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

Material Information

Title:
The fiscal paradox of the Individuals with Disabilities Education Act (PL 101-476) an analysis of federal policy
Creator:
Wanzenberg, Matthew C., 1971-
Publication Date:
Language:
English
Physical Description:
ix, 246 leaves : ; 29 cm.

Subjects

Subjects / Keywords:
Disabilities ( jstor )
Disability laws ( jstor )
Education ( jstor )
Educational research ( jstor )
Finance ( jstor )
Funding ( jstor )
Schools ( jstor )
Special education ( jstor )
Special needs students ( jstor )
Student costs ( jstor )
Dissertations, Academic -- Educational Leadership, Policy and Foundations -- UF ( lcsh )
Educational Leadership, Policy and Foundations thesis, Ph.D ( lcsh )
Genre:
bibliography ( marcgt )
non-fiction ( marcgt )

Notes

Thesis:
Thesis (Ph.D.)--University of Florida, 1999.
Bibliography:
Includes bibliographical references (leaves 225-244).
General Note:
Printout.
General Note:
Vita.
Statement of Responsibility:
by Matthew C. Wanzenberg.

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright [name of dissertation author]. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Resource Identifier:
021581686 ( ALEPH )
43707687 ( OCLC )

Downloads

This item has the following downloads:


Full Text













THE FISCAL PARADOX OF THE INDIVIDUALS WITH DISABILITIES
EDUCATION ACT (PL 101-476): AN ANALYSIS OF FEDERAL POLICY











By

MATTHEW C. WANZENBERG


A DISSERTATION PRESELI.ED TO THE GRADUATE SCHOOL OF THE
UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY

UNIVERSITY OF FLORIDA


1999




THE FISCAL PARADOX OF THE INDIVIDUALS WITH DISABILITIES
EDUCATION ACT (PL 101-476): AN ANALYSIS OF FEDERAL POLICY
By
MATTHEW C. WANZENBERG
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE
UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1999


Dedicated
to superb educators in my family:
s. Clara Rasmussen Olson, Mrs. Maude Rich Dietrich, Mrs.
Emily Mildred Dietrich, Mr. Ralph B. Wanzenberg, Dr.
Chester Leathers, and Joanna Leathers


ACKNOWLEDGEMENTS
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.
0. 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 w'orld 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?
in


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.
IV


TABLE OF CONTENTS
page
ACKNOWLEDGEMENTS i i i
ABSTRACT viii
CHAPTERS
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
2 LITERATURE REVIEW 14
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
3 METHODOLOGY 122
v


Sources of Information 124
Data Organization 126
Data Analysis 126
Synthesis 127
Standards for Adequacy for Policy Analysis. . .128
4 FEDERAL POLICY ANALYSIS OF THE IDEA 132
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
5 A MODEL PLACEMENT NEUTRALITY POLICY
FOR THE FEDERAL GOVERNMENT 192
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
APPENDICES
A DEFINITIONS 217
B METHODS OF STATE FUNDING FOR SPECIAL
EDUCATION 221
C FREQUENCIES OF STATE FUNDING BY TYPOLOGY AND
BASE 224
REFERENCES 226
vi


BIOGRAPHICAL SKETCH
246
Vil


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
THE FISCAL PARADOX OF THE INDIVIDUALS WITH DISABILITIES
EDUCATION ACT (PL 101-476): AN ANALYSIS OF FEDERAL POLICY
By
Matthew C. Wanzenberg
December, 1999
Chairman: Dr. R. Craig Wood
Major Department: Educational Leadership, Policy, and
Foundations
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.
vi.11


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
IX


timeline
national
to transition non-compliant states, and (c) a
transition plan.
x


CHAPTER I
INTRODUCTION
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
programs.
1


2
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.10 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,11 inappropriate
special education programs,12 and educational spending that
did not accord with contemporary finance equity theory.13


3
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.17 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.18 A litigative summary of recent special education
finance also revealed the reluctant recommendation of funding
practices that could jeopardize the LRE.19 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:


4
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?
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?
2.


5
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
addressed.25
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 growthand the


6
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."31
The doctrine of preventive law suggests that the
consummate way to deal with a legal problem is to prevent it
from happening.32 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.


7
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.


8
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
analyzed.
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
Research^' and the Federal Register. A list of applicable
terms, definitions, and concepts appears in Appendix A of
this study.
Limitations
Although this study had ultimate applicability to all
states, legal case studies have been limited to states in


9
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.


10
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.


11
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. §§ 1401-1491o (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
(1998)].
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) .


12
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.
17 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
1987).
21 Parrish, supra note 11.
22 2 0 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) :
459-462..
25 CSEF, supra note 13.


13
26Verstegen, 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),
1.
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 2 0 U.S.C. § 1415 (1998) .
31 Turnbull, supra note 12, at 83.
32 Osbourne, supra note 29, at 240.
33 2 0 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: htto://www.ed
gov/offices/OSERS/OSEP/OSEP98AnlRpt/
36 Turnbull, supra note 12, at 186.
37 Jacobstein, J. Myron, and R. M. Mersky, Ervin H.
Pollack's Fundamentals of Legal Research (Minela, New
York: Foundation Press, 1973).
38 Individuals with Disabilities Education Act
Amendments, P.L. 105-17 (1997) .
39
Ibid.


CHAPTER 2
LITERATURE REVIEW
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
bias?
3. What federal requirements exist to either
promote placement neutrality or prohibit fiscal
bias?
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.
14


15
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


16
have translated into a legal manifest for society to
follow.
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
roles.6
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


17
... 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 context10 was presented
in Public Law 94-142.11 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.13 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?


13
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 equalizeddollars 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
opportunities)?
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
finance?15
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.17 Although the IDEA broadly addressed costs,


19
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. Rodriguez, 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


20
nation.22 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


21
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


22
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


23
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.31 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.32 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


24
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
benefits.36
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).37 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
t
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


25
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
adjustments?
Perhaps Congress addressed taxpayer equity concerns
most succinctly during the earliest drafts of Public Law
94-142:
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
society.41


26
Inclusion as Ecruitv
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.44
According to Parrish, inclusion policy provided a
natural political tension between taxpayer and client
perceptions of equity.45
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 occured when children were denied access
to educational opportunity, provided inadequate


27
education, or served unresponsively.46 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."48
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.1,50
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


28
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 termswas
sometimes legitimately imposed, large institutions have
exercised no control over the social stigmatization of
classified subjects.55
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.57 Second,
the over-representation of some minority classes in
special education has implied "racially specific harmful
effects."58 Finally, equal protection was indicated to
insulate children from the possibility of such
misclassif ication.59
A survey of the literature revealed a history of
sparse funding for special education programs.60 Before
federal legislation monitored educational opportunity
for students with disabilities, school districts
pervasively and continuously failed to serve the


29
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
1994.63
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.64 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


30
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.71 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.72


31
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
Clausehas 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 Helverina
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.79


32
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 Education31
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.85 Mills
applied equal protection broadly to all students; not to
a singular grouping of students.86 In contemporary terms,


33
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. Rowlev91 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.95
Cronin responded to the perceived federal encroachment,


34
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."97 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 moneyin
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


35
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.104


36
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.105 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.106 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.108 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


37
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 Burn 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.111 Prior to these laws, the federal government
took no active role in support for special education
programs.112
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


38
from parent groups, the city of Boston established the
first public day school for the education of students
with hearing impairments.113 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.114
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.115 Contemporary management
styles reflected a premium concern for productivity and
efficiency. This ideal was often pursued at the cost of
individual liberties.116 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.11' This labeling served to "legitimize the
provision of differential legal, medical, residential,
economic, and socialization care."118 Cremins
characterized the use of labeling and categorical
tracking in governmental institutions as an efficient
means to contain costs and provide efficient service
delivery.119 At this point, state and federal governments


39
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.121 Furthermore, Cremins described a public
policy that possessed little flexibility to adapt to the
i o o
emerging grass roots initiatives.
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.123 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


40
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 "unteachable," they remained effectively outside
of the purvey of contemporary special educational
* 1
services.
The Emergence of State Special Education Policy
This period was also characterized by the emergence
of state initiatives for the provision of services and
training.129 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.131 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


41
certification requirements that outlined a basis of
expertise in the emerging field of professional special
education.133 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.135
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.136 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.137 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


42
lists for admission to the few available
programs, thus excluding many eligible
students.138
In Watson v. City of Cambridge.139 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


43
passed the Vocational Rehabilitation Act141 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.144 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.146 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 193O150 and the
field of educational psychology expanded the pedagogical
implications of intelligence and ability.151
A critical


44
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.154 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."155
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.156 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 1968.157 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


45
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
environment.159 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.161 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


46
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. 85-90516e established grants to colleges and
universities and was expanded in 1963 to all fields of
special education.169 This period also included the
enactment of the National Defense Education Act
(NDEA) .17 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.172 The NDEA also addressed the
duplication of educational services in other federal
initiatives.173 Most importantly, this legislation
reinforced the concept of the national educational
objective.174
In 1963, P.L. 88-164175 created a Division of
Handicapped Youth in the United States Office of
Education.1,6 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


47
that included early childhood special education,
learning theory of students with disabilities,
curriculum and materials development, and innovations in
teacher training.178
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.181 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."182
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.183 This entitlement was the
forerunner of the Education of the Handicapped Act
(EHA)184 and part B of the Individuals with Disabilities
Education Act (IDEA).185


48
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.187 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.188 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.192
Within the text of this law, Congress cited the
practices of exclusion193 and identified the national
interests inherent to special education.194
A survey of the federal initiatives in the early
1970s revealed that state educational agencies were not


49
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.196 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.199
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
\


50
state and federal statutes, and case law.201 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. 204 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
education:
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.210
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


51
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,


52
parent advocacy initiatives and services designed to
meet the needs of young employees with disabilities.218
Part H, a grant program for statewide early intervention
networks for infants and families, was authorized until
FY 1994.219
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
224
programs.
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


53
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.227
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


54
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) .230
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.231
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


55
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.2^ 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. 235 This provision secured a basic
minimum fiscal commitment to the state special education
programs without any decrease in special education
spending.
Congress strengthened LEA spending flexibility by
permitting reduced expenditures to be utilized as
virtual local funds. 236 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.*38 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


56
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
2 0 0 5.243 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


57
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.246
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
disabilities:
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
education.250


58
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. 252 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
2S4
purposes.
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. 255 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.257
This arrangement


59
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 plans'"58 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. 259 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


60
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.26j 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. 268 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. 269 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


61
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. 273 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. 274 The state was also
bound by federal statutes to collect and report data on
the status of special education programs throughout the
Union.275
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. 276 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


62
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
due-process.
In accordance with Title VI of the Civil Rights Act
of 1964,283 Title IX of the Education Amendments of
19 7 2,284 and Section 504 of the Rehabilitation Act of
19 7 4,285 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.286
Funding Formulas. Incentives, and Disincentives in
Special Education
Special education finance has traditionally
operated under the philosophical framework of excess
costs. 287 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


63
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


64
Other research addressed the excess cost formula's
lack of predictability. 293 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 Adjustments to Special Education Funding
McLaughlin and Owings reported no significant
relationship between poverty and overall identification
rates. 294 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. 295 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


65
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.302


66
Parrish described two significant funding
incentives that affect policy and program decisions:
restrictiveness resulting from public aid differentials
and incentives for private placements. 303 Restrictive
settings, while contraindicated by the doctrine of LRE,
were not prohibited under the IDEA'S continuum of
services. 304 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


67
indicated a policy conflict for the LRE: in 1993, Texas
mainstreamed five percent of its special education
students.308
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.310 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.311 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.312
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


68
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.316
The CSEF determined that fiscal incentives for
special education policies should be targeted and
addressed in federal and state legislative reform.317
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. 318
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


69
appropriations based on type of student placement offer
less flexibility for state and local educational
agencies. 320 Finally, allocations based on less specific
criteria (e.g., total enrollment) have demonstrated the
most flexibility for state and local educational
agencies.321
Cost Analysis Methodologies
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


70
evaluation of special education was perceived as a moot
endeavor on the grounds that social mandatessuch as
the IDEA--were required in spite of fiscal
inefficiency.326 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. 327 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,


71
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. 329 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
district.330
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


72
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.334 Lipsky, Kerzner and
Gartner recognized the fiscal policies that handicapped,
over-classified, and impersonalized students with high-
prevalence disabilities. 335 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 impliedas
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.


73
This contention accorded with the "unified system"
initiatives indicated by other research in special
education.337
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,


74
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. 345 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. 343 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,


75
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


76
revealed three comprehensive cost evaluations of the
national special education program: Rossmiller, Hale,
and Froereich (19 7 0),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.357
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
approach.358
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


77
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
laterindicated 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
finding:
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
funds.362
The CSEF augmented the findings of these three
studies and adjusted for inflation to derive a broader
picture of growth in special education since 1968.363
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


78
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
approaches.
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. 367 This research included a


79
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
ratios;
3. A significant relationship between the rated
quality of the special education program and the
level of teacher preparation/experience; and


80
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.372
Contemporary, oost-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. 373 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.374
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


81
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
means
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
support
7. Capital outlay increasing facility access for
students with disabilities
8. The proliferation of private special education
placements
9. Personnel and administrative costs relating to
paperwork
10. Specialized transportation services
11. Shifting of financial responsibility between
various state agencies


82
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


83
policies that discriminated or infringed upon
fundamental Constitutional rights. 379 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.381 However, the courts have held
that people with disabilities have met manyif 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.1,384
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


84
An intermediate level standard suit was exercised
in Plvler v. Doe388 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
population.389
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
that
"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.393
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) ,396


85
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 Plessv
v. Ferguson 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


86
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
rulingwhich delegated the larger task of systemic
educational change to the federal government--affirmed
the inherently political nature of local school
systems.404
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 parens 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


87
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
inferiority.408
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.410
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.412 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


88
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


89
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
program.
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 wereas of July 1, 1975--under


Full Text
xml version 1.0 encoding UTF-8
REPORT xmlns http:www.fcla.edudlsmddaitss xmlns:xsi http:www.w3.org2001XMLSchema-instance xsi:schemaLocation http:www.fcla.edudlsmddaitssdaitssReport.xsd
INGEST IEID EQY8UXWWC_XNYTB8 INGEST_TIME 2013-10-09T22:53:38Z PACKAGE AA00017697_00001
AGREEMENT_INFO ACCOUNT UF PROJECT UFDC
FILES



PAGE 1

7+( ),6&$/ 3$5$'2; 2) 7+( ,1',9,'8$/6 :,7+ ',6$%,/,7,(6 ('8&$7,21 $&7 3/ f $1 $1$/<6,6 2) )('(5$/ 32/,&< %\ 0$77+(: & :$1=(1%(5* $ ',66(57$7,21 35(6(17(' 72 7+( *5$'8$7( 6&+22/ 2) 7+( 81,9(56,7< 2) )/25,'$ ,1 3$57,$/ )8/),//0(17 2) 7+( 5(48,5(0(176 )25 7+( '(*5(( 2) '2&725 2) 3+,/2623+< 81,9(56,7< 2) )/25,'$

PAGE 2

'HGLFDWHG WR VXSHUE HGXFDWRUV LQ P\ IDPLO\ V &ODUD 5DVPXVVHQ 2OVRQ 0UV 0DXGH 5LFK 'LHWULFK 0UV (PLO\ 0LOGUHG 'LHWULFK 0U 5DOSK % :DQ]HQEHUJ 'U &KHVWHU /HDWKHUV DQG -RDQQD /HDWKHUV

PAGE 3

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nRUOG RI TXDQWLWDWLYH DQDO\VLV )LQDOO\ 'U -DPHV 'RXGEHVLGHV RIIHULQJ PH LQWHOOHFWXDO VDIH KDUERU DQG UHVHDUFK RSSRUWXQLWLHV LQ WKH GHSDUWPHQW KDV DOZD\V EURXJKW OHJDO DQG ILQDQFLDO FRQFHSWV EDFN WR WKH XOWLPDWH TXHVWLRQ LQ HGXFDWLRQDO UHVHDUFK KRZ GRHV WKLV PDNH IRU EHWWHU OHDUQLQJ" LQ

PAGE 4

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

PAGE 5

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

PAGE 6

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

PAGE 7

%,2*5$3+,&$/ 6.(7&+ 9LO

PAGE 8

$EVWUDFW RI 'LVVHUWDWLRQ 3UHVHQWHG WR WKH *UDGXDWH 6FKRRO RI WKH 8QLYHUVLW\ RI )ORULGD LQ 3DUWLDO )XOILOOPHQW RI WKH 5HTXLUHPHQWV IRU WKH 'HJUHH RI 'RFWRU RI 3KLORVRSK\ 7+( ),6&$/ 3$5$'2; 2) 7+( ,1',9,'8$/6 :,7+ ',6$%,/,7,(6 ('8&$7,21 $&7 3/ f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

PAGE 9

7KH IHGHUDO SROLF\ DQDO\VLV RI FRQWHPSRUDU\ VSHFLDO HGXFDWLRQ ILQDQFH H[DPLQHG ZKHWKHU Df WKH ,QGLYGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FWnV JRDOV FRXOG EH FRQVWLWXWLRQDOO\ IXOILOOHG ZLWKLQ WKH FRQWH[W RI SODFHPHQW ELDVHG IXQGLQJ Ef WKH OHJDO GRFWULQH RI WKH /HDVW 5HVWULFWLYH (QYLURQPHQW /5(f FRXOG H[LVW LQ WDQGHP ZLWK IXQGLQJ SROLFLHV WKDW HLWKHU GLG QRW SURPRWH SODFHPHQW QHXWUDOLW\ RU WKDW HQFRXUDJHG ILVFDO ELDV DQG Ff IHGHUDO UHTXLUHPHQWV ZHUH XWLOL]HG WR HLWKHU SURPRWH SODFHPHQW QHXWUDOLW\ RU SURKLELW ILVFDO ELDV 7KH DXWKRU DQDO\]HG Df SHUWLQHQW FRXUW FDVHV Ef FRQJUHVVLRQDO JRDOV Ff FRQJUHVVLRQDO GRFXPHQWV Ff IHGHUDO VWDWXWHV DQG UHJXODWLRQV Gf VWDWH IXQGLQJ W\SRORJLHV Hf ELDVHG IXQGLQJ FKDUDFWHULVWLFV If 'HSDUWPHQW RI (GXFDWLRQ VWDWHPHQWV DQG Jf VWDWH IXQGLQJ VWDWXWHV 7KH OHJDO DQDO\VLV UHYHDOHG WKDWLQ WKH DEVHQFH RI GXH SURFHVVSODFHPHQWELDVHG IXQGLQJ FRXOG YLRODWH WKH (TXDO 3URWHFWLRQ &ODXVH RI WKH 86 &RQVWLWXWLRQ 7KH SROLF\ PRGHO SURYLGHG DGGHQGXP WR WKH FXUUHQW IHGHUDO ODZ WR SURYLGH IRU Df FRPSUHKHQVLYH IHGHUDO VWDWXWHV SURKLELWLQJ SODFHPHQW ELDVHG IXQGLQJ Ef D ILQDQFH UHIRUP ,;

PAGE 10

WLPHOLQH QDWLRQDO WR WUDQVLWLRQ QRQFRPSOLDQW VWDWHV DQG Ff D WUDQVLWLRQ SODQ [

PAGE 11

&+$37(5 ,1752'8&7,21 7KH SXUSRVH RI WKLV VWXG\ ZDV WR GHYHORS D IHGHUDO VSHFLDO HGXFDWLRQ ILQDQFH SROLF\ IRU SODFHPHQW QHXWUDOLW\ WKDW ZDV ZLWKLQ FRQWHPSRUDU\ FRQVWLWXWLRQDO DQG VWDWXWRU\ SDUDPHWHUV 7KH UHVHDUFKHU VFUXWLQL]HG WKH ORQJLWXGLQDO OHJLVODWLYH LQWHQW DQG ILVFDO DVSHFWV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW ,'($f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f SHUWLQHQW FRXUW FDVHV Ef FRQJUHVVLRQDO JRDOV Ff FRQJUHVVLRQDO GRFXPHQWV Ff IHGHUDO VWDWXWHV DQG UHJXODWLRQV Gf VWDWH IXQGLQJ W\SRORJLHV Hf ELDVHG IXQGLQJ FKDUDFWHULVWLFV If 'HSDUWPHQW RI (GXFDWLRQ VWDWHPHQWV DQG Jf VWDWH IXQGLQJ VWDWXWHV UHODWLQJ WR WKH IXQGLQJ RI VSHFLDO HGXFDWLRQ SURJUDPV

PAGE 12

3UREOHP 6WUXFWXULQJ DQG 3ROLF\ 3UREOHPV 7KH SURWHFWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV IURP WRWDO H[FOXVLRQ DFFRUGHG ZLWK D KLVWRU\ RI 86 6XSUHPH &RXUW DQG )HGHUDO 'LVWULFW &RXUW UXOLQJV 7KLV HTXDO SURWHFWLRQ HQWLWOHG VWXGHQWV ZLWK GLVDELOLWLHV WR D IUHH DQG DSSURSULDWH SXEOLF HGXFDWLRQ )$3(f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f EXW KDV GHOHJDWHG VFKRRO IXQGLQJ PHWKRGV WR WKH VWDWHVn SROLWLFDO DQG HFRQRPLF VFKHPD 5HVHDUFK KDV LQGLFDWHG D ODFN RI FRRUGLQDWHG HIIRUW WR DOLJQ WKH VHUYLFH GHOLYHU\ PHFKDQLVPV RU IXQGLQJ RI WKHVH PHWKRGV 3ROLF\ SUREOHPV ZHUH LQGLFDWHG ZKHQ WKH IHGHUDO JRYHUQPHQW HLWKHU SURPRWHG RU GLG QRW SURKLELW SODFHPHQW ELDVHG IXQGLQJ RI VWDWH DQG IHGHUDO VSHFLDO HGXFDWLRQ SURJUDPV 7KLV SODFHPHQW ELDV ZDV LQGLFDWHG E\ WKH RYHUn FODVVLILFDWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV LQDSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV DQG HGXFDWLRQDO VSHQGLQJ WKDW GLG QRW DFFRUG ZLWK FRQWHPSRUDU\ ILQDQFH HTXLW\ WKHRU\

PAGE 13

0DQ\ UHVHDUFKHUV KDYH GHVFULEHG ILVFDO ELDVHV WKDW FRXOG XQGHUPLQH WKH LQWHJULW\ RI WKH OHDVW UHVWULFWLYH HQYLURQPHQW /5(f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

PAGE 14

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n6 JRDOVDV PDQGDWHG E\ &RQJUHVVf§ OHJDOO\ IXOILOOHG ZLWKLQ WKH ILVFDO SDUDPHWHUV RI FDWHJRULFDO VSHFLDO HGXFDWLRQ SURJUDPV WKDW PD\ DVVXPH SODFHPHQW ELDV" &DQ WKH OHJDO GRFWULQH RI WKH /HDVW 5HVWULFWLYH (QYLURQPHQW /5(f H[LVW LQ WDQGHP ZLWK IXQGLQJ SROLFLHV WKDW HLWKHU Df GR QRW SURPRWH SODFHPHQW QHXWUDOLW\ RU Ef HQFRXUDJH ILVFDO ELDV"

PAGE 15

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f§DQG WKH

PAGE 16

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

PAGE 17

-XVWLILFDWLRQ RI WKH 6WXG\ 7KH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f DQG WKH 2IILFH RI 6SHFLDO (GXFDWLRQ 3URJUDPV 26(3f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f LQIRUPDWLRQ WKDW ZLOO DVVLVW WKHP LQ GHYHORSLQJ VSHFLDO HGXFDWLRQ IXQGLQJ SROLFLHV WKDW EHVW UHIOHFW WKH JRDOV DQG PLVVLRQV RI WKH ,'($ DQG Ef VRPH GHJUHH RI SUHGLFWDELOLW\ FRQFHUQLQJ SRWHQWLDO OLWLJDWLRQ 7KLV IHGHUDO SROLF\ DQDO\VLV VWXG\ LV MXVWLILHG DV VXFK DQ DWWHPSW WR UHQGHU DVVLVWDQFH RQ WKLV JHUPDQH LVVXH 0HWKRG RI 6WXG\ 7KH WUDGLWLRQDO PHWKRGRORJ\ RI OHJDO DQG SROLF\ DQDO\VLV UHVHDUFK ZDV XWLOL]HG WR LGHQWLI\ KLVWRULFDO OHJDO SUHFHGHQFH VXEVWDQWLYH KLVWRULFDO OHJDO SULQFLSOHV DQG VRXQG PHWKRGV RI VSHFLDO HGXFDWLRQ IXQGLQJ

PAGE 18

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nV )XQGDPHQWDOV RI /HJDO 5HVHDUFKAn DQG WKH )HGHUDO 5HJLVWHU $ OLVW RI DSSOLFDEOH WHUPV GHILQLWLRQV DQG FRQFHSWV DSSHDUV LQ $SSHQGL[ $ RI WKLV VWXG\ /LPLWDWLRQV $OWKRXJK WKLV VWXG\ KDG XOWLPDWH DSSOLFDELOLW\ WR DOO VWDWHV OHJDO FDVH VWXGLHV KDYH EHHQ OLPLWHG WR VWDWHV LQ

PAGE 19

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

PAGE 20

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f SHUWLQHQW FRXUW FDVHV Ef FRQJUHVVLRQDO JRDOV Ff FRQJUHVVLRQDO GRFXPHQWV Ff IHGHUDO VWDWXWHV DQG UHJXODWLRQV Gf VWDWH IXQGLQJ W\SRORJLHV Hf ELDVHG IXQGLQJ FKDUDFWHULVWLFV If 'HSDUWPHQW RI (GXFDWLRQ VWDWHPHQWV DQG Jf VWDWH IXQGLQJ VWDWXWHV UHODWLQJ WR WKH IXQGLQJ RI VSHFLDO HGXFDWLRQ SURJUDPV ,Q &KDSWHU D UHYLVHG PRGHO RI IHGHUDO IXQGLQJ SROLF\ IRU VSHFLDO HGXFDWLRQ SURJUDPV DQG UHFRPPHQGDWLRQV IRU IXUWKHU UHVHDUFK LV SUHVHQWHG 7KH GDWD IURP OHJDO DQG SROLF\ DQDO\VLV GHULYHG WKH DIRUHPHQWLRQHG PRGHO IHGHUDO SROLF\ IRU SODFHPHQW QHXWUDOLW\ 7KLV PRGHO ZDV GHVLJQHG WR HQFRXUDJH LWV DXGLHQFH WR VWUHQJWKHQ H[LVWLQJ VSHFLDO HGXFDWLRQ IXQGLQJ VFKHPHV IRU PRUH HTXLWDEOH DQG HIILFLHQW RXWFRPHV

PAGE 21

,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ %URZQ Y 7RSHND %RDUG RI (GXFDWLRQ 86 f DQG +HQGULFN +XGVRQ 'LVWULFW %RDUG RI (GXFDWLRQ Y 5RZOH\ 86 6 &W / (G G f 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS f DQG 0LOOV Y %RDUG RI (GXFDWLRQ ) 6XSS f 5RZOH\ 86 DQG &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) 6 &W f 86& i Gf f (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW 3/ f >WUDQVIHUUHG WR 86& ii R f@ 86& i f 5RZOH\ 86 DQG &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) 6 &W f $ SRSXODWLRQ ZLWK GLVDELOLWLHV KDV QRW FRQVWLWXWHG WKH GHILQLWLRQ RI D VXVSHFW FODVV DQG RQO\ D KDQGIXO RI FRXUWV KDYH UHFRJQL]HG WKH VXVSHFW RU TXDVLVXVSHFW FODVV RI WKH GLVDEOHG 6HH HJ )UHGHULFN / Y 7KRPDV ) 6XSS (' 3D f DIInG )G G &LU f )LDONRZVNL Y 6KDSS ) 6XSS (' 3D f ,Q UH *+ 1:G 1' f 86& i f 86& i Dff$f f &KDPEHUV -D\ DQG :LOOLDP 7 +DUWPDQ 6SHFLDO (GXFDWLRQ 3ROLFLHV 7KHLU +LVWRU\ ,PSOHPHQWDWLRQ DQG )LQDQFH 3KLODGHOSKLD 3HQQV\OYDQLD 7HPSOH 3UHVV f 3DUULVK 7 % 6SHFLDO (GXFDWLRQ )LQDQFH 3DVW 3UHVHQW DQG )XWXUH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 7XUQEXOO + 5XWKHUIRUG )UHH DQG $SSURSULDWH 3XEOLF (GXFDWLRQ 7KH /DZ DQG &KLOGUHQ ZLWK 'LVDELOLWLHV 'HQYHU &RORUDGR /RYH 3XEOLVKLQJ f

PAGE 22

%HUQH 5REHUW DQG 6WLHIHO /HDQQD 7KH 0HDVXUHPHQW RI (TXLW\ LQ 6FKRRO )LQDQFH &RQFHSWXDO 0HWKRGRORJLFDO DQG (PSLULFDO 'LPHQVLRQV %DOWLPRUH -RKQV +RSNLQV 8QLYHUVLW\ 3UHVV f 9HUVWHJHQ $ &RQVROLGDWLQJ 6SHFLDO (GXFDWLRQ )XQGLQJ DQG 6HUYLFHV $ )HGHUDO 3HUVSHFWLYH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 3DUULVK 7 % )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f DQG 3DUULVK 7 % &ULWHULD IRU (IIHFWLYH 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 6DQ $QWRQLR 6FKRRO 'LVWULFW Y 5RGULTXH] 86 6 / (G G f 5RZOH\ 86 'H5ROSK Y 2KLR 2KLR 6W G 1(G f &DPEHOO Y 6WDWH RI :\RPLQJ 3G f DQG +DUSHU Y +XQW 6R G f &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f 6SULQJ /DQGPDUN &RXUW 'HFLVLRQ &KDOOHQJH 6WDWH 6SHFLDO (GXFDWLRQ )XQGLQJ ,VVXH %ULHI 1R 6SULQJ f 3DOR $OWR &DOLIRUQLD 3G :DONHU / 3URFHGXUDO 5LJKWV LQ WKH :URQJ 6\VWHPV LQ *DUWQHU $ DQG 7 -RH (GV ,PDJHV RI WKH 'LVDEOHG'LVDEOLQJ ,PDJHV 1HZ
PAGE 23

9HUVWHJHQ $ 7 3DUULVK DQG :ROPDQ $ /RRN DW &KDQJHV LQ WKH )LQDQFH 3URYLVLRQV IRU *UDQWV WR 6WDWHV 8QGHU WKH ,'($ $PHQGPHQWV RI 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 3DUULVK VXSUD QRWH &)5 i f 6HH HJ 3DUULVK 7 % &KDPEHUV DQG & 0 *XDULQR (GV )XQGLQJ 6SHFLDO (GXFDWLRQ 7KRXVDQG 2DNV &DOLIRUQLD &RUZLQ 3UHVV f YLLL 2VERXUQH $ /HJDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ %RVWRQ 0DVVDFKXVHWWV $OO\Q DQG %DFRQ f 86& i f 7XUQEXOO VXSUD QRWH DW 2VERXUQH VXSUD QRWH DW 86& ii f 6HH VXSUD QRWH 2IILFH RI 6SHFLDO (GXFDWLRQ 3URJUDPV 7ZHQWLHWK $QQXDO 5HSRUW WR &RQJUHVV RQ WKH ,PSOHPHQWDWLRQ RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW f DYDLODEOH IURP KWWRZZZHG JRYRIILFHV26(5626(326(3$QO5SW 7XUQEXOO VXSUD QRWH DW -DFREVWHLQ 0\URQ DQG 5 0 0HUVN\ (UYLQ + 3ROODFNnV )XQGDPHQWDOV RI /HJDO 5HVHDUFK 0LQHOD 1HZ
PAGE 24

&+$37(5 /,7(5$785( 5(9,(: $ UHYLHZ RI OLWHUDWXUH UHODWLQJ WR WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW ,'($f DQG SODFHPHQW QHXWUDOLW\ SURYLGHG WKH EDFNJURXQG IRU WKLV VWXG\ 7KH IROORZLQJ UHVHDUFK TXHVWLRQV JXLGHG WKH V\QWKHVLV RI UHVHDUFK LQ &KDSWHU ,, $UH WKH ,'($n6 JRDOVDV PDQGDWHG E\ &RQJUHVV OHJDOO\ IXOILOOHG ZLWKLQ WKH ILVFDO SDUDPHWHUV RI FDWHJRULFDO VSHFLDO HGXFDWLRQ SURJUDPV WKDW PD\ DVVXPH SODFHPHQW ELDV" &DQ WKH OHJDO GRFWULQH RI WKH /HDVW 5HVWULFWLYH (QYLURQPHQW /5(f H[LVW LQ WDQGHP ZLWK IXQGLQJ SROLFLHV WKDW HLWKHU Df GR QRW SURPRWH SODFHPHQW QHXWUDOLW\ RU Ef HQFRXUDJH ILVFDO ELDV" :KDW IHGHUDO UHTXLUHPHQWV H[LVW WR HLWKHU SURPRWH SODFHPHQW QHXWUDOLW\ RU SURKLELW ILVFDO ELDV" 7KHVH UHVHDUFK TXHVWLRQV SUHVHQWHG VHYHUDO FDWHJRULHV RI OLWHUDWXUH WKDW ZHUH JHUPDQH WR UHVHDUFK ZLWKLQ WKDW VSHFLDO HGXFDWLRQ ILQDQFH Df 6FKRRO )LQDQFH (TXLW\ Ef )HGHUDOLVP DQG 6SHFLDO (GXFDWLRQ Ff 3KLORVRSKLFDO +LVWRULFDO DQG 6WDWXWRU\ )RXQGDWLRQV RI 6SHFLDO (GXFDWLRQ )LQDQFH Gf )XQGLQJ )RUPXODV ,QFHQWLYHV DQG 'LVLQFHQWLYHV LQ 6SHFLDO (GXFDWLRQ Hf &RVW $QDO\VLV 0HWKRGRORJLHV DQG If 0DMRU &RXUW &DVHV 5HODWLQJ WR 6SHFLDO (GXFDWLRQ )LQDQFH

PAGE 25

7KHVH SDUWLFXODU VXEMHFWV UHSUHVHQWHG VLJQLILFDQW DUHDV RI WKH UHVHDUFK DQG OLWHUDWXUH WKDW UHODWHG WR D IHGHUDO SROLF\ DQDO\VLV RI WKH VSHFLDO HGXFDWLRQ ILQDQFH SURJUDP 5HVHDUFK LQ WKH EURDGHU ILHOG RI VSHFLDO HGXFDWLRQ UHSUHVHQWHG D ODUJHU VKDUH RI WKHVH OLWHUDWXUH GRPDLQV +RZHYHU WKLV DXWKRU OLPLWHG WKH VFRSH DQG EUHDGWK RI WKLV OLWHUDWXUH UHYLHZ WR WKH UHVHDUFK WKUXVW LQLWLDWLYHV LGHQWLILHG E\ WKH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f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

PAGE 26

KDYH WUDQVODWHG LQWR D OHJDO PDQLIHVW IRU VRFLHW\ WR IROORZ 7KH TXHVW IRU HTXLW\ UHSUHVHQWHG WKH VLQH TXD QRQ IRU WKLV FHQWXU\n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f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

PAGE 27

,W LV WKLV &RPPLWWHHnV EHOLHI WKDW WKH &RQJUHVV VKRXOG WDNH D PRUH DFWLYH UROH XQGHU LWV UHVSRQVLELOLW\ IRU HTXDO SURWHFWLRQ RI WKH ODZV WR JXDUDQWHH WKDW KDQGLFDSSHG FKLOGUHQ DUH SURYLGHG HGXFDWLRQDO RSSRUWXQLW\ )LQDQFH (TXLW\ DQG 7KH /HDVW 5HVWULFWLYH (QYLURQPHQW 7KH FRQFHSW RI QRUPDOL]DWLRQ HYROYHG IURP D EURDG KXPDQ ULJKWV LGHDO LQWR D VHW RI UHILQHG OHJLVODWLYH LQLWLDWLYHV 7KLV UHILQHPHQW UHTXLUHG WKH ILHOG RI VSHFLDO HGXFDWLRQ WR TXDOLI\ LWV GHILQLWLRQV RI HTXDO WUHDWPHQW 7KH OHDVW UHVWULFWLYH HQYLURQPHQW /5(f DQG WKH HTXLW\ DVVRFLDWHG ZLWK WKDW FRQWH[W ZDV SUHVHQWHG LQ 3XEOLF /DZ 8QGHU D SURYLVLRQ RI IHGHUDO ODZ WKH FRXUWV FRQVLVWHQWO\ XSKHOG WKDW WKH H[FOXVLRQ RI D FKLOG IURP JHQHUDO HGXFDWLRQ PXVW EH SUHGLFDWHG XSRQ WKH SXUVXLW RI DSSURSULDWH HGXFDWLRQDO RSSRUWXQLWLHV :KLOH VHJUHJDWHG SODFHPHQWV RXWVLGH WKH PDLQVWUHDP ZHUH QRW SURKLELWHG DQ LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP ,(3f ZDV UHTXLUHG WR VWULNH D EDODQFH EHWZHHQ WKH GHIDXOW RI LQFOXVLRQ DQG DSSURSULDWH VRFLR HGXFDWLRQDO RSSRUWXQLWLHV ZKHUHYHU WKH\ PD\ H[LVW ,Q UHVSRQVH WR WKLV SXEOLF SROLF\ %HUQH DQG 6WHLIHO SRVHG TXHVWLRQV IXQGDPHQWDO WR WKH DGPLQLVWUDWLRQ RI VSHFLDO HGXFDWLRQ SURJUDPV 7KHVH UHVHDUFKHUV GUHZ IRFXV WR WKH SUDFWLFH RI QRUPDOL]DWLRQ DQG UHIUDPHG WKHVH LVVXHV LQWR WHUPV RI VFKRRO ILQDQFH )RU ZKRP DUH ZH WU\LQJ WR JHQHUDWH HTXDOLW\ DQG ZKDW LV WR EH HTXDOL]HG"

PAGE 28

,V WKH SXEOLF SROLF\ IRFXV RQ WKH HTXDO WUHDWPHQW RI VSHFLDO HGXFDWLRQ VWXGHQWV DOO VWXGHQWV RU RQ VSHFLDO HGXFDWLRQ VWXGHQWV LQ UHODWLRQ WR DOO RWKHU VWXGHQWV" ,V WKH IRFXV RQ WD[SD\HUV LQ WHUPV RI WKHLU HIIRUWV WR UDLVH ORFDO IXQGV DQG WKHLU UHODWLYH DELOLW\ WR SD\ IRU VSHFLDO HGXFDWLRQ VHUYLFHV" :KDW H[DFWO\ LV WR EH HTXDOL]HGf§GROODUV SHU VWXGHQW HJ VWDWH DLGf UHVRXUFHV SHU VWXGHQW HJ DSSURSULDWH SXSLOWHDFKHU UDWLRVf HGXFDWLRQDO RXWSXWV UHDGLQJ SURILFLHQF\f RU OLIH FKDQFHV HJ DFFHVV WR IXWXUH HDUQLQJ RSSRUWXQLWLHVf" :KDW HTXLW\ LVVXHV SHUWDLQLQJ WR VSHFLDO HGXFDWLRQ VWXGHQWV DQG WKH W\SHV RI VHUYLFHV WKH\ UHFHLYH DQG WKH VHWWLQJV LQ ZKLFK WKH\ UHFHLYH WKHP UHODWH WR VSHFLDO HGXFDWLRQ ILQDQFH" 7KH DQVZHUV WR WKHVH TXHVWLRQV GHWHUPLQHG WKH DSSURDFK DQG IHDWXUHV RI VWDWH VSHFLDO HGXFDWLRQ IXQGLQJ IRUPXODV $ IXQGLQJ IRUPXOD ZDV GHILQHG DV WKH PDQGDWHG SURFHGXUHV SURUDWLQJ SURYLVLRQV DGPLQLVWUDWLYH JXLGHOLQHV DQG H[FHSWLRQV RU H[FOXVLRQV WKDW GHWHUPLQH DQG UHJXODWH WKH DOORFDWLRQ RI VWDWH IXQGV WR GLVWULFWV $OWKRXJK WKH ,'($ EURDGO\ DGGUHVVHG FRVWV

PAGE 29

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nV SDQHO PDLQWDLQHG WKH XQFRQVWLWXWLRQDOLW\ RI WKH 7H[DV VFKRRO ILQDQFH V\VWHP DQG SUHVHQWHG WKH ILUVW SROLF\ WKUXVW RI ILVFDO QHXWUDOLW\ 3ODFHPHQW QHXWUDOLW\ ZDV GHILQHG E\ WKH &6() DV WKDW ZKLFK GULYHV GRZQ WKH LQFHQWLYHV EHWZHHQ WKH IUHTXHQF\ RI VWXGHQWV LGHQWLILHG DQG IXQGLQJ UHFHLYHG 7KH &6() DOVR GRFXPHQWHG WKDW WKH YDULDWLRQ RI VSHFLDO HGXFDWLRQ VWXGHQW QHHG KDV UHPDLQHG UHODWLYHO\ ORZ DQG WKH QHHG IRU VHUYLFHV ZDV IDLUO\ FRQVWDQW WKURXJKRXW WKH

PAGE 30

QDWLRQ 7KHUHIRUH HTXLWDEOH RXWFRPHV IRU VSHFLDO HGXFDWLRQ SURJUDPV KDYH UHTXLUHG SROLFLHV WKDW GR QRW SXUSRVHO\ RU LQDGYHUWHQWO\ FDXVH RYHULGHQWLILFDWLRQ LQ WKH SXUVXLW RI VSHFLDO HGXFDWLRQ IXQGV 0F&DUWK\ DQG 6DJH H[DPLQHG WKH LPSRUWDQFH RI IXQGLQJ QHXWUDOLW\ DW QLQHWHHQ VSHFLDO HGXFDWLRQ VLWHV WKURXJKRXW 1HZ DGPLQLVWUDWLYH@ YDOXH MXGJPHQW V >VLF@ HVSHFLDOO\ ZKHQ >GHWHUPLQLQJ@ ZKDW ZDV DGHTXDWH RU DSSURSULDWH LQ WHUPV RI IXQGLQJ

PAGE 31

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

PAGE 32

HTXLWDEOH WUHDWPHQWf DV WKH\ ZHUH ZLWK WKH QHHGV RI D EXUHDXFUDWLF HGXFDWLRQDO V\VWHP
PAGE 33

UHVRXUFHV 7HUPV RI HTXLW\ DOVR KDYH EHHQ DSSOLHG WR WKH WD[SD\HU WKDW KDV VXSSRUWHG WKH EURDG UDQJH RI VHUYLFHV IRU VWXGHQWV ZLWK GLVDELOLWLHV 2QH FULWHULRQ DVVRFLDWHG ZLWK WD[ HTXLW\ ZDV WKH EHQHILW SULQFLSOH WKDW WKH PHDVXUH RI WD[ IDLUQHVV ZDV LQ SURSRUWLRQ WR DQ LQGLYLGXDOn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

PAGE 34

DSSOLFDWLRQ RI HLWKHU KRUL]RQWDO RU YHUWLFDO WD[ HTXLW\ KDV FUHDWHG LQHTXLWDEOH WD[ VFKHPHV WKH PRGHUQ WUHQG RI WD[ WKHRU\ KDV VRXJKW WR SURYLGH D EDODQFH RI ERWK YHUWLFHV WR HTXDOL]H WKH HFRQRPLF GLVSDULW\ WKDW H[LVWV LQ FRQWHPSRUDU\ VRFLHW\ .HOO\ VXPPDUL]HG WKH OHJDO DSSOLFDWLRQV RI EDODQFHG RU ILVFDOO\ QHXWUDO DSSURDFKHV WR WD[ HTXLW\ 7KH GHJUHH RI D IRUPXODnV KRUL]RQWDO HTXLW\ FDQ EH REVHUYHG E\ FRPSDULQJ WKH SHU SXSLO H[SHQGLWXUHV RI WKH ZHDOWKLHVW DQG SRRUHVW GLVWULFWV (YHQ WKRXJK DEVROXWH HTXDOLW\ RI H[SHQGLWXUHV LV QRW SRVVLEOH WKHVH QHZ V\VWHPV PXVW VXEVWDQWLDOO\ QDUURZ UHYHQXH JDSV WR HOLPLQDWH ZHDOWKEDVHG DOORFDWLRQV RI EHQHILWV 7KH UHODWLRQVKLS EHWZHHQ WKH LPSDFW DQG LQFLGHQFH UHILQHG WKH FRQFHSW RI WD[ HTXLW\ 7D[HV KDYH WDUJHWHG VXEMHFWV HJ LPSDFWf EXW SROLF\PDNHUV KDYH H[HUWHG OHVV DGPLQLVWUDWLYH FRQWURO RYHU WKH VXEMHFWV WKDW HYHQWXDOO\ SD\ WKH WD[ HJ LQFLGHQFHf )RU H[DPSOH DGPLQLVWUDWLYH FRVW LQFUHDVHV WKDW ZHUH QRW YDOXHDGGHG EXW ZHUH DVVRFLDWHG ZLWK D WULFNOHGRZQ HIIHFW ZHUH SUREOHPV LQKHUHQW WR LPSDFWLQFLGHQFH 7KH ILIWK FULWHULRQ RI WD[ QHXWUDOLW\ PDLQWDLQHG WKDW HTXLWDEOH WD[HV ZLOO OHDYH WKH VDPH HFRQRPLF IRRWSULQW DFURVV WKH HFRQRPLF VSHFWUXP RI WD[SD\HUV QHLWKHU GHSUHVVLQJ W WKH HFRQRP\ QRU SURGXFLQJ XQGXH HFRQRPLF KDUGVKLS RQ LWV FRQWULEXWRUV 7KH ILQDO FULWHULRQ UHODWHG WR WKH WD[ FHUWDLQW\ 7KLV SULQFLSOH HYDOXDWHG WD[HV WKDW ZHUH

PAGE 35

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

PAGE 36

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

PAGE 37

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nV FULWLTXH RI VSHFLDO HGXFDWLRQ PLVFODVVLILFDWLRQ V\VWHPV IRFXVHG RQ WKH QDWXUH RI

PAGE 38

VWLJPD LQ WKH SURFHVVHV RI HTXDO HGXFDWLRQDO RSSRUWXQLW\ .LUS LQGLFDWHG WKDW D VWLJPD ZDV QRW LQWULQVLFDOO\ ODGHQ ZLWK YDOXH DQG WKDW WKH VWLJPDWL]LQJ DWWULEXWH ZDV QHLWKHU FUHGLWDEOH QRU GLVFUHGLWDEOH SHU VH 7KH YDOXH H[LVWHG LQ WKH VRFLDOO\ DFFHSWHG PHDQLQJ RI WKH ODEHO $OWKRXJK VWLJPDLQ UDWLRQDO WHUPVf§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

PAGE 39

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

PAGE 40

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f DFTXLHVFHQFH E\ VWDWHV DQG ORFDO JRYHUQPHQWV LQ DFFHSWDQFH RI IHGHUDO JUDQWVLQDLG Ef WKH UHJXODWLRQV DXWKRUL]HG XQGHU WKH &RPPHUFH &ODXVH DQG Ff &RQVWLWXWLRQDO GHFUHHV HVWDEOLVKHG E\ FRXUWV 7KH IHGHUDO UHVSRQVLELOLW\ IRU VSHFLDO HGXFDWLRQ ZDV DOVR DIILUPHG E\ WKH VWDWH OHJLVODWXUHV 7KLV IHGHUDO MXULVGLFWLRQ DQG WKH HQDFWPHQW RI WKH 1DWLRQDO 'HIHQVH (GXFDWLRQ $FW RI HQDEOHG &RQJUHVV WR H[HUW FRQWURO RYHU VWDWH VSHFLDO HGXFDWLRQ UHJLPHV

PAGE 41

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f§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

PAGE 42

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f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD WKDW WKH OHJDO GRFWULQH RI HTXDO SURWHFWLRQ VHUYHG WKH FODVV RI VWXGHQWV ZLWK GLVDELOLWLHV DV HTXDOO\ DV LW VHUYHG WKH FODVV RI UDFLDO PLQRULWLHV 7KLV DSSOLFDWLRQ RI =HUR 5HMHFW FUHDWHG D QH[XV EHWZHHQ VSHFLDO HGXFDWLRQ DQG HTXDO SURWHFWLRQ 7KH OHJDO SULQFLSOH PDLQWDLQHG WKDW DOO FKLOGUHQ ZLWK LGHQWLILHG VSHFLDO QHHGV ZHUH WR EH SURYLGHG ZLWKLQ WKH FRQWH[W RI D )$3( 7KH )RXUWHHQWK $PHQGPHQW ZDV XWLOL]HG LQ 0LOOV WR Df SUHYHQW WKH WRWDO DQG SDUWLDO H[FOXVLRQ RI FKLOGUHQ ZLWK GLVDELOLWLHV DQG Ef SURWHFW WKH ULJKWV RI VWXGHQWV ZLWK VLQJXODU GLVDELOLWLHV f§OLNH FHUHEUDO SDOV\ZKHQ SHUVRQV ZLWK PXOWLSOH GLVDELOLWLHV ZHUH LQFOXGHG 0LOOV DSSOLHG HTXDO SURWHFWLRQ EURDGO\ WR DOO VWXGHQWV QRW WR D VLQJXODU JURXSLQJ RI VWXGHQWV ,Q FRQWHPSRUDU\ WHUPV

PAGE 43

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f ZDV HQJDJHG LQ D KRVWLOH WDNHRYHU RI WKH $PHULFDQ HGXFDWLRQDO V\VWHP &URQLQ UHVSRQGHG WR WKH SHUFHLYHG IHGHUDO HQFURDFKPHQW

PAGE 44

VXJJHVWLQJ WKDW WKH VWDWH DQG ORFDO JRYHUQPHQWV VKRXOG SUHVV IRU OHJLVODWLYH PHDVXUHV WKDW ZRXOG PDNH WKH IHGHUDO LQLWLDWLYH UHGXQGDQW ,Q /RXLVLDQD 6XSHULQWHQGHQW RI 6FKRROV 'DQLHO % 7D\ORU FDOOHG WKH ($+&$ DQ LQYDVLRQ RI WKH FRQVWLWXWLRQDO DQG VWDWXWRU\ ULJKWV RI 6WDWH DQG ORFDO JRYHUQPHQWV 7D\ORU FLWHG ORFDO DQG VWDWH HGXFDWLRQDO UHVRXUFHV DQG SHUVRQQHO WKDW ZHUH WR EH FRPPDQGHHUHG IRU IHGHUDO SXUSRVHV LQ 6HFWLRQ RI WKH *HQHUDO (GXFDWLRQDO 3URYLVLRQV $FW 7D\ORUnV LPSUHVVLRQV RI VWDWH VRYHUHLJQW\ ZHUH QRW ORVW RQ KLV FROOHDJXHV RI WKH &RXQFLO RI &KLHI 6WDWH 6FKRRO 2IILFHUV +H DGGUHVVHG VWDWHn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nV VKDUH RI WKH PRQH\f§LQ RUGHU IRU LWV SHRSOH WR HQMR\ D EHQHILW RI 86 FLWL]HQVKLS LV TXHVWLRQDEOH 7KH KLJKHVW OHYHOV RI WKH IHGHUDO JRYHUQPHQW DOVR LQGLFDWHG D VLPLODU UHOXFWDQFH 'XULQJ WKLV V LQIODWLRQ ZDV UDPSDQW VFKRRO HQUROOPHQWV ZHUH LQ GHFOLQH DQG WD[SD\HUV ZHUH FRQVLVWHQWO\ GHIHDWLQJ VWDWH DQG ORFDO WD[ UHIHUHQGD 7KH PRVW SUHYDOHQW

PAGE 45

EXUHDXFUDWLF FRQFHUQV ZHUH RI D ILVFDO QDWXUH 3HUKDSV WKH JUHDWHVW HYLGHQFH RI WKH SROLWLFDO IRUFHV DW ZRUN LQ WKH PLGV ZDV WKH REYLRXV KHVLWDWLRQ LQ 3UHVLGHQW )RUGn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

PAGE 46

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

PAGE 47

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

PAGE 48

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n 7KLV ODEHOLQJ VHUYHG WR OHJLWLPL]H WKH SURYLVLRQ RI GLIIHUHQWLDO OHJDO PHGLFDO UHVLGHQWLDO HFRQRPLF DQG VRFLDOL]DWLRQ FDUH &UHPLQV FKDUDFWHUL]HG WKH XVH RI ODEHOLQJ DQG FDWHJRULFDO WUDFNLQJ LQ JRYHUQPHQWDO LQVWLWXWLRQV DV DQ HIILFLHQW PHDQV WR FRQWDLQ FRVWV DQG SURYLGH HIILFLHQW VHUYLFH GHOLYHU\ $W WKLV SRLQW VWDWH DQG IHGHUDO JRYHUQPHQWV

PAGE 49

ODFNHG WKH LQIUDVWUXFWXUH DQG XQLILHG OHDGHUVKLS WR SURYLGH D FRPSUHKHQVLYH SODQ IRU FKDQJH $FFRUGLQJ WR &UHPLQV WKH IHGHUDO JRYHUQPHQW IDFLOLWDWHG DQ HSRFK RI QHJOHFW LQ ZKLFK WKH LVVXHV RI WKH ,QGXVWULDO 5HYROXWLRQ RYHUVKDGRZHG WKH QHHGV RI $PHULFDQV ZLWK GLVDELOLWLHV )XUWKHUPRUH &UHPLQV GHVFULEHG D SXEOLF SROLF\ WKDW SRVVHVVHG OLWWOH IOH[LELOLW\ WR DGDSW WR WKH ‘ ffff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

PAGE 50

$OWKRXJK SODFHPHQWV LQ UHVWULFWLYH FODVVHV DQG VHUYLFHV LQFUHDVHG IURP WR WKH KLVWRULFDO OLWHUDWXUH UHYHDOHG WKH FDWHJRULFDO H[FOXVLRQ RI VWXGHQWV LQ WKH PLOG WR PRGHUDWH UDQJH RI GLVDELOLW\ :KHWKHU WKHVH VWXGHQWV GURSSHG RXW ZHUH H[SHOOHG RU GHHPHG XQWHDFKDEOH WKH\ UHPDLQHG HIIHFWLYHO\ RXWVLGH RI WKH SXUYH\ RI FRQWHPSRUDU\ VSHFLDO HGXFDWLRQDO r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

PAGE 51

FHUWLILFDWLRQ UHTXLUHPHQWV WKDW RXWOLQHG D EDVLV RI H[SHUWLVH LQ WKH HPHUJLQJ ILHOG RI SURIHVVLRQDO VSHFLDO HGXFDWLRQ 7KH FRRSHUDWLYH PRGHO RI VHUYLFH GHOLYHU\ ZDV HVWDEOLVKHG LQ LQ 3HQQV\OYDQLD WR GHYHORS D VWUHDPOLQHG VFKHPH IRU WKH HIILFLHQW XVH RI VWDWH UHVRXUFHV 7KH SURFXUHPHQW RI RXWVLGH RUJDQL]DWLRQn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f :KHQ DSSURSULDWH SURJUDPV ZHUH QRW DYDLODEOH WKH VFKRROV SODFHG KDQGLFDSSHG SXSLOV LQ VSHFLDO HGXFDWLRQ SURJUDPV WKDW ZHUH LQDSSURSULDWH IRU WKHP :KHQ IDFHG ZLWK D VKRUWDJH RI VSHFLDO HGXFDWLRQ SURJUDPV VFKRROV FUHDWHG ZDLWLQJ

PAGE 52

OLVWV IRU DGPLVVLRQ WR WKH IHZ DYDLODEOH SURJUDPV WKXV H[FOXGLQJ PDQ\ HOLJLEOH VWXGHQWV ,Q :DWVRQ Y &LW\ RI &DPEULGJH WKH 0DVVDFKXVHWWV 6XSUHPH -XGLFLDO &RXUW UXOHG WKDW D FKLOG ZKR ZDV ZHDN LQ PLQG DQG XQDEOH WR WDNH RUGLQDU\ GHFHQW FDUH RI KLPVHOI FRXOG EH H[SHOOHG IURP SXEOLF VFKRRO 7KH FRXUW DIILUPHG WKH DXWKRULW\ RI WKH VFKRRO FRPPLWWHH WR H[HUFLVH WKH JHQHUDO FKDUJH RI WKH VFKRRO DQG UHIXVHG WR LQWHUIHUH LQ WKH MXGJPHQW RI WKDW DGPLQLVWUDWLYH ERG\ ,Q WKH :LVFRQVLQ 6XSUHPH &RXUW FRQFXUUHG ZLWK WKH 0DVVDFKXVHWWV UXOLQJ VWDWLQJ WKDW WKH SUHVHQFH RI VXFK FKLOGUHQ KDG D SURIRXQGO\ GLVWXUELQJ HIIHFW RQ VWXGHQWV DQG VFKRRO VWDII DQG FRXOG EH UHPRYHG IRU FRVPHWLF SXUSRVHV ,Q WKLV FDVH WKH VWXGHQW SRVVHVVHG QRUPDO FRJQLWLYH IXQFWLRQV EXW VXIIHUHG IURP D FRQGLWLRQ WKDW FDXVHG KLP WR GURRO VSDVP DQG DVVXPH XQQDWXUDO ERG\ SRVLWLRQV 2Q WKH JURXQGV WKDW WKH VWXGHQW GHSUHVVHG WKH IDFXOW\ PRQRSROL]HG WHDFKHU UHVRXUFHV DQG KDG D QHJDWLYH HIIHFW RQ RYHUDOO VFKRRO GLVFLSOLQH WKH FRXUW IRXQG WKDW LW ZDV LQ WKH EHVW LQWHUHVWV RI WKH VFKRRO WR UHFRPPHQG WKH H[FOXVLRQ RI WKH FKLOG 7KH (PHUJHQFH RI 6SHFLDO (GXFDWLRQ 3ROLF\ 7KH KRPHFRPLQJ RI ZRXQGHG :RUOG :DU 2QH YHWHUDQV SURPSWHG WKH HVWDEOLVKPHQW RI UHKDELOLWDWLRQ SURJUDPV IRU $PHULFDQV ZLWK GLVDELOLWLHV ,Q &RQJUHVV

PAGE 53

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n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

PAGE 54

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

PAGE 55

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

PAGE 56

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f r $FFRUGLQJ WR %DOODUG WKLV IHGHUDO DFW ZDV FUXFLDO WR WKH SURPRWLRQ RI VSHFLDO HGXFDWLRQ 7KLV ILVFDO FRPPLWPHQW VHW D FOHDU UHJXODWRU\ UROH IRU WKH IHGHUDO JRYHUQPHQW 7KH 1'($ DOVR DGGUHVVHG WKH GXSOLFDWLRQ RI HGXFDWLRQDO VHUYLFHV LQ RWKHU IHGHUDO LQLWLDWLYHV 0RVW LPSRUWDQWO\ WKLV OHJLVODWLRQ UHLQIRUFHG WKH FRQFHSW RI WKH QDWLRQDO HGXFDWLRQDO REMHFWLYH ,Q 3/ FUHDWHG D 'LYLVLRQ RI +DQGLFDSSHG
PAGE 57

WKDW LQFOXGHG HDUO\ FKLOGKRRG VSHFLDO HGXFDWLRQ OHDUQLQJ WKHRU\ RI VWXGHQWV ZLWK GLVDELOLWLHV FXUULFXOXP DQG PDWHULDOV GHYHORSPHQW DQG LQQRYDWLRQV LQ WHDFKHU WUDLQLQJ &RQJUHVV IRUPDOO\ DGGUHVVHG WKH LVVXH RI QDWLRQZLGH VSHFLDO HGXFDWLRQ SURJUDPV GXULQJ WKH DPHQGPHQWV WR WKH (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW (6($f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f DQG SDUW % RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW ,'($f

PAGE 58

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

PAGE 59

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nV PRVW FRPSUHKHQVLYH DQG IUHHVWDQGLQJ IHGHUDO VSHFLDO HGXFDWLRQ LQLWLDWLYH 7KH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW 7KH ($+&$ ZDV D SHUPDQHQW ODZ WKDW ZDV QRW OLPLWHG E\ SHULRGLF UHDXWKRUL]DWLRQ 0RVW IHGHUDO ODZV LQFRUSRUDWHG H[SLUDWLRQ GDWHV 7KH ($+&$ ZDV D FRQVROLGDWLRQ RI FRQWHPSRUDU\ FRQVHQW GHFUHHV H[LVWLQJ ?

