The fiscal paradox of the Individuals with Disabilities Education Act (PL 101-476)


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The fiscal paradox of the Individuals with Disabilities Education Act (PL 101-476) an analysis of federal policy
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ix, 246 leaves : ; 29 cm.
Wanzenberg, Matthew C., 1971-
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Educational Leadership, Policy and Foundations thesis, Ph.D   ( lcsh )
Dissertations, Academic -- Educational Leadership, Policy and Foundations -- UF   ( lcsh )
bibliography   ( marcgt )
non-fiction   ( marcgt )


Thesis (Ph.D.)--University of Florida, 1999.
Includes bibliographical references (leaves 225-244).
Statement of Responsibility:
by Matthew C. Wanzenberg.
General Note:
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to superb educators in my family:

Mrs. Clara Rasmussen Olson, Mrs. Maude Rich Dietrich, Mrs.

Emily Mildred Dietrich, Mr. Ralph B. Wanzenberg, Dr.

Chester Leathers, and Joanna Leathers


I wish to express particular gratitude for the support

and guidance of professionals who have helped shape my

research in the Department of Educational Leadership,

Policy, and Foundations and who have diligently served as

members of my supervisory committee. Dr. R. Craig Wood, B.

O. Smith Research Professor, illustrated the importance of

school finance and law in the scheme of the educating

students with disabilities. Dr. David Honeyman helped me to

conceptualize a good research design and contributed to the

development of my research question over the months. Dr.

David Miller, my chief statistics instructor, helped me to

understand the daunting world of quantitative analysis.

Finally, Dr. James Doud--besides offering me intellectual

"safe harbor" and research opportunities in the department-

-has always brought legal and financial concepts back to

the ultimate question in educational research: how does

this make for better learning?


The guidance of my family and loved ones should be duly

noted. By my great grandmothers, Clara Rasmussen Olson and

Maude Rich Dietrich, I am a fourth generation educator.

From the humble schoolhouse in High Springs administrated

by my grandmother, Emily Mildred Dietrich, to the

classrooms of my mother and father, Joanna Leathers and the

late Ralph B. Wanzenberg, the family history of commitment

to public education has been clearly indicated. Chester

Leathers--the individual with whom I can most directly

credit my passion for the education of all children--has

been a beacon of support through every inch of my graduate

and professional career. These individuals have given me

safe asylum from the duress of special education and

research and have helped me to bring the broadest of

concepts back to the application of the working classroom.

To this legacy of superb educators, I dedicate this paper.

Most importantly, I would like to thank Anne Wheaton

Wanzenberg, my wife. Without her love and support, I could

never have put my passion to paper.




ABSTRACT . . viii


1 INTRODUCTION. ... ....... .1

Problem Structuring and Policy Problems .. 2
Policy Contradictions and the IDEA. .. .5
Statement of the Problem . .5
Purpose of the Study .. .6
Justification of the Study. . .7
Method of the Study .. . 7
Definition of the Terms . 8
Limitations . . 8
Organization of the Study. . 10


Equity and Special Education Finance 15
Federalism and Special Education .. ... 29
Philosophical, Historical, and Statutory
Foundations of Special Education. ..35
Funding Formulas and Incentives and Disincentives in
Special Education . .. .. 62
Cost Analysis Methodologies . 69
Major Court Cases and Federal and State
Laws Relating to Special Education Finance. .82


Sources of Information . .... .124
Data Organization . .. 126
Data Analysis . .. 126
Synthesis . . .. 127
Standards for Adequacy for Policy Analysis. .128


Data Analysis from Policy Relevant Sources. .132
Analysis of Pertinent Court Cases 133
Analysis of Congressional Goals. . 140
Analysis of Congressional Documents. 142
Analysis of Federal Statutes and Regulations. 151
Analysis of State Funding Typologies. .154
Analysis of Biased Funding Characteristics. .163
Analysis of Department of
Education Statements. . .. 169
Analysis of State Funding Statutes. .172


Forecasting and Evaluation of
Policy Relevant Data. . .. 192
Summary of Findings . .. 193
Ranking of Policy Issues and Alternatives. 198
Derived Model of Placement
Neutrality Policy. .. .. 203
Practical Inference of Proposed Theory. .. 206
Recommendations for Further Study. ... 210




BASE . . .224

REFERENCES. . . .226



. 246

Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of
the Requirements for the Degree of
Doctor of Philosophy



Matthew C. Wanzenberg

December, 1999

Chairman: Dr. R. Craig Wood
Major Department: Educational Leadership, Policy, and

The author explored the legal and policy implications

of federal law that either promoted or did not prohibit

special education funding based upon more restrictive

settings. This analysis derived a proposed placement

neutrality policy for the federal government. The analysis

revealed the constitutional implications of federal funding

policy that was not placement neutral; that is, based on

fiscal incentives for more restrictive, costlier special

education placements.


The federal policy analysis of contemporary special

education finance examined whether (a) the Indivduals with

Disabilities Education Act's goals could be

constitutionally fulfilled within the context of placement

biased funding, (b) the legal doctrine of the Least

Restrictive Environment (LRE) could exist in tandem with

funding policies that either did not promote placement

neutrality or that encouraged fiscal bias, and (c) federal

requirements were utilized to either promote placement

neutrality or prohibit fiscal bias. The author analyzed

(a) pertinent court cases, (b) congressional goals, (c)

congressional documents, (c) federal statutes and

regulations, (d) state funding typologies, (e) biased

funding characteristics, (f) Department of Education

statements, and (g) state funding statutes.

The legal analysis revealed that--in the absence of

due process--placement-biased funding could violate the

Equal Protection Clause of the U.S. Constitution.

The policy model provided addendum to the current federal

law to provide for (a) comprehensive federal statutes

prohibiting placement biased funding, (b) a finance reform

timeline to transition non-compliant states, and (c) a

national transition plan.

The purpose of this study was to develop a federal

special education finance policy for placement neutrality

that was within contemporary constitutional and statutory

parameters. The researcher scrutinized the longitudinal

legislative intent and fiscal aspects of the Individuals with

Disabilities Education Act (IDEA).1 The study warranted a

policy examination posed within the framework of

prescriptive, ex-post analysis. This analysis reviewed state

and federal legislation and case law and yielded two seminal

U.S. Supreme Court decisions, two federal district court

rulings, and three state court rulings. The legal analysis of

these cases contributed to an understanding of special

education finance and law and the policy dilemmas posed by

placement biased special education funding. Another component

of this analysis involved the examination of (a) pertinent

court cases, (b) congressional goals, (c) congressional

documents, (c) federal statutes and regulations, (d) state

funding typologies, (e) biased funding characteristics, (f)

Department of Education statements, and (g) state funding

statutes relating to the funding of special education



Problem Structuring and Policy Problems

The protection of students with disabilities from total

exclusion accorded with a history of U.S. Supreme Court2 and

Federal District Court rulings.3 This equal protection

entitled students with disabilities to a free and appropriate

public education (FAPE) that was meaningful4 and highly

individualized to their needs.5 Although a history of formal

equal protection in special education was established for

nearly a quarter-century,6 a state-assistance program without

fiscal defects has not been realized. The federal special

education program has sought to strike a balance between the

needs of the quasi-suspect class of students with

disabilities7 and the practical responsibilities of the states

within the Union.8 In this manner, the IDEA has regulated many

aspects of the state special education program to the State

Educational Agency (SEA) but has delegated school funding

methods to the states' political and economic schema.9

Research has indicated a lack of coordinated effort to

align the service delivery mechanisms or funding of these

methods."1 Policy problems were indicated when the federal

government either promoted or did not prohibit placement

biased funding of state and federal special education

programs. This placement bias was indicated by the over-

classification of students with disabilities," inappropriate

special education programs,12 and educational spending that

did not accord with contemporary finance equity theory.13

Many researchers have described fiscal biases that could

undermine the integrity of the least restrictive environment

(LRE).14 These funding practices either purposely or

inadvertently created special education programs that did not

promote the maximization of equal educational opportunity in

normalized school environments. Although the U.S. Supreme

Court has maintained neutrality on the regulatory subject of

wealth disparity of schools,15 the nature of the LRE was a

legal issue that the courts have actively ruled upon. A

review of relevant case law revealed that the U.S. Supreme

Court was indisposed to ignore threats to LRE, whether they

appeared as programmatic or as fiscal shortcomings.16 Recent

developments in three state supreme courts have indicated the

need for alternative special education funding practices that

were based upon research-based cost differentials.'7 These

rulings revealed a judicial urgency that recommended the

utilization of funding practices that were both adequate and

accessible and that did not encroach upon regular education

finance."s A litigative summary of recent special education

finance also revealed the reluctant recommendation of funding

practices that could jeopardize the LRE.'9 If the trend of

school finance litigation continues in this manner, the

constitutionality of placement bias would eventually come

into question at the federal level.

One of the sponsors of P.L. 94-142 summarized the chief

policy concern of these findings:

If the law has been massively successful in
assigning responsibility for students and setting
up the mechanisms to assure that schools carry out
these responsibilities, it has been less successful
in removing the barriers between general and
special education. It [P.L. 94-142] did not
anticipate that the artifice of delivery systems in
schools might drive the maintenance of separate
services and keep students from the mainstream
The primary problem appears to lie in our
assumptions about students and the consequences for
the organization of schools; that there are
distinct groups of youngsters--disabled and
nondisabled--and thus need for a distinct set of
services which require divisions of funding,
service delivery, and organizational patterns.20

The body of special education finance research,

described in detail in Chapter 2, revealed a federal program

that was relatively disconnected from the status of current

school finance litigation in the states. Analysis of the

literature revealed a need for the alignment of federal

policy regarding funding and the LRE. Therefore, the purpose

of this analysis was to derive legal data for a

constitutionally sound, federal policy framework in Chapter

5. The specific research questions structured for this

analysis were

1. Are the IDEA's goals--as mandated by Congress--

legally fulfilled within the fiscal parameters of

categorical special education programs that may

assume placement bias?

2. Can the legal doctrine of the Least Restrictive

Environment (LRE) exist in tandem with funding

policies that either (a) do not promote placement

neutrality or (b) encourage fiscal bias?


3. What federal requirements exist to either promote

placement neutrality or prohibit fiscal bias?

Data derived from these questions served to formulate a

revised policy framework for the federal government. This

revised policy would then be utilized by policymakers to

streamline future revisions of the IDEA to be less

therapeutic, more placement neutral, and generally more

effective in its provision for a free and appropriate public

education in the least restrictive environment.

Policy Contradictions and the IDEA

Within the context of federal special education policy,

the literature revealed a pattern of distinct fiscal

paradoxes.21 The body of policy research indicated a natural

tension between the tenets of federal law22 and the systems

that are employed to apply these concepts.23 This research has

also evinced that highly categorical finance formulas

jeopardize the least restrictive environment with labels and

self-fulfilling special education placements.24 If state

policymakers and consumers of special education were to avoid

unnecessary litigation, this policy contradiction must be


Statement of the Problem

The body of special education finance literature

identified a rapid growth26 in special education programs.

Inherent to the IDEA, however, were identifiable and divisive

measures that promoted a growth that was not justified by

actual incident rates of disability. This growth--and the

cost associated with it--has required policymakers to be

increasingly aware of the nature of federal provisions that

authorize special education programs. The problem arose when

federal laws either created incentives27 for or did not

prohibit funding practices that---in the words of the Office

of Special Education Programs--"clash[ed] with the letter of

federal and state law."28

Purpose of the Study

As legal scholars have contended,29 the due-process

provisions of the IDEA30 were the most elaborate machinations

ever devised by Congress to resolve the disputes between

student and school district. This provision has facilitated

an abundance of complaints regarding the equitable

administration of special education programs. In the words of

Turnbull, these substantive due-process provisions have

created "massive and unpredictable judicial responses."n

The doctrine of preventive law suggests that the

consummate way to deal with a legal problem is to prevent it

from happening.3 The purpose of the study was to provide, if

necessary, a revised model of federal special education

finance policy based on relevant case, state, and

constitutional law. The study was arranged within the

philosophical framework of the IDEA and disability

legislation preceding this public law.33 The study measured

the policy congruence of federal special education funding

regulations to the original concepts that authorized them.

