MDE: special education pupil counts and costs rising; cross‑subsidy aid expanded

Kathy Erickson, director of school finance at the Minnesota Department of Education, told the Senate Education Finance Committee on Jan. 21 that state special education pupil counts and related expenditures have increased in recent years and that several spending categories are driving the growth.

Erickson said state special education aid is a composite of multiple calculations — initial aid, excess‑cost aid, special transportation, charter tuition adjustments, a hold‑harmless provision for districts, cross‑subsidy reduction aid and homeless transportation aid — and that the department loads a single state special education payment into its payment system even though many calculations underlie it. "Unlike many of our other special ed or other funding formulas that use a pupil count to drive funding, state special education uses a reimbursement basis for calculating our aids and rates," Erickson said.

What the department reported to the committee: - Cross‑subsidy reduction aid: Erickson said distributions increased substantially in recent years after the state enlarged the distribution rate. Fiscal 2023 distributions were about $56 million (about 6.43% of whatever baseline distribution was used); in fiscal 2024 the distribution rate rose to 44%, producing approximately $412 million in cross‑subsidy reduction aid; MDE’s November forecast projects that number could reach roughly $614 million by fiscal 2029. - Pupil counts: MDE projects special education participants (students with IEPs and related categories) will rise from an estimated ~173,000 in fiscal 2025 to just over 197,000 by fiscal 2029 (November 2024 forecast). The department said the projection uses a two‑year weighted average across four disability categories established in the 2016 formula structure. - ADDSIS (alternative delivery of specialized instructional services): Erickson said ADDSIS participation rose from 162 LEAs in 2019 to 246 in 2024 and that ADDSIS expenditures rose from about $58 million to over $106 million in that span. - Expenditure drivers: MDE staff reported an average wage increase for eligible special‑education employees of about 8.25% between fiscal 2023 and 2024; contracted services rose about 22.6% between FY23 and FY24; special transportation costs and use of contracted transportation have also increased.

Forecast and methodology Paul Farren, special education funding supervisor at MDE, explained the projection methodology: "This forecast is based on a 2 year weighted average of changes, in the 4 categories of disabilities ... and then now each of those 4 categories were taking a 2 year weighted average on their growth overall in special ed and then in comparison, to total resident district ADMs." He added that even while total resident district ADMs (average daily membership) have declined, the share of students identified for special education has grown, increasing the total number of special education pupils.

Committee questions and department responses Committee members asked several procedural and data questions. Senator Jason Rehrig asked whether Minnesota imposes state‑level special education requirements above federal law. Erickson said Minnesota has some state expectations beyond federal law and that MDE can provide documentation; Adeshu Nhi, director of government relations for MDE, offered to connect members with program staff for follow‑up.

On rate and contract issues, Farren said MDE reviews submitted expenditures and contracts and that some rate caps and negotiated‑rate information are kept confidential by MDE to avoid distorting market negotiations: "The rate caps themselves are generally kept confidential because if we posted them on public, we've generally then had vendors use that information to go to schools to say, just pay me at the max of what this is rather than them trying to negotiate as well." He said the department conducts edits and may request contract documentation where reported rates or totals trigger review; those reviews can affect whether expenditures are approved for reimbursement.

Senator Farnsworth urged the committee to consider preventative interventions to reduce eventual special education placements, noting local examples where interventionists reduced testing for specific learning disabilities. Erickson and Farren did not dispute the value of early intervention and said the department would continue to supply district‑level data and cost breakdowns (for example, district‑level transportation costs) on request.

Erickson closed by summarizing the primary reasons MDE sees expenditure growth: wage and salary increases driven by contract settlements and staffing growth, increased contracted services, rising charter tuition agreements, increases in pupils receiving IEP services and ADDSIS participation, and higher transportation costs.