PAGE 60

VWDWH DQG IHGHUDO VWDWXWHV DQG FDVH ODZ 7KH ($+&$ XWLOL]HG D IXQGLQJ IRUPXOD WKDW SHUPLWWHG HYHU\ VWDWH FRQJUHVVLRQDO GLVWULFW DQG VFKRRO GLVWULFW WR TXDOLI\ IRU IHGHUDO DVVLVWDQFH ,Q WKH ($+&$ ZDV VLJQLILFDQWO\ DPHQGHG DQG UHWLWOHG DV 7KH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW ,'($f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

PAGE 61

VHYHUDO GLVFUHWLRQDU\ JUDQW SURJUDPV 7KH $FW XWLOL]HG D VWDWH JUDQWLQDLG SURJUDP SHUPDQHQWO\ DXWKRUL]HG XQGHU 3DUW %f DQG UHTXLUHG SDUWLFLSDWLQJ VWDWH JRYHUQPHQWV WR IXUQLVK DOO FKLOGUHQ ZLWK GLVDELOLWLHV D )$3( LQ WKH OHDVW UHVWULFWLYH VHWWLQJ $ WKRURXJKO\ DPHQGHG 3DUW % RI WKH ,'($ VWUHQJWKHQHG &RQJUHVVn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

PAGE 62

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f WKH DGYHUVDULDO QDWXUH RI GXHSURFHVV KHDULQJV Ef WKH FRVWV DVVRFLDWHG ZLWK IUHTXHQW

PAGE 63

KHDULQJV DQG Ff UHVWULFWLRQ RQ UHOLHI IRU DWWRUQH\nV IHHV GXULQJ ,(3 PHHWLQJV 7KHVH DPHQGPHQWV UHTXLUHG FKDUWHU VFKRROV WR HVWDEOLVK FRPSDUDEOH VSHFLDO HGXFDWLRQ SURJUDPV DQG SURYLGHG HTXDO DFFHVV WR ORFDO ,'($ IXQGV DV DGPLQLVWHUHG E\ WKH /RFDO (GXFDWLRQDO $GPLQLVWUDWLRQ /($f 7KH DPHQGPHQWV DOVR DGGUHVVHG WKH LPSRUWDQFH RI SURFHGXUDO VDIHJXDUGV DQG DGPLQLVWUDWLYH IOH[LELOLW\ LQ WKH GLVFLSOLQH RI VWXGHQWV ZLWK GLVDELOLWLHV 7KHVH SURYLVLRQV UHTXLUHG D 0DQLIHVWDWLRQ 'HWHUPLQDWLRQ &RPPLWWHH 0'&f WR GHWHUPLQH WKH UHODWLRQVKLS EHWZHHQ D VWXGHQWn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

PAGE 64

SURYLVLRQV 7R D OHVVHU H[WHQW WKLV QHZ UHTXLUHPHQW DIIHFWHG PRVW VWDWHV ZLWK VXEVLGLDU\ SURYLVLRQV EDVHG RQ SODFHPHQW LH ILQDQFH SURYLVLRQV IRU VWXGHQWV VHUYHG LQ VHSDUDWH VFKRROV UHVLGHQWLDO LQVWLWXWLRQV FDWHJRULFDO IXQGLQJ IRU VSHFLDO VWXGHQW WUDQVSRUWDWLRQf 7KH DGPLQLVWUDWLYH GRFWULQH RI LQFLGHQWDO EHQHILW PDLQWDLQHG WKDW VSHFLDO HGXFDWLRQ SHUVRQQHO PD\ ZRUN ZLWK PDLQVWUHDPHG VWXGHQWV RQO\ LI VSHFLDO HGXFDWLRQ VWXGHQWV UHFHLYH WKH SULPDU\ EHQHILW RI WKH DFWLYLW\ 7KH DPHQGPHQWV UHOD[HG WKH H[LVWLQJ IHGHUDO LQFLGHQWDO EHQHILW UHJXODWLRQV 7KLV QHZ SHUPLWWHG QRQn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

PAGE 65

GLUHFW LQVWUXFWLRQ IURP WKH ,'($SDLG WHDFKHU 7KLV ZRXOG EH RI SULPDU\ EHQHILW WR DOO VWXGHQWV DQG QRW DQ LQGLUHFW LQFLGHQWDO EHQHILW 7KH QHZO\ DPHQGHG SURYLVLRQ HQFRXUDJHG /($V WR DIILUP WKH /5( ZLWKRXW KDYLQJ WR IHDU DXGLW H[FHSWLRQV XQGHU WKH H[FHVV FRVWV RU FRPPLQJOLQJ RI IXQGV UHTXLUHPHQWVA 7KH DPHQGPHQWV DOVR DFFRXQWHG 6WDWH (GXFDWLRQDO $GPLQLVWUDWLRQ 6($f DQG /RFDO (GXFDWLRQDO $GPLQLVWUDWLRQ /($f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r 7KH /($ ZDV SHUPLWWHG WR XVH EHWZHHQ SHUFHQW DQG SHUFHQW RI LWV 3DUW % IXQGV WR LPSURYH WKH FRRUGLQDWHG V\VWHPV RI FROODERUDWLRQ IRU VSHFLDO HGXFDWLRQ SURJUDPV

PAGE 66

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nV VWXGHQW SRSXODWLRQ )HGHUDO H[SHQGLWXUHV ZHUH GHVLJQHG WR EH SODFHPHQW QHXWUDO WKH\ ZHUH QHLWKHU FDOFXODWHG E\ FODVVLILFDWLRQ QRU HGXFDWLRQDO VHWWLQJ 8SRQ SDVVDJH RI WKH $PHQGPHQWV &RQJUHVV SODFHG D FDS RI ELOOLRQ XSRQ WKH FXUUHQW FKLOG FRXQWIRUPXOD 7KH &6() H[WUDSRODWHG JURZWK DQG LQIODWLRQ UDWHV IRU WKLV SURYLVLRQ DQG HVWLPDWHG WKDW LPSOHPHQWDWLRQ RI WKH FDS ZRXOG RFFXU EHWZHHQ DQG :KHQ WKH ELOOLRQ FDS ZDV UHDFKHG D FHQVXV EDVHG IRUPXOD ZHQW LQWR HIIHFW WKDW ZDV EDVHG XSRQ SHUFHQW RI D VWDWHnV SRSXODWLRQ DQG D YHUWLFDO DGMXVWPHQW RI SHUFHQW IRU SRYHUW\ OHYHOV DVVRFLDWHG

PAGE 67

ZLWK HDFK VWDWH 7R FRQWDLQ WKH JURZWK RI VSHFLDO HGXFDWLRQ SURJUDPV DQG FXUE WKH HIIHFWV RI RYHUn LGHQWLILFDWLRQ &RQJUHVV DOVR SODFHG D SHUFHQW OLPLW RQ IHGHUDO DVVLVWDQFH LQFUHDVHV IRU VWDWHV &RQJUHVV SURYLGHG IRU D IXUWKHU DGMXVWPHQW RI Df DGMXVWPHQWV IRU LQIODWLRQ RU Ef DFWXDO LQFUHDVHV LQ IHGHUDO IXQGV 6XSSOHPHQWDU\ VXEJUDQWV WR /($6 ZHUH UHTXLUHG LQ HYHU\ \HDU WKDW WKH VWDWHn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

PAGE 68

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f 7KH 6HFUHWDU\ RI (GXFDWLRQ ZDV HPSRZHUHG WR GHWHUPLQH ZKHWKHU WKHVH VWDWH SURJUDPV FRPSOLHG ZLWK IHGHUDO ODZ $IWHU WKH MXGJPHQW UHYHDOHG VWDWH SURJUDP GHILFLHQFLHV WKH '2( PDLQWDLQHG WKH SRZHU WR Df LVVXH DQ DGPLQLVWUDWLYH FRPSODLQW DQG Ef UHTXHVW D FHDVHDQG GHVLVW RUGHU ,I WKH VWDWH SURJUDP YLRODWHG IHGHUDO UHJXODWLRQV WKH '2( PDLQWDLQHG WKH SRZHU WR LQLWLDWH D FRPSOLDQFH DJUHHPHQW ZLWK D VWDWH 7KLV DUUDQJHPHQW

PAGE 69

ZDV GHVLJQHG WR GRFXPHQW LQIUDFWLRQV DQG SURYLGH IRU DQ RUJDQL]HG WUDQVLWLRQ SODQ $FFRUGLQJ WR :HEHU WKH '2( GLG QRW XQGHUWDNH PDQ\ DIILUPDWLYH HIIRUWV WR EULQJ DWWHQWLRQ WR QRQFRPSOLDQW SODQV +RZHYHU WKH '2( PDLQWDLQHG RQJRLQJ UHYLHZV RI VWDWH SODQVn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f LQDFFXUDWH GLUHFWLRQ IURP IHGHUDO DJHQFLHV Ef LQDSSURSULDWH FRXUVHV RI DFWLRQ SUHFOXGHG E\ IRUPDO ZULWWHQ LQTXLULHV DQG Ff UHDVRQDEOH UHOLDQFH XSRQ DQ H[LVWLQJ FRXUW RUGHU

PAGE 70

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

PAGE 71

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f $V VXFK WKH UHJXODWLRQV SHUPLWWHG D SHULRG RI VL[W\ GD\V WR FRPSOHWH D VLWH EDVHG LQYHVWLJDWLRQ DQG UHVROYH WKH LVVXH $IWHU WKLV SHULRG VWDWHV ZHUH SHUPLWWHG WR VXEPLW FRPSODLQWV WKDW ZHUH LVVXHG WR WKH '2( 7KH FRXUWV KDYH PDLQWDLQHG WKDW WKLV SURFHVV ZDV QHFHVVDU\ EXW QRW VXIILFLHQW WR FRPSOHWHO\ IXOILOO WKH VWDWHnV REOLJDWLRQV IRU D )$3( 7KH )RXUWK &LUFXLW &RXUW RI $SSHDOV XSKHOG WKH 6($V ULJKW WR KHDULQJ GXULQJ WKH IRUPDO JULHYDQFH

PAGE 72

SURFHGXUH ,Q WKLV UXOLQJ WKH IHGHUDO JRYHUQPHQW ZLWKKHOG PLOOLRQ LQ VWDWH ,'($ IXQGV IURP WKH 9LUJLQLD 6WDWH 'HSDUWPHQW RI (GXFDWLRQ RQ WKH JURXQGV WKDW GLVFLSOLQH SURFHGXUHV UDQ FRQWUDU\ WR WKH FXUUHQW GLVFLSOLQDU\ UHTXLUHPHQWV 7KH 9LUJLQLD VWDWH VWDWXWHV DOORZHG VFKRROV WR H[SHO VSHFLDO HGXFDWLRQ VWXGHQWV UHJDUGOHVV RI WKH DOOHJHG PDQLIHVWDWLRQ RI WKH VWXGHQWnV GLVDEOLQJ FRQGLWLRQ 7KH FRXUW IRXQG WKDW UHJDUGOHVV RI YLRODWLRQV 6($V SRVVHVV WKH DELOLW\ WR DSSHDO XQGHU GXHSURFHVV ,Q DFFRUGDQFH ZLWK 7LWOH 9, RI WKH &LYLO 5LJKWV $FW RI 7LWOH ,; RI WKH (GXFDWLRQ $PHQGPHQWV RI DQG 6HFWLRQ RI WKH 5HKDELOLWDWLRQ $FW RI WKH 2IILFH IRU &LYLO 5LJKWV 2&5f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

PAGE 73

RI VHSDUDWH IXQGLQJ VWUXFWXUHV EHWZHHQ VSHFLDO DQG UHJXODU HGXFDWLRQf KDV IRVWHUHG D OHVV DFFXUDWH PHDVXUH RI H[FHVV FRVWV &RVW LQFUHDVHV LQ UHJXODU HGXFDWLRQ WKDW KDYH QRW QHFHVVDULO\ DSSOLHG WR VSHFLDO VHUYLFHV ZHUH DVVRFLDWHG ZLWK D UHGXFWLRQ RI WKH H[FHVV FRVW DPRXQW )RU H[DPSOH LI JHQHUDO HGXFDWLRQ UHFHLYHG D SHUFHQW LQFUHDVH LQ VFKRRO IXQGV PHDVXUHV RI H[FHVV FRVW ZRXOG EH PLVOHDGLQJ ,I HQUROOPHQWV VWD\HG WKH VDPH WKDW SHUFHQW LQFUHDVH ZRXOG KDYH UHGXFHG WKH H[FHVV FRVW SHU VWXGHQW HJ E\ f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

PAGE 74

2WKHU UHVHDUFK DGGUHVVHG WKH H[FHVV FRVW IRUPXODnV ODFN RI SUHGLFWDELOLW\ 7KHVH GDWD LQGLFDWHG WKDW OHVV UHVWULFWLYH VHUYLFH SURYLVLRQ VXFK DV LQFOXVLYH SUDFWLFHV ZHUH LQKLELWHG XQGHU WKH H[FHVV FRVW V\VWHP 8QGHU WKH ZHLJKWHG IRUPXODWKDW IDYRUHG WKH ODEHOLQJ RI VWXGHQWV ZLWK GLVDELOLWLHVVWXGHQWV ZHUH LGHQWLILHG LQ WHUPV RI IXOOWLPHHTXLYDOHQW )7(f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f EHWZHHQ WKH LGHQWLILFDWLRQ UDWH DQG WKH SHUFHQWDJH RI VWXGHQWV OLYLQJ LQ LPSRYHULVKHG FRQGLWLRQV 7KHVH GDWD VXJJHVWHG WKDW ZHDOWK\ GLVWULFWV ZHUH PRUH OLNHO\ WR LGHQWLI\ KLJK SHUFHQWDJHV RI VWXGHQWV LQ WKH PLOGHU DQG PRUH VXEMHFWLYH FDWHJRULHV RI GLVDELOLW\ 7KH DXWKRUV UHSRUWHG WKDW WKH DELOLW\ WR PDQLSXODWH VWDWH DQG IHGHUDO GROODUV IRU VSHFLDO HGXFDWLRQ LQGLFDWHG IODZV LQ

PAGE 75

WKH ORFDO SURJUDP UDWKHU WKDQ WUXH GLIIHUHQFHV LQ HGXFDWLRQDO QHHG $ VXUYH\ RI IHGHUDO VWDWXWHV UHYHDOHG D ZHDOWK DGMXVWPHQW RQ WKH EDVLV RI VWXGHQW SRYHUW\ 7KH FXUUHQW ,'($ ZHDOWK DGMXVWPHQW ZDV SUHGLFDWHG XSRQ WKH ILQGLQJ WKDW KLJK FRQFHQWUDWLRQV RI SRYHUW\ ZHUH DVVRFLDWHG ZLWK JUHDWHU QXPEHUV RI ,'($HOLJLEOH FKLOGUHQ 8QGHU WKH QHZ ,'($ SURYLVLRQV KLJK SRYHUW\ VWDWHV UHFHLYHG D ODUJHU SURSRUWLRQ RI 3DUW % IXQGV 5HVHDUFK E\ &KDLNLQG 'DQLHOVRQ DQG %UDXHQ GHPRQVWUDWHG WKDW FRQFHQWUDWLRQV RI SRYHUW\ ZHUH DVVRFLDWHG ZLWK DW ULVN FRQGLWLRQV WKDW KDYH LQ WXUQ OHDG WR LQFUHDVHG UHTXLUHPHQWV IRU VSHFLDO HGXFDWLRQ VHUYLFHV :LWK WKLV DGMXVWPHQW DGGLWLRQDO UHVRXUFHV IRU VSHFLDO HGXFDWLRQ ZHUH DSSOLHG LQ D SUHYHQWLYH PDQQHU ,QFHQWLYHV IRU 6SHFLDO (GXFDWLRQ )XQGLQJ $ UHYLHZ RI VSHFLDO HGXFDWLRQ IXQGLQJ LQFHQWLYHV ZDV HVVHQWLDO WR WKH SROLF\ HYDOXDWLRQ RI SODFHPHQW QHXWUDOLW\ 7KH &6() FRQWHQGHG WKDW DQ LQFHQWLYHIUHH IXQGLQJ SURJUDP KDV QRW EHHQ UHDOL]HG $ IXQGLQJ V\VWHP ZDV QRW FKDUDFWHUL]HG DV D QHXWUDO PHFKDQLVP IRU WKH FROOHFWLRQ DQG GLVWULEXWLRQ RI UHYHQXHV 7KHUHIRUH WKHVH V\VWHPV KDYH PDLQWDLQHG WKH SRWHQWLDO WR SXUSRVHO\ RU LQDGYHUWHQWO\ FUHDWH SROLF\ LQFHQWLYHV IRU FHUWDLQ W\SHV RI SODFHPHQW DQG SURJUDP GHFLVLRQV

PAGE 76

3DUULVK GHVFULEHG WZR VLJQLILFDQW IXQGLQJ LQFHQWLYHV WKDW DIIHFW SROLF\ DQG SURJUDP GHFLVLRQV UHVWULFWLYHQHVV UHVXOWLQJ IURP SXEOLF DLG GLIIHUHQWLDOV DQG LQFHQWLYHV IRU SULYDWH SODFHPHQWV 5HVWULFWLYH VHWWLQJV ZKLOH FRQWUDLQGLFDWHG E\ WKH GRFWULQH RI /5( ZHUH QRW SURKLELWHG XQGHU WKH ,'($n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

PAGE 77

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nV DELOLW\ WR FROODERUDWH DQG VHUYH LQGLYLGXDO VWXGHQW QHHGV 3ROLF\ UHVHDUFK VXJJHVWHG WKDW IXQGLQJ VKRXOG IROORZ VWXGHQWVQRW SODFHPHQWVWR WKH ORFDO GLVWULFWV ZKHUH GHFLVLRQV ZHUH EHVW PDGH FRQFHUQLQJ SULYDWH YHUVXV SXEOLF VFKRRO SURJUDP LQYHVWPHQWV 0F4XDLQ

PAGE 78

FRQGXFWHG OHJDO DQG SROLF\ UHVHDUFK WKDW UHYHDOHG SULYDWH SODFHPHQW GHFLVLRQV WKDW ZHUH DOZD\V VRPHZKDW VXEMHFWLYH 0RUHRYHU WXLWLRQ SD\PHQWV WR SULYDWH VSHFLDO HGXFDWLRQ LQVWLWXWLRQV ZHUH DPRQJ WKH VLQJOH KLJKHVW FRVWV WR D VFKRRO GLVWULFW 7KH &6() GHWHUPLQHG WKDW ILVFDO LQFHQWLYHV IRU VSHFLDO HGXFDWLRQ SROLFLHV VKRXOG EH WDUJHWHG DQG DGGUHVVHG LQ IHGHUDO DQG VWDWH OHJLVODWLYH UHIRUP +DUWPDQ FRQFXUUHG LQGLFDWLQJ WKDW ILVFDO LQFHQWLYHV VKRXOG QRW QHFHVVDULO\ EH DYRLGHG 5DWKHU WKHVH LQFHQWLYHV VKRXOG EH UHFRJQL]HG WR UHZDUG EHKDYLRU FRQFXUUHQW ZLWK WKH OHJLVODWLYH LQWHQW RI WKH ,'($ DQG XWLOL]HG WR GLVFRXUDJH WKH SUROLIHUDWLRQ RI XQQHFHVVDU\ VSHFLDO HGXFDWLRQ SODFHPHQWV :LWKLQ WKH FRQWH[W RI SODFHPHQW QHXWUDOLW\ 3DUULVK RXWOLQHG VHYHUDO IHGHUDO SULRULWLHV WKDW KDYH HPSRZHUHG VWDWH JRYHUQPHQWV WR OHJLVODWH HIIHFWLYH VSHFLDO HGXFDWLRQ ILQDQFH SURJUDPV 6HYHUDO DVVHUWLRQV ZHUH PDGH FRQFHUQLQJ WKH ILYH EDVLF VWDWH PHWKRGV RI FRPSHQVDWRU\ DLG IRU VSHFLDO HGXFDWLRQ SURJUDPV )LUVW HGXFDWLRQ ILQDQFH SROLF\ ZRXOG DIIHFW ORFDO SURJUDP SURYLVLRQ RI IXQGV EHFDXVH WKHUH ZHUH QR LQFHQWLYHIUHH ILQDQFLQJ V\VWHPV )XUWKHUPRUH SROLF\ SURYLVLRQV VKRXOG VXSSRUWRU DW OHDVW QRW REVWUXFWWKH FRUH YDOXHV DVVRFLDWHG ZLWK WKH IHGHUDO SURJUDP DQG WKH

PAGE 79

DSSURSULDWLRQV EDVHG RQ W\SH RI VWXGHQW SODFHPHQW RIIHU OHVV IOH[LELOLW\ IRU VWDWH DQG ORFDO HGXFDWLRQDO DJHQFLHV )LQDOO\ DOORFDWLRQV EDVHG RQ OHVV VSHFLILF FULWHULD HJ WRWDO HQUROOPHQWf KDYH GHPRQVWUDWHG WKH PRVW IOH[LELOLW\ IRU VWDWH DQG ORFDO HGXFDWLRQDO DJHQFLHV &RVW $QDO\VLV 0HWKRGRORJLHV 3ROLF\PDNHUV KDYH PDLQWDLQHG WKH LPSRUWDQFH RI VSHFLDO HGXFDWLRQ FRVW DQDO\VLV $ JHQHUDO ODFN RI GDWD DQG WKH LQDFFXUDF\ DVVRFLDWHG ZLWK WUDGLWLRQDO H[FHVV FRVW V\VWHPV KDYH LQFUHDVHG WKLV DZDUHQHVV )RU WKLV UHDVRQ D ODUJH GLYLVLRQ RI WKH OLWHUDWXUH DFFRUGHG ZLWK YDULRXV DQDO\WLFDO DSSURDFKHV &RVW $QDO\VLV DQG 6SHFLDO (GXFDWLRQ $ VWXG\ FRQGXFWHG E\ /HZLV %UXLQLQNV 7KXUORZ DQG 0F*UHZ ZDV WKH ILUVW VWXG\ WR GHPRQVWUDWH WKH DSSOLFDELOLW\ RI VSHFLDO HGXFDWLRQ EHQHILWFRVW DQDO\VLV +LVWRULFDOO\ EHQHILWFRVW DQDO\VLV ZDV WKRXJKW WR EH DQ LQHIIHFWLYH PDQQHU RI GHWHUPLQLQJ WKH LQWDQJLEOH EHQHILW DVVRFLDWHG ZLWK VSHFLDO HGXFDWLRQ SURJUDPV 7KH ILHOG RI VSHFLDO HGXFDWLRQ WUDGLWLRQDOO\ EDVHG WKH VXFFHVV RI D SURJUDP RQ WKH GHJUHH WR ZKLFK VLJQLILFDQW PRUDO VRFLDO DQG HGXFDWLRQDO YDOXHV ZHUH PHW 7KHVH EURDG LGHDOV ZHUH FRQVLGHUHG LPPHDVXUDEOH LQ WUDGLWLRQDO HFRQRPLF WHUPV )XUWKHUPRUH D EHQHILWFRVW

PAGE 80

HYDOXDWLRQ RI VSHFLDO HGXFDWLRQ ZDV SHUFHLYHG DV D PRRW HQGHDYRU RQ WKH JURXQGV WKDW VRFLDO PDQGDWHVf§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f IDFLOLWDWHG DQ HIIHFWLYH FRPSDULVRQ RI FRVW DQDO\VLV EHWZHHQ VFKRRO GLVWULFWV )XUWKHUPRUH

PAGE 81

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

PAGE 82

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f§DV WKH &(6) FRQFXUUHG WHQ \HDUV ODWHUWKDW VXEMHFWLYH SODFHPHQW RI VWXGHQWV LQWR UHPHGLDWLYH SURJUDPV GHPRQVWUDWHG D V\QHUJ\ ZKHQ DSSOLHG ZLWKLQ WKH FRQWH[W RI ELDVHG IXQGLQJ SUDFWLFHV 6HFRQG IXQGLQJ SUDFWLFHV WKDW GLVFRXUDJHG SUHYHQWLRQ HQFRXUDJHG RYHUn FODVVLILFDWLRQ DQG WKH IXQFWLRQDO H[FOXVLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV )LQDOO\ WKH DXWKRUV GUHZ XSRQ WHQ \HDUV RI UHVHDUFK WKDW GHPRQVWUDWHG WKDW WKH JRDOV RI WKH ,'($ FRXOG QRW EH PHW LQ VHSDUDWH ILVFDO V\VWHPV

PAGE 83

7KLV FRQWHQWLRQ DFFRUGHG ZLWK WKH XQLILHG V\VWHP LQLWLDWLYHV LQGLFDWHG E\ RWKHU UHVHDUFK LQ VSHFLDO HGXFDWLRQ 0DQ\ SUDFWLFDO ILVFDO LVVXHV EXUGHQ WKH XQLILHG DSSURDFK WR V\VWHPLF VSHFLDO HGXFDWLRQ ILQDQFH UHIRUP )LUVW WKH DOORFDWLRQ RI SHUVRQQHO ZDV XVXDOO\ WKH PRVW GLIILFXOW LWHP WR UHSRVLWLRQ ZLWKLQ D GLVWULFWn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

PAGE 84

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nV IXQGLQJ REOLJDWLRQ DQG SDUH FRVWV 7KLV UHVXOWHG LQ WKH LQFUHDVHG VKDUH RI WKH ILQDQFLDO UHVSRQVLELOLW\ WR ORFDO VFKRRO GLVWULFWV

PAGE 85

ZKHUH VSHFLILF SURJUDP GHFLVLRQV DQG SROLWLFDO SUREOHPV ZHUH XVXDOO\ GHOHJDWHG +DUWPDQ DOVR GHVFULEHG WKH VWUDWHJLF QDWXUH RI SURJUDP FRQWUROV 7KH DXWKRU GHVFULEHG LPSDFW OLPLWHG SURJUDP FKDUDFWHULVWLFV VXFK DV Df HOLJLEOH VWXGHQWV Ef SODFHPHQW W\SRORJLHV Ff GLVWULEXWLRQV LQ ORZ DQG KLJK FRVW SODFHPHQWV Gf SHUVRQQHO RUJDQL]DWLRQ DQG Hf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

PAGE 86

UHYHDOHG WKUHH FRPSUHKHQVLYH FRVW HYDOXDWLRQV RI WKH QDWLRQDO VSHFLDO HGXFDWLRQ SURJUDP 5RVVPLOOHU +DOH DQG )URHUHLFK f .DNDOLN )XUU\ 7KRPDV DQG &DUQH\ f DQG 0RRUH 6WUDQJ 6FKZDUW] DQG %UDGGRFN f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

PAGE 87

&KDPEHUV DQG +DUWPDQ WKLV UHVHDUFK GHVLJQ ZDV KLQGHUHG E\ WKH REVFXULW\ RI KLJKO\ GLVSDUDWH VSHFLDO HGXFDWLRQ SURJUDP FRVWV 7KH XVH RI DYHUDJH FRVWV DOVR REVFXUHG FRVW YDULDQFHV DVVRFLDWHG ZLWK HGXFDWLRQDO QHHG 7KH 0RRUH HW DO VWXG\FRQGXFWHG VHYHQ \HDUV ODWHUf§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f IRU WKH SHULRG RI WR 7KH VDPH

PAGE 88

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

PAGE 89

PHWDDQDO\VLV WKDW LQGLFDWHG ZLGH YDULDQFHV RI FRVWV DFURVV Df GLVDELOLW\ FDWHJRULHV DQG Ef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

PAGE 90

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f DQG VHOIFRQWDLQHG PRUH UHVWULFWLYHf VSHFLDO HGXFDWLRQ VHWWLQJV 7KHUH ZDV KRZHYHU D GLIIHUHQFH LQ SHUSXSLO FRVW :KHQ SUH DQG SRVWWHVW VFRUHV ZHUH HYDOXDWHG WKURXJK WKH DYHUDJH SHUSXSLO H[SHQGLWXUH $33(f WKH DXWKRUV IRXQG WKH OHDVW UHVWULFWLYH VHWWLQJ RI WKH UHVRXUFH RU SXOORXWf URRP WR EH FRQVLGHUDEO\ PRUH FRVW HIIHFWLYH WKDQ PRUH UHVWULFWLYH VHWWLQJV 7DSSH SURYLGHG D KLHUDUFKLFDO WDEXODWLRQ RI VSHFLDO HGXFDWLRQ FRVWV DQG SUHVHQWHG GLVFXVVLRQ RQ WKH QDWXUH RI JURZLQJ VSHFLDO HGXFDWLRQ H[SHQGLWXUHV 7KH DXWKRU UHSRUWHG WKDW VSHFLDO HGXFDWLRQ HQUROOPHQWV LQFUHDVHG SURSRUWLRQDOO\ WR IHGHUDO DQG VWDWH VSHFLDO HGXFDWLRQ

PAGE 91

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

PAGE 92

,QFUHDVHG IUHTXHQF\ RI VWXGHQW UHIHUUDOV IURP JHQHUDO HGXFDWLRQ 0DMRU &RXUW &DVHV 5HODWLQJ WR 6SHFLDO (GXFDWLRQ )LQDQFH &RXUW GHFLVLRQV KDYH FRQWULEXWHG WR WKH HYROXWLRQ RI VSHFLDO HGXFDWLRQ SROLF\ 7KHVH GHFLVLRQV KDYH VHUYHG WR EURDGHQ IHGHUDO VWDWH DQG ORFDO JRYHUQPHQWDO UHVSRQVLELOLWLHV IRU VSHFLDO HGXFDWLRQ /HJDO LVVXHV GHULYHG IURP WKH ERG\ RI FRXUW FDVHV UDQJHG IURP HTXDO SURWHFWLRQ XQGHU WKH ODZ WR WKH HTXLWDEOH GLVWULEXWLRQ RI SXEOLF VSHFLDO HGXFDWLRQ IXQGV 7KLV UHYLHZ RI VSHFLDO HGXFDWLRQ MXULVSUXGHQFH UHSUHVHQWHG WZR GLVWLQFW VWUDQGV FDVHV VXSSRUWLQJ WKH LQLWLDO IHGHUDO LQYROYHPHQW LQ VSHFLDO HGXFDWLRQ SROLF\ DQG HPHUJLQJ LVVXHV LQ VSHFLDO HGXFDWLRQ ILQDQFH &RQVWLWXWLRQDO )RXQGDWLRQV IRU )$3( 7KH )RXUWHHQWK $PHQGPHQW ZDV SDUWLFXODUO\ JHUPDQH WR D OHJDO GLVFXVVLRQ RI VSHFLDO HGXFDWLRQ ILQDQFH 7KH OLWHUDWXUH LQGLFDWHG WKUHH DFFHSWHG GRFWULQHV RI HTXDO SURWHFWLRQ +LVWRULFDOO\ )RXUWHHQWK $PHQGPHQW OLWLJDWLRQ HYLGHQFHG D GLVWLQFWLYH VXVSHFW FODVV 7KLV FODVV ZDV GHILQHG DV D GLVWLQFW RU UHPRWH PLQRULW\ JURXS WKDW H[KLELWHG SHUYDVLYH GLVFULPLQDWLRQ EDVHG RQ LPPXWDEOH FKDUDFWHULVWLFV 7KLV ILUVW FODVVLILFDWLRQ RI HTXDO SURWHFWLRQ VWULFW VFUXWLQ\ DSSOLHG WR WKH KLJKHVW RI MXGLFLDO LPSHUDWLYHV LH JRYHUQPHQWDO

PAGE 93

SROLFLHV WKDW GLVFULPLQDWHG RU LQIULQJHG XSRQ IXQGDPHQWDO &RQVWLWXWLRQDO ULJKWV )RXUWHHQWK $PHQGPHQW OLWLJDWLRQ KDV DOVR DGGUHVVHG WKH LQVWLWXWLRQDO YLRODWLRQV DJDLQVW D VXVSHFW FODVV $ SRSXODWLRQ ZLWK GLVDELOLWLHV KDV QRW FRQVWLWXWHG WKH GHILQLWLRQ RI D VXVSHFW FODVV DQG RQO\ D KDQGIXO RI FRXUWV KDYH UHFRJQL]HG WKH VXVSHFW RU TXDVLVXVSHFW FODVV RI WKH GLVDEOHG +RZHYHU WKH FRXUWV KDYH KHOG WKDW SHRSOH ZLWK GLVDELOLWLHV KDYH PHW PDQ\f§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

PAGE 94

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f

PAGE 95

%URZQ DQG *HQHUDOL]DWLRQV RI (TXDO 3URWHFWLRQ %URZQ Y %RDUG RI (GXFDWLRQ IXQGDPHQWDOO\ FKDQJHG WKH UROH RI WKH IHGHUDO JRYHUQPHQW LQ FDVHV RI HTXDO SURWHFWLRQ ,Q WKLV GHFLVLRQ WKH 86 6XSUHPH &RXUW GHFODUHG WKDW VHJUHJDWHG SODFHPHQWV EDVHG XSRQ UDFH ZHUH XQFRQVWLWXWLRQDO 7KH FRXUW VWDWHG :H FRQFOXGH WKDW LQ WKH ILHOG RI SXEOLF HGXFDWLRQ WKH GRFWULQH RI n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f WKH DGPLQLVWUDWLRQ RI LQVXODU VSHFLDO HGXFDWLRQ SURJUDPV DQG Ef WKH VWDWH RI VHJUHJDWHG VFKRROV LQ WKH V $FFRUGLQJ WR OHJDO VFKRODUV WKH FRXUWV KDYH PDQGDWHG FKDQJHV LQ VWDWH VSHFLDO HGXFDWLRQ SURJUDPV EXW

PAGE 96

GHOHJDWHG WKH UHVSRQVLELOLW\ RI V\VWHPLF SROLF\ FKDQJHV WR &RQJUHVV $OH[DQGHU DQG $OH[DQGHU GHVFULEHG WKH FKLHI VWUDWHJ\ RI WKH :DUUHQ 6XSUHPH &RXUW DV WKDW ZKLFK UHFRJQL]HG WKH QHHG IRU RUGHUO\ SURJUHVV WRZDUG WKH JRDO RI LQWHJUDWHG VFKRROV EXW ZLWKLQ WKH FRQWH[W RI FRQJUHVVLRQDO DXWKRULW\ 7KLV PHDQW WKDW WKH FRXUW ZRXOG OLPLW LWVHOI WR PLQLPXP SHUVRQDO UHOLHI IRU WKH SODLQWLIIV LQ %URZQ EXW OHIW WKH WDVN RI OHJLVODWLQJ GHWDLOHG UXOHV IRU LPSOHPHQWLQJ GHVHJUHJDWLRQ WR &RQJUHVV $VKPRUH FRQFXUUHG VWDWLQJ WKDW WKH %URZQ UXOLQJf§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

PAGE 97

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

PAGE 98

FLWL]HQV ZLWK GLVDELOLWLHV 7KLV FDVH ZDV IROORZHG E\ D SDLU RI FRQFXUUHQW FRQVHQW GHFUHHV SXUVXDQW WR 86& i (TXDO 5LJKWV XQGHU WKH /DZf DQG 86& i &LYLO $FWLRQ IRU WKH 'HSULYDWLRQ RI 5LJKWVf RQ EHKDOI RI DOO H[FOXGHG 3HQQV\OYDQLD FLWL]HQV ZLWK GHYHORSPHQWDO GLVDELOLWLHV 7KH FDVH FDOOHG LQWR TXHVWLRQ WKH FODVVLILFDWLRQ VFKHPH WKDW ZDV XWLOL]HG E\ WKH VWDWH WKDW H[FOXGHG VWXGHQWV RQ WKH EDVLV RI XQHGXFDELOLW\ XQWUDLQDELOLW\ DQG H[FXVDELOLW\ 7KH FRQVHQW GHFUHHV DIILUPHG WKDW SHUVRQV ZLWK GHYHORSPHQWDO GLVDELOLWLHV ZHUH FDSDEOH RI EHQHILWLQJ IURP D SXEOLF HGXFDWLRQ )XUWKHUPRUH WKH IHGHUDO GLVWULFW FRXUW KHOG WKDW WKH VWDWH ZDV KHOG ILQDQFLDOO\ UHVSRQVLEOH IRU VXFK D SURJUDP WKDW ZDV Df DSSURSULDWH WR WKHLU FDSDFLW\ DQG Ef ZLWKLQ WKH PRVW QRUPDOL]HG VHWWLQJ 7KH FRXUW DOVR IRXQG WKDW WKH VWDWHnV WXLWLRQ PDLQWHQDQFH VWDWXWHZKLFK SURYLGHG WXLWLRQ IRU SULYDWH VFKRROVZDV DSSOLFDEOH WR DOO VSHFLDO HGXFDWLRQ SODFHPHQWV WKDW LV DOO FKLOGUHQ ZLWK GLVDELOLWLHV ZHUH HQWLWOHG WR WKH VDPH SULYDWH HGXFDWLRQDO EHQHILWV LI WKH\ ZHUH GHHPHG DSSURSULDWH 0LOOV Y '& %RDUG RI (GXFDWLRQ UHSUHVHQWHG WKH QH[W ORJLFDO VWHS LQ VSHFLDO HGXFDWLRQ ILQDQFH OLWLJDWLRQ 0LOOV H[WHQGHG WKH 3$5& UXOLQJ WR UHTXLUH VWDWH UHVSRQVLELOLW\ IRU DOO GLVDELOLW\

PAGE 99

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f§DV RI -XO\ XQGHU

PAGE 100

VWDWXWRU\ RU FRXUW PDQGDWHV WR SURYLGH IXOO HGXFDWLRQDO RSSRUWXQLWLHV IRU FKLOGUHQ ZLWK GLVDELOLWLHV 7KRPDV DQG 5XVVR LQGLFDWHG WKDW WKH SODLQWLIIV LQ WKHVH FDVHV ZHUH YHU\ VXFFHVVIXO LQ FODULI\LQJ DQG VHFXULQJ DSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV +RZHYHU 7XUQEXOO DQG 7KRPDV DQG 5XVVR UHSRUWHG WKDW PDQ\ VFKRRO GLVWULFWV UHIXVHG WR FRPSO\ RQ WKH JURXQGV WKDW Df WKH PDQGDWHV FDXVHG XQGXH ILQDQFLDO EXUGHQV Ef VSHFLDO SURJUDPV ZHUH XQGHUGHYHORSHG DQG Ff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

PAGE 101

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f§LQ FDVHV RI SHUYDVLYH GLVFULPLQDWLRQWR &RQJUHVV )LQDOO\ WKH FRXUWV QRWHG WKDW WKH ODFN RI HGXFDWLRQDO RSSRUWXQLW\ GLG QRW PHDQ WKH VDPH WKLQJ DV WKH LQYLGLRXV GHQLDO RI LW] ,Q WKLV PDQQHU WKH FRXUWV IRXQG %XUXVV DQG 0FOQQLV WRR EURDG D PDQGDWH IRU D XQLIRUP FRGH RI ILVFDO HTXDOLW\ 7KH FRQFHSWXDO ERXQGDULHV RI HTXDO SURWHFWLRQ LQ %URZQ ZHUH EURDGHQHG LQ 6DQ $QWRQLR 6FKRRO 'LVWULFW Y 5RGULTXH] 3ULRU WR DSSHDO LQ 86 6XSUHPH &RXUW WKH ORZHU FRXUW IRXQG WKH 7H[DV VFKRRO ILQDQFH SURJUDP WR EH XQFRQVWLWXWLRQDO 7KLV FDVH EURXJKW FODULW\ WR DQ ILQDQFH HTXLW\ DUJXPHQW EDVHG XSRQ WKH IHGHUDO HTXDO

PAGE 102

SURWHFWLRQ FODXVH 7KH FRXUW KHOG WKDW SXEOLF HGXFDWLRQ ZDV QRW D IXQGDPHQWDO ULJKW 7KH FRXUW FRQVHTXHQWO\ DSSOLHG WKH UDWLRQDO EDVLV WHVW WR GHWHUPLQH WKH FRQVWLWXWLRQDOLW\ RI D VWDWH SURSHUW\ WD[EDVHG HGXFDWLRQDO VFKHPH 8SRQ DSSHDO WKH FRXUW UXOHG WKDW QR VXVSHFW FODVV FRXOG EH SUHFLVHO\ LGHQWLILHG DQG WKDW VSHFLDO SURWHFWLRQ FRXOG QRWLQ WKH ZRUGV RI -XVWLFH 3RZHOOf§EH DIIRUGHG WR D V\QGURPH RI SRYHUW\ 7KLV FDVH HVWDEOLVKHG DQ HQGXULQJ SROLF\ RI IHGHUDO QHXWUDOLW\ 7KUHH SUHFRQGLWLRQV ZHUH NH\ WR WKLV SROLF\ DQG ZRXOG VHUYH SURSRQHQWV RI VFKRRO ILQDQFH HTXLW\ LQ WKH VWDWH FRXUWV (TXDO SURWHFWLRQ XQGHU WKH )RXUWHHQWK $PHQGPHQW $ ZHDOWK VXVSHFW FODVV LH GLVFULPLQDWLRQ EDVHG XSRQ ZHDOWKf DQG 7KH IXQGDPHQWDOO\ DQG SHUYDVLYH QDWXUH RI HGXFDWLRQ ,Q VXPPDU\ WKH FRXUWV UXOHG WKDW GLVSDULWLHV RI ZHDOWK ZHUH QRW DQ LVVXH WKDW FRXOG EH HIIHFWLYHO\ DUJXHG DW WKH IHGHUDO OHYHO -XVWLFH 3RZHOO DFNQRZOHGJHG WKH GLVSDULW\ DQG GLYHUVLW\ WKDW H[LVWHG DFURVV WKH QDWLRQ EXW FRXOG RQO\ GHWDLO WKH FRXUW FODLPV RI PLQLPDOO\ DGHTXDWH VWDQGDUGV RI HGXFDWLRQDO RSSRUWXQLW\ ,W ZDV HYLGHQFHG E\ IHGHUDO FRXUW GRFXPHQWV WKDW WKH FRXUW ZLVKHG WR DYRLG WKH SROLWLFDO TXDQGDU\ LQYROYHG LQ

PAGE 103

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f§ZDV QRW D GH IDFWR VXVSHFW FODVV (PHUJLQJ ,VVXHV LQ 6SHFLDO (GXFDWLRQ )LQDQFH (TXLW\ 6LQFH VWDWHV KDYH XQGHUJRQH VLJQLILFDQW UHVROXWLRQ LQ WKH KLJKHU FRXUWV WR GHWHUPLQH WKH &RQVWLWXWLRQDOLW\ RI WKH VWDWH HGXFDWLRQ ILQDQFH SURJUDPV $FFRUGLQJ WR 9HUVWHJHQ FRQFHUQ IRU ZHDOWK LQHTXDOLW\ EHWZHHQ GLVWULFWV KDV SUHFHGHG WKH WDEOHG LVVXH RI HGXFDWLRQDO DGHTXDF\ LQ 5RGULJXH] 7KLV KDV LQ WXUQ LPSRVHG WKH VWDWH VXSUHPH FRXUWV ZLWK WKH UHVSRQVLELOLW\ RI GHWHUPLQLQJ WKH &RQVWLWXWLRQDO DVSHFWV

PAGE 104

RI VWDWH VFKRRO ILQDQFH 7KUHH FRQWHPSRUDU\ VWDWH VXSUHPH FRXUW GHFLVLRQV UHSUHVHQWHG WKH FXUUHQW GHEDWH RI VSHFLDO HGXFDWLRQ ILQDQFH DGHTXDF\ +DUSHU Y +XQW ,Q WKH $ODEDPD 6WDWH 6XSUHPH &RXUW KHDUG DQ DPDOJDPDWLRQ RI WZR ORZHU FRXUW FDVHV UHODWLQJ WR WKH FRQVWLWXWLRQDOLW\ RI VSHFLDO HGXFDWLRQ ILQDQFH SURJUDPV 3ODLQWLIIV LQ +DUSHU FKDOOHQJHG WKH FRQVWLWXWLRQDOLW\ RI $ODEDPDnV V\VWHP RI SXEOLF HOHPHQWDU\ DQG VHFRQGDU\ HGXFDWLRQ DVVHUWLQJ WKDW WKH SURJUDP GLG QRW RIIHU HTXLWDEOH DQG DGHTXDWH HGXFDWLRQDO RSSRUWXQLWLHV WR WKH DOO VFKRROFKLOGUHQ RI WKH VWDWH 7KH\ VRXJKW GHFODUDWRU\ DQG LQMXQFWLYH UHOLHI IURP WKH FRQVWLWXWLRQDO DQG VWDWXWRU\ YLRODWLRQV DOOHJHG XQGHU WKH VWDWHn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

PAGE 105

IXQGLQJ DQG WKDW LQFUHDVHG IXQGLQJ ZRXOG QRW QHFHVVDULO\ UHVXOW LQ LPSURYHPHQW RI VWXGHQW SHUIRUPDQFH 7KH FRXUW IRXQG WKDW $ODEDPDnV LQDELOLW\ WR SURYLGH DQ\ VSHFLDO HGXFDWLRQ VHUYLFHV WR FKLOGUHQ ZLWK GLVDELOLWLHV FOHDUO\ IDLOHG WR PHHW WKH 5RZOHY WHVW 7KH FRXUW KHOG WKDW WKH WRWDO HQUROOPHQW PHWKRG RI IXQGLQJ VSHFLDO HGXFDWLRQ LH EDVHG HQWLUHO\ RQ WKH WRWDO QXPEHU RI VWXGHQWV LQ UHJXODU DQG VSHFLDO HGXFDWLRQf ZDV XQFRQVWLWXWLRQDO RQ WKH JURXQGV WKDW Df WKH IXQGV DYDLODEOH SHU VSHFLDO HGXFDWLRQ SXSLO ZHUH QRW WLHG WR WKH FRVW RI HGXFDWLQJ WKRVH SXSLOV DQG Ef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

PAGE 106

ZDV D IXQGDPHQWDO ULJKW XQGHU WKH VWDWH FRQVWLWXWLRQ 7KLV GHFLVLRQ SURPSWHG VHYHUDO :\RPLQJ 6HVVLRQ ODZV WKDW VRXJKW ILVFDO SDULW\ RI WKH VWDWH VFKRRO ILQDQFH SURJUDP ,Q WKH FRXUW IRXQG WKDW WKH VWDWH HGXFDWLRQ ILQDQFH SURJUDP ODFNHG Df UHVHDUFKEDVHG FRVW GLIIHUHQWLDOV Ef DQ XQGHUVWDQGLQJ RI DFWXDO FRVWV UHODWLQJ WR HFRQRPLHV RI VFDOH DQG Ff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f WKH LQYHVWLJDWLRQ RI DOWHUQDWLYH FRVW GLIIHUHQWLDOV WKDW ZHUH EDVHG RQ HPSLULFDO PHULW DQG Ef SROLF\ LPSOHPHQWDWLRQ SXUVXDQW WR WKH 6XSSOHPHQWQRW6XSSODQW SURYLVLRQV RI IHGHUDO ODZ )XUWKHUPRUH WKH FRXUW PDLQWDLQHG WKDW DOWHUQDWLYH IXQGLQJ DSSURDFKHV VKRXOG UHIOHFW D EDODQFH

PAGE 107

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n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

PAGE 108

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f ZHUH LQFRPSOHWHO\ IXQGHG 5DWKHU VXFK SURJUDPV ZHUH IXQGHG E\ UHGLUHFWLQJ IXQGV WKDW ZRXOG RWKHUZLVH EH DYDLODEOH IRU GLVWULEXWLRQ XQGHU WKH IRXQGDWLRQ IRUPXOD 7KH FRXUW VXPPDUL]HG WKH UHODWLRQVKLS EHWZHHQ JHQHUDO VFKRRO ILQDQFH LQHTXLW\ EHWZHHQ GLVWULFWV DQG WKH SOLJKW RI FDWHJRULFDO SURJUDPV $GGLWLRQDO DSSURSULDWLRQV PD\ EH PDGH IRU FDWHJRULFDO SURJUDPV VXFK DV YRFDWLRQDO HGXFDWLRQ VSHFLDO HGXFDWLRQ DQG

PAGE 109

WUDQVSRUWDWLRQ +RZHYHU QR DGMXVWPHQW LV PDGH IRU WKH UHODWLYH ZHDOWK RI WKH UHFHLYLQJ GLVWULFW 0RUHRYHU FKLOGUHQ LQ IXQGHG KDQGLFDSSHG XQLWV ZHUH QRW LQFOXGHG LQ WKH VWDWH EDVLF DLG IRUPXOD 7KXV IXQGV IRU KDQGLFDSSHG VWXGHQWV IRU LQVWDQFH ZKRVH HGXFDWLRQ FRVWV DUH VXEVWDQWLDOO\ KLJKHU GXH WR VWDWH PDQGDWHV RI VPDOO FODVV VL]H DQG EHFDXVH RI UHODWHG H[WUD VHUYLFHVf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f 7XUQEXOO + 5 )UHH DQG $SSURSULDWH 3XEOLF (GXFDWLRQ 7KH /DZ DQG &KLOGUHQ ZLWK 'LVDELOLWLHV 'HQYHU &RORUDGR /RYH 3XEOLVKLQJ f 7KRPSVRQ & 5 & :RRG DQG + +RQH\PDQ )LVFDO /HDGHUVKLS IRU 6FKRROV &RQFHSWV DQG 3UDFWLFHV :KLWH 3ODLQV 1HZ
PAGE 110

:ROIHQVEHUJHU : 6RFLDO 5ROH 9DORUL]DWLRQ $ 3URSRVHG 1HZ WHUP IRU WKH 3ULQFLSOH RI 1RUPDOL]DWLRQ 0HQWDO 5HWDUGDWLRQ f F ,ELG 7XUQEXOO VXSUD QRWH DW 86 6HQDWH &RPPLWWHH RQ /DERU DQG 3XEOLF :HOIDUH (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW RI WK &RQJUHVV VW 6HVVLRQ 6HQDWH 5HSRUW 1R DW )RU SXUSRVHV RI WKLV VWXG\ WKH DXWKRU KDV FRGLILHG DOO DFWV ZKLFK DSSHDU LQ WKH 8QLWHG 6WDWHV &RGH $OO 3XEOLF /DZV WKDW KDYH EHHQ WUDQVIHUUHG WR DOWHUQDWH FRGHV ZHUH GRFXPHQWHG DV VXFK 3XEOLF /DZV WKDW ZHUH QRW UHSUHVHQWHG LQ WKH FXUUHQW 86& ZHUH QRW FRGLILHG 7KH $PHULFDQV ZLWK 'LVDELOLWLHV $FW 3/ f >FRGLILHG DV 86& i f@ (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW 3/ f >WUDQVIHUUHG WR 86& ii R f@ (GXFDWLRQ RI WKH +DQGLFDSSHG $FW 3/ f 6HFWLRQ RI WKH 5HKDELOLWDWLRQ $FW f >FRGLILHG DV 86& ii f D f@ ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f :KDW LV )DLU" 6SHFLDO (GXFDWLRQ DQG )LQDQFH (TXLW\ ,VVXH %ULHI 1R )DOO f ($+&$ VXSUD QRWH 86& i Dff%f f +HQGULFN +XGVRQ 'LVWULFW %RDUG RI (GXFDWLRQ Y 5RZOH\ 86 6 &W / (G G f 2VERXUQH $OODQ /HJDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ %RVWRQ 0DVVDFKXVHWWV $OO\Q DQG %DFRQ f %HUQH 5REHUW DQG 6WLHIHO /HDQQD 7KH 0HDVXUHPHQW RI (TXLW\ LQ 6FKRRO )LQDQFH &RQFHSWXDO 0HWKRGRORJLFDO DQG (PSLULFDO 'LPHQVLRQV %DOWLPRUH -RKQV +RSNLQV 8QLYHUVLW\ 3UHVV f +DUWPDQ : 7 6WDWH )XQGLQJ 0RGHOV IRU 6SHFLDO (GXFDWLRQ 5HPHGLDO DQG 6SHFLDO (GXFDWLRQ f %HUQVWHLQ &KDUOHV :LOOLDP 7 +DUWPDQ DQG 5XGROSK 0DUVKDOO 0DMRU 3ROLF\ ,VVXHV LQ )LQDQFLQJ 6SHFLDO (GXFDWLRQ -RXUQDO RI (GXFDWLRQ )LQDQFH f

PAGE 111

&KDLNLQG 6 / & 'DQLHOVRQ DQG 0 / %UDXHQ :KDW 'R :H .QRZ $ERXW WKH &RVWV RI 6SHFLDO (GXFDWLRQ" $ 6HOHFWHG 5HYLHZ -RXUQDO RI 6SHFLDO (GXFDWLRQ f 6HUUDQR Y 3ULHVW &DO G 3G &DO 5SWU &DO f6HUUDQR ,,f FHUW GHQLHG 86 6 &W / (G G f 6DQ $QWRQLR 6FKRRO 'LVWULFW Y 5RGULTXH] 86 6 &W / (G G f 6HH LQIUD QRWHV &6() )HGHUDO 3ROLF\ 2SWLRQV IRU )XQGLQJ 6SHFLDO (GXFDWLRQ ,VVXH %ULHI )DOO f r &6() VXSUD QRWH DW 0F&DUWK\ (LOHHQ DQG 'DQLHO 6DJH 6WDWH 6SHFLDO (GXFDWLRQ )LVFDO 3ROLF\ 7KH 4XHVW IRU (TXLW\ ([FHSWLRQDO &KLOGUHQ f ,ELG %RVFDUGLQ 0DU\ /\QQ /RFDO/HYHO 6SHFLDO (GXFDWLRQ 'XH3URFHVV +HDULQJV &RVW ,VVXHV 6XUURXQGLQJ ,QGLYLGXDO 6WXGHQW 'LIIHUHQFHV -RXUQDO RI (GXFDWLRQ )LQDQFH f
PAGE 112

,ELG %HUQH DQG 6WLHIHO VXSUD QRWH 86 +RXVH RI 5HSUHVHQWDWLYHV -XQH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ +RXVH RI 5HSUHVHQWDWLYHV 5HSRUW 1R DW &6() VXSUD QRWH DW ,ELG /LSWRQ 7KH )XOO ,QFOXVLRQ &RXUW &DVHV 3DSHU 3UHSDUHG IRU WKH :LQJVSUHDG &RQIHUHQFH 5DFLQH :, f
PAGE 113

6KDSLUR 3 /RHE DQG %RZHUPDVWHU 6HSDUDWH DQG 8QHTXDO 86 1HZV DQG :RUOG 5HSRUW f 7KRPSVRQ HW DO VXSUD QRWH DW &KDPEHUV 7 7 3DUULVK DQG /LHEHUPDQ :KDW $UH :H 6SHQGLQJ RQ 6SHFLDO (GXFDWLRQ LQ WKH 86" 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f ($+&$ VXSUD QRWH 7XUQEXOO VXSUD QRWH DW 86 &RQVW $UW ; 0DUEXU\ Y 0DGLVRQ 86 %UDQFK / (G f 86 &RQVW $UW i FO $OH[DQGHU DQG $OH[DQGHU VXSUD QRWH DW 7KH 1DWLRQDO 'HIHQVH (GXFDWLRQ $FW 3/ f 5H\QROGV 0 DQG 5RVHQ 7 6SHFLDO (GXFDWLRQ 3DVW 3UHVHQW DQG )XWXUH (GXFDWLRQDO )RUXP f 86 &RQVW $UW i FO 7KRPSVRQ HW DO VXSUD QRWH DW 7KRPSVRQ HW DO VXSUD QRWH DW n 8QLWHG 6WDWHV Y %XWOHU 86 6 &W f +HOYHULQJ Y 'DYLV &U 6 6 &W f 8QLWHG 6WDWHV Y 2YHUWRQ )G WK &LU f 86 &RQVW $UW ;9, i %URZQ 86 $ PRUH VSHFLILF OHJDO UHYLHZ RI WKH HVWDEOLVKPHQW RI HTXDO SURWHFWLRQ XQGHU WKH )RXUWHHQWK $PHQGPHQW ZDV SURYLGHG DW WKH HQG RI WKLV FKDSWHU 3$5& ) 6XSS 7XUQEXOO VXSUD QRWH DW ,ELG ,ELG 3$5& ) 6XSS

PAGE 114

&URZGHU Y 5LOHV 1R &$ 6XSHU &W /RV $QJHOHV &R ILOHG 'HF f DQG 'DYLV Y :\QHV 1R &9 6' *D ILOHG 0D\ f 7XUQEXOO VXSUD QRWH DW ,ELG ,ELG 5RZOH\ 86 7DWUR Y 6WDWH RI 7H[DV ) 6XSS 1'7H[ f UHYnG )G WK &LU f RQ UHPDQG ) 6XSS UHYnG )G WK &LU f DIInG 86 6 &W / (G G f /DX Y 1LFKROV 86 f &UH[QLQV -DPHV /HJDO DQG 3ROLWLFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 6SULQJILHOG ,OOLQRLV &KDUOHV & 7KRPDV f &URQLQ 0 7KH )HGHUDO 7DNHRYHU 6KRXOG WKH -XQLRU 3DUWQHU 5XQ WKH )LUP" 3KL 'HOWD .DSSDQ f ,ELG 7D\ORU % /HWWHU WR 6HQDWRU -HQQLQJV 5DQGROSK -XQH 86& F Df f &UHPLQV VXSUD QRWH DW -RQHV 3 $ 3UDFWLFDO *XLGH WR )HGHUDO 6SHFLDO (GXFDWLRQ /DZ 1HZ
PAGE 115

,ELG %DOODUG % $ 5DPLUH] DQG ) :HLQWUDXE 6SHFLDO (GXFDWLRQ LQ $PHULFD ,WV /HJDO DQG *RYHUQPHQWDO )RXQGDWLRQV 5HVWRQ 9LUJLQLD &RXQFLO IRU ([FHSWLRQDO &KLOGUHQ f (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW $PHQGPHQWV 3/ f >UHSHDOHG E\ 3/ f@ 2IILFH RI 3XEOLF ,QIRUPDWLRQ *DOOXDGHW 8QLYHUVLW\ 86& &K % WUDQVIHUUHG DV 86& ii f Qf %DOODUG HW DO VXSUD QRWH DW ,ELG ,ELG ,ELG ,ELG &UHPLQV VXSUD QRWH DW
PAGE 116

6WULFNODQG %% DQG $ 3 7XUQEXOO 'HYHORSLQJ DQG ,PSOHPHQWLQJ LQGLYLGXDOL]HG (GXFDWLRQDO 3ODQV 1HZ FRGLILHG DV 86& i WUDQVIHUUHG WR 86& E f@ &UHPLQV VXSUD QRWH DW ,ELG +HKLU DQG /DWXV VXSUD QRWH DW ,ELG ,ELG ,ELG &UHPLQV VXSUD QRWH DW :LQ]HU VXSUD QRWH DW ,ELG ,ELG ,ELG ,ELG ,ELG ,ELG %DOODUG HW DO VXSUD QRWH DW 1& 6HVVLRQ /DZV FK DPHQGLQJ 1RUWK &DUROLQD *HQHUDO 6WDWXWH ii f 'HSDUWPHQW RI 3XEOLF :HOIDUH Y +DDV 1( QG ,OO f

PAGE 117

&UHPLQV VXSUD QRWH :HEHU 0 & 6SHFLDO (GXFDWLRQ /DZ DQG 7UHDWLVH +RUVKDP 3HQQV\OYDQLD /53 3UHVV f DQG UHSHDOHG E\ 3/ f@ &DSWLRQHG )LOPV IRU WKH 'HDI $FW 3/ f >UHSHDOHG E\ 3/ f@ %DOODUG HW DO VXSUD QRWH DW 7KH 1DWLRQDO 'HIHQVH (GXFDWLRQ $FW 3/ f >WUDQVIHUUHG WR 86& ii H f@ %DOODUG HW DO VXSUD QRWH DW ,ELG ,ELG ,ELG 0HQWDO 5HWDUGDWLRQ )DFLOLWLHV DQG &RPPXQLW\ 0HQWDO +HDOWK FHQWHUV &RQVWUXFWLRQ $FW 3/ f >WUDQVIHUUHG WR 86& ii H f@ &UHPLQV VXSUD QRWH DW ,ELG ,ELG (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW $PHQGPHQWV 3/ f >UHSHDOHG E\ 3/ f@ &UHPLQV VXSUD QRWH DW DQG 7XUQEXOO VXSUD QRWH DW 7XUQEXOO VXSUD QRWH DW 6HQDWH 5HSRUW 1R VXSUD QRWH

PAGE 118

($+&$ VXSUD QRWH 6HH HJ 9HUVWHJHQ $ )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW $ +LVWRULFDO 2YHUYLHZ 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f (+$ VXSUD QRWH ,'($ VXSUD QRWH 3DUULVK HW DO VXSUD QRWH DW ,ELG 6HQDWH 5HSRUW 1R VXSUD QRWH DW $FFRUGLQJ WR WKH 6HQDWH 6XEFRPPLWWHH RQ WKH (GXFDWLRQ $PHQGPHQWV RI ,QFUHDVHG DZDUHQHVV RI WKH HGXFDWLRQDO QHHGV RI KDQGLFDSSHG FKLOGUHQ DQG ODQGPDUN FRXUW GHFLVLRQV HVWDEOLVKLQJ WKH ULJKW WR HGXFDWLRQ IRU KDQGLFDSSHG FKLOGUHQ SRLQWHG WR WKH QHFHVVLW\ RI DQ H[SDQGHG )HGHUDO ILVFDO UROHf (GXFDWLRQ $PHQGPHQWV 3/ f 3DUULVK HW DO VXSUD QRWH DW -RQHV VXSUD QRWH DW ,ELG 86& i Ef f f 86& i Eff f + 5 5HSRUW 1R VXSUD QRWH DW 6HQDWH 5HSRUW 1R VXSUD QRWH DW + 5 5HSRUW 1R VXSUD QRWH DW 7KH DJH UHTXLUHPHQW VWDJJHUHG FRPSOLDQFH E\ PDQGDWLQJ DOO VWDWHV WR SURYLGH VSHFLDO HGXFDWLRQ RSSRUWXQLWLHV WR VWXGHQWV ZLWK GLVDELOLWLHV EHWZHHQ WKH DJHV RI DQG E\ 6HSWHPEHU RI 7KH FRQFHVVLRQ ZDV FRQVLGHUHG E\ PDQ\ WR EH D SROLWLFDO HVVHQWLDOLW\ WKH (+$ ZRXOG KDYH SUREDEO\ IDLOHG RU EHHQ ZHDNHQHG ZLWKRXW VXFK D FRQGLWLRQ 6HH 7XUQEXOO VXSUD QRWH DW ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ -RQHV VXSUD QRWH DW ,ELG 86& ii f

PAGE 119

,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ 2VERXUQH VXSUD QRWH DW 86& i Df f f 86& i Dff f 86& i Dff f 86& i Df f %f Lf f 7KH $FW GHILQHG VSHFLILF VHUYLFHV ZKLFK ZHUH VSHFLDOO\ GHVLJQHG LQVWUXFWLRQ WR PHHW WKH XQLTXH QHHGV RI D FKLOG ZLWK GLVDELOLWLHV VXFK DV WUDQVSRUWDWLRQ LGHQWLILFDWLRQ DQG DVVHVVPHQW VSHHFK SDWKRORJ\ SV\FKRORJLFDO VHUYLFHV SK\VLFDO DQG RFFXSDWLRQDO WKHUDSLHV UHFUHDWLRQ DQG GLDJQRVWLFDO RU HYDOXDWLYH PHGLFDO VHUYLFHV DQG FRXQVHOLQJ +RZHYHU WKH $FW GRHV QRW OLPLW WKH SURYLVLRQ RI RWKHU VHUYLFHV 6HH 7DWUR 86 DW DQG &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) 6 &W f 86& i Dff f 86& ii f Dff f )$3( LV GHILQHG DV VSHFLDO HGXFDWLRQ VHUYLFHV WKDW $f KDYH EHHQ SURYLGHG DW SXEOLF H[SHQVH XQGHU SXEOLF VXSHUYLVLRQ DQG ZLWKRXW FKDUJH %f PHHW WKH VWDQGDUGV RI WKH 6WDWH HGXFDWLRQDO DJHQF\ &f LQFOXGH DQ DSSURSULDWH SUHVFKRRO HOHPHQWDU\ RU VHFRQGDU\ VFKRRO HGXFDWLRQ LQ WKH 6WDWH LQYROYHG DQG 'f DUH SURYLGHG LQ FRQIRUPLW\ ZLWK WKH LQGLYLGXDOV HGXFDWLRQ SURJUDP DXWKRUL]HG XQGHU WKLV WLWOH 86& i Dff f Df Dff%f f 86& ii f (GXFDWLRQ RI WKH +DQGLFDSSHG $PHQGPHQWV RI 3/ f 86& i f 86& ii f ,ELG 86& ii f 86& ii f 9HUVWHJHQ VXSUD QRWH DW

PAGE 120

,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ FRGLILHG DV DPHQGHG DW 86& ii f@ 9HUVWHJHQ VXSUD QRWH DW ,ELG ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW $PHQGPHQWV 3/ f
PAGE 121

,OO 86& i Df f %f Lf f 7KH YROXQWDU\ GHSDUWXUH E\ UHWLUHPHQW RU RWKHUZLVH RU GHSDUWXUH IRU MXVW FDXVH RI VSHFLDO HGXFDWLRQ SHUVRQQHO LLf $ GHFUHDVH LQ WKH HQUROOPHQW RI FKLOGUHQ ZLWK GLVDELOLWLHV LLLf 7KH WHUPLQDWLRQ RI WKH REOLJDWLRQ RI WKH DJHQF\ FRQVLVWHQW ZLWK WKLV VXEFKDSWHU WR SURYLGH D SURJUDP RI VSHFLDO HGXFDWLRQ WR D SDUWLFXODU FKLOG ZLWK D GLVDELOLW\ WKDW LV DQ H[FHSWLRQDOO\ FRVWO\ SURJUDP DV GHWHUPLQHG E\ WKH 6WDWH HGXFDWLRQDO DJHQF\ EHFDXVH WKH FKLOG ,f KDV OHIW WKH MXULVGLFWLRQ RI WKH DJHQF\ ,,f KDV UHDFKHG WKH DJH DW ZKLFK WKH REOLJDWLRQ RI DJHQF\ WR SURYLGH D IUHH DSSURSULDWH SXEOLF HGXFDWLRQ WR WKH FKLOG KDV WHUPLQDWHG ,,,f QR ORQJHU QHHGV VXFK SURJUDP RI VSHFLDO HGXFDWLRQ LYf 7KH WHUPLQDWLRQ RI FRVWO\ H[SHQGLWXUHV IRU ORQJWHUP SXUFKDVHV VXFK DV WKH DFTXLVLWLRQ RI HTXLSPHQW RU WKH FRQVWUXFWLRQ RI VFKRRO IDFLOLWLHV 86& i Dff'f f 86& i Dff%f f 9HUVWHJHQ VXSUD QRWH 86& i Dff f 86& i Hf f f 1RWH &DS LV VSHFLILFDOO\ VHW DW 9HUVWHJHQ $ 7 3DUULVK DQG :ROPDQ $ /RRN DW &KDQJHV LQ WKH )LQDQFH 3URYLVLRQV IRU *UDQWV WR 6WDWHV 8QGHU WKH ,'($ $PHQGPHQWV RI 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 86& 86& 86& ,ELG i Hff$fLLLLLf f i Hf f %f LLf f i Iff%fLLf f 86& i If f %f LLf f 86& i Df f f 6HQDWH 5HSRUW 1R VXSUD QRWH DW 86& i Hf f 86& i If f 9HUVWHJHQ HW DO VXSUD QRWH DW 86& i Eff(f f 6HQDWH 5HSRUW 1R VXSUD QRWH DW 86& i Ff f

PAGE 122

86& i Df f :HEHU VXSUD QRWH DW 86& i D f /RXLVLDQD 6WDWH %RDUG 2I (OHPHQWDU\ t 6HFRQGDU\ (GXFDWLRQ Y 8QLWHG 6WDWHV 'HSDUWPHQW RI (GXFDWLRQ )G f 'HSDUWPHQW RI (GXFDWLRQ Y %HQQHWW )G f :HEHU VXSUD QRWH DW 86& i Df f f 86& i Dff f :HEHU VXSUD QRWH DW ,ELG ,ELG $OOHQ Y 0F'RQRXJK 0DVV 6XSHU &W f 86& i Eff$f f :HEHU VXSUD QRWH DW 3$5& ) 6XSS $QGUHZV Y /HGEHWWHU )G WK &LU f DQG /LQFROQ ,QWHUPHGLDWH 8QLW 1R Y &RPPRQZHDOWK 3D &RPPQZ $G f ,ELG +HQGULFNV Y *LOKRRO ) 6XSS (' 3D f 86& i Dff f 86& i F Df f (GXFDWLRQ 'HSDUWPHQW *HQHUDO $GPLQLVWUDWLYH 5HJXODWLRQV FRGLILHG DW &)5 ii f &)5 i Ff f 86& i Dff f &KULVWRSKHU : Y 3RUWVPRXWK 6FKRRO &RPPLVVLRQ )G VW &LU f 9LUJLQLD 'HSDUWPHQW RI (GXFDWLRQ Y 5LOH\ )G 86 $SS f 86& i Nf f &LYLO 5LJKWV $FW RI 3/ f >FRGLILHG DW 86& ii GG f@

PAGE 123

(GXFDWLRQ $PHQGPHQWV 3/ f 6HFWLRQ RI WKH 5HKDELOLWDWLRQ $FW f >FRGLILHG DV 86& ii f D f@ &)5 Df f 1RWH 7KLV UHJXODWLRQ DSSOLHV ZLWK H[FHSWLRQ WR WKH UHFHQW ,'($ DPHQGPHQWV SHUWDLQLQJ WR VWXGHQW FRQGXFW DQG PLVEHKDYLRU +DUWPDQ : 7 6XSSOHPHQWDO5HSODFHPHQW $Q $OWHUQDWLYH $SSURDFK WR ([FHVV &RVWV ([FHSWLRQDO &KLOGUHQ f ,ELG ,ELG ,ELG ,ELG +DUWPDQ VXSUD QRWH DQG +LOO ) : ,QFOXVLRQ DQG $GPLQLVWUDWLYH 6WUXFWXUH 3XEOLF )XQGLQJ RI 6SHFLDO (GXFDWLRQ 6HUYLFHV $PHULFDQ 6FKRRO DQG 8QLYHUVLW\ f 0F/DXJKOLQ 0 DQG 0DULD 2ZLQJV 5 $PRQJ 6WDWHVn )LVFDO DQG 'HPRJUDSKLF 'DWD DQG WKH ,PSOHPHQWDWLRQ RI 3/ ([FHSWLRQDO &KLOGUHQ f ,ELG AF 3DUULVK DQG 9HUVWHJHQ )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW 3ROLF\ ,VVXHV DQG $OWHUQDWLYHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 86& i Hff$f f 86& i Hf f $f LLLLLf f 7KLV FDS WDNHV HIIHFW DIWHU WKH ELOOLRQ OLPLW KDV EHHQ UHDFKHG &KDLNLQG 6 / & 'DQLHOVRQ DQG 0 / %UDXHQ :KDW 'R :H .QRZ DERXW WKH &RVWV RI 6SHFLDO (GXFDWLRQ" $ 6HOHFWHG 5HYLHZ -RXUQDO RI 6SHFLDO (GXFDWLRQ f 3DUULVK 6SHFLDO (GXFDWLRQ )LQDQFH 3DVW 3UHVHQW DQG )XWXUH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f +DUWPDQ : 7 3ROLF\ (IIHFWV RI 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV -RXUQDO RI (GXFDWLRQ )LQDQFH f

