Nashua School District warns of soaring special-education contract costs, cites 'funding cliff'

District finance staff told the Finance and Operations Committee on Sept. 8 that special-education contract services and out-of-district tuition have risen sharply in recent years, creating near-term budget pressure and a potential ‘‘funding cliff’’ as pandemic-era grants ended.

‘‘In fiscal year 22, we had about $33,000 in contract-service special education in our operating budget and special revenue. In fiscal year 26 I’m saying we’re already aware of roughly $4,000,000 related to contract services and special education,’’ Mr. Gray said during the presentation to the committee.

The presentation, delivered jointly by Mr. Gray and Dr. Andre Andrade, traced several drivers behind the trend: a rise in the district’s special-education and ELL populations while overall enrollment declines; challenges recruiting specialized staff after COVID; and higher per-unit contract rates. Dr. Andrade said special-education aid from the state fell by about $700,000 between FY22 and FY25 even as state adequacy aid rose by roughly $19 million in that period.

The district reported out-of-district placement counts and costs as an acute pressure. Mr. Gray said historical counts moved from about 108 out-of-district students in 2021–22 to roughly 129 in 2024–25, with a current early‑September snapshot of about 90 placements; placement costs vary ‘‘anywhere from $77,000 to over $300,000’’ per student, Dr. Andrade said, meaning small headcount shifts can change totals materially.

Staff and board members also reviewed special-education contract-service budgets and recent overruns. Mr. Gray said last fiscal year the district spent approximately $3.5 million on contract services — about $1.9 million over the budgeted amount — and noted the district used transfers between lines to cover those overages.

The presenters stressed timing and flow of state funds as another constraint: New Hampshire state aid (both adequacy aid and special-education/catastrophic aid) is paid to the city and later reflected in what the city returns to the school department, which can lag and complicate cash‑flow planning for the district. ‘‘Special-education aid when that comes in…it’s a year behind and that revenue goes directly to the city,’’ Dr. Andrade said.

Officials pointed to two partial offsets. First, tuition revenue from district-run programs (Brentwood, Signs of Learning and others) rose more than expected — about $1.3 million last year versus a $900,000 estimate — and those receipts go into a special-revenue fund to offset special-education costs. Second, the district has increased the tuition it charges other districts for some programs (an internal example cited by staff rose from about $25,000 to near $45,000), which improves revenue if other districts send students.

Still, staff urged the committee to plan for FY27 and beyond assuming ESSER and similar one-time sources are gone. Mr. Gray recommended earlier budget controls, closer conversations with the city about revenue timing, and using special-revenue balances conservatively: ‘‘As of today, snapshot in time, we should be okay,’’ he said, ‘‘but as we move forward we’re going to have to offset some of these expenses, probably more in our operating budget.’’

The committee did not adopt a policy change in this meeting; staff said they will return with further detail and recommended steps for board consideration and for discussions with the mayor and Board of Aldermen.

Next steps: staff will post the slide deck and audit materials with the meeting minutes, continue analyzing enrollment and placement trends, and bring budget recommendations to the board as FY27 planning proceeds.