Justification of the Study

The Center for Special Education Finance (CSEF)34 and the

Office of Special Education Programs (OSEP)35 have raised the

issue of funding approaches that run contrary to the least

restrictive spirit of the IDEA. Turnbull noted that the

inappropriate allocation of special education resources were

a part of a powerful, longstanding trend that was not always

correctable by the courts.36 It was logical to assume that

without analysis of current federal policy, further drafts of

this federal law could be left to the unpredictable and

costly devices of the courts. Moreover, the potential for

growth in the area of special education was clearly indicated

by the body of research. It was, therefore, paramount to

policymakers to be provided with an analysis of funding

practices that would provide legal means to equitable and

efficient ends. Congressional and state lawmakers need to be

provided with (a) information that will assist them in

developing special education funding policies that best

reflect the goals and missions of the IDEA, and (b) some

degree of predictability concerning potential litigation.

This federal policy analysis study is justified as such an

attempt to render assistance on this germane issue.

Method of Study

The traditional methodology of legal and policy analysis

research was utilized to identify historical legal

precedence, substantive historical legal principles, and

sound methods of special education funding.

The research process required the identification and

policy analysis of relevant Constitutional amendments,

federal statutes and regulations pertaining to the special

education finance program. Where appropriate, relevant cases

were examined and judicial reasoning in each case was


State funding statutes were then examined from the

disposition of the aforementioned legal and policy analysis.

The evolution of educational disability law and data derived

from congressional documents were of particular concern to

the researcher. This information was then utilized to

formulate a model that would guide the equitable

administration of special education finance programs within

the guise of federal law. This resource would then be

utilized by state and federal lawmakers and policy analysts

as a tool to formulate or amend legally ambiguous policies.

Policymakers and legislatures might otherwise target these

policies for clarification in the courts.

Definition of Terms

The primary sources for the definition of all legal

terms in this study were Pollock's Fundamentals of Legal

Research37 and the Federal Register. A list of applicable

terms, definitions, and concepts appears in Appendix A of

this study.


Although this study had ultimate applicability to all

states, legal case studies have been limited to states in

which special education finance litigation was indicated.

Furthermore, this policy analysis recognized the disparate

funding methods for special education programs. With regard

to state constitutional issues, this variability of funding

methods limited this analysis to a comprehensive study. This

study was limited to the measure of federal policy congruence

to federal policy foundations. The study broadly analyzed the

alignment between the federal principles outlined in the IDEA

and the approaches associated with the finance of special

education programs.

The scope and philosophical framework of this study were

based on the most contemporary amendments to the Individuals

with Disabilities Education Act Amendments of 1997.38 Within

the traditional frameworks of legal and federal policy

analysis, the study was challenged to apply or extrapolate

the outcomes or prospective interpretations to such recently

amended federal law. At the time of this study, the courts

had not fully addressed the nature of placement biased

funding. Litigation relating to the equitable funding of

post-P.L. 105-17 special education programs continues to

evolve.39 With this consideration, this researcher has created

a timely analysis based on the fundamental concepts relating

to the funding of programs for students with disabilities

that have sustained the IDEA through its evolution as a

public law.

Organization of the Study

In Chapter 2, a literature review providing crucial

exposition on the development and interpretation of the IDEA

is presented. A review of research, legal doctrines, federal

administrative law, and relevant case law is also provided.

The methodology of the research is described in Chapter

3. In this section, the author explains the traditional

methodology of legal research and the procedure of legal

analysis when measuring the alignment between federal and

state policy. The derived federal policy model and the

standards of adequacy for legal research are also discussed.

An analysis of federal policy and case law are presented

in Chapter 4. This section includes a topical analysis of (a)

pertinent court cases, (b) congressional goals, (c)

congressional documents, (c) federal statutes and

regulations, (d) state funding typologies, (e) biased funding

characteristics, (f) Department of Education statements, and

(g) state funding statutes relating to the funding of special

education programs.

In Chapter 5, a revised model of federal funding policy

for special education programs and recommendations for

further research is presented. The data from legal and policy

analysis derived the aforementioned model federal policy for

placement neutrality. This model was designed to encourage

its audience to strengthen existing special education funding

schemes for more equitable and efficient outcomes.

1 Individuals with Disabilities Education Act,
amended by P.L. 101-476 (1990), amended by P.L. 102-119
(1991), amended by P.L. 105-17 (1997) [codified as
amended at 20 U.S.C. 1401-14910 (1998)].

2 Brown v. Topeka Board of Education, 347 US 483
(1954); and Hendrick Hudson District Board of Education
v. Rowley, 458 U.S. 176, 102 S. Ct. 3034, 73 L. Ed. 2d
690, (1982).

3 Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v. Commonwealth of Pennsylvania, 343 F. Supp.
279 (1972); and Mills v. Board of Education, 348 F.
Supp. 866 (1972).

4 Rowley, 458 U.S. 176; and Cedar Rapids Community
School District v. Garret F., 118 S. Ct. 1793 (1999).

5 20 U.S.C. 1414 (d) (1998).

6 Education for All Handicapped Children Act, P.L.
94-142 (1975) [transferred to 20 U.S.C. 1401-1491o

7 20 U.S.C. 1403 (1998); Rowley, 458 U.S. 176;
and Cedar Rapids Community School District v. Garret F.,
118 S. Ct. 1793 (1999). A population with disabilities
has not constituted the definition of a suspect class
and only a handful of courts have recognized the suspect
or quasi-suspect class of the disabled. See, e.g.,
Frederick L. v. Thomas, 408 F. Supp. 832, 836 (E.D. Pa.
1976), aff'd, 557 F.2d. 373 (3d Cir. 1977); Fialkowski
v. Shapp, 405 F. Supp. 946, 958-59 (E.D. Pa. 1975); In
re G.H., 218 N.W.2d. 441, 446-7 (N.D. 1974).

8 20 U.S.C. 1451 (1998).

9 20 U.S.C. 1412 (a) (19)(A) (1998).

10 Chambers, Jay G. and William T. Hartman, Special
Education Policies: Their History, Implementation, and
Finance (Philadelphia, Pennsylvania: Temple Press,
1983), 193.

11 Parrish, T. B., Special Education Finance: Past,
Present, and Future (Palo Alto, California: Center for
Special Education Finance, 1996), 25.

12 Turnbull, H. Rutherford, Free and Appropriate
Public Education: The Law and Children with Disabilities
(Denver, Colorado: Love Publishing, 1990).

13 Berne, Robert, and Stiefel, Leanna, The
Measurement of Equity in School Finance: Conceptual,
Methodological, and Empirical Dimensions (Baltimore:
Johns Hopkins University Press, 1984).

14 Verstegen, D. A., Consolidating Special Education
Funding and Services: A Federal Perspective (Palo Alto,
California: Center for Special Education Finance, 1996);
Parrish, T. B., Fiscal Issues in Special Education:
Removing Incentives for Restrictive Placements, (Palo
Alto, California: Center for Special Education Finance,
1994); and Parrish, T. B., Criteria for Effective
Special Education Funding Formulas (Palo Alto,
California: Center for Special Education Finance, 1995).

15 San Antonio School District v. Rodriquez, 411
U.S. 1, 93 S. 1278, 36 L. Ed. 2d 16 (1973).

16 Rowley, 458 U.S. 176.

'1 DeRolph v. Ohio, 78 Ohio St. 3d 193, 677 N.E.2d
733 (1997); Cambell v. State of Wyoming, 907 P.2d 1238
(1995); and Harper v. Hunt, 624 So. 2d 107 (1993).

18 Center for Special Education Finance (CSEF),
Spring, "Landmark Court Decision Challenge State Special
Education Funding," Issue Brief No. 9 (Spring 1998):
Palo Alto, California.

19 907 P.2d 1238.

20 Walker, L., "Procedural Rights in the Wrong
Systems," in Gartner, A., and T. Joe, Eds. Images of the
Disabled/Disabling Images (New York, New York: Praeger

21 Parrish, supra note 11.
22 20 U.S.C. 1412(a)(5) (1998).

23 Parrish, supra note 11, at 25.

24 Blackman, H., "Special Education: Is It What You
Know or Where You Live?" Exceptional Children 55 (1989):

25 CSEF, supra note 13.

26 Verstegen, D. A., T. Parrish, and J. Wolman, A
Look at Changes in the Finance Provisions for Grants to
States Under the IDEA Amendments of 1997 (Palo Alto:
California: Center for Special Education Finance, 1998),

27 Parrish, supra note 14.

28 34 C.F.R. 300.550 (1999). See, e.g., Parrish,
T. B., J. Chambers, and C. M. Guarino, Eds., Funding
Special Education (Thousand Oaks, California: Corwin
Press, 1998), viii.

29 Osbourne, A. G., Legal Issues in Special
Education (Boston, Massachusetts, Allyn and Bacon,
1996), 239.

30 20 U.S.C. 1415 (1998).

31 Turnbull, supra note 12, at 83.

32 Osbourne, supra note 29, at 240.

33 20 U.S.C. 1401-14910 (1998).

34 See supra note 14.
35 Office of Special Education Programs, Twentieth
Annual Report to Congress on the Implementation of the
Individuals with Disabilities Education Act (1998),
available from: http://www.ed

36 Turnbull, supra note 12, at 186.

37 Jacobstein, J. Myron, and R. M. Mersky, Ervin H.
Pollack's Fundamentals of Legal Research (Mineola, New
York: Foundation Press, 1973).

38 Individuals with Disabilities Education Act
Amendments, P.L. 105-17 (1997).

39 Ibid.

A review of literature relating to the Individuals

with Disabilities Education Act (IDEA) and placement

neutrality provided the background for this study. The

following research questions guided the synthesis of

research in Chapter II:

1. Are the IDEA's goals--as mandated by Congress--
legally fulfilled within the fiscal parameters
of categorical special education programs that
may assume placement bias?
2. Can the legal doctrine of the Least Restrictive
Environment (LRE) exist in tandem with funding
policies that either (a) do not promote
placement neutrality or (b) encourage fiscal
3. What federal requirements exist to either
promote placement neutrality or prohibit fiscal

These research questions presented several

categories of literature that were germane to research

within that special education finance: (a) School

Finance Equity; (b) Federalism and Special Education;

(c) Philosophical, Historical, and Statutory Foundations

of Special Education Finance; (d) Funding Formulas,

Incentives, and Disincentives in Special Education; (e)

Cost Analysis Methodologies; and (f) Major Court Cases

Relating to Special Education Finance.

These particular subjects represented significant

areas of the research and literature that related to a

federal policy analysis of the special education finance

program. Research in the broader field of special

education represented a larger share of these literature

domains. However, this author limited the scope and

breadth of this literature review to the research thrust

initiatives identified by the Center for Special

Education Finance (CSEF) and to areas clearly identified

as governing factors of the special education finance

program. This review of literature provided a foundation

for an effective analysis of data for this study.

Equity and Special Education Finance

The basic tenets of American public education have

included the guarantee of equal opportunity.1 This

concept has implied that all persons, regardless of how

unequal they may be in their abilities, must be afforded

equal opportunities and equal treatment.2 The concept of

equity has assumed a more refined significance through

developments in the courts and on the Capitol floor.