PAGE 124

+DUWPDQ 6SHFLDO (GXFDWLRQ )XQGLQJ LQ 3HQQV\OYDQLD 3UREOHPV DQG $OWHUQDWLYHV -RXUQDO RI (GXFDWLRQ )LQDQFH f 86& i E f f 3DUULVK VXSUD QRWH 3DUULVK )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH )LQDQFH f & 6KDSLUR /RHE DQG %RZHUPDVWHU VXSUD QRWH DW ,ELG 3DUULVK VXSUD QRWH DW 3DUULVK VXSUD QRWH 7KH &6() UHSRUWV WKDW 1HZ 2QOLQH@ $YDLODEOH 2QOLQH IURP KWWSZZZHGJRYSXEV26(3$QO5SWLQGH[KWPO ,ELG 3DUULVK VXSUD QRWH +DUWPDQ VXSUD QRWH

PAGE 125

/HZLV 5 5REHUW %UXLQLQNV 0DUWKD 7KXUORZ DQG .HYLQ 0F*UHZ 8VLQJ %HQHILW&RVW $QDO\VLV LQ 6SHFLDO (GXFDWLRQ ([FHSWLRQDO &KLOGUHQ f ,ELG ,ELG 6HH HJ /HZLV %UXLQLQNV 7KXUORZ DQG 0F*UHZ VXSUD QRWH /HZLV 5 5 %UXLQLQNV 0 7KXUORZ &RVW $QDO\VLV RI 6SHFLDO 6FKRROV IRU 6WXGHQWV ZLWK 0HQWDO 5HWDUGDWLRQ -RXUQDO RI 6SHFLDO (GXFDWLRQ f /HZLV 5 5 %UXLQLQNV DQG 0 7KXUORZ &RVW $QDO\VLV IRU 'LVWULFW /HYHO 6SHFLDO (GXFDWLRQ 3ODQQLQJ %XGJHWLQJ DQG $GPLQLVWUDWLRQ -RXUQDO RI (GXFDWLRQ )LQDQFH f +DUWPDQ : 7 6SHFLDO (GXFDWLRQ )XQGLQJ LQ 3HQQV\OYDQLD 3UREOHPV DQG $OWHUQDWLYHV -RXUQDO RI (GXFDWLRQ )LQDQFH f ,ELG ,ELG 3DUULVK 7 % &ULWHULD IRU (IIHFWLYH 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f ,ELG ,ELG 6HH HJ 'RURWK\ .HU]QHU DQG $ODQ *DUWQHU &DSDEOH RI $FKLHYHPHQW DQG :RUWK\ RI 5HVSHFW (GXFDWLRQ IRU +DQGLFDSSHG 6WXGHQWV $V ,I 7KH\ :HUH )XOO)OHGJHG +XPDQ %HLQJV ([FHSWLRQDO &KLOGUHQ f DQG $OJR]]LQH % DQG .RULQHN / :KHUH ,V 6SHFLDO (GXFDWLRQ IRU 6WXGHQWV ZLWK +LJK 3UHYDOHQFH +DQGLFDSV *RLQJ" ([FHSWLRQDO &KLOGUHQ f ,ELG 3DUULVK DQG 9HUVWHJHQ VXSUD QRWH

PAGE 126

6HH HJ 0F/DXJKOLQ 0 DQG 6 + :DUUHQ 5HVRXUFH ,PSOLFDWLRQV RI ,QFOXVLRQ ,PSUHVVLRQV RI 6SHFLDO (GXFDWLRQ $GPLQLVWUDWRUV DW 6HOHFWHG 6LWHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f DQG 9HUVWHJHQ $ &RQVROLGDWLQJ 6SHFLDO (GXFDWLRQ )XQGLQJ DQG 6HUYLFHV $ )HGHUDO 3HUVSHFWLYH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 6WDLQEDFN : DQG 6WDLQEDFN 6 $ 5DWLRQDOH IRU WKH 0HUJHU 6SHFLDO DQG 5HJXODU (GXFDWLRQ ([FHSWLRQDO &KLOGUHQ f DQG $QWKRQ\ 3DWULFLD )LQDQFLQJ 6SHFLDO (GXFDWLRQ LQ DQ (UD RI )LVFDO 5HVWUDLQW 6FKRRO %XVLQHVV $IIDLUV f &6() VXSUD QRWH &6() 5HVRXUFH ,PSOLFDWLRQV IRU ,QFOXVLRQ ,VVXH %ULHI 1R 6SULQJ f &6() VXSUD QRWH 3DUULVK VXSUD QRWH ,ELG +LOO VXSUD QRWH DW 3DUULVK 7 % DQG / 0RQWJRPHU\ 7KH 3ROLWLFV RI 6SHFLDO (GXFDWLRQ 5HIRUP LQ 7KUHH 6WDWHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f ,ELG +DUWPDQ VXSUD QRWH DW ,ELG ,ELG ,ELG ,ELG &KDPEHUV HW DO VXSUD QRWH DW VHH HJ 0RRUH 0 7 6WUDQJ ( : 6FKZDUW] 0 t %UDGGRFN 0 3DWWHUQV LQ 6SHFLDO (GXFDWLRQ 'HOLYHU\ DQG &RVW :DVKLQJWRQ '& 'HFLVLRQ 5HVRXUFHV f 5RVVPLOOHU 5LFKDUG $ -DPHV +DOH DQG /OR\G ( )URUHLFK (GXFDWLRQDO 3URJUDPV IRU ([FHSWLRQDO &KLOGUHQ 5HVRXUFH ,PSOLFDWLRQV IRU &RQILJXUDWLRQV DQG &RVWV 0DGLVRQ :LVFRQVLQ 8QLYHUVLW\ RI :LVFRQVLQ 3UHVV f

PAGE 127

.DNDOLN 6 : 6 )XUU\ 0 $ 7KRPDV DQG 0 ) &DUQH\ 7KH &RVW RI 6SHFLDO (GXFDWLRQ $ 5DQG 1RWH 6DQWD 0RQLFD &DOLIRUQLD 5DQG &RUSRUDWLRQ f 0RRUH HW DO VXSUD QRWH 5RVVPLOOHU HW DO VXSUD QRWH &KDPEHUV -D\ DQG :LOOLDP 7 +DUWPDQ 6SHFLDO (GXFDWLRQ 3ROLFLHV 7KHLU +LVWRU\ ,PSOHPHQWDWLRQ DQG )LQDQFH 3KLODGHOSKLD 3HQQV\OYDQLD 7HPSOH 3UHVV f ,ELG ,ELG 0RRUH HW DO VXSUD QRWH 3DUULVK DQG 9HUVWHJHQ VXSUD QRWH DW &KDPEHUV HW DO VXSUD QRWH &KDPEHUV DQG +DUWPDQ VXSUD QRWH DW 6LQJOHWDU\ (UQHVW )LQDQFH 7KDW :KLFK 0DNHV 6SHFLDO (GXFDWLRQ 3RVVLEOHr -RXUQDO RI (GXFDWLRQ )LQDQFH f 5RVVPLOOHU HW DO $G 6 &W VXSUD QRWH ,ELG M 5RELQVRQ Y &DKLOO 11f FHQ GHQLHG 86 / (G G f .DNDOLN HW DO VXSUD QRWH ,ELG ,ELG ,ELG +DJHUW\ *HRUJH DQG 0DUW\ $EUDPVRQ ,PSHGLPHQWV WR ,PSOHPHQWLQJ 1DWLRQDO 3ROLF\ &KDQJH IRU 0LOGO\ +DQGLFDSSLQJ 6WXGHQWV ([FHSWLRQDO &KLOGUHQ f ,ELG 7DSSH 5 1LQHWHHQ 5HDVRQV :K\ 6SHFLDO (GXFDWLRQ 6KRXOG &RVW 0RUH 7KDQ 5HJXODU (GXFDWLRQ &RQIHUHQFH 3URFHHGLQJV RI WKH $PHULFDQ &RXQFLO RQ 5XUDO 6SHFLDO (GXFDWLRQ 6DOW /DNH &LW\ 8WDK $PHULFDQ &RXQFLO RQ 5XUDO 6SHFLDO (GXFDWLRQ f &6() VXSUD QRWH 7KRPSVRQ HW DO VXSUD QRWH DW

PAGE 128

,ELG 7KRPDV DQG 5XVVR VXSUD QRWH DW ,ELG 6HH HJ )UHGHULFN / Y 7KRPDV ) 6XSS (' 3D f DIInG )G G &LU f )LDONRZVNL Y 6KDSS ) 6XSS (' 3D f ,Q UH *+ 1:G 1' f :HEHU Y $HWQD &DVXDOW\ DQG 6XU &R 86 f %ODFN &KDUOHV 7KH /DZIXOQHVV RI WKH 6HJUHJDWLRQ 'HFLVLRQV <$/( /f 86 Y &DUROHQH 3URG &R 86 f ,ELG 0DWWKHZV Y 'H&DVWUR 86 f 6HH HJ )UHGHULFN / Y 7KRPDV ) 6XSS (' 3D f DIInG )G G &LU f )LDONRZVNL Y 6KDSS ) 6XSS (' 3D f ,Q UH *+ 1:G 1' f 3O\HU Y 'RH 86 f 7KRPDV DQG 5XVVR VXSUD QRWH DW 7XUQEXOO VXSUD QRWH DW ,ELG 86 &RQVW $UW ;9, i $OH[DQGHU DQG 5 6DOPRQ $PHULFDQ 3XEOLF 6FKRRO )LQDQFH %RVWRQ 0DVVDFKXVHWWV $OO\Q DQG %DFRQ f 0LOOV ) 6XSS 3$5& ) 6XSS 7XUQEXOO VXSUD QRWH DW %URZQ 86 DW ,ELG 3OHVV\ Y )HUJXVRQ 86 6 &W f 7XUQEXOO VXSUD QRWH DW 3$5& ) 6XSS DQG 0LOOV ) 6XSS $OH[DQGHU DQG $OH[DQGHU VXSUD QRWH DW

PAGE 129

,ELG $VKPRUH +DUU\ 6 7KH 1HJUR DQG WKH 6FKRROV &KDSHO +LOO 1RUWK &DUROLQD 8QLYHUVLW\ RI 1RUWK &DUROLQD 3UHVV f 7XUQEXOO VXSUD QRWH DW ,ELG 7KRPDV DQG 5XVVR VXSUD QRWH DW %URZQ 86 7XUQEXOO VXSUD QRWH DW ,ELG :ROI Y /HJLVODWXUH RI 8WDK &LYLO 1R 8WDK G -XG 'LVW &W -DQ f 3$5& ) 6XSS 86& i f PDLQWDLQV WKDW $OO SHUVRQV ZLWKLQ WKH MXULVGLFWLRQ RI WKH 8QLWHG 6WDWHV VKDOO KDYH WKH VDPH ULJKW LQ HYHU\ 6WDWH DQG 7HUULWRU\ WR PDNH DQG HQIRUFH FRQWUDFWV WR VXH EH SDUWLHV JLYH HYLGHQFH DQG WR WKH IXOO DQG HTXDO EHQHILW RI DOO ODZV DQG SURFHHGLQJV IRU WKH VHFXULW\ RI SHUVRQV DQG SURSHUW\ DV LV HQMR\HG E\ ZKLWH FLWL]HQV DQG VKDOO EH VXEMHFW WR OLNH SXQLVKPHQW SDLQV SHQDOWLHV WD[HV OLFHQVHV H[DFWLRQV RI HYHU\ NLQG DQG WR QR RWKHU 86& i f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

PAGE 130

%XUXVV Y :LONHUVRQ )6XSS DIILUPHG 86 f 0FOQQLV Y 6KDSLUR )6XSS DIILUPHG 86 f ,ELG $OH[DQGHU DQG 6DOPRQ VXSUD QRWH DW 7KRPSVRQ HW DO VXSUD QRWH DW 5RGULTXH] 86 DW $OH[DQGHU DQG 6DOPRQ VXSUD QRWH DW 5RGULTXH] 86 7KRPSVRQ HW DO VXSUD QRWH DW 5RGULTXH] 86 7XUQEXOO VXSUD QRWH DW 3DSDVDQ Y $OODLQ 86 f 3O\HU 86 DW .DGUPDV Y 'LFNLQVRQ 3XEOLF 6FKRROV 1:G 1' f &6() /DQGPDUN &RXUW 'HFLVLRQ &KDOOHQJH 6WDWH 6SHFLDO (GXFDWLRQ )XQGLQJ ,VVXH %ULHI 1R f ,ELG +DUSHU Y +XQW 6R G f $OD &RQVW $UW ;,9 i DUW ii DQG 86 &RQVW $UW ; $UW ;9, i +DUSHU 6R G DW 5RZOH\ 86 +DV WKH 6WDWH FRPSOLHG ZLWK WKH SURFHGXUHV VHW IRUWK LQ WKH $FW" ,V WKH LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP ,V WKH SURJUDP UHDVRQDEO\ FDOFXODWHG WR HQDEOH WKH FKLOG WR UHFHLYH HGXFDWLRQDO EHQHILWV" :DVKDNLH &RXQW\ 6FK 'LVW 1R 2QH Y +HUVFKOHU 3G :\R f : 6 i Df Lf $%f : 6 i Df f :DVKDNLH 3G DW 86& i Df f f f 86& i Dff f &DPEHOO Y 6WDWH RI :\RPLQJ 3G DW

PAGE 131

'H5ROSK Y 2KLR 2KLR 6W G 1(G f 2KLR 6WDWH &RQVWLWXWLRQ 6HFWLRQ $UWLFOH 9, UHTXLULQJ D WKRURXJK DQG HIILFLHQW V\VWHP RI FRPPRQ VFKRROV WKURXJKRXW WKH VWDWHf 'H5ROSK 2KLR 6W G 2KLR 6WDW 5& $f 'H5ROSK 2KLR 6W G DW ,ELG &6() VXSUD QRWH DW

PAGE 132

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f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD 0LOOV Y %RDUG RI (GXFDWLRQ DQG %RDUG RI (GXFDWLRQ Y 5RZOHY ZHUH JHUPDQH WR DQ\ OHJDO DQDO\VLV RI D IUHH DQG DSSURSULDWH

PAGE 133

SXEOLF HGXFDWLRQ )$3(f $Q DQDO\VLV RI UHFHQW WUHQGV LQ VSHFLDO HGXFDWLRQ ILQDQFH OLWLJDWLRQ UHYHDOHG GDWD UHODWLYH WR WKH FRQFHSW RI D )$3( 7KH WKUHH UHVHDUFK TXHVWLRQV GUHZ IRFXV WR WKH WHFKQLTXH RI IXQGLQJ VSHFLDO HGXFDWLRQ SURJUDPV DQG WKH QDWXUH RI IHGHUDO SROLF\ IRU SODFHPHQW QHXWUDOLW\ 7R GR VR WKH UHVHDUFKHU ZDV FRPSHOOHG WR DSSO\ OHJDO DQDO\VLV ZLWKLQ WKH IUDPHZRUN RI H[LVWLQJ VSHFLDO HGXFDWLRQ ODZ 7KLV OHJDO LQTXLU\ DQDO\]HG WKH SROLF\ FRQJUXHQFH EHWZHHQ WKH ,'($n6 EDVLF WHQHWV DQG WKH PDQQHU LQ ZKLFK WKHVH GRFWULQHV KDYH EHHQ HPSOR\HG 7KLV LQTXLU\ FRPSULVHG DQ DQDO\VLV RI IHGHUDO VSHFLDO HGXFDWLRQ SROLF\ GHYHORSPHQW $Q DQDO\VLV RI WKLV SROLF\ GHYHORSPHQW ZDV FKDUDFWHUL]HG E\ 'XQQ DV DQ DSSOLHG VRFLDO VFLHQFH GLVFLSOLQH WKDW Df XWLOL]HG PXOWLSOH PHWKRGV RI LQTXLU\ DQG DUJXPHQW WR SURGXFH DQG Ef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

PAGE 134

WUDQVFHQGHG WKH OLPLWDWLRQV RI D SXUHO\ OHJDO DQDO\VLV DQG LQIXVHG D WHFKQLTXH WKDW DGGUHVVHG WKH SUDFWLFDO LVVXHV RI KLVWRULFDO HPHUJLQJ DQG IXWXUH DSSOLFDWLRQV RI VSHFLDO HGXFDWLRQ ILQDQFH DQG ODZ $V WKH SXUSRVH RI WKH VWXG\ ZDV WR FRQVWUXFW D UHYLVHG PRGHO RI SUDFWLFH IRU IHGHUDO SROLF\PDNHUV D QRUPDWLYHf§RU DGYRFDWLYHf§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f &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f &RUQHOO /DZ 6FKRRO DQG 7KH &RQJUHVVLRQDO DQG 2IILFH RI 6SHFLDO (GXFDWLRQ DQG 5HKDELOLWDWLYH 6HUYLFHV 26(56f ZHEVLWHV 3ULPDU\ OHJDO UHVRXUFHV LQFOXGHG WKH 8QLWHG 6WDWHV &RGH 7KH &RQJUHVVLRQDO 5HFRUG 7KH 8QLWHG 6WDWHV 6XSUHPH &RXUW 8QLWHG 6WDWHV 3XEOLF /DZV 7KH 7ZHQWLHWK $QQXDO 5HSRUW WR &RQJUHVV RQ WKH ,PSOHPHQWDWLRQ RI WKH ,QGLYLGXDOV

PAGE 135

ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW IHGHUDO DQG VWDWH FDVH ODZ DQGf§LQ FHUWDLQ FDVHVf§WKH PRVW UHFHQW PDQXDO RI WKH &RGH RI )HGHUDO 5HJXODWLRQV 7R D OHVVHU H[WHQW WKH VWXG\ XWLOL]HG VWDWH VWDWXWHV DQG FRQVWLWXWLRQV WR H[DPLQH DGPLQLVWUDWLYH ODZ LVVXHV UHODWLQJ WR VSHFLDO HGXFDWLRQ ILQDQFH DQG ODZ 6HFRQGDU\ UHVRXUFHV LQFOXGHG OHJDO WUHDWLVH HGXFDWLRQ ILQDQFH DQG VSHFLDO HGXFDWLRQ OLWHUDWXUH DQG SURIHVVLRQDO GHFODUDWLRQV E\ UHOHYDQW RUJDQL]DWLRQV 7KH OLWHUDWXUH UHYLHZ LQFOXGHG VXUYH\V DQG VWXGLHV UHODWLQJ WR WKH GRFWULQH RI HTXDO RSSRUWXQLW\ DQG DFFHVV WR IUHH DQG DSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV $QQRWDWHG ELEOLRJUDSKLHV SURYLGHG E\ WKH &6() SURYLGHG D IUDPHZRUN RI OLWHUDWXUH DV LW UHODWHG WR WKH GRPDLQV RI VSHFLDO HGXFDWLRQ ILQDQFH DQG ODZ UHVHDUFK 2WKHU UHVHDUFK LQVWUXPHQWV VXFK DV WKH /(;,61(;,6 LQIRUPDWLRQ VHUYLFH ZHUH XWLOL]HG WR GHULYH D ERG\ RI UHOHYDQW GDWD DV LW UHODWHG WR WKH VWXG\ RI VSHFLDO HGXFDWLRQ ILQDQFH DQG ODZ (UYLQ + 3ROODFNnV )XQGDPHQWDOV RI /HJDO 5HVHDUFK ZDV XWLOL]HG WR FODULI\ OHJDO WHUPV DQG GHILQLWLRQV WKDW ZHUH JHUPDQH WR WKH OHJDO GLVFRXUVH RI VSHFLDO HGXFDWLRQ ILQDQFH DQG ODZ 'DWD 2UJDQL]DWLRQ 'DWD ZHUH RUJDQL]HG LQ ERWK WRSLFDO DQG FKURQRORJLFDO PDQQHUV 7RSLFDO PHWKRGV SURYLGHG IRU DQ RUJDQL]DWLRQ RI OHJDO GRFWULQHV DV ZHUH UHODWHG WR WKH IHGHUDO SURYLVLRQ RI IXQGV IRU VSHFLDO HGXFDWLRQ SURJUDPV &KURQRORJLFDO PHWKRGV

PAGE 136

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f SHUWLQHQW FRXUW FDVHV Ef FRQJUHVVLRQDO JRDOV Ff FRQJUHVVLRQDO GRFXPHQWV Ff IHGHUDO VWDWXWHV DQG UHJXODWLRQV Gf VWDWH IXQGLQJ W\SRORJLHV Hf ELDVHG IXQGLQJ FKDUDFWHULVWLFV If 'HSDUWPHQW RI (GXFDWLRQ VWDWHPHQWV DQG Jf VWDWH IXQGLQJ VWDWXWHV UHODWLQJ WR WKH IXQGLQJ RI VSHFLDO HGXFDWLRQ SURJUDPV 6\QWKHVLV 7KH DQDO\VLV RI OLWHUDWXUH DQG ODZ SUHFHGHG D FRPSUHKHQVLYH V\QWKHVLV RI OHJDO UHVHDUFK 7KLV DQDO\VLV DFFRUGHG ZLWK D WKRURXJK H[SODQDWLRQ RI WKH HYROXWLRQ RI VSHFLDO HGXFDWLRQ ILQDQFH DQG ODZ DQG KRZ WKHVH ODZV KDYH

PAGE 137

LPSDFWHG WKH DGPLQLVWUDWLRQ RI VSHFLDO HGXFDWLRQ SURJUDPV WKURXJKRXW WKH 8QLWHG 6WDWHV 7KH VSHFLILF UHVHDUFK TXHVWLRQV VWUXFWXUHG IRU WKLV DQDO\VLV ZHUH IUDPHG DV IROORZV $UH WKH ,'($n6 JRDOVDV PDQGDWHG E\ &RQJUHVVf§ OHJDOO\ IXOILOOHG ZLWKLQ WKH ILVFDO SDUDPHWHUV RI FDWHJRULFDO VSHFLDO HGXFDWLRQ SURJUDPV WKDW PD\ DVVXPH SODFHPHQW ELDV" &DQ WKH OHJDO GRFWULQH RI WKH /HDVW 5HVWULFWLYH (QYLURQPHQW /5(f H[LVW LQ WDQGHP ZLWK IXQGLQJ SROLFLHV WKDW HLWKHU Df GR QRW SURPRWH SODFHPHQW QHXWUDOLW\ RU Ef HQFRXUDJH ILVFDO ELDV" :KDW IHGHUDO UHTXLUHPHQWV H[LVW WR HLWKHU SURPRWH SODFHPHQW QHXWUDOLW\ RU SURKLELW ILVFDO ELDV" )XUWKHUPRUH GDWD ZHUH UHYLHZHG E\ PHDQV RI D IHGHUDO SROLF\ DQDO\VLV WR PHDVXUH WKH SROLF\ FRQJUXHQFH EHWZHHQ OHJLVODWLYH LQWHQW DQG WKH PDQQHUV LQ ZKLFK VSHFLDO HGXFDWLRQ SURJUDPV DUH IXQGHG 7KH SROLF\ DOWHUQDWLYHVf§GHULYHG IURP WKLV V\QWKHVLV RI UHVHDUFKf§ZHUH WKHQ UDQNHG DQG IUDPHG ZLWKLQ D UHYLVHG PRGHO RI IHGHUDO VSHFLDO HGXFDWLRQ SROLF\ IRU SODFHPHQW QHXWUDOLW\ 7KLV SUHVFULSWLYH DQDO\VLV SURGXFHG D SROLF\ PRGHO WKDW ZDV SDUWLFXODUO\ UHOHYDQW WR WKH WUHQG RI VSHFLDO HGXFDWLRQ ILQDQFH UHIRUP 7KLV XQLRQ RI GDWD SURYLGHG SROLF\PDNHUV ZLWK D PRGHO RI VSHFLDO HGXFDWLRQ ILQDQFH SROLF\ WKDW ZDV EDVHG RQ IHGHUDO GRFWULQH MXULVSUXGHQFH DQG WKHRULHV RI VFKRRO ILQDQFH HTXLW\ 7KLV PRGHO RI IHGHUDO SROLF\ ZDV DOVR FRPSOHPHQWHG E\ D UHFRPPHQGDWLRQ RI LVVXHV WKDW ZDUUDQWHG IXUWKHU VWXG\

PAGE 138

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f FRPELQLQJ WKH WKHRULHV RI VHYHUDO GLVFLSOLQHV HJ VSHFLDO HGXFDWLRQ VFKRRO ODZ VFKRRO ILQDQFH DQG &RQVWLWXWLRQDO ODZf DQG Ef HOLFLWLQJ SROLF\VSHFLILF LQIRUPDWLRQ WKDW PD\ EH XWLOL]HG WR UHVROYH SUREOHPV LQ UHOHYDQW SROLWLFDO VLWXDWLRQV DQG XQGHU VSHFLILF WLPH FRQVWUDLQWV 7KLV PHWKRG H[WHQGHG EH\RQG WKH PHUH VWDWHPHQW RI ILQGLQJV WKH QRUPDWLYHSUHVFULSWLYH SROLF\ DQDO\VLV KDV SURGXFHG LQIRUPDWLRQ FRQFHUQLQJ YDOXHV DQG SUHIHUDEOH FRXUVHV RI DFWLRQ ZLWKLQ WKH OHWWHU RI WKH ODZ 7KLV DSSURDFK KDV VRXJKW WR f HVWDEOLVK WKH IXOO UDQJH RI FRQGLWLRQV WKDW FDXVH VRFLDO SUREOHPV DQG f UDQN PHWKRGV IRU WKH UHVROXWLRQ RI WKHVH SUREOHPV 5HJDUGOHVV RI WKH SHUFHLYHG PHULW RI D FRQJUHVVLRQDO ODZ WKH 86 6XSUHPH &RXUW KDV FRQVLGHUHG WKH

PAGE 139

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n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nV )XQGDPHQWDOV RI /HJDO 5HVHDUFK 0LQHOD 1HZ
PAGE 140

,ELG %URZQ Y 7RSHND %RDUG RI (GXFDWLRQ 86 f 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS f 0LOOV Y %RDUG RI (GXFDWLRQ ) 6XSS f %RDUG RI (GXFDWLRQ Y 5RZOH\ 86 6 &W / (G G f 'XQQ :LOOLDP 3XEOLF 3ROLF\ $QDO\VLV $Q ,QWURGXFWLRQ (QJOHZRRG &OLIIV 1HZ -HUVH\ 3UHQWLFH+DOOf )URKRFN )UHG 3XEOLF 3ROLF\ 6FRSH DQG /RJLF (QJOHZRRG &OLIIV 1HZ -HUVH\ 3UHQWLFH+DOO f ,ELG KWWR ZZZ DLU RUD KWWS FVHI DLURUD 2IILFH RI 6SHFLDO (GXFDWLRQ SURJUDPV 7ZHQWLHWK $QQXDO 5HSRUW WR &RQJUHVV RQ WKH ,PSOHPHQWDWLRQ RI 7KH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW 2QOLQH f $YDLODEOH IURP KWWSZZZHGDRY RIILFHV 26(5626(346(3$QO5SW KWWS LFUHSRUW ORF DRY KWWSZZZHGDRYRIILFHV26(5626(3RVHSKWPO KWWSZZZHGJRYRIILFHV26(5626(326(3$QO5SW &)5 ii f ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii f@ )URKRFN VXSUD QRWH DW ,ELG ,ELG 'XQQ ,ELG VXSUD QRWH DW )URKRFN VXSUD QRWH DW 'XQQ VXSUD QRWH DW )URKRFN VXSUD QRWH DW &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) )G WK &LU f

PAGE 141

,ELG 5RZOH\ 6 &W DW

PAGE 142

&+$37(5 )('(5$/ 32/,&< $1$/<6,6 2) 7+( ,'($ 'DWD $QDO\VLV IURP 3ROLF\5HOHYDQW ,QIRUPDWLRQ 6RXUFHV 7KLV VWXG\ ZDV D SUHVFULSWLYH H[SRVW SROLF\ DQDO\VLV RI WKH IHGHUDO VSHFLDO HGXFDWLRQ SURJUDP 7KLV DQDO\VLV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW FRQWULEXWHG WR WKH FRQVWUXFWLRQ RI WKH UHYLVHG IUDPHZRUN RI IHGHUDO VSHFLDO HGXFDWLRQ SROLF\ IRU SODFHPHQW QHXWUDOLW\ LQ &KDSWHU RI WKLV VWXG\ 7KH DXWKRU DQDO\]HG WKH IROORZLQJ VRXUFHV RI SROLF\UHOHYDQW LQIRUPDWLRQ Df SHUWLQHQW FRXUW FDVHV Ef FRQJUHVVLRQDO JRDOV Ff FRQJUHVVLRQDO GRFXPHQWV Ff IHGHUDO VWDWXWHV DQG UHJXODWLRQV Gf VWDWH IXQGLQJ W\SRORJLHV Hf ELDVHG IXQGLQJ FKDUDFWHULVWLFV If 'HSDUWPHQW RI (GXFDWLRQ VWDWHPHQWV DQG Jf VWDWH IXQGLQJ VWDWXWHV UHODWLQJ WR WKH IXQGLQJ RI VSHFLDO HGXFDWLRQ SURJUDPV 7KH DXWKRUnV VSHFLILF UHVHDUFK TXHVWLRQV ZHUH $UH WKH ,'($n6 JRDOVf§DV PDQGDWHG E\ &RQJUHVV OHJDOO\ IXOILOOHG ZLWKLQ WKH ILVFDO SDUDPHWHUV RI FDWHJRULFDO VSHFLDO HGXFDWLRQ SURJUDPV WKDW PD\ DVVXPH SODFHPHQW ELDV" &DQ WKH OHJDO GRFWULQH RI WKH /HDVW 5HVWULFWLYH (QYLURQPHQW /5(f H[LVW LQ WDQGHP ZLWK IXQGLQJ SROLFLHV WKDW HLWKHU Df GR QRW SURPRWH SODFHPHQW QHXWUDOLW\ RU Ef HQFRXUDJH ILVFDO ELDV" :KDW IHGHUDO UHTXLUHPHQWV H[LVW WR HLWKHU SURPRWH SODFHPHQW QHXWUDOLW\ RU SURKLELW ILVFDO ELDV!

PAGE 143

$QDO\VLV RI 3HUWLQHQW &RXUW &DVHV ,Q PDQ\ ZD\V WKH FRXUWV KDYH FRQWULEXWHG WR WKH HYROXWLRQ RI IHGHUDO VSHFLDO HGXFDWLRQ SROLF\ )URP LWV HDUOLHVW GUDIWV LQ FRQJUHVVLRQDO FRPPLWWHHV WKH ,'($ UHSUHVHQWHG D EOHQGLQJ RI FRQWHPSRUDU\ FRQVHQW GHFUHHV UHODWLQJ WR WKH HTXDO SURWHFWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV $Q DQDO\VLV RI OLWLJDWLRQ LQ VSHFLDO HGXFDWLRQ ILQDQFH UHYHDOHG WKUHH VHSDUDWH VWUDQGV RI MXGLFLDO UHDVRQLQJ (VWDEOLVKPHQW RI HTXDO SURWHFWLRQ IRU D TXDVLn VXVSHFW FODVV RI VWXGHQWV ZLWK GLVDELOLWLHV (TXDO SURWHFWLRQ WKURXJK HTXLWDEOH VSHFLDO HGXFDWLRQ ILQDQFH DQG (TXDO SURWHFWLRQ PDQLIHVWHG DV WKH /HDVW 5HVWULFWLYH (QYLURQPHQW /5(f 7KH UHDVRQLQJ XWLOL]HG LQ WKH IROORZLQJ FRXUW FDVHV UHIOHFWHG D ORQJLWXGLQDO HIIRUW WR VHFXUH HTXDO HGXFDWLRQDO RSSRUWXQLW\ IRU VWXGHQWV ZLWK GLVDELOLWLHV 8QSUHFHGHQWHG JURZWK LQ VSHFLDO HGXFDWLRQ HQUROOPHQWV SODFHG SHFXQLDU\ VWUDLQ XSRQ VWDWH DQG ORFDO HGXFDWLRQDO DGPLQLVWUDWLRQV 1HYHUWKHOHVV WKLV OHJDO DQDO\VLV UHYHDOHG D MXGLFLDU\ JHQHUDOO\ FRPPLWWHG WR WKH EDVLF WHQHWV RI WKH ,'($ DQG WR WKH LPSRUWDQFH RI WKH HTXLWDEOH VFKRRO ILQDQFLQJ RI VSHFLDO HGXFDWLRQ SURJUDPV

PAGE 144

3URJUHVVLRQ RI (TXDO 3URWHFWLRQ ,W KDV EHHQ DUJXHG WKDW WKH %URZQ RSLQLRQ JURXQGHG WKH QH[XV EHWZHHQ VWXGHQWV ZLWK GLVDELOLWLHV DQG WKH ULJKW WR D IUHH DQG DSSURSULDWH SXEOLF HGXFDWLRQ 7KH SODLQWLIIV LQ WKLV FDVH VXFFHVVIXOO\ GHPRQVWUDWHG WKH VRFLDO GHWULPHQW RI VHJUHJDWHG HGXFDWLRQDO SODFHPHQWV 7KH :DUUHQ &RXUW GUHZ IRFXV WR WKH LPSRUWDQFH RI LQWHJUDWHG HGXFDWLRQDO RSSRUWXQLW\ DQG LWV UROH LQ WKH VHFXULW\ RI WKH )RXUWHHQWK $PHQGPHQW 7KH :DUUHQ &RXUWnV UXOLQJ LQ %URZQ HYROYHG LQWR D FULWLFDO OHJDO PHWDSKRU IRU DGYRFDWHV RI VWXGHQWV ZLWK GLVDELOLWLHV ,Q WKLV FDVH WKH FRXUW HVWDEOLVKHG WZR SULQFLSOHV WKDW ZRXOG VXFFHVVIXOO\ VHUYH WKH SURPRWLRQ RI IUHH DQG DSSURSULDWH SXEOLF HGXFDWLRQ )$3(f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

PAGE 145

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

PAGE 146

QRW D VXEVWDQWLDO H[FXVH IRU WKH IXQFWLRQDO H[FOXVLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV ,QVWHDG WKH FRXUW PDLQWDLQHG WKDW WKH UHVRXUFH LQDGHTXDFLHV ZHUH QRW WR EH DWWULEXWHG WR DQ\ SDUWLFXODU JURXS RI VWXGHQWV $OWKRXJK VRPH FDVHV ZHUH QRW DV VXFFHVVIXO LQ DGGUHVVLQJ WKH LQHTXLW\ RI VHJUHJDWHG VSHFLDO HGXFDWLRQ SURJUDPV LQ WKH Vn 3$5& DQG 0LOOV FUHDWHG D FULWLFDO PDVV RI HGXFDWLRQDO SROLF\ UHIRUP DW WKH VWDWH DQG IHGHUDO OHYHOV 3$5& DQG 0LOOV DOVR SURPXOJDWHG D ZDYH RI HTXDO SURWHFWLRQ OLWLJDWLRQ RI VXLWV LQ VWDWHV 6WDWHV OHJLVODWXUHV UHVSRQGHG WR WKLV OLWLJDWLRQ E\ HQDFWLQJ UHYLVHG HGXFDWLRQ VWDWXWHV WKDW UHIOHFWHG WKH QHZO\ SURWHFWHG VWDWXV RI VWXGHQWV ZLWK GLVDELOLWLHV $W WKH WLPH RI WKH HQDFWPHQW RI WKH (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW ($+&$f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

PAGE 147

UHSUHVHQWHG DQ DWWHPSW WR GHOLQHDWH WKH FRQWH[W RI DQ DSSURSULDWH SXEOLF HGXFDWLRQ 7KH SODLQWLIIV LQ +HQGULFN +XGVRQ 'LVWULFW %RDUG RI (GXFDWLRQ Y 5RZOHY VRXJKW WR GHILQH WKH FRQJUHVVLRQDO LQWHQWLRQ RI DQ DSSURSULDWH VSHFLDO HGXFDWLRQ SODFHPHQW DQG WKHUHIRUH WKH SDUDPHWHUV RI LQFOXVLRQ 0HOYLQ DQDO\]HG WKH FRXUWnV SUHIHUHQFH IRU LQFOXVLRQ 3URYLGLQJ DQ DSSURSULDWH HGXFDWLRQ LV SUHVXPHG WR UHTXLUH DQ DOWHUQDWLYH SODFHPHQW ZKHUH WKH FKLOGnV HGXFDWLRQDO QHHGV FDQQRW EH VDWLVIDFWRULO\ PHW LQ WKH UHJXODU FODVVURRP 7KXV WKH OHDVW UHVWULFWLYH DOWHUQDWLYH SULQFLSOH VHUYHV WR SURWHFW WKH ULJKWV RI GLVDEOHG FKLOGUHQ E\ UHTXLULQJ WKH VWDWH WR DFKLHYH LWV HGXFDWLRQDO REMHFWLYHV LQ D IDVKLRQ WKDW SODFHV WKH OHDVW UHVWULFWLRQV RQ WKH H[HUFLVH RI IXQGDPHQWDO ULJKWV 7KLV UXOLQJ ZDV PRVW QRWDEOH IRU WKH FRQWHPSRUDU\ GHILQLWLRQ RI D )$3( ,Q WKH PDMRULW\ RSLQLRQ -XVWLFH 5HKQTXLVW DEDQGRQHG WKH ORZHU FRXUWnV UXOLQJ WKDW D )$3( UHTXLUHG RQO\ DQ RSSRUWXQLW\ WR DFKLHYH WKHLU IXOO SRWHQWLDO FRPPHQVXUDWH ZLWK WKH RSSRUWXQLW\ SURYLGHG RWKHU FKLOGUHQ 1HLWKHU WKH $FW QRU LWV KLVWRU\ SHUVXDVLYHO\ GHPRQVWUDWHV WKDW &RQJUHVV WKRXJKW WKDW HTXDO SURWHFWLRQ UHTXLUHG DQ\WKLQJ PRUH WKDQ HTXDO DFFHVV 5RZOHY GUHZ XSRQ WKH FRQJUHVVLRQDO LQWHQW RI WKH ($+&$ DQG UHILQHG WKH IHGHUDO GHILQLWLRQ RI DQ DSSURSULDWH SODFHPHQW 7KH FRXUW UHIHUULQJ WR FRQJUHVVLRQDO 5HSRUW GHWHUPLQHG WKDW WKH PD[LPL]DWLRQ RI D VWXGHQWnV HGXFDWLRQDO SRWHQWLDO ZDV QRW D VWDWH UHTXLUHPHQW

PAGE 148

7KH &RPPLWWHH UHFRJQL]HV WKDW LQ PDQ\ LQVWDQFHV WKH SURFHVV RI SURYLGLQJ VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV WR KDQGLFDSSHG FKLOGUHQ LV QRW JXDUDQWHHG WR SURGXFH DQ\ SDUWLFXODU RXWFRPH %\ FKDQJLQJ WKH ODQJXDJH >RI WKH SURYLVLRQ UHODWLQJ WR LQGLYLGXDOL]HG HGXFDWLRQDO SURJUDPV@ WR HPSKDVL]H WKH SURFHVV RI SDUHQW DQG FKLOG LQYROYHPHQW DQG WR SURYLGH D ZULWWHQ UHFRUG RI UHDVRQDEOH H[SHFWDWLRQV WKH &RPPLWWHH LQWHQGV WR FODULI\ WKDW VXFK LQGLYLGXDOL]HG SODQQLQJ FRQIHUHQFHV DUH D ZD\ WR SURYLGH SDUHQW LQYROYHPHQW DQG SURWHFWLRQ WR DVVXUH WKDW DSSURSULDWH VHUYLFHV DUH SURYLGHG WR D KDQGLFDSSHG FKLOG $Q DQDO\VLV RI 5RZOHY UHYHDOHG WKDW SODFHPHQW ELDVHG IXQGLQJ SRVHG D GLUHFW WKUHDW WR WKH SUHIHUHQFH RI WKH OHDVW UHVWULFWLYH HQYLURQPHQW 7KH 5RZOHY WHVW ZDV WKH ILUVW RI VHYHUDO WHVWV GHULYHG IURP WKLV ZDYH RI )$3( OLWLJDWLRQ WKDW SURYLVLRQHG WKH DSSURSULDWHQHVV RI D VSHFLDO HGXFDWLRQ 7KLV WHVW VRXJKW WR GHWHUPLQH DSSURSULDWHQHVV WKURXJK WKH IROORZLQJ FRQGLWLRQV +DV WKH 6WDWH FRPSOLHG ZLWK WKH SURFHGXUHV VHW IRUWK LQ WKH $FW" ,V WKH LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP UHDVRQDEO\ FDOFXODWHG WR HQDEOH WKH FKLOG WR UHFHLYH HGXFDWLRQDO EHQHILWV" 7KLV WHVW FRQWULEXWHG WR WKH UHJXODWLRQ RI DSSURSULDWH VWDWH VSHFLDO HGXFDWLRQ SURJUDPV DQG WKH PHWKRG LQ ZKLFK WKH\ DUH IXQGHG $FFRUGLQJ WR WKH UHFHQW DPHQGPHQWV WR WKH ,'($ WKH IHGHUDO JRYHUQPHQW UHTXLUHG VWDWHV WR UHIUDLQ IURP IXQGLQJ SUDFWLFHV WKDW ZHUH Df EDVHG RQ VHWWLQJ DQG Ef LQ YLRODWLRQ RI WKH /5( FODXVH 7KH 'HSDUWPHQW RI (GXFDWLRQ VLQJXODUO\ H[HPSWHG VWDWHV ZLWK WKH XQGHUVWDQGLQJ WKDW DQ\ QRQFRPSOLDQW

PAGE 149

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

PAGE 150

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

PAGE 151

WKDW KDYH UHIOHFWHG WKHVH G\QDPLFV 2QH H[DPSOH RI WKHVH LQWHJUDWHG PHWKRGV LQFOXGHG XQLILHG VFKRROLQJ V\VWHPV WKDW VRXJKW WR IXVH HGXFDWLRQDO SURJUDPV DQG VHUYLFHV WR PHHW WKH QHHGV RI DOO VWXGHQWV 5XOLQJV VXFK DV +DUSHU &DPEHOO DQG 'H5RORK GHPRQVWUDWHG G\QDPLF ILVFDO SROLFLHV WKDW Df PDLQWDLQHG D IRFXV RQ DGHTXDWH UHVRXUFHV DQG Ef PHHW WKH QHHGV RI WDUJHWHG \RXWKV DQG WKH JHQHUDO VFKRRO SRSXODWLRQ $QDO\VLV RI &RQJUHVVLRQDO *RDOV $ SROLF\ DQDO\VLV RI WKH ILVFDO SURYLVLRQV RI WKH ,'($ ZDUUDQWHG DQDO\VLV RI WKH LQWHQGHG JRDOV RI &RQJUHVV )URP WKH RQVHW RI WKH ($+&$ &RQJUHVV UHFRJQL]HG WKH EOHDN VWDWH RI DIIDLUV IRU VWXGHQWV ZLWK GLVDELOLWLHV 2SHQLQJ VWDWXWRU\ ILQGLQJV UHYHDOHG RYHU KDOI RI WKH PLOOLRQ $PHULFDQ VWXGHQWV ZLWK GLVDELOLWLHV ZHUH QRW VHUYHG WR WKH OHWWHU RI WKH ODZ 7KH 'HSDUWPHQW RI (GXFDWLRQ ('f FOHDUO\ VHW IRUWK WKH $FWnV LQWHQWLRQV DQG MXULVGLFWLRQ ZKHQ WKH LW PDLQWDLQHG WKDW LW LV LQ WKH QDWLRQDO LQWHUHVW WKDW WKH )HGHUDO *RYHUQPHQW DVVLVW 6WDWH DQG ORFDO HIIRUWV WR SURYLGH SURJUDPV WR FKLOGUHQ ZLWK GLVDELOLWLHV LQ RUGHU WR DVVXUH HTXDO SURWHFWLRQ RI WKH ODZ 7KLV VWDWHPHQW GHPRQVWUDWHG WKH IHGHUDO LQWHQW WR SURYLGH VXEVWDQWLYH JXLGDQFH DQG PRQLWRULQJ RI VWDWH VSHFLDO HGXFDWLRQ SURJUDPV 8SRQ H[DPLQDWLRQ RI WKH VWDWXWHV GDWD UHYHDOHG IRXU GLVWLQFW VSHFLDO HGXFDWLRQ JRDOV RI WKH IHGHUDO

PAGE 152

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f 7KLUG &RQJUHVV HVWDEOLVKHG D V\VWHP RI LQIRUPDWLRQ QHWZRUNV GHVLJQHG WR GLVVHPLQDWH LQIRUPDWLRQ WR HGXFDWLRQDO SURIHVVLRQDOV SDUHQWV DQG SROLF\PDNHUV 7KHVH QHWZRUNV ZRXOG WKHQ XWLOL]H WKH QHFHVVDU\ WRROV WR LPSURYH HGXFDWLRQDO UHVXOWV IRU FKLOGUHQ ZLWK GLVDELOLWLHV E\ VXSSRUWLQJ V\VWHPLFFKDQJH DFWLYLWLHV FRRUGLQDWHG UHVHDUFK DQG SHUVRQQHO SUHSDUDWLRQ FRRUGLQDWHG WHFKQLFDO DVVLVWDQFH GLVVHPLQDWLRQ DQG

PAGE 153

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

PAGE 154

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n FRQFHUQV WKDW LQDSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV WKUHDWHQHG LQGLYLGXDO OLEHUW\ SRVHG E\ ULVNV RI PLVODEHOLQJ SODFHPHQW LQ QHHGOHVVO\ UHVWULFWLYH HQYLURQPHQWV DQG WKH DWWHQGDQW VWLJPD WKDW ZRXOG DWWDFK ,Q VXPPDU\ WKHVH &RPPLWWHH GRFXPHQWV GHPRQVWUDWHG WKDW HTXDO SURWHFWLRQ RI WKH ODZV ZDV WKH FKLHI REMHFWLYH RI WKH $FW 7KH OHJLVODWLYH KLVWRU\ RI WKH ,'($ UHYHDOHG &RQJUHVV LQWHQWLRQ WR LQYRNH WKH HTXDO SURWHFWLRQ DQG GXH SURFHVV DGYDQFHG LQ WKH HDUO\ ULJKW WR HGXFDWLRQ FDVHV )URP WKH $FWnV OHJLVODWLYH EHJLQQLQJV LQ WKH 6HQDWH &RPPLWWHH RQ /DERU DQG 3XEOLF :HOIDUH OHJDO GDWD HYLQFHG WKDW HTXDO SURWHFWLRQ RI WKH ODZV ZDV RI SDUDPRXQW FRQFHUQ WR &RQJUHVV &LWLQJ

PAGE 155

%URZQ Y 7RSHND %RDUG RI (GXFDWLRQ WKH &RPPLWWHH DIILUPHG WKH 6XSUHPH &RXUWnV UXOLQJ WKDW DOO FKLOGUHQ EH JXDUDQWHHG HTXDO HGXFDWLRQDO RSSRUWXQLW\ 7KH &RPPLWWHH DOVR GHWHUPLQHG WKDW &RQJUHVV PXVW WDNH D PRUH DFWLYH UROH XQGHU LWV UHVSRQVLELOLW\ IRU HTXDO SURWHFWLRQ RI WKH ODZV WR JXDUDQWHH WKDW KDQGLFDSSHG FKLOGUHQ DUH SURYLGHG HTXDO HGXFDWLRQDO RSSRUWXQLW\ 0RUHRYHU WKH 6HQDWH &RPPLWWHH UHFRJQL]HG WKH VWDWHVn SULPDU\ UHVSRQVLELOLW\ WR XSKROG WKH (TXDO 3URWHFWLRQ FODXVH RI WKH &RQVWLWXWLRQ RI WKH 8QLWHG 6WDWHV DQG UHMHFWHG WKH DUJXPHQW WKDW VWDWH FRPSOLDQFH VKRXOG UHO\ RQ WKH IHGHUDO JRYHUQPHQWnV DELOLW\ WR FRYHU WKH IXOO FRVW RI HGXFDWLQJ DOO FKLOGUHQ ZLWK GLVDELOLWLHV $FFRUGLQJ WR 0HOYLQ WKH OHJLVODWLYH KLVWRU\ UHYHDOHG &RQJUHVVn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f UHTXLUHG VWDWHV WR SURYLGH D IUHH DSSURSULDWH SXEOLF HGXFDWLRQ WR DOO FKLOGUHQ ZLWK GLVDELOLWLHV Ef

PAGE 156

HPSKDVL]HG WKH LGHQWLILFDWLRQ DQG HGXFDWLRQ RI SUHYLRXVO\ XQGHWHFWHG VWXGHQWV Ff UHTXLUHG VWDWHV WR SURYLGH VSHFLDO HGXFDWLRQ SURJUDPV ZLWKLQ WKH FRQWH[W RI WKH /5( Gf HQKDQFHG GXHSURFHVV SURYLVLRQV IRU SDUHQWV DQG VWXGHQWV DQG Hf OLPLWHG DXWKRUL]DWLRQV XQWLO &RQJUHVVn KXPDQLVWLF OHJLVODWLYH DJHQGD ZDV HYLGHQFHG E\ 6WDIIRUGnV FRQWULEXWLRQV WR WKH ILUVW GUDIW RI 3/ 6WDIIRUGn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n RU UHWDUGHGn RU PDODGMXVWHGn $QG GRXEW LW QRW WKLV WZRWLHUHG LQYLVLELOLW\ KDV EHHQ EUHG LQ WKH VFKRROKRXVHV RI $PHULFD DV PXFK DV LQ DQ\ RWKHU RI WKH 1DWLRQnV LQVWLWXWLRQV 7KH WK &RQJUHVV ZDV JXLGHG E\ LQWHJUDWLRQ ZLWK QRQKDQGLFDSSHG FKLOGUHQ DV WKH JRYHUQLQJ SULQFLSOH HVSHFLDOO\ ZKHUH WKHUH LV FOHDU HYLGHQFH WKDW MXVW WKH RSSRVLWH ZDV ZKDW ZDV RFFXUULQJ LQ WKH SDVW 1RUPDOL]DWLRQ DQG VRFLDO UROH YDORUL]DWLRQ ZHUH DGRSWHG E\ WKH &RQJUHVV DV WKH IXQGDPHQWDO SKLORVRSKLHV RI

PAGE 157

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‘ 4 4 DQWLFLSDWH 3HUKDSV WKH FODULW\ RI WKH ($+&$ PDQGDWH ZDV KLQGHUHG E\ &RQJUHVVn KXPDQ ULJKWV DJHQGD WKDW SUHIHUUHG

PAGE 158

EURDG KXPDQLVWLF GHFODUDWLRQV RYHU D FOHDU VWUDWHJLF ILQDQFH SODQ $ VKDUH RI WKH DQDO\]HG GDWD UHYHDOHG WKDW WKH ,'($n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nV DPELJXLWLHV &RQJUHVV HVWDEOLVKHG D IRUPDO OHJLVODWLYH PDQGDWH ZLWK VXSUHPH IHGHUDO MXULVGLFWLRQ RYHU HLJKW PLOOLRQ FKLOGUHQ ZLWK GLVDELOLWLHV 7KLV SRVLWLRQ UHSUHVHQWHG D VLJQLILFDQW GHYLDWLRQ IURP WKH WUDGLWLRQDO IUDPHZRUN RI VWDWH FRQWUROOHG VFKRRO DGPLQLVWUDWLRQ &RQJUHVV MXVWLILHG WKLV MXULVGLFWLRQ WKURXJK WKH *HQHUDO :HOIDUH &ODXVH DQG WKH )RXUWHHQWK $PHQGPHQW 7KHVH &RQVWLWXWLRQDO SURYLVLRQV VHUYHG &RQJUHVVn VXSUHPH MXULVGLFWLRQ RYHU WKH VWDWH HGXFDWLRQDO UHJLPH ZLWK WKH 1DWLRQDO 'HIHQVH (GXFDWLRQ $FW DQG WKH (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW

PAGE 159

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f SURYLVLRQ IRU FKLOG ILQG D FRPSUHKHQVLYH VWDWH SURJUDP IRU WKH GHWHFWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV ZDV DQ DWWHPSW WR UHFWLI\ D KLVWRU\ RI IRUPDOL]HG H[FOXVLRQ &RQJUHVVn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

PAGE 160

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nIUHH DSSURSULDWH HGXFDWLRQn KDV EHHQ DGRSWHG WR PDNH FOHDU WKDW D FRPSODLQW PD\ LQYROYH PDWWHUV VXFK DV TXHVWLRQV UHVSHFWLQJ D FKLOGnV LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP TXHVWLRQV RI ZKHWKHU VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV DUH EHLQJ SURYLGHG ZLWKRXW FKDUJH WR WKH SDUHQWV RU JXDUGLDQV TXHVWLRQV UHODWLQJ WR ZKHWKHU WKH VHUYLFHV SURYLGHG D FKLOG PHHW WKH VWDQGDUGV RI WKH 6WDWH HGXFDWLRQ DJHQF\ RU DQ\ RWKHU TXHVWLRQ ZLWKLQ WKH VFRSH RI WKH GHILQLWLRQ RI n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f 7KH OLWHUDWXUH HYLQFHG D FRQWHPSRUDU\ SROLF\ SUREOHP ZLWK WKH RYHUn LGHQWLILFDWLRQ RI VWXGHQWV LQ VSHFLDO HGXFDWLRQ 3DUULVK DQG 9HUVWHJHQ GHVFULEHG WKLV SROLF\ GLOHPPD :KHQ IHGHUDO VSHFLDO HGXFDWLRQ IXQGLQJ VKLIWHG IURP D SRSXODWLRQEDVHG V\VWHP WR D VSHFLDO

PAGE 161

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f VWDWH DQG IHGHUDO VWDWXWRU\ FRPSOLDQFH DQG Ef LQ D VHWWLQJ WKDW UHVHPEOHG WKH VFKRRO VHWWLQJ DV PXFK DV WKH QDWXUH RI WKH VWXGHQWnV FRQGLWLRQ SHUPLWWHG )RU /5( IXOILOOPHQW WKH WZR FRQGLWLRQV ZRXOG ERWK KDYH WR EH PHW 'DWD LQ SUHYLRXV 6HQDWH UHSRUWV HYLQFHG &RQJUHVVn VHQVLWLYLW\ WR RYHULGHQWLILFDWLRQ 7KH $PHQGPHQWV WR WKH ,'($ UHYHDOHG D IRUPDO SODFHPHQW QHXWUDO ILVFDO SROLF\ 7HVWLPRQ\ IURP SURIHVVLRQDO DQG UHVHDUFK RUJDQL]DWLRQV VXSSRUWHG WKH UHFHQW FKDQJH LQ IHGHUDO VWDWXWHV WKDW EURDGO\ WDUJHWHG WKH LVVXH RI SODFHPHQW QHXWUDOLW\

PAGE 162

7KH ,'($ ,PSURYHPHQW $FW 3/ f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n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

PAGE 163

8VLQJ UHVHDUFK WR HVWDEOLVK D FRVW ZLWK WKH UROH RI WKH IHGHUDO JRYHUQPHQW VSULQJLQJ IURP WKH LQWHUSUHWDWLRQ RI VWDWH DQG IHGHUDO ODZ WKH +RXVH ELOO SURYLGHG IRU IXQGLQJ WR VXSSRUW SHUFHQW RI WKH DYHUDJH SHU SXSLO H[SHQGLWXUH $33(f LQ WKH 8QLWHG 6WDWHV SHU GLVDEOHG FKLOG XQGHU WKH QHZ IRUPXOD 7KH 6HQDWH ELOO SURYLGHG IRU SHU HOLJLEOH VWXGHQW ZKLFK LW IRXQG UHSUHVHQWV DSSUR[LPDWHO\ SHUFHQW RI WKH DGGLWLRQDO H[FHVVf FRVW RI VHUYLQJ VWXGHQWV ZLWK GLVDELOLWLHV 7KH ELOO VHWV XS DQ LQFHQWLYH IRU WKH VWDWHV WR VHUYH PRUH FKLOGUHQ DQ HIIRUW WR UHGXFH WKH LQFHQWLYH IRU D VWDWH WR PLVODEHO FKLOGUHQ DV KDQGLFDSSHG LV WKURXJK WKH OLPLW LQ WKH ELOO WKDW WKH QXPEHU RI KDQGLFDSSHG FODLPHG FRXOG QRW H[FHHG SHUFHQW RI DOO FKLOGUHQ DJH >VLF@ WR ZLWKLQ HDFK VWDWH $ WKLUG IHGHUDO SROLF\ FRQWURO IRU RYHUn LGHQWLILFDWLRQ ZHUH IHGHUDO VWDWXWHV WKDW VSHFLILFDOO\ WDUJHWHG WKH GLVSURSRUWLRQ RI PLQRULW\ VWXGHQWV LQ VSHFLDO HGXFDWLRQ ,Q FRQFXUUHQFH .LUSn V OHJDO DQDO\VLV RI WKH VSHFLDO HGXFDWLRQ LGHQWLILFDWLRQ SURFHVV UHYHDOHG UDFLDOO\ VSHFLILF KDUPIXO HIIHFWV DVVRFLDWHG ZLWK FRQWHPSRUDU\ PHWKRGV RI WUDFN DELOLW\ DQG LQWHOOLJHQFH WHVWLQJ ZLWKRXW GXHSURFHVV 7R SUHYHQW WKLV GLVSURSRUWLRQ &RQJUHVV HQDFWHG DXGLW JXLGHOLQHV WKDW PRQLWRUHG VWDWH LQFLGHQFH UDWHV DFFRUGLQJ WR GLVDELOLW\ FDWHJRU\ UDFH DQG HWKQLFLW\ 5HSUHVHQWDWLYH *RRGOLQJ VXPPDUL]HG WKH LQWHQW RI WKH UHFHQW FKDQJHV WR WKH ,'($ WKDW WDUJHWHG WKH RYHUn LGHQWLILFDWLRQ RI VRPH UDFLDO PLQRULWLHV :KDW ZH DUH WU\LQJ WR GR LQ WKLV ELOO LV VWRS RYHULGHQWLILFDWLRQ RI FKLOGUHQ ZLWK GLVDELOLWLHV DQG MXVW VHUYH WKRVH ZKR UHDOO\ KDYH GLVDELOLWLHV :LWK WKLV ELOO ZH ZLOO HOLPLQDWH WKH ILQDQFLDO LQFHQWLYHV IRU SODFLQJ FKLOGUHQ LQWR VSHFLDO HGXFDWLRQ ZKHQ WKH\ GR

PAGE 164

QRW DFWXDOO\ KDYH GLVDELOLWLHV ,W LV XQIDLU WR WKRVH FKLOGUHQ ZKR DV LQGLFDWHG HDUOLHU DUH RIWHQ EODFN PDOH FKLOGUHQ 7KH SULPDU\ FODXVH LQ VHFWLRQ RI WKH 5HKDELOLWDWLRQ $FW DOVR VDIHJXDUGHG DJDLQVW WKH RYHUn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

PAGE 165

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f KDV LQGLFDWHG PDQ\ RI WKH VSHFLILFV RI D VWDWHn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

PAGE 166

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f UHTXLUHG GLVWULFWV WR LGHQWLI\ DQG FODVVLI\ VWXGHQWV ZLWK GLVDELOLWLHV DV WR WKH GHJUHH RI LPSDLUPHQW RU SODFHPHQW :HLJKWHG IRUPXODV ZHUH FKDUDFWHUL]HG E\ WZR RU PRUH FDWHJRULHV RI VWXGHQWEDVHG IXQGLQJ IRU VSHFLDO SURJUDPV WKDW ZHUH H[SUHVVHG DV D PXOWLSOH RI UHJXODU HGXFDWLRQ DLG Z [ r U ZKHUH Z LV WKH ZHLJKW [ LV WKH FRVW IDFWRU RI WKH VSHFLDO HGXFDWLRQ VHUYLFH DQG U LV WKH EDVLF DOORWPHQW IRU D UHJXODU HGXFDWLRQ VWXGHQWf

PAGE 167

7KH DXWKRUn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n5HLOO\ UHSRUWHG WKDW KLJK XVH VWDWHV WKDW WHQG WR RYHUn LGHQWLI\ VWXGHQWV DQG SODFH WKHP LQWR VHSDUDWH V\VWHPV KDYH WUDGLWLRQDOO\ XVHG ZHLJKWHG V\VWHPV 1HZ -HUVH\ DQG 1HZ
PAGE 168

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f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nV LQGLYLGXDO HGXFDWLRQDO SURJUDP )XQGV IRU D ILQLWH DPRXQW RI VSHFLDO HGXFDWLRQ VHWWLQJV KDYH IRUFHG VFKRRO GLVWULFWV WR ILOO WKRVH RWKHUZLVH HPSW\ SRVLWLRQV 7KH XVH RI UHVRXUFH

PAGE 169

EDVHG IXQGLQJ LQ ORZ LQFLGHQFH SURJUDPV OLNH VWXGHQWV ZLWK PHGLFDO IUDJLOLW\f KDYH IRUFHG VFKRRO GLVWULFWV WR ORVH SURJUDPPDWLF XQLWV DQG FXUWDLOHG VSHFLDO SURJUDPV IRU VRPH GLVDEOHG PLQRULWLHV 7KH XWLOL]DWLRQ RI UHVRXUFHEDVHG IXQGLQJ VFKHPHV WR URXQG VSHFLDO HGXFDWLRQ SURJUDP HQUROOPHQWV UHYHDOHG D GLUHFW FRQIOLFW ZLWK WKH VSLULW RI WKH /5( WKH SUDFWLFH RI PDLQVWUHDPLQJ ZDV QRW IRVWHUHG EHFDXVH D VKRUWDJH RI VWXGHQWV LQ VSHFLDO SURJUDPV FRXOG VLJQLILFDQWO\ LPSDFW LQFRPLQJ GROODUV 7KH &6() FKDUDFWHUL]HG UHVRXUFH DOORFDWLRQUDWKHU WKDQ WKH TXDOLW\ RI VSHFLDO HGXFDWLRQ VHUYLFHDV WKH DGPLQLVWUDWLYH SULRULW\ RI WKHVH FDWHJRULFDO VSHFLDO HGXFDWLRQ SURJUDPV 3HUFHQW 5HLPEXUVHPHQW 3HUFHQW UHLPEXUVHPHQW IXQGLQJ ZDV FKDUDFWHUL]HG DV D IXQGLQJ DSSURDFK WKDW ZDV EDVHG RQ D SHUFHQWDJH RI DOORZDEOH RU DFWXDO H[SHQGLWXUHV 7KHVH IRUPXODV ZHUH JHQHUDOO\ FRQVLGHUHG WR EH SODFHPHQW QHXWUDO DQG GLG QRW IRVWHU SODFHPHQW RI VWXGHQWV LQWR PRUH UHVWULFWLYH VHWWLQJV 7KDW LV WKH SURSRUWLRQ RI IXQGV UHFHLYHG IURP WKH VWDWH ZDV WKH VDPH UHJDUGOHVV RI WKH FRQWH[W RI WKH SURJUDP GHOLYHU\ RI WKRVH VHUYLFHV +RZHYHU SHUFHQWDJH UHLPEXUVHPHQW IRUPXODV GLG QRW H[SOLFLWO\ FRQVLGHU ZKHUH D VWXGHQW UHFHLYHG VHUYLFHV LPSOLHG WKDW WKH VWDWH VKDUH RI IXQGLQJ GLG QRW VLJQLILFDQWO\ LQIOXHQFH WKH SODFHPHQW RI VWXGHQWV ZLWK GLVDELOLWLHV ,Q HVVHQFH SHUFHQW UHLPEXUVHPHQW IRUPXODV

PAGE 170

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

PAGE 171

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

PAGE 172

WUDGLWLRQDO IHGHUDO UROH RI SURPRWLQJ VSHFLDO HGXFDWLRQ 0RUHRYHU $ODEDPDn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

PAGE 173

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f KDYH FDOOHG IRU WKH LQFOXVLRQ RI VSHFLDO HGXFDWLRQ LQ WKLV LQWHJUDWHG IXQGLQJ VROXWLRQ $FFRUGLQJ WR WKH &6() &RPELQLQJ IXQGV SURYLGHG XQGHU ,'($ DQG WKH (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW ZKLOH PDLQWDLQLQJ ,'($n6 SURFHGXUDO VDIHJXDUGV FRXOG SHUPLW VSHFLDO HGXFDWRUV WR EHWWHU SDUWLFLSDWH LQ WKH UHIRUP SURFHVV +RZHYHU DQ DQDO\VLV RI EOHQGHG IXQGLQJ UHYHDOHG VXEVWDQWLDO SROLWLFDO FRQFHUQV 'XULQJ WKH FRPPHQW SHULRG RI WKH PRVW UHFHQW ,'($ UHJXODWLRQV SDUHQWV DQG VSHFLDO HGXFDWLRQ DGYRFDWHV GHPRQVWUDWHG WKHLU XQHDVH FRQFHUQLQJ WKH SHUFHLYHG UHOD[DWLRQ RI IHGHUDO

