiyear approach” to make services equitable and to “enhance accountability and training.” Meg Porcella, director of the student support services division, explained that Vermont remains in a federal “needs assistance” designation based on reporting to the Office of Special Education Programs and that the designation reflects lagged data; agency materials and witnesses noted the federal status traces to reporting for school years two years prior.

“Vermont has been out of compliance since 02/2018,” Saunders said during the hearing while explaining the state’s monitoring work and the lag in federal reporting. Agency staff described redesigning their monitoring system, creating an off-cycle “due diligence” review process, and reestablishing how local special-education determinations are scored. The agency expects to release an updated monitoring manual in July and has scheduled cross-agency trainings in August and a larger conference in October to align divisions and improve technical assistance.

Funding change from Act 173 and extraordinary costs

Witnesses reviewed how Act 173 (referred to in testimony as “Act 1 73”) changed the state’s special-education funding formula and increased the state categorical support for high-cost students. Agency financial staff said the new calculation shifted more revenue away from local homestead budgets into a state categorical grant, reducing the local budget pressure but not lowering total system spending.

Agency staff described a large increase in reimbursements after the new formula was adopted: presenters said the Act 173 calculation contributed an additional roughly $17.5 million in FY 2023 under the new part of the formula, and agency documents show extraordinary-cost payments and related spending have grown substantially since then. Agency analysis presented at the hearing put the total extraordinary-cost special-education spending for the 2023–24 school year at about $86 million.

The agency also warned that the new reimbursement math may create unintended incentives. A presenter summarized a common concern from local business managers: because the state now reimburses a larger share once a student crosses the high-cost threshold, some districts may see a financial disincentive to pursue the most cost-efficient placement. The agency said the question “deserves additional inquiry” and flagged it for further analysis.

Who the high-cost students are

Alicia Hanrahan, an agency staff member working across education and human services, described the students who most often generate extraordinary reimbursements as a diverse group with high and sometimes complex needs. She said the 2023–24 worksheet identified 792 students statewide who met the high-cost threshold. Those students were educated in a mix of settings: the agency counted 294 attending public schools (mostly in-state), 463 in independent schools, 11 in tutorials and 23 in residential placements (most residential placements were out of state).

Hanrahan gave concrete examples of high-cost needs: “you could have a student who has, a hearing loss or is completely deaf and needs, maybe 2 interpreters,” she said, and other students may require behavior interventionists, communication devices, or multiple specialized staff.

The agency provided a breakdown by primary disability among the 792 high-cost students: intellectual disability, emotional disturbance, other health impairment, autism spectrum disorder, multiple disabilities and developmental delay were among the largest categories. The agency cautioned that developmental-delay labels apply mainly to younger children and differ from adult developmental-disability definitions.

Outcomes and assessment gaps

Jennifer Hicks, division director for data management and analysis, presented assessment results for students with Individualized Education Programs (IEPs) and said the achievement gap is large and persistent. Agency materials and testimony showed that students with IEPs score roughly 30 to 40 percentage points lower on statewide assessments than students without IEPs, with the gap larger in math than in English language arts in many grades. The agency also reported that students enrolled in therapeutic school settings performed slightly below peers in other settings, particularly in math, but warned that the therapeutic-school population is small and that outcomes vary by grade and primary disability category.

Size, economies of scale and regional approaches

Agency presenters reviewed district-level spending patterns and tested correlations between spending and district size or need. They found wide variability across districts and no statistically significant positive correlation between per-student special-education spending and district size. However, the analysis showed a pattern consistent with economies of scale: districts with a smaller share of students on IEPs tended to have higher per-student costs, and regional or collaborative service models that concentrate students with similar needs can create efficiencies.

Workforce, pipeline and supports

Committee members asked about recruitment and retention of special-education teachers and related specialists. Agency witnesses described a multi-pronged approach that includes expanded professional development, mentoring, alternative pathways to licensure for paraeducators, work with higher-education educator-prep programs, and attention from the licensing division and OSEP-funded technical-assistance centers.

Therapeutic schools and moratorium discussion

Several legislators raised the existing moratorium on approving independent therapeutic schools. Agency staff said the moratorium has contributed to local conversations about embedding more services in public districts and developing step-down and collaborative programs, but the agency also emphasized the need for a broader study of therapeutic-school oversight, capacity and outcomes. Saunders and other staff said that the agency had proposed early-session policy work to review oversight of therapeutic schools and cooperative service-sharing models.

Discussion, directions and next steps

Committee members pressed for further analysis on several topics the agency flagged: whether Act 173 altered incentives in placement decisions, why the number of extraordinary-cost cases is rising (local service availability, post‑COVID mental‑health needs, closures of specialized independent programs), the role of regional collaboratives (BOCES-style models) and whether additional state supports could reduce out‑of‑state residential placements.

The agency identified several immediate next steps and internal directions: release a revised monitoring manual in July, expand cross‑agency trainings in August and October, pursue a strategic special‑education implementation plan, and perform a deeper analysis of the Act 173 reimbursement impact and potential perverse incentives. The agency also flagged the need for a study or review of therapeutic-school oversight and standards.

No formal votes or motions were taken during the hearing. Agency staff asked the committees to submit any follow-up questions in writing so the agency could provide additional analysis.

Ending

The agency framed the work as a multiyear effort focused on strengthening fundamentals, improving outcomes and aligning funding and oversight. Officials said they would return with more analysis and recommended policy options after finishing the monitoring manual and planned analyses.