Thompson, Wood, and Honeyman described special education

initiatives as a prime example of the complexities that

jurists and lawmakers have employed in their search for

equity.3 For over twenty-four years, these elaborations

have translated into a legal manifest for society to


The quest for equity represented the sine qua non

for this century's most important special education

initiatives. The legislative initiatives for students

with disabilities were presented within the framework of

normalization or social role valorization.4 The

principle of normalization--originated in part by Wolf

Wolfensberger--maintained that persons with disabilities

should live and be treated like non-disabled persons.5

Furthermore, this principle asserted that the

differences between people with and without disabilities

were psychological barriers that could be reduced by

fair treatment and the provision of socially valuable


According to Turnbull, an equal right to a free and

appropriate public education (FAPE) was a precondition

for successful social equalization.7 The legislative

intent of this ideal was paramount to the establishment

of federal special education initiatives:

The Nation has long embraced a philosophy that
the right to a free appropriate public
education is basic to equal opportunity and is
vital to secure the future and prosperity of
our people. It is contradictory to that
philosophy when that right is not assured to
all groups of people within the Nation .
over the past few years, parents of
handicapped children have begun to recognize
that their children are being denied services
which are guaranteed under the Constitution

It is this Committee's belief that the
Congress should take a more active role under
its responsibility for equal protection of the
laws to guarantee that handicapped children
are provided educational opportunity.8

Finance Equity and The Least Restrictive Environment

The concept of normalization evolved from a broad

human rights ideal into a set of refined legislative

initiatives.9 This refinement required the field of

special education to qualify its definitions of equal

treatment. The least restrictive environment (LRE) and

the equity associated with that context1" was presented

in Public Law 94-142.1 Under a provision of federal

law,12 the courts consistently upheld that the exclusion

of a child from general education must be predicated

upon the pursuit of appropriate educational

opportunities.3 While segregated placements outside the

mainstream were not prohibited, an individualized

education program (IEP) was required to strike a balance

between the default of inclusion and appropriate socio-

educational opportunities; wherever they may exist.14

In response to this public policy, Berne and

Steifel posed questions fundamental to the

administration of special education programs. These

researchers drew focus to the practice of normalization,

and reframed these issues into terms of school finance:

1. For whom are we trying to generate equality and

what is to be equalized?

2. Is the public policy focus on the equal

treatment of special education students, all

students, or on special education students in

relation to all other students?

3. Is the focus on taxpayers in terms of their

efforts to raise local funds, and their relative

ability to pay for special education services?

4. What exactly is to be equalized--dollars per

student (e.g., state aid), resources per student

(e.g., appropriate pupil/teacher ratios),

educational outputs (reading proficiency), or

life chances (e.g., access to future earning


5. What equity issues pertaining to special

education students and the types of services

they receive and the settings in which they

receive them, relate to special education


The answers to these questions determined the

approach and features of state special education funding

formulas.16 A funding formula was defined as the mandated

procedures, prorating provisions, administrative

guidelines, and exceptions or exclusions that determine

and regulate the allocation of state funds to

districts.'7 Although the IDEA broadly addressed costs,

the process was complicated by the special education

finance formula selected by each state and the goals

indicated in state statutory and constitutional law.

These particular goals have included objectives of

equity, local control of special education programs, and

efficiency of service delivery.18

Fiscal and Placement Neutrality and the LRE

In an effort to qualify the concerns raised by

Berne and Steifel, researchers have examined the

relationship between funding neutrality and the least

restrictive environment. Traditionally, fiscal

neutrality represented policy approaches that "focused

on freeing the tie between level of expenditures and

district property wealth rather than on the more

amorphous concept of need."19 In San Antonio School

District v. Rodriquez, the district court's panel

maintained the unconstitutionality of the Texas school

finance system and presented the first policy thrust of

fiscal neutrality.20

Placement neutrality was defined by the CSEF as

that which drives down the incentives between the

frequency of students identified and funding received.21

The CSEF also documented that the variation of special

education student need has remained relatively low and

the need for services was fairly constant throughout the

nation. Therefore, equitable outcomes for special

education programs have required policies that do not

purposely or inadvertently cause over-identification in

the pursuit of special education funds.23

McCarthy and Sage examined the importance of

funding neutrality at nineteen special education sites

throughout New York State.24 The study examined

population, needs, service delivery, governance

structure, resources, and system costs of special

education programs and how those variables influenced

equitable outcomes. The study demonstrated that local

economic and political conditions influenced these

factors. The respondents clearly indicated that there

was an inextricable relationship between the LRE and

placement neutrality. Furthermore, the authors found

that state and local funding methods influenced the

context of the least restrictive environment. The

federal concept of LRE has required shared and sound

placement decisions that were "least-hindering" for

children. However, this study identified a highly

subjective process of service delivery that was

"intensely dependent upon [administrative] value

judgment s [sic], especially when [determining] what was

adequate or appropriate in terms of funding."25

A similar study examined the costs associated with

the local level due-process hearing.26 This 1987 study

revealed that the original legislative intentions of

Congress evolved into a funding model that was less

sensitive to individual student needs. The study

examined eleven districts in Chicago that conducted due-

process hearings and the costs incurred by the Illinois

State Board of Education, special education

administrative units, local school districts, and

parents or guardians. With the assumption that special

education hearings reflected the address of individual

student needs, the authors conjectured that a small but

stable frequency of task similarities among these four

groups would reflect an individualized evaluation of the

special education program. In other words, a high degree

of task similarity among the four groups across

different impartial hearings indicated a highly

stratified system based on categorizing and

administrative classification. The authors identified

varying cost differences associated with a broad system

of administrative due-process tasks. These findings

suggested that impartial due-process hearings were not

as directly associated with individual student

differences (i.e., the federal ideal that reflects

equitable treatment) as they were with the needs of a

bureaucratic educational system.

Ysseldyke, Thurlow, Algozzine, and Nathan supported

Boscardin's findings that fiscal policy characteristics

affected program policy.27 The team examined the type of

forces that influenced open-enrollment placement

decisions among students with and without disabilities.

The authors determined that open-enrollment districts

were the ideal context to examine the relationship

between all student placements: there were relatively

fewer forces that inhibit the migration of students to

and from schools. The study identified and ranked the

most pervasive fiscal concerns for students with and

without disabilities. Data yielded a spectrum of issues

that influenced placement decisions in open-enrollment

districts. The study revealed coercive administrative

forces that inhibited open placement decisions for

students with disabilities. Data indicated that the

provision of services and programs were dictated by the

disabling category of the child and the geography of the

specific special education program, rather than the

particular educational needs of the individual child.

Other Measures of Finance Equity

Political issues relating to equity did not

singularly affect the consumers of special education

resources. Terms of equity also have been applied to the

taxpayer that has supported the broad range of services

for students with disabilities.28 One criterion

associated with tax equity was the benefit principle

that the measure of tax fairness was in proportion to an

individual's benefit and social responsibility to pay.29

Moreover, the benefit associated with a tax should

ideally "outweigh the unequal burden that may fall to

some persons."30 Thompson et al. described the evaluation

of this benefit as a subjective endeavor which

maintained that maintained civic interests before the

concept of individual proprietorship.3 In addition to

the benefit principle, tax equity was also measured in

terms of its exclusivity of application. Progressive,

regressive or proportional taxes--whether applied

uniformly or with adjustments for income level--were

evaluated with the financial status of the taxpayer in

mind.3 Thompson et al. noted that "regardless of the

political or economic logic, a tax is based on decisions

to accept or reject ability [to pay]."33 Tax equity was

evaluated further in terms of horizontal and vertical

measures. Absolute horizontal equity was predicated upon

the equal obligation of equals, where vertical equity

required administrative action to ensure the equal

obligation of unequal subjects.34 Whereas the strict

application of either horizontal or vertical tax equity

has created inequitable tax schemes, the modern trend of

tax theory has sought to provide a balance of both

vertices to equalize the economic disparity that exists

in contemporary society.35 Kelly summarized the legal

applications of balanced, or fiscally neutral,

approaches to tax equity:

The degree of a formula's horizontal equity
can be observed by comparing the per pupil
expenditures of the wealthiest and poorest
districts. Even though absolute equality of
expenditures is not possible, these new
systems must substantially narrow revenue gaps
to eliminate wealth-based allocations of

The relationship between the impact and incidence

refined the concept of tax equity. Taxes have targeted

subjects (e.g., impact), but policymakers have exerted

less administrative control over the subjects that

eventually pay the tax (e.g., incidence).3 For example,

administrative cost increases that were not value-added

but were associated with a "trickle-down" effect were

problems inherent to impact-incidence. The fifth

criterion of tax neutrality maintained that equitable

taxes will leave the same economic "footprint" across

the economic spectrum of taxpayers; neither depressing

the economy nor producing undue economic hardship on its

contributors.38 The final criterion related to the tax

certainty. This principle evaluated taxes that were

presumed, expected, and undeviatingly administrated.39

Within the context of these taxpayer equity issues,

Berne and Steifel40 asked the following:

1. What is the relationship between state and

federal special education revenue and overall

equity goals in school finance?

2. How should special education finance be

conceptualized within the larger context of

school finance policy?

3. To what extent do special education funds retain

their more categorical nature across the states,

and where are they more closely incorporated

with overall state education aid?

4. How large are the special education aid

allocations across states and what is the impact

of inclusion or omission of these equalization


Perhaps Congress addressed taxpayer equity concerns

most succinctly during the earliest drafts of Public Law


The long-range implications [of inadequate
education] are that taxpayers will spend many
billions of dollars over the lifetime of these
handicapped individuals simply to maintain
such persons as dependents on welfare and
often in institutions With proper
educational services, many of these
handicapped children would be able to become
productive members contributing to society
instead of being left to remain burdens on

Inclusion as Equity

Parrish responded to these critical inquiries by

initiating a discussion in "What is Fair: Special

Education and Finance Equity."42 Whether equal

opportunity was described as the LRE, equal access to

opportunity, or a FAPE, CSEF researchers have identified

inclusion as the chief modality of equity. Across the

spectrum of consumer and taxpayer equity issues, Parrish

identified the process of inclusion as a precondition of

equity.43 The inclusion of students with disabilities--

specifically placing students into general education

classrooms within the LRE--has represented the greater

share of policy debate in special education law.4

According to Parrish, inclusion policy provided a

natural political tension between taxpayer and client

perceptions of equity.4

Barriers to Equity

If the practical goal of public education were to

provide equal opportunity through inclusion, the

practices of exclusion and misclassification have served

to undermine it. Turnbull identified two degrees of

exclusion that have been employed to deny equal

educational opportunity to students with disabilities.

Exclusion has occurred when children were denied access

to educational opportunity, provided inadequate

education, or served unresponsively." Total exclusion

was a treatment of the student as though they did not

exist: these students were not admitted or excluded de

facto through waiting lists or unfair admission

practices.47 Functional exclusion implied access to an

educational program, but one that was "of such a nature

that the child could not substantially benefit from it

and therefore received few or none of the intended

benefits of education."4

The literature revealed many barriers that have

blocked students with disabilities from educational

opportunity.49 According to the court in Wolf v. Utah,

"The segregation of the disabled children from the

public school system can be and probably is

usually interpreted as denoting their inferiority."50

Just as the exclusion of students served to bar children

from equal educational opportunity, the manner in which

districts have classified students with disabilities has

contributed to inequity. According to Turnbull, such

errors have misplaced or inappropriately tracked

students in school programs.51 According to Kirp, the

relationship between exclusion and misclassification was

difficult to demonstrate because excluded children were

rarely located.52 Kirp's critique of special education

misclassification systems focused on the nature of

stigma in the processes of equal educational

opportunity. Kirp indicated that a stigma was not

intrinsically laden with value and that the stigmatizing

attribute was "neither creditable nor discreditable per

se."53 The value existed in the socially accepted meaning

of the label.54 Although stigma--in rational terms--was

sometimes legitimately imposed, large institutions have

exercised no control over the social stigmatization of

classified subjects."