PAGE 174

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

PAGE 175

FKDUDFWHULVWLFV WKDW GHPRQVWUDWHG ILVFDO ELDV Df WUDGLWLRQDO H[FHVV FRVW IUDPHZRUNV Ef SUHIHUHQFHV IRU SULYDWH VSHFLDO HGXFDWLRQ SODFHPHQWV Ff DVVHVVPHQW SUDFWLFHV DVVRFLDWHG ZLWK RYHULGHQWLILFDWLRQ DQG Gf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f ZLOO FDXVH WKH VSHFLDO HGXFDWLRQ FRVW SHU VWXGHQW WR EH LQFUHDVHG

PAGE 176

7KH UHJXODU HGXFDWLRQ FRVW SHU VWXGHQW ZLOO JHQHUDOO\ EH FKDQJHG RQO\ VOLJKWO\ EHFDXVH WKH UHODWLYHO\ IHZ VWXGHQWV LQ VSHFLDO HGXFDWLRQ LQYROYHG IRU VKRUW WLPH SHULRGV ZLOO KDYH OLWWOH LPSDFW RQ HLWKHU WRWDO FRVWV RU VWXGHQW QXPEHUV 7KH QHW HIIHFW LV WR LQFUHDVH WKH FDOFXODWHG H[FHVV FRVW SHU VWXGHQW DQG WKH VWDWH DLG 3ULYDWH 3ODFHPHQWV 3 $ 5 & a JHQHUDOL]HG 3HQQV\OYDQLDnV WXLWLRQ PDLQWHQDQFH VWDWXWHV WR SURYLGH IRU UHLPEXUVHPHQW RI SULYDWH VSHFLDO HGXFDWLRQ SODFHPHQWV 6LQFH WKH HQDFWPHQW RI WKH ($+&$ LQ WKH IHGHUDO JRYHUQPHQW KDV FRGLILHG WKH SURYLVLRQ RI UHLPEXUVHPHQW IRU DSSURYHG VSHFLDO HGXFDWLRQ SODFHPHQWV ,I D SULYDWH VSHFLDO HGXFDWLRQ SODFHPHQW ZDV LQGLFDWHG E\ WKH VWXGHQWnV LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP ,(3f WHDP DQG DSSURYHG E\ WKH ORFDO HGXFDWLRQDO DJHQF\ /($f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

PAGE 177

7KLV W\SH RI IXQGLQJ DSSURDFK ZRXOG UHPRYH DQ\ ILVFDO LQFHQWLYH IRU WKH XVH RI SULYDWH VFKRROV ,QVWHDG WKHLU XVH ZRXOG EH EDVHG RQ WKH PHULWV DQG XQLTXH VWUHQJWKV RI WKH SURJUDPV DQG VHUYLFHV WKH\ RIIHU 7KLV DSSURDFK DOVR ZRXOG VHHP OLNHO\ WR HQFRXUDJH JUHDWHU FROODERUDWLRQ DQG LQWHJUDWLRQ EHWZHHQ SXEOLF DQG SULYDWH VFKRROV 3ULYDWH SURYLGHUV PD\ EH PRUH OLNHO\ WR PRYH WR PRUH LQWHJUDWHG VHUYLFH PRGHOV E\ ZRUNLQJ PRUH FORVHO\ ZLWK SXEOLF VFKRRO GLVWULFWV )RU H[DPSOH VRPH SULYDWH VFKRRO VHUYLFHV PLJKW EH EURXJKW GLUHFWO\ LQWR SXEOLF VFKRRO VHWWLQJV $ QHXWUDO IXQGLQJ DSSURDFK OLNH WKLV FRXOG SURPRWH D PRUH HIILFLHQW XVH RI SULYDWH VFKRROLQJ UHVRXUFHV DQG UHVXOW LQ OHVV VHJUHJDWLRQ IRU VWXGHQWV ZLWK GLVDELOLWLHV $VVHVVPHQW IRU 6SHFLDO (GXFDWLRQ (OLJLELOLW\ $ SURPLQHQW ILVFDO LQFHQWLYH LGHQWLILHG LQ WKLV DQDO\VLV ZDV WKH DEVHQFH RI FRPSUHKHQVLYH UHVWULFWLRQV RQ VWDWH SODFHPHQW ELDVHG ILVFDO SROLFLHV ,QGLUHFWO\ WKLV DQDO\VLV UHYHDOHG DPELJXRXV IHGHUDO VWDQGDUGV IRU VSHFLDO HGXFDWLRQ HOLJLELOLW\ WHVWLQJ WKDW ZHUH KLJKO\ VXEMHFWLYH UHVXOWLQJ LQ GHWHUPLQDWLRQV RI HOLJLELOLW\ WKDW >KDG@ WKH SRWHQWLDO RI EHLQJ ODUJHO\ ZLWKLQ GLVWULFW FRQWURO 7KLV SHUPLVVLYH FODVVLILFDWLRQ RI KLJK SUHYDOHQFH GLVDELOLWLHV HJ PLOG OHDUQLQJ GLVDELOLWLHVf KDYH FRQWULEXWHG WR WKH Df RYHUn LGHQWLILFDWLRQ RI VWXGHQWV LQ VSHFLDO HGXFDWLRQ DQG Ef SUROLIHUDWLRQ RI VRPH SODFHPHQW ELDVHG IXQGLQJ IRUPXODV $Q DQDO\VLV RI WKH OLWHUDWXUH UHYHDOHG Df JUHDW YDULDQFH RI VSHFLDO HGXFDWLRQ SODFHPHQW GHVLJQDWLRQ WKURXJKRXW WKH 86 Ef WKH SROLWLFDO FRQWH[W RI PRUH VXEMHFWLYH DVVHVVPHQW VWUDWHJLHV Ff WKH WHUPLQDO

PAGE 178

DQG VWDWLF QDWXUH RI PDQ\ VSHFLDO HGXFDWLRQ SODFHPHQWV DQG Gf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nV HGXFDWLRQ SURJUDP VWUDWHJ\ LV WR SURPRWH D XQLILHG DQG ZHOO DUWLFXODWHG VHUYLFH VWUDWHJ\ DFURVV WKHVH WZR VHUYLFH

PAGE 179

V\VWHPV WKHQ WKHVH FRQFHSWV VKRXOG DOVR EH HPERGLHG LQ WKH VWDWHn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n6 HOLJLELOLW\ FDS RI SHUFHQW KDV LQDGYHUWHQWO\ FUHDWHG D PLQRU RYHULGHQWLILFDWLRQ LQFHQWLYH IRU VWDWHV ZLWK ORZHU LGHQWLILFDWLRQ UDWHV 7KLV VXSSRUWHG WKH FRQWHQWLRQ WKDW DQ LQFHQWLYHIUHH ILVFDO SROLF\ ZDV D SUDFWLFDO LPSUREDELOLW\ 0RUHRYHU WKHUH H[LVWHG QR IRUPDOL]HG SURYLVLRQ WR FRRUGLQDWH WKH V\VWHP RI XQLILHG IXQGLQJ V\VWHPV UHIHUUHG WR LQ WKH IHGHUDO VWDWXWHV

PAGE 180

$QDO\VLV RI 'HSDUWPHQW RI (GXFDWLRQ 6WDWHPHQWV )HGHUDO SROLF\ DPELJXLWLHV ZHUH DGGUHVVHG E\ WKH 8QLWHG 6WDWHV 'HSDUWPHQW RI (GXFDWLRQ GXULQJ IRUPDO FRPPHQW SHULRGV 7KH '2( KDV DOVR UHVSRQGHG WR LQTXLULHV DV UHJXODWRU\ LVVXHV LQ WKH VWDWHV KDYH DULVHQ ,Q D VXUYH\ RI WKH SDVW VHYHQ \HDUV RI 2IILFH RI 6SHFLDO (GXFDWLRQ 3URJUDPV 26(3f LQTXLULHV WKLV DQDO\VLV UHQGHUHG IRXU GRFXPHQWV WKDW FODULILHG IHGHUDO DJHQF\ SRVLWLRQV RQ SODFHPHQW QHXWUDOLW\ $ LQTXLU\ WR WKH 26(3 GUHZ LVVXH WR GLIIHUHQFHV LQ DGPLQLVWUDWLYH IOH[LELOLW\ DFURVV VWDWHVLO 7KH VXEMHFWV LQTXLUHG DV WR Df WKH OHYHO RI IOH[LELOLW\ WKDW VWDWHV SRVVHVVHG WR LPSOHPHQW UHFRPPHQGDWLRQV IRU DSSURSULDWH OHYHOV RI HGXFDWLRQ DQG Ef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

PAGE 181

7KLV VWDWHPHQW VXSSRUWHG 3DUULVKn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

PAGE 182

GLVFRQQHFWHG ZLWK WKH LGHQWLILFDWLRQ RI VWXGHQWV ZLWKLQ HDFK MXULVGLFWLRQ 7KH 26(3 UHVSRQGHG E\ RXWOLQLQJ WKH IHGHUDO JRYHUQPHQWn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nV DOWHUQDWLYH GHILQLWLRQ RI H[FHVV FRVWV 7KH GLUHFWRU SURSRVHG D VWDWH H[FHVV FRVW UHTXLUHPHQW WKDW FRPSDUHG WKH RSHUDWLRQDO IXQGV IRU LQVWUXFWLRQDO VWDII IRU VWXGHQWV UHFHLYLQJ VSHFLDO HGXFDWLRQ QRW LQFOXGLQJ JLIWHG VHUYLFHVf ZLWK WKH $33( IURP RSHUDWLRQDO IXQGV IRU DOO VWXGHQWV 0RUHRYHU WKH GLUHFWRU SURSRVHG WKDW

PAGE 183

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nV SURYLVLRQV IRU SODFHPHQW QHXWUDOLW\ UHTXLUHG DQ H[DPLQDWLRQ RI FXUUHQW VWDWH IXQGLQJ PHWKRGV WKDW HLWKHU Df SURPRWHG ILVFDO QHXWUDOLW\ RU Ef GHPRQVWUDWHG WKH SURSHQVLW\ IRU SODFHPHQW ELDV 6WDWH IXQGLQJ VWDWXWHV ZHUH DQDO\]HG DQG RUJDQL]HG LQ $SSHQGL[ % 'DWD ZHUH GHULYHG IURP VWDWH OHJLVODWLYH GDWDEDVHV WKH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH DQG WKH 7ZHQWLHWK $QQXDO 5HSRUW WR &RQJUHVV RQ WKH ,PSOHPHQWDWLRQ RI WKH ,QGLYLGXDOV ZLWK

PAGE 184

'LVDELOLWLHV (GXFDWLRQ $FW 7KHVH GDWD ZHUH RUJDQL]HG LQ D PDQQHU WR GRFXPHQW WKH VWDWXWH HPSRZHULQJ VSHFLDO HGXFDWLRQ ILQDQFH IXQGLQJ IRUPXOD W\SRORJ\ EDVLV RI DOORFDWLRQ DQG VWDWXV RI UHIRUP )XQGLQJ W\SRORJLHV ZHUH DQDO\]HG WR LQGLFDWH WKH IUHTXHQF\ RI Df VWDWHV HPSOR\LQJ RQH RI WKH IRXU IXQGLQJ PHWKRGV Ef QDWLRQDO SHUFHQWDJHV DFFRUGLQJ WR W\SRORJ\ DQG Ff SHUFHQWDJHV RI EDVLV RI DOORFDWLRQ ZLWKLQ W\SRORJLHV $ VXPPDU\ RI IUHTXHQFLHV ZDV RUJDQL]HG E\ IXQGLQJ IRUPXOD EDVLV RI IXQGLQJ DQG UHIRUP 7KHVH GDWD ZHUH SUHVHQWHG LQ $SSHQGL[ & 7KH GDWD UHYHDOHG WKDW SHUFHQW Q OOf RI VWDWHV XWLOL]HG UHVRXUFHEDVHG IRUPXODV SHUFHQW XWLOL]HG SXSLOZHLJKWHG IRUPXODV Q f SHUFHQW XWLOL]HG SHUFHQWDJH UHLPEXUVHPHQW IRUPXODV Q f DQG SHUFHQW XWLOL]HG IODW JUDQW IRUPXODV Q f 3ODFHPHQWEDVHG IXQGLQJ DFFRXQWHG IRU SHUFHQW RI DOO VWDWH VSHFLDO HGXFDWLRQ IXQGLQJ IRUPXODV )XQGLQJ EDVHG XSRQ SODFHPHQW DQG GLVDELOLW\ DFFRXQWHG IRU SHUFHQW RI DOO VWDWH VSHFLDO HGXFDWLRQ IRUPXODV )XQGLQJ EDVHG XSRQ GLVDEOLQJ FRQGLWLRQ DFFRXQWHG IRU SHUFHQW RI DOO VWDWH VSHFLDO HGXFDWLRQ IRUPXODV ,Q DOO SODFHPHQW DQG GLVDELOLW\ EDVHV DFFRXQWHG IRU SHUFHQW RI DOO VWDWH IXQGLQJ EDVHV :LWKLQ WKH UHVRXUFHEDVHG IRUPXOD JURXS SHUFHQW RI WKH VWDWHV DOORFDWHG VSHFLDO HGXFDWLRQ PRQLHV RQ WKH EDVLV RI WKH QXPEHU RI VSHFLDO HGXFDWLRQ VWDII

PAGE 185

,OOLQRLV EDVHG LWV IRUPXOD XSRQ DOORZDEOH FRVWV SHUFHQWf DQG VHYHQ VWDWHV SHUFHQWf EDVHG WKHLU IRUPXODV XSRQ FODVVURRP XQLW :LWKLQ WKH SXSLOZHLJKWHG JURXS SHUFHQW RI WKH VWDWHV EDVHG VSHFLDO HGXFDWLRQ IXQGLQJ XSRQ SODFHPHQW SHUFHQW ZHUH EDVHG XSRQ GLVDELOLW\ FDWHJRU\ DQG SHUFHQW ZHUH EDVHG XSRQ SODFHPHQW DQG GLVDEOLQJ FRQGLWLRQ 2UHJRQ EDVHG LWV VSHFLDO HGXFDWLRQ IRUPXOD XSRQ VSHFLDO HGXFDWLRQ HQUROOPHQW SHUFHQWf :LWKLQ WKH SHUFHQWDJH UHLPEXUVHPHQW JURXS SHUFHQW RI VWDWH VSHFLDO HGXFDWLRQ IRUPXODV ZHUH EDVHG XSRQ DFWXDO H[SHQGLWXUHV DQG SHUFHQW ZHUH EDVHG XSRQ DOORZDEOH FRVWV 7KHUH ZHUH QR RWKHU EDVLV FDWHJRULHV LGHQWLILHG ZLWKLQ WKLV IXQGLQJ W\SRORJ\ :LWKLQ WKH IODWJUDQW JURXS SHUFHQW RI VWDWHVf IRUPXODV ZHUH EDVHG XSRQ WRWDO GLVWULFW HQUROOPHQW SHUFHQW ZHUH EDVHG XSRQ VSHFLDO HGXFDWLRQ HQUROOPHQW DQG SHUFHQW ZHUH EDVHG RQ DFWXDO H[SHQGLWXUHV :LWKLQ WKH EDVLV FDWHUJRU\ RI SODFHPHQW SHUFHQW RI WKH VWDWHV XWLOL]HG SXSLOZHLJKWHG IRUPXODV 2I WKHVH VWDWHV SHUFHQW DUH VWLOO FRQVLGHULQJ UHIRUP RI WKH VSHFLDO HGXFDWLRQ ILQDQFH SURJUDP 7KH 7H[DV OHJLVODWXUH LPSOHPHQWHG UHIRUP ZLWKLQ

PAGE 186

WKH SDVW ILYH \HDUV EXW ZDV VWLOO FRQVLGHULQJ IXUWKHU UHIRUP :LWKLQ WKH EDVLV JURXS RI SODFHPHQW DQG GLVDELOLW\ SHUFHQW RI WKH VWDWHV XWLOL]HG SXSLOZHLJKWHG IRUPXODV ,Q WKLV EDVLV JURXS WZR VWDWHV ZHUH FRQVLGHULQJ UHIRUP DQG +DZDLL LPSOHPHQWHG UHIRUP RI WKH VSHFLDO HGXFDWLRQ ILQDQFH SURJUDP RYHU WKH SDVW ILYH \HDUV 86& i f ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ 86 6HQDWH &RPPLWWHH RQ /DERU DQG 3XEOLF :HOIDUH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ 6HQDWH 5HSRUW 1R %URZQ Y 7RSHND %RDUG RI (GXFDWLRQ 86 DW f 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS f 0LOOV ) 6XSS 5RZOH\ 86 n 'DQLHO + 0HOYLQ 7KH 'HVHJUHJDWLRQ RI &KLOGUHQ ZLWK 'LVDELOLWLHV 'H3DXO / 5HY f %URZQ 86 (GXFDWLRQ LV UHTXLUHG LQ WKH SHUIRUPDQFH RI RXU PRVW EDVLF SXEOLF

PAGE 187

UHVSRQVLELOLWLHV HYHQ VHUYLFH LQ WKH DUPHG IRUFHV ,W LV WKH YHU\ IRXQGDWLRQ RI JRRG FLWL]HQVKLSf ,ELG DW >'H MXUH VHJUHJDWLRQ@ KDV D WHQGHQF\ WR UHWDUG WKH HGXFDWLRQDO DQG PHQWDO GHYHORSPHQW RI QHJUR FKLOGUHQ 86 &RQVW $UW ;9, i 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS DW f ,ELG ,ELG ,ELG 0LOOV Y %RDUG RI (GXFDWLRQ ) 6XSS f ,ELG DW )LDONRZVNL Y 6KDSS ) 6XSS (' 3D f )UHGHULFN / 9 7KRPDV ) 6XSS (' 3D f DIInG )G G&LU f ,Q UH *+ 1:G 1' f 6HQDWH 5HSRUW 1R VXSUD QRWH DW $FFRUGLQJ WR WKH 6HQDWH 6XEFRPPLWWHH RQ WKH (GXFDWLRQ $PHQGPHQWV RI ,QFUHDVHG DZDUHQHVV RI WKH HGXFDWLRQDO QHHGV RI KDQGLFDSSHG FKLOGUHQ DQG ODQGPDUN FRXUW GHFLVLRQV HVWDEOLVKLQJ WKH ULJKW WR HGXFDWLRQ IRU KDQGLFDSSHG FKLOGUHQ SRLQWHG WR WKH QHFHVVLW\ RI DQ H[SDQGHG )HGHUDO ILVFDO UROH 86 +RXVH RI 5HSUHVHQWDWLYHV -XQH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ +RXVH RI 5HSUHVHQWDWLYHV 5HSRUW 1R DW (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW 3/ f >WUDQVIHUUHG WR 86& ii R f@ 7KLV DFW ZRXOG ODWHU EH UHGUDIWHG LQ DV WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW 3/ f 6HQDWH 5HSRUW 1R VXSUD QRWH DW ($+&$ VXSUD QRWH

PAGE 188

+HQGULFN +XGVRQ 'LVWULFW %RDUG RI (GXFDWLRQ Y 5RZOH\ 86 6 &7 / (' G f 0HOYLQ VXSUD QRWH DW f ,ELG 6HQDWH 5HSRUW 1R VXSUD QRWH DW 86& i Df f ,f f 6HH HJ 2EHUWL Y &OHPHQWRQ 6FK 'LVW %G RI (GXF )G QO G &LU f *UHHU Y 5RPH &LW\ 6FK 'LVW )G WK &LU f ZLWKGUDZQ )G f 5RQFNHU Y :DOWHU )G WK &LU f FHUW GHQLHG &LQFLQQDWL &LW\ 6FK 'LVW %G RI (GXF Y 5RQFNHU 86 f 86 DW ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW $PHQGPHQWV 3/ f &)5 i f 86& i Dff f 86& i Ef f +DUSHU Y +XQW 6R G f &DPEHOO Y 6WDWH RI :\RPLQJ 3G f 'H5ROSK 2KLR 6W G 6HH HJ &KDPEHUV -D\ DQG :LOOLDP 7 +DUWPDQ 6SHFLDO (GXFDWLRQ 3ROLFLHV 7KHLU +LVWRU\ ,PSOHPHQWDWLRQ DQG )LQDQFH 3KLODGHOSKLD 3HQQV\OYDQLD 7HPSOH 3UHVV f 9HUVWHJHQ $ &RQVROLGDWLQJ 6SHFLDO (GXFDWLRQ )XQGLQJ DQG 6HUYLFHV $ )HGHUDO 3HUVSHFWLYH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 3DUULVK 7 % )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f DQG 3DUULVK 7 % &ULWHULD IRU (IIHFWLYH 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f

PAGE 189

&HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f :KDW LV )DLU" 6SHFLDO (GXFDWLRQ DQG )LQDQFH (TXLW\ ,VVXH %ULHI 1R )DOO f +DUSHU 6R G ,ELG ,ELG ,ELG 3DUULVK 6SHFLDO (GXFDWLRQ )LQDQFH 3DVW 3UHVHQW DQG )XWXUH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 0F/DXJKOLQ 0 DQG 6 + :DUUHQ 5HVRXUFH ,PSOLFDWLRQV RI ,QFOXVLRQ ,PSUHVVLRQV RI 6SHFLDO (GXFDWLRQ $GPLQLVWUDWRUV DW 6HOHFWHG 6LWHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 0F/DXJKOLQ 0DUJDUHW ,QFUHDVLQJ 5HJXODWRU\ )OH[LELOLW\ RI 6SHFLDO (GXFDWLRQ 3URJUDPV 3UREOHPV DQG 3URPLVLQJ 6WUDWHJLHV ([FHSWLRQDO &KLOGUHQ f 6HQDWH 5HSRUW 1R VXSUD QRWH DW 86& i Ff &)5 i Eff f 86& i Gf f $f f 86& i Gf f %f f 86& i Gf f &f f 86& i Gff f ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW $PHQGPHQWV 3/ f 86& i Gff f ,ELG 86& i Gff f 86& i Df f

PAGE 190

i Kf f i f i f i f 'LVDELOLWLHV 'HQYHU &RORUDGR f /RYH 3XEOLVKLQJ &UHPLQV /HJDO DQG 3ROLWLFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 6SULQJILHOG ,OOLQRLV f &KDUOHV & 7KRPDV +HKLU 7 DQG 7 /DWXV 6SHFLDO (GXFDWLRQ DW WKH &HQWXU\nV (QG (YROXWLRQ RI 7KHRU\ DQG 3UDFWLFH 6LQFH &DPEULGJH 0DVVDFKXVHWWV f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

PAGE 191

-RLQW ([SODQDWRU\ 6WDWHPHQW RI WKH &RPPLWWHH RI &RQIHUHQFH 6 &RQI 5HS 1R WK &RQJ VW 6HVV f DW 86& Dff f 5HYLHZ DQG UHYLVLRQ RI SROLFLHV SUDFWLFHV DQG SURFHGXUHV ,Q WKH FDVH RI D GHWHUPLQDWLRQ RI VLJQLILFDQW GLVSURSRUWLRQDOLW\ ZLWK UHVSHFW WR WKH LGHQWLILFDWLRQ RI FKLOGUHQ DV FKLOGUHQ ZLWK GLVDELOLWLHV RU WKH SODFHPHQW LQ SDUWLFXODU HGXFDWLRQDO VHWWLQJV RI VXFK FKLOGUHQ LQ DFFRUGDQFH ZLWK SDUDJUDSK f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nV EHOLHI WKDW WKH &RQJUHVV VKRXOG WDNH D PRUH DFWLYH UROH XQGHU LWV UHVSRQVLELOLW\ IRU HTXDO SURWHFWLRQ RI WKH ODZV WR JXDUDQWHH WKDW KDQGLFDSSHG FKLOGUHQ DUH SURYLGHG HGXFDWLRQDO RSSRUWXQLW\ 0HOYLQ VXSUD QRWH DW f 6 &RQI 5HS 1R VXSUD QRWH 0HOYLQ VXSUD QRWH DW f M 6 &RQI 5HS 1R VXSUD QRWH DW %URZQ 86 ,ELG DW 6HQDWH 5HSRUW 1R VXSUD QRWH DW 86 &RQVW $UW ;9, i ,ELG DW 0HOYLQ VXSUD QRWH

PAGE 192

86& Dff f 5HEHFFD :HEHU *ROGPDQ $ )UHH $SSURSULDWH (GXFDWLRQ LQ WKH /HDVW 5HVWULFWLYH (QYLURQPHQW 3URPLVHV 0DGH 3URPLVHV %URNHQ E\ WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW 'D\WRQ / 5HY f 9HUVWHJHQ $ )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW $ +LVWRULFDO 2YHUYLHZ 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 6HH HJ &RQJ 5HF DW DW DW f ,ELG 5REHUW 7 6WDIIRUG (GXFDWLRQ IRU 7KH +DQGLFDSSHG $ 6HQDWRUnV 3HUVSHFWLYH 97 / 5HY f 6WDIIRUG 5 (GXFDWLRQ IRU 7KH +DQGLFDSSHG $ 6HQDWRUnV 3HUVSHFWLYH 9W / 5HY f :ROIHQVEHUJHU : 6RFLDO 5ROH 9DORUL]DWLRQ $ 3URSRVHG 1HZ WHUP IRU WKH 3ULQFLSOH RI 1RUPDOL]DWLRQr 0HQWDO 5HWDUGDWLRQ f &RQJ 5HF DW f &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) 6 &W f DW 6HQDWH 5HSRUW 1R VXSUD QRWH DW /HZLV 5 5REHUW %UXLQLQNV 0DUWKD 7KXUORZ DQG .HYLQ 0F*UHZ 8VLQJ %HQHILW&RVW $QDO\VLV LQ 6SHFLDO (GXFDWLRQ ([FHSWLRQDO &KLOGUHQ f DQG 0F4XDLQ 6DQGUD 6SHFLDO (GXFDWLRQ 3ULYDWH 3ODFHPHQWV )LQDQFLDO 5HVSRQVLELOLW\ 8QGHU WKH /DZ -RXUQDO RI (GXFDWLRQ )LQDQFH f *ROGPDQ VXSUD QRWH ($+&$ VXSUD QRWH ,ELG 7KH *HQHUDO :HOIDUH &ODXVH 86 &RQVW $UW i FO

PAGE 193

86 &RQVW $UW ;9, i (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW 3/ f >FRGLILHG DV 86& ii H f@ 86& i Dff f ,ELG $OO FKLOGUHQ ZLWK GLVDELOLWLHV UHVLGLQJ LQ WKH 6WDWH LQFOXGLQJ FKLOGUHQ ZLWK GLVDELOLWLHV DWWHQGLQJ SULYDWH VFKRROV UHJDUGOHVV RI WKH VHYHULW\ RI WKHLU GLVDELOLWLHV DQG ZKR DUH LQ QHHG RI VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV DUH LGHQWLILHG ORFDWHG DQG HYDOXDWHG DQG D SUDFWLFDO PHWKRG LV GHYHORSHG DQG LPSOHPHQWHG WR GHWHUPLQH ZKLFK FKLOGUHQ ZLWK GLVDELOLWLHV DUH FXUUHQWO\ UHFHLYLQJ QHHGHG VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV 86& i Df f %'f f 86& i Dff f 7XUQEXOO VXSUD QRWH 6HQDWH 5HSRUW 1R VXSUD QRWH DW &RQJ 5HF f /D3ODQWH % / + 6 .D\H DQG 0 3 /D3ODQWH 'LVDELOLW\ LQ WKH 8QLWHG 6WDWHV 3UHYDOHQFH DQG &DXVHV :DVKLQJWRQ '& 86 'HSDUWPHQW RI (GXFDWLRQ 1DWLRQDO ,QVWLWXWH RQ 'LVDELOLW\ DQG 5HKDELOLWDWLRQ 5HVHDUFK f DW 3DUULVK 7 % DQG $ 9HUVWHJHQ )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW 3ROLF\ ,VVXHV DQG $OWHUQDWLYHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f DW 86& i Dff%f f ,ELG 7KLV VWDWHPHQW DVVXPHG WKDW WKH SURYLVLRQ RI VSHFLDO HGXFDWLRQ VHUYLFHV ZHUH VHUYHG ZLWKRXW VXEVWDQWLYH GXHSURFHVV 6HH HJ VXSUD QRWH ,'($ $PHQGPHQWV VXSUD QRWH 86& i Dff%f f

PAGE 194

&RQJ 5HF DW 86& i Dff%f f 86& i Dff f 6HQDWH 5HSRUW 1R VXSUD QRWH DW +DUWPDQ : 7 6SHFLDO (GXFDWLRQ )XQGLQJ $SSURDFKHV DQG &RVW &RQWURO 6FKRRO %XVLQHVV $IIDLUV f +RXVH RI 5HSUHVHQWDWLYHV 5HSRUW 1R VXSUD QRWH DW 86& i Ff (DFK 6WDWH WKDW UHFHLYHV DVVLVWDQFH XQGHU WKLV VXEFKDSWHU DQG WKH 6HFUHWDU\ RI WKH ,QWHULRU VKDOO SURYLGH IRU WKH FROOHFWLRQ DQG H[DPLQDWLRQ RI GDWD WR GHWHUPLQH LI VLJQLILFDQW GLVSURSRUWLRQDOLW\ EDVHG RQ UDFH LV RFFXUULQJ LQ WKH 6WDWH ZLWK UHVSHFW WR $f WKH LGHQWLILFDWLRQ RI FKLOGUHQ DV FKLOGUHQ ZLWK GLVDELOLWLHV LQFOXGLQJ WKH LGHQWLILFDWLRQ RI FKLOGUHQ DV FKLOGUHQ ZLWK GLVDELOLWLHV LQ DFFRUGDQFH ZLWK D SDUWLFXODU LPSDLUPHQW GHVFULEHG LQ VHFWLRQ f RI WKLV WLWOH DQG %f WKH SODFHPHQW LQ SDUWLFXODU HGXFDWLRQDO VHWWLQJV RI VXFK FKLOGUHQ .LUS / 6WXGHQW &ODVVLILFDWLRQ LQ +HKLU 7 DQG 7 /DWXV HGV 6SHFLDO (GXFDWLRQ DW WKH &HQWXU\nV (QG (YOXWLRQ RI 7KHRU\ DQG 3UDFWLFH 6LQFH &DPEULGJH 0DVVDFKXVHWW +DUYDUG (GXFDWLRQDO 5HYLHZ f 86& i Dff$f f &RQJ 5HF + DW f 6HFWLRQ RI WKH 5HKDELOLWDWLRQ $FW f >FRGLILHG DV 86& ii f D f@ 86& i Df f 86& i ,9f f f 6HFWLRQ EURDGHQV FRYHUDJH WR LQGLYLGXDOV LQ WKH IROORZLQJ FDWHJRULHV $,'6 $OFRKROLFV DQG GUXJ XVHUV $QHPLD $UWKULWLV $VWKPD (SLOHSV\ +HDULQJ ORVV .QHH LQMXU\ 0HQWDO RU HPRWLRQDO LPSDLUPHQW 2EHVLW\ 6HQVLWLYLW\ WR WREDFFR VPRNH 6SLQDO LQMXU\ 9LVXDO LPSDLUPHQW DQG RWKHU PLVFHOODQHRXV OLIHLPSDLULQJ FRQGLLRQV 86& i Dff%f f 1RWKLQJ LQ

PAGE 195

WKLV FKDSWHU UHTXLUHV WKDW FKLOGUHQ EH FODVVLILHG E\ WKHLU GLVDELOLW\ VR ORQJ DV HDFK FKLOG ZKR KDV D GLVDELOLW\ OLVWHG LQ VHFWLRQ RI WKLV WLWOH DQG ZKR E\ UHDVRQ RI WKDW GLVDELOLW\ QHHGV VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV LV UHJDUGHG DV D FKLOG ZLWK D GLVDELOLW\ XQGHU WKLV VXEFKDSWHU 86& i Fff$f *UHDWHU HIIRUWV DUH QHHGHG WR SUHYHQW WKH LQWHQVLILFDWLRQ RI SUREOHPV FRQQHFWHG ZLWK PLVODEHOLQJ DQG KLJK GURSRXW UDWHV DPRQJ PLQRULW\ FKLOGUHQ ZLWK GLVDELOLWLHV" 86& i Dff)f f 3URYLGLQJ LQFHQWLYHV IRU ZKROHVFKRRO DSSURDFKHV DQG SUHUHIHUUDO LQWHUYHQWLRQ WR UHGXFH WKH QHHG WR ODEHO FKLOGUHQ DV GLVDEOHG LQ RUGHU WR DGGUHVV WKHLU OHDUQLQJ QHHGV 86& i Df f %f Lf f 7KH IHGHUDO VWDWXWHV DOVR SUHVHQWHG D VHFRQGDU\ JRDO RI HOLJLELOLW\ WHVWLQJ DV PHDVXUHV LLf WR GHWHUPLQH WKH HGXFDWLRQDO QHHGV RI VXFK FKLOG & 3DUULVK DQG 9HUVWHJHQ VXSUD QRWH &KDPEHUV 7 7 3DUULVK DQG /LHEHUPDQ :KDW $UH :H 6SHQGLQJ RQ 6SHFLDO (GXFDWLRQ LQ WKH 86" 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f $ IRUPXOD EUHDNGRZQ E\ VWDWHV LV LQFOXGHG LQ $33(1',; % 0(7+2'6 2) 67$7( )81',1* )25 63(&,$/ ('8&$7,21 &6() )LQDQFH LQ DQ ,QFOXVLYH 6\VWHP ,VVXH %ULHI 1R )DOO f 3DOR $OWR &DOLIRUQLD ,ELG )RU H[DPSOH SROLF\ GHFLVLRQf§RU WKH GHJUHH RI ODWLWXGH WKDW VFKRRO GLVWULFWV KDYH RQFH WKH\ UHFHLYH WKHVH FDWHJRULFDO DOORFDWLRQVf§YDULHG DFURVV VFKRRO GLVWULFWV &KDPEHUV 7 % 3DUULVK DQG & +LNLGR 6SHFLDO (GXFDWLRQ ([SHQGLWXUHV DQG 5HYHQXHV LQ D &HQVXV %DVHG )XQGLQJ 6\VWHP 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f DQG +DUWPDQ : 7 3ROLF\ (IIHFWV RI 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV -RXUQDO RI (GXFDWLRQ )LQDQFH f 3DUULVK )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV VXSUD QRWH DW

PAGE 196

,ELG ,ELG 3DUULVK VXSUD QRWH DW 'HPSVH\ 6 DQG )XFKV n)ODWn 9HUVXV n:HLJKWHGn 5HLPEXUVHPHQW )RUPXODV $ /RQJLWXGLQDO $QDO\VLV RI 6WDWHZLGH 6SHFLDO (GXFDWLRQ )XQGLQJ 3UDFWLFHV ([FHSWLRQDO &KLOGUHQ f 2n5HLOO\ ) ( 6WDWH 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV DQG WKH 8VH RI 6HSDUDWH 3ODFHPHQWV IRU 6WXGHQWV ZLWK 'LVDELOLWLHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 'HPSVH\ DQG )XFKV VXSUD QRWH DW &6() VXSUD QRWH 6XSUD QRWH 2n5HLOO\ VXSUD QRWH DW 16WDW i $) f 1< &/6 (GXF i f 2n5HLOO\ VXSUD QRWH +DUWPDQ : 7 6XSSOHPHQWDO5HSODFHPHQW $Q $OWHUQDWLYH $SSURDFK WR ([FHVV &RVWV ([FHSWLRQDO &KLOGUHQ f
PAGE 197

+DUWPDQ VXSUD QRWH DW 3DUULVK f VXSUD QRWH 9HUVWHJHQ VXSUD QRWH DW DQG 'HPSVH\ DQG )XFKV VXSUD QRWH DW +DUWPDQ VXSUD QRWH DW 3DUULVK VXSUD QRWH DW 'HPSVH\ DQG )XFKV VXSUD QRWH DW DQG 0RRUH 0 7 :DONHU / DQG +ROODQG 5 3 )LQHWXQLQJ 6SHFLDO (GXFDWLRQ )LQDQFH $ *XLGH IRU 6WDWH 3ROLF\ 0DNHUV 3ULQFHWRQ 1HZ -HUVH\ (GXFDWLRQDO 7HVWLQJ 6HUYLFH f 2n5HLOO\ VXSUD QRWH 3DUULVK VXSUD QRWH DW 'HPSVH\ DQG )XFKV VXSUD QRWH DW DQG 7KRPSVRQ 'DYLG & 5 &UDLJ :RRG DQG 'DYLG + +RQH\PDQ )LVFDO /HDGHUVKLS IRU 6FKRROV &RQFHSWV DQG 3UDFWLFHV :KLWH 3ODLQV 1HZ
PAGE 198

,ELG &KDPEHUV HW DO VXSUD QRWH 3DUULVK VXSUD QRWH DW .UDQW] )XQGHG LQWR 3HUSHWXLW\ (GXFDWLRQ :HHN RQ WKH :HE DYDLODEOH IURP KWWSZZZHGZHHNRUTKWELQIDVWZHE"DHWGRFYLHZ HZOOZ$$$bb.UDQW]bb$1'bb.UDQW] bb$.(<:25'6b45bb.UDQW]b +DUSHU 6R G 3DUULVK VXSUD QRWH DW 0F/DXJKOLQ DQG :DUUHQ VXSUD QRWH DQG 9HUVWHJHQ VXSUD QRWH 86& ii H f 86& i f 86& i f 2IILFH RI 6SHFLDO (GXFDWLRQ 3URJUDPV 6HYHQWHHQWK $QQXDO 5HSRUW WR &RQJUHVV RQ WKH ,PSOHPHQWDWLRQ RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW >2QOLQH@ $YDLODEOH 2QOLQH IURP KWWSZZZHGDRY3XEV26(3 $QO5SWLQGH[KWPO 0F/DXJKOLQ DQG :DUUHQ VXSUD QRWH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f )HGHUDO 3ROLF\ 2SWLRQV IRU )XQGLQJ 6SHFLDO (GXFDWLRQ ,VVXH %ULHI 1R )DOO f 3DUULVK 7 % DQG 9HUVWHJHQ )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW 3ROLF\ ,VVXHV DQG $OWHUQDWLYHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f ,ELG 9HUVWHJHQ VXSUD QRWH .UDQW] VXSUD QRWH 3DUULVK 7 % DQG / 0RQWJRPHU\ 7KH 3ROLWLFV RI 6SHFLDO (GXFDWLRQ 5HIRUP LQ 7KUHH 6WDWHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f

PAGE 199

,ELG ,ELG +DUWPDQ VXSUD QRWH 0RRUH HW DO VXSUD QRWH +DUWPDQ VXSUD QRWH 6HH HJ +DUWPDQ VXSUD QRWHV &KDSWHU ,, +DUWPDQ VXSUD QRWH +LOO ) : ,QFOXVLRQ DQG $GPLQLVWUDWLYH 6WUXFWXUH 3XEOLF )XQGLQJ RI 6SHFLDO (GXFDWLRQ 6HUYLFHV $PHULFDQ 6FKRRO DQG 8QLYHUVLW\ f +DUWPDQ VXSUD QRWH DW 3$5& ) 6XSS 36 i f ($+&$ VXSUD QRWH 86& i Df f f 86& i Df f %f f &KLOGUHQ ZLWK GLVDELOLWLHV LQ SULYDWH VFKRROV DQG IDFLOLWLHV DUH SURYLGHG VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV LQ DFFRUGDQFH ZLWK DQ LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP DW QR FRVW WR WKHLU SDUHQWV LI VXFK FKLOGUHQ DUH SODFHG LQ RU UHIHUUHG WR VXFK VFKRROV RU IDFLOLWLHV E\ WKH 6WDWH RU DSSURSULDWH ORFDO HGXFDWLRQDO DJHQF\ DV WKH PHDQV RI FDUU\LQJ RXW WKH UHTXLUHPHQWV RI WKLV VXEFKDSWHU RU DQ\ RWKHU DSSOLFDEOH ODZ UHTXLULQJ WKH SURYLVLRQ RI VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV WR DOO FKLOGUHQ ZLWK GLVDELOLWLHV ZLWKLQ VXFK 6WDWH 0F4XDLQ 6DQGUD 6SHFLDO (GXFDWLRQ 3ULYDWH 3ODFHPHQWV )LQDQFLDO 5HVSRQVLELOLW\ 8QGHU WKH /DZ -RXUQDO RI (GXFDWLRQ )LQDQFH f +LOO VXSUD QRWH DQG 3DUULVK )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV VXSUD QRWH 86& i E f 3DUULVK )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ

PAGE 200

5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV VXSUD QRWH DW 3DUULVK DQG 9HUVWHJHQ VXSUD QRWH DW 6HH HJ /LSVN\ 'RURWK\ .HU]QHU DQG $ODQ *DUWQHU &DSDEOH RI $FKLHYHPHQW DQG :RUWK\ RI 5HVSHFW (GXFDWLRQ IRU +DQGLFDSSHG 6WXGHQWV $V ,I 7KH\ :HUH )XOO )OHGJHG +XPDQ %HLQJV ([FHSWLRQDO &KLOGUHQ f DQG $OJR]]LQH % DQG .RULQHN / :KHUH ,V 6SHFLDO (GXFDWLRQ IRU 6WXGHQWV ZLWK +LJK 3UHYDOHQFH +DQGLFDSV *RLQJ" ([FHSWLRQDO &KLOGUHQ f 2n5HLOO\ VXSUD QRWH 6DFN 6SHFLDO (GXFDWLRQ 'HVLJQDWLRQ 9DULHV :LGHO\ $FURVV &RXQWU\ (GXFDWLRQ :HHN f 3DUULVK DQG 9HUVWHJHQ VXSUD QRWH 7XUQEXOO VXSUD QRWH 0HOYLQ VXSUD QRWH DQG *ROGPDQ VXSUD QRWH 86& i Dff f &6() VXSUD QRWH DW 86& i If f 3DUULVK DQG 9HUVWHJHQ VXSUD QRWH 86& i 86& i 86& i 86& i Dff'f f Df f 'f f Dff%f f Df f f 3DUULVK 7 % ,QWHUYLHZ DW WKH $PHULFDQ (GXFDWLRQ )LQDQFH $VVRFLDWLRQ &RQIHUHQFH 0RELOH $ODEDPD f 7KH IHGHUDO VKDUH DFFRUGLQJ WR 3DUULVK ZDV SUREDEO\ QRW ODUJH HQRXJK WR VLJQLILFDQWO\ LQIOXHQFH SODFHPHQW GHFLVLRQV 1HYHUWKHOHVV 3DUULVK GHVFULEHG WKLV SROLF\ FKDUDFWHULVWLF DV W\SLFDO RI IHGHUDO ILQDQFH SROLF\ LQFRQJUXLW\ 86& i Dff%f f

PAGE 201

,'(/5 f ,ELG DW 86& ii f ,'(/5 f &)5 i DQG ii f 3DUULVK )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH )LQDQFH f ,'(/5 f ,ELG ,'(/5 f ,ELG 86& i Hff f 86& i EffDf f 86& i Dff%f f 86& i Hff%fLLf f ,'(/5 f ,Q 1HZ 0H[LFR SHUFHQW RI VSHFLDO HGXFDWLRQ RSHUDWLRQ IXQGV FDPH IURP WKH VWDWH ORFDO UHYHQXHV FRPSULVHG OHVV WKDQ SHUFHQW &)5 i f ,'(/5 f 7KH SXUSRVH RI WKLV FRPSRQHQW RI WKH SROLF\ DQDO\VLV ZDV WR SURYLGH VLPSOH GHVFULSWLYH VWDWLVWLFV RQ WKH VWDWXV RI VSHFLDO HGXFDWLRQ IXQGLQJ FKDUDFWHULVWLFV LQ WKH VWDWHV 7KLV DVSHFW RI WKH DQDO\VLV UHOLHG WR D JUHDW H[WHQW RQ UHVHDUFK FRQGXFWHG E\ WKH &6() VSHFLILFDOO\ WKH VWDWH GHVFULSWLRQV RI VWDWH IXQGLQJ DQG WKH &6() GLDJUDP 6SHFLDO (GXFDWLRQ )XQGLQJ LQ WKH 6WDWHV 7KH SXUSRVH RI WKH V\QWKHVLV RI GDWD ZDV VROHO\ WR RUJDQL]H WKH &6() PDWHULDO IRU

PAGE 202

GHVFULSWLYH VWDWLVWLFDO VWDWHPHQWV 7KHVH GDWD ZHUH FRQILUPHG E\ WKLV UHVHDUFKHUnV OHJDO DQDO\VLV RI VWDWH VWDWXWHV 1RWKLQJ LQ WKLV SROLF\ DQDO\VLV VKRXOG LQIHU WKDW WKH GDWD ZHUH FROOHFWHG VROHO\ E\ WKH DXWKRU

PAGE 203

&+$37(5 $ 02'(/ 3/$&(0(17 1(875$/,7< 32/,&< )25 7+( )('(5$/ *29(510(17 )RUHFDVWLQJ(YDOXDWLRQ RI 3ROLF\5HOHYDQW 'DWD 7KH SDUDGR[ RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW ,'($f ZDV HYLQFHG E\ WKH SROLF\ DQG OHJDO DQDO\VLV RXWOLQHG LQ &KDSWHU ,9 7KH SROLF\ DQDO\VLV UHYHDOHG WKDW WKH ,'($ ZDV LQLWLDOO\ GHVLJQHG WR LGHQWLI\ PLOOLRQV RI H[FOXGHG FKLOGUHQ ZLWK VSHFLDO QHHGV +LVWRULFDO DQG OHJDO GDWD GRFXPHQWHG Df VWDWH SURJUDPV WKDW ZHUH XQUHVSRQVLYH WR WKH QHHGV RI VWXGHQWV ZLWK GLVDELOLWLHV Ef FRXUW GHFLVLRQV WKDW VHFXUHG WKH ULJKW WR HTXLWDEO\ IXQGHG VSHFLDO HGXFDWLRQ SURJUDPV Ff VHJUHJDWLRQ DQG UHVWULFWLYH SODFHPHQWV WKDWLQ WKH DEVHQFH RI GXHSURFHVVYLRODWHG FLYLO OLEHUWLHV DQG Gf WKH QHHG IRU IHGHUDO SURWHFWLRQ RI WKH TXDVLVXVSHFW FODVV RI VWXGHQWV ZLWK GLVDELOLWLHV 7KH ,'($ JXLGHG WKH VWDWHV LQWR D QHZ HUD FKDUDFWHUL]HG E\ Df DQ HVWLPDWHG SHUFHQWDJH RI XQLGHQWLILHG VWXGHQWV ZLWK GLVDELOLWLHV Ef D SHUFHQW

PAGE 204

LQFUHDVH LQ LGHQWLILHG FKLOGUHQ ZLWK GLVDELOLWLHV UHFHLYLQJ VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV VLQFH Ff WKH TXDOLWDWLYH QDWXUH RI HOLJLELOLW\ DQG SODFHPHQW PHWKRGV DQG Gf VWDWH IXQGLQJ SROLFLHV WKDW KDYH WKUHDWHQHG WKH OHDVW UHVWULFWLYH HQYLURQPHQW /5(f WKURXJK ILVFDO LQFHQWLYHV 6XPPDU\ RI )LQGLQJV 7KH ILVFDO SDUDGR[ ZDV GHVFULEHG DV D IXQGDPHQWDO SROLF\ VKLIW IURP WKH FULVLV RI VHJUHJDWLRQ DQG XQGHUn LGHQWLILFDWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV WR WKH SUROLIHUDWLRQ RI ILVFDO LQFHQWLYHV DQG WKH RYHUn LGHQWLILFDWLRQ RI VWXGHQWV LQ VSHFLDO HGXFDWLRQ 6SHFLDO HGXFDWLRQ SODFHPHQW LQFHQWLYHV ZHUH GHWHUPLQHG WR EH D FRQIOLFW RI &RQVWLWXWLRQDO GLPHQVLRQ WKDW ZHUH EHVW DGGUHVVHG E\ WKH MXULVGLFWLRQ RI IHGHUDO ODZ 6SHFLDO HGXFDWLRQ SODFHPHQWV WKDW ZHUH EDVHG RQ SROLF\ FKDUDFWHULVWLFVUDWKHU WKDQ WUXH QHHGLQGLFDWHG SURIRXQG SROLF\ SUREOHPV 7KHVH SUREOHPV LQFOXGHG Df WKH GLVWXUEDQFH RI FLYLO OLEHUWLHV Ef WKH PLVFODVVLILFDWLRQ RI VWXGHQWV LQWR LQDSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV

PAGE 205

Ff HGXFDWLRQDO VSHQGLQJ WKDW GLG QRW DFFRUG ZLWK FRQWHPSRUDU\ ILQDQFH HTXLW\ WKHRU\ ,QWHUSUHWDWLRQ RI 6WDWH 6SHFLDO (GXFDWLRQ )LQDQFH 6WDWXWHV %HIRUH DQ\ LQWHUSUHWDWLRQV FRXOG EH PDGH IURP WKH VWDWH IXQGLQJ IRUPXOD GDWD WKH UHVHDUFKHU DVVHUWHG WKDW WKH SURSHQVLW\ IRU SODFHPHQW ELDVHG IXQGLQJ GLG QRW HTXDWH WR GH MXUH YLRODWLRQ RI SODFHPHQW QHXWUDOLW\ 7KH OLWHUDWXUH VXSSRUWHG WKH REVHUYDWLRQ WKDW SODFHPHQW ELDVHG IXQGLQJ ZDV EDVHG RQ D QXPEHU RI YDULDEOHV 7KHVH YDULDEOHV ZHUH GHWHUPLQHG E\ Df WKH SROLWLFDO EDVH RI WKH VWDWH Ef VWDWXV RI VSHFLDO HGXFDWLRQ UHIRUP Ff WKH HFRQRPLF FRQWH[W RI WKH VWDWH HGXFDWLRQDO V\VWHP DQG Gf WKH UDQJH RI VSHFLDO HGXFDWLRQ VHUYLFH FRQILJXUDWLRQ 7KH SXUSRVH RI WKH VWXG\ ZDV WR SURYLGH D FRPSUHKHQVLYH DQDO\VLV RI IHGHUDO SODFHPHQW QHXWUDOLW\ SROLF\ DQG LI QHFFHVDU\ D UHYLVHG SROLF\ PRGHO IRU WKH IHGHUDO JRYHUQPHQW 7KLV JRDO ZDV GLVSRVHG WR JHQHUDOL]DWLRQV EDVHG RQ Df IXQGLQJ IRUPXOD DQG Ef IXQGLQJ EDVH RQO\ 7KH DQDO\VLV RI VWDWH IXQGLQJ VWDWXWHV UHYHDOHG VLJQLILFDQW SROLF\ ILQGLQJV )LUVW IXQGLQJ EDVLV RI SODFHPHQW SODFHPHQW DQG GLVDELOLW\ DQG GLVDELOLW\

PAGE 206

DFFRXQWHG IRU SHUFHQW RI DOO SXSLOZHLJKWHG IRUPXOD SURJUDPV 3ODFHPHQW DQG GLVDELOLW\ IXQGLQJ EDVHV DFFRXQWHG IRU SHUFHQW RI DOO VSHFLDO HGXFDWLRQ IXQGLQJ EDVHV $ODEDPD $ODVND $UL]RQD $UNDQVDV )ORULGD *HRUJLD +DZDLL ,QGLDQD ,RZD .HQWXFN\ 0DU\ODQG 1HZ +DPSVKLUH 1HZ -HUVH\ 1HZ 0H[LFR 1HZ
PAGE 207

IXQGLQJ FRXOG YLRODWH WKH /5( LI SODFHPHQW GHFLVLRQV Df ZHUH QRW EDVHG XSRQ LQGLYLGXDO VWXGHQW QHHGV DQG Ef FODVVLILHG VWXGHQWV ZLWK DQG ZLWKRXW GLVDELOLWLHV LQWR LQDSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV ZLWKRXW GXH SURFHVV 7KH FRPSUHKHQVLYH DQDO\VLV RI UHVRXUFHEDVHG IXQGLQJ W\SRORJLHV ZDV OHVV UHYHDOLQJ 7KH VWDWXWRU\ GDWD LQGLFDWHG WKDW SHUFHQW RI VWDWHV XWLOL]HG UHVRXUFHEDVHG IXQGLQJ $FFRUGLQJ WR WKH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f UHVRXUFHEDVHG IXQGLQJ GHPRQVWUDWHG WKH SURSHQVLW\ IRU SODFHPHQW ELDV RQ WKH JURXQGV WKDW H[SHQGLWXUHV IRU FRVWOLHU UHVWULFWLYH SODFHPHQWV ZHUH WUDQVIHUUHG WR IXQGLQJ GLIIHUHQWLDOV 7KLV LQ WXUQ FUHDWHG ILVFDO LQFHQWLYHV IRU UHVWULFWLYH VHWWLQJV WKDW RSSRVHG WKH GRFWULQH RI WKH /5( 7KH GDWD LQGLFDWHG WKDW SHUFHQW RI UHVRXUFHEDVHG VWDWHV XWLOL]HG FODVVURRP XQLW EDVHV 7KLV FDWHJRU\ UHSUHVHQWHG VHWWLQJVSHFLILF IXQGLQJ EDVHV WKDW DOVR MHRSDUGL]HG WKH /5( 0RUHRYHU SHUFHQW RI UHVRXUFHEDVHG VWDWHV XWLOL]HG IXQGLQJ EDVHG XSRQ VSHFLDO HGXFDWLRQ VWDII 7KLV ZRXOG SUHVHQW OHVV FRQFHUQ IRU SODFHPHQW QHXWUDOLW\ GHSHQGLQJ RQ WKH VHUYLFH FRQILJXUDWLRQ

PAGE 208

RI VSHFLDO HGXFDWLRQ SURJUDPV )RU H[DPSOH LI IXQGLQJ IROORZHG VWXGHQWV LQWR WKH JHQHUDO HGXFDWLRQ SURJUDP WKURXJK WKH VDODU\ RI D UHVRXUFHWHDP WHDFKHU WKLV UHVRXUFHEDVHG FDWHJRU\ ZRXOG SRVH D VXERUGLQDWH FRQFHUQ IRU SODFHPHQW QHXWUDOLW\ 7KH OLWHUDWXUH HYLQFHG WKDW DQ LQFHQWLYHIUHH IXQGLQJ V\VWHP ZDV D SUDFWLFDO LPSUREDELOLW\ )XUWKHUPRUH WKH GDWD UHYHDOHG IRUW\ SRVVLEOH IXQGLQJ FRPELQDWLRQV IRUPXOD FDWHJRULHV r IXQGLQJ EDVHVf 7KLV ZLGH YDULDWLRQ LQ IXQGLQJ PHWKRGRORJ\ VXJJHVWHG WKDW Df ZLGHVSUHDG V\VWHPLF ILQDQFH UHIRUP ZDV XQQHFHVVDU\ DQG LPSUDFWLFDO Ef PDQ\ VWDWHV XWLOL]HG IRUPXODV DQG IXQGLQJ EDVHV ZKLFK UHSUHVHQWHG RQO\ VXERUGLQDWH WKUHDWV WR SODFHPHQW QHXWUDOLW\ DQG Ff &RQJUHVV PXVW WDUJHW VSHFLILF IXQGLQJ W\SRORJLHV DQG EDVHV WR SXQFWXDWH D IRUPDO SROLF\ IRU SODFHPHQW QHXWUDOLW\ &RQJUHVV LQWHQGHG WKDW JULHYDQFHV UHODWHG WR WKH /5( ZHUH EHVW DGGUHVVHG DW WKH ORFDO OHYHO LQ RUGHU WR FRQVLGHU WKH LQGLYLGXDO QHHGV RI HDFK FKLOG +RZHYHU WKH GHWHUPLQDWLRQ RI SODFHPHQW ELDV DW WKH ORFDO GXHSURFHVV OHYHO ZDV SUREOHPDWLF WKH LQFHQWLYHV IRU SODFHPHQW ELDV

PAGE 209

ZHUH PRUH DVVRFLDWHG ZLWK VWDWH SROLF\ FKDUDFWHULVWLFV WKDQ ZLWK ORFDO SURJUDP FKDUDFWHULVWLFV 3ODFHPHQW ELDV ZDV GHVFULEHG E\ +DUWPDQ DV D SROLF\ FKDUDFWHULVWLF WKDWHLWKHU SXUSRVHO\ RU LQDGYHUWHQWO\ FUHDWHG ILVFDO LQFHQWLYHV IRU PRUH UHVWULFWLYH SODFHPHQWV 7KH OHJDO DQG SROLF\ DQDO\VLV UHYHDOHG WKDW VWDWH DQG IHGHUDO JRYHUQPHQWV SRVVHVVHG DQ DGPLQLVWUDWLYH DGYDQWDJH WR DGGUHVV WKHVH SROLF\ VKRUWFRPLQJV 7KHVH JRYHUQPHQWDO ERGLHV FRXOG Df PRQLWRU LGHQWLILFDWLRQ UDWHV Ef DVVHVV VWDWXWRU\ SURYLVLRQV WKDW HLWKHU SURPRWH RU GR QRW SURKLELW SODFHPHQW ELDV DQG Ff DPHQG VWDWH ILQDQFH FKDUDFWHULVWLFV WKDW WKUHDWHQ WKH /5( 7KHUHIRUH WKH SROLF\ DQDO\VLV FRQFXUUHG ZLWK FRQWHPSRUDU\ VWDUH GHFLVLV WKDW SROLF\ SUREOHPV ZRXOG EH VXLWDEO\ DGGUHVVHG DW WKH VWDWH RU IHGHUDO OHJLVODWXUHV 5DQNLQJ RI 3ROLF\ ,VVXHV DQG $OWHUQDWLYHV 7KH UHVHDUFKHU DQDO\]HG YDULRXV SROLF\UHOHYDQW LQIRUPDWLRQ VRXUFHV DQG GHULYHG D VHW RI SROLF\ LVVXHV DQG DOWHUQDWLYHV :HLJKWHG IXQGLQJ V\VWHPV ZHUH PRVW OLNHO\ WR EH EDVHG RQ VHWWLQJ RU SODFHPHQW DQG GLVDELOLW\ 7KHVH

PAGE 210

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

PAGE 211

LQDSSURSULDWH PHWKRGV WKURXJK IHGHUDO DQG VWDWH OHJLVODWLYH VDQFWLRQ DQG UHIRUP 7KH QDWXUDO GLVWULEXWLRQ RI WKH JHQHUDO VWXGHQW SRSXODWLRQ LV D SUHFRQGLWLRQ IRU WKH /5( DQG QRUPDOL]HG HGXFDWLRQDO VHWWLQJV :KHWKHU VSHFLDO HGXFDWLRQ VWXGHQWV DUH RYHU RU XQGHU LGHQWLILHG D QRUPDOL]HG VHWWLQJ LV FRPSOLFDWHG E\ DQ\ GLVSURSRUWLRQ LQ WKH JHQHUDO VWXGHQW SRSXODWLRQ ,QFOXVLRQWKH FKLHI PRGDOLW\ RI VSHFLDO HGXFDWLRQ HTXLW\LV KLQGHUHG E\ WKH Df XQGHUUHSUHVHQWDWLRQ RU Ef RYHUUHSUHVHQWDWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV )HGHUDO SURJUDP FDSV DUH PRUH V\PEROLF PHDVXUHV WKDQ HIIHFWLYH SODFHPHQW QHXWUDO SROLFLHV 7KH SHUFHQW OLPLW RQ LGHQWLILHG VSHFLDO HGXFDWLRQ VWXGHQWV RQO\ SHUWDLQV WR WKH IHGHUDO VKDUH RI UHLPEXUVHPHQW 7KLV VKDUH DFFRXQWHG IRU RQO\ SHUFHQW RI WRWDO VSHFLDO HGXFDWLRQ IXQGV LQ )< $FFRUGLQJ WR DQ LQWHUYLHZ ZLWK 3DUULVK WKH LVVXH RI IHGHUDO ILVFDO LQFHQWLYHV LV D VXERUGLQDWH

PAGE 212

RQH 7KH JUHDWHVW LPSDFW RI ILVFDO LQFHQWLYHV LV GHWHUPLQHG DW WKH VWDWH OHYHO 3URYLVLRQV RI IHGHUDO ODZ VKRXOG UHIOHFW HYDOXDWLRQ DVVHVVPHQW DQG HOLJLELOLW\ JRDOV WKDW DUH EDVHG SULPDULO\ XSRQ WKH LQGLYLGXDO QHHGV RI VWXGHQWV ZLWK GLVDELOLWLHV )HGHUDO ODZ VKRXOG SULRULWL]H WKH JRDOV RI DVVHVVPHQW DQG HYDOXDWLRQ 7KH FXUUHQW ODZ GRHV QRW GHWHUPLQH WKH TXDOLWDWLYH GLIIHUHQFH EHWZHHQ SURFHGXUHV IRU WKH Df FODVVLILFDWLRQ RI GLVDELOLW\ DQG Ef GHWHUPLQDWLRQ RI LQGLYLGXDO VWXGHQW QHHGV 7KH IHGHUDO JRYHUQPHQW VKRXOG FODULI\ LWV SRVLWLRQ RQ SODFHPHQW QHXWUDOLW\ 7KH ,'($ ZDV WKH ILUVW GUDIW WR EURDGO\ DGGUHVV WKH LPSDFW RI RYHUn LGHQWLILFDWLRQ +RZHYHU D FRQJUHVVLRQDO VHQVLWLYLW\ IRU GLVSURSRUWLRQ LQ VSHFLDO HGXFDWLRQ ZDV HYLQFHG E\ KLVWRULFDO GRFXPHQWV IURP WKH V 7KH JRYHUQPHQW QHHGV WR FODULI\ Df WKH UHODWLRQVKLS EHWZHHQ ODEHOV VRFLDO VWLJPD DQG LQDSSURSULDWH VSHFLDO HGXFDWLRQ SURJUDPV Ef WKH VSHFLILF &RQVWLWXWLRQDO LPSOLFDWLRQV RI RYHU

PAGE 213

LGHQWLILFDWLRQ DQG Ff D IRUPDO PDQGDWH IRU WUDQVLWLRQ WR SODFHPHQW QHXWUDO SROLFLHV $ UHYLHZ RI FRQWHPSRUDU\ VSHFLDO HGXFDWLRQ ILQDQFH OLWHUDWXUH VXJJHVWV WKDW IHGHUDO VSHFLDO HGXFDWLRQ ODZ VKRXOG LPSHO Df DSSURSULDWH VHUYLFH FRQILJXUDWLRQV DQG Ef ILVFDO SROLFLHV $FFRUGLQJ WR 3DUULVK SURJUDP SROLF\ VKRXOG DFWXDWH ILVFDO SROLF\ QRW WKH UHIOH[LYH )LVFDO FKDUDFWHULVWLFV RI WKH ,'($ VKRXOG QRW GHWHUPLQH WKH Df REMHFWLYHV RU Ef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

PAGE 214

DV VRRQ DV IHDVLEOH WR HQVXUH WKDW VXFK PHFKDQLVP GRHV QRW UHVXOW LQ VXFK SODFHPHQWV 7KLV SURYLVLRQ GRHV QRW LPSRVH Df FRPSUHKHQVLYH SURKLELWLYH JXLGHOLQHV Ef IRUPDO GHDGOLQHV Ff SROLF\ DOWHUQDWLYHV RU Gf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f )LQGLQJV VKRXOG EH DPHQGHG WR LQFOXGH f &RQJUHVV KDV LQGLFDWHG D

PAGE 215

VHQVLWLYLW\ WR WKH RYHULGHQWLILFDWLRQ RI VWXGHQWV LQ VSHFLDO HGXFDWLRQ DQG UHFRJQL]HV WKDW D VKDUH RI JURZWK LQ VSHFLDO HGXFDWLRQ PD\ EH UHODWHG WR WKH SUROLIHUDWLRQ RI ILVFDO LQFHQWLYHV IRU FRVWOLHU SODFHPHQWV DQG f )XQGLQJ EDVHG XSRQ VHWWLQJ DQG SODFHPHQW KDV LQGLFDWHG WKH SURSHQVLW\ IRU Df GLVWXUEDQFH RI FLYLO OLEHUWLHV Ef LQDSSURSULDWH HGXFDWLRQDO SURJUDPV Ff DQG GLVSURSRUWLRQ RI VWXGHQWV ZLWK GLVDEOHG FODVVLILFDWLRQV 6HF 'HILQLWLRQV VKRXOG EH DPHQGHG WR LQFOXGH f n3ODFHPHQW QHXWUDOn PHDQV DQ\ ILVFDO SROLF\ WKDW GRHV QRW SURPRWH IXQGLQJ RQ WKH EDVLV RI PRUH UHVWULFWLYH VHWWLQJV DQG SODFHPHQWV 6HF 6WDWH (OLJLELOLW\ VKRXOG EH DPHQGHG WR LQFOXGH Dff%fLLLf 7LPHOLQH ,I WKH 6WDWH GRHV QRW KDYH SROLFLHV WKDW HQVXUH FRPSOLDQFH ZLWK FODXVH Lf DQG WKH 6WDWH (GXFDWLRQDO $JHQF\ KDV VXEPLWWHG D OHWWHU RI DVVXUDQFH WR WKH 6HFUHWDU\ ZLWKLQ RQH f

