Effects of Funding Incentives on Special Education Enrollment

The report examines the effect of state funding systems and high stakes testing on special education enrollment. It specifically finds that:

• Nationally, special education enrollment grew from 10.6% of all students to 12.3% during the study period, from the 1991–92 school year to 2000-01.
• During this period, 33 states and the District of Columbia had “bounty” funding systems, which create financial incentives to place children in special education. Sixteen states had “lump-sum” funding systems, which do not create such incentives. New Hampshire had no state funding system until 1999.
• There is a statistically significant positive relationship between bounty funding systems and growth in special education enrollment. Bounty funding results in an additional enrollment increase of 1.24 percentage points over ten years.
• The effect of the bounty system accounts for 62% of the enrollment growth experienced by bounty states during the study period. This represents roughly 390,000 extra students in special education, resulting in additional spending of over $2.3 billion per year.
• If all bounty states had switched to lump-sum systems in 1994–95, their special education enrollments in 2000–01 would have been lower by an average of 0.82 percentage points. This represents roughly 258,000 students and over $1.5 billion per year in extra spending.
• Between 1991–92 and 2000–01, 29 states and the District of Columbia employed high stakes testing, and 21 did not.
• High stakes testing has no statistically significant effect on special education enrollment.
• The average (i.e. not weighted by population) state enrollment level in the states that had lump-sum funding during the study period rose from 11.1% to 12.4%, an increase of 1.3 percentage points.
• The average enrollment level in states with bounty funding rose from 10.5% to 12.8%, an increase of 2.3 percentage points.
• Total special education enrollment under lump-sum funding systems grew from 10.5% to 11.5%, a 1 percentage point change.
• By comparison, total special education enrollment under bounty funding systems increased by 2 percentage points, from 10.6% to 12.6%.

READ FULL REPORT