Policy problems have arisen when subjects were

labeled in a manner that society regarded with less

value.56 Kirp identified three Constitutional flaws with

the present identification system. The exclusion of

"ineducable" students to ineffective special education

programs implied a denial of equal protection."5 Second,

the over-representation of some minority classes in

special education has implied "racially specific harmful

effects.""5 Finally, equal protection was indicated to

insulate children from the possibility of such


A survey of the literature revealed a history of

sparse funding for special education programs.6 Before

federal legislation monitored educational opportunity

for students with disabilities, school districts

pervasively and continuously failed to serve the

educational needs of children with disabilities by

attrition. 61 During hearings for the Education of the

Handicapped Amendments in 1975, it was reported that

1.75 children with disabilities were receiving no

special education services, and 2.5 million students

with disabilities were receiving an inappropriate

education.62 In 1977, the cumulative bill for federal,

state, and local special education expenditures was $1

billion as compared to an estimated $32 billion for


Federalism and Special Education

A full understanding of equal educational

opportunity warranted exposition on the role of the

federal government. Constitutional scholars have

identified two major principles involved in the concept

of federalism.6 First, the U.S. Constitution has

recognized a shared responsibility for public education

between the local, state, and federal governments. This

division of responsibility was exemplified in 1987-1988

school year expenditures for special education. The CSEF

reported that for the $9.3 billion total associated for

all special education expenditures in 1987-1988, about 8

percent was provided by the federal government, 56

percent was provided by the state government, and 36

percent provided by the local government.65 The greater

responsibility for the administration of state special

education programs was delegated to the local and state

governments. However, the consolidation of consent

decrees in the Education for All Handicapped Children

Act66 and U.S. Supreme Court cases have greatly impacted

the manner in which the three jurisdictions share

financial responsibilities.67

Constitutional and statutory law has endured with

supreme jurisdiction.68 As established by the U.S.

Supreme Court in 1803, the Constitution of the United

States and Congressional legislation were deemed the

ultimate law of the land.69 According to Alexander and

Alexander, the federal domain over the American public

educational regime has flowed from three sources: (a)

acquiescence by states and local governments in

acceptance of federal grants-in-aid; (b) the regulations

authorized under the Commerce Clause;70 and (c)

Constitutional decrees established by courts.7 The

federal responsibility for special education was also

affirmed by the state legislatures. This federal

jurisdiction and the enactment of the National Defense

Education Act of 1958 enabled Congress to exert control

over state special education regimes.7

Federalism and The General Welfare Clause

According to legal scholars Reynolds and Rosen,

"Federal legislation has been the single most

significant incident in the total history of special

education."73 Although scholars and historians have

debated the balance between federal authority and state

sovereignty, this literature review provided specific

exposition on the role of the federal government in the

education of students with disabilities. Article 1,

Section 8, of the Constitution--the General Welfare

Clause--has indirectly empowered the federal government

to "lay and collect taxes, duties, imposts and excises

to pay the debts and provide for the common defence

[sic] and general welfare of the United States ....74

Federal involvement in the public education was based

upon this clause.75 Although Congress had exerted an

indirectly persuasive force on the public educational

regime, its role was formally authorized by the United

States Constitution.76 The guiding role of the federal

government was upheld in U.S. v. Butler77 and Helvering

v. Davis.78 U.S. v. Overton affirmed the establishment of

a local/state partnership in the education of all

citizens, but it was not until 1919 that this

jurisdiction was formalized.7

The relationship between special education and the

federal government was grounded in terms of the

Fourteenth Amendment. This Constitutional provision

maintained that "no state may deny to any person within

its jurisdiction equal protection of the laws."80 Two

cases brought special education inequity into

Constitutional question. Brown v. Board of Education"8

established that a separate but equal educational system

with financial and social inequity was unconstitutional.

The court held in Pennsylvania Association for Retarded

Citizens (P.A.R.C.) v. Commonwealth of Pennsylvania82

that the legal doctrine of equal protection served the

class of students with disabilities as equally as it

served the class of racial minorities. This application

of Zero Reject created a nexus between special education

and equal protection.83 The legal principle maintained

that all children with identified special needs were to

be provided within the context of a FAPE.84 The

Fourteenth Amendment was utilized in Mills to (a)

prevent the total and partial exclusion of children with

disabilities and (b) protect the rights of students with

singular disabilities --like cerebral palsy--when

persons with multiple disabilities were included.8 Mills

applied equal protection broadly to all students; not to

a singular grouping of students.86 In contemporary terms,

the Zero Reject principle has also applied in a ruling

where students with disabilities were included rather

than excluded. In this instance, the legal principle was

applied when parents were held to the costs of tuition

when parents of non-disabled students were not.87

In other instances, Zero Reject refined the legal

doctrine of equal access.88 This application of the

P.A.R.C./Mills doctrine of equal protection required

appropriate opportunities to develop individual student

capabilities.89 Proponents of equal access have

maintained the maximization of educational opportunity

and highly individualized special education programs.90

Cases such as Board of Education v. Rowley91 and Tatro v.

Texas92 have continued to reframe this doctrine of equal

access. However, a ruling in Lau v. Nichols93 revealed

that the courts were hesitant to completely disregard

the equal protection theory initiated in Brown.

Many of the regulations outlined in Public Law 94-

142 were included in most state statutes by 1975.94 State

officials responded to these initiatives by accusing the

federal government of intrusion. In 1976, Illinois State

Superintendent J. Cronin suggested that the Education

for All Handicapped Children Act (EAHCA) was engaged in

a hostile takeover of the American educational system.9

Cronin responded to the perceived federal encroachment,

suggesting that the state and local governments should

press for legislative measures that would make the

federal initiative redundant.96 In 1977, Louisiana

Superintendent of Schools Daniel B. Taylor called the

EAHCA an "invasion of the constitutional and statutory

rights of State and local governments."" Taylor cited

local and state educational resources and personnel that

were to be "commandeered for federal purposes in Section

432 of the General Educational Provisions Act."98

Taylor's impressions of state sovereignty were not lost

on his colleagues of the Council of Chief State School

Officers. He addressed state's rights in an address to

this group:

People living in West Virginia ought to have a
right, as people of the United States, to
receive their fair share of federal funds
provided by the U.S. treasury for
helping handicapped citizens, and that this
right ought not to depend upon whether the
their State will also provide financial
assistance to them. For the U.S. Government to
place a State Government in the position of
having to spend its money out of its own
treasury on a federally assisted program--
particularly the lion's share of the money--in
order for its people to enjoy a benefit of
U.S. citizenship is questionable.99

The highest levels of the federal government also

indicated a similar reluctance. During this 1970s,

inflation was rampant, school enrollments were in

decline, and taxpayers were consistently defeating state

and local tax referenda.100 The most prevalent

bureaucratic concerns were of a fiscal nature.101 Perhaps

the greatest evidence of the political forces at work in

the mid-1970s was the obvious hesitation in President

Ford's Senate Bill 6 signing statement:

I have approved S.6, the "Education for All
Children Handicapped Act of 1975" .
Unfortunately, this bill promises more than
the Federal Government can deliver and its
good intentions could be thwarted by the many
unwise provisions it contains Despite
my strong support for full educational
opportunities for our handicapped children,
the funding levels in this bill will simply
not be possible if the Federal expenditures
are to be brought under control and a balanced
budget achieved over the next few years .
[The Act] contains a vast array of detailed,
complex, and costly administrative
requirements that would unnecessarily assert
Federal control over traditional State and
local Government functions. It establishes
complex requirements under which tax dollars
would be used to support administrative
paperwork and not educational programs.
Unfortunately, these requirements will remain
in effect even though the Congress
appropriates far less than the amounts
contemplated in S.6.102

Philosophical, Historical, and Statutory

Foundations of Special Education

A survey of the historical literature in special

education revealed an extended chronicle of equal

rights. The precedent for supplementary educational

programs for students with exceptionalities has outdated

the precedent for compulsory public education.103 From

1823 to 1927, twenty-seven federal acts established

relief for citizens with disabilities. 04

The first formal special education initiatives were

initiated in the early Nineteenth Century. In 1817,

Reverend Thomas Gallaudet founded the first documented

educational program for students with disabilities in

Connecticut."15 Six years later, Public Law 19-8

established the first state institutional school in

Kentucky. This legislation also expanded a federal land

grant program to establish a learning seminary for

persons with mental impairments in Florida.'0 Although

the federal government did not require state programs

and resources until the 1970s, P.L. 19-8 established the

historical precedent for specialized centers throughout

the union.107 In 1852, the state of Pennsylvania

allocated funds to provide educational services for a

group of children with developmental disabilities in a

private school.'08 The institutional service model that

was introduced in these land grant programs provided an

important administrative framework for another century.

During this period the intermingling of public and

private resources was often necessary: a unilateral

thrust for public special education programs would not

be in place until the 1950s.109

Federal Support for Gallaudet

The Lincoln Presidential Administration ushered the

federal government into its new role as ombudsman for

Americans with special needs. In 1857, a grassroots

effort arose to establish a small school for children

with special needs in the Chesapeake Bay area. At the

forefront of this movement was a Dartmouth-educated

journalist, D.C. Kendall. Kendall held several federal

government positions including Postmaster General during

the Jackson and Van Buren Administrations. With his

leadership, political clout, and private donations, the

steering committee of the Columbia Institution reported

an operating budget of approximately $6500 for FY

1858.110 In 1860, Kendall petitioned the Maryland

legislature for more funds and devised an expanded

curricular framework that doubled the enrollment to

thirty degree-seeking students. In 1864, the Lincoln

Administration took a crucial first step in its role as

advocate for students with special needs. The Lincoln

administration helped to accredit Gallaudet College as a

higher education institution for the deaf and hard of

hearing.1l Prior to these laws, the federal government

took no active role in support for special education


Special Education Programs at the Turn of the Century

A grassroots campaign for state and local special

education policy emerged in the latter part of the

nineteenth century. In 1869 and under political pressure

from parent groups, the city of Boston established the

first public day school for the education of students

with hearing impairments.13 At the turn of the century,

Chicago and the state of Rhode Island also established

public school centers for students with physical and

mental disabilities."1

Special education during the Industrial Revolution

was characterized by the use of the institutional models

of service delivery. Managers of large organizations

utilized the assessment and quantification of

individuals into skill units.n5 Contemporary management

styles reflected a premium concern for productivity and

efficiency. This ideal was often pursued at the cost of

individual liberties."6 As the social flux of migrant

labor to urban areas changed the face of corporate

organization, the government also established

institutions that adopted a similar categorical method

of labeling and classification of various

disabilities."7 This labeling served to "legitimize the

provision of differential legal, medical, residential,

economic, and socialization care."n" Cremins

characterized the use of labeling and categorical

tracking in governmental institutions as an efficient

means to contain costs and provide efficient service

delivery."9 At this point, state and federal governments

lacked the infrastructure and unified leadership to

provide a comprehensive plan for change.120 According to

Cremins, the federal government facilitated an "epoch of

neglect" in which the issues of the Industrial

Revolution overshadowed the needs of Americans with

disabilities.21 Furthermore, Cremins described a public

policy that possessed little flexibility to adapt to the

emerging grass roots initiatives.122

Regardless of the limitations of contemporary

disability policy, the early 1900s were crucial to the

evolution of many principles germane to federal special

education policy. In 1910, the White House held the

First Conference on Children that addressed contemporary

special education issues.23 Conference transition plans

presented programs to transfer institutionalized

children into permanent and segregated placements where

their needs could be met within the context of the

public school.124 During this period, educational

researchers identified the importance of the

individualized instruction of students with special

needs.125 Furthermore, special education practitioners

believed that the homogenous and smaller groupings of

these students would foster positive self-esteem and a

richer quality of life.126

Although placements in restrictive classes and

services increased from 1910 to 1930, the historical

literature revealed the categorical exclusion of

students in the mild to moderate range of disability.127

Whether these students dropped out, were expelled, or

deemed unteachablee," they remained effectively outside

of the purvey of contemporary special educational


The Emeraence of State Special Education Policy

This period was also characterized by the emergence

of state initiatives for the provision of services and

training.12 In this era, the state of New Jersey enacted

the first state mandate that required the provision for

programs for students with special needs.130 Although

these laws did not maintain the modern legal concept of

the LRE, this legislation evinced the first state

commitment to special education programs.

Many state initiatives arose to provide training

and professional development for a small pool of special

education instructors. In 1914, Charles S. Berry created

the first special educator training center at the Lapeer

State Home in Michigan."1 Consequently, Michigan State

Normal College became the first state to offer a special

education degree program.132 One year later, Minnesota

became the first state to pass special education

certification requirements that outlined a basis of

expertise in the emerging field of professional special

education.33 The cooperative model of service delivery

was established in 1919 in Pennsylvania to develop a

streamlined scheme for the efficient use of state

resources.134 The procurement of outside organization's

professional services has endured as a contemporary

model of service delivery.35

Early Special Education Programs and Exclusion

The emergence of special education programs did not

obscure formal legal precedents that were designed to

exclude students with disabilities. The historical

literature revealed that state special education

programs flourished within the context of highly

categorical and insulated environments.36 The literature

also revealed that there was no established nexus

between the separate and unequal learning environments

of disabled and non-disabled students and the associated

social and economic disparities.1 Turnbull concured:

The schools excluded school-aged handicapped
persons individually and as a class. They
admitted some but not all students with the
same disability. They inadequately funded
tuition-subsidy programs that would have
enabled families to purchase appropriate
education from alternate sources (such as the
private schools). When appropriate programs
were not available, the schools placed
handicapped pupils in special education
programs that were inappropriate for them.
When faced with a shortage of special
education programs, schools created waiting

lists for admission to the few available
programs, thus excluding many eligible

In Watson v. City of Cambridge,13 the Massachusetts

Supreme Judicial Court ruled that a child who was "weak

in mind .and unable to take ordinary, decent care

of himself" could be expelled from public school. The

court affirmed the authority of the school committee to

exercise the general charge of the school, and refused

to interfere in the judgment of that administrative

body. In 1893, the Wisconsin Supreme Court concurred

with the 1893 Massachusetts ruling, stating that the

presence of such children had a profoundly disturbing

effect on students and school staff and could be removed

for cosmetic purposes.140 In this case, the student

possessed normal cognitive functions, but suffered from

a condition that caused him to drool, spasm, and assume

"unnatural" body positions. On the grounds that the

student depressed the faculty, monopolized teacher

resources, and had a negative effect on overall school

discipline, the court found that it was in the best

interests of the school to recommend the exclusion of

the child.

The Emergence of Special Education Policy

The homecoming of wounded World War One veterans

prompted the establishment of rehabilitation programs

for Americans with disabilities. In 1918, Congress

passed the Vocational Rehabilitation Act"41 to foster the

training and vocational rehabilitation of veterans with

disabilities.142 The Smith-Fess Act of 1920 extended

these rehabilitative services to civilians.143 For the

first time in the Twentieth Century, quality of life

issues concerning Americans with disabilities were

forced upon state policymakers.'4 Schools also employed

standardized aptitude testing for the identification and

placement students into various performance levels.145

This system of classification, according to Kirp,

accorded with the educational administrator's need for

efficiency and categorical achievement categories.46 The

unilateral and discriminatory nature of student

classification would not be brought into full focus

until 1954 in Brown v. Board of Education.147 The

strategic categorization of special education students

expanded to present day.148

By 1939, state legislatures refined special

education pedagogy: state certification programs

identified a unified regimen of tools, understanding,

and strategies to manage the student with special

needs.149 According to Winzer, behavioral strategies were

well accepted in the school setting by 1930150 and the

field of educational psychology expanded the pedagogical

implications of intelligence and ability.'51 A critical

shortage of trained special educators contributed to the

public resistance of special education programs.152

According to Cremins, the Progressive Education Movement

led to "unplanned and heterogeneous" grouping of

students.153 This created the demise of special classes

and encouraged the placement of children with special

needs in regular classes where they were generally

ignored and neglected."54 Kirp reported that ability

grouping, special education assignment, and the

exclusion of ineducable children afforded school

districts the power to "ease the tasks of teachers and

administrators by restricting .. the ability among

students in a given classroom, and purportedly improving

student achievement." 55

Although the 1950s and 1960s were characterized by

an increase in parent and professional organizations,

state legislatures enacted laws that furthered the

exclusion of special needs students.'56 According to

Ballard, the percentages of students with special needs

served in public schools were 12 percent in 1948, 21

percent in 1963, and 38 percent in 1968.15 Prior to

1969, the North Carolina State Legislature imposed

criminal sanctions on parents who continued to "persist

in forcing [the] attendance" of a child with

disabilities after exclusion from a public school.158 The

Illinois Supreme Court held that the state compulsory

education laws did not predicate a waste of resources

for the "feeble minded .and mentally deficient"

who were unworthy of the typical instructional

environmental9" According to the historical literature,

state legislatures had many special education laws in

effect, but pursued the practice of exclusion where

necessary.160 By the mid-1970s, two states did not have

comprehensive special education laws that extended

coverage for all exceptionalities.16 The literature

revealed that, without an established nexus between the

concept of inclusion and equal protection, states

legislatures were not constitutionally bound to provide

appropriate services students with special needs.162 To

support this point, the Senate reported in 1975 that

"mandatory legislation, which has characteristically

lacked meaningful provisions for actual enforcement, has

proven to be of limited value."163 According to Turnbull,

the judicial reasoning prior to the Warren era held that

discriminatory governmental action violated the equal

protection clause.164

Open Federal Support for Special Education

It was not until 1954 that the federal government

began to take a more proactive role in the development

of special education programs. In this year, President

Eisenhower authorized the Cooperative Research Act165

that specifically identified the need for federal aid to

support appropriate educational opportunities for

students with disabilities.166 The Eisenhower

Administration also authorized two laws in September of

1958 that expanded resources for teacher training in

special education. The enactment of P.L. 85-926167 and

P.L. 85-905168 established grants to colleges and

universities and was expanded in 1963 to all fields of

special education.'"9 This period also included the

enactment of the National Defense Education Act

(NDEA).170 According to Ballard, this federal act was

crucial to the promotion of special education.171 This

fiscal commitment set a clear regulatory role for the

federal government.17 The NDEA also addressed the

duplication of educational services in other federal

initiatives."' Most importantly, this legislation

reinforced the concept of the national educational


In 1963, P.L. 88-164"17 created a Division of

Handicapped Youth in the United States Office of

Education."76 This office served as a clearinghouse for

research and information in the emerging field of

professional special education.177 This law also

identified a research thrust in educational research

that included early childhood special education,

learning theory of students with disabilities,

curriculum and materials development, and innovations in

teacher training.18

Congress formally addressed the issue of nationwide

special education programs during the 1966 amendments to

the Elementary and Secondary Education Act (ESEA).179

According to Cremins and Turnbull, this series of

amendments ensured the provision for nationwide special

education services.180 Turnbull indicated that these

amendments shaped the ESEA in order to stimulate the

state legislatures to develop adequate special education

resources and personnel."1 Testimony provided in the ad

hoc Subcommittee on the Education and Labor Committee

described federal special education programs that were

"minimal, fractionated, uncoordinated, and frequently

given a low priority in the educational community."12

Thereafter, Title IV to the ESEA created a system

of grants-in-aid to state educational agencies for the

supplementary costs associated with programs for

children with disabilities.83 This entitlement was the

forerunner of the Education of the Handicapped Act

(EHA)'84 and part B of the Individuals with Disabilities

Education Act (IDEA).185

The EHA was the first free-standing set of federal

statutes relating to special education.186 This

legislation served to streamline several special

education grant sources and provided a singular

administration of the growing pool of supplementary

funds.'87 The combination of state initiatives and the

court decisions in P.A.R.C. and Mills essentially

imposed "right to education" mandates upon the state

governments.'88 This series of dramatic change prompted

another fiscal expansion by the Education Amendments of

1974.189 These amendments enhanced due-process

provisions, clarified a fundamental issue relating to

the privacy of student records, created links for

collaborative and interagency planning, and accorded an

increase in financial assistance to states.190 According

to Jones, the acronym LRE appeared for the first time

within the text of a federal law.191 These amendments

were also important in that they first identified the

need for procedural safeguards relating to

identification, evaluation, and testing materials.'92

Within the text of this law, Congress cited the

practices of exclusion'93 and identified the national

interests inherent to special education. "

A survey of the federal initiatives in the early

1970s revealed that state educational agencies were not

effectively administering the letter federal law.195

According to testimony in the House Subcommittee on

Select Education and the Senate Subcommittee on the

Handicapped, only half of an estimated 8 million

children with disabilities were receiving a satisfactory

education.16 Despite the onset of the EAHCA and the EHA,

conditions grew even more dismal. As late as 1975, an

estimated 1.75 million students with disabilities were

categorically excluded from public schools and an

estimated 2.2 million students were placed in

inappropriate programs that did not suit their needs.197

The EHA required the provision of full educational

opportunities to all children with disabilities between

the ages of three and eighteen by September of 1978.

Congress eventually permitted the exclusion of certain

students if standing state statutes were inconsistent

with the age requirements.198 These inequitable

conditions set the stage for the nation's most

comprehensive and free-standing federal special

education initiative.99

The Individuals with Disabilities Education Act

The EAHCA was a permanent law that was not limited

by periodic reauthorization. Most federal laws

incorporated expiration dates.200 The EAHCA was a

consolidation of contemporary consent decrees, existing

state and federal statutes, and case law.20' The EAHCA

utilized a funding formula that permitted every state,

congressional district, and school district to qualify

for federal assistance.202 In 1990, the EAHCA was

significantly amended and retitled as The Individuals

with Disabilities Education Act (IDEA).203 Osbourne noted

that the IDEA created an enduring conceptual framework

for special education.20 In this revision of the EAHCA,

the law included a change of terms from handicapped to

persons with disabilities, a broadening of disability

qualifications and the development of transitional

services from school to work.205 By 1990, the IDEA

established the main principles associated with special


1. The least restrictive environment;206

2. Individualized educational programs;207

3. Provision of special education services;208 and

4. Due process.209

The IDEA established the provisions for a FAPE and

identified the specific obligations of the state

educational agencies.21

The IDEA represented the primary source of federal

aid to state and local special education programs for

students from birth to age twenty-one. The IDEA

authorized three state formula grant programs and

several discretionary grant programs.211 The Act utilized

a state grant-in-aid program (permanently authorized

under Part B) and required participating state

governments to furnish all children with disabilities a

FAPE in the least restrictive setting.212 A thoroughly

amended Part B of the IDEA strengthened Congress'

commitment to early childhood special education

programs.213 This series of amendments established

provisions to coordinate the services required for an

appropriate special education.

In addition to the basic state grants, Part B of

the IDEA also authorized preschool special education

programs.214 Included under this authority was grant-in-

aid funding to support elementary and secondary

education services for children ages five through

twenty-one and preschool grants for children with

disabilities, ages three through five. With the

exception of new programs aimed at early intervention

for infants and toddlers,215 Part B fiscal provisions

relating to this population of the Act have remained

relatively unchanged since 1975.216

Parts C through G authorized discretionary grant

programs that were designed to encourage appropriate

educational services for children with disabilities.217

These grant programs included recruitment services,

parent advocacy initiatives and services designed to

meet the needs of young employees with disabilities.21

Part H, a grant program for statewide early intervention

networks for infants and families, was authorized until

FY 1994.21

Recent Amendments to IDEA

Although Congress designated the IDEA as a

permanent funding plan under Part B, the Act has

undergone periodic refinement. 220 Two series of

amendments have taken place every four or five years to

coincide with the expiration of discretionary grants

under Parts C and D.221 Public Law 102-119222 reauthorized

infant and toddler intervention programs.223 These

amendments expanded the eligibility criteria for

preschoolers and provided increased funding for

transition between early childhood and preschool

In 1997, Public Law 105-17225 significantly amended

many provisions of the Individuals with Disabilities

Education Act. The amendments repealed section 203 of

the Elementary and Secondary Education Act of 1965 to

provide for coordination of school-wide programs. The

1997 amendments included provisions for legal mediation

to diminish (a) the adversarial nature of due-process

hearings, (b) the costs associated with frequent

hearings,226 and (c) restriction on relief for attorney's

fees during IEP meetings. These amendments required

charter schools to establish comparable special

education programs and provided equal access to local

IDEA funds as administered by the Local Educational

Administration (LEA).