PAGE 216

ILVFDO \HDU WKH 6WDWH ZLOO EH UHTXLUHG WR VXEPLW D IRUPDO WUDQVLWLRQ SODQ WKDW LQFOXGHV SURYLVLRQ IRU SODFHPHQW QHXWUDO VDIHJXDUGV DOWHUQDWLYH IXQGLQJ PHWKRGV DQGRU RWKHU VSHFLILF DVVXUDQFHV WKDW SODFHPHQW ELDVHG IXQGLQJ ZLOO EH PLQLPL]HG DQG f&f 6WDWHV ZLOO FROOHFW DQG VXEPLW GDWD WR WKH 6HFUHWDU\ RQ DQ\ LQFUHDVHV LQ LGHQWLILFDWLRQ RI VWXGHQWV ZLWK GLVDELOLWLHV IRU WKH SXUSRVHV RI PRQLWRULQJ VHFWLRQ Dff%fLLLLf 6HF (YDOXDWLRQV HOLJLELOLW\ GHWHUPLQDWLRQV LQGLYLGXDOL]HG HGXFDWLRQ SURJUDPV DQG HGXFDWLRQDO SODFHPHQWV VKRXOG EH DPHQGHG WR LQFOXGH %fLf IRUHPRVW GHWHUPLQH WKH HGXFDWLRQDO QHHGV RI D FKLOG ZLWK D GLVDELOLW\ DQG %fLLf IRU VXERUGLQDWH SXUSRVHV RQO\ WR GHWHUPLQH ZKHWKHU D FKLOG LV D FKLOG ZLWK D GLVDELOLW\ DV GHILQHG LQ VHFWLRQ f RI WKLV WLWOHf

PAGE 217

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nV SROLWLFDO HFRQRPLF DQG OHJLVODWLYH QHHGV 6SHFLDO HGXFDWLRQ ILQDQFH UHIRUP ZDV QRW LQGLFDWHG IRU VWDWHV WKDW XWLOL]HG DGHTXDWH PHWKRGV RI IXQGLQJ +RZHYHU IHGHUDO VWDWXWHV ZLWK D FOHDU REMHFWLYH DQG WLPHOLQH IRU

PAGE 218

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

PAGE 219

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f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

PAGE 220

SURFHGXUHV SULPDULO\ IRU WKH GHWHUPLQDWLRQ RI HGXFDWLRQDO QHHGV 0RUHRYHU 6WDWH (GXFDWLRQDO $JHQFLHV 6($f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

PAGE 221

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

PAGE 222

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

PAGE 223

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f GLVWULFW LGHQWLILFDWLRQ SURFHGXUHV DQG Ef WKH PDQQHU LQ ZKLFK VWDWH HYDOXDWLRQ SROLFLHV MHRSDUGL]H WKH /5( ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii f@ ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW $PHQGPHQWV 3/ f /D3ODQWH % / + 6 .D\H DQG 0 3 /D3ODQWH 'LVDELOLW\ LQ WKH 8QLWHG 6WDWHV 3UHYDOHQFH DQG &DXVHV :DVKLQJWRQ '& 86 'HSDUWPHQW RI (GXFDWLRQ 1DWLRQDO ,QVWLWXWH RQ 'LVDELOLW\ DQG 5HKDELOLWDWLRQ 5HVHDUFK f DW 9HUVWHJHQ $ &RQVROLGDWLQJ 6SHFLDO (GXFDWLRQ )XQGLQJ DQG 6HUYLFHV $ )HGHUDO 3HUVSHFWLYH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f

PAGE 224

6HH HJ 0F&DUWK\ (LOHHQ DQG 'DQLHO 6DJH 6WDWH 6SHFLDO (GXFDWLRQ )LVFDO 3ROLF\ 7KH 4XHVW IRU (TXLW\ ([FHSWLRQDO &KLOGUHQ f %RVFDUGLQ 0DU\ /\QQ /RFDO/HYHO 6SHFLDO (GXFDWLRQ 'XH3URFHVV +HDULQJV &RVW ,VVXHV 6XUURXQGLQJ ,QGLYLGXDO 6WXGHQW 'LIIHUHQFHV -RXUQDO RI (GXFDWLRQ )LQDQFH f DQG
PAGE 225

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f DQG +DUWPDQ : 7 3ROLF\ (IIHFWV RI 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV -RXUQDO RI (GXFDWLRQ )LQDQFH f &RQJ 5HF f $Q\ SDUHQW RU JXDUGLDQ PD\ SUHVHQW D FRPSODLQW FRQFHUQLQJ DQ\ PDWWHU UHJDUGLQJ WKH LGHQWLILFDWLRQ HYDOXDWLRQ RU HGXFDWLRQDO SODFHPHQW RI WKH FKLOG RU WKH SURYLVLRQ RI D IUHH DSSURSULDWH SXEOLF HGXFDWLRQ WR VXFK FKLOG ,Q WKLV UHJDUG 0U 3UHVLGHQW ZRXOG OLNH WR VWUHVV WKDW WKH ODQJXDJH UHIHUULQJ WR nIUHH DSSURSULDWH HGXFDWLRQf KDV EHHQ DGRSWHG WR PDNH FOHDU WKDW D FRPSODLQW PD\ LQYROYH PDWWHUV VXFK DV TXHVWLRQV UHVSHFWLQJ D FKLOGnV LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP TXHVWLRQV RI ZKHWKHU VSHFLDO HGXFDWLRQ DQG UHODWHG VHUYLFHV DUH EHLQJ SURYLGHG ZLWKRXW FKDUJH WR WKH SDUHQWV RU JXDUGLDQV TXHVWLRQV UHODWLQJ WR ZKHWKHU WKH VHUYLFHV SURYLGHG D FKLOG PHHW WKH VWDQGDUGV RI WKH 6WDWH HGXFDWLRQ DJHQF\ RU DQ\ RWKHU TXHVWLRQ ZLWKLQ WKH VFRSH RI WKH GHILQLWLRQ RI nIUHH DSSURSULDWH SXEOLF HGXFDWLRQf ,Q DGGLWLRQ LW VKRXOG EH FOHDU WKDW D SDUHQW RU JXDUGLDQ PD\ SUHVHQW D FRPSODLQW DOOHJLQJ WKDW D 6WDWH RU ORFDO HGXFDWLRQ DJHQF\ KDV UHIXVHG WR SURYLGH VHUYLFHV WR ZKLFK D FKLOG PD\ EH HQWLWOHG RU DOOHJLQJ WKDW WKH 6WDWH RU ORFDO HGXFDWLRQDO DJHQF\ KDV HUURQHRXVO\ FODVVLILHG D FKLOG DV D KDQGLFDSSHG FKLOG ZKHQ LQ IDFW WKDW FKLOG LV QRW D KDQGLFDSSHG FKLOG +DUWPDQ : 7 3ROLF\ (IIHFWV RI 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV -RXUQDO RI (GXFDWLRQ )LQDQFH f %URZQ Y 7RSHND %RDUG RI (GXFDWLRQ 86 DW f 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS f 0LOOV Y %RDUG RI (GXFDWLRQ ) 6XSS f 3$5& ) 6XSS f 0LOOV ) 6XSS f 7KHVH WZR UXOLQJV LQLWLDWHG D VHULHV RI HTXDO SURWHFWLRQ VXLWV WKURXJKRXW WKH QDWLRQ %\ PLG WKH +RXVH RI 5HSUHVHQWDWLYHV UHSRUWHG WKDW RYHU IRUW\VL[ VXLWV ZHUH XQGHUZD\ LQ WZHQW\HLJKW VWDWHV (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW 3/ f >WUDQVIHUUHG WR 86& ii R f@

PAGE 226

86 +RXVH RI 5HSUHVHQWDWLYHV -XQH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ +RXVH RI 5HSUHVHQWDWLYHV 5HSRUW 1R DW 86& i Dff'f f &KDPEHUV 7 7 3DUULVK DQG /LHEHUPDQ :KDW $UH :H 6SHQGLQJ RQ 6SHFLDO (GXFDWLRQ LQ WKH 86" 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 86& i Df f %f ,LLf f &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f :KDW LV )DLU" 6SHFLDO (GXFDWLRQ DQG )LQDQFH (TXLW\ ,VVXH %ULHI 1R )DOO f 86& i Dff%fLLf f 86 +RXVH RI 5HSUHVHQWDWLYHV -XQH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ +RXVH RI 5HSUHVHQWDWLYHV 5HSRUW 1R DW 0DQGDWRU\ OHJLVODWLRQ ZKLFK KDV FKDUDFWHULVWLFDOO\ ODFNHG PHDQLQJIXO SURYLVLRQV IRU DFWXDO HQIRUFHPHQW KDV SURYHQ WR EH RI OLPLWHG YDOXH .DNDOLN 6 : 6 )XUU\ 0 $ 7KRPDV DQG 0 ) &DUQH\ 7KH &RVW RI 6SHFLDO (GXFDWLRQ $ 5DQG 1RWH 6DQWD 0RQLFD &DOLIRUQLD 5DQG &RUSRUDWLRQ f 0RRUH 0 7 6WUDQJ ( : 6FKZDUW] 0 t %UDGGRFN 0 3DWWHUQV LQ 6SHFLDO (GXFDWLRQ 'HOLYHU\ DQG &RVW :DVKLQJWRQ '& 'HFLVLRQ 5HVRXUFHV f 7DSSH 5 1LQHWHHQ 5HDVRQV :K\ 6SHFLDO (GXFDWLRQ 6KRXOG &RVW 0RUH 7KDQ 5HJXODU (GXFDWLRQ &RQIHUHQFH 3URFHHGLQJV RI WKH $PHULFDQ &RXQFLO RQ 5XUDO 6SHFLDO (GXFDWLRQ 6DOW /DNH &LW\ 8WDK $PHULFDQ &RXQFLO RQ 5XUDO 6SHFLDO (GXFDWLRQ f +DUWPDQ VXSUD QRWH :ROIHQVEHUJHU : 6RFLDO 5ROH 9DORUL]DWLRQ $ 3URSRVHG 1HZ WHUP IRU WKH 3ULQFLSOH RI 1RUPDOL]DWLRQ 0HQWDO 5HWDUGDWLRQ f 6DFN 6SHFLDO (GXFDWLRQ 'HVLJQDWLRQ 9DULHV :LGHO\ $FURVV &RXQWU\ (GXFDWLRQ :HHN f ,ELG /D3ODQWH HW DO VXSUD QRWH DW &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) 6 &W f DW 86& i Dff%f $GGLWLRQDO UHTXLUHPHQW Lf ,Q JHQHUDO ,I WKH 6WDWH XVHV D IXQGLQJ PHFKDQLVP E\ ZKLFK WKH 6WDWH GLVWULEXWHV 6WDWH IXQGV RQ WKH EDVLV RI WKH W\SH RI VHWWLQJ LQ ZKLFK D FKLOG LV VHUYHG WKH IXQGLQJ

PAGE 227

PHFKDQLVP GRHV QRW UHVXOW LQ SODFHPHQWV WKDW YLRODWH WKH UHTXLUHPHQWV RI VXESDUDJUDSK $f LLf $VVXUDQFH ,I WKH 6WDWH GRHV QRW KDYH SROLFLHV DQG SURFHGXUHV WR HQVXUH FRPSOLDQFH ZLWK FODXVH Lf WKH 6WDWH VKDOO SURYLGH WKH 6HFUHWDU\ DQ DVVXUDQFH WKDW LW ZLOO UHYLVH WKH IXQGLQJ PHFKDQLVP DV VRRQ DV IHDVLEOH WR HQVXUH WKDW VXFK PHFKDQLVPGRHV QRW UHVXOW LQ VXFK SODFHPHQWV +DUWPDQ : 7 6XSSOHPHQWDO5HSODFHPHQW $Q $OWHUQDWLYH $SSURDFK WR ([FHVV &RVWV ([FHSWLRQDO &KLOGUHQ f &6() /DQGPDUN &RXUW 'HFLVLRQ &KDOOHQJH 6WDWH 6SHFLDO (GXFDWLRQ )XQGLQJ ,VVXH %ULHI 1R f 6HH HJ 0F/DXJKOLQ 0 DQG 6 + :DUUHQ 5HVRXUFH ,PSOLFDWLRQV RI ,QFOXVLRQ ,PSUHVVLRQV RI 6SHFLDO (GXFDWLRQ $GPLQLVWUDWRUV DW 6HOHFWHG 6LWHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f DQG 9HUVWHJHQ $ &RQVROLGDWLQJ 6SHFLDO (GXFDWLRQ )XQGLQJ DQG 6HUYLFHV $ )HGHUDO 3HUVSHFWLYH 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 6WDLQEDFN : DQG 6WDLQEDFN 6 $ 5DWLRQDOH IRU WKH 0HUJHU 6SHFLDO DQG 5HJXODU (GXFDWLRQ ([FHSWLRQDO &KLOGUHQ f DQG $QWKRQ\ 3DWULFLD )LQDQFLQJ 6SHFLDO (GXFDWLRQ LQ DQ (UD RI )LVFDO 5HVWUDLQW 6FKRRO %XVLQHVV $IIDLUV f +DUSHU Y +XQW 6R G DW f 'H5ROSK Y 2KLR 2KLR 6W G 1(G f &DPEHOO Y 6WDWH RI :\RPLQJ 3G DW f +DUSHU 6R G &DPEHOO 3G DW f

PAGE 228

$33(1',; $ '(),1,7,216 $VVLVWLYH WHFKQRORJ\ $Q\ LWHP SLHFH RI HTXLSPHQW RU SURGXFW V\VWHP ZKHWKHU DFTXLUHG FRPPHUFLDOO\ RII WKH VKHOI PRGLILHG RU FXVWRPL]HG WKDW LV XVHG WR LQFUHDVH PDLQWDLQ RU LPSURYH IXQFWLRQDO FDSDELOLWLHV RI D FKLOG ZLWK D GLVDELOLW\ &KLOG ZLWK D GLVDELOLW\ $ FKLOG ZLWK PHQWDO UHWDUGDWLRQ KHDULQJ LPSDLUPHQWV LQFOXGLQJ GHDIQHVVf VSHHFK RU ODQJXDJH LPSDLUPHQWV YLVXDO LPSDLUPHQWV LQFOXGLQJ EOLQGQHVVf VHULRXV HPRWLRQDO GLVWXUEDQFH KHUHLQDIWHU UHIHUUHG WR DV nnHPRWLRQDO GLVWXUEDQFH nf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f 7KH WHUP nnIUHH DSSURSULDWH SXEOLF HGXFDWLRQf PHDQV VSHFLDO DQG UHODWHG VHUYLFHV WKDW KDYH EHHQ SURYLGHG DW SXEOLF H[SHQVH XQGHU SXEOLF VXSHUYLVLRQ DQG

PAGE 229

GLUHFWLRQ DQG ZLWKRXW FKDUJH PHHW WKH VWDQGDUGV RI WKH 6WDWH HGXFDWLRQDO DJHQF\ LQFOXGH DQ DSSURSULDWH SUHVFKRRO HOHPHQWDU\ RU VHFRQGDU\ VFKRRO HGXFDWLRQ LQ WKH 6WDWH LQYROYHG DQG DUH SURYLGHG LQ FRQIRUPLW\ ZLWK WKH LQGLYLGXDOL]HG HGXFDWLRQ SURJUDP UHTXLUHG XQGHU VHFWLRQ Gf RI WKH ,'($ /HDVW UHVWULFWLYH HQYLURQPHQW /5(f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f VKRXOG VWULNH D EDODQFH EHWZHHQ WKH GHIDXOW RI LQFOXVLRQ DQG DSSURSULDWH HGXFDWLRQDO DQG VRFLDO RSSRUWXQLWLHV ZKHUHYHU WKH\ PD\ EH H[LVW /RFDO HGXFDWLRQDO DJHQF\ /($f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

PAGE 230

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f DV PD\ EH UHTXLUHG WR DVVLVW D FKLOG ZLWK D GLVDELOLW\ WR EHQHILW IURP VSHFLDO HGXFDWLRQ DQG LQFOXGHV WKH HDUO\ LGHQWLILFDWLRQ DQG DVVHVVPHQW RI GLVDEOLQJ FRQGLWLRQV LQ FKLOGUHQ 6WDUH GHFLVLV 7KH GRFWULQH RI (QJOLVK DQG $PHULFDQ ODZ WKDW VWDWHV WKDW ZKHQ D FRXUW KDV H[SUHVVHG D SULQFLSOH RI ODZ DV DSSOLFDEOH WR D JLYHQ VHW RI IDFWV LW ZLOO IROORZ WKDW SULQFLSOH DQG DSSO\ LW LQ IXWXUH FDVHV ZKHQ WKH IDFWV DUH VXEVWDQWLDOO\ WKH VDPH 6WDWH HGXFDWLRQDO DJHQF\ 6($f 7KH 6WDWH ERDUG RI HGXFDWLRQ RU RWKHU DJHQF\ RU RIILFHU SULPDULO\ UHVSRQVLEOH IRU WKH 6WDWH VXSHUYLVLRQ RI SXEOLF HOHPHQWDU\ DQG VHFRQGDU\ VFKRROV RU LI WKHUH LV QR

PAGE 231

VXFK RIILFHU RU DJHQF\ DQ RIILFHU RU DJHQF\ GHVLJQDWHG E\ WKH *RYHUQRU RU E\ 6WDWH ODZ =HUR 5HMHFW 7KH SULQFLSOHXSKHOG LQ 3$5& WKDW DOO FKLOGUHQ ZLWK LGHQWLILHG VSHFLDO QHHGV DUH WR EH SURYLGHG D IUHH DQG DSSURSULDWH SXEOLF HGXFDWLRQ %RDUG RI (GXFDWLRQ Y 5RZOH\ 86 6 &7 / (' G f &6() )HGHUDO 3ROLF\ 2SWLRQV IRU )XQGLQJ 6SHFLDO (GXFDWLRQ ,VVXH %ULHI )DOO f 6HH HJ )UHGHULFN / Y 7KRPDV ) 6XSS (' 3D f DIInG )G G &LU f )LDONRZVNL Y 6KDSS ) 6XSS (' 3D f ,Q UH *+ 1:G 1' f 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS f

PAGE 232

$33(1',; % 0(7+2'6 2) 67$7( )81',1* )25 63(&,$/ ('8&$7,21 67$7( 6WDWXWH (PSRZHULQJ 6SHG )LQDQFH &XUUHQW )XQGLQJ )RUPXOD %DVLV RI $OORFDWLRQ ,OOLQRLV ,/&6 f 5HVRXUFHEDVHG $OORZDEOH FRVWV &DOLIRUQLD &DO (G &RGH i f 5HVRXUFHEDVHG &ODVVURRP XQLW 'HODZDUH 'HO & i Ff f 5HVRXUFHEDVHG &ODVVURRP XQLW 1HYDGD 1HY 5HY 6WDW $QQ i f 5HVRXUFHEDVHG &ODVVURRP XQLW 2KLR 25& $QQ f 5HVRXUFHEDVHG &ODVVURRP XQLW 7HQQHVVHH 7HQQ &RGH $QQ i 5HVRXUFHEDVHG &ODVVURRP XQLW 9LUJLQLD 9D &RGH $QQ i f 5HVRXUFHEDVHG &ODVVURRP XQLW :DVKLQJWRQ 5HY &RGH :DVK $5&:f i $ f 5HVRXUFHEDVHG &ODVVURRP XQLW .DQVDV .6$ i f 5HVRXUFHEDVHG 1XPEHU RI VSHFLDO HGXFDWLRQ VWDII 0LVVLVVLSSL 0LVV &RGH $QQ i f 5HVRXUFHEDVHG 1XPEHU RI VSHFLDO HGXFDWLRQ VWDII 0LVVRXUL 560R i f 5HVRXUFHEDVHG 1XPEHU RI VSHFLDO HGXFDWLRQ VWDII $UL]RQD $56 i f 3XSLO ZHLJKWV 'LVDEOLQJ FRQGLWLRQ )ORULGD )OD 6WDW i f 3XSLO ZHLJKWV 'LVDEOLQJ FRQGLWLRQ *HRUJLD 2&*$ i f 3XSLO ZHLJKWV 'LVDEOLQJ FRQGLWLRQ ,QGLDQD %XUQV ,QG &RGH $QQ i f 3XSLO ZHLJKWV 'LVDEOLQJ FRQGLWLRQ .HQWXFN\ .56 i f Ef f 3XSLO ZHLJKWV 'LVDEOLQJ FRQGLWLRQ 2NODKRPD 2NO 6W i f 3XSLO ZHLJKWV 'LVDEOLQJ FRQGLWLRQ 6RXWK 6 & &RGH $QQ i 3XSLO ZHLJKWV 'LVDEOLQJ &DUROLQD f FRQGLWLRQ

PAGE 233

+DZDLL +56 i $ f 3XSLO ZHLJKWV 3ODFHPHQW DQG &RQGLWLRQ 1HZ -HUVH\ 16WDW i $) f 3XSLO ZHLJKWV 3ODFHPHQW DQG FRQGLWLRQ $ODEDPD &RGH RI $OD i Eff'f f 3XSLO ZHLJKWV 3ODFHPHQW DQG FRQGLWLRQ 2UHJRQ 256 i $f f 3XSLO ZHLJKWV 6SHFLDO HGXFDWLRQ HQUROOPHQW 1HZ
PAGE 234

1RUWK &DUROLQD 1& *HQ 6WDW i & f )ODW JUDQW 6SHFLDO HGXFDWLRQ HQUROOPHQW :HVW 9LUJLQLD : 9D &RGH i $f f )ODW JUDQW 6SHFLDO HGXFDWLRQ HQUROOPHQW 0DU\ODQG 0G ('8&$7,21 &RGH $QQ i 'f f )ODW JUDQW 7RWDO GLVWULFW HQUROOPHQW 0DVVDFKXVHWWV 0DVV $QQ % i /DZV FK f )ODW JUDQW 7RWDO GLVWULFW HQUROOPHQW 0RQWDQD 0RQW &RGH $QQR i f )ODW JUDQW 7RWDO GLVWULFW HQUROOPHQW 3HQQV\OYDQLD 36 i f )ODW JUDQW 7RWDO GLVWULFW HQUROOPHQW 9HUPRQW 96$ i f )ODW JUDQW 7RWDO GLVWULFW HQUROOPHQW

PAGE 235

$33(1',; & )5(48(1&,(6 2) 67$7( )81',1* %< )81',1* 7<32/2*< $1' )81',1* %$6( 7DEOH 6WDWH )XQGLQJ *URXS E\ 3HUFHQWDJH )XQGLQJ 0HWKRG *URXS 1XPEHU 3HUFHQWDJH RI 6WDWHV 5HVRXUFH%DVHG 5%f 3XSLO :HLJKWHG 3:f 3HUFHQWDJH 5HLPEXUVHPHQW 35f )ODW *UDQWV )*f 7DEOH 3ODFHPHQW %DVHG &DWHJRU\ E\ 3HUFHQWDJH )XQGLQJ %DVH &DWHJRU\ 1XPEHU 1DWLRQDO 3HUFHQWDJH 3HUFHQWDJH ZLWKLQ 7\SRORJ\ $OO 3ODFHPHQW %DVHG 5% 3ODFHPHQW %DVHG 3: 3ODFHPHQW %DVHG 35 3ODFHPHQW %DVHG )* 3ODFHPHQW %DVHG 1RWH GDWD ZHUH DGDSWHG IURP WKH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f6SHFLDO (GXFDWLRQ )LQDQFH 5HIRUP LQ WKH 6WDWHV 3DOR $OWR &DOLIRUQLD &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH f 7KHVH GDWD ZHUH FRQILUPHG E\ WKLV UHVHDUFKHUnV OHJDO DQDO\VLV RI VWDWH VWDWXWHV

PAGE 236

7DEOH 3ODFHPHQW DQG 'LVDEOLQJ &RQGLWLRQ %DVHG &DWHJRU\ E\ 3HUFHQWDJH )XQGLQJ %DVH &DWHJRU\ 1XPEHU 1DWLRQDO 3HUFHQWDJH 3HUFHQWDJH ZLWKLQ 7\SRORJ\ $OO 3ODFHPHQW t &RQGLWLRQ %DVHG 5% 3ODFHPHQW t &RQGLWLRQ %DVHG 3: 3ODFHPHQW t &RQGLWLRQ %DVHG 35 3ODFHPHQW t &RQGLWLRQ %DVHG )* 3ODFHPHQW t &RQGLWLRQ %DVHG

PAGE 237

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f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &KDPEHUV DQG : 7 +DUWPDQ 6SHFLDO (GXFDWLRQ 3ROLFLHV 7KHLU +LVWRU\ ,PSOHPHQWDWLRQ DQG )LQDQFH 3KLODGHOSKLD 3HQQV\OYDQLD 7HPSOH 8QLYHUVLW\ 3UHVV

PAGE 238

&KDPEHUV 7 7 3DUULVK DQG /LHEHUPDQ :KDW $UH :H 6SHQGLQJ RQ 6SHFLDO (GXFDWLRQ LQ WKH 86" &6() 3ROLF\ %ULHI 1R f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f $ &RPSDULVRQ RI WKH 6DODULHV 3DLG WR )XOO7LPH 6SHFLDO (GXFDWLRQ 7HDFKHUV DQG 1RQ6SHFLDO (GXFDWLRQ 7HDFKHUV LQ WKH 86 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &UHPLQV /HJDO DQG 3ROLWLFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 6SULQJILHOG ,/ &KDUOHV & 7KRPDV 'DWD 5HVHDUK ,QF 6WXGHQWV ZLWK 'LVDELOLWLHV DQG 6SHFLDO (GXFDWLRQ 5RVHPRXQW 01 'DWD 5HVHDUFK ,QF 'XQQ : 3XEOLF 3ROLF\ $QDO\VLV $Q ,QWURGXFWLRQ (QJOHZRRG &OLIIV 13UHQWLFH+DOO (GXFDWLRQ &RPPLVVLRQ RI WKH 6WDWHV (&6f 6FKRRO )LQDQFH DW D *ODQFH 'HQYHU &2 (&6 3XEOLFDWLRQV )URKRFN ) 3XEOLF 3ROLF\ 6FRSH DQG /RJLF (QJOHZRRG &OLIIV 13UHQWLFH+DOO *ROW] / DQG 0 0 %HKUPDQQ *HWWLQJ WKH %XFN WR 6WRS +HUH $ *XLGH WR )HGHUDO 5HVRXUFHV IRU 6SHFLDO 1HHGV 5HVWRQ 9$ &RXQFLO IRU ([FHSWLRQDO &KLOGUHQ +HKLU 7 DQG 7 /DWXV 6SHFLDO (GXFDWLRQ DW WKH &HQWXU\nV (QG (YROXWLRQ RI 7KHRU\ DQG 3UDFWLFH 6LQFH &DPEULGJH 0$ +DUYDUG (GXFDWLRQDO 5HYLHZ -DFREVWHLQ 0 DQG 5 0 0HUVN\ (UYLQ + 3ROODFNnV )XQGDPHQWDOV RI /HJDO 5HVHDUFK 0LQHOD 1< )RXQGDWLRQ 3UHVV -RQHV 3 $ 3UDFWLFDO *XLGH WR )HGHUDO 6SHFLDO (GXFDWLRQ /DZ 1HZ
PAGE 239

3ROLF\ 6WXG\ 1R f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 0RQWJRPHU\ / $ 3URILOH RI 6SHFLDO (GXFDWLRQ )LQDQFH 5HIRUP LQ 9HUPRQW &6() 3ROLF\ 3DSHU 1R f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH ,PSDFW RI .HQWXFN\ (GXFDWLRQ 5HIRUP $FW RQ 6SHFLDO (GXFDWLRQ 3URJUDPV DQG 6HUYLFHV 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 0RRUH 0 7 / :DONHU DQG 5 3 +ROODQG )LQHWXQLQJ 6SHFLDO (GXFDWLRQ )LQDQFH $ *XLGH IRU 6WDWH 3ROLF\ 0DNHUV 3ULQFHWRQ 1(GXFDWLRQDO 7HVWLQJ 6HUYLFH 0RRUH 0 7 6WUDQJ ( : 6FKZDUW] 0 DQG %UDGGRFN 0 3DWWHUQV LQ 6SHFLDO (GXFDWLRQ 'HOLYHU\ DQG &RVW :DVKLQJWRQ '& 'HFLVLRQ 5HVRXUFHV (5,& 'RFXPHQW 5HSURGXFWLRQ 6HUYLFH 1R (' f 2n5HLOO\ ) ( 6WDWH 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV DQG WKH 8VH RI 6HSDUDWH 3ODFHPHQWV IRU 6WXGHQWV ZLWK 'LVDELOLWLHV 3ROLF\ 3DSHU 1R f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 2VERXUQH $ /HJDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ %RVWRQ 0$ $OO\Q DQG %DFRQ 3DUULVK 7 % )LVFDO ,VVXHV LQ 6SHFLDO (GXFDWLRQ 5HPRYLQJ ,QFHQWLYHV IRU 5HVWULFWLYH 3ODFHPHQWV &6() 3ROLF\ 3DSHU 1R f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 3DUULVK 7 % &ULWHULD IRU (IIHFWLYH 6SHFLDO (GXFDWLRQ )XQGLQJ )RUPXODV 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 5HVWUXFWXULQJ 6SHFLDO (GXFDWLRQ )XQGLQJ LQ 1HZ
PAGE 240

3DUULVK 7 % DQG / 0RQWJRPHU\ 7KH 3ROLWLFV RI 6SHFLDO (GXFDWLRQ 5HIRUP LQ 7KUHH 6WDWHV 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 3DUULVK 7 % DQG $ 9HUVWHJHQ )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW 3ROLF\ ,VVXHV DQG $OWHUQDWLYHV &6() 3ROLF\ 3DSHU 1R f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f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH )LVFDO 3URYLVLRQV RI WKH ,QGLYLGXDOV ZLWK 'LVDELOLWLHV $FW $ +LVWRULFDO 2YHUYLHZ &6() 3ROLF\ 3DSHU 1R f 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH 9HUVWHJHQ $ 7 3DUULVK DQG :ROPDQ $ /RRN DW &KDQJHV LQ WKH )LQDQFH 3URYLVLRQV IRU *UDQWV WR 6WDWHV 8QGHU WKH ,'($ $PHQGPHQWV RI 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH

PAGE 241

:DONHU / 3URFHGXUDO 5LJKWV LQ WKH :URQJ 6\VWHPV *DUWQHU $ DQG 7 -RH (GV ,PDJHV RI WKH 'LVDEOHG'LVDEOLQJ ,PDJHV 1< 3UDHJHU :HEHU 0 & 6SHFLDO (GXFDWLRQ /DZ DQG 7UHDWLVH +RUVKDP 3$ /53 3UHVV :HLQWUDXE ) $ $EHVRQ DQG %UDGGRFN 6WDWH /DZ DQG (GXFDWLRQ RI +DQGLFDSSHG &KLOGUHQ ,VVVXHV DQG 5HFRPPHQGDWLRQV $UOLQJWRQ 9$ &RXQFLO IRU ([FHSWLRQDO &KOGUHQ :LQ]HU 0$ +LVWRU\ RI 6SHFLDO (GXFDWLRQ IURP ,VRODWLRQ WR ,QWHJUDWLRQ :DVKLQJWRQ '& *DOODXGHW 3UHVV
PAGE 242

%RVFDUGLQ 0 / /RFDO/HYHO 6SHFLDO (GXFDWLRQ 'XH3URFHVV +HDULQJV &RVW ,VVXHV 6XUURXQGLQJ ,QGLYLGXDO 6WXGHQW 'LIIHUHQFHV -RXUQDO RI (GXFDWLRQ )LQDQFH &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f )DOO (VFDODWLQJ 6SHFLDO (GXFDWLRQ &RVWV 5HDOLW\ RU 0\WK" ,VVXH %ULHI 1R 3DOR $OWR &$ &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH &6()f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n)ODWn 9HUVXV n:HLJKWHGn 5HLPEXUVHPHQW )RUPXODV $ /RQJLWXGLQDO

PAGE 243

$QDO\VLV RI 6WDWHZLGH 6SHFLDO (GXFDWLRQ )XQGLQJ 3UDFWLFHV ([FHSWLRQDO &KLOGUHQ ('n6 3URSRVDOV IRU 5HDXWKRUL]DWLRQ RI ,'($ 7DUJHW )LQDQFLDO &RQFHUQV ,QGLYLGXDOV ZLWK 'LVDELOLWLHV /DZ 5HSRUW f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

PAGE 244

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n )LVFDO DQG 'HPRJUDSKLF 'DWD DQG WKH ,PSOHPHQWDWLRQ RI 3/ ([FHSWLRQDO &KLOGUHQ 0F/DXJKOLQ 0 ,QFUHDVLQJ 5HJXODWRU\ )OH[LELOLW\ RI 6SHFLDO (GXFDWLRQ 3URJUDPV 3UREOHPV DQG 3URPLVLQD 6WUDWHJLHV ([FHSWLRQDO &KLOGUHQ 0F4XDLQ 6 6SHFLDO (GXFDWLRQ 3ULYDWH 3ODFHPHQWV )LQDQFLDO 5HVSRQVLELOLW\ 8QGHU WKH /DZ -RXUQDO RI (GXFDWLRQ )LQDQFH 2GGHQ $ 6FKRRO )LQDQFH LQ WKH nV 3KL 'HOWD .DSSDQ 3URSRVHG ([FHVV &RVW )RUPXOD 'RHV 1RW &RPS\ ZLWK 3DUW % ,QGLYLGXDOV ZLWK 'LVDELOLWLHV /DZ 5HSRUW f 3URSRVHG &KDQJHV LQ ,'($ )XQGLQJ :RXOG %H %DVHG 8SRQ *HQHUDO 3RSXODWLRQ 5DWKHU 7KDQ 1XPEHU RI 6WXGHQWV 6HUYHG ,QGLYLGXDOV ZLWK 'LVDELOLWLHV /DZ 5HSRUW f 5H\QROGV 0 DQG 5RVHQ 7 6SHFLDO (GXFDWLRQ 3DVW 3UHVHQW DQG )XWXUH (GXFDWLRQDO )RUXP 6DFN 6SHFLDO (GXFDWLRQ 'HVLJQDWLRQ 9DULHV :LGHO\ $FURVV &RXQWU\ (GXFDWLRQ :HHN

PAGE 245

6WDIIRUG 5 7 (GXFDWLRQ IRU WKH +DQGLFDSSHG $ 6HQDWRUnV 3HUVSHFWLYH 9HUPRQW /HJDO 5HYLHZ 6KDSLUR 3 /RHE DQG %RZHUPDVWHU 'HFHPEHU 6HSDUDWH DQG 8QHTXDO 86 1HZV DQG :RUOG 5HSRUW 6LQJOHWDU\ ( )LQDQFH 7KDW :KLFK 0DNHV 6SHFLDO (GXFDWLRQ 3RVVLEOH -RXUQDO RI (GXFDWLRQ )LQDQFH 6WDIIRUG 5 (GXFDWLRQ IRU 7KH +DQGLFDSSHG $ 6HQDWRUnV 3HUVSHFWLYH 9HUPRQW /DZ 5HYLHZ 6WDLQEDFN : DQG 6WDLQEDFN 6 $ 5DWLRQDOH IRU WKH 0HUJHU 6SHFLDO DQG 5HJXODU (GXFDWLRQ ([FHSWLRQDO &KLOGUHQ 6WDWHV +DYH 6RPH )OH[LELOLW\ LQ ,PSOHPHQWLQJ 3DUW % 5HJXODWLRQV ,QGLYLGXDOV ZLWK 'LVDELOLWLHV /DZ 5HSRUW f 9HUVWHJHQ $ 7KH 1HZ :DYH RI 6FKRRO )LQDQFH /LWLJDWLRQ 3KL 'HOWD .DSSDQ :DOWHUV / DQG 6 'HFHPEHU 5LVLQJ &RVWV 3URPSW 6SHFLDO(G 6FUXWLQ\ &KULVWLDQ 6FLHQFH 0RQLWRU :ROIHQVEHUJHU : 6RFLDO 5ROH 9DORUL]DWLRQ $ 3URSRVHG 1HZ 7HUP IRU WKH 3ULQFLSOH RI 1RUPDOL]DWLRQ 0HQWDO 5HWDUGDWLRQ UHSHDOHG E\ 3/ f@ &LYLO 5LJKWV $FW RI 3/ f >FRGLILHG DW 86& ii GG f@ &RRSHUDWLYH 5HVHDUFK $FW 3/ f (GXFDWLRQ $PHQGPHQWV 3/ f

PAGE 246

(GXFDWLRQ 'HSDUWPHQW *HQHUDO $GPLQLVWUDWLYH 5HJXODWLRQV f >FRGLILHG DW &)5 ii f @ (GXFDWLRQ IRU $OO +DQGLFDSSHG &KLOGUHQ $FW 3/ f >WUDQVIHUUHG WR 86& ii R f @ (GXFDWLRQ RI WKH +DQGLFDSSHG $FW 3/ f (GXFDWLRQ RI WKH +DQGLFDSSHG $PHQGPHQWV RI 3/ f (GXFDWLRQ RI 0HQWDOO\ 5HWDUGHG &KLOGUHQ $FW 3/ >UHSHDOHG E\ 3/ f@ (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW $PHQGPHQWV 3/ f >UHSHDOHG E\ 3/ f@ (OHPHQWDU\ DQG 6HFRQGDU\ (GXFDWLRQ $FW 3/ f >FRGLILHG DV 86& ii H f@ ([SDQVLRQ RI 7HDFKLQJ LQ WKH (GXFDWLRQ RI 0HQWDOO\ 5HWDUGHG &KLOGUHQ $FW 3/ f ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW $PHQGPHQWV 3/ f ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW $PHQGPHQWV 3/ f ,QGLYLGXDOV ZLWK 'LVDELOLWLHV (GXFDWLRQ $FW DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f DPHQGHG E\ 3/ f >FRGLILHG DV DPHQGHG DW 86& ii R f@ 0HQWDO 5HWDUGDWLRQ )DFLOLWLHV DQG &RPPXQLW\ 0HQWDO +HDOWK FHQWHUV &RQVWUXFWLRQ $FW 3/ f 6HFWLRQ RI WKH 5HKDELOLWDWLRQ $FW f >FRGLILHG DV 86& ii f D f@ 6PLWK)HVV $FW 3/ f >FRGLILHG DV 86& i WUDQVIHUUHG WR 86& E f@ 7KH $PHULFDQV ZLWK 'LVDELOLWLHV $FW 3/ f >FRGLILHG DV 86& i f@ 7KH +DQGLFDSSHG &KLOGUHQnV 3URWHFWLRQ $FW 3/ f

PAGE 247

7KH 1DWLRQDO 'HIHQVH (GXFDWLRQ $FW 3/ f 7R 3URYLGH LQ 7KH 'HSDUWPHQW RI +(: $ /RDQ 6HUYLFH RI &DSWLRQHG )LOPV IRU 7KH 'HDI 3/ f 7R (QFRXUDJH ([SDQVLRQ RI 7HDFKLQJ LQ 7KH (GXFDWLRQ RI 0HQWDOO\ 5HWDUGHG &KLOGUHQ WKURXJK *UDQWV WR ,QVWLWXWLRQV RI +LJKHU /HDUQLQJ $QG WR 6WDWH (GXFDWLRQDO $JHQFLHV 3/ f 7KH *HQHUDO :HOIDUH &ODXVH 86 &RQVW $UW i FO 7KH &RPPHUFH &ODXVH 86 &RQVW $UW i FO 8QIXQGHG 0DQGDWHV 5HIRUP $FW 3/ f 86 &RQVW $UW ; 86 &RQVW $UW ;9, i 9RFDWLRQDO 5HKDELOLWDWLRQ $FW 3/ f >WUDQVIHUUHG WR 86& i E f@ &DVHV $EERWW Y %XUNH 1$G 1f $OOHQ Y 0F'RQRXJK 0DVV 6XSHU &W f $QGUHZV Y /HGEHWWHU )G WK &LU f %URZQ Y 7RSHND %RDUG RI (GXFDWLRQ 86 f %HDWWLH Y %RDUG RI (GXFDWLRQ 1: :LV f %LVPDUFN 3XEOLF 6FKRRO 'LVW Y 6WDWH 1:G 1' f %RDUG RI (GXFDWLRQ 2I &LQFLQQDWL Y :DOWHU 2KLR 6W G 1(G 2KLR f FHUW GHQLHG 86 6 &W / (G G f %RDUG RI (GXFDWLRQ /HYLWWRZQ Y 1\TXLVW 1
PAGE 248

&DPEHOO Y 6WDWH RI :\RPLQJ 3G f &HGDU 5DSLGV &RPPXQLW\ 6FKRRO 'LVWULFW Y *DUUHW ) 6 &W f &KDQGD 6PLWK Y /RV $QJHOHV 8QLILHG 6FKRRO 'LVWULFW 1R &9 /(: 'LVW &W &HQWUDO 'LVW ILOHG 0D\ f &KULVWRSKHU : Y 3RUWVPRXWK 6FKRRO &RPPLVVLRQ )G VW &LU f &URZGHU Y 5LOHV 1R &$ 6XSHU &W /RV $QJHOHV &R ILOHG 'HF f 'DYLV Y :\QHV 1R &9 6' *D ILOHG 0D\ f 'HSDUWPHQW RI (GXFDWLRQ Y %HQQHWW )G f 'HSDUWPHQW RI 3XEOLF :HOIDUH Y +DDV 1( QG ,OO f 'H5ROSK Y 2KLR 2KLR 6W G 1(G f 'XSUHH Y $OPD 6FKRRO 'LVWULFW 1R $UN 6:G $UN f 'XUDQW Y 6WDWH RI 0LFKLJDQ 0LFK $SS 1:G 1:G f (GJHZRRG ,QGHS 6FKRRO 'LVWULFW Y .LUE\ 6:G 7H[ f (YDQV Y 5KLQHEHFN &HQWUDO 6FKRRO 'LVWULFW ) 6XSS f )DLU 6FKRRO )LQDQFH &RXQFLO RI 2NODKRPD Y 6WDWH 3G 2NOD f )LDONRZVNL Y 6KDSS ) 6XSS (' 3D f )RUW =XPZDOW 6FKRRO 'LVWULFW Y 6WDWH RI 0LVVRXUL 6:G f )RZOHU Y 8QLILHG 6FKRRO 'LVWULFW 1R ) 6XSS .DQ f UHYnG )G WK &LUf FHUW JUDQWHG DQG YDFDWHG 6 &W f )UHGHULFN / 9 7KRPDV ) 6XSS (' 3D f DIInG )G G &LU f

PAGE 249

*DGVE\ Y 0DU\ODQG 6WDWH 'HSDUWPHQW RI (GXFDWLRQ )G f *RQ]DOH] Y 'HSDUWPHQW RI (GXFDWLRQ ) 6XSS f *RXOG Y 2UU 1HE 1:G 1HE f *UHHQ Y -RKQVRQ ) 6XSS 0DVV f *UHHU Y 5RPH &LW\ 6FKRRO 'LVWULFW )G WK &LU f ZLWKGUDZQ )G f +DUSHU Y +XQW 6R G f +D\HV Y 6WDWH RI &DOLIRUQLD &DO $SS WK &DO $SS f +HOHQD (OHPHQWDU\ 6FKRRO 'LVWLFW 1R Y 6WDWH 0RQW 3G 0RQW f +HOYHULQJ Y 'DYLV &U 6 6 &W f +HQGULFN +XGVRQ 'LVWULFW %RDUG RI (GXFDWLRQ Y 5RZOH\ 86 6 &W / (G G f +HQGULFNV Y *LOKRRO ) 6XSS (' 3D f +RUWRQ Y 0HVNLOO &RQQ $G &RQQ f ,Q UH *+ 1:G 1' f /DX Y 1LFKROV 86 f /LQFROQ ,QWHUPHGLDWH 8QLW 1R Y &RPPRQZHDOWK 3HQQV\OYDQLD &RPPRQZHDOWK $G f /RUD Y %RDUG RI (GXFDFWLRQ ) 6XSS ('1
PAGE 250

.DGUPDV Y 'LFNLQVRQ 3XEOLF 6FKRROV 1:G 1' f .XNRU Y *URYHU :LV G 1:G :LV f 0DUEXU\ Y 0DGLVRQ 86 %UDQFK / (G f 0DWWKHZV Y 'H&DVWUR 86 f 0F'DQLHO Y 7KRPDV *D 6(G *D f 0F'XII\ Y 6HFUHWDU\ RI ([HFXWLYH 2IILFH RI (GXFDWLRQ 0DVV 1(G 0DVV f 0FOQQLV Y 6KDSLUR )6XSS DIInG 86 f 0LOIRUG 6FKRRO 'LVW Y :LOOLDP ) VW &LU 1+f f 0LOOLNHQ Y *UHHQ 0LFK 1:G 0LFKf 0LOOV Y %RDUG RI (GXFDWLRQ ) 6XSS f 2EHUWL Y &OHPHQWRQ 6FKRRO 'LVWULFW %RDUG RI (GXFDWLRQ ) G QO G &LU f 2OVHQ Y 6WDWH 2UH 3G 2U f 3DSDVDQ Y $OODLQ 86 f 3HQQV\OYDQLD $VVRFLDWLRQ IRU 5HWDUGHG &LWL]HQV 3$5&f Y &RPPRQZHDOWK RI 3HQQV\OYDQLD ) 6XSS f 3HRSOH H[ UHO -RQHV Y $GDPV ,OO $SS G 1(G ,OO f 3OHVVH\ Y )HUJXVRQ 86 6 &W f 3O\HU Y 'RH 86 f 5LFKODQG &RXQW\ Y &DPSEHOO 6& 6(G 6& f 5RELQVRQ Y &DKLOO 1$G 1f FHUW GHQLHG 86 6 &W / (G G f

PAGE 251

5RQFNHU Y :DOWHU )G WK &LU f FHUW GHQLHG &LQFLQQDWL &LW\ 6FKRRO 'LVWULFW %RDUG RI (GXFDWLRQ Y 5RQFNHU 86 f 5RRVHYHOW (OHPHQWDU\ 6FKRRO 'LVWULFW Y %LVKRS $UL] 3G $UL] f 5RVH Y &RXQFLO IRU %HWWHU (GXFDWLRQ 6:G .\ f 6DFUDPHQWR Y 5DFKHO + )G 86 $SS f 6DQ $QWRQLR 6FKRRO 'LVWULFW Y 5RGULTXH] 86 6 &W / (G G f 6HDWWOH 6FKRRO 'LVWUFW Y 6WDOH :DVK G 3G :DVK f 6HUUDQR Y 3ULHVW &DO G 3G &DO 5SWU &DO f FHUW GHQLHG 86 6 &W / (G G f 6NHHQ Y 0LQQHVRWD 1:G 0LQQ f 6PLWK Y 5RELQVRQ 86 6 &W f 7DWUR Y 6WDWH RI 7H[DV ) 6XSS 1'7H[ f UHYnG )G WK &LU f RQ UHPDQG ) 6XSS UHYnG )G WK &LU f DIInG 86 6 &W / (G G f 7KRPSVRQ Y (QJHONLQJ ,GDKR 3G ,GDKR f 7HQQHVVHH 6PDOO 6FKRRO 6\VWHPV Y 0F:KHUWHU 6:G 7HUP f 7LPRWK\ : Y 5RFKHVWHU 1HZ +DPSVKLUH 6FKRRO 'LVWULFW )G VW &LU f 8QLILHG 6FKRRO 'LVWULFW 1R Y .DQVDV .DQ 3G .DQ f FHUW GHQLHG 86 6 &W / (G G f 8QLWHG 6WDWHV Y %XWOHU 86 6 &W f 8QLWHG 6WDWHV Y &DUROHQH 3URGXFWLRQ &RPSDQ\ 86 f 8QLWHG 6WDWHV Y 2YHUWRQ )G WK &LU f

PAGE 252

9LUJLQLD 'HSDUWPHQW RI (GXFDWLRQ Y 5LOH\ )G 86 $SS f :DVKDNLH &RXQW\ 6FKRRO 'LVWULFW 1R 2QH Y +HUVFKOHU 3G :\R f :DWVRQ Y &LW\ RI &DPEULGJH 1( 0DVV f :HEHU Y $HWQD &DVXDOW\ DQG 6XUJLFDO &RPSDQ\ 86 f :ROI Y /HJLVODWXUH RI 8WDK &LYLO 1R 8WDK G -XG 'LVW &W -DQ f 6WDWH &RQVWLWXWLRQDO $UWLFOHV $OD &RQVW DUW ;,9 i $OD &RQVW DUW ii DQG 6HVVLRQ /DZV 1& 6HVVLRQ /DZV FK DPHQGLQJ 1RUWK &DUROLQD *HQHUDO 6WDWXWH ii f :\R 6HVV /DZV f 6WDWH 6WDWXWHV ,/&6 &K i f 'HO & i Ff f 96$ i f $ 056 i f f 36 i f 36 i f 2NO 6W i f $56 i f $ODVND 6WDW i f $UN 6WDW $QQ i Df f 'f f %XUQV ,QG &RGH $QQ i f &56 i f

PAGE 253

&DO (G &RGH i f &RGH RI $OD i Ef f 'f f &RQQ *HQ 6WDW i E f )OD 6WDW i f +56 i $ f ,GDKR &RGH i f ,RZD &RGH i f f .6$ i f .56 i fEf f /D 56 WLW i &f f 0DVV $QQ /DZV &K % i f 0G (GXF &RGH $QQ i 'f f 0LQQ 6WDW i & f 0LVV &RGH $QQ i f 0RQW &RGH $QQR i f 06$ i Df f 1& *HQ 6WDW i & f 1' &HQW &RGH i f 16WDW i $) f 10 6WDW $QQ i f 1HY 5HY 6WDW $QQ i f 1< &/6 (GXF i f 2&*$ i f 25& $QQ i f 256 i $f f 5, *HQ /DZV i f 556 1HE i f

PAGE 254

560R i f 5HY &RGH :DVK $5&:f i $ f 56$ i & f 6& &RGH $QQ i f 6' &RGLILHG /DZV i f 7HQQ &RGH $QQ i f 7H[ (GXF &RGH i f 8WDK &RGH $QQ i $D f 9D &RGH $QQ i f : 9D &RGH i $f f :LV 6WDW i f Z V i DfLf Z V i Df f Z V i Df f Z V i Ff f Z V i f 2WKHU 5HVRXUFHV &RQJ 5HF f &RQJ 5HF f &RQJ 5HF f &RQJ 5HF f &HQWHU IRU 6SHFLDO (GXFDWLRQ )LQDQFH )$4 )HGHUDO )XQGLQJ IRU 6SHFLDO (GXFDWLRQ 8QGHU 3/ $YDLODEOH RQOLQH IURP KWWRFVHIDLURUTIDDOKWPOO *DOODXGHW &ROOHJH :HEVLWH 'HSDUWPHQW RI 3XEOLF ,QIRUPDWLRQ :HESDJH $YDLODEOH RQOLQH IURP KWWSZZZJDOODXGHWHGX[[[[[[KWPO

PAGE 255

.UDQW] 2 -DQXDU\ )XQGHG LQWR 3HUSHWXLW\ (GXFDWLRQ :HHN RQ WKH :HE >2QOLQH@ $YDLODEOH RQOLQH IURP KWWRZZZHGZHHNRUDKWELQIDVWZHE" DHWGRFYLHZ HZO OZ$$$b b .UDQW]bb$1 'bb.UDQW]bb$.(<:25'6b45bb.UDQW]b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bb/YQQb6FKQDLEHUDbbb$1'bb /YQQb6FKQDLEHUDbbb$.(<:25'6b45bb/YQQb 6FKQDLEHUDbb 2IILFH RI WKH :KLWH +RXVH 3UHVV 6HFUHWDU\ 6WDWHPHQW E\ WKH 3UHVLGHQW XSRQ WKH 6LJQLQJ RI 6 :DVKLQJWRQ '& 'HFHPEHU 7DSSH 5 1LQHWHHQ 5HDVRQV :K\ 6SHFLDO (GXFDWLRQ 6KRXOG &RVW 0RUH 7KDQ 5HJXODU (GXFDWLRQ &RQIHUHQFH 3URFHHGLQJV RI WKH $PHULFDQ &RXQFLO RQ 5XUDO 6SHFLDO (GXFDWLRQ 6DOW /DNH &LW\ 87 $PHULFDQ &RXQFLO RQ 5XUDO 6SHFLDO (GXFDWLRQ 'HSDUWPHQW RI 6SHFLDO (GXFDWLRQ (5,& 'RFXPHQW 5HSURGXFWLRQ 6HUYLFH 1R (' f 7D\ORU % /HWWHU WR 6HQDWRU -HQQLQJV 5DQGROSK -XQH

PAGE 256

86 6HQDWH &RPPLWWHH RQ /DERU DQG 3XEOLF :HOIDUH -XQH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ 6HQDWH 5HSRUW 1R 86 6HQDWH -RLQW ([SODQDWRU\ 6WDWHPHQW RI WKH &RPPLWWHH RI &RQIHUHQFH -XQH WK &RQJUHVV VW 6HVVLRQ 6HQDWH &RQIHUHQFH 5HSRUW 1R f 86 +RXVH RI 5HSUHVHQWDWLYHV -XQH (GXFDWLRQ RI WKH +DQGLFDSSHG $FW RI WK &RQJUHVV VW 6HVVLRQ +RXVH RI 5HSUHVHQWDWLYHV 5HSRUW 1R

PAGE 257

%,2*5$3+,&$/ 6.(7&+ 0DWWKHZ & :DQ]HQEHUJ ZDV ERUQ LQ )RUW /DXGHUGDOH )ORULGD LQ +H DWWHQGHG *DLQHVYLOOH +LJK 6FKRRO LQ *DLQHVYLOOH )ORULGD DQG JUDGXDWHG LQ +H VWXGLHG DW 'DYLGVRQ &ROOHJH LQ 'DYLGVRQ 1RUWK &DUROLQD IRU WZR \HDUV EHIRUH HQUROOLQJ LQ WKH 8QLYHUVLW\ RI )ORULGDnV 3URWHDFK 3URJUDP LQ 6SHFLDO (GXFDWLRQ $IWHU FRQGXFWLQJ UHVHDUFK LQ WKH ILHOGV RI SK\VLFDO GLVDELOLWLHV DQG WUDQVLWLRQ VHUYLFHV IRU DGXOWV ZLWK GLVDELOLWLHV KH JUDGXDWHG LQ ZLWK EDFKHORUnV DQG PDVWHUnV GHJUHHV +H WDXJKW LQ D VHOIFRQWDLQHG FODVVURRP IRU VWXGHQWV ZLWK PHGLFDO DQG SK\VLFDO LPSDLUPHQWV DW +RZDUG %LVKRS 0LGGOH 6FKRRO IRU IRXU \HDUV EHIRUH SXUVXLQJ KLV DGYDQFHG GHJUHH IXOO WLPH ,Q KH EHJDQ GRFWRUDO FRXUVHZRUN DW WKH 8QLYHUVLW\ RI )ORULGD LQ WKH 'HSDUWPHQW RI (GXFDWLRQDO /HDGHUVKLS 'XULQJ WKLV SHULRG KH VHUYHG DV D FRQVXOWDQW WKURXJKRXW 1RUWK )ORULGD VFKRRO GLVWULFWV LQ WKH ILHOGV RI LQFOXVLRQ DVVLVWLYH

PAGE 258

WHFKQRORJ\ DQG LQVWUXFWLRQ IRU VWXGHQWV ZLWK SK\VLFDO GLVDELOLWLHV ,Q KH PRYHG WR :DUUHQYLOOH ,OOLQRLV DQG EHJDQ HPSOR\PHQW ZLWK WKH /D *UDQJH $UHD 'HSDUWPHQW RI 6SHFLDO (GXFDWLRQ /$'6(f LQ WKH (PRWLRQDO DQG %HKDYLRUDO 'LVRUGHUV 1HWZRUN ,Q KH DFFHSWHG D SURIHVVRUVKLS LQ WKH 'HSDUWPHQW RI (GXFDWLRQDO /HDGHUVKLS DW $XURUD 8QLYHUVLW\ LQ $XURUD ,OOLQRLV +H FXUUHQWO\ UHVLGHV LQ 'X3DJH &RXQW\ ,OOLQRLV ZLWK KLV ZLIH $QQH :KHDWRQ :DQ]HQEHUJ

PAGE 259

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f0LOOHU 3URIHVVRU RI (GXFDWLRQDO 3V\FKRORJ\

PAGE 260

7KLV GLVVHUWDWLRQ ZDV VXEPLWWHG WR WKH *UDGXDWH )DFXOW\ RI WKH &ROOHJH RI (GXFDWLRQ DQG WR WKH *UDGXDWH 6FKRRO DQG ZDV DFFHSWHG DV SDUWLDO IXOILOOPHQW RI WKH UHTXLUHPHQWV IRU WKH GHJUHH RI 'RFWRU RI 3KLORVRSK\ 'HFHPEHU

PAGE 261

81,9(56,7< 2) )/25,'$


THE FISCAL PARADOX OF THE INDIVIDUALS WITH DISABILITIES
EDUCATION ACT (PL 101-476): AN ANALYSIS OF FEDERAL POLICY
By
MATTHEW C. WANZENBERG
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE
UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1999

Dedicated
to superb educators in my family:
s. Clara Rasmussen Olson, Mrs. Maude Rich Dietrich, Mrs.
Emily Mildred Dietrich, Mr. Ralph B. Wanzenberg, Dr.
Chester Leathers, and Joanna Leathers

ACKNOWLEDGEMENTS
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.
0. 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 w'orld 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?
in

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.
IV

TABLE OF CONTENTS
page
ACKNOWLEDGEMENTS iii
ABSTRACT viii
CHAPTERS
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
2 LITERATURE REVIEW 14
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
3 METHODOLOGY 122
v

Sources of Information 124
Data Organization 126
Data Analysis 126
Synthesis 127
Standards for Adequacy for Policy Analysis. . . .128
4 FEDERAL POLICY ANALYSIS OF THE IDEA 132
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
5 A MODEL PLACEMENT NEUTRALITY POLICY
FOR THE FEDERAL GOVERNMENT 192
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
APPENDICES
A DEFINITIONS 217
B METHODS OF STATE FUNDING FOR SPECIAL
EDUCATION 221
C FREQUENCIES OF STATE FUNDING BY TYPOLOGY AND
BASE 224
REFERENCES 226
vi

BIOGRAPHICAL SKETCH
246
Vil

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
THE FISCAL PARADOX OF THE INDIVIDUALS WITH DISABILITIES
EDUCATION ACT (PL 101-476): AN ANALYSIS OF FEDERAL POLICY
By
Matthew C. Wanzenberg
December, 1999
Chairman: Dr. R. Craig Wood
Major Department: Educational Leadership, Policy, and
Foundations
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.
vi.11

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
IX

timeline
national
to transition non-compliant states, and (c) a
transition plan.
x

CHAPTER I
INTRODUCTION
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
programs.
1

2
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.10 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,11 inappropriate
special education programs,12 and educational spending that
did not accord with contemporary finance equity theory.13

3
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.17 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.18 A litigative summary of recent special education
finance also revealed the reluctant recommendation of funding
practices that could jeopardize the LRE.19 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:

4
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?
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?
2.

5
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
addressed.25
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

6
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."31
The doctrine of preventive law suggests that the
consummate way to deal with a legal problem is to prevent it
from happening.32 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.

7
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.

8
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
analyzed.
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
Research^' and the Federal Register. A list of applicable
terms, definitions, and concepts appears in Appendix A of
this study.
Limitations
Although this study had ultimate applicability to all
states, legal case studies have been limited to states in

9
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.

10
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.

11
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. §§ 1401-1491o (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
(1998)].
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) .

12
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.
17 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
1987).
21 Parrish, supra note 11.
22 2 0 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) :
459-462..
25 CSEF, supra note 13.

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),
1.
21 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 2 0 U.S.C. § 1415 (1998) .
31 Turnbull, supra note 12, at 83.
32 Osbourne, supra note 29, at 240.
33 2 0 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: htto://www.ed
gov/offices/OSERS/OSEP/OSEP98AnlRpt/
36 Turnbull, supra note 12, at 186.
37 Jacobstein, J. Myron, and R. M. Mersky, Ervin H.
Pollack's Fundamentals of Legal Research (Mineóla, New
York: Foundation Press, 1973).
38 Individuals with Disabilities Education Act
Amendments, P.L. 105-17 (1997) .
39
Ibid.

CHAPTER 2
LITERATURE REVIEW
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
bias?
3. What federal requirements exist to either
promote placement neutrality or prohibit fiscal
bias?
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.
14

15
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

16
have translated into a legal manifest for society to
follow.
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
roles.6
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

17
... 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 context10 was presented
in Public Law 94-142.11 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.13 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?

13
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
opportunities)?
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
finance?15
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.17 Although the IDEA broadly addressed costs,

19
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. Rodriguez, 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

20
nation.22 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

21
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

22
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

23
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.31 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.32 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

24
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
benefits.36
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).37 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
t
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

25
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
adjustments?
Perhaps Congress addressed taxpayer equity concerns
most succinctly during the earliest drafts of Public Law
94-142:
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
society.41

26
Inclusion as Ecruitv
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.44
According to Parrish, inclusion policy provided a
natural political tension between taxpayer and client
perceptions of equity.45
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 occured when children were denied access
to educational opportunity, provided inadequate

27
education, or served unresponsively.46 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."48
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.1,50
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

28
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.55
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.57 Second,
the over-representation of some minority classes in
special education has implied "racially specific harmful
effects."58 Finally, equal protection was indicated to
insulate children from the possibility of such
misclassif ication.59
A survey of the literature revealed a history of
sparse funding for special education programs.60 Before
federal legislation monitored educational opportunity
for students with disabilities, school districts
pervasively and continuously failed to serve the

29
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
1994.63
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.64 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

30
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.71 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.72

31
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 Helverina
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.79

32
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 Education31
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.85 Mills
applied equal protection broadly to all students; not to
a singular grouping of students.86 In contemporary terms,

33
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. Rowlev91 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.95
Cronin responded to the perceived federal encroachment,

34
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."97 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

35
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.104

36
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.105 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.106 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.108 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

37
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 Burén 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.111 Prior to these laws, the federal government
took no active role in support for special education
programs.112
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

38
from parent groups, the city of Boston established the
first public day school for the education of students
with hearing impairments.113 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.114
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.115 Contemporary management
styles reflected a premium concern for productivity and
efficiency. This ideal was often pursued at the cost of
individual liberties.116 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.11' This labeling served to "legitimize the
provision of differential legal, medical, residential,
economic, and socialization care."118 Cremins
characterized the use of labeling and categorical
tracking in governmental institutions as an efficient
means to contain costs and provide efficient service
delivery.119 At this point, state and federal governments

39
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.121 Furthermore, Cremins described a public
policy that possessed little flexibility to adapt to the
1 • • • • i o o
emerging grass roots initiatives.
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.123 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

40
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 "unteachable," they remained effectively outside
of the purvey of contemporary special educational
services.128
The Emergence of State Special Education Policy
This period was also characterized by the emergence
of state initiatives for the provision of services and
training.129 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.131 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

41
certification requirements that outlined a basis of
expertise in the emerging field of professional special
education.133 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.135
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.136 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.137 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

42
lists for admission to the few available
programs, thus excluding many eligible
students.138
In Watson v. City of Cambridge.139 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

43
passed the Vocational Rehabilitation Act141 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.144 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.146 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 193O150 and the
field of educational psychology expanded the pedagogical
implications of intelligence and ability.151
A critical

44
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.154 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."155
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.156 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 1968.157 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

45
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
environment.159 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.161 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

46
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. 85-90516e established grants to colleges and
universities and was expanded in 1963 to all fields of
special education.169 This period also included the
enactment of the National Defense Education Act
(NDEA) .17° 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.172 The NDEA also addressed the
duplication of educational services in other federal
initiatives.173 Most importantly, this legislation
reinforced the concept of the national educational
objective.174
In 1963, P.L. 88-164175 created a Division of
Handicapped Youth in the United States Office of
Education.1,6 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

47
that included early childhood special education,
learning theory of students with disabilities,
curriculum and materials development, and innovations in
teacher training.178
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.181 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."182
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.183 This entitlement was the
forerunner of the Education of the Handicapped Act
(EHA)184 and part B of the Individuals with Disabilities
Education Act (IDEA).185

48
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.187 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.188 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.192
Within the text of this law, Congress cited the
practices of exclusion193 and identified the national
interests inherent to special education.194
A survey of the federal initiatives in the early
1970s revealed that state educational agencies were not

49
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.196 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.199
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
\

50
state and federal statutes, and case law.201 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. 204 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
education:
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.210
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

51
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,

52
parent advocacy initiatives and services designed to
meet the needs of young employees with disabilities.218
Part H, a grant program for statewide early intervention
networks for infants and families, was authorized until
FY 1994.219
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
224
programs.
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

53
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.227
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

54
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) .230
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.231
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

55
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.2j4 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. 235 This provision secured a basic
minimum fiscal commitment to the state special education
programs without any decrease in special education
spending.
Congress strengthened LEA spending flexibility by
permitting reduced expenditures to be utilized as
virtual local funds. 236 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.*38 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

56
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
2 0 0 5.243 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

57
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.246
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
disabilities:
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
education.250

58
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. 252 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
2S4
purposes.
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. 255 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.257
This arrangement

59
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 plans'"58 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. 259 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

60
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.26j 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. 268 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. 269 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

61
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. 273 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. 274 The state was also
bound by federal statutes to collect and report data on
the status of special education programs throughout the
Union.275
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. 276 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

62
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
due-process.
In accordance with Title VI of the Civil Rights Act
of 1964,283 Title IX of the Education Amendments of
19 7 2,284 and Section 504 of the Rehabilitation Act of
19 7 4,285 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.286
Funding Formulas. Incentives, and Disincentives in
Special Education
Special education finance has traditionally
operated under the philosophical framework of excess
costs.281 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

63
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

64
Other research addressed the excess cost formula's
lack of predictability. 293 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 Adjustments to Special Education Funding
McLaughlin and Owings reported no significant
relationship between poverty and overall identification
rates. 294 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. 295 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

65
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.302

66
Parrish described two significant funding
incentives that affect policy and program decisions:
restrictiveness resulting from public aid differentials
and incentives for private placements. 303 Restrictive
settings, while contraindicated by the doctrine of LRE,
were not prohibited under the IDEA'S continuum of
services. 304 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

67
indicated a policy conflict for the LRE: in 1993, Texas
mainstreamed five percent of its special education
students.308
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.310 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.311 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.312
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

68
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.316
The CSEF determined that fiscal incentives for
special education policies should be targeted and
addressed in federal and state legislative reform.317
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. 318
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

69
appropriations based on type of student placement offer
less flexibility for state and local educational
agencies. 320 Finally, allocations based on less specific
criteria (e.g., total enrollment) have demonstrated the
most flexibility for state and local educational
agencies.321
Cost Analysis Methodologies
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

70
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.326 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. 327 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,

71
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. 329 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
district.330
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

72
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.334 Lipsky, Kerzner and
Gartner recognized the fiscal policies that handicapped,
over-classified, and impersonalized students with high-
prevalence disabilities. 335 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.

73
This contention accorded with the "unified system"
initiatives indicated by other research in special
education.337
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,

74
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. 345 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. 348 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,

75
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

76
revealed three comprehensive cost evaluations of the
national special education program: Rossmiller, Hale,
and Froereich (19 7 0),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.357
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
approach.358
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

77
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
finding:
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
funds.362
The CSEF augmented the findings of these three
studies and adjusted for inflation to derive a broader
picture of growth in special education since 1968.363
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

78
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
approaches.
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. 367 This research included a

79
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
ratios;
3. A significant relationship between the rated
quality of the special education program and the
level of teacher preparation/experience; and

80
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.372
Contemporary, oost-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. 373 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.374
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

81
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
means
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
support
7. Capital outlay increasing facility access for
students with disabilities
8. The proliferation of private special education
placements
9. Personnel and administrative costs relating to
paperwork
10. Specialized transportation services
11. Shifting of financial responsibility between
various state agencies

82
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

83
policies that discriminated or infringed upon
fundamental Constitutional rights. 379 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.381 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.1,384
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

84
An intermediate level standard suit was exercised
in Plvler v. Doe388 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
population.389
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
that
"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.393
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) .396

85
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 Plessv
v. Ferguson 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

86
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
systems.404
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 parens 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

87
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
inferiority.408
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.410
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.412 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

88
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

89
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
program.
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

90
statutory or court mandates to provide full educational
opportunities for children with disabilities.419 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.423
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.424
Early School Finance Litigation
Between 1968 and 1970, several U.S. Supreme Court
cases utilized the legal reasoning in Brown to draw

91
contention to the equity of school finance. Buruss v.
Wilkerson425 and Mclnnis v. Shapiro426 limited the fiscal
parameters of the Brown ruling when it was held that
there was no federal requirement for the equal
distribution of public education dollars. The plaintiffs
asserted that state school finance programs violated the
Fourteenth Amendment in the absence of vertical
corrections for wealth disparity. 427 In these first two
applications, the courts did not generalize the logic of
Brown to the domain of school finance equality. First,
there was no specific provision of fiscal equity
contained in the Constitution. Second, the defendants
argued successfully that the task of reform was better
suited—in cases of pervasive discrimination--to
Congress. Finally, the courts noted that the lack of
educational opportunity did not mean the same thing as
the "invidious denial" of it. 428 In this manner, the
courts found Buruss and Mclnnis too broad a mandate for
a uniform code of fiscal equality.429
The conceptual boundaries of equal protection in
Brown were broadened in San Antonio School District v.
Rodriquez.43J Prior to appeal in U.S. Supreme Court, the
lower court found the Texas school finance program to be
unconstitutional. This case brought clarity to an
finance equity argument based upon the federal equal

92
protection clause. The court held that public education
was not a fundamental right. The court consequently
applied the rational basis test to determine the
constitutionality of a state property tax-based
educational scheme.431 Upon appeal, the court ruled that
no suspect class could be precisely identified and that
special protection could not--in the words of Justice
Powell—be afforded to a "syndrome of poverty." 432 This
case established an enduring policy of federal
neutrality. Three preconditions were key to this policy
and would serve proponents of school finance equity in
the state courts:
1. Equal protection under the Fourteenth Amendment;
2. A wealth suspect class (i.e., discrimination
based upon wealth); and
3. The fundamentally and pervasive nature of
education.433
In summary, the courts ruled that disparities of
wealth were not an issue that could be effectively
argued at the federal level. Justice Powell acknowledged
the disparity and diversity that existed across the
nation, but could only detail the court claims of
minimally adequate standards of educational opportunity.
It was evidenced by federal court documents that the
court wished to avoid the political quandary involved in

93
a unilateral declaration of school finance equity across
states.434 If states were held to such a compelling state
interest standard, the court was then obliged to create
administrative remedies. Furthermore, the abolition of
the governmental and political institutions that
allocated such resources would force the judicial branch
to impede the separation of governmental powers.
Therefore, the court declared that such school finance
disputes were more effectively addressed at the
legislative level than at the judicial level.435
The decisions in Papasan v. Allain. 436 Plvler v.
Doe, 437 and Kadrmas v. Dickinson Public Schools remained
congruent with federal juris reasoning. 438 These
decisions reiterated that wealth distribution--though
strongly correlated in areas—was not a de facto suspect
class.
Emerging Issues in Special Education Finance Equity
Since 1989, 21 states have undergone significant
resolution in the higher courts to determine the
Constitutionality of the state education finance
programs. 439 According to Verstegen, concern for wealth
inequality between districts has preceded the tabled
issue of educational adequacy in Rodriguez. 440 This has,
in turn, imposed the state supreme courts with the
responsibility of determining the Constitutional aspects

94
of state school finance. Three contemporary state
supreme court decisions represented the current debate
of special education finance adequacy.
Harper v. Hunt
In 1993, the Alabama State Supreme Court heard an
amalgamation of two lower court cases relating to the
constitutionality of special education finance
programs.441 Plaintiffs in Harper challenged the
constitutionality of Alabama's system of public
elementary and secondary education; asserting that the
program did not offer equitable and adequate educational
opportunities to the all schoolchildren of the state.
They sought declaratory and injunctive relief from the
constitutional and statutory violations alleged under
the state's constitution442 and the federal equal
protection and due-process clauses. 443 Plaintiffs
emphasized the established disparities and inadequacies
of a "substantial, meaningful and, in many cases,
profound manner."444
The defendants denied that the public school system
was unlawful and refuted a legislative solution. The
defendants offered no facts to contradict the denial of
appropriate education or access to equitably funded
programs. Furthermore, Governor Hunt argued that the
state could not afford substantially increased school

95
funding, and that increased funding would not
necessarily result in improvement of student
performance.
The court found that Alabama's inability to provide
any special education services to children with
disabilities clearly failed to meet the Rowlev test.445
The court held that the total enrollment method of
funding special education (i.e., based entirely on the
total number of students in regular and special
education) was unconstitutional on the grounds that (a)
the funds available per special education pupil were not
tied to the cost of educating those pupils and (b) as
the number of special education students increased the
money per pupil decreased. The court concluded that such
a census-based formula was irrational and had no
relationship to the public interest in appropriately
educating students with disabilities. The court
recommended a weighted method as a more equitable
alternative to census-based approaches, but conceded
that that such an alternative might violate placement
neutrality by creating financial incentives for more
restrictive placements
Cambell v. State of Wyoming
In 1980, the Wyoming Supreme Court struck down the
state education finance scheme declaring that education

96
was a fundamental right under the state constitution.446
This decision prompted several Wyoming Session laws447
that sought fiscal parity of the state school finance
program. In 1995, the court found that the state
education finance program lacked (a) research-based cost
differentials, (b) an understanding of actual costs
relating to economies of scale, and (c) any
justification for the costs associated with special
education. The post-Washakie448 decision was the second
ruling in twenty years that upheld the
unconstitutionality of the state education finance
program. The court found in Cambell that inadequate
funding for general education programs encroached upon
the excess costs associated with special education
programs. Furthermore, the court affirmed the
Supplement-not-Supplant provisions that state
legislatures were responsible for the excess costs
associated special education.449
The court suggested (a) the investigation of
alternative cost differentials that were based on
empirical merit and (b) policy implementation pursuant
to the Supplement-not-Supplant provisions of federal
law. 450 Furthermore, the court maintained that
alternative funding approaches should reflect a balance

97
between the state fiscal responsibilities and equitable
distribution based upon property wealth:
Considering all of these various factors, the
legislature must first design the best
educational system by identifying the "proper"
educational package each Wyoming student is
entitled to have whether she lives in Laramie
or in Sundance. The cost of that educational
package must then be determined and the
legislature must then take the necessary
action to fund that package. Because education
is one of the state's most important
functions, lack of financial resources will
not be an acceptable reason for failure to
provide the best educational system. All other
financial considerations must yield until
education is funded.451
DeRolvh v. Ohio
In 1995, the Ohio Supreme Court ruled the state
education finance program unconstitutional on the
grounds of adequacy and inequity. 452 As in the Wyoming
case, a sub-class of plaintiffs included students in
categorical special education programs. The issue was
the manner in which the state partially funded mandated
categorical programs and alternatively funded additional
services. The plaintiffs targeted a series of finance
policies that lacked uniformity, consistency, and
efficacy. The plaintiff supplemented claims of systemic
finance inequity and program inadequacy with the
contention that categorical special education programs
violated numerous provisions of the Ohio Constitution.453
The defendant provided few facts to address the great
disparities that existed between wealthier and poorer

98
districts. According to the defendant, the wide
disparities in educational opportunity were caused by
the lack of poorer school district levy. This point was
later rejected by the court.
The evidence revealed that wide finance disparities
were caused by a substantial dependence upon the tax
base of individual school districts; that is, that the
poor districts could not raise as much money even with
identical tax effort. Furthermore, the court found the
state of special education facilities were atrocious and
"a disgrace to the State of Ohio and all Americans."454
The parties also acknowledged that physical
accessibility preconditioned the program accessibility.
The court found that the flat distributions for
categorical aid represented a systemic flaw and reduced
the equalization effect of the foundation formula.
Testimony revealed that the chief categorical programs,
(such as special education and vocational education)
were incompletely funded. Rather, such programs were
funded by redirecting funds that would otherwise be
available for distribution under the foundation formula.
The court summarized the relationship between general
school finance inequity between districts and the plight
of categorical programs:
Additional appropriations may be made for
categorical programs, such as vocational
education, special education and

99
transportation. However, no adjustment is made
for the relative wealth of the receiving
district. Moreover, children in funded
handicapped "units" were not included in the
state basic aid formula. 455 Thus, funds for
handicapped students, for instance, whose
education costs are substantially higher (due
to state mandates of small class size and
because of related extra services) are
disbursed in a flat amount per unit ... If
the actual cost exceeds the funds received,
wealthier districts are in a better position
to make up the difference.456
This ruling presented an important issue associated
with special education finance. The court suggested that
costs associated with special education facilities
should be included in state funding schemes. 457 A lack of
proximal access to appropriate educational facilities
posed a great threat to the realization of a free and
appropriate public education for students with
disabilities. 458 According to Verstegen, state
educational agencies rarely provide capital improvement
or supplementary funds primarily for the intensification
of access for children with disabilities.459
1 Brown v. Topeka Board of Education, 347 U.S. 483
(1954).
2 Turnbull, H. R., Free and Appropriate Public
Education: The Law and Children with Disabilities
(Denver, Colorado: Love Publishing, 1990), 11.
3 Thompson, D. C., R. C. Wood, and D. H. Honeyman,
Fiscal Leadership for Schools: Concepts and Practices
(White Plains, New York: Longman Publishing Company,
1994), 57.
Turnbull, supra note 2, at 11.
4

100
5 Wolfensberger, W. , "Social Role Valorization: A
Proposed New term for the Principle of Normalization,"
Mental Retardation 21 (1993): 224.
6 Ibid.
7 Turnbull, supra note 2, at 11.
8 U.S. Senate, Committee on Labor and Public
Welfare, Education for All Handicapped Children Act of
1975, 94th Congress, 1st Session, Senate Report No. 168, at 9.
9 For purposes of this study, the author has
codified all acts which appear in the United States
Code. All Public Laws that have been transferred to
alternate codes were documented as such. Public Laws
that were not represented in the current U.S.C. were not
codified. The Americans with Disabilities Act, P.L. 101-
336 (1990) [codified as 3 U.S.C. § 421 (1998)];
Education for All Handicapped Children Act, P.L. 94-142
(1975) [transferred to 20 U.S.C. §§ 1401-1491o (1998)];
Education of the Handicapped Act, P.L. 91-230 (1970);
Section 504 of the Rehabilitation Act (1973) [codified
as 29 U.S.C. §§ 706 (8), 794, 794a (1998)]; 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-
1491o (1998)] .
10 Center for Special Education Finance (CSEF),
"What is Fair? Special Education and Finance Equity"
Issue Brief No. 6 (Fall 1995): 1-4.
11 EAHCA, supra note 9.
12 20 U.S.C. § 1412(a)(5)(B) (1998).
13 Hendrick Hudson District Board of Education v.
Rowley, 458 U.S. 176, 102 S. Ct. 3034, 73 L. Ed. 2d 690,
(1982).
14 Osbourne, Allan G., Legal Issues in Special
Education (Boston, Massachusetts: Allyn and Bacon,
1996), 104-106.
15 Berne, Robert, and Stiefel, Leanna, The
Measurement of Equity in School Finance: Conceptual,
Methodological, and Empirical Dimensions (Baltimore:
Johns Hopkins University Press, 1984).
16 Hartman, W. T., "State Funding Models for Special
Education," Remedial and Special Education 13 (1992):
48.
17 Bernstein, Charles, William T. Hartman, and
Rudolph Marshall, "Major Policy Issues in Financing
Special Education," Journal of Education Finance 1
(1976): 308.

101
18 Chaikind, S., L. C Danielson, and M. L. Brauen,
"What Do We Know About the Costs of Special Education? A
Selected Review," Journal of Special Education 26
(1993): 348.
19 Serrano v. Priest, 18 Cal. 3d 728, 557 P.2d 929,
135 Cal. Rptr. 345 (Cal. 1976)(Serrano II), cert,
denied, 432 U.S. 907, 97 S. Ct. 2951, 53 L. Ed. 2d 1079
(1977) .
20 San Antonio School District v. Rodriquez, 411
U.S. 1, 93 S. Ct. 1278, 36 L. Ed. 2d 16 (1973). See
infra notes 478-481.
21 CSEF, "Federal Policy Options for Funding Special
Education," Issue Brief 1 (Fall 1993): 2.
*3 CSEF, supra note 10, at 1-4.
24 McCarthy, Eileen, and Daniel Sage, "State Special
Education Fiscal Policy: The Quest for Equity,"
Exceptional Children 48 (1982): 414-419.
25 Ibid., 419.
26 Boscardin, Mary Lynn, "Local-Level Special
Education Due-Process Hearings: Cost Issues Surrounding
Individual Student Differences," Journal of Education
Finance 12 (1987): 391-402.
Ysseldyke, James, Martha Thurlow, Bob Algozzine,
and Joe Nathan, "Open Enrollment and Students with
Disabilities: Issues, Concerns, Fears, and Anticipated
Benefits," Exceptional Children 59 (1983): 390-401.
28 Thompson et al., supra note 3, at 176-178.
177.
178.
179.
36 Erin E. Kelly, All Students Are Not Created
Equal: The Inequitable Combination of Property-Tax-Based
School Finance Systems And Local Control, 45 Duke L.J.
401 (1995).
37
30 lb
31 lb
32 lb
33 lb
34 lb
35 tu
38
Ibid.
Ibid.

102
39
Ibid.
40 Berne and Stiefel, supra note 15.
41 U.S. House of Representatives, June, 1975.
Education of the Handicapped Act of 1975, 94th Congress,
1st Session. House of Representatives Report No. 94-332, at 47-50.
42 CSEF, supra note 10, at 1.
43 Ibid., 3.
44 Lipton, D. , The Full Inclusion Court Cases: 1989-
1994, Paper Prepared for the Wingspread Conference,
Racine, WI (1994); Yell, M. L., The Law and Special
Education (Upper Saddle River, New Jersey: Prentice
Hall, 1998); Alexander, K., and M. D. Alexander,
American Public School Law (Belmont, California:
Wadsworth Publishing Company, 1998); and Thomas, S. B.
and C. J. Russo, Special Education Law: Issues and
Implications for the 90's (Topeka, Kansas: NOLPE, 1995).
45 CSEF, supra note 10, at 4.
46 Turnbull, supra note 2, at 14.
48
Ibid.
49 Turnbull, supra note 2; and Hehir, T. and T.
Latus, Special Education at the Century's End: Evolution
of Theory and Practice Since 1970 (Cambridge,
Massachusett: Harvard Educational Review, 1992) .
50 Wolf v. Legislature of Utah, Civil No. 18264
(Utah 3d Jud. Dist. Ct., Jan. 8, 1969).
51
Ibid.,
15.
52
Hehir
and Latus
53
Ibid.,
13 .
54
Ibid.
55
Ibid.
56
Ibid.
57
Ibid.,
37.
58
Ibid.
59
Ibid.
supra note 49, at 11.
60 Turnbull, supra note 2, at 15.
61 Chanda Smith v. Los Angeles Unified School
District, No. CV 93-7044-LEW (Dist. Ct., Central Dist.,
filed May 1983).
Senate Report No. 94-168, supra note 8, at 191-274.
62

103
63 Shapiro, J., P. Loeb, and D. Bowermaster,
"Separate and Unequal," U.S. News and World Report 115
(1993): 46-50, 54-56, 60.
64 Thompson, et al. , supra note 3, at 96-97.
65 Chambers, J. T., T. Parrish, and J. Lieberman,
What Are We Spending on Special Education in the U.S.?
(Palo Alto, California: Center for Special Education
Finance, 1998).
66 EAHCA, supra note 9.
67 Turnbull, supra note 2, at 4.
08 U.S. Const. Art. X.
69 Marbury v. Madison, 5 U.S. 137, 1 Branch 137, 2
L. Ed. 60 (1803).
70 U.S. Const. Art. I, § 8, cl. 3.
71 Alexander and Alexander, supra note 44, at 52.
72 The National Defense Education Act, P.L. 85-864
(1958).
73 Reynolds, M., and Rosen, T, "Special Education:
Past, Present and Future,* Educational Forum 15 (1976):
551-562.
74 U.S. Const. Art. I, § 8, cl. 1.
75 Thompson et al., supra note 3, at 97-98.
76 Thompson et al., supra note 3, at 97-98.
7' United States v. Butler, 297 U.S. 1, 56 S. Ct.
312 (1936).
73 Helvering v. Davis, 301 Cr. S. 619, 57 S. Ct. 904
(1937) .
79 United States v. Overton, 834 F.2d 1171 (5th Cir.
1897).
80 U.S. Const. Art. XVI, § 1.
31 Brown, 347 U.S. 483. A more specific legal review
of the establishment of equal protection under the
Fourteenth Amendment was provided at the end of this
chapter.
82 P.A.R.C., 343 F. Supp. 279.
83 Turnbull, supra note 2, at 32-33.
84 Ibid.
Ibid.
P.A.R.C., 343 F. Supp. 279.
86

104
87 Crowder v. Riles, No. CA 00384 (Super. Ct. Los
Angeles Co., filed Dec. 20, 1976); and Davis v. Wynes,
No. CV-176-44 (S.D. Ga., filed May 21, 1976).
88 Turnbull, supra note 2, at 33.
89 Ibid.
90 Ibid.
91 Rowley, 458 U.S. 176.
92 Tatro v. State of Texas, 481 F. Supp 1224
(N.D.Tex. 1979), rev'd., 625 F.2d 557 (5th Cir. 1980), on
remand, 516 F. Supp. 969, rev'd 703 F.2d 823 (5th Cir.
1983), aff'd., 468 U.S. 883, 104 S. Ct. 3371, 82 L. Ed.
2d 64 (1984).
93 Lau v. Nichols, 414 U.S. 53 (1974).
94 Crexnins, James, Legal and Political Issues in
Special Education (Springfield, Illinois: Charles C.
Thomas, 1983), 5.
95 Cronin, J. M., "The Federal Takeover: Should the
Junior Partner Run the Firm?" Phi Delta Kappan 58
(1976): 499-501.
96 Ibid.
97 Taylor, D. B. , Letter to Senator Jennings
Randolph, June 17, 1977.
98 20 U.S.C. 1232c (a) (1998).
99 Cremins, supra note 94, at 15.
100 Jones, P., A Practical Guide to Federal Special
Education Law (New York, New York: CBS College
Publishing, 1981), 4.
101 Ibid.
10“ Office of the White House Press Secretary, Statement by
the President upon the Signing of S.6, Washington, D.C.,
December 2, 1975. President Ford approved the
legislation only after Congress obtained the number of
votes to override a presidential veto.
103 In 1840, Rhode Island passed the first compulsory
attendance law. Massachusetts established its law in
1852 with other states following suit. By 1910, all
states had compulsory education laws in place. Despite
this legislative trend, children with special needs were
still categorically excluded from most public schools.
104 Jones, supra note 100, at 14.
105 Cremins, supra note 94, at 5.
106 Ibid., at 14.

105
107 Ibid.
108 Ballard, J., B. A. Ramirez, and F. J. Weintraub,
Special Education in America: Its Legal and Governmental
Foundations, (Reston, Virginia: Council for Exceptional
Children, 1982) .
109 Elementary and Secondary Education Act
Amendments, P.L. 89-750 (1955) [repealed by P.L. 91-230
(1970)] .
110 Office of Public Information, Galluadet
University.
111 20 U.S.C. Ch. 20B transferred as 20 U.S.C. §§
4301-4303 (1998).
n‘ Ballard et. al., supra note 108, at 1.
113 Ibid.
114 Ibid., 2.
115 Ibid.
116 Ibid.
117 Cremins, supra note 94, at 5.
118 Yell, supra note 44.
119 Ibid.
120 Ibid.
121 Ibid.
122 Ibid.
123 Ibid., 56-57.
124 Ibid.
125 Ibid.
126 Ibid.
Winzer, M. A., History of Special Education from
Isolation to Integration (Washington, DC: Gallaudet
Press, 1993) .
128 Ibid.
129 Ibid.
130 Ibid.
131 Cremins, supra note 94, at 6.
132 Ibid.
133 Ibid., 5.
134 Ibid.

106
135 Strickland, B.B. and A. P. Turnbull, Developing
and Implementing individualized Educational Plans, New
York: Merrill Publishing.
136 2 0 U. S.C. §§ 1401(1) (B) ; 1414 (a) (1) (C) (iv)
(1998) .
137 See, e.g., Turnbull, supra note 2, at 14-15;
Yell, supra note 44, at 54-55; and Ballard et. al.,
supra note 108, at 2-3; Winzer supra note 127, at 165.
138 Turnbull, supra note 2, at 15.
lj9 Watson v. City of Cambridge, 32 N.E. 864 (Mass.
1893) .
140Beattie v. Board of Education, 172 N.W. 153 (Wis.
1919) .
141 Vocational Rehabilitation Act, P.L. 65-178
(1994) (transferred to 29 U.S.C. § 701-797b (1998)].
142 Smith-Fess Act, P.L. 66-236 (1920) [codified as
29 U.S.C. § 4 , transferred to 29 U.S.C. 701-797b
(1998)] .
143
144
145
146
147
148
149
150
Cremins, supra note 94, at 10.
Ibid., 6.
Hehir and Latus, supra note 49, at 6.
Ibid.
Ibid.
Ibid.
Cremins, supra note 94, at 7.
Winzer, supra note 127, at 307-309.
151Ibid., 277-288.
152 Ibid.
153 Ibid.
154 Ibid.
155 Ibid.
156 Ibid.
157 Ballard et. al., supra note 108, at 2.
158 1 9 6 5 N.C. Session Laws, ch. 584, amending North
Carolina General Statute §§ 115-165 (1963).
159 Department of Public Welfare v. Haas, 154 N.E.
2nd 265 (Ill. 1958).

107
160 Cremins, supra note 94; Weber, M. C., Special
Education Law and Treatise (Horsham, Pennsylvania: LRP
Press, 1993); and Yell, supra note 44.
161 H. R. Report No. 94-332, supra note 41, at 7. With
the exception of Ohio and Mississippi, all states were—
as of July 1, 1975—under statutory or court mandates to
provide full educational opportunities for children with
disabilities.
162Turnbull, supra note 2, at 28; and Versetgen,
"Civil Rights and Disability Policy: A Historical
Perspective," in Parrish, Thomas, Jay Chambers, and
Cassandra M. Guarino, Eds., Funding Special Education
(Thousand Oaks, California: Corwin Press, 1998).
16j H. R. Report No. 94-332, supra note 41.
164 Cremins, supra note 94, at 10.
165 15 U.S.C. §§ 4301-4306 (1999).
166 Cooperative Research Act, P.L. 83-531 (1954) .
167 Education of Mentally Retarded Children Act,
P.L. 85-926, [repealed by P.L. 89-10 (1965)].
168 Captioned Films for the Deaf Act, P.L. 85-905
(1958) [repealed by P.L. 89-10 (1965)].
165 Ballard et al., supra note 108, at 2.
170 The National Defense Education Act, P.L. 85-864
(1958) [transferred to 20 U.S.C. §§ 6301-6321e 1998)].
171 Ballard et al., supra note 108, at 2.
173
Ibid.
174 Ibid.
15 Mental Retardation Facilities and Community
Mental Health centers Construction Act, P.L. 88-164
(1963) [transferred to 20 U.S.C. §§ 6301-6321e 1998)].
176 Cremins, supra note 94, at 11.
178
Ibid.
179 Elementary and Secondary Education Act
Amendments, P.L. 89-750 (1955) [repealed by P.L. 91-230
(1970)] .
180 Cremins, supra note 94, at 11-12; and Turnbull,
supra note 2, at 13.
181 Turnbull, supra note 2, at 13.
Senate Report No. 94-168, supra note 8.
182

108
183 EAHCA, supra note 9. See, e.g., Verstegen, D.
A., Fiscal Provisions of the Individuals with
Disabilities Act: A Historical Overview (Palo Alto,
California: Center for Special Education Finance, 1994).
184 EHA, supra note 9.
185 IDEA, supra note 9.
186 Parrish et al., supra note 162, at 6.
187 Ibid.
188 Senate Report No. 94-168, supra note 8, at 199.
According to the Senate Subcommittee on the Education
Amendments of 1974, "Increased awareness of the
educational needs of handicapped children and landmark
court decisions establishing the right to education for
handicapped children pointed to the necessity of an
expanded Federal fiscal role.”
189 Education Amendments, P.L.
93-380, (1974).
Parrish et al., supra note 162, at 6.
Jones, supra note 100, at 14.
Ibid.
193 20 U.S.C. § 1400(b) (3-4) (1998).
20 U.S.C. § 1400(b)(9) (1998).
H. R. Report No. 94-332, supra note 41, at 2.
Senate Report No. 94-168, supra note 8, at 199.
H. R. Report No. 94-332, supra note 41, at 11.
198 The age requirement staggered compliance by
mandating all states to provide special education
opportunities to students with disabilities between the
ages of 3 and 21 by September of 1980. The concession
was considered by many to be a political essentiality:
the EHA would have probably failed or been weakened
without such a condition. See Turnbull, supra note 2, at
37.
190
191
192
194
195
196
197
199 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. §§ 1401-1491o (1998)].
200 Jones, supra note 100, at 24.
Ibid.,17.
20 U.S.C. §§ 1411-1420 (1998).
202

109
203 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. §§ 1401-1491o (1998)].
204 Osbourne, supra note 14, at 12.
205 20 U.S.C. § 1401 (a) (1-16) (1998).
206 20 U.S.C. § 1412(a)(5) (1998).
207 2 0 U.S.C. § 1412(a)(4) (1998).
208 20 U.S.C. § 1412 (a) (12) (B) (i) (1998); The Act
defined specific services which were "specially designed
instruction ... to meet the unique needs of a child
with disabilities" such as transportation,
identification and assessment, speech pathology,
psychological services, physical and occupational
therapies, recreation, and diagnostical or evaluative
medical services, and counseling. However, the Act does
not limit the provision of other services. See Tatro,
468 U.S. at 883, and Cedar Rapids Community School
District v. Garret F., 118 S. Ct. 1793 (1999).
209 2 0 U.S.C. § 1412(a)(6) (1998).
21020 U.S.C. §§ 1401(8), 1412(a)(1) (1998); FAPE is
defined as "special education services that (A) have
been provided at public expense, under public
supervision, and without charge, (B) meet the standards
of the State educational agency, (C) include an
appropriate preschool, elementary, or secondary school
education in the State involved, and (D) are provided in
conformity with the individuals education program
authorized under . . . this title."
211 20 U.S.C. § 1412(a)(1), (6); 1413(a);
1413(a)(4)(B) (1998).
212 20 U.S.C. §§ 1411-1420 (1998).
213 Education of the Handicapped Amendments of 1986,
P.L. 99-457 (1986) .
214 20 U.S.C. § 1473 (1998) .
215 20 U.S.C. §§ 1431-1445 (1998).
216 Ibid.
217 20 U.S.C. §§ 1461-1487 (1998).
218 20 U.S.C. §§ 1431-1435 (1998).
Verstegen, supra note 183, at 1.
219

110
220 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. §§ 1401-1491o (1998)].
221 Yell, supra note 44, at 84.
222 Individuals with Disabilities Education Act
Amendments, P.L. 102-119 (1991) [codified as amended at
20 U.S.C. §§ 1401-14910 (1998)].
223 Verstegen, supra note 183, at 28.
224 Ibid., 28.
225 Individuals with Disabilities Education Act
Amendments, P.L. 105-17 (1997) .
226 Yell, supra note 44, at 88.
227 Ibid., 313-354.
228 2 0 U.S.C. § 1412(b) (1998).
229 Center for Special Education Finance, "FAQ:
Federal Funding for Special Education Under P.L. 105-
17," Available online from: http://csef.air.ora/faal-
l.html#!
230 Ibid.
231 Chambers, J. G., T. B. Parrish, and C. Hikido,
Special Education Expenditures and Revenues in a Census-
Based Funding System (Palo Alto, California: Center for
Special Education Finance, 1996).
232 Ibid.
233 3 4 C.F.R. 300.235 (1999) .
234 20 U.S.C § 1413(a)(4)(A) (1998).
235 2 0 U.S.C. § 1411(f) (1) (B) (ii) (1998).
20 U.S.C. § 1413(a)(2)(D) (1998).
236

Ill
237 2 0 U.S.C. § 1413(a) (2) (B) (i) (1998) . The
voluntary departure, by retirement or otherwise, or
departure for just cause, of special education
personnel; (ii) A decrease in the enrollment of children
with disabilities; (iii) The termination of the
obligation of the agency, consistent with this
subchapter, to provide a program of special education to
a particular child with a disability that is an
exceptionally costly program, as determined by the State
educational agency, because the child (I) has left the
jurisdiction of the agency; (II) has reached the age at
which the obligation of agency to provide a free
appropriate public education to the child has
terminated; (III) no longer needs such program of
special education; (iv) The termination of costly
expenditures for long-term purchases, such as the
acquisition of equipment or the construction of school
facilities.
238 2 0 U.S.C. § 1413(a)(2)(D) (1998).
239 2 0 U.S.C. § 1413(a)(4)(B) (1998).
240 Verstegen, supra note 183.
241 20 U.S.C. § 1411(a)(5) (1998).
242 2 0 U.S.C. § 1411 (e) (1-2) (1998); Note: Cap is
specifically set at $4,924,672,200.
243 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, 1997)
1.
244 20 U.S.C.
245 20 U.S.C.
246 2 0 U.S.C.
247 Ibid.
§ 1411(e)(3)(A)(ii-iii) (1998).
§ 1411(e) (3) (B) (ii) (1998) .
§ 1411(f)(1)(B)(ii) (1998).
248 2 0 U.S.C. § 1411(f) (1) (B) (ii) (1998).
249 20 U.S.C. § 1411(a) (18) (1998).
250 Senate Report No. 94-168, supra note 8, at 206.
251 20 U.S.C. § 1411(e) (1998).
252 2 0 U.S.C. § 1411(f) (1998).
253 Verstegen et al., supra note 243, at 1-2.
254 2 0 U.S.C. § 1411(b)(2)(E) (1998).
255 Senate Report No. 94-168, supra note 8, at 10.
256 20 U.S.C. § 1413(c) (1998).

112
257 2 0 U.S.C. § 1234(a) (1998).
258 Weber, supra note 160, at 12:1-2.
259 2 0 U.S.C. § 1234a (1998) .
260 Louisiana State Board Of Elementary & Secondary
Education v. United States Department of Education, 881
F.2d 204 (1989).
261 Department of Education v. Bennett, 864 F.2d 655
(1989) .
282 Weber, supra note 160, at 12:2.
263 2 0 U.S.C. § 1413(a) (11) (1998).
264 2 0 U.S.C. § 1412(a)(6) (1998).
265 Weber, supra note 160, at 12:1-5.
266 Ibid., 12:4.
267 Ibid. , 12:2.
268 Allen v. McDonough, (Mass. Super. Ct. 1987).
269 2 0 U.S.C. § 1414(b)(2)(A) (1998).
270 Weber, supra note 160, at 12:3.
271 P.A.R.C., 343 F. Supp. 279.
272 Andrews v. Ledbetter, 880 F.2d 1287 (11th Cir.
1989); and Lincoln Intermediate Unit No. 12 v.
Commonwealth, 123 Pa. Commnw. 102, 553 A.2d 1020 (1989).
273 Ibid.
274 Hendricks v. Gilhool, 709 F. Supp. 1362 (E.D.
Pa. 1989).
275 2 0 U.S.C. § 1411(a)(3) (1998).
276 2 0 U.S.C. § 1232c (a) (1998).
277 Education Department General Administrative
Regulations, codified at 34 C.F.R. §§ 300.660-.662
(1980) .
278 34 C.F.R. § 76.781(c) (1999).
279 20 U.S.C. § 1412(a)(6) (1998).
280 Christopher W. v. Portsmouth School Commission,
877 F.2d 1089 (1st Cir. 1989).
281 Virginia Department of Education v. Riley, 23
F.3d 80; 1994 U.S. App. (1994).
282 2 0 U.S.C. § 1415 (k) (1998).
283 Civil Rights Act of 1964, P.L. 88-352, (1964)
[codified at 42 U.S.C. §§ 2000d-2000d-4 (1998)].

113
284 Education Amendments, P.L. 93-380, (1974).
285 Section 504 of the Rehabilitation Act (1973)
[codified as 29 U.S.C. §§ 706 (8), 794, 794a (1998)].
286 34 C.F.R. 100.7(a) (1999); Note: This regulation
applies with exception to the recent 1997 IDEA
amendments pertaining to student conduct and
misbehavior.
287 Hartman, W. T. , "Supplemental/Replacement: An
Alternative Approach to Excess Costs," Exceptional
Children 5 (1990): 450-461.
289
290
291
292
Ibid.
Ibid.
Ibid.
Ibid.
293 Hartman, supra note 287; and Hill, F. W. ,
"Inclusion and Administrative Structure: Public Funding
of Special Education Services," American School and
University (1993): 20-24.
294 McLaughlin, M. , and Maria Owings, "R. Among
States' Fiscal and Demographic Data and the
Implementation of P.L. 94-142," Exceptional Children 59
(1992): 247-261.
295 Ibid.
^9b Parrish and Verstegen, Fiscal Provisions of the
Individuals with Disabilities Act: Policy Issues and
Alternatives (Palo Alto, California: Center for Special
Education Finance, 1994), 42.
297 2 0 U.S.C. § 1411(e)(3)(A) (1998).
29920 U.S.C. § 1411(e) (3) (A) (ii-iii) (1998); This
cap takes effect after the $4.9 billion limit has been
reached.
300 Chaikind, S., L. C Danielson, and M. L. Brauen,
"What Do We Know about the Costs of Special Education? A
Selected Review," Journal of Special Education 26
(1993): 344-369.
301 Parrish, Special Education Finance: Past,
Present, and Future (Palo Alto, California: Center for
Special Education Finance, 1996).
302 Hartman, W. T. , "Policy Effects of Special
Education Funding Formulas," Journal of Education
Finance 6 (1980): 135-159.

114
303 Hartman, "Special Education Funding in
Pennsylvania: Problems and Alternatives," Journal of
Education Finance 16 (1991): 360-387.
304 2 0 U.S.C. § 1491b (14) (1998).
305 Parrish, supra note 301.
306 Parrish, Fiscal Issues in Special Education:
Removing Incentives for Restrictive Placements (Palo
Alto, California: Center for Special Education Finance
Finance, 1994), 8.
3C7 Shapiro, Loeb, and Bowermaster, supra note 63,
at 47.
309 Parrish, supra note 306, at 16.
310 Parrish, supra note 301. The CSEF reports that
New York and New Jersey have 7 and 5.75 percent of their
special education students in private placements,
respectively, Wisconsin has less than .05 percent and
Utah, 0 percent.
311 Ibid.
312
Ibid.
Jl3 Shapiro, Loeb, and Bowermaster, supra note 63,
at 30.
314 Parrish, supra note 3 06.
315 Ibid., 16.
Jl£ McQuain, Sandra, "Special Education Private
Placements: Financial Responsibility Under the Law,"
Journal of Education Finance 7 (1982): 425-435.
317 Parrish, supra note 306, at 13.
Hartman, W. T., "Special Education Funding
Approaches and Cost Control," School Business Affairs 57
(1991): 24-28.
319 Parrish, supra note 306.
320 Office of Special Education Programs. 1995.
Seventeenth Annual Report to Congress on the
Implementation of the Individuals with Disabilities
Education Act [On-line], Available Online from
http://www.ed.gov/pubs/OSEP95AnlRpt/index.html
322 Parrish, supra note 306.
Hartman, supra note 302.
323

115
324
Lewis, D. R., Robert Bruininks, Martha Thurlow,
and Kevin McGrew, "Using Benefit-Cost Analysis in
Special Education," Exceptional Children 55 (1988): 203-
214.
325
326
327
Ibid.
Ibid., 204.
See e.g., Lewis, Bruininks, Thurlow, and McGrew,
supra note 324; Lewis, D. R., R. Bruininks, M. Thurlow,
"Cost Analysis of Special Schools for Students with
Mental Retardation," Journal of Special Education 24
(1990): 33-50; Lewis, D. R., R. Bruininks, and M.
Thurlow, "Cost Analysis for District Level Special
Education Planning, Budgeting, and Administration,"
Journal of Education Finance 14 (1989): 466-483.
328 Hartman, W. T., "Special Education Funding in
Pennsylvania: Problems and Alternatives," Journal of
Education Finance 16 (1991): 360-387.
329
330
Ibid.
Ibid.
331 Parrish, T. B. Criteria for Effective Special
Education Funding Formulas (Palo Alto, California:
Center for Special Education Finance, 1995) .
Ibid., 5.
332
333
334
Ibid., 6.
See e.g., Dorothy Kerzner, and Alan Gartner,
"Capable of Achievement and Worthy of Respect: Education
for Handicapped Students As If They Were Full-Fledged
Human Beings, " Exceptional Children 54 (1987): 69-74;
and Algozzine, B., and Korinek, L., "Where Is Special
Education for Students with High Prevalence Handicaps
Going?" Exceptional Children 51 (1985): 388-488.
335
Ibid.
Parrish and Verstegen, supra note 296
336

116
337 See e.g., McLaughlin, M. J., and S. H. Warren,
Resource Implications of Inclusion: Impressions of
Special Education Administrators at Selected Sites (Palo
Alto, California: Center for Special Education Finance,
1994); and Verstegen, D. A, Consolidating Special
Education Funding and Services: A Federal Perspective
(Palo Alto, California: Center for Special Education
Finance, 1995), 7-13; Stainback, W. and Stainback, S.,
"A Rationale for the Merger Special and Regular
Education," Exceptional Children 51 (1984): 102-111; and
Anthony, Patricia, "Financing Special Education in an
Era of Fiscal Restraint," School Business Affairs 57
(1991): 135-139.
338 CSEF, supra note 21.
339 CSEF, Resource Implications for Inclusion, Issue
Brief No. 3 (Spring 1994) .
341 CSEF, supra note 337.
342 Parrish, supra note 306.
343 Ibid.
344 Hill, supra note 290, at 20-24.
345 Parrish, T. B. and D. L. Montgomery, The
Politics of Special Education Reform in Three States,
(Palo Alto, California: Center for Special Education
Finance, 1995).
346
347
348
349
350
351
Ibid.
Hartman, supra note 318, at 24-28.
Ibid., 25.
Ibid.
Ibid.
Ibid.
353 Chambers et. al, supra note 65, at 1; see e.g.,
Moore, M. T., Strang, E. W., Schwartz, M., & Braddock,
M., Patterns in Special Education Delivery and Cost.
(Washington, DC: Decision Resources, 1988).
354 Rossmiller, Richard. A., James Hale, and Lloyd E
Froreich, Educational Programs for Exceptional Children:
Resource Implications for Configurations and Costs,
(Madison, Wisconsin: University of Wisconsin Press,
1970) .

117
355 Kakalik, J. S., W. S. Furry, M. A. Thomas, and
M. F. Carney, The Cost of Special Education: A Rand Note
(Santa Monica, California: Rand Corporation, 1981) .
356 Moore et al. , supra note 353.
357 Rossmiller et al., supra note 354.
358 Chambers, Jay G. and William T. Hartman, Special
Education Policies: Their History, Implementation, and
Finance (Philadelphia, Pennsylvania: Temple Press,
1983), 193.
359 Ibid., 198.
360 Ibid., 199.
361 Moore et al., supra note 353.
362 Parrish and Verstegen, supra note 296, at 22.
363 Chambers et. al, supra note 70.
364
199.
Chambers and Hartman, supra note 358, at 198-
365 Singletary, Ernest, "Finance: That Which Makes
Special Education Possible,* Journal of Education
Finance 1 (1976): 334-353
366 Rossmiller et al.
367
303 A.2d 273
94 S. Ct. 292,
supra note 354.
Ibid., 344.
j68 Robinson v. Cahill, 62 N.J. 473
(N.J. 1973), cen. denied, 414 U.S. 976,
38 L. Ed. 2d 219 (1973) .
369 Kakalik et al., supra note 355.
370 Ibid., 347.
371 Ibid., 351.
372 Ibid.
373
Hagerty, George J., and Marty Abramson,
"Impediments to Implementing National Policy Change for
Mildly Handicapping Students," Exceptional Children 53
(1987): 315-323 .
374
375
Ibid., 313
Tappe, D. R., "Nineteen Reasons Why Special
Education Should Cost More Than Regular Education,*
Conference Proceedings of the American Council on Rural
Special Education (Salt Lake City, Utah: American
Council on Rural Special Education, 1995).
376 CSEF, supra note 21.
Thompson et al., supra note 3, at 269.
377

118
378 Ibid.
379 Thomas and Russo, supra note 44, at 10-11.
380 Ibid.
381 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) .
382 Weber v. Aetna Casualty and Sur. Co., 406 U.S.
164 (1972).
383 Black, Charles, The Lawfulness of the
Segregation Decisions, 69 YALE L.J. 421-424 (1960) .
384 U.S. v. Carolene Prod. Co., 304 U.S. 144 (1938).
385 Ibid.
386 Matthews v. DeCastro, 429 U.S. 181, 185 (1976).
387 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).
388 Plyer v. Doe, 457 U.S. 202 (1982).
389 Thomas and Russo, supra note 44, at 10-11.
390 Turnbull, supra note 2, at 46.
391 Ibid., 11.
392 U.S. Const. Art. XVI, § 1.
393 Alexander, K., and R. G. Salmon, American Public
School Finance (Boston, Massachusetts: Allyn and Bacon,
1995), 279.
394 Mills, 348 F. Supp. 866.
P.A.R.C., 343 F. Supp. 279.
Turnbull, supra note 2, at 121.
Brown, 347 U.S at 682.
398 Ibid.
399 Plessy v. Ferguson, 163 U.S. 537, 16 S. Ct. 138
(1896).
400 Turnbull, supra note 2, at 11.
401 P.A.R.C. , 343 F. Supp. 279; and Mills, 348 F.
Supp. 866.
Alexander and Alexander, supra note 44, at 414.
395
396
397
402

119
403
Ibid.
404 Ashmore, Harry S, The Negro and the Schools,
(Chapel Hill, North Carolina: University of North
Carolina Press, 1954), 42-44.
405 Turnbull, supra note 2, at 156-157.
406 Ibid.
407 Thomas and Russo, supra note 44, at 8-10.
408 Brown, 347 U.S. 483.
409 Turnbull, supra note 2, at 159.
410 Ibid.
411 Wolf v. Legislature of Utah, Civil No. 18264
(Utah 3d Jud. Dist. Ct., Jan. 8, 1969).
412 P.A.R.C., 343 F. Supp. 279.
414 42 U.S.C. § 1981 (1998) maintains that "All
persons within the jurisdiction of the United States
shall have the same right in every State and Territory
to make and enforce contracts , to sue, be parties, give
evidence, and to the full and equal benefit of all laws
and proceedings for the security of persons and property
as is enjoyed by white citizens, and shall be subject to
like punishment, pains, penalties, taxes, licenses,
exactions of every kind and to no other."
415 42 U.S.C. § 1983 (1998) maintains that "Every
person, who under color of any statute, ordinance,
regulation, custom, or usage, of any State or Territory,
subjects or causes to subjected, any citizen of the
United States or other persons within the jurisdiction
thereof to the deprivation of any rights, privileges, or
immunities secured by the Constitution and laws, shall
be liable to the party injured in an action at law, suit
in equity, or other proper proceedings for redress."
416 Mills, 348 F. Supp. 866.
417 Thomas and Russo, supra note 44, at 8-10.
418 H. R. Report No. 94-332, supra note 44, at 7.
419 Ibid.
420 Thomas and Russo, supra note 44, at 8-10.
421 Turnbull, supra note 2, at 159.
422 Thomas and Russo, supra note 44, at 8-10.
423 Ibid.
Ibid.
424

120
425Buruss v. Wilkerson, 310 F.Supp. 572, affirmed
394 U.S. 44 (1970) .
426 Mclnnis v. Shapiro, 293 F.Supp. 327, affirmed
394 U.S. 44 (1970).
427 Ibid., 29.
428 Alexander and Salmon, supra note 393, at 28-29.
429 Thompson et al. , supra note 3, at 272.
430 Rodriquez, 411 U.S. at 1.
431 Alexander and Salmon, supra note 393, at 28-29.
432 Rodriquez, 411 U.S. 1.
433 Thompson et al., supra note 3, at 272.
434 Rodriquez, 411 U.S. 1.
435 Turnbull, supra note 2, at 11.
436 Papasan v. Allain, 478 U.S. 265 (1986).
437 Plyer, 457 U.S. at 202.
438 Kadrmas v. Dickinson Public Schools, 402 N.W.2d
897 (N.D. 1987) .
439 CSEF, "Landmark Court Decision Challenge State
Special Education Funding," Issue Brief No. 9 (1998):1.
440 Ibid.
441 Harper v. Hunt, 624 So. 2d 107 (1993).
442
and 22.
Ala. Const. Art. XIV, § 256; art. I, §§ 1, 6, 13
443 U.S. Const. Art. X; Art. XVI, § 1.
444 Harper, 624 So. 2d at 17.
445 Rowley, 458 U.S. 176. "Has the State complied
with the procedures set forth in the Act? Is the
individualized education program ... Is the program
reasonably calculated to enable the child to receive
educational benefits?"
446 Washakie County Sch. Dist. No. One v. Herschler,
606 P.2d 310 (Wyo. 1980).
447 W. S. § 21-13-102 (a) (i) (A-B) ; W. S. § 21-13-
201(a) (1983);
448 Washakie, 606 P.2d at 310.
449 2 0 U.S.C. § 1411(a) (18) (1998).
450 20 U.S.C. § 1411(a) (18) (1998).
451 Cambell v. State of Wyoming, 907 P.2d at 1279
(1995) .

121
452 DeRolph v. Ohio, 78 Ohio St. 3d 193, 677 N.E.2d
733 (1997).
453 Ohio State Constitution, Section 2, Article VI (requiring
a thorough and efficient system of common schools
throughout the state).
454 DeRolph, 78 Ohio St. 3d 193.
455 Ohio Stat. R.C. 3317.02(A).
456 DeRolph, 78 Ohio St. 3d at 200.
457 Ibid.
458 CSEF, supra note 439, at 6.

CHAPTER 3
METHODOLOGY
This study utilized the techniques of traditional
legal and policy study research. As the purpose of this
study was to provide a cogent model of special education
finance policy for the federal government, the application
of these two methods was particularly appropriate.
The traditional framework of legal research required a
rational inquiry that was predicated upon the exposition
and exegesis of legal principles.1 This study required the
integration of historical inquiry and the analysis of legal
precedent, or stare decisis.2 This doctrine of English and
American law has maintained that when a court has expressed
a principle of law as applicable to a given set of facts,
it will follow that principle and apply it in future cases
when the facts are substantially the same.3 This principle
also has maintained that the historical precedent of
previous court rulings was paramount and that citizens are
assured an aligned and congruous outcome in the legal
process. Therefore, the court rulings in Brown v Board of
Education,4 Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v Commonwealth of Pennsylvania.5 Mills v. Board
of Education.6 and Board of Education v. Rowlev.7 were
germane to any legal analysis of a free and appropriate
122

123
public education (FAPE). An analysis of recent trends in
special education finance litigation revealed data relative
to the concept of a FAPE. The three research questions drew
focus to the technique of funding special education
programs and the nature of federal policy for placement
neutrality. To do so, the researcher was compelled to apply
legal analysis within the framework of existing special
education law.
This legal inquiry analyzed the policy congruence
between the IDEA'S basic tenets and the manner in which
these doctrines have been employed. This inquiry comprised
an analysis of federal special education policy
development. An analysis of this policy development was
characterized by Dunn as an applied social science
discipline that (a) utilized multiple methods of inquiry
and argument to produce and (b) transform policy-relevant
information that may be used in political settings to
resolve policy problems.8
Policy studies have been described as more than
studies of politics: they are studies for politics.9 The
chief audience of such a policy analysis has entertained
options and alternatives for the solution of contemporary
problems.
Most succinctly defined, policy analysis has aimed to
produce social policy research that was conditioned or
modified by the combined research of various disciplines.10
Analysis of the pertinent issues required an approach that

124
transcended the limitations of a purely legal analysis and
infused a technique that addressed the practical issues of
historical, emerging, and future applications of special
education finance and law. As the purpose of the study was
to construct a revised model of practice for federal
policymakers, a normative—or advocative—analysis of
current school finance technique was essential.
With these two approaches to legal research in mind,
this study was described as a fusion of evaluative legal
research and prescriptive, ex-post policy analysis that
produced a derived model of federal special education
policy for placement neutrality.
Sources of Information
In a legal survey and evaluation of special education
finance and law, the study utilized three distinctive
sources of information: primary, secondary, and traditional
legal research instruments. Tangible legal information was
acquired through various law libraries. The greatest source
of legal information was acquired through electronic means
through the American Institute of Research (AIR) ,11 Center
for Special Education Finance (CSEF),12 Cornell Law
School,13 and The Congressional,14 and Office of Special
Education and Rehabilitative Services (OSERS) websites.15
Primary legal resources included the United States
Code, The Congressional Record, The United States Supreme
Court, United States Public Laws, The Twentieth Annual
Report to Congress on the Implementation of the Individuals

125
with Disabilities Education Act,16 federal and state case
law, and—in certain cases—the most recent manual of the
Code of Federal Regulations.17 To a lesser extent, the
study utilized state statutes and constitutions to examine
administrative law issues relating to special education
finance and law.
Secondary resources included legal treatise, education
finance and special education literature, and professional
declarations by relevant organizations. The literature
review included surveys and studies relating to the
doctrine of equal opportunity and access to free and
appropriate special education programs. Annotated
bibliographies provided by the CSEF provided a framework of
literature as it related to the domains of special
education finance and law research.
Other research instruments, such as the LEXIS-NEXIS
information service, were utilized to derive a body of
relevant data as it related to the study of special
education finance and law. Ervin H. Pollack's Fundamentals
of Legal Research was utilized to clarify legal terms and
definitions that were germane to the legal discourse of
special education finance and law.
Data Organization
Data were organized in both topical and chronological
manners. Topical methods provided for an organization of
legal doctrines as were related to the federal provision of
funds for special education programs. Chronological methods

126
were utilized to preserve the natural historical
progression of special education legislative and case law.
Data Analysis
United States Code, 1997-1998 Code of Federal
Regulations, The Twentieth Annual Report to Congress on the
Implementation of The Individuals with Disabilities
Education Act,18 and the Congressional Record were
scrutinized to demonstrate the philosophical models
relevant to the evolution of special education finance and
law. Court decisions and the legal doctrines relating to
equal opportunity and the equitable funding of special
education programs were singularly reviewed. Furthermore,
legal critique and treatise were studied in detail and
provided definition to the body of case law.
In Chapter 4, the author analyzed data from the
following sources of policy-relevant information: (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.
Synthesis
The analysis of literature and law preceded a
comprehensive synthesis of legal research. This analysis
accorded with a thorough explanation of the evolution of
special education finance and law and how these laws have

127
impacted the administration of special education programs
throughout the United States. The specific research
questions structured for this analysis were framed as
follows:
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?
Furthermore, data were reviewed by means of a federal
policy analysis to measure the policy congruence between
legislative intent and the manners in which special
education programs are funded. The policy
alternatives—derived from this synthesis of research—were
then ranked and framed within a revised model of federal
special education policy for placement neutrality. This
prescriptive analysis produced a policy model that was
particularly relevant to the trend of special education
finance reform. This union of data provided policymakers
with a model of special education finance policy that was
based on federal doctrine, jurisprudence, and theories of
school finance equity. This model of federal policy was
also complemented by a recommendation of issues that
warranted further study.

128
Standards for Adequacy for Policy Analysis
Policy analysis has varied from "pure" research in
important ways. Policy analysis was directed toward
specific policy issues rather than indirect applications of
data and theory.19 Such an analysis aimed to illuminate
policy options that work within the framework of the law.20
While "pure" researchers have investigated controllable and
uncontrollable variables, the policy analyst has targeted
acts of volition that could be controlled through sound
policy decisions.^
Complex policy problems have not recognized
traditional disciplinary boundaries.22 Therefore, a policy
analysis has often transcended traditional explanations of
empirical regularities by (a) combining the theories of
several disciplines (e.g., special education, school law,
school finance, and Constitutional law) and (b) eliciting
policy-specific information that may be utilized to resolve
problems in relevant political situations23 and under
specific time constraints.24 This method extended beyond
the mere statement of findings: the normative-prescriptive
policy analysis has produced information concerning values
and preferable courses of action within the letter of the
law.25 This approach has sought to (1) establish the full
range of conditions that cause social problems, and (2)
rank methods for the resolution of these problems.26
Regardless of the perceived merit of a congressional
law, the U.S. Supreme Court has considered the

129
appropriateness of an agency regulation by asking if
Congress has directly spoken to the precise question at
issue.27 If the intent of Congress was clear, there has
been no need for judicial clarification. When the intent of
Congress was unclear, the Court has given effect to the
unambiguously expressed intent of Congress.28 With
particular reference to special education finance, the
higher courts have held that "the primary responsibility
for formulating the education to be accorded to a
handicapped child, and for choosing the educational method
most suitable to a child's needs, was left [by the IDEA] to
state and local educational agencies . . . 1,29
Jurisprudence, therefore, has placed the highest premium
upon the legislative intent of Congress.
Thus, the Congressional Record and relevant documents
served this author as the foundation of a federal policy
analysis. Despite the Constitutional allowances that
permitted the exercise of judicial review, Congress was
ultimately entitled by the Constitution to design and enact
any law it has deemed necessary. With regard to the
validity of the Congressional Record, this study maintained
that the meaning of laws-in-effect began and concluded with
congressional intentions.
1 Jacobstein, J. Myron, and R. M. Mersky, Ervin H.
Pollack's Fundamentals of Legal Research (Mineóla, New
York: Foundation Press, 1973), 9.
Ibid., xxviii.
2

130
J Ibid.
4 Brown v Topeka Board of Education, 347 US 483 (1954)
5 Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v Commonwealth of Pennsylvania, 343 F Supp 279
(1972) .
6 Mills v. Board of Education, 348 F. Supp. 866
(1972) .
7 Board of Education v. Rowley, 458 U.S. 176, 102 S.
Ct. 3034, 73 L. Ed. 2d 690, (1982).
8 Dunn, William, Public Policy Analysis: An
Introduction (Englewood Cliffs, New Jersey: Prentice-Hall),
35.
9 Frohock, Fred, Public Policy: Scope and Logic
(Englewood Cliffs, New Jersey: Prentice-Hall, 1981), 184.
10 Ibid., 185.
11 htto: / /www. air. ora
12 http: //csef .air.ora
13 Office of Special Education programs, Twentieth
Annual Report to Congress on the Implementation of The
Individuals with Disabilities Education Act (On-line 1998),
Available from http://www.ed.aov/ offices/
OSERS/OSEP/QSEP98AnlRpt/
14 http: / /icreport. loc . aov/
15 http://www.ed.aov/offices/OSERS/OSEP/osep.html
16 http://www.ed.gov/offices/OSERS/OSEP/OSEP98AnlRpt
17 34 CFR §§ 300.1-300.756 (1999).
18 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)].
19 Frohock, supra note 9 at 184.
20 Ibid.
21
Ibid.
Dunn,
23
Ibid.
supra note 8 at 36.
24 Frohock, supra note 9 at 184.
25 Dunn, supra note 8 at 36.
26 Frohock, supra note 9 at 187.
27 Cedar Rapids Community School District v. Garret
F., 106 F.3d 822 (8th Cir. 1999).

131
28
Ibid.
29 Rowley, 102 S. Ct. at 303.

132
CHAPTER 4
FEDERAL POLICY ANALYSIS OF THE IDEA
Data Analysis from Policy-Relevant Information Sources
This study was a prescriptive, ex-post policy
analysis of the federal special education program.1 This
analysis of the Individuals with Disabilities Education
Act2 contributed to the construction of the revised
framework of federal special education policy for
placement neutrality in Chapter 5 of this study. The
author analyzed the following sources of policy-relevant
information: (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. The author's specific research
questions 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?
What federal requirements exist to either
promote placement neutrality or prohibit fiscal
bias>
3 .

132
Analysis of Pertinent Court Cases
In many ways, the courts have contributed to the
evolution of federal special education policy. From its
earliest drafts in congressional committees, the IDEA
represented a blending of contemporary consent decrees
relating to the equal protection of students with
disabilities.3 An analysis of litigation in special
education finance revealed three separate strands of
judicial reasoning:
1. Establishment of equal protection for a quasi¬
suspect class of students with disabilities;4
2. Equal protection through equitable special
education finance;5 and
3. Equal protection manifested as the Least
Restrictive Environment (LRE).6
The reasoning utilized in the following court cases
reflected a longitudinal effort to secure equal
educational opportunity for students with disabilities.
Unprecedented growth in special education enrollments
placed pecuniary strain upon state and local educational
administrations. Nevertheless, this legal analysis
revealed a judiciary generally committed to the basic
tenets of the IDEA and to the importance of the
equitable school financing of special education
programs.