The 1997 amendments also addressed the importance

of procedural safeguards and administrative flexibility

in the discipline of students with disabilities. These

provisions required a Manifestation Determination

Committee (MDC) to determine the relationship between a

student's disability and misconduct. Congress designed

this framework to administrate administration of uniform

codes of conduct. Under P.L. 105-17, the MDC assumed the

administrative power of a due-process hearing and the

collaborative nature of an IEP meeting.22

Federal Entitlement under P.L. 105-17

The 1997 amendments included fundamental changes to

the IDEA funding provisions. States with setting-

specific formulas were required to incorporate

identification neutral policies that affirmed the LRE

requirements of the IDEA.228 According to the CSEF, this

new demand required approximately one-quarter of state

legislatures to undergo significant procedural revision

of the contemporary special education finance

provisions.229 To a lesser extent, this new requirement

affected most states with subsidiary provisions based on

placement (i.e., finance provisions for students served

in separate schools, residential institutions,

categorical funding for special student

transportation) .23

The administrative doctrine of incidental benefit

maintained that special education personnel may work

with mainstreamed students only if special education

students receive the primary benefit of the activity.23

The 1997 amendments relaxed the existing federal

incidental benefit regulations. This new permitted non-

disabled students to receive benefits from special

education services provided for children with

disabilities. In the past, policy problems developed

when special education students were integrated into the

general education classroom. This educational setting

indicated the utilization of "team-teaching:" two or

more teachers providing instruction to students with and

without disabilities. According to Chambers, Parrish,

and Hikido, the legality of this doctrine was in

contention.232 If, for example, a general education

teacher provided an English lesson and the special

education teacher remediated an integrated group of

students, regular education students would receive

direct instruction from the IDEA-paid teacher. This

would be of primary benefit to all students and not an

indirect, incidental benefit. The newly amended

provision233 encouraged LEAs to affirm the LRE without

having to fear audit exceptions under the excess costs

or commingling of funds requirements.234 The amendments

also accounted State Educational Administration (SEA)

and Local Educational Administration (LEA) for certain

conditions of maintained financial effort. The newly

amended provisions required SEAs to provide for

financial effort without any reduction in support from

the previous year.23" This provision secured a basic

minimum fiscal commitment to the state special education

programs without any decrease in special education


Congress strengthened LEA spending flexibility by

permitting reduced expenditures to be utilized as

virtual local funds.36 With certain restrictions,237 the

revised IDEA permitted the use of Part B funds for

school-wide improvement programs under Title I of the

ESEA.238 The LEA was permitted to use between 1 percent

and 5 percent of its Part B funds to improve the

coordinated systems of collaboration for special

education programs.239

As in recent years, current sources of federal

special education dollars have flowed from two primary

sources: permanent state grants under Part B of the

IDEA, and limited discretionary grants under parts C and

D of the IDEA.240 The total federal Part B allocation

under the IDEA was divided by the national total of

special education students. This measure provided a

single average national allocation per identified

student. State allocations were determined by

multiplying the number of special education students

identified in the state under Part B by 40 percent of

the average per student allocation for that year. This

formula placed a federal funding limit of 12 percent of

the state's student population.241 Federal expenditures

were designed to be placement neutral: they were neither

calculated by classification nor educational setting.

Upon passage of the 1997 Amendments, Congress

placed a cap of $4.9 billion upon the current child-

count-formula.242 The CSEF extrapolated growth and

inflation rates for this provision and estimated that

implementation of the cap would occur between 1999 and

2005.243 When the $4.9 billion cap was reached, a census-

based formula went into effect that was based upon 85

percent of a state's population and a vertical

adjustment of 15 percent for poverty levels associated

with each state.244 To contain the growth of special

education programs and curb the effects of over-

identification, Congress also placed a 1.5 percent limit

on federal assistance increases for states.245 Congress

provided for a further adjustment of (a) adjustments for

inflation or (b) actual increases in federal funds.24

Supplementary sub-grants to LEAS were required in every

year that the state's allocation increased by more than

the rate of inflation over the prior year.247

These funds were utilized for systemic changes to

improve results for children with disabilities. State

legislatures were also assured under the new plan that

the level of funding received for the previous fiscal

year would not be decreased.248 The Supplement-not-

Supplant provisions of the law reinforced the

Congressional intention to assist states educational

agencies, but not to relieve the SEAs of their financial

obligations.249 Congress intended that federal funds

under Part B would be utilized to pay only the excess

costs directly related to the education of children with


Local educational agencies should not look to
this assistance as general revenues or
generalized assistance to mitigate their own
responsibilities with regard to providing a
free appropriate public education for all
handicapped children. The primary purpose of
funds under this Act is to assure all
handicapped children an appropriate

The IDEA also required that 75 percent of federal

funds must be appropriated to local school districts,251

and that 25 percent could be designated at the state

level for administrative purposes."2 Congress was

sensitive to the burdening bureaucracy of special

education programs and applied these measures to enhance

local flexibility.253 Therefore, Congress appropriated

only 5 percent of the state share for administrative

Federal Enforcement of the IDEA

Within the context of more than a century of

inequitable special education programs, the federal

government has maintained a constant scrutiny of the LEA

and SEA programs.2" State educational agencies were

required to submit applications for federal

supplementary assistance for special education programs

that were received by the U. S. Department of Education

(DOE).256 The Secretary of Education was empowered to

determine whether these state programs complied with

federal law. After the judgment revealed state program

deficiencies, the DOE maintained the power to (a) issue

an administrative complaint and (b) request a cease-and-

desist order. If the state program violated federal

regulations, the DOE maintained the power to initiate a

compliance agreement with a state.27 This arrangement

was designed to document infractions and provide for an

organized transition plan.

According to Weber, the DOE did not undertake many

affirmative efforts to bring attention to non-compliant

plans. However, the DOE maintained ongoing reviews of

state plans258 and conducted audits of the state use of

IDEA funds. The DOE and has maintained the power to

reclaim amounts that were deemed to be inappropriately

spent.25 This doctrine was upheld in federal when the

court required the Louisiana State Board of Education to

refund federal education monies despite the ruling that

the State Superintendent was responsible for the

misapplication of funds.260 However, the federal court

reversed a lower court decision that same year,261

finding that the California State Board of Education was

not liable for the balance of $1.2 million of federal

education dollars on the grounds that the impunity

transcended the issues identified in the notice of

hearing. According to Weber, the reclaimed amounts were

generally reduced for mitigating circumstances and

limited to (a) inaccurate direction from federal

agencies, (b) inappropriate courses of action precluded

by formal written inquiries, and (c) reasonable reliance

upon an existing court order.262

Although the federal government was empowered to

sanction non-compliant state special education plans,

the greater burden of program evaluation was delegated

to the SEA.263 The ultimate legal responsibility for

state special education programs was the responsibility

of the SEA.264 States have traditionally utilized a

series of audits to monitor, evaluate, and correct

incompatible applications of special education law.265

The audit format required SEA representatives to

directly monitor the local education program.266 Federal

representatives analyzed reported data and evaluated the

manner in which services were delivered and records were

kept.267 The courts have maintained that state

educational agencies were required to pursue other

measures if a history of ineffective state agency

monitoring was indicated.26" If a state has determined

that a local school district violated federal

requirements, federal statutes required the SEA to

withhold funds until the district acquiesced into full

compliance.26 This process indicated a notice to hearing

and the LEA was permitted to present evidence on its

behalf.270 With the exception of state education policies

that were in direct contention with state law,271 school

districts did not have the option to sue state or

federal agencies for adequate funding on behalf of a

FAPE.272 The courts have held that only parents can sue

for injunctive relief to correct non-compliant aspects

of a local special education program.2"' The courts have

allowed parents to obtain an injunction to enhance state

monitoring practices on the grounds that there was no

administrative recourse for matters such as inadequate

provision of instructional space.27 The state was also

bound by federal statutes to collect and report data on

the status of special education programs throughout the


The General Provisions Act permitted the federal

government to mandate state plans that monitor,

investigate, and attempt to resolve all formal

complaints that pertain to federally funded educational

programs. 27 In 1980, these provisions were consolidated

into the Education Department General Administrative

Regulations (EDGAR).277 As such, the regulations

permitted a period of sixty days to complete a site-

based investigation and resolve the issue.278 After this

period, states were permitted to submit complaints that

were issued to the DOE.279 The courts have maintained

that this process was necessary but not sufficient to

completely fulfill the state's obligations for a FAPE.280

The Fourth Circuit Court of Appeals upheld the SEAs

right to hearing during the formal grievance

procedure.281 In this ruling, the federal government

withheld $50 million in state IDEA funds from the

Virginia State Department of Education on the grounds

that discipline procedures ran contrary to the current

disciplinary requirements.282 The Virginia state statutes

allowed schools to expel special education students

regardless of the alleged manifestation of the student's

disabling condition. The court found that regardless of

violations, SEAs possess the ability to appeal under


In accordance with Title VI of the Civil Rights Act

of 1964,283 Title IX of the Education Amendments of

1972,284 and Section 504 of the Rehabilitation Act of

1974,28 the Office for Civil Rights (OCR) of the U.S.

Department of Education was empowered to terminate

funding for grantees in violation of federal law. A

formal hearing was permitted and the OCR established a

three month statute of limitations.28

Funding Formulas, Incentives, and Disincentives in

Special Education

Special education finance has traditionally

operated under the philosophical framework of excess

costs.27 Excess costs were defined as the total costs of

educating a special education student minus the costs to

educate a regular education student.288 The utilization

of separate funding structures (between special and

regular education) has fostered a less accurate measure

of excess costs.289 Cost increases in regular education

that have not necessarily applied to special services

were associated with a reduction of the excess cost

amount.290 For example, if general education received a

10 percent increase in school funds, measures of excess

cost would be misleading. If enrollments stayed the

same, that 10 percent increase would have reduced the

excess cost per student (e.g., by $400) and affected the

state aid share by $400,000. This hypothetical district

would have received fewer special education dollars even

though enrollment had not changed.

The evolution of special education law and finance

has encouraged educational administrators to refer to

excess costs in new ways.291 Supplemental costs were

identified as excess costs that were provided in

addition to the regular education program. Replacement

costs were, therefore, excess costs that were provided

instead of the regular education program. This shift in

terminology generalized to categorical programs that

were compensatory in nature. Furthermore, Hartman

referred to supplemental and replacement costs as less

punitive for LEA and SEA funding systems.292

Other research addressed the excess cost formula's

lack of predictability.29 These data indicated that less

restrictive service provision, such as inclusive

practices, were inhibited under the excess cost system.

Under the weighted formula--that favored the labeling of

students with disabilities--students were identified in

terms of full-time-equivalent (FTE) average daily

memberships. The overall effect was the crediting of

special education only for the time that students were

in special education programs. Naturally, this created a

fiscal incentive to maximize the percentage of time

students were in special education settings.

Vertical Adiustments to Special Education Funding

McLaughlin and Owings reported no significant

relationship between poverty and overall identification

rates.2 However, for students with learning

disabilities in certain years, they found a significant

negative relationship (-0.5) between the identification

rate and the percentage of students living in

impoverished conditions.29" These data suggested that

wealthy districts were more likely to identify high

percentages of students in the milder and more

subjective categories of disability.296 The authors

reported that the ability to manipulate state and

federal dollars for special education indicated flaws in

the local program rather than true differences in

educational need.

A survey of federal statutes revealed a wealth

adjustment on the basis of student poverty.297 The

current IDEA wealth adjustment was predicated upon the

finding that high concentrations of poverty were

associated with greater numbers of IDEA-eligible

children.298 Under the new IDEA provisions, high poverty

states received a larger proportion of Part B funds.299

Research by Chaikind, Danielson, and Brauen demonstrated

that concentrations of poverty were associated with at-

risk conditions that have, in turn, lead to increased

requirements for special education services.300 With this

adjustment, additional resources for special education

were applied in a preventive manner.

Incentives for Special Education Funding

A review of special education funding incentives

was essential to the policy evaluation of placement

neutrality. The CSEF contended that an incentive-free

funding program has not been realized.301 A funding

system was not characterized as a neutral mechanism for

the collection and distribution of revenues. Therefore,

these systems have maintained the potential to purposely

or inadvertently create policy incentives for certain

types of placement and program decisions.30

Parrish described two significant funding

incentives that affect policy and program decisions:

restrictiveness resulting from public aid differentials

and incentives for private placements.0"3 Restrictive

settings, while contraindicated by the doctrine of LRE,

were not prohibited under the IDEA's continuum of

services. However, state legislatures violated

placement neutrality by utilizing cost-based funding

practices without regard to individual student needs.305

Parrish described the problem:

Historically, cost-based funding systems have
been seen as strong bases for driving funding
differentials. The concept underlying this
type of system is that the amount of aid a
district receives for a student with special
needs should be directly related to the cost
of providing services for the student. Since
all categorical funding formulas have an
underlying cost rationale, many school finance
experts and policymakers have preferred
systems that differentiate funding amounts on
actual differences in the cost of services.306

Policy problems arose when school districts

inadvertently created incentives based on program cost

differentials. U.S. News and World Report indicated a

seminal example of this type of fiscal incentive for

restrictive placement. In 1993, Texas paid ten times the

average per-pupil expenditure for the instruction of

students with disabilities in separate classrooms.307

While the costs associated with these placements may be

indicated by such drastic adjustments, the result

indicated a policy conflict for the LRE: in 1993, Texas

mainstreamed five percent of its special education


Private special education placements have also

demonstrated fiscal placement bias.309 The CSEF has

reported that the incidence of private special education

placement varies from state to state.31 This variation,

according to Parrish, was determined by the political

base of the state and the role that private educational

placements play in the continuum of services.3" The

funding bias occurred when few factors precluded private

placement: the availability, acceptance, and histories

of preference for private placements have often

determined the degree to which the bias exists."3

Shapiro, Loeb, and Bowermaster illustrated this bias:

Cities like New Haven [Connecticut] actually
save money when they send students to out-of-
district schools, even though these schools
can cost the state more than $100,000 per
student, because the state picks up the bulk
of the cost.313

State policy preference for expensive private

placements has also degraded the school district's

ability to collaborate and serve individual student

needs.314 Policy research suggested that funding should

follow students--not placements--to the local districts

where "decisions were best made concerning private

versus public school program investments."315 McQuain

conducted legal and policy research that revealed

private placement decisions that were "always somewhat

subjective." Moreover, tuition payments to private

special education institutions were among the single

highest costs to a school district."3

The CSEF determined that fiscal incentives for

special education policies should be targeted and

addressed in federal and state legislative reform.3"

Hartman concurred, indicating that fiscal incentives

should not necessarily be avoided. Rather, these

incentives should be recognized to reward behavior

concurrent with the legislative intent of the IDEA, and

utilized to discourage the proliferation of unnecessary

special education placements. 18

Within the context of placement neutrality, Parrish

outlined several federal priorities that have empowered

state governments to legislate effective special

education finance programs.319 Several assertions were

made concerning the five basic state methods of

compensatory aid for special education programs. First,

education finance policy would affect local program

provision of funds because there were no incentive-free

financing systems. Furthermore, policy provisions should

support--or at least not obstruct--the core values

associated with the federal program and the

appropriations based on type of student placement offer

less flexibility for state and local educational

agencies.32 Finally, allocations based on less specific

criteria (e.g., total enrollment) have demonstrated the

most flexibility for state and local educational


Cost Analysis Methodoloaies

Policymakers have maintained the importance of

special education cost analysis. A general lack of

data,322 and the inaccuracy associated with traditional

excess cost systems323 have increased this awareness. For

this reason, a large division of the literature accorded

with various analytical approaches.

Cost Analysis and Special Education

A 1988 study conducted by Lewis, Bruininks, Thurlow

and McGrew was the first study to demonstrate the

applicability of special education benefit-cost

analysis.324 Historically, benefit-cost analysis was

thought to be an ineffective manner of determining the

intangible benefit associated with special education

programs.325 The field of special education traditionally

based the success of a program on the degree to which

significant moral, social, and educational values were

met. These broad ideals were considered immeasurable in

traditional economic terms. Furthermore, a benefit-cost

evaluation of special education was perceived as a moot

endeavor on the grounds that social mandates--such as

the IDEA--were required in spite of fiscal

inefficiency.36 These perceptions discouraged the

academic scrutiny of such monetary benefits.

The Lewis et al. study was an early application of

benefit-cost analysis in special education. Cost and

outcome data for twenty-eight high school students with

developmental disabilities were analyzed to determine

the degree to which special services matched their

resource costs. The results indicated that with

appropriately defined, measured, and valued costs and

benefits, the traditional framework of benefit-cost

analysis could be applied to special education. The

study design evaluated resource utilization in current

programs and simulated the outcomes associated with

policy alternatives.

With the established validity of formal benefit-

cost analysis in special education, Lewis, Bruininks,

and Thurlow conducted a three part evaluation of urban

special education programs for students with mental

retardation.32 In this series, the results indicated

that standardized units (i.e., hours of special

education service) facilitated an effective comparison

of cost analysis between school districts. Furthermore,

data indicated that representations of current state

reimbursement rates for special education do not

accurately reflect the burden of total costs assumed by

local districts. These rates tended to overstate the

degree of federal and state assistance to local schools.

Costs and Policy

In an evaluation of the Pennsylvania education

finance system, Hartman described the criteria for the

evaluation of special education.328 The author found that

wide differences in programs and services hindered state

special education policy. Additionally, the author

described an effective funding formula that which was

needs-based, streamlined, predictable from year to year,

logical, and cost effective."' Hartman suggested that

the expenditures associated with special education

should be stable and related to specific programmatic

and economic characteristics of the state. These costs

should also represent a shared and well-organized fiscal

partnership between the state and local school


Parrish concurred with these findings after 15

years of research.331 In this policy analysis, the CSEF

described an effective formula as one that was

identification neutral; that is, utilized programming

without fiscal regard to sheer numbers of students or

the stigma of labels.332 Furthermore, the CSEF found that

there should be a "clear and conceptual link" to the

general education finance program to serve the

unification and streamlining of state objectives of

equity for all students.333

Cost awareness of high-growth areas of special

education were a paramount policy concern for

policymakers and researchers.33 Lipsky, Kerzner and

Gartner recognized the fiscal policies that handicapped,

over-classified, and impersonalized students with high-

prevalence disabilities."' In a synthesis of ten years

of research, the authors found distinct trends in the

development of special education programs. First,

increased growth in mild to moderate learning

disabilities represented a function of political

pressure rather than student reality. This implied--as

the CESF concurred ten years later336--that subjective

placement of students into remediative programs

demonstrated a synergy when applied within the context

of biased funding practices. Second, funding practices

that discouraged prevention encouraged over-

classification and the functional exclusion of students

with disabilities. Finally, the authors drew upon ten

years of research that demonstrated that the goals of

the IDEA could not be met in separate fiscal systems.

This contention accorded with the "unified system"

initiatives indicated by other research in special


Many practical fiscal issues burden the "unified"

approach to systemic special education finance reform.

First, the allocation of personnel was usually the most

difficult item to reposition within a district's funding

schema.338 The greatest reported distinction between

inclusive and categorical systems was the lack of a

collegial instructional setting.339 The CSEF reported

that faculty and support personnel relating to the

objective of inclusion required significant professional

development. Transportation dilemmas also arose in an

inclusively funded setting. Transportation represented

an area that saved inclusive districts the most money,

but much of the benefit was realized over the long

term.340 Finally, the CSEF suggested that school

districts must commit to the full accessibility of

campus services and the physical plant.341 In this

respect, an inclusive setting with architectural

barriers that unduly impeded the welfare of students

with disabilities was still considered exclusionary.

Climate surveys from the CSEF demonstrated a

significant concern for district flexibility and the

stringent federal mandates of the IDEA.342 In short,

state and local administrators reported that they were

over-regulated and under-funded.343 State reforms tended

to be multifaceted and emphasized local flexibility.344

Three state reform initiatives that targeted local

flexibility also fostered a slight reduction in the

number of students identified for special education

service.34 Intensive collaboration innovated local

practice by utilizing special education resources in

regular education classrooms, fine-tuning the pre-

referral process, and eliminating any state connection

between funding and over-identification.346

In 1991, Hartman identified two primary methods

employed by state legislatures to contain the costs of

special education.347 Fiscal controls were identified as

policy caps on special education expenditures through

limitations of money to special education programs,

funding per student, or permissible excess cost

shares.34" Indirect approaches to fiscal controls

included the limitation of a percentage of the costs

supported by the state. These measures required cost-

effective program delivery based on a greater LEA

financial share. These methods amounted to a broad

effort to control the state's funding obligation and

pare costs. This resulted in the increased share of the

financial responsibility to local school districts,

where specific program decisions and political problems

were usually delegated.349

Hartman also described the strategic nature of

program controls. The author described impact limited

program characteristics, such as (a) eligible students,

(b) placement typologies, (c) distributions in low and

high cost placements, (d) personnel organization, and

(e) assistive technology and materials.350 These

approaches reflected precise adjustments to special

education budgets, directing the impact to specific

program components. According to Hartman, program

controls were clearly preferred over traditional fiscal

controls: they required policymakers to organize and

prioritize program goals. Furthermore, the more precise

the method of cost control, the easier it was to assess

the reliability and effectiveness of the outcomes.351

Hartman noted, however, that precision approaches to

cost control were subject to scrutiny by parent and

special interest groups who have a political interest in

the allocation of such resources.352

Evaluation of Funding Practices

The CSEF indicated in 1998 that the most recent

comprehensive data on national special education

expenditures were over a decade old.353 Since the

enactment of the IDEA, a review of the literature

revealed three comprehensive cost evaluations of the

national special education program: Rossmiller, Hale,

and Froereich (1970),354 Kakalik, Furry, Thomas, and

Carney (1981),355 and Moore, Strang, Schwartz, and

Braddock (1988).356

Rossmiller et al. examined state special education

expenditure growth in fifty states by comparing per

pupil expenditures of students with and without

disabilities in 1968 and 1969. These data suggested that

the average expenditure per special education student

increased at an average rate of 4.08 percent a year.3

The 1981 and 1988 surveys were organized into

expenditure ratios that presented special education

costs on a per pupil basis expressed in relation to

general education costs. This cost factor approach,

based on categorical and grade-level programs,

represented the most prevalent cost-per-student


The Kakalik et al. survey suggested that the cost

of educating a student with disabilities was, on the

average, 2.17 times the cost of educating a non-disabled

peer in general education. This cost-per-student

approach summarized all costs associated with categories

of special education and divided the total program costs

by the frequency of students served. According to

Chambers and Hartman, this research design was hindered

by the obscurity of highly disparate special education

program costs.359 The use of average costs also obscured

cost variances associated with educational need.360

The Moore et al. study--conducted seven years

later--indicated a higher expenditure ratio of 2.28. The

findings from these three studies revealed a steady

expansion in special education expenditures since 1968.

Furthermore, the Moore et al. study indicated a

financial shortcoming in the benefit-cost analysis of

student assessment. The authors reported that the

compounded cost of eligibility assessment was $1,206 per

student.361 Parrish and Verstegen responded to this


Assessment is an exercise with little or no
instructional benefit, and it is conceivable
that states actually lose money by
participating in the federal entitlement for
special education At the rate of about
$400 per year [per identified student] in
federal funds, the costs of the resulting
services will be borne by the state for any
number of years before any cost-benefit will
be realized from the receipt of federal

The CSEF augmented the findings of these three

studies and adjusted for inflation to derive a broader

picture of growth in special education since 1968.36

Parrish divided this increase over time segments and

extrapolated a higher increase (6.86 percent per year)

for the period of 1968-69 to 1977-78. The same

extrapolation process indicated a growth rate of 1.05

percent for the period of 1977-78 to 1985-86. In

adjusted terms, the expansion of costs was less

pronounced, but still implied a steady growth.

These approaches to special education cost analysis

revealed a significant shortcoming. According to

Chambers and Hartman, traditional cost analyses did not

account for the efficiencies associated with economies

of scale.364 The organizational efficiency of special

education programs varied throughout the nation. States

and district governments with more responsive special

education programs were generally more uniform and

utilized streamlined service delivery. A lump-sum index

of costs for highly variant programs may have masked

differences in the educational organization of programs

and obscured the accurate statistical inference of these


Singletary characterized first or second generation

cost analyses of special education.365 The first

generation related to cost data gathered by program and

expenditure function for each disability categories.366

Studies in this category developed cost indices that,

unlike per-pupil expenditure measures, permitted gross

comparisons to be made among and between districts, or

within a district over time.36" This research included a

meta-analysis that indicated wide variances of costs

across (a) disability categories and (b) districts

within states. These studies from the early 1970s

indicated the common use of weighted pupil, weighted

unit, or cost indices. Many state legislatures have

since departed from these methods that achieved "equal

access to educational practices" as supported in

Robinson v. Cahill.368

The second generation of cost evaluations dealt

with cost factors and the relationship to the quality of

special education programs.369 These studies investigated

cost discrepancies and the analysis of variance among

cost indices for similar target districts.370 These post-

Cahill studies examined the relationship of input to

quality. Synthesized data revealed the following trends:

1. A statistically significant relationship between

the rated quality of the special education

program and the breadth of programs offered by

the district;

2. No relationship between the rated quality of the

special education program and pupil-teacher


3. A significant relationship between the rated

quality of the special education program and the

level of teacher preparation/experience; and

4. Identifiable, qualitative factors such as

educational philosophy and district cohesion

were systematically related to the quality

ratings of the special education program.371

These first and second generation cost indices reflected

a trend throughout the legislative beginning of the IDEA

that encouraged the provision of equal access to wealth

and educational opportunity.72

Contemporary, post-P.A.R.C. cost analyses have

scrutinized the role of service delivery and

administrative design. Hagerty and Abramson reported no

significant difference in achievement gains between

resource (less restrictive) and self-contained (more

restrictive) special education settings.37 There was,

however, a $1500 difference in per-pupil cost. When pre-

and post-test scores were evaluated through the average

per-pupil expenditure (APPE), the authors found the

least restrictive setting of the resource (or pull-out)

room to be considerably more cost effective than more

restrictive settings.7

Tappe provided a hierarchical tabulation of special

education costs and presented discussion on the nature

of growing special education expenditures.375 The author

reported that special education enrollments increased

proportionally to federal and state special education

program expenses.376 Tappe recognized that personnel and

staffing requirements represented the largest sum of

increased expenditures, but offered the following

justifications for increased program costs:

1. Lower teacher/pupil ratios

2. Increased survivability of children with

disabilities through medical and therapeutic


3. The exodus of children with severe disabilities

from state institutions

4. Extended school services beyond the 180 day

school calendar

5. Rising costs associated with assistive and

therapeutic devices

6. Costs associated with intensive inclusion


7. Capital outlay increasing facility access for

students with disabilities

8. The proliferation of private special education


9. Personnel and administrative costs relating to


10. Specialized transportation services

11. Shifting of financial responsibility between

various state agencies

12. Increased frequency of student referrals from

general education

Major Court Cases Relating to Special Education Finance

Court decisions have contributed to the evolution

of special education policy. These decisions have served

to broaden federal, state, and local governmental

responsibilities for special education. Legal issues

derived from the body of court cases ranged from equal

protection under the law to the equitable distribution

of public special education funds. This review of

special education jurisprudence represented two distinct

strands: cases supporting the initial federal

involvement in special education policy and emerging

issues in special education finance.

Constitutional Foundations for FAPE

The Fourteenth Amendment was particularly germane

to a legal discussion of special education finance. The

literature indicated three accepted doctrines of equal

protection. Historically, Fourteenth Amendment

litigation evidenced a distinctive suspect class.377 This

class was defined as a distinct or remote minority group

that exhibited pervasive discrimination based on

immutable characteristics.378 This first classification

of equal protection, strict scrutiny, applied to the

highest of judicial imperatives; i.e, governmental

policies that discriminated or infringed upon

fundamental Constitutional rights.37 Fourteenth

Amendment litigation has also addressed the

institutional violations against a suspect class.380 A

population with disabilities has not constituted the

definition of a suspect class and only a handful of

courts have recognized the suspect or quasi-suspect

class of the disabled.38' However, the courts have held

that people with disabilities have met many--if not all-

-of the characteristics of the suspect class definition:

an immutable condition382 that evoke stigma and

stereotypes,383 and the status of a "discrete and insular

minority. 384

Rational relationship suits referred to laws or

policies that possessed only a logical connection to a

legitimate civic objective.385 This classification

presumed the constitutionality of the law in question,

and was addressed by judicial review only on the grounds

that it was "clearly wrong, a display of arbitrary

power, [and] not an exercise of judgment."386 The U.S.

Supreme Court has declined to recognize people with

disabilities as a true suspect class and applied the

rational relationship as a tool to examine allegedly

discriminatory acts.387

An intermediate level standard suit was exercised

in Plyler v. Doe38 as a measure to blend the perceived

leniency of rational basis and the stridency of strict

scrutiny. Intermediate measures were pursued to correct

substantial civil violations against a target


The legal doctrine of Zero Reject was described as

a direct manifestation of Fourteenth Amendment.390

According to Turnbull, the Equal Protection Clause

established the ground rules for federal protection of

students with disabilities.391 This provision stipulated

"No State shall make or enforce any law which
shall abridge the privileges or immunities of
citizens of the United States; nor shall any
State deprive any person of life, liberty, or
property, without due-process of law; nor deny
to any person within its jurisdiction the
equal protection of the laws."392 Legal
scholars have concurred that without the
Fourteenth Amendment, the federal government
would have little control over the
administration of special education
programs .

Courts have also addressed the Constitutional

importance of the substantive due-process provisions of

the Fifth and Fourteenth Amendments. Mills v. Board of

Education,394 and P.A.R.C.395 detailed the substantive

due-process aspects of a free and appropriate public

education (i.e., a meaningful education that prevented

the practice of functional exclusion). 3

Brown and Generalizations of Equal Protection

Brown v. Board of Education397 fundamentally changed

the role of the federal government in cases of equal

protection. In this decision, the U.S. Supreme Court

declared that segregated placements based upon race were

unconstitutional. The court stated:

We conclude that in the field of public
education the doctrine of 'separate but
unequal has no place. Separate educational
facilities were inherently unequal. Therefore
we hold that the Plaintiffs and others
similarly situated for whom the actions were
brought are, by reason of the segregation
complained of, were deprived of the equal
protection of the laws guaranteed by the
Fourteenth Amendment.398

This ruling reversed a previous decision in Plessy

v. Ferauson that justified the doctrine of sanctioned,

public segregation.399 According to Turnbull, the

judicial reasoning utilized in Brown would serve to

drive the series of disability-rights consent decrees of

the 1960s.400 These decrees were essentially forced

integration mandates; based on disabling condition

rather than race. The integrative spirit of Brown was

well suited for proponents of inclusion: the issues of

inclusion and admission were mutually exclusive to (a)

the administration of insular special education programs

and (b) the state of segregated schools in the 1960s.

According to legal scholars, the courts have mandated

changes in state special education programs, but

delegated the responsibility of systemic policy changes

to Congress.401 Alexander and Alexander described the

chief strategy of the Warren Supreme Court as that which

recognized the need for orderly progress toward the goal

of integrated schools, but within the context of

congressional authority.402 This meant that the court

would limit itself to minimum personal relief for the

plaintiffs in Brown, but left the task of legislating

detailed rules for implementing desegregation to

Congress.403 Ashmore concurred, stating that the Brown

ruling--which delegated the larger task of systemic

educational change to the federal government--affirmed

the inherently political nature of local school


P.A.R.C., Mills, and Equal Protection

Until the implementation of the EAHCA in 1975,

there existed a separate educational system of treatment

for people with disabilities. Prior to this legislation,

the legal doctrine of parents patriae, or the power of

the state to intervene upon the lives of people with

disabilities, fostered a separate legal status for such

individuals.405 Most importantly, the systematic practice

of exclusion was based upon the fallacy that people with

disabilities were inferior and incapable.406 In this

environment, the provision of a free and appropriate

educational opportunity for students with disabilities

was unclear and unprecedented.407

The dual system of education described in Brown

accorded with the segregation of students with

disabilities. The Warren Court identified the effects of

exclusion on minorities:

To separate them generates a feeling of
inferiority that may affect their
hearts and minds in a way unlikely ever to be
undone Segregation has a detrimental
effect upon children. The policy of separating
them is usually interpreted as denoting
The dual special education system was characterized by

the systematic exclusion of students and the

inappropriate utilization of educational methods and

placements.409 Furthermore, students with disabilities

were pervasively denied procedural due-process.41

A 1969 federal consent decree prompted a wave of

litigation that would significantly alter the letter of

federal and state law. Wolf v. Legislature411 maintained

that educational opportunity was a fundamental and a

most critical function of the government. This concept

drove the issue of special education into two critical

federal district court suits.

P.A.R.C.42 expanded the legal reasoning in Brown to

the segregative context of special education resources.

This decision sought to create a nexus between the race

suspect class of Brown and the immutable status of

citizens with disabilities. This case was followed by a

pair of concurrent consent decrees413 pursuant to 42

U.S.C. 1981 (Equal Rights under the Law)414 and 42

U.S.C. 1983 (Civil Action for the Deprivation of

Rights)415 on behalf of all excluded Pennsylvania

citizens with developmental disabilities. The case

called into question the classification scheme that was

utilized by the state that excluded students on the

basis of "uneducability," "untrainability," and

"excusability." The consent decrees affirmed that

persons with developmental disabilities were capable of

benefiting from a public education. Furthermore, the

federal district court held that the state was held

financially responsible for such a program that was (a)

appropriate to their capacity and (b) within the most

normalized setting. The court also found that the

state's tuition maintenance statute--which provided

tuition for private schools--was applicable to all

special education placements; that is, all children with

disabilities were entitled to the same private

educational benefits if they were deemed appropriate.

Mills v. D.C. Board of Education416 represented the

next logical step in special education finance

litigation. Mills extended the P.A.R.C. ruling to

require state responsibility for all disability

categories. The plaintiff successfully argued equal

protection for over 20,000 excluded children with

various disabilities. The District of Columbia School

Board acknowledged its legal responsibilities mandated

by P.A.R.C., but maintained that comprehensive special

education programs would create an undue financial

burden upon all school programs. The court concurred

with P.A.R.C. jurisprudence that the U.S. Constitution

and D.C. Code required the uniform provision of

educational programs for all students; including those

with disabilities. Furthermore, the court held that

existing funds were to be distributed in such a manner

that no child was entirely excluded, and that

educational shortcomings were not to shift to any

particular class of students. As a protective measure,

the court mandated the establishment of enhanced due-

process provisions excluded from a public school


Policy Responses from the P.A.R.C. and Mills Decisions

These two rulings initiated a series of equal

protection suits throughout the nation.417 By mid-1975,

the House of Representatives reported that over forty-

six suits were underway in twenty-eight states.418 With

the exception of Ohio and Mississippi, all state

educational agencies were--as of July 1, 1975--under

statutory or court mandates to provide full educational

opportunities for children with disabilities.19 Thomas

and Russo indicated that the plaintiffs in these cases

were very successful in clarifying and securing

appropriate special education programs.420

However, Turnbull,421 and Thomas and Russo422

reported that many school districts refused to comply on

the grounds that (a) the mandates caused undue financial

burdens, (b) special programs were underdeveloped, and

(c) staff capabilities, instructional materials, and

building facilities were inadequate. Many state

legislatures responded with ambiguous statutes that

provided for certain populations of students with

disabilities. These state policies forced parents--under

no promise of assessment or placement--to assume the

partial funding of special education services.42

Although the success of the litigants in P.A.R.C. and

Mills prompted many state legislatures to pass related

statutes for the provision of special education

programs, only seven states had comprehensive provisions

with sufficient guidelines for compliance and

substantive due-process.42

Early School Finance Litigation

Between 1968 and 1970, several U.S. Supreme Court

cases utilized the legal reasoning in Brown to draw

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