133
Progression of Equal Protection
It has been argued that the Brown opinion grounded
the nexus between students with disabilities and the
right to a free and appropriate public education.7 The
plaintiffs in this case successfully demonstrated the
social detriment of segregated educational placements.
The Warren Court drew focus to the importance of
integrated educational opportunity and its role in the
security of the Fourteenth Amendment.
The Warren Court's ruling in Brown evolved into a
critical legal metaphor for advocates of students with
disabilities. In this case, the court established two
principles that would successfully serve the promotion
of free and appropriate public education (FAPE) programs
in P.A.R.C. and Mills. First, the court established the
necessity of public education and the critical role this
public service served in the democratic process.8
Second, the U.S. Supreme Court found that public
segregation was inherently unequal and that the right to
a public education was intended for all students on
"equal terms."9 The court declared governmental
segregation was unconstitutional, but it left the
administrative task of social reform to the devices of
Congress and the state legislatures.
While Brown dealt specifically with the suspect
class of race, P.A.R.C. was the first federal case to
apply the Brown jurisprudence to students with mental

134
retardation. In this case the federal district court
found a cogent claim for equal protection under the
Fourteenth Amendment.10 Utilizing the rational basis
test, the court maintained that the disparate treatment
of the plaintiffs represented a threat to their
Constitutional rights.11
This ruling provided the researcher with several
significant policy findings. First, data revealed that
that improper assessment or the stigma of placement in
restrictive settings fundamentally disturbed the
liberties of students.12 The court also maintained that
restrictive placements, in the absence of due-process,
warranted the need for equal protection status.13 The
analysis revealed that the court established the
relative importance of education for all levels of
public education. Moreover, the analysis indicated that
schools were required to adapt instructional goals for
the capabilities of each child. In doing so, the court
displayed its preference for the default placement of
students with disabilities in the mainstream of general
education.14 This concept would later evolve into the
doctrine of the LRE.
Mills15 generalized the logic in Brown and P.A.R.C.
to the equal protection of students with all categories
of impairment. This case represented the first formal
judicial mandate for special education finance equity.
Here, the district court held that a lack of funds was

135
not a substantial excuse for the functional exclusion of
students with disabilities. Instead, the court
maintained that the resource inadequacies were not to be
attributed to any particular group of students.16
Although some cases were not as successful in
addressing the inequity of segregated special education
programs in the 1970s,1' P.A.R.C. and Mills created a
critical mass of educational policy reform at the state
and federal levels.18 P.A.R.C. and Mills also promulgated
a wave of equal protection litigation of 49 suits in 28
states.19 States legislatures responded to this
litigation by enacting revised education statutes that
reflected the newly protected status of students with
disabilities. At the time of the enactment of the
Education for All Handicapped Children Act (EAHCA)20 in
1975, many states had some type of special education
statutes in effect. However, testimony in the House
Subcommittee on Select Education and the Senate
Subcommittee on the Handicapped revealed that program
noncompliance was the rule rather than the exception.21
This set the historical context for the establishment
the most comprehensive, free-standing federal statutes
in the history of the Union: the EAHCA.22
Board of Education v. Rowlev
Once the fundamental rights of students with
disabilities were grounded in Brown. P.A.R.C.. Mills.
and the EAHCA, the next significant stage of litigation

136
represented an attempt to delineate the context of an
appropriate public education. The plaintiffs in Hendrick
Hudson District Board of Education v. Rowlev23 sought to
define the congressional intention of an appropriate
special education placement and, therefore, the
parameters of inclusion. Melvin analyzed the court's
preference for inclusion:
Providing an "appropriate" education is
presumed to require an alternative placement
where the child's educational needs cannot be
satisfactorily met in the regular classroom.
Thus, the "least restrictive alternative"
principle serves to protect the rights of
disabled children by requiring the state to
achieve its educational objectives in a
fashion that places the "least restrictions"
on the exercise of fundamental rights.24
This ruling was most notable for the contemporary
definition of a FAPE. In the majority opinion, Justice
Rehnquist abandoned the lower court's ruling that a FAPE
required only "an opportunity to achieve their full
potential commensurate with the opportunity provided
other children .... Neither the Act nor its history
persuasively demonstrates that Congress thought that
equal protection required anything more than equal
access."25 Rowlev drew upon the congressional intent of
the EAHCA and refined the federal definition of an
appropriate placement. The court, referring to
congressional Report 94-168, determined that the
maximization of a student's educational potential was
not a state requirement:

137
The Committee recognizes that in many
instances the process of providing special
education and related services to handicapped
children is not guaranteed to produce any
particular outcome. By changing the language
[of the provision relating to individualized
educational programs] to emphasize the process
of parent and child involvement and to provide
a written record of reasonable expectations,
the Committee intends to clarify that such
individualized planning conferences are a way
to provide parent involvement and protection
to assure that appropriate services are
provided to a handicapped child.26
An analysis of Rowlev revealed that placement
biased funding posed a direct threat to the preference
of the least restrictive environment.27 The Rowlev test
was the first of several tests derived from this wave of
FAPE litigation that provisioned the appropriateness of
a special education.28 This test sought to determine
"appropriateness" through the following conditions:
1. Has the State complied with the procedures set
forth in the Act?
2. Is the individualized education program . . .
reasonably calculated to enable the child to
receive educational benefits?29
This test contributed to the regulation of
appropriate state special education programs and the
method in which they are funded. According to the recent
amendments to the IDEA,30 the federal government required
states31 to refrain from funding practices that were (a)
based on setting and (b) in violation of the LRE
clause.32 The Department of Education singularly exempted
states with the understanding that any non-compliant

138
funding policies would be amended "as soon as
feasible. 1,33
Policy Implications of Harper. Cambell, and DeRoloh.
The recent trend of finance litigation in Alabama,34
Wyoming,35 and Ohio36 Supreme Courts revealed an emerging
focus on special education finance equity. Analysis
revealed the accepted theory that general and special
education finance were inextricably tied.37 This theory
maintained that as general education fell to inadequate
and unconstitutional standards, so too would special
education programs.38 This encroachment existed when
state finance provisions were based on local wealth and
not an equalized state basis as required by law. These
three cases represented a current trend in state finance
litigation where the state general and special education
funding schemes were struck down as unconstitutional.
All three courts provided expert testimony on the impact
of alternative funding methods for special education.
The opinion in Harper revealed a reluctance to recommend
placement biased alternatives:
The Board has made efforts to tie special
education funding to the cost of providing
those services. It is not clear, however, that
this change will cure the inequities in
funding . . . basing revenues on more
restrictive placements may encourage school
systems to isolate children with disabilities
from non-disabled schoolchildren. Such an
outcome would result in violation of the
obligation under state and federal law to
educate children with disabilities in the
least restrictive environment appropriate . .
the state will have to monitor closely the

139
impact of the weighted child count method of
distributing special education funds on
placement of children with disabilities and
may change the system again. Therefore, the
Court is not prepared to find that the
inequities in the total enrollment method of
distributing funds have been remedied by the
change to the weighted child count method.39
According to Verstegen, actual special education
costs should be clearly outlined and explained in the
reformed state finance system.40 These provisions should
exhibit either full state funding or state-local cost
sharing.41 The fragility and incongruous nature of
federal disability law opened the possibility of future
litigation in the area of special education finance.
Verstegen reported concerns that were related to these
rulings:
Taken as a whole, these recent state court
decisions suggest that inequitable and
inadequate special education finance systems
across the states are vulnerable to future
court challenges because they curtail the
availability of a free and appropriate
education for children with disabilities and
restrict equal educational opportunities.
Moreover, these decisions suggest that
developing new systems of financing facilities
as well as programs and services for children
with disabilities aimed at meeting the full
intent of the law should be a top priority on
state policy agendas.42
The utilization of research-based cost
differentials and alternatives to traditional methods of
special education finance were of paramount concern to
state policymakers.43 With the established nexus between
general and special education finance, state
legislatures have sought to implement fiscal policies

140
that have reflected these dynamics. One example of these
integrated methods included unified schooling systems
that sought to fuse educational programs and services to
meet the needs of all students.44 Rulings such as Harper,
Cambell. and DeRoloh demonstrated dynamic fiscal
policies that (a) maintained a focus on adequate
resources, and (b) meet the needs of targeted youths and
the general school population.45
Analysis of Congressional Goals
A policy analysis of the fiscal provisions of the
IDEA warranted analysis of the intended goals of
Congress. From the onset of the EAHCA, Congress
recognized the bleak state of affairs for students with
disabilities.46 Opening statutory findings revealed over
half of the 4 million American students with
disabilities were not served to the letter of the law.47
The Department of Education (ED) clearly set forth the
Act's intentions and jurisdiction when the it maintained
that "it is in the national interest that the Federal
Government assist State and local efforts to provide
programs to . . . children with disabilities in order
to assure equal protection of the law.48 This statement
demonstrated the federal intent to provide substantive
guidance and monitoring of state special education
programs.
Upon examination of the statutes, data revealed
four distinct special education goals of the federal

141
government. First, Congress maintained the security of a
free and appropriate public education for students with
disabilities.45 This right ensured the provision of
special and related services that were designed to meet
the individual needs of each child. These programs
empowered students with disabilities to function as
productive and independent members of society. Congress
also included the provision of enhanced due-process for
students with disabilities and their parents.50
Furthermore, this basic goal authorized Congress to
assist state and local educational agencies in this
educational process.51
Second, Congress recognized the need for a
comprehensive, multidisciplinary system of intervention
systems for the service of infants and toddlers with
disabilities.52 Public Law 102-119 amended Part H of the
IDEA (a formula grant program for statewide networks of
early intervention services for disabled infants and
their families) .53
Third, Congress established a system of information
networks designed to disseminate information to
educational professionals, parents, and policymakers.54
These networks would then utilize the "necessary tools
to improve educational results for children with
disabilities by supporting systemic-change activities;
coordinated research and personnel preparation;
coordinated technical assistance, dissemination, and

142
support; and technology development and media
services.1,55
Finally, Congress recognized the need for the
evaluation and assessment of the IDEA.56 This goal
included statutory provisions for a yearly report to
Congress entitled, "The Twentieth Annual Report to
Congress on the Implementation of the Individuals with
Disabilities Education Act."57 This evaluative goal
included provisions for a strategic plan,58 funded
research thrusts,59 personnel preparation to improve
services and results for children with disabilities,60
technical assistance programs,61 and community outreach
centers.62
Analysis of Congressional Documents
This study required an examination of the evolution
of special education policy over the past thirty years.
The analysis of the fiscal provisions of the IDEA
required a comprehensive, longitudinal evaluation of
congressional dialogue. This analysis provided critical
exposition relating to the four congressional goals
outlined in the previous section.
Legislative Foundations of the IDEA
Analysis of the literature demonstrated that the
EAHCA was, generally, a product of committee rather than
intense debate and revision on the Capitol floor.63 The
bill met minimum standards of legislative feasibility
and was--despite apparent fiscal shortcomings expressed

143
by the President of the United States--64a political
necessity.65 With this understanding, the primary sources
of legislative policy-relevant information were two 94th
Congressional committee reports66 and a bicameral
conference report.67 These documents represented the
first comprehensive legislative data that detailed the
background, justification, and proposed measures to
address the shortcomings of state special education
programs.
This analysis revealed congressional committees
that were sensitive to the misidentification of students
with disabilities68 and cognizant of the humanistic
implications of the legislation.69 Early committee
documents revealed Congress' concerns that inappropriate
special education programs threatened "individual
liberty posed by risks of mislabeling, placement in
needlessly restrictive environments, and the attendant
stigma that would attach. 1,70
In summary, these Committee documents demonstrated
that "equal protection of the laws" was the chief
objective of the Act.71 The legislative history of the
IDEA revealed Congress1 intention to invoke the equal
protection and due process advanced in the early "right
to education" cases.72 From the Act's legislative
beginnings in the Senate Committee on Labor and Public
Welfare, legal data evinced that "equal protection of
the laws" was of paramount concern to Congress.73 Citing

144
Brown v. Topeka Board of Education. /4 the Committee
affirmed the Supreme Court's 1954 ruling that "all
children be guaranteed equal educational opportunity. 1,75
The Committee also determined that "Congress must take a
more active role under its responsibility for equal
protection of the laws to guarantee that handicapped
children are provided equal educational opportunity."76
Moreover, the Senate Committee recognized the states'
"primary responsibility" to uphold the Equal Protection
clause of the Constitution of the United States77 and
rejected the argument that state compliance should rely
on the federal government's ability to cover the full
cost of educating all children with disabilities.78
According to Melvin, the legislative history
revealed Congress' intent that desegregating children
with disabilities was, foremost, "a matter of
Constitutional dimension."79 Congress utilized "the sweep
of congressional authority, including the powers to
enforce the Fourteenth Amendment ... to address the
major areas of discrimination faced day-to-day by people
with disabilities."80
EAHCA co-author Senator Robert Stafford of Vermont
contributed to the integrative language of the Act.81 The
ranking minority leader of the committee appended the
committee document with enhanced provisions that (a)
required states to provide a free appropriate public
education to all children with disabilities, (b)

145
emphasized the identification and education of
previously undetected students, (c) required states to
provide special education programs within the context of
the LRE, (d) enhanced due-process provisions for parents
and students, and (e) limited authorizations until
1975.82 Congress' humanistic legislative agenda was
evidenced by Stafford's contributions to the first draft
of P.L. 94-142.83 Stafford's committee-work underscored
the normalized integration of students with disabilities
and was critical in the development of the LRE concept.84
The Senator from Vermont described the processes of
exclusion that fostered the philanthropic context of the
Act:
First, [exclusion implies] the gross
invisibility of literally being hidden away
from the rest of us, and, second, the more
subtle and perhaps more destructive
invisibility of being in fact "seen," but
"seen" by an inner eye that perceives a label
rather than a unique person. An eye which does
not see Johnny or Susie, but instead, sees
"crippled,' or "retarded,' or "maladjusted.'
And doubt it not, this two-tiered invisibility
has been bred in the school-houses of America
as much as in any other of the Nation's
institutions.85
The 94th Congress was guided by "integration with
non-handicapped children as the governing principle,
especially where there is clear evidence that just the
opposite was what was occurring in the past."86
Normalization and social role valorization87 were adopted
by the Congress as the fundamental philosophies of

146
special education. The civic purpose of integrative
education was expressed by Stafford:
We are concerned that children with
handicapping conditions be educated in the
most normal possible and least restrictive
setting, for how else will they adapt to the
world beyond the educational environment and
how else will the nonhandicapped adapt to
them. "88
Clarification of Legislative Intent
For nearly a quarter-century, courts, lawmakers,
and policymakers have sought clarification of the
congressional intent of the IDEA. Justice Thomas,
writing for the minority in a 1999 U.S. Supreme Court
case on the nature of a FAPE, described the effects of
congressional goals that were vague, fragile, or
incongruous:
Before we consider whether deference to a
[special education] regulation is appropriate,
we first ask whether Congress has directly
spoken to the precise question at issue. If
the intent of Congress is clear, that is the
end of the matter; for the court, as well as
the agency, must give effect to the
unambiguously expressed intent of Congress . .
We have repeatedly emphasized that, when
Congress places conditions on the receipt of
federal funds, "it must do so unambiguously."
This is because a law that "condition[s] an
offer of federal funding on a promise by the
recipient . . . amounts essentially to a
contract between the Government and the
recipient of funds .... It follows that we
must interpret Spending Clause legislation
narrowly, in order to avoid saddling the
States with obligations that they did not
â–  â–  Q Q
anticipate.
Perhaps the clarity of the 1975 EAHCA mandate was
hindered by Congress' human rights agenda that preferred

147
broad humanistic declarations over a clear strategic
finance plan.90 A share of the analyzed data revealed
that the IDEA'S fiscal shortcomings were due to
contentions that human rights legislation was not
subject to the traditional constraints of finance.91
Other legal scholars maintained that this broad and
declarative approach to categorical special education
programs presented problems from the onset:
The original intent of IDEA was to ensure that
all children with disabilities receive a free,
appropriate public education. The actual
outcome or product of the education was not a
primary focus. Lawmakers and advocates assumed
that guaranteed access and individualization
would ensure good educational outcomes for
students with disabilities. Unfortunately, as
educators examine the outcomes of special
education, they realize that for many youth
with disabilities, a fairly bleak future lies
ahead.92
Despite the Act's ambiguities, Congress established
a formal legislative mandate with supreme federal
jurisdiction over eight million children with
disabilities.93 This position represented a significant
deviation from the traditional framework of state-
controlled school administration.94 Congress justified
this jurisdiction through the General Welfare Clause95
and the Fourteenth Amendment.96 These Constitutional
provisions served Congress' supreme jurisdiction over
the state educational regime with the 1958 National
Defense Education Act and the 1965 Elementary and
Secondary Education Act.97

148
Placement Neutrality and Legislative Intent
The EAHCA mandated a system of child identification
procedures for each state.98 The purpose of qualifying
assessment for special education was to develop a
practical method to measure deficiencies between
performance and academic potential and to classify
students for special education services.99 Data reported
in the preamble of the current IDEA statutes revealed a
pervasive under-classification of special education
students in the early 1970s.100 This under-classification
excluded millions of students with disabilities from
appropriate educational opportunities. Congress’
provision for child find,101 a comprehensive state
program for the detection of students with disabilities,
was an attempt to rectify a history of formalized
exclusion.102 Congress' sensitivity to misidentification
was evident in a 1975 Senate report:
In the education process, the appropriate
identification of handicapping conditions must
take place in order to assure that a child
receives appropriate services designed to meet
his or her needs .... In the absence of
this process and without the provision of
appropriate services, the education process
for the handicapped child is totally
inadequate and inappropriate. There is nothing
in this process, however, which justifies or
necessitates the carrying over of these
classification "labels" into the classroom
educational process itself such that the child
becomes thereby labelled [sic] as having a
particular "handicap" which for that reason,
sets the child apart as being "different." In
this regard, the Committee believes that the
greatest possible care must be taken to assure
that the identification and classification

149
process is utilized solely for designing an
individually tailored educational program for
each handicapped child.103
The chief sponsor of the Act, Senator Williams,
outlined the legislative intent of child find procedures
and the issue of over-identification:
Any parent or guardian may present a complaint
concerning any matter regarding the
identification, evaluation, or educational
placement of the child or the provision of a
free appropriate public education to such
child ... I would like to stress that the
language referring to 'free appropriate
education' has been adopted to make clear that
a complaint may involve matters such as
questions respecting a child's individualized
education program, questions of whether
special education and related services are
being provided without charge to the parents
or guardians, questions relating to whether
the services provided a child meet the
standards of the State education agency, or
any other question within the scope of the
definition of 'free appropriate public
education.1 In addition, it should be clear
that a parent or guardian may present a
complaint alleging that a State or local
education agency has refused to provide
services to which a child may be entitled or
alleging that the State or local educational
agency has erroneously classified a child as a
handicapped child when, in fact, that child is
not a handicapped child.104
LaPlante et al. estimated the current percentage of
unserved and unidentified students with school-related
disabilities at 0.5 percent of the general student
population (i.e., 245,000 students).105 The literature
evinced a contemporary policy problem with the over¬
identification of students in special education. Parrish
and Verstegen described this policy dilemma:
When federal special education funding shifted
from a population-based system to a special

150
education pupil count system, large segments
of the special education population were being
underidentified and/or underserved. However,
states are reporting that overidentification
rather than underidentification is now their
major concern. Within the special education
population, the much higher identification
rates for minority and male students also
raise important questions about identification
procedures.106
Congress referred to placement neutrality
exclusively in terms of the LRE.107 The chief goal of the
LRE was to provide, to the maximum extent possible, an
appropriate education within a normalized school
setting.108 In summary, the LRE defined the context in
which an appropriate special education occurred. For
example, if a student received adequate support within a
setting that was unnecessarily restrictive, the LRE
would be in default.109 An evaluation of the LRE drew
question to whether schools provided programs within (a)
state and federal statutory compliance, and (b) in a
setting that resembled the school setting as much as the
nature of the student's condition permitted. For LRE
fulfillment, the two conditions would both have to be
met.
Data in previous Senate reports110 evinced Congress'
sensitivity to over-identification. The 1997 Amendments
to the IDEA111 revealed a formal placement neutral fiscal
policy. Testimony from professional and research
organizations supported the recent change in federal
statutes112 that broadly targeted the issue of placement
neutrality:

151
The IDEA Improvement Act (P.L. 105-17) will
eliminate many of the financial incentives for
overidentifying children as disabled. The
change in the federal formula . . . will
reduce the federal bonus for identifying
additional children as disabled. Hopefully,
states will follow suit, moving toward similar
formulas. The legislation will also ensure
that States do not use placement-driven
funding formulas that tie funds to the
physical location of the child. Such
incentives encourage children to be placed in
more restrictive settings, from which they are
less likely to ever leave. They also encourage
placement in special education in the first
place, particularly children with mild
disabilities that might best be served in
general education classrooms with more
assistance, instead of separate classrooms.113
Analysis of Federal Statutes and Regulations
Policy analysis of federal law revealed several
federal provisions that protected against the
misclassification of students with disabilities. First,
student assessment and evaluation was to be conducted in
the student's native language.114 Second, Congress
imposed a fixed federal aid policy cap on state special
education populations.115 States would only be reimbursed
for costs by federal aid up to 12 percent of the general
student population. This funding limitation was designed
to simulate the natural distribution of disability
incidence across the nation and provide a concrete
measure to contain special education costs.116 The policy
shift from a flatly funded, population-based program to
a pupil-count system required the establishment of a
fixed fiscal control:117

152
Using research to establish a cost, with the
role of the federal government springing from
the interpretation of state and federal law,
the House bill provided for funding to support
50 percent of the average per pupil
expenditure (APPE) in the United States per
disabled child under the new formula. The
Senate bill provided for $300 per eligible
student, which it found represents
approximately 25 percent of the additional
(excess) cost of serving students with
disabilities. The bill sets up an incentive
for the states to serve more children, an
effort to reduce the incentive for a state to
mislabel children as handicapped is through
the limit in the bill that the number of
handicapped claimed could not exceed 12
percent of all children age [sic] 5 to 17
within each state.118
A third federal policy control for over¬
identification were federal statutes that specifically
targeted the disproportion of minority students in
special education.119 In concurrence, Kirp' s legal
analysis of the special education identification process
revealed "racially specific, harmful effects" associated
with contemporary methods of track, ability, and
intelligence testing without due-process.120 To prevent
this disproportion, Congress enacted audit guidelines
that monitored state incidence rates according to
disability category, race, and ethnicity.121
Representative Goodling summarized the intent of the
recent changes to the IDEA that targeted the over¬
identification of some racial minorities:
What we are trying to do in this bill is stop
overidentification of children with
disabilities and just serve those who really
have disabilities. With this bill, we will
eliminate the financial incentives for placing
children into special education when they do

153
not actually have disabilities. It is unfair
to those children who, as I indicated earlier,
are often black male children.122
The primary clause in section 504 of the
Rehabilitation Act123 also safeguarded against the over¬
identification of students in special education. This
provision prohibited states from excluding--without due-
process--any individual with a life-impairing
condition.124 Section 504 significantly broadened the
definition of a disability to include miscellaneous
conditions that were not specifically cited in previous
federal laws.125
An analysis of current federal statutes revealed a
policy incongruity relating to state program
requirements for the classification of students with
disabilities. Federal statutes did not require states to
utilize programming with labels and categorical
placements.126 This statute accorded with a historical
concern that labels and misclassification127 served to
segregate and denote the inferiority of students with
disabilities.128 However, the federal government did
mandate evaluation procedures that were designed to
target a category of recognized disabilities.129
Nevertheless, this incongruency provided evidence of the
tenuous relationship between eligibility testing and
over-identification.

154
Analysis of State Funding Typologies
The greater responsibility of the fiscal
responsibility was traditionally delegated to the state
governments.130 Local special education funds--which
represented 36 percent of special education spending in
FY 1998--were also equalized and appropriated through
the state governments.131 Therefore, an analysis of the
methods that states employed to appropriate monies for
special education programs was necessary to evince
placement neutrality policy impact.
Funding Approaches Utilized bv States
The states have utilized four basic funding
approaches to drive special education programs.132 As
research from the Center for Special Education Finance
(CSEF) has indicated, many of the specifics of a state's
special education fiscal policy were not reflected in
such a simple classification system.133 Differences in
state statutory and constitutional law, political and
economic histories, and regional demographics created
singular program endeavors in each state.134
The four funding typologies demonstrated varying
levels of policy congruence to placement neutrality.
Moreover, the body of research maintained that an
incentive-free funding system was a practical
improbability.135 With these understandings, the author
noted that an analysis of state funding approaches was
disposed to broad generalizations.

155
Cost-Based Funding: Weights and Resource-Based Methods
Cost-based approaches were characterized by the
utilization of funding differentials based upon actual
program costs.136 Generally speaking, cost-based systems
were considered by many researchers to be difficult to
effectively implement because they created funding
incentives for placements in costly settings.lj7 Parrish
summarized the problematic nature of cost-based
approaches:
It is important to keep in mind that cost-based
funding options were never designed to promote
segregated or restrictive placements. Rather, they
were designed to promote equity and efficiency in
funding by linking state aid allocations to program
costs. The fact that these systems have sometimes
encouraged high cost, segregated placements in a
number of states is an unintended consequence of a
changing direction in program policy, rather than a
fatal flaw in the nature of cost-based funding
no
systems.
Weighted Methods
Weighted funding methods (and similar cost-based
approaches) required districts to identify and classify
students with disabilities as to the degree of
impairment or placement.139 Weighted formulas were
characterized by two or more categories of student-based
funding for special programs that were expressed as a
multiple of regular education aid (w = x * r; where w is
the weight, x is the cost factor of the special
education service, and r is the basic allotment for a
regular education student).

156
The author's data analysis accorded with literature
findings140 that extreme ranges of weights permitted
high-use states141 to utilize more intensive services on
a more frequent basis. In concurrence, Dempsey and Fuchs
compared weighted and flat grant funding in Tennessee
and reported that weighted systems were more financially
supportive than the traditional method of flat
compensatory aid for students with milder
disabilities.142
The body of literature evinced that the utilization
of weighted methods were reliant upon categorical
placement and the widespread utilization of labels.143
According to the CSEF, weighting systems and the
utilization of labels were linked.144 Moreover, O'Reilly
reported that "high use" states that tend to over¬
identify students and place them into separate systems
have traditionally used weighted systems.145 New Jersey146
and New York147 utilized funding formulas based on pupil
weights and the setting of special education programs.
In a study exploring the relationship between funding
received and restrictive placement settings, O'Reilly
classified New Jersey and New York among the three
highest ranking placement biased states.148 Broadly
speaking, labeling and specialized school settings were
also associated with school funds that were independent
of any evaluation of the special education program.149
These findings implied that weighted funding mechanisms

157
possessed administrative advantages over other
distribution methods.150 However, analysis revealed that
weighted methods that were dependent upon the
utilization of labeling significantly detracted from the
highly individualized process of a FAPE.151 This
devaluation of the special education program resulted
from funding characteristics that "lack flexibility to
serve students in less restrictive environments."152
Resource-Based Methods
Resource-based funding was characterized as an
allocation of specific education resources (e.g.,
teachers or classroom units) per student.153 In this
method, classroom units were developed from distributed
staff/student ratios by disabling condition or type of
placement. This permitted state funds to virtually
"follow the student" into any setting. Like pupil
weighting schemes, resource-based approaches were
identified as cost-based approaches that linked funding
differentials to program costs.154
Resource-based funding maintained that student
needs are classified primarily on the basis of what
special education programs were offered by the local
district rather than on unavailable services that might
have optimized a student's individual educational
program.155 Funds for a finite amount of special
education settings have forced school districts to fill
those otherwise empty positions.156
The use of resource-

158
based funding in low incidence programs (like students
with medical fragility) have forced school districts to
lose programmatic units and curtailed special programs
for some disabled minorities. The utilization of
resource-based funding schemes to round special
education program enrollments revealed a direct conflict
with the spirit of the LRE: the practice of
mainstreaming was not fostered because a shortage of
students in special programs could significantly impact
incoming dollars.157 The CSEF characterized resource
allocation--rather than the quality of special education
service--as the administrative priority of these
categorical special education programs.158
Percent Reimbursement
Percent reimbursement funding was characterized as
a funding approach that was based on a percentage of
allowable or actual expenditures.159 These formulas were
generally considered to be placement neutral and did not
foster placement of students into more restrictive
settings.160 That is, the proportion of funds received
from the state was the same regardless of the context of
the program delivery of those services.
However, percentage reimbursement formulas did not
explicitly consider where a student received services
implied that the state share of funding did not
significantly influence the placement of students with
disabilities. In essence, percent reimbursement formulas

159
were regarded in the literature to be neither wholly
sufficient nor necessary to keep local districts from
placing students in restrictive settings.161
Flat Grant Methods
Flat grants were characterized as a fixed funding
amount per student or per unit.162 These formulas have a
tendency to be less sophisticated and are characteristic
of horizontal policy measures.163
Labels were not characterized as a significant
factor in flat grant "unified" special education system
models,164 but some research has demonstrated a tendency
for over-identification of children with mild
disabilities.165 This was primarily because LEAs are as
disposed to diagnose a mildly disabling condition as a
profoundly disabling condition.166 This relatively
unrefined funding method has appealed to policymakers
and was representative of earliest funding approaches of
the federal special education program.167 However, the
oversimplification of the funding process has resulted
in disparate districts under or over compensating for
the remaining local share of special education costs.168
Other Methods
A new federal initiative to enhance finance equity
indicated the emergence of census-based flat funding.169
A census-based flat grant was characterized as a fixed
amount that was multiplied by the total number of
students in the district rather than the count of

160
special education students served.170 In this funding
approach, two states with identical school populations
would receive the same amount of federal special
education aid regardless of the number or percentage of
special education students identified or served.171 This
funding approach has recently been adopted by several
states such as Massachusetts, Montana, North Dakota,
South Dakota, Pennsylvania, and Vermont.172 These states
have made a moderate transition to flat-grant methods
because a fixed amount of aid was allocated per student
served.173 Census-based flat funding represented an
important departure from prior special education fiscal
policy because funding was unaffected by the number of
identified special education students.174 This maintained
the core value of accurate identification and funding
that fostered least restrictive settings.175 Analysis of
the literature revealed that census-based flat funding
has provided local jurisdiction with more discretion and
flexibility, and did not punish states for maintaining
modest identification of students.176 Census-based flat
funding has been characterized by CSEF as a measure that
reduced administrative burden, increased local
flexibility, neutralized incentives for identification
and restrictive placements, and brought rising special
education costs under control.177
On the other hand, the analysis of legal data
indicated these methods as a policy departure from the

161
traditional federal role of promoting special
education.178 Moreover, Alabama's census-based funding
was struck down as unconstitutional on the grounds that
the funds available per special education pupil were not
tied to the cost of educating those pupils.179
Furthermore, the court found that as the number of
special education students increased, the money per
pupil decreased. The court concluded that such a census-
based formula was irrational and had no relationship to
the public interest in appropriately educating students
with disabilities.
Blended funding was characterized as the fusion of
various streams of education resources to provide a
coordinated and efficient service delivery system.180
Blended funding and services for students was connoted
as an alternative funding approach in the emerging
special education finance debate.181 The funding
characteristics associated with blended funding were
enacted in 1988 under Title I of the revised Elementary
and Secondary Education Act.182 Schools associated with
high poverty levels were allowed, under P.L. 105-17,183
to blend funds from a variety of federal sources to make
school-wide changes for the benefit of all students.184
Although special education funds under the IDEA were
specifically excluded from this allowance, 33 states had
no requirement that all special education funds were
spent on special services.185 This provided a great deal

162
of flexibility in blending the funding sources and
resources associated with the special education
classroom.
The analysis of legal and research data revealed a
philosophical tension between categorical funding
approaches and integrated approaches to unified
funding.186 Many researchers have indicated that the
special education finance reform movement has plateaued
until it addresses this key question: Will special
education funding lose or retain its categorical
nature?187 Many special education administrative
organizations, including the Council of Chief State
School Officers and the National Association of State
Directors of Special Education (NASDSE), have called for
the inclusion of special education in this integrated
funding solution.188 According to the CSEF, "Combining
funds provided under IDEA and the Elementary and
Secondary Education Act . . . while maintaining IDEA'S
procedural safeguards . . . could permit special
educators to better participate in the reform process."
189
However, an analysis of blended funding revealed
substantial political concerns. During the comment
period of the most recent IDEA regulations,190 parents
and special education advocates demonstrated their
unease concerning the perceived relaxation of federal

163
policies. Krantz summarized the political concerns of
blended funding:
For the consumer, unskilled at reading between
the lines, "flexibility" does not mean better
education ... it means less accountability.
"Flexibility" is a code word that springs from
a desire to escape the special education
mandate. But the mandate did not dictate the
rigid programs from which officials now seek
relief. These programs, which evidently have
become unmanageable in terms of cost, are
entirely the invention of education
bureaucrats.191
Challenges associated with this funding approach
included the need for staff development and increased
planing time for providers of core programs and
specialized services.192 Furthermore, a teacher supported
by multiple funds may deliver any manner of given
services. This demonstrated the need for extensive data
collection and evaluation in the special education
setting. Finally, the current instructional approach
that assumed that all children learn the same skills and
content using the same materials within the same period
of instruction will need to be adapted to accommodate
the diverse learning requirements of all students.193
From an administrative framework, providing blended
services in the general classroom will require enhanced
support and expertise to account for separate
categorical expenditures.194
Analysis of Biased Funding Characteristics
The analysis of the literature and federal
placement neutral policy revealed four policy

164
characteristics that demonstrated fiscal bias: (a)
traditional excess cost frameworks, (b) preferences for
private special education placements, (c) assessment
practices associated with over-identification, and (d)
federal policy ambiguities relating to unified funding.
The Use of Excess Costs
Special education finance has traditionally
operated within the context of excess costs.195 Excess
costs were characterized as "the total costs to educate
a special education student minus the costs to educate a
regular education student."196
Hartman was the first to suggest that the use of
the traditional paradigm of excess costs may lead to
increased costs associated with more restrictive
placements.197 The effect of excess cost measures could,
under certain circumstances, reduce mainstreamed student
reimbursements.198 Moreover, Hartman199 and Hill200 reported
the inflation of excess costs associated with placements
in more restrictive settings. These higher costs created
budgetary incentives for special education service
delivery in more restrictive settings:
When one of these students is mainstreamed
into the regular education program for part of
the school day, the FTE time in regular
education programs is deducted from the
special education student count and added to
the regular education student numbers. The
actual marginal cost savings to the special
education program are usually quite small, but
the reduced FTE (impacting on a smaller
student count) will cause the special
education cost per student to be increased.

165
The regular education cost per student will
generally be changed only slightly because the
relatively few students in special education
involved for short time periods will have
little impact on either total costs or student
numbers. The net effect is to increase the
calculated excess cost per student and the
state aid.201
Private Placements
P. A. R. C . 20~ generalized Pennsylvania's tuition
maintenance statutes203 to provide for reimbursement of
private special education placements. Since the
enactment of the EAHCA204 in 1975, the federal government
has codified the provision of reimbursement for approved
special education placements.205
If a private special education placement was
indicated by the student's individualized education
program (IEP) team and approved by the local educational
agency (LEA), that program was subject to the same legal
standards as any special education placement in the
public schools. 206 However, the high costs of these
programs, particularly residential programs for students
with intensive medical and instructional needs, were
indicated in the literature.207
Although there was no policy data to suggest that
private placements should be removed from the continuum
of services, 208 an analysis of state statutes revealed
the propensity for fiscal incentives at the state level.
Research from the CSEF suggested that these incentives
should be targeted to permit LEAs to determine the
appropriateness of private placement:

166
This type of funding approach would remove any
fiscal incentive for the use of private
schools. Instead, their use would be based on
the merits and unique strengths of the
programs and services they offer. This
approach also would seem likely to encourage
greater collaboration and integration between
public and private schools. Private providers
may be more likely to move to more integrated
service models by working more closely with
public school districts. For example, some
private school services might be brought
directly into public school settings. A
neutral funding approach like this could
promote a more efficient use of private
schooling resources and result in less
segregation for students with disabilities.209
Assessment for Special Education Eligibility
A prominent fiscal incentive identified in this
analysis was the absence of comprehensive restrictions
on state placement biased fiscal policies. Indirectly,
this analysis revealed ambiguous federal standards for
special education eligibility testing that were "highly
subjective, resulting in determinations of eligibility
that [had] the potential of being largely within
district control."210 This permissive classification of
high prevalence disabilities (e.g., mild learning
disabilities) have contributed to the (a), over¬
identification of students in special education211 and
(b) proliferation of some placement biased funding
formulas.212
An analysis of the literature revealed (a) great
variance of special education placement designation
throughout the U.S.,213 (b) the political context of more
subjective assessment strategies,214 (c) the "terminal"

167
and static nature of many special education
placements,215 and (d) the negative Constitutional
implications of segregating students in inappropriate
educational settings.216 Comprehensively, these data
revealed the absence of a federal statute specifically
guiding the formal transition from placement biased
state funding methods to those which are in full
compliance with federal LRE statutes.217
Federal Policy Ambiguities Relating to Unified Funding
A unified system of special education finance was
characterized as the coordination of policy goals, terms
of equity, and service delivery to meet the individual
needs of students with disabilities. The policy analysis
revealed that placement biased funding characteristics
were incentives associated with segregated funding
systems. State program components associated with cost-
based funding, subjective identification of high
prevalence disabilities, and placement decisions based
on factors other than individual student needs were
determined to be in varying levels of discord with
federal law. These vague state program characteristics
demonstrated the policy relationship between special and
regular education finance. The CSEF summarized the need
for federal guidance in a nationwide transition to a
unified funding approach:
If the state's education program strategy is
to promote a unified and well articulated
service strategy across these two service

168
systems, then these concepts should also be
embodied in the state's system of public
education finance.218
The IDEA contained limited provisions for the
coordination of special education services and programs
between local, state, and federal governments.219
Analysis of the data revealed that the federal
government has increased flexibility of some aspects of
reimbursements to the state and local education
agencies. 220 Congress strengthened LEA spending
flexibility by permitting reduced expenditures to be
used as virtual local funds.221 The revised IDEA has
permitted the use of Part B funds for school-wide
improvement programs under Title I of the ESEA. 222 The
LEA may also use between 1 percent and 5 percent of its
Part B funds to improve the coordinated systems of
collaboration for the benefit of children and
families.223
However, the policy analysis revealed that the
IDEA'S eligibility cap of 12 percent224 has inadvertently
created a minor over-identification incentive for states
with lower identification rates. 225 This supported the
contention that an incentive-free fiscal policy was a
practical improbability. Moreover, there existed no
formalized provision to coordinate the system of unified
funding systems referred to in the federal statutes.226

169
Analysis of Department of Education Statements
Federal policy ambiguities were addressed by the
United States Department of Education during formal
comment periods. The DOE has also responded to inquiries
as regulatory issues in the states have arisen. In a
survey of the past seven years of Office of Special
Education Programs (OSEP) inquiries, this analysis
rendered four documents that clarified federal agency
positions on placement neutrality.
A 1994 inquiry to the OSEP drew issue to
differences in administrative flexibility across
states.2il The subjects inquired as to (a) the level of
flexibility that states possessed to implement
recommendations for appropriate levels of education, and
(b) whether there was "leeway given in order for this to
occur." 228 The Department conceded that, while state
regulations and policies for the administration of
special education programs varied, "each state which
receives part B funds must implement the Federal
requirements in the Part B2"9 requirements." 230 Regardless
of the approach, the federal government has required a
sanctioned Part B plan to include provision for a FAPE
provided within the LRE.231 However, the response also
indicated that the decisions for the determination of
the FAPE and LRE were determined at the local level. The
correspondence indicated that states did utilize some
flexibility in interpreting the Part B requirements.

170
This statement supported Parrish's findings232 that
placement flexibility was determined by the political
base of the state and the role that private educational
placements play in the continuum of services.
The OSEP addressed three inquiries preceding the
1997 amendments to the IDEA. Senator William Cohen
submitted the first 1996 DOE inquiry that addressed
growing constituent concerns that the federal government
was not fulfilling its initial commitment to the "up to
40 percent" reimbursement of special education costs.233
The Senator expressed concern that the FAPE for children
served in expensive and restrictive settings was
inconsiderate of "financially strapped communities."234
The response indicated that many of the changes that
were to be implemented in the 1997 amendments to the
IDEA. The response also indicated a growing concern for
increased costs associated with restrictive placements
based on fiscal incentives. An analysis of this document
revealed the first documented federal position on the
over-identification of students with disabilities and
the elimination of federal fiscal incentives that
jeopardized the LRE.
A constituent submitted the second 1996 inquiry
that indicated concerns over the new 12 percent cap on
the identification of special education eligible for
federal reimbursement. 235 The inquirer indicated a
reluctance to employ funding practices that were

171
disconnected with the identification of students within
each jurisdiction. The OSEP responded by outlining the
federal government's policy decisions concerning the
change of formula. In this response, the federal
government outlined a placement neutral policy that
sought to eliminate "incentives for states to count as
many children as possible" and policies that "penalized
states that are finding effective ways to address the
needs of . . . children with special needs . . .
without labeling the children." 236 The response outlined
several changes to federal policy that promoted
placement neutrality:
1. Implementation of hold harmless provisions,237
2. Utilization of a federal funding formula based
on general population,238
3. Elimination of federal requirements to report
children upon the basis of categories, 239 and
4. Restrictions on the growth of the state special
education programs.240
The New Mexico State Director of Special Education
submitted the third 1996 inquiry in order to approve the
state's alternative definition of excess costs.241 The
director proposed a state excess cost requirement that
compared the operational funds242 for instructional staff
for students receiving special education (not including
gifted services) with the APPE from operational funds
for all students. Moreover, the director proposed that

172
the excess cost requirement would be met if the average
expenditures for special education students were equal
to or exceeded the APPE.
In summary, the federal regulations specified the
method of calculation for the minimum amount of funds,
but has left the documentation of expenditures up to the
LEA.243 The director proposed increasing local special
education costs to include only the expenditures for
instructional staff. The OSEP rejected that proposal on
the grounds that the proposed alternative did not permit
computation of the minimum amount based on the
consideration of local expenditures. The OSEP response
indicated that the federal government has maintained a
reluctance to alter the standard definition of excess
costs.
Analysis of State Funding Statutes
States have maintained a great deal of flexibility
in the manner in which they provide a FAPE. 244 A policy
analysis of the federal government's provisions for
placement neutrality required an examination of current
state funding methods that either (a) promoted fiscal
neutrality, or (b) demonstrated the propensity for
placement bias. State funding statutes were analyzed,
and organized in Appendix B. Data were derived from
state legislative databases, the Center for Special
Education Finance, and the Twentieth Annual Report to
Congress on the Implementation of the Individuals with

173
Disabilities Education Act. These data were organized in
a manner to document the statute empowering special
education finance, funding formula typology, basis of
allocation, and status of reform. 245 Funding typologies
were analyzed to indicate the frequency of (a) states
employing one of the four funding methods, (b) national
percentages according to typology, and (c) percentages
of basis of allocation within typologies. A summary of
frequencies was organized by funding formula, basis of
funding, and reform. These data were presented in
Appendix C.
The data revealed that 22 percent (n=ll) of states
utilized resource-based formulas, 38 percent utilized
pupil-weighted formulas (n=19), 24 percent utilized
percentage reimbursement formulas (n=12), and 12 percent
utilized flat grant formulas (n=8). Placement-based
funding accounted for 16 percent of all state special
education funding formulas. Funding based upon placement
and disability accounted for 6 percent of all state
special education formulas. Funding based upon disabling
condition accounted for 14 percent of all state special
education formulas. In all, placement and disability
bases accounted for 26 percent of all state funding
bases.
Within the resource-based formula group, 27.27
percent of the states allocated special education monies
on the basis of the number of special education staff.

174
Illinois based its formula upon allowable costs (9.09
percent), and seven states (63.63 percent) based their
formulas upon classroom unit.
Within the pupil-weighted group, 42.1 percent of
the states based special education funding upon
placement, 36.84 percent were based upon disability-
category and 15.79 percent were based upon placement and
disabling condition. Oregon based its special education
formula upon special education enrollment (5.26
percent).
Within the percentage reimbursement group, 58.3
percent of state special education formulas were based
upon actual expenditures and 41.6 percent were based
upon allowable costs. There were no other basis
categories
identified within this funding typology.
Within the flat-grant group, 62.5 percent of
states’ formulas were based upon total district
enrollment, 25 percent were based upon special education
enrollment, and 12.5 percent were based on actual
expenditures.
Within the basis catergory of placement, 100
percent of the 16 states utilized pupil-weighted
formulas. Of these 16 states, 87.5 percent are still
considering reform of the special education finance
program. The Texas legislature implemented reform within

175
the past five years, but was still considering further
reform.
Within the basis group of placement and disability,
100 percent of the 3 states utilized pupil-weighted
formulas. In this basis group, two states were
considering reform, and Hawaii implemented reform of the
special education finance program over the past five
years.
1 20 U.S.C. § 1401-14910 (1998).
2 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. §§ 1401-1491o (1998)].
3 U.S. Senate, Committee on Labor and Public
Welfare, Education of the Handicapped Act of 1975, 94th
Congress, 1st Session, Senate Report No. 94-168, 1-82.
4 Brown v. Topeka Board of Education, 347 US at 493
(1954) .
5 Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v Commonwealth of Pennsylvania, 343 F. Supp.
279 (1972); Mills, 348 F. Supp. 866.
6 Rowley, 458 U.S. 176.
' Daniel H. Melvin, The Desegregation of Children
with Disabilities, 44 DePaul L. Rev. 605 (1995) .
8 Brown, 347 U.S. 483. ("Education is required in
the performance of our most basic public

176
responsibilities, even service in the armed forces. It
is the very foundation of good citizenship.").
9 Ibid., at 494. [De jure segregation] "has a
tendency to retard the educational and mental
development of negro children."
10 U.S. Const. Art. XVI, § 1.
11 Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v Commonwealth of Pennsylvania, 343 F. Supp.
at 279 (1972).
12 Ibid., 293-295.
13 Ibid., 307.
14 Ibid.
15 Mills v. Board of Education, 348 F. Supp. 866
(1972) .
16 Ibid., at 876.
17 Fialkowski v. Shapp, 405 F. Supp. 946, 958-59
(E.D. Pa. 1975); Frederick L. V. Thomas, 408 F. Supp.
832, 836 (E.D. Pa. 1976), aff'd, 557 F.2d. 373 (3dCir.
1977); In re G.H., 218 N.W.2d. 441, 446-7 (N.D. 1974).
18 Senate Report No. 94-168, supra note 1, at 199.
According to the Senate Subcommittee on the Education
Amendments of 1974, "Increased awareness of the
educational needs of handicapped children and landmark
court decisions establishing the right to education for
handicapped children pointed to the necessity of an
expanded Federal fiscal role."
19 U.S. House of Representatives, June, 1975.
Education of the Handicapped Act of 1975, 94th Congress,
1st Session. House of Representatives Report No. 94-332, at 7.
20 Education for All Handicapped Children Act, P.L.
94-142 (1975) [transferred to 20 U.S.C. §§ 1401-1491o
(1998)]. This act would later be redrafted in 1986 as
the Individuals with Disabilities Education Act (P.L.
94-142).
21 Senate Report No. 94-168, supra note 3, at 199.
EAHCA, supra note 20.
22

177
23 Hendrick Hudson District Board of Education v.
Rowley, 458 U.S. 176, 102 S. CT. 3034, 73 L. ED. 2d 690
(1982) .
24 Melvin, supra note 7, at 611 (1995) .
25 Ibid. , 185-86.
26 Senate Report No. 94-168, supra note 3, at 11-12.
27 20 U.S.C. § 1451 (a) (6) (I) (1998).
28 See e.g., Oberti v. Clementon Sch. Dist. Bd. of
Educ., 995 F.2d 1204, 1207 n.l (3d Cir. 1993); Greer v.
Rome City Sch. Dist., 950 F.2d 688 (11th Cir. 1991),
withdrawn, 956 F.2d 1025 (1992); Roncker v. Walter, 700
F.2d 1058 (6th Cir. 1983) cert, denied, Cincinnati City
Sch. Dist. Bd. of Educ. v. Roncker, 464 U.S. 864 (1983).
29 458 U.S. at 206-207.
30 Individuals with Disabilities Education Act
Amendments, P.L. 105-17 (1997) .
31 34 C.F.R. § 300.130 (1998) .
32 20 U.S.C. § 1412(a)(5) (1998).
33 2 0 U.S.C. § 1412 (b) (1998) .
34 Harper v. Hunt, 624 So. 2d 107 (1993).
35 Cambell v. State of Wyoming, 907 P.2d 1238
(1995) .
36 DeRolph, 78 Ohio St. 3d 193.
37 See e.g., Chambers, Jay G. and William T.
Hartman, Special Education Policies: Their History,
Implementation, and Finance (Philadelphia, Pennsylvania:
Temple Press, 1983), 193; 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).

178
38 Center for Special Education Finance (CSEF),
"What is Fair? Special Education and Finance Equity"
Issue Brief No. 6 (Fall 1995): 6.
39 Harper, 624 So. 2d 68.
40 Ibid.
41 Ibid.
42 Ibid.
43 Parrish, Special Education Finance: Past,
Present, and Future (Palo Alto, California: Center for
Special Education Finance, 1996), 11.
44 McLaughlin, M. J., and S. H. Warren, Resource
Implications of Inclusion: Impressions of Special
Education Administrators at Selected Sites (Palo Alto,
California: Center for Special Education Finance, 1994);
45 McLaughlin, Margaret, "Increasing Regulatory
Flexibility of Special Education Programs: Problems and
Promising Strategies," Exceptional Children 64 (1998):
385.
46 Senate Report No. 94-168, supra note 3, at 199.
47
20
U.S.C.
§
1400(c).
48
34
C.F.R.
§
300.
130 (b)(2)
(1999) .
49
20
U.S.C.
§
1400
(d) (1) (A)
(1998) .
50
20
U.S.C.
§
1400
(d) (1) (B)
(1998) .
51
20
U.S.C.
§
1400
(d) (1) (C)
(1998) .
52
20
U.S.C.
§
1400
(d)(2) (1998).
53 Individuals with Disabilities Education Act
Amendments, P.L. 102-119 (1991).
54 20 U.S.C. § 1400 (d)(3) (1998).
55 Ibid.
56 20 U.S.C. § 1400 (d)(4) (1998).
57
20 U.S.C. § 1474(a) (1998).

179
§ 1491(h) (1998)
§ 1472 (1998) .
§ 1473 (1998) .
§ 1483 (1998) .
Disabilities. Denver, Colorado (1991): Love Publishing;
Cremins, J., Legal and Political Issues in Special
Education, Springfield, Illinois (1983): Charles C.
Thomas; Hehir, T. and T. Latus, Special Education at the
Century's End: Evolution of Theory and Practice Since
1970, Cambridge, Massachusetts (1992) : Harvard
Educational Review; and Yell, M. L., The Law and Special
Education, Upper Saddle River, New Jersey (1998):
Prentice Hall.
58
20
U.S.C.
59
20
U.S.C.
60
20
U.S.C.
61
20
U.S.C.
62
20
U.S.C.
63
Public
See, e.g.
Education
64 Office of the White House Press Secretary, Statement by the
President upon the Signing of S.6, Washington, D.C.,
December 2, 1975. President Ford approved the
legislation only after Congress obtained the number of
votes to override a presidential veto. "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."
65 Cremins, supra note 63.
66 Senate Report No. 94-168, supra note 3; and H. R.
Report No. 94-332, supra note 19.

180
67 Joint Explanatory Statement of the Committee of
Conference, S. Conf. Rep. No. 455, 94th Cong., 1st Sess.
2829 (1975), at 1480-1482.
68 20 U.S.C. 1418(a)(2) (1998). "Review and revision
of policies, practices, and procedures In the case of a
determination of significant disproportionality with
respect to the identification of children as children
with disabilities, or the placement in particular
educational settings of such children, in accordance
with paragraph (1), the State or the Secretary of the
Interior, as the case may be, shall provide for the
review and, if appropriate, revision of the policies,
procedures, and practices used in such identification or
placement to ensure that such policies, procedures, and
practices comply with the requirements of this chapter."
69 Senate Report No. 94-168, supra note 3, at 9. " 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."
70 Melvin, supra note 7, at 616 (1995) .
71 S. Conf. Rep. No. 455, supra note 67.
72 Melvin, supra note 9, at 615 (1995) .
7j S. Conf. Rep. No. 455, supra note 67 at 1480-1482.
74 Brown, 347 U.S. 483
75 Ibid., at 616.
76 Senate Report No. 94-168, supra note 3, at 1430.
77 U.S. Const. Art. XVI, § 1.
78 Ibid., at 22-23
79 Melvin, supra note 7.

181
80 42 U.S.C. 12101(a)(7) (1998).
81 Rebecca Weber Goldman, A Free Appropriate
Education in the Least Restrictive Environment: Promises
Made, Promises Broken by the Individuals with
Disabilities Education Act, 20 Dayton L. Rev. 245 (1994) .
82 Verstegen, D. A., Fiscal Provisions of the
Individuals with Disabilities Act: A Historical Overview
(Palo Alto, California: Center for Special Education
Finance, 1994), 14.
83 See, e.g, 121 Cong. Rec. 19, at 478-511; 23, at
701-10; 25, at 526-48 (1975).
84 Ibid.
85 Robert T. Stafford, Education for The
Handicapped: A Senator's Perspective, 3 VT. L. Rev. 71,
72 (1978).
86 Stafford, R., Education for The Handicapped: A
Senator's Perspective, 3 Vt. L. Rev. 71 (1978): 72.
87 Wolfensberger, W., "Social Role Valorization: A
Proposed New term for the Principle of Normalization,*
Mental Retardation 21 (1993): 224.
88 120 Cong. Rec. 58, at 438 (1972).
89 Cedar Rapids Community School District v. Garret
F., 118 S. Ct. 1793 (1999), at 267.
90 Senate Report No. 94-168, supra note 3, at 9.
91 Lewis, D. R., Robert Bruininks, Martha Thurlow,
and Kevin McGrew, "Using Benefit-Cost Analysis in
Special Education," Exceptional Children 55 (1988): 203-
214.; and McQuain, Sandra, "Special Education Private
Placements: Financial Responsibility Under the Law,"
Journal of Education Finance 7 (1982): 425-435.
92 Goldman, supra note 31.
93 EAHCA, supra note 20.
94 Ibid.
95 The General Welfare Clause, U.S. Const. Art. I, §
8, cl. 1.

182
96 U.S. Const. Art. XVI, § 1.
97 Elementary and Secondary Education Act, P.L. 89-
10 (1965) [codified as 20 U.S.C. §§ 6301-6321e 1998)].
98 20 U.S.C. § 1412(a)(3) (1998).
99Ibid. "All children with disabilities residing in
the State, including children with disabilities
attending private schools, regardless of the severity of
their disabilities, and who are in need of special
education and related services, are identified, located,
and evaluated and a practical method is developed and
implemented to determine which children with
disabilities are currently receiving needed special
education and related services."
100 20 U.S.C. § 1400 (a) (2) (B-D) (1998).
101 20 U.S.C. § 1412(a)(3) (1998).
102 Turnbull, supra note 63.
103 Senate Report No. 94-168, supra note 3, at 213.
104 21 Cong. Rec. 37415 (1975).
105 LaPlante, B. L., H. S. Kaye, and M. P. LaPlante,
Disability in the United States, Prevalence and Causes,
1992, (Washington, D.C.: U.S. Department of Education,
National Institute on Disability and Rehabilitation
Research, 1995), at 3.
106 Parrish, T. B. and D. A. Verstegen, Fiscal
Provisions of the Individuals with Disabilities Act:
Policy Issues and Alternatives (Palo Alto, California:
Center for Special Education Finance, 1994), at 26.
107 20 U.S.C. § 1412(a)(5)(B) (1998).
108
Ibid.
109 This statement assumed that the provision of
special education services were served without
substantive due-process.
110 See, e.g., supra note 99.
111 IDEA Amendments, supra note 30.
20 U.S.C. § 1412(a)(5)(B) (1998).
112

183
113 142 Cong. Rec. 6051, at 6077.
114 20 U.S.C. § 1412(a)(6)(B) (1998).
115 20 U.S.C. § 1411(a)(5) (1998).
116 Senate Report No. 94-168, supra note 3, at 101.
117 Hartman, W. T. , "Special Education Funding
Approaches and Cost Control," School Business Affairs 57
(1991): 25.
118 House of Representatives Report No. 94-332, supra note
17, at 184.
119 20 U.S.C. § 1418(c). "Each State that receives
assistance under this subchapter, and the Secretary of
the Interior, shall provide for the collection and
examination of data to determine if significant
disproportionality based on race is occurring in the
State with respect to (A) the identification of children
as children with disabilities, including the
identification of children as children with disabilities
in accordance with a particular impairment described in
section 1401(3) of this title; and (B) the placement in
particular educational settings of such children."
120 Kirp, D. L., "Student Classification," in Hehir,
T. and T. Latus, eds., Special Education at the
Century's End: Evlution of Theory and Practice Since
1970 (Cambridge, Massachusett: Harvard Educational
Review, 1992), 37.
121 20 U.S.C. § 1418(a)(1)(A) (1998).
122 142 Cong Rec H 6051, at 6082 (1997).
123 Section 504 of the Rehabilitation Act (1973)
[codified as 29 U.S.C. §§ 706 (8), 794, 794a (1998)].
124 2 9 U.S.C. § 794 (a) (1998) .
125 29 U.S.C. § 794 (IV) (54-67) (1998). Section 504
broadens coverage to individuals in the following
categories: AIDS, Alcoholics and drug users, Anemia,
Arthritis, Asthma, Epilepsy, Hearing loss, Knee injury,
Mental or emotional impairment, Obesity, Sensitivity to
tobacco smoke, Spinal injury, Visual impairment, and
other miscellaneous life-impairing condiions.
126
20 U.S.C. § 1412(a)(3)(B) (1998).
Nothing in

184
this chapter requires that children be classified by
their disability so long as each child who has a
disability listed in section 1401 of this title and who,
by reason of that disability, needs special education
and related services is regarded as a child with a
disability under this subchapter."
127 20 U.S.C. § 1400(c)(8)(A). "Greater efforts are
needed to prevent the intensification of problems
connected with mislabeling and high dropout rates among
minority children with disabilities.?
128 20 U.S.C. § 1400(a)(2)(F) (1998). "Providing
incentives for whole-school approaches and pre-referral
intervention to reduce the need to label children as
disabled in order to address their learning needs."
129 20 U.S.C. § 1414 (a) (1) (B) (i) (1998). The federal
statutes also presented a secondary goal of eligibility
testing as measures "(ii) to determine the educational
needs of such child."
130 Parrish and Verstegen, supra note 106.
131 Chambers, J. T., T. Parrish, and J. Lieberman,
What Are We Spending on Special Education in the U.S.?
(Palo Alto, California: Center for Special Education
Finance, 1998).
132 A formula breakdown by states is included in
APPENDIX B: METHODS OF STATE FUNDING FOR SPECIAL
EDUCATION
133 CSEF, Finance in an Inclusive System, Issue
Brief No. 4 (Fall 1994): Palo Alto, California.
134 Ibid. For example, policy decision—or the
degree of latitude that school districts have once they
receive these categorical allocations—varied across
school districts.
135 Chambers, J. G., T. B. Parrish, and C. Hikido,
Special Education Expenditures and Revenues in a Census-
Based Funding System (Palo Alto, California: Center for
Special Education Finance, 1996); and Hartman, W. T.,
"Policy Effects of Special Education Funding Formulas,"
Journal of Education Finance 6 (1980): 135-159.
136 Parrish, Fiscal Issues in Special Education:
Removing Incentives for Restrictive Placements, supra
note 37, at 8.

185
137
Ibid.
138 Ibid., 9.
139 Parrish, supra note 43, at 5.
Dempsey, S., and D. Fuchs, "'Flat' Versus
'Weighted' Reimbursement Formulas: A Longitudinal
Analysis of Statewide Special Education Funding
Practices," Exceptional Children 59 (1993): 433-454.
141 O'Reilly, F. E. , State Special Education Funding
Formulas and the Use of Separate Placements for Students
with Disabilities (Palo Alto, California: Center for
Special Education Finance, 1995) .
142 Dempsey and Fuchs, supra note 140, at 433-454.
143 CSEF, supra note 93.
144 Supra note 37.
145 O'Reilly, supra note 141, at 9.
146 N.J. Stat. § 18A:7F-19 (1999).
147 NY CLS Educ. § 4405 (1998).
148 O'Reilly, supra note 141.
149 Hartman, W. T., "Supplemental/Replacement: An
Alternative Approach to Excess Costs," Exceptional
Children 5 (1990): 450-461.
150Yell, supra note 63. Since the Industrial
Revolution, labeling classification systems have been
utilized to "legitimize the provision of differential
legal, medical, residential, economic, and socialization
care."
151 O'Reilly, supra note 141.
152 Ibid., 14.
153 Parrish, supra note 43, at 5.
154 Parrish, Fiscal Issues in Special Education:
Removing Incentives for Restrictive Placements, supra
note 37, at 8.
155
Dempsey and Fuchs, supra note 140, at 433-454.

186
156 Hartman, supra note 149, at 450-461.
157 Parrish (1995), supra note 13.
158 Verstegen, supra note 95, at 7-13; and Dempsey
and Fuchs, supra note 140, at 433-454.
158 Hartman, supra note 148, at 450-461.
159 Parrish, supra note 43, at 5.
160 Dempsey and Fuchs, supra note 140, at 442; and
Moore, M. T., Walker, L. J., and Holland, R. P.,
Finetuning Special Education Finance: A Guide for State
Policy Makers (Princeton, New Jersey: Educational
Testing Service, 1982).
161 O'Reilly, supra note 141.
162 Parrish, supra note 43, at 5.
103 Dempsey and Fuchs, supra note 140, at 433-454;
and Thompson, David C., R. Craig Wood, and David H.
Honeyman, Fiscal Leadership for Schools: Concepts and
Practices (White Plains, New York: Longman Publishing
Company, 1994).
164 Mclaughlin and Warren, supra note 44; and
Verstegen, supra note 14.
165 Dempsey and Fuchs, supra note 140, at 433-454.
166 Ibid.
167 Verstegen, supra note 82.
168 Thompson et al. , supra note 163.
169 Chambers et al. , supra note 135.
170 CSEF, supra note 93.
171 CSEF, "Resource Implications for Inclusion, "
Issue Brief No. 3 (Spring 1994).
172 Chambers et al., supra note 135.
173 CSEF, supra note 93.
174
Ibid.

175
Ibid.
176
Chambers et al., supra note 135,
177 Parrish, supra note 43, at 8.
178 Krantz, D. 0., "Funded into Perpetuity,"
Education Week on the Web, 3; available from
http://www.edweek.orq/htbin/fastweb?aetdoc+view4+
ewl997+116+l+wAAA+%26%28Krantz%29%26AND%26%28Krantz
%29%3AKEYWORDS%26QR%26%28Krantz%29
179 Harper, 624 So. 2d 107.
180 Parrish, supra note 43, at 10.
181 McLaughlin and Warren, supra note 44; and
Verstegen, supra note 14.
182 20 U.S.C. §§ 6301-6321e (1998).
183
20 U.S.C. § 6302 (1998)
184
20 U.S.C. § 6434 (1998).
185 Office of Special Education Programs. 1995.
Seventeenth Annual Report to Congress on the Implementation of the
Individuals with Disabilities Education Act [On-line] . Available
Online from http;//www.ed.aov/Pubs/OSEP95
AnlRpt/index.html
186
McLaughlin and Warren, supra note 44
187 Center for Special Education Finance (CSEF) ,
Federal Policy Options for Funding Special Education,
Issue Brief No. 1 (Fall 1993).
188 Parrish, T. B. , and D. Verstegen, Fiscal
Provisions of the Individuals with Disabilities Act:
Policy Issues and Alternatives (Palo Alto, California
Center for Special Education Finance, 1994), 42.
189 Ibid.
190
191
192
Verstegen, supra note 37.
Krantz, supra note 178, 3.
Parrish, T. B. and D. L. Montgomery, The
Politics of Special Education Reform in Three States
(Palo Alto, California: Center for Special Education
Finance, 1995) .

188
Ibid.
Ibid.
Hartman, supra note 149.
Moore et al., supra note 160.
Hartman, supra note 149.
See e.g., Hartman, supra notes Chapter II 284-
Hartman, supra note 149.
Hill, F. W., "Inclusion and Administrative
Structure: Public Funding of Special Education
Services," American School and University (1993): 20-24.
201 Hartman, supra note 149, at 244.
202 P.A.R.C., 343 F. Supp. 279.
203 2 4 P.S. § 13-1376 (1998) .
204 EAHCA, supra note 20.
205 20 U.S.C. § 1412(a) (10) (1998).
206 20 U.S.C. § 1412 (a) (10) (B) (1998). "Children
with disabilities in private schools and facilities are
provided special education and related services, in
accordance with an individualized education program, at
no cost to their parents, if such children are placed
in, or referred to, such schools or facilities by the
State or appropriate local educational agency as the
means of carrying out the requirements of this
subchapter or any other applicable law requiring the
provision of special education and related services to
all children with disabilities within such State."
207 McQuain, Sandra, "Special Education Private
Placements: Financial Responsibility Under the Law,"
Journal of Education Finance 7 (1982): 425-435; Hill,
supra note 198, 20-24; and Parrish, Fiscal Issues in
Special Education: Removing Incentives for Restrictive
Placements, supra note 37.
208 20 U.S.C. § 1491b (14) .
Parrish, Fiscal Issues in Special Education:
193
194
195
196
197
198
290.
199
200
209

189
Removing Incentives for Restrictive Placements, supra
note 37, at 11.
210 Parrish and Verstegen, supra note 139, at 24.
211 See e.g., Lipsky, Dorothy Kerzner, and Alan
Gartner, "Capable of Achievement and Worthy of Respect:
Education for Handicapped Students As If They Were Full-
Fledged Human Beings," Exceptional Children 54 (1987):
69-74; and Algozzine, B., and Korinek, L., "Where Is
Special Education for Students with High Prevalence
Handicaps Going?" Exceptional Children 51 (1985): 388-
488.
O'Reilly, supra note 141.
213Sack, J., "Special Education Designation Varies
Widely Across Country," Education Week 17 (1998): 1-20.
31.
214 Parrish and Verstegen, supra note 187, 42.
215 Turnbull, supra note 68.
216 Melvin, supra note 7; and Goldman, supra note
217 20 U.S.C. § 1412(a)(5) (1998).
218 CSEF, supra note 11, at 6.
219 20 U.S.C. § 1413(f) (1998).
220Parrish and Verstegen,
supra note 188.
221 20 U.S.C. §
222 2 0 U.S.C. §
223 2 0 U.S.C. §
224 2 0 U.S.C. §
1413(a)(2)(D) (1998).
1413(a) (2) (D) (1998) .
1413(a)(4)(B) (1998).
1411(a) (5) (1998) .
Parrish, T. B., Interview at the 1997 American
Education Finance Association Conference, Mobile Alabama
(1998). The federal share, according to Parrish, was
probably not large enough to significantly influence
placement decisions. Nevertheless, Parrish described
this policy characteristic as typical of federal finance
policy incongruity.
226
20 U.S.C. § 1412(a)(3)(B) (1998).

190
227
21 IDELR 68 (1994) .
228
Ibid, at 69.
229
20 U.S.C. §§ 1411-1419 (1998).
230
21 IDELR 69 (1994).
231
34 C.F.R. § 300.8; and §§ 300.550-300.556
(1999) .
Parrish, Fiscal Issues in Special Education:
Removing Incentives for Restrictive Placements (Palo
Alto, California: Center for Special Education Finance
Finance, 1994), 8.
233
23 IDELR 443 (1996).
234
Ibid., 444.
235
23 IDELR 831 (1996).
236
Ibid.
237
20 U.S.C. § 1411(e)(4) (1998).
238
20 U.S.C. § 1411(b)(1)(a) (1998).
239
20 U.S.C. § 1412(a)(3)(B) (1998).
240
20 U.S.C. § 1411(e)(3)(B)(ii) (1998).
241
24 IDELR 390 (1996).
In New Mexico, 95 percent of special education
operation funds came from the state; local revenues
comprised less than 2 percent.
243
34 C.F.R. § 300.182 (1999).
244
24 IDELR 390 (1996).
245
The purpose of this component of the policy
analysis was to provide simple, descriptive statistics
on the status of special education funding
characteristics in the states. This aspect of the
analysis relied to a great extent on research conducted
by the CSEF, specifically the 50 state descriptions of
state funding, and the CSEF diagram "Special Education
Funding in the States." The purpose of the synthesis of
data was solely to organize the CSEF material for

191
descriptive statistical statements. These data were
confirmed by this researcher's legal analysis of state
statutes. Nothing in this policy analysis should infer
that the data were collected solely by the author.

CHAPTER 5
A MODEL PLACEMENT NEUTRALITY POLICY FOR THE FEDERAL
GOVERNMENT
Forecasting/Evaluation of Policy-Relevant Data
The paradox of the Individuals with Disabilities
Education Act (IDEA)1 was evinced by the policy and legal
analysis outlined in Chapter IV. The policy analysis
revealed that the IDEA was initially designed to identify
millions of excluded children with special needs.
Historical and legal data documented (a) state programs
that were unresponsive to the needs of students with
disabilities, (b) court decisions that secured the right to
equitably funded special education programs, (c)
segregation and restrictive placements that--in the absence
of due-process--violated civil liberties, and (d) the need
for federal protection of the quasi-suspect class of
students with disabilities.
The 1997 IDEA2 guided the states into a new era
characterized by (a) an estimated 0.5 percentage of
unidentified students with disabilities,3 (b) a 39 percent
192

193
increase in identified children with disabilities receiving
special education and related services since 1977,4 (c) the
qualitative nature of eligibility and placement methods,5
and (d) state funding policies that have threatened the
least restrictive environment (LRE) through fiscal
incentives.6
Summary of Findings
The fiscal paradox was described as a fundamental
policy shift from the crisis of segregation and under¬
identification of students with disabilities, to the
proliferation of fiscal incentives and the over¬
identification of students in special education. Special
education placement incentives were determined to be a
conflict of Constitutional dimension that were best
addressed by the jurisdiction of federal law.7 Special
education placements that were based on policy
characteristics--rather than true need--indicated profound
policy problems. These problems included (a) the
disturbance of civil liberties,8 (b) the misclassification
of students into inappropriate special education programs,9

194
(c) educational spending that did not accord with
contemporary finance equity theory."0
Interpretation of State Special Education Finance Statutes
Before any interpretations could be made from the
state funding formula data, the researcher asserted that
the propensity for placement biased funding did not equate
to de jure violation of placement neutrality. The
literature supported the observation that placement biased
funding was based on a number of variables. These variables
were determined by (a) the political base of the state, (b)
status of special education reform, (c) the economic
context of the state educational system, and (d) the range
of special education service configuration.11 The purpose of
the study was to provide a comprehensive analysis of
federal placement neutrality policy and, if neccesary, a
revised policy model for the federal government. This goal
was disposed to generalizations based on (a) funding
formula and (b) funding base only.
The analysis of state funding statutes12 revealed
significant policy findings. First, funding basis of
placement, placement and disability, and disability

195
accounted for 95 percent of all pupil-weighted formula
programs. Placement and disability funding bases accounted
for 26 percent of all special education funding bases.
Alabama, Alaska, Arizona, Arkansas, Florida, Georgia,
Hawaii, Indiana, Iowa, Kentucky, Maryland, New Hampshire,
New Jersey, New Mexico, New York, Oklahoma, South Carolina,
and Texas, Utah utilized these placement-based approaches.
Second, pupil-weighted formulas represented 100
percent of all funding based on placement and placement and
disability. The funding basis of disability was singularly
represented by the utilization of pupil-weighted
categories. These data evidenced (a) a high frequency of
pupil-weighted formulas within the funding basis of
placement and/or disability category and that (b) pupil-
weighted formulas demonstrated almost exclusive (95
percent) use of placement and disability bases for funding.
In the absence of placement neutral policies (e.g.,
Florida's Double Basic Funding for mainstreamed
placements), these state funding typologies would exhibit,
a priori, the propensity for placement biased funding.13 The
literature and legal analysis evinced that placement biased

196
funding could violate the LRE if placement decisions (a)
were not based upon individual student needs, and (b)
classified students with and without disabilities into
inappropriate special education programs without due-
process .
The comprehensive analysis of resource-based funding
typologies was less revealing. The statutory data indicated
that 22 percent of states utilized resource-based funding.
According to the Center for Special Education Finance
(CSEF) , resource-based funding demonstrated the propensity
for placement bias on the grounds that expenditures for
costlier, restrictive placements were transferred to
funding differentials. This, in turn, created fiscal
incentives for restrictive settings that opposed the
doctrine of the LRE. The data indicated that 63.63 percent
of resource-based states utilized classroom unit bases.
This category represented setting-specific funding bases
that also jeopardized the LRE. Moreover, 27.27 percent of
resource-based states utilized funding based upon special
education staff. This would present less concern for
placement neutrality depending on the service configuration

197
of special education programs. For example, if funding
followed students into the general education program
through the salary of a resource-team teacher, this
resource-based category would pose a subordinate concern
for placement neutrality.
The literature evinced that an incentive-free funding
system was a practical improbability.14 Furthermore, the
data revealed forty possible funding combinations (4
formula categories * 10 funding bases). This wide variation
in funding methodology suggested that (a) widespread,
systemic finance reform was unnecessary and impractical,
(b) many states utilized formulas and funding bases which
represented only subordinate threats to placement
neutrality, and (c) Congress must target specific funding
typologies and bases to punctuate a formal policy for
placement neutrality.
Congress intended that grievances related to the LRE
were best addressed at the local level in order to consider
the individual needs of each child.15 However, the
determination of placement bias at the local due-process
level was problematic: the incentives for placement bias

198
were more associated with state policy characteristics than
with local program characteristics. Placement bias was
described by Hartman as a policy characteristic that-either
purposely or inadvertently created fiscal incentives for
more restrictive placements.16 The legal and policy analysis
revealed that state and federal governments possessed an
administrative advantage to address these policy
shortcomings. These governmental bodies could (a) monitor
identification rates, (b) assess statutory provisions that
either promote or do not prohibit placement bias, and (c)
amend state finance characteristics that threaten the LRE.
Therefore, the policy analysis concurred with contemporary
stare decisis that policy problems would be suitably
addressed at the state or federal legislatures.17
Ranking of Policy Issues and Alternatives
The researcher analyzed various policy-relevant
information sources and derived a set of policy issues and
alternatives:
1. Weighted funding systems were most likely to be
based on setting or placement and disability. These

199
formulas demonstrated the propensity for placement
biased funding.
2. The federal government should not assume that
special education finance reform will occur. The
first wave of disability litigation in the early
1970s18 prompted the comprehensive revision of
state statutes prior to the Education for All
Handicapped Children Act.19 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.""10 Two thirds of
states are currently considering or pursuing
special education reform. Many of these states have
been engaged in such reform for over five years.
3. The pervasive nature of fiscal incentives will
continue to foster over-identification of students
in special education. Incentives for finite
educational resources will be impossible to
completely neutralize. The goal should be to target
appropriate funding methods and to discourage

200
inappropriate methods through federal and state
legislative sanction and reform.
4. The natural distribution of the general student
population is a precondition for the LRE and
normalized educational settings. Whether special
education students are over or under identified, a
normalized setting is complicated by any
disproportion in the general student population.
Inclusion--the chief modality of special education
equity--is hindered by the (a) under-representation
or (b) over-representation of students with
disabilities.
5. Federal program caps are more symbolic measures
than effective placement neutral policies. The 12
percent limit on identified special education
students only pertains to the federal share of
reimbursement.21 This share accounted for only 8
percent of total special education funds in FY
19 8 8.22 According to an interview with Parrish, the
issue of federal fiscal incentives is a subordinate

201
one. The greatest impact of fiscal incentives is
determined at the state level.
6. Provisions of federal law23 should reflect
evaluation, assessment, and eligibility goals that
are based primarily upon the individual needs of
students with disabilities. Federal law should
prioritize the goals of assessment and evaluation.
The current law does not determine the qualitative
difference between procedures for the (a)
classification of disability, and (b) determination
of individual student needs.
7. The federal government should clarify its position
on placement neutrality. The 1997 IDEA was the
first draft to broadly address the impact of over¬
identification. However, a congressional
sensitivity for disproportion in special education
was evinced by historical documents from the 1970s.
The government needs to clarify (a) the
relationship between labels, social stigma, and
inappropriate special education programs, (b) the
specific Constitutional implications of over-

202
identification, and (c) a formal mandate for
transition to placement neutral policies.
8. A review of contemporary special education finance
literature suggests that federal special education
law should impel (a) appropriate service
configurations, and (b) fiscal policies. According
to Parrish, program policy should actuate fiscal
policy; not the reflexive.24 Fiscal
characteristics of the IDEA should not determine
the (a) objectives or (b) the configuration of
special education programs.
9. The federal government does not encourage a de jure
policy enforcement of placement neutrality. Federal
enforcement of placement neutrality is yielded in
terms of the LRE. Historically, LRE infringements
are addressed at the local level on an individual
student basis. The federal government possesses few
administrative powers to monitor and sanction
placement biased funding. The IDEA vaguely suggests
that "the State shall provide the Secretary an
assurance that it will revise the funding mechanism

203
as soon as feasible to ensure that such mechanism
does not result in such placements."25 This
provision does not impose (a) comprehensive
prohibitive guidelines, (b) formal deadlines, (c)
policy alternatives, or (d) a formal transition
framework.26
Derived Model of Federal Placement Neutrality Policy
Revisions of the IDEA were designed to coincide
with the expiration of discretionary grants under
Parts C and D. According to the congressional pattern
of amendment, the next revision process should occur
between 2001 and 2002. This pattern presents
policymakers with a window of opportunity for the
address of placement neutral reform.
This proposed model was designed to broadly
address the fiscal and policy shortcomings related to
placement biased funding. The proposed changes were
organized according to federal statute.
1. Sec. 1400. Congressional statements and
declarations (c) Findings should be amended to
include: "(10) Congress has indicated a

204
sensitivity to the over-identification of
students in special education and recognizes
that a share of growth in special education may
be related to the proliferation of fiscal
incentives for costlier placements" and "(11)
Funding based upon setting and placement has
indicated the propensity for (a) disturbance
of civil liberties, (b) inappropriate
educational programs, (c) and disproportion of
students with disabled classifications."
2. Sec. 1401 Definitions should be amended to
include: "(31) 'Placement neutral' means any
fiscal policy that does not promote funding on
the basis of more restrictive settings and
placements."
3. Sec. 1412 State Eligibility should be amended
to include: "(a)(5)(B)(iii) Timeline If the
State does not have policies that ensure
compliance with clause (i), and the State
Educational Agency has submitted a letter of
assurance to the Secretary within one (1)

205
fiscal year, the State will be required to
submit a formal transition plan that includes
provision for placement neutral safeguards,
alternative funding methods, and/or other
specific assurances that placement biased
funding will be minimized" and "(6)(C) States
will collect and submit data to the Secretary
on any increases in identification of students
with disabilities for the purposes of
monitoring section 1414(a)(5)(B)(i-iii)."
4. Sec 1414 Evaluations, eligibility
determinations, individualized education
programs, and educational placements should be
amended to include: "(B)(i) foremost, determine
the educational needs of a child with a
disability;" and "(B)(ii) for subordinate
purposes only, to determine whether a child is
a child with a disability (as defined in
section 1401(3) of this title).

206
Practical Inference of Proposed Theory
This model will not completely neutralize fiscal
incentives for restrictive special education placements.
Modern finance theory assumed that an incentive-free
funding system was a practical improbability. However, this
model clearly addressed several fiscal policy shortcomings
that have contributed to the proliferation of placement
biased funding.
Although certain formula typologies were associated
with placement biased funding, it was impractical to
prohibit the use of any particular funding methods. Rather,
the model operated under the assumption that the states
were enabled to adequately evaluate and employ funding
methods that met a clear federal standard. This concurred
with the legislative intent of the IDEA. Furthermore, this
transitional approach would allow states to pursue
distinctive reform initiatives that met a particular
state's political, economic, and legislative needs.
Special education finance reform was not indicated for
states that utilized adequate methods of funding. However,
federal statutes with a clear objective and timeline for

207
transition were designed to encourage necessary state
special education finance reform.
As long as funding differentials are tied to the costs
of special education programs, incentives for restrictive
placements will exist. Two seminal cost analyses of the
special education program revealed that the average cost of
educating a student with disabilities ranged between 2.1727
to 2.2828 times the cost of educating a student in the
general education program. Other literature evinced that
the costs of special education configurations will not
decrease.29 These fiscal characteristics will force
lawmakers--within the revised model--to acknowledge
costlier placements and to monitor the relationship between
restrictive placements and cost-based formulas. Moreover,
the literature indicated the strategic use of fiscal
incentives for the promotion of service configurations that
meet federal standards.30 These are policy characteristics
that should be included in state transition plans.
The goal of inclusion was to simulate the natural
distribution of the general population in order to affect
the social integration of students with disabilities. The

208
service ideology of social role valorization maintained
that the process of stigmatization would be minimized by
this normalized context.31 When students with disabilities
were either over or under-represented in the classroom, the
normalized environment was affected: the natural incidence
rate was not reflected. The national special education
designation rate was reported to be 11.1 percent of the
general student population.32 Identification rates varied
between 8 and 21 percent in various urban school
districts.33
Data from the 1995 National Health Interview Study
(NHIS) indicated a much lower medical incidence rate of
school related disabilities. The most recent U.S. Census
data on incidence rates of school related disabilities for
students aged 5-17 estimated the actual disability
prevalence at 5.5 percent of the general student
population.34 The federal government is required to promote
the identification of children with disabilities while
simultaneously guiding the states towards program policies
that inhibit over-identification. Under the revised model,
states would be required to use eligibility and evaluation

209
procedures primarily for the determination of educational
needs. Moreover, State Educational Agencies (SEA) would be
required to periodically submit data on incidence rate
increases in order to assess the legality of their funding
methods.
According to the U.S. Supreme Court, "If the intent
of Congress is clear, that is the end of the matter; for
the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress."35 Placement
neutrality policy was not evident prior to the 1997 IDEA.
The most recent amendments to the IDEA have given SEAs
limited exposure to the problems and alternatives to
placement biased funding. The revised model includes a
clear definition of the policy for state legislatures.
Furthermore, the revised model transcends the vague
requirements for placement neutral policies in previous
drafts. The model policy gives effect to a clear
congressional expectation and state reform timeline. This
policy clarification presents states with a preemptive
opportunity to reform state funding policies--if

210
necessary--within a reasonable time period. Under the
revised policy model, states are required to submit a
formal transition plan that outlines reform measures that
are sufficient to comply with LRE and placement neutral
requirements.36
Recommendations for Future Study
The legal and policy analysis raised several issues
that warranted further study. A formal policy for placement
neutrality is currently in its legislative beginnings.
Researchers should assume that this policy will continue to
evolve in Congress, the courts, and the state legislatures.
This study examined the manner in which the federal
government either promoted or did not prohibit placement
biased funding. No attempt was made to examine the manner
in which these federal laws impact state policy.
Comprehensive state policy studies would complement the
legal and policy data evinced in this study and would
contribute to the systemic reform of special education
finance.
The emerging concepts of a unified special education
funding system could present many placement neutral policy

211
alternatives. Hartman was the first to suggest that the
traditional concept of excess costs--which required the
distinction between general and special education costs--
presented many policy problems.37 Verstegen identified
current litigation that punctuates the symbiosis of general
and special education finance.38 Research accorded with a
need for the fusion of both systems.39 A gap in the body of
special education finance literature suggested further
analysis of finance reform methodologies that target the
maximization of educational opportunity for all students.40
The decisions in Harper v. Hunt,41 DeRolph v. Ohio,42
and Cambell v. State of Wyoming 43 indicated the need for
valid, research-based cost differentials. The courts have
indicated the importance of alternative funding
differentials with regard to the education of students with
disabilities. This current wave of finance litigation has
forced researchers to acknowledge that special education
finance creates "special problems and [that] amounts may be
distributed in a mode . . . which takes into consideration
various balancing factors."44 These alternatives must take
into account the political and economic schema that are the

212
foundations of any education finance system. The courts
expressed a confidence that the search for equitable
funding alternatives was "not a problem that cannot be
solved, challenging though it might be."45
The objectivity of special education eligibility
assessment must be analyzed if costs and program quality
are to be contained. Within the context of expanding
categories of disabilities and eligibility criteria, the
clarification of placement neutral policy is only half of
the solution to over-identification. The federal government
should promote the examination of (a) district
identification procedures and (b) the manner in which state
evaluation policies jeopardize the LRE.
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 Individuals with Disabilities Education Act
Amendments, P.L. 105-17 (1997).
3 LaPlante, B. L., H. S. Kaye, and M. P. LaPlante,
Disability in the United States, Prevalence and Causes,
1992, (Washington, D.C.: U.S. Department of Education,
National Institute on Disability and Rehabilitation
Research, 1995), at 3.
4 Verstegen, D. A, Consolidating Special Education
Funding and Services: A Federal Perspective (Palo Alto,
California: Center for Special Education Finance, 1995), 7-
13

213
5 See, e.g., McCarthy, Eileen, and Daniel Sage, "State
Special Education Fiscal Policy: The Quest for Equity,"
Exceptional Children 48 (1982): 414-419; Boscardin, Mary
Lynn, "Local-Level Special Education Due-Process Hearings:
Cost Issues Surrounding Individual Student Differences,"
Journal of Education Finance 12 (1987): 391-402; and
Ysseldyke, James, Martha Thurlow, Bob Algozzine, and Joe
Nathan, "Open Enrollment and Students with Disabilities:
Issues, Concerns, Fears, and Anticipated Benefits,"
Exceptional Children 59 (1983): 390-401.
6 See e.g., Chambers, Jay G. and William T. Hartman,
Special Education Policies: Their History, Implementation,
and Finance (Philadelphia, Pennsylvania: Temple Press,
1983), 193; 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).
7 Daniel H. Melvin, The Desegregation of Children with
Disabilities, 44 DePaulL. Rev. 605 (1995).
8 Turnbull, H. Rutherford, Free and Appropriate Public
Education: The Law and Children with Disabilities (Denver,
Colorado: Love Publishing, 1990).
9 Parrish, T. B., Special Education Finance: Past,
Present, and Future (Palo Alto, California: Center for
Special Education Finance, 1996), 25.
10 Center for Special Education Finance (CSEF) , "What
is Fair? Special Education and Finance Equity" Issue Brief
No. 6 (Fall 1995): 1-4.; and Berne, Robert, and Stiefel,
Leanna, The Measurement of Equity in School Finance:
Conceptual, Methodological, and Empirical Dimensions
(Baltimore: Johns Hopkins University Press, 1984).
11 Parrish, Special Education Finance: Past, Present,
and Future (Palo Alto, California: Center for Special
Education Finance, 1996).
12 The purpose of this component of the policy analysis
was to provide simple, descriptive statistics on the status
of special education funding characteristics in the states.
This aspect of the analysis relied to a great extent on
research conducted by the CSEF, specifically the 50 state
descriptions of state funding, and the CSEF diagram
"Special Education Funding in the States." The purpose of
the synthesis of data was solely to organize the CSEF
material for descriptive statistical statements. These data
were confirmed by this researcher's legal analysis of state
statutes. Nothing in this policy analysis should infer that
the data were collected solely by the author.

214
13 Parrish noted that "these types of perverse
incentives need not necessarily be linked with resource-
based funding systems . . . Florida has added a set of
funding allocations, or weights, to the state special
education finance system for students mainstreamed into
regular education classrooms. However, it is difficult to
know how to categorize a "fully included" child under such
a system, and it has been reported that the full use of
these mainstreaming weights is being pursued with some
caution."
14 Chambers, J. G., T. B. Parrish, and C. Hikido,
Special Education Expenditures and Revenues in a Census-
Based Funding System (Palo Alto, California: Center for
Special Education Finance, 1996); and Hartman, W. T.,
"Policy Effects of Special Education Funding Formulas,"
Journal of Education Finance 6 (1980): 135-159.
15 21 Cong. Rec . 37415 (1975). "Any parent or guardian
may present a complaint concerning any matter regarding the
identification, evaluation, or educational placement of the
child or the provision of a free appropriate public
education to such child. In this regard, Mr. President, I
would like to stress that the language referring to 'free
appropriate education’ has been adopted to make clear that
a complaint may involve matters such as questions
respecting a child's individualized education program,
questions of whether special education and related services
are being provided without charge to the parents or
guardians, questions relating to whether the services
provided a child meet the standards of the State education
agency, or any other question within the scope of the
definition of 'free appropriate public education.’ In
addition, it should be clear that a parent or guardian may
present a complaint alleging that a State or local
education agency has refused to provide services to which a
child may be entitled or alleging that the State or local
educational agency has erroneously classified a child as a
handicapped child when, in fact, that child is not a
handicapped child."
16 Hartman, W. T., "Policy Effects of Special Education
Funding Formulas," Journal of Education Finance 6 (1980):
135-159.
17 Brown v. Topeka Board of Education, 347 US at 493
(1954); Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v Commonwealth of Pennsylvania, 343 F. Supp. 279
(1972); Mills v. Board of Education, 348 F. Supp. 866
(1972) .
13 P.A.R.C., 343 F. Supp. 279 (1972); Mills, 348 F.
Supp. 866 (1972). These two rulings initiated a series of
equal protection suits throughout the nation. By mid-1975,
the House of Representatives reported that over forty-six
suits were underway in twenty-eight states.
19 Education for All Handicapped Children Act, P.L. 94-
142 (1975) [transferred to 20 U.S.C. §§ 1401-1491o (1998)].

215
20 U.S. House of Representatives, June, 1975. Education
of the Handicapped Act of 1975, 94th Congress, 1st Session.
House of Representatives Report No. 94-332, at 47-50.
21 20 U.S.C. § 1413(a)(2)(D) (1998).
22 Chambers, J. T., T. Parrish, and J. Lieberman, What
Are We Spending on Special Education in the U.S.? (Palo
Alto, California: Center for Special Education Finance,
1998).
23 20 U.S.C. § 1414 (a) (1) (B) (I-ii) (1998).
24 Center for Special Education Finance (CSEF) , "What
is Fair? Special Education and Finance Equity" Issue Brief
No. 6 (Fall 1995).
25 20 U.S.C. § 1412(a)(5)(B)(ii) (1998).
26 U.S. House of Representatives, June, 1975. Education
of the Handicapped Act of 1975, 94th Congress, 1st Session.
House of Representatives Report No. 94-332, at 47-50. "Mandatory-
legislation, which has characteristically lacked meaningful
provisions for actual enforcement, has proven to be of
limited value."
27 Kakalik, J. S., W. S. Furry, M. A. Thomas, and M. F.
Carney, The Cost of Special Education: A Rand Note (Santa
Monica, California: Rand Corporation, 1981) .
28 Moore, M. T. , Strang, E. W. , Schwartz, M. , &
Braddock, M., Patterns in Special Education Delivery and
Cost. (Washington, DC: Decision Resources, 1988).
29 Tappe, D. R., "Nineteen Reasons Why Special
Education Should Cost More Than Regular Education,"
Conference Proceedings of the American Council on Rural
Special Education (Salt Lake City, Utah: American Council
on Rural Special Education, 1995) .
30 Hartman, supra note 6.
31 Wolfensberger, W., "Social Role Valorization: A
Proposed New term for the Principle of Normalization,"
Mental Retardation 21 (1993): 224.
32 Sack, J., "Special Education Designation Varies
Widely Across Country," Education Week 17 (1998): 1-
20.
33 Ibid.
34 LaPlante et al. , supra note 3, at 1.
35 Cedar Rapids Community School District v. Garret F.,
118 S. Ct. 1793 (1999), at 267.
36 20 U.S.C. § 1412(a)(5)."(B) Additional requirement
(i) In general If the State uses a funding mechanism by
which the State distributes State funds on the basis of the
type of setting in which a child is served, the funding

216
mechanism does not result in placements that violate the
requirements of subparagraph (A). (ii) Assurance If the
State does not have policies and procedures to ensure
compliance with clause (i), the State shall provide the
Secretary an assurance that it will revise the funding
mechanism as soon as feasible to ensure that such
mechanismdoes not result in such placements."
37 Hartman, W. T., "Supplemental/Replacement: An
Alternative Approach to Excess Costs," Exceptional Children
5 (1990): 450-461.
35 CSEF, "Landmark Court Decision Challenge State
Special Education Funding," Issue Brief No. 9 (1998): 4.
39 See e.g., McLaughlin, M. J., and S. H. Warren,
Resource Implications of Inclusion: Impressions of Special
Education Administrators at Selected Sites (Palo Alto,
California: Center for Special Education Finance, 1994);
and Verstegen, D. A, Consolidating Special Education
Funding and Services: A Federal Perspective (Palo Alto,
California: Center for Special Education Finance, 1995), 7-
13; Stainback, W. and Stainback, S., "A Rationale for the
Merger Special and Regular Education," Exceptional Children
51 (1984): 102-111; and Anthony, Patricia, "Financing
Special Education in an Era of Fiscal Restraint," School
Business Affairs 57 (1991): 135-139.
40
Ibid.
41 Harper v. Hunt, 624 So. 2d 107 at 107 (1993).
42 DeRolph v. Ohio, 78 Ohio St. 3d 193, 677 N.E.2d 733
(1997).
43 Cambell v. State of Wyoming, 907 P.2d at 1279
(1995).
44 Harper, 624 So. 2d 124.
45
Cambell, 907 P.2d at 1245 (1995).

APPENDIX A
DEFINITIONS
Assistive technology: Any item, piece of
equipment, or product system, whether acquired
commercially off the shelf, modified, or customized,
that is used to increase, maintain, or improve
functional capabilities of a child with a disability.
Child with a disability: A child with mental
retardation, hearing impairments (including deafness)
speech or language impairments, visual impairments
(including blindness), serious emotional disturbance
(hereinafter referred to as ''emotional
disturbance1 '), orthopedic impairments, autism,
traumatic brain injury, other health impairments, or
specific learning disabilities; and who, by reason
thereof, needs special education and related services
Excess costs: Costs that are in excess of the
average annual per-student expenditure in a local
educational agency during the preceding school year
for an elementary or secondary school student, as may
be appropriate, and which shall be computed after
deducting - amounts received (under subchapter II of
this the IDEA; and any State or local funds expended
for programs that would qualify for assistance under
any of those parts.
Fiscal-bias: Funding policy characteristics that
exhibit bias toward a certain program characteristic.
Free appropriate public education (FAPE): The
term ''free appropriate public education’' means
special and related services that have been provided
at public expense, under public supervision and
217

218
direction, and without charge; meet the standards of
the State educational agency; include an appropriate
preschool, elementary, or secondary school education
in the State involved; and are provided in conformity
with the individualized education program required
under section 1414(d) of the IDEA.
Least restrictive environment (LRE): According to
the federal statutory definition, "the maximum extent
appropriate, children with disabilities, including
children in public or private institutions or other
care facilities, are educated with children who are
not disabled, and special classes, separate schooling,
or other removal of children with disabilities from
the regular educational environment occurs only when
the nature or severity of the disability of a child is
such that education in regular classes with the use of
supplementary aids and services cannot be achieved
satisfactorily." The courts have consistently upheld
that the exclusion of a child from general education
must be predicated upon the pursuit of appropriate
educational opportunities.1 While segregated placements
outside of the mainstream are not prohibited, an
individualized education program (IEP) should strike a
balance between the default of inclusion and
appropriate educational and social opportunities;
wherever they may be exist.
Local educational agency (LEA): A public board of
education or other public authority legally
constituted within a State for either administrative
control or direction of, or to perform a service
function for, public elementary or secondary schools
in a city, county, township, school district, or other
political subdivision of a State, or for such
combination of school districts or counties as are
recognized in a State as an administrative agency for
its public elementary or secondary schools.
Parens patriae: The power of the state to
intervene upon the lives of people with disabilities
fostered a separate status for such individuals.

219
Placement neutrality: That which drives down the
incentives between the frequency of students
identified and funding received.2
Placement-bias: Policy characteristics that favor
placement on the basis of fiscal and program
attributes rather than on an evaluation of indivdual
student need.
Quasi-suspect: That which includes several
characteristics of suspect class legal status. 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.3
Related services: Transportation, and such
developmental, corrective, and other supportive
services (including speech-language pathology and
audiology services, psychological services, physical
and occupational therapy, recreation, including
therapeutic recreation, social work services,
counseling services, including rehabilitation
counseling, orientation and mobility services, and
medical services, except that such medical services
shall be for diagnostic and evaluation purposes only)
as may be required to assist a child with a disability
to benefit from special education, and includes the
early identification and assessment of disabling
conditions in children.
Stare decisis: The doctrine of English and
American law that states that when a court has
expressed a principle of law as applicable to a given
set of facts, it will follow that principle and apply
it in future cases when the facts are substantially
the same.
State educational agency (SEA): The State board
of education or other agency or officer primarily
responsible for the State supervision of public
elementary and secondary schools, or, if there is no

220
such officer or agency, an officer or agency
designated by the Governor or by State law.
Zero Reject: The principle--upheld in P.A.R.C4--
that all children with identified special needs are to
be provided a free and appropriate public education.
1 Board of Education v. Rowley, 458 U.S. 176, 102
S. CT. 3034, 73 L. ED. 2d 690, (1982).
2 CSEF, "Federal Policy Options for Funding
Special Education," Issue Brief 1 (Fall 1993): 2.
3 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) .
4 Pennsylvania Association for Retarded Citizens
(PARC) v Commonwealth of Pennsylvania, 343 F Supp 279
(1972) .

APPENDIX B
METHODS OF STATE FUNDING FOR SPECIAL EDUCATION
STATE
Statute Empowering
Sped Finance
Current Funding
Formula
Basis of
Allocation
Illinois
105 ILCS 5/14-12.01
(1999)
Resource-based
Allowable costs
California
Cal Ed Code §
14004.5 (1999)
Resource-based
Classroom unit
Delaware
14 Del. C. § 604(c)
(1998)
Resource-based
Classroom unit
Nevada
Nev. Rev. Stat.
Ann. § 387.047
(1999)
Resource-based
Classroom unit
Ohio
ORC Ann. 3317.022
(1998)
Resource-based
Classroom unit
Tennessee
Tenn. Code Ann. §
49-3-306
Resource-based
Classroom unit
Virginia
Va. Code Ann. §
22.1-175.4 (1998)
Resource-based
Classroom unit
Washington
Rev. Code Wash.
(ARCW) §
28A.150.390 (1999)
Resource-based
Classroom unit
Kansas
K.S.A. § 72-6420
(1997)
Resource-based
Number of
special
education staff
Mississippi
Miss. Code Ann. §
37-151-7 (1998)
Resource-based
Number of
special
education staff
Missouri
R.S.Mo. § 163.031
(1999)
Resource-based
Number of
special
education staff
Arizona
A.R.S. § 15-769
(1998)
Pupil weights
Disabling
condition
Florida
Fla. Stat. §
236.081 (1998)
Pupil weights
Disabling
condition
Georgia
O.C.G.A. § 20-2-181
(1998)
Pupil weights
Disabling
condition
Indiana
Burns Ind. Code
Ann. § 20-1-6-3
(1998)
Pupil weights
Disabling
condition
Kentucky
KRS § 157.360 (2
) (b) (1998)
Pupil weights
Disabling
condition
Oklahoma
70 Okl. St. § 13-
114.4 (1998)
Pupil weights
Disabling
condition
South
S . C . Code Ann. §
Pupil weights
Disabling
Carolina
59-20-40 (1998)
condition
221

222
Hawaii
HRS § 302A-436
(1998)
Pupil weights
Placement and
Condition
New Jersey
N.J. Stat. §
18A:7F-19 (1999)
Pupil weights
Placement and
condition
Alabama
Code of Ala. § 16-
13-231(b)(1)(D)
(1999)
Pupil weights
Placement and
condition
Oregon
ORS § 327.013(A)
(1997)
Pupil weights
Special
education
enrollment
New York
NY CLS Educ § 4405
(1998)
Pupil weights
Type of
placement
Alaska
Alaska Stat. §
14.17.410 (1999)
Pupil weights
Type of
placement
Arkansas
Ark. Stat. Ann. §
6-20-306(a)(1)(D)
(1997)
Pupil weights
Type of
placement
Iowa
Iowa Code § 257.9
(1997) (3-4)
Pupil weights
Type of
placement
New Hampshire
RSA 186-C:18
(1999)
Pupil weights
Type of
placement
New Mexico
N.M. Stat. Ann. §
22-8-21 (1998)
Pupil weights
Type of
placement
Texas
Tex. Educ. Code §
42.151 (1999)
Pupil weights
Type of
placement
Utah
Utah Code Ann. §
53A-17a-lll (1998)
Pupil weights
Type of
placement
Connecticut
Conn. Gen. Stat. §
Percent
Actual
10-76b (1997)
reimbursement
expenditures
Idaho
Idaho Code § 33-
Percent
Actual
2004 (1998)
reimbursement
expenditures
Louisiana
La. R.S. 17:1948
Percent
Actual
(C) (1998)
reimbursement
expenditures
Minnesota
Minn. Stat. §
Percent
Actual
126C.05 (1998)
reimbursement
expenditures
Rhode Island
R.I. Gen. Laws §
Percent
Actual
16-7-20 (1998)
reimbursement
expenditures
South Dakota
S.D. Codified Laws
Percent
Actual
§ 13-37-36 (1999)
reimbursement
expenditures
Wyoming
Wyo. Sess. Laws
Percent
Actual
110; W.S. 21-13-
321 (1999)
reimbursement
expenditures
Colorado
C.R.S. 22-20-114
Percent
Allowable
(1998)
reimbursement
costs
Maine
20-A M.R.S. §
Percent
Allowable
15607(9) (1997)
reimbursement
costs
Michigan
MSA § 15.1919(951a)
Percent
Allowable
(1999)
reimbursement
costs
Nebraska
R.R.S. Neb. § 79-
Percent
Allowable
1007.01 (1999)
reimbursement
costs
Wisconsin
Wis. Stat. §
Percent
Allowable
121.135 (1998)
reimbursement
costs
North Dakota
N.D. Cent. Code, §
15-40.1-07.6
(1999)
Flat grant
Actual
expenditures

223
North
Carolina
N.C. Gen. Stat. §
115C-146.3 (1999)
Flat
grant
Special
education
enrollment
West Virginia
W. Va. Code § 18-
9A-(2-3) (1999)
Flat
grant
Special
education
enrollment
Maryland
Md. EDUCATION Code
Ann. § 8-415(D)
(1998)
Flat
grant
Total
district
enrollment
Massachusetts
Mass. Ann.
71B, § 5
Laws ch.
(1999)
Flat
grant
Total
district
enrollment
Montana
Mont. Code Anno., §
20-9-321 (1998)
Flat
grant
Total
district
enrollment
Pennsylvania
24 P.S.
2509.5
§ 25-
(1998)
Flat
grant
Total
district
enrollment
Vermont
16 V.S.A. § 2961
(1999)
Flat
grant
Total
district
enrollment

APPENDIX C
FREQUENCIES OF STATE FUNDING BY FUNDING TYPOLOGY AND
FUNDING BASE
Table 1
State Funding Group by Percentage
Funding Method Group
Number
Percentage of
States
Resource-Based (RB)
11
22
Pupil Weighted (PW)
19
38
Percentage Reimbursement (PR)
12
24
Flat Grants (FG)
8
16
Table 2
Placement Based Category by Percentage
Funding Base
Category
Number
National
Percentage
Percentage within
Typology
All Placement
Based
8
16
100
RB Placement
Based
0
0
0
PW Placement
Based
8
16
100
PR Placement
Based
0
0
0
FG Placement
Based
0
0
0
Note: data were adapted from the Center for Special
Education Finance (CSEF),"Special Education Finance Reform
in the States," (Palo Alto, California: Center for Special
Education Finance, 1995). These data were confirmed by this
researcher's legal analysis of state statutes.
224

225
Table 3
Placement and Disabling Condition Based Category by
Percentage
Funding Base
Category
Number
National
Percentage
Percentage within
Typology
All Placement &
Condition Based
3
6
100
RB Placement &
Condition Based
0
0
0
PW Placement &
Condition Based
3
6
100
PR Placement &
Condition Based
0
0
0
FG Placement &
Condition Based
0
0
0

REFERENCES
Books
Alexander, K., and M. D. Alexander. 1998. American
Public School Law. Belmont, CA: Wadsworth
Publishing Company.
Alexander, K., and R. G. Salmon. 1995. American Public
School Finance. Boston, MA: Allyn and Bacon.
Anthony, P., and S. L. Jacobson. 1996. Helping At-Risk
Students: What Are the Educational and Financial
Costs? Newbury Park, CA: Corwin Press, Inc.
Ashmore, H. S. The Negro and the Schools. 1954. Chapel
Hill, NC: University of North Carolina Press, 42-
44.
Ballard, J., B. A. Ramirez, and F. J. Weintraub. 1982.
Special Education in America: Its Legal and
Governmental Foundations. Reston, VA: Council for
Exceptional Children.
Berne, R., and L. Stiefel. 1984. The Measurement of
Equity in School Finance: Conceptual,
Methodological, and Empirical Dimensions.
Baltimore, MD: Johns Hopkins University Press.
Chambers, J. G., and I. E. Dueñas. 1995. Impact of
Kentucky Education Reform Act on Special Education
Costs and Funding. Palo Alto, CA: Center for
Special Education Finance.
Chambers, J. G., T. B. Parrish, and C. Hikido. 1996.
Special Education Expenditures and Revenues in a
Census-Based Funding System (CSEF Policy Study).
Palo Alto, CA: Center for Special Education
Finance.
Chambers, J. G. and W. T. Hartman. 1983. Special
Education Policies: Their History, Implementation,
and Finance. Philadelphia, Pennsylvania: Temple
University Press.
226

227
Chambers, J. T., T. Parrish, and J. Lieberman. 1998.
What Are We Spending on Special Education in the
U.S.? (CSEF Policy Brief No. 8). Palo Alto, CA:
Center for Special Education Finance.
Center for Special Education Finance (CSEF). A
Comparison of the Salaries Paid to Full-Time
Special Education Teachers and Non-Special
Education Teachers in the U.S., 1993-1994. Palo
Alto, CA: Center for Special Education Finance.
Cremins, J. 1983. Legal and Political Issues in Special
Education. Springfield, IL: Charles C. Thomas.
Data Researh, Inc. 1994. Students with Disabilities and
Special Education. Rosemount, MN: Data Research,
Inc.
Dunn, W. 1981. Public Policy Analysis: An Introduction.
Englewood Cliffs, NJ: Prentice-Hall.
Education Commission of the States (ECS). 1988. School
Finance at a Glance. Denver, CO: ECS Publications.
Frohock, F. 1979. Public Policy: Scope and Logic.
Englewood Cliffs, NJ: Prentice-Hall.
Goltz, D. L. and M. M. Behrmann. 1979. Getting the Buck
to Stop Here: A Guide to Federal Resources for
Special Needs. Reston, VA: Council for Exceptional
Children.
Hehir, T. and T. Latus. 1992. Special Education at the
Century's End: Evolution of Theory and Practice
Since 1970. Cambridge, MA: Harvard Educational
Review.
Jacobstein, J. M., and R. M. Mersky. 1973. Ervin H.
Pollack's Fundamentals of Legal Research. Mineóla,
NY: Foundation Press.
Jones, P. 1981. A Practical Guide to Federal Special
Education Law. New York, NY: CBS College
Publishing.
Kakalik, J. S., W. S. Furry, M. A. Thomas, and M. F.
Carney. 1981. The Cost of Special Education: A Rand
Note. (Report No. N-1792-ED). Santa Monica, CA:
Rand Corporation.
McLaughlin, M. J. and S. H. Warren. 1994. Resource
Implications of Inclusion: Impressions of Special
Education Administrators at Selected Sites (CSEF

228
Policy Study No. 1). Palo Alto, CA: Center for
Special Education Finance.
Montgomery, D. L. 1995. A Profile of Special Education
Finance Reform in Vermont (CSEF Policy Paper No.
1) . Palo Alto, CA: Center for Special Education
Finance.
. 1995. Impact of Kentucky Education Reform Act on
Special Education Programs and Services. Palo Alto,
CA: Center for Special Education Finance.
Moore, M. T., L. J. Walker, and R. P. Holland. 1982.
Finetuning Special Education Finance: A Guide for
State Policy Makers. Princeton, NJ: Educational
Testing Service.
Moore, M. T., Strang, E. W., Schwartz, M., and Braddock,
M. 1988. Patterns in Special Education Delivery and
Cost. Washington, DC: Decision Resources. (ERIC
Document Reproduction Service No. ED 303 027)
O'Reilly, F. E. 1995. State Special Education Funding
Formulas and the Use of Separate Placements for
Students with Disabilities. (Policy Paper No. 7).
Palo Alto, CA: Center for Special Education
Finance.
Osbourne, A. G. 1996. Legal Issues in Special Education.
Boston, MA: Allyn and Bacon.
Parrish, T. B. 1994. Fiscal Issues in Special Education:
Removing Incentives for Restrictive Placements
(CSEF Policy Paper No. 4). Palo Alto, CA: Center
for Special Education Finance.
Parrish, T. B. 1995. Criteria for Effective Special
Education Funding Formulas. Palo Alto, CA: Center
for Special Education Finance.
. 1998. Restructuring Special Education Funding in
New York to Promote the Objective of High Learning
Standards for All Students. Palo Alto, CA: Center
for Special Education Finance.
. 1996. Special Education Finance: Past, Present,
and Future (CSEF Policy Paper No. 8). Palo Alto,
CA: Center for Special Education Finance.
Parrish, T. B., Jay C., and C. M. Guarino, Eds. 1998.
Funding Special Education. Thousand Oaks, CA:
Corwin Press.

229
Parrish, T. B. and D. L. Montgomery. 1995. The Politics
of Special Education Reform in Three States. Palo
Alto, CA: Center for Special Education Finance.
Parrish, T. B. and D. A. Verstegen. 1994. Fiscal
Provisions of the Individuals with Disabilities
Act: Policy Issues and Alternatives (CSEF Policy
Paper No. 3). Palo Alto, CA: Center for Special
Education Finance.
Rossmiller, R. A., J Hale, and L. E Froreich. 1970.
Educational Programs for Exceptional Children:
Resource Implications for Configurations and Costs.
Madison, WI: University of Wisconsin Press.
Sosnowsky, W. P. 1978. Policy Foundations of Special
Education. Danville, IL: The Interstate Publishing
Company.
Strickland, B.B. and A. P. Turnbull. 1990. Developing
and Implementing individualized Educational Plans.
NY: Merrill Publishing.
Thomas, S. B. and C. J. Russo. 1995. Special Education
Law: Issues and Implications for the 90s. Topeka,
KS: NOLPE.
Thompson, D. C., R. C. Wood, and D. H. Honeyman. 1994.
Fiscal Leadership for Schools: Concepts and
Practices. White Plains, NY: Longman Publishing
Company.
Turnbull, H. R. 1990. Free and Appropriate Public
Education: The Law and Children with Disabilities.
Denver, CO: Love Publishing.
Verstegen, D. A. 1995. Consolidating Special Education
Funding and Services: A Federal Perspective (CSEF
Policy Paper No. 6). Palo Alto, CA: Center for
Special Education Finance.
. 1994. Fiscal Provisions of the Individuals with
Disabilities Act: A Historical Overview (CSEF
Policy Paper No. 2). Palo Alto, CA: Center for
Special Education Finance.
Verstegen, D. A., T. Parrish, and J. Wolman. 1998. A
Look at Changes in the Finance Provisions for
Grants to States Under the IDEA Amendments of 1997.
Palo Alto: CA: Center for Special Education
Finance.

230
Walker, L. 1987. "Procedural Rights in the Wrong
Systems." Gartner, A., and T. Joe, Eds. Images of
the Disabled/Disabling Images. NY: Praeger.
Weber, M. C. 1993. Special Education Law and Treatise.
Horsham, PA: LRP Press.
Weintraub, F. J., A. Abeson, and D. Braddock. 1971.
State Law and Education of Handicapped Children:
Isssues and Recommendations. Arlington, VA: Council
for Exceptional Chldren.
Winzer, M.A. 1993. History of Special Education from
Isolation to Integration. Washington, DC: Gallaudet
Press.
Yell, M. L. 1998. The Law and Special Education. Upper
Saddle River, NJ: Prentice Hall.
Ysseldyke, J. E., Bob Algozzine and Martha L. Thurlow.
1992. Critical Issues in Special Education. Boston,
MA: Houghton Mifflin Company.
Articles
Affleck, J. Q., S. Madge, A. Adams, and S. Lowenbraun.
1988. "Integrated Classroom Versus Resource Model:
Academic Viability and Effectiveness." Exceptional
Children 54: 339-348.
Algozzine, B., and Korinek, L. 1985. "Where Is Special
Education for Students with High Prevalence
Handicaps Going?" Exceptional Children 51: 388-488.
Anthony, P. 1991. "Financing Special Education in an Era
of Fiscal Restraint." School Business Affairs 57:
135-139.
Berne, R. 1988. "Equity Issues in School Finance."
Journal of Education Finance 14: 159-180.
Bernstein, C., W. T. Hartman, and R. Marshall. 1976.
"Major Policy Issues in Financing Special
Education." Journal of Education Finance 1: 299-
317.
Black, C. 1960. "The Lawfulness of the Segregation
Decisions." Yale Legal Journal 68: 421, 424.
Blackman, H. 1989. "Special Education: Is It What You
Know or Where You Live?" Exceptional Children 55:
459-462.

231
Boscardin, M. L. 1987. "Local-Level Special Education
Due-Process Hearings: Cost Issues Surrounding
Individual Student Differences." Journal of
Education Finance 12: 391-402.
Center for Special Education Finance (CSEF). Fall, 1996.
"Escalating Special Education Costs: Reality or
Myth?" Issue Brief No. 7. Palo Alto, CA.
Center for Special Education Finance (CSEF). February,
1998. A Look at Changes in the Finance Provisions
for Grants to States under the IDEA Amendments of
1997. Special Issue Update. Palo Alto, CA.
. Fall, 1993. "Federal Policy Options for Funding
Special Education." Issue Brief No. 1. Palo Alto,
CA.
. Fall, 1994. "Finance in an Inclusive System."
Issue Brief No. 4. Palo Alto, CA.
. Fall, 1995. "What is Fair? Special Education and
Finance Equity." Issue Brief No. 6. Palo Alto, CA.
. Fall, 1995. "Fiscal Issues Related to the
Inclusion of Students with Disabilities." Issue
Brief No. 7. Palo Alto, CA.
. Spring, 1994. "Resource Implications for
Inclusion." Issue Brief No. 3. Palo Alto, CA.
. Spring, 1998. "Landmark Court Decision Challenge
State Special Education Funding." Issue Brief No.
9. Palo Alto, California.
Chaikind, S., L. C Danielson, and M. L. Brauen. 1993.
"What Do We Know About the Costs of Special
Education? A Selected Review." Journal of Special
Education 26: 344-369.
Chinni, D. 1996. "A Bad IDEA: Individuals with
Disabilities Act." Washington Monthly 28: 17-26.
Cronin, J. M. 1976. "The Federal Takeover: Should the
Junior Partner Run the Firm?" Phi Delta Kappan 58:
499-501.
Danielson, L. C., and G. T. Bellamy. 1989. "State
Variation in Placement of Children with Handicaps
in Segregated Environments." Exceptional Children
55: 448-455.
Dempsey, S., and D. Fuchs. 1993. "'Flat' Versus
'Weighted' Reimbursement Formulas: A Longitudinal

232
Analysis of Statewide Special Education Funding
Practices." Exceptional Children 59: 433-454.
"ED'S Proposals for Reauthorization of IDEA Target
Financial Concerns." Individuals with Disabilities
Law Report 23 (1996): 443.
Goldman, R. W. 1994. "A Free Appropriate Education in
the Least Restrictive Environment: Promises Made,
Promises Broken by the Individuals with
Disabilities Education Act." Dayton Law Review
20:243-291.
Hagerty, G. J., and M. Abramson. 1987. "Impediments to
Implementing National Policy Change for Mildly
Handicapping Students." Exceptional Children 53:
315-323.
Hartman, W. T. 1990. "Supplemental/Replacement: An
Alternative Approach to Excess Costs." Exceptional
Children 5: 450-461.
. 1980. "Policy Effects of Special Education
Funding Formulas." Journal of Education Finance 6:
135-159.
. 1991. "Special Education Funding in
Pennsylvania: Problems and Alternatives." Journal
of Education Finance 16: 360-387.
. 1991. "Special Education Funding Approaches and
Cost Control." School Business Affairs 57: 24-28.
. 1992. "State Funding Models for Special
Education." Remedial and Special Education 13: 47-
58.
Hill, F. W. 1993. "Inclusion and Administrative
Structure: Public Funding of Special Education
Services." American School and University 66: 20-
24.
Kirp, D. L. 1974. "The Great Sorting Machine." Phi Delta
Kappan 55: 521-525.
LaPlante, B. L., H. S. Kaye, and M. P. LaPlante. 1995.
Disability in the United States, Prevalence and
Causes, 1992. Washington, D.C.: U.S. Department of
Education, National Institute on Disability and
Rehabilitation Research.
Lewis, D. R., R. Bruininks, M. Thurlow, and K. McGrew.
1988. "Using Benefit-Cost Analysis in Special
Education." Exceptional Children 55: 203-214.

233
. 1990. "Cost Analysis of Special Schools for
Students with Mental Retardation." Journal of
Special Education 24: 33-50.
. 1989. "Cost Analysis for District Level Special
Education Planning, Budgeting, and Administration."
Journal of Education Finance 14: 466-483.
Lipsky, D. K., and A. Gartner. 1987. "Capable of
Achievement and Worthy of Respect: Education for
Handicapped Students As If They Were Full-Fledged
Human Beings." Exceptional Children 54: 69-74.
Melvin, D. H. 1995. "The Desegregation of Children with
Disabilities." DePaul Law Review 44:599-670.
McCarthy, E., and D. Sage. 1982. "State Special
Education Fiscal Policy: The Quest for Equity."
Exceptional Children 48: 414-419.
McLaughlin, M., and M. Owings. 1992. "Relationships
Among States' Fiscal and Demographic Data and the
Implementation of P.L. 94-142." Exceptional
Children 59: 247-261.
McLaughlin, M. 1998. "Increasing Regulatory
Flexibility of Special Education Programs: Problems
and Promisina Strategies." Exceptional Children 64:
371-385.
McQuain, S. 1982. "Special Education Private Placements:
Financial Responsibility Under the Law." Journal of
Education Finance 7: 425-435.
Odden, A. 1992. "School Finance in the 1990's." Phi
Delta Kappan 76: 455-461.
"Proposed Excess Cost Formula Does Not Compy with Part
B." Individuals with Disabilities Law Report 24
(1996): 390-391.
"Proposed Changes in IDEA Funding Would Be Based Upon
General Population, Rather Than Number of Students
Served." Individuals with Disabilities Law Report
23 (1996) : 831-832 .
Reynolds, M., and Rosen, T. 1976. "Special Education:
Past, Present and Future." Educational Forum 15:
551-562.
Sack, J. 1998. "Special Education Designation Varies
Widely Across Country." Education Week 17: 1-20.

234
Stafford, R. T. 1978. "Education for the Handicapped: A
Senator's Perspective." Vermont Legal Review 3:71-
72 .
Shapiro, J., P. Loeb, and D. Bowermaster. December,
1993. "Separate and Unequal." U.S. News and World
Report 115: 46-50, 54-56, 60.
Singletary, E. 1976. "Finance: That Which Makes Special
Education Possible." Journal of Education Finance
1: 334-353.
Stafford, R. 1978. Education for The Handicapped: A
Senator's Perspective. Vermont Law Review 3: 71-72.
Stainback, W. and Stainback, S. 1984. "A Rationale for
the Merger Special and Regular Education."
Exceptional Children 51: 102-111.
"States Have Some Flexibility in Implementing Part B
Regulations." Individuals with Disabilities Law
Report 21 (1994): 68-69.
Verstegen, D. A. 1994. "The New Wave of School Finance
Litigation." Phi Delta Kappan 76: 243-275.
Walters, L., and S. December, 1996. "Rising Costs Prompt
Special-Ed Scrutiny." Christian Science Monitor 14:
4.
Wolfensberger, W. 1983. "Social Role Valorization: A
Proposed New Term for the Principle of
Normalization." Mental Retardation 21: 224.
Ysseldyke, J., M. Thurlow, B. Algozzine, and J. Nathan.
1993. "Open Enrollment and Students with
Disabilities: Issues, Concerns, Fears, and
Anticipated Benefits." Exceptional Children 59:
390-401.
Federal Laws and Regulations
Captioned Films for the Deaf Act, P.L. 85-905 (1958)
[repealed by P.L. 89-10 (1965)].
Civil Rights Act of 1964, P.L. 88-352, (1964) [codified
at 42 U.S.C. §§ 2000d-2000d-4 (1998)].
Cooperative Research Act, P.L. 83-531 (1954).
Education Amendments, P.L. 93-380. (1974).

235
Education Department General Administrative Regulations
(1980) [codified at 34 C.F.R. §§ 300.660-.662
(1999) ] .
Education for All Handicapped Children Act, P.L. 94-142
(1975) [transferred to 20 U.S.C. §§ 1401-1491o
(1998)] .
Education of the Handicapped Act, P.L. 91-230 (1970) .
Education of the Handicapped Amendments of 1986, P.L.
99-457 (1986).
Education of Mentally Retarded Children Act, P.L. 85-
926, [repealed by P.L. 89-10 (1965)].
Elementary and Secondary Education Act Amendments, P.L.
89-750 (1955) [repealed by P.L. 91-230 (1970)].
Elementary and Secondary Education Act, P.L. 89-10
(1965) [codified as 20 U.S.C. §§ 6301-6321e 1998)].
Expansion of Teaching in the Education of Mentally
Retarded Children Act, P.L. 85-864 (1958).
Individuals with Disabilities Education Act Amendments,
P.L. 102-119 (1991).
Individuals with Disabilities Education Act Amendments,
P.L. 105-17 (1997).
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. §§ 1401-1491o (1998)].
Mental Retardation Facilities and Community Mental
Health centers Construction Act, P.L. 88-164
(1963) .
Section 504 of the Rehabilitation Act (1973) [codified
as 29 U.S.C. §§ 706 (8), 794, 794a (1998)].
Smith-Fess Act, P.L. 66-236 (1920) [codified as 29
U.S.C. § 4 , transferred to 29 U.S.C. 701-797b
(1998)] .
The Americans with Disabilities Act, P.L. 101-336 (1990)
[codified as 3 U.S.C. § 421 (1998)].
The Handicapped Children's Protection Act, P.L. 99-372
(1986) .

The National Defense Education Act, P.L. 85-864 (1958).
To Provide in The Department of HEW A Loan Service of
Captioned Films for The Deaf, P.L. 85-905 (1958).
To Encourage Expansion of Teaching in The Education of
Mentally Retarded Children through Grants to
Institutions of Higher Learning And to State
Educational Agencies, P.L. 85-926 (1958) .
The General Welfare Clause, U.S. Const. Art. I, § 8, cl.
1.
The Commerce Clause, U.S. Const. Art. I, § 8, cl. 3.
Unfunded Mandates Reform Act, P.L. 104-4 (1995).
U.S. Const . Art . X.
U.S. Const . Art . XVI, § 1.
Vocational Rehabilitation Act, P.L. 65-178 (1994)
[transferred to 29 U.S.C. § 701-797b (1998)].
Cases
Abbott v. Burke, 119 N.J. 287, 575 A.2d 359 (N.J. 1990)
Allen v. McDonough, (Mass. Super. Ct. 1987).
Andrews v. Ledbetter, 880 F.2d 1287 (11th Cir. 1989).
Brown v. Topeka Board of Education, 347 US 483 (1954) .
Beattie v. Board of Education, 172 N.W. 153 (Wis. 1919)
Bismarck Public School Dist. 1 v. State, 511 N.W.2d 247
(N.D. 1994) .
Board of Education Of Cincinnati v. Walter, 58 Ohio St.
2d 368, 390 N.E.2d 813 (Ohio 1979), cert, denied,
444 U.S. 1015, 100 S. Ct. 665, 62 L. Ed. 2d 644
(1980) .
Board of Education Levittown v. Nyquist, 57 N.Y.2d
27,439 N.E.2d 359, 453 N.Y.S.2d 643 (N.Y. 1982),
appeal dismissed, 459 U.S. 1138, 1139, 103 S. Ct.
775, 74 L. Ed. 2d 986, 459 U.S. 1139 (1993).
Hendrick Hudson District Board of Education v. Rowley,
458 U.S. 176, 102 S. Ct. 3034, 73 L. Ed. 2d 690,
(1982) .

237
Cambell v. State of Wyoming, 907 P.2d 1238 (1995).
Cedar Rapids Community School District v. Garret F., 118
S. Ct. 1793 (1999) .
Chanda Smith v. Los Angeles Unified School District, No.
CV 93-7044-LEW (Dist. Ct., Central Dist., filed May
1983) .
Christopher W. v. Portsmouth School Commission, 877 F.2d
1089 (1st Cir. 1989) .
Crowder v. Riles, No. CA 00384 (Super. Ct. Los Angeles
Co., filed Dec. 20, 1976).
Davis v. Wynes, No. CV-176-44 (S.D. Ga., filed May 21,
1976) .
Department of Education v. Bennett, 864 F.2d 655 (1989).
Department of Public Welfare v. Haas, 154 N.E. 2nd 265
(Ill. 1958).
DeRolph v. Ohio, 78 Ohio St. 3d 193, 677 N.E.2d 733
(1997) .
Dupree v. Alma School District No. 30, 279 Ark. 340, 651
S.W.2d 90 (Ark. 1983).
Durant v. State of Michigan, 186 Mich. App. 83; 463
N.W.2d 461; 566 N.W.2d 272 (1989).
Edgewood Indep. School District v. Kirby, 777 S.W.2d 391
(Tex. 1989).
Evans v. Rhinebeck Central School District, 930 F. Supp.
83 (1996).
Fair School Finance Council of Oklahoma v. State, 746
P.2d 1135 (Okla. 1987).
Fialkowski v. Shapp, 405 F. Supp. 946, 958-59 (E.D. Pa.
1975) .
Fort Zumwalt School District v. State of Missouri, 896
S.W.2d 918 (1995) .
Fowler v. Unified School District No. 259, 900 F. Supp.
1540, 1541 (D. Kan. 1995), rev'd, 107 F.3d 797
(10th Cir.), cert, granted and vacated, 117 S. Ct.
2503 (1997).
Frederick L. V. Thomas, 408 F. Supp. 832, 836 (E.D. Pa.
1976), aff'd, 557 F.2d. 373 (3d Cir. 1977).

238
Gadsby v. Maryland State Department of Education, 109
F.3d 940 (1997).
Gonzalez v. Department of Education, 969 F. Supp. 801
(1997) .
Gould v. Orr, 244 Neb. 163, 506 N.W.2d 349 (Neb. 1993).
Green v. Johnson, 513 F. Supp. 965 D. Mass. (1988).
Greer v. Rome City School District, 950 F.2d 688 (11th
Cir. 1991), withdrawn, 956 F.2d 1025 (1992).
Harper v. Hunt, 624 So. 2d 107 (1993).
Hayes v. State of California, 11 Cal. App. 4th 1564;
1992 Cal. App. (1992).
Helena Elementary School Distict No. 1 v. State, 236
Mont. 44, 769 P.2d 684 (Mont. 1989).
Helvering v. Davis, 301 Cr. S. 619, 57 S. Ct. 904
(1937) .
Hendrick Hudson District Board of Education v. Rowley,
458 U.S. 176, 102 S. Ct. 3034, 73 L. Ed. 2d 690,
(1982) .
Hendricks v. Gilhool, 709 F. Supp. 1362 (E.D. Pa. 1989).
Horton v. Meskill, 172 Conn. 615, 376 A.2d 359 (Conn.
1977) .
In re G.H., 218N.W.2d. 441, 446-7 (N.D. 1974).
Lau v. Nichols, 414 U.S. 53 (1974).
Lincoln Intermediate Unit No. 12 v. Commonwealth, 123
Pennsylvania Commonwealth 102, 553 A.2d 1020
(1989) .
Lora v. Board of Educaction, 456 F. Supp. 1211, 1285
(E.D.N.Y.1978) vacated, 623 F.2d 248 (2d Cir.
1980) .
Louisiana State Board Of Elementary & Secondary
Education v. United States Department of Education,
881 F.2d 204 (1989).
Lujan v. Colorado State Board of Education, 649 P.2d
1005 (Colo. 1982).

Kadrmas v. Dickinson Public Schools, 402 N.W.2d 897
(N.D. 1987) .
Kukor v. Grover, 148 Wis. 2d 469, 436 N.W.2d 568 (Wis.
1989) .
Marbury v. Madison, 5 U.S. 137, 1 Branch 137, 2 L. Ed.
60 (1803).
Matthews v. DeCastro, 429 U.S. 181, 185 (1976).
McDaniel v. Thomas, 248 Ga. 632, 285 S.E.2d 156 (Ga.
1981) .
McDuffy v. Secretary of Executive Office of Education,
415 Mass. 545, 615 N.E.2d 516 (Mass. 1993).
Mclnnis v. Shapiro, 293 F.Supp. 327, aff'd 394 U.S. 44
(1970) .
Milford School Dist. v William F., 1st Cir (NH), (1997)
Milliken v. Green, 390 Mich. 389, 212 N.W.2d 711
(Mich.1973).
Mills v. Board of Education, 348 F. Supp. 866 (1972).
Oberti v. Clementon School District Board of Education,
995 F. 2d 1204, 1207 n.l (3d Cir. 1993).
Olsen v. State, 276 Ore. 9, 554 P.2d 139 (Or. 1976).
Papasan v. Allain, 478 U.S. 265 (1986).
Pennsylvania Association for Retarded Citizens
(P.A.R.C.) v Commonwealth of Pennsylvania, 343 F.
Supp. 279 (1972).
People ex rel. Jones v. Adams, 40 Ill. App. 3d 189, 350
N.E.2d 767 (Ill. 1976).
Plessey v. Ferguson, 163 U.S. 537, 16 S. Ct. 138 (1896)
Plyer v. Doe, 457 U.S. 202 (1982).
Richland County v. Campbell, 294 S.C. 346, 364 S.E.2d
470 (S.C. 1988).
Robinson v. Cahill, 62 N.J. 473, 303 A.2d 273 (N.J.
1973), cert, denied, 414 U.S. 976, 94 S. Ct. 292,
38 L. Ed. 2d 219 (1973).

240
Roncker v. Walter, 700 F.2d 1058 (6th Cir. 1983) cert,
denied, Cincinnati City School District Board of
Education v. Roncker, 464 U.S. 864 (1983).
Roosevelt Elementary School District v. Bishop, 179
Ariz. 233, 877 P.2d 806 (Ariz. 1994).
Rose v. Council for Better Education, 790 S.W.2d 186
(Ky. 1989).
Sacramento v. Rachel H., 14 F.3d 1398; 1994 U.S. App.
(1994) .
San Antonio School District v. Rodriquez, 411 U.S. 1, 93
S. Ct. 1278, 36 L. Ed. 2d 16 (1973).
Seattle School Distrct v. Stale, 90 Wash. 2d 476, 585
P.2d 71 (Wash. 1978).
Serrano v. Priest, 18 Cal. 3d 728, 557 P.2d 929, 135
Cal. Rptr. 345 (Cal. 1976), cert, denied, 432 U.S.
907, 97 S. Ct. 2951, 53 L. Ed. 2d 1079 (1977).
Skeen v. Minnesota, 505 N.W.2d 299 (Minn. 1993).
Smith v. Robinson, 468 U.S. 992, 104 S. Ct. 3457 (1984).
Tatro v. State of Texas, 481 F. Supp 1224 (N.D.Tex.
1979), rev'd., 625 F.2d 557 (5th Cir. 1980), on
remand, 516 F. Supp. 969, rev'd 703 F.2d 823 (5th
Cir. 1983), aff'd., 468 U.S. 883, 104 S. Ct. 3371,
82 L. Ed. 2d 64 (1984).
Thompson v. Engelking, 96 Idaho 793, 537 P.2d 635 (Idaho
1975) .
Tennessee Small School Systems v. McWherter, 851 S.W.2d
139 (Term. 1993).
Timothy W. v. Rochester New Hampshire School District,
875 F.2d 954 (1st Cir. 1989).
Unified School District No. 229 v. Kansas, 256 Kan. 232,
885 P.2d 1170 (Kan. 1994), cert, denied, U.S., 15
S. Ct. 2582, 132 L. Ed. 2d 832 (1995).
United States v. Butler, 297 U.S. 1, 56 S. Ct. 312
(1936) .
United States v. Carolene Production Company, 304 U.S.
144 (1938).
United States v. Overton, 834 F.2d 1171 (5th Cir. 1987).

241
Virginia Department of Education v. Riley, 23 F.3d 80;
1994 U.S. App. (1994).
Washakie County School District No. One v. Herschler,
606 P.2d 310 (Wyo. 1980).
Watson v. City of Cambridge, 32 N.E. 864 (Mass. 1893).
Weber v. Aetna Casualty and Surgical Company, 406 U.S.
164 (1972).
Wolf v. Legislature of Utah, Civil No. 18264 (Utah 3d
Jud. Dist. Ct., Jan. 8, 1969).
State Constitutional Articles
Ala. Const, art. XIV, § 256.
Ala. Const, art. I, §§ 1, 6, 13 and 22.
Session Laws
1965 N.C. Session Laws, ch. 584, amending North Carolina General
Statute §§ 115-165 (1963).
Wyo. Sess. Laws 110-21-13-321 (1998).
State Statutes
105 I.L.C.S. Ch. 5 § 14-12.01 (1999).
14 Del. C. § 604 (c) (1998) .
16 V.S.A. § 2961 (1999).
20 A M.R.S. § 15607(9) (1997).
24 P.S. § 25-2509.5 (1998).
24 P.S. § 13-1376 (1998) .
70 Okl. St. § 13-114.4 (1998).
A.R.S. § 15-769 (1998) .
Alaska Stat. § 14.17.410 (1999).
Ark. Stat. Ann. § 6-20-306 (a) (1) (D) (1997).
Burns Ind. Code Ann. § 20-1-6-3 (1998) .
C.R.S. § 22-20-114 (1998).

Cal. Ed. Code § 14004.5 (1999).
Code of Ala. § 16-13-231(b) (1) (D) (1999) .
Conn. Gen. Stat. § 10-76b (1997).
Fla. Stat. § 236.081 (1998).
H.R.S. § 302A-436 (1998).
Idaho Code § 33-2004 (1998) .
Iowa Code § 257.9 (3-4) (1997).
K.S.A. § 72-6420 (1997) .
K.R.S. § 157.360(2)(b) (1998).
La. R.S. tit. 17 § 1948(C) (1998).
Mass. Ann. Laws Ch. 71B, § 5 (1999) .
Md. Educ. Code Ann. § 8-415 (D) (1998).
Minn. Stat. § 126C.05 (1998).
Miss. Code Ann. § 37-151-7 (1998) .
Mont. Code Anno. , § 20-9-321 (1998).
M.S.A. § 15.1919 (951a) (1999).
N.C. Gen. Stat. § 115C-146.3 (1999).
N.D. Cent. Code, § 15-40.1-07.6 (1999).
N.J. Stat. § 18A:7F-19 (1999).
N.M. Stat. Ann. § 22-8-21 (1998) .
Nev. Rev. Stat. Ann. § 387.047 (1999).
NY CLS Educ. § 4405 (1998) .
O.C.G.A. § 20-2-181 (1998).
O.R.C. Ann. § 3317.022 (1998).
O.R.S. § 327.013(A) (1997) .
R.I. Gen. Laws § 16-7-20 (1998).
R.R.S. Neb. § 79-1007.01 (1999).

243
R.S.Mo. § 163.031 (1999).
Rev. Code Wash. (ARCW) § 28A. 150.390 (1999).
R.S.A. § 186-C:18 (1999) .
S.C. Code Ann. § 59-20-40 (1998).
S.D. Codified Laws § 13-37-36 (1999)
Tenn. Code Ann. § 49-3-306 (1999).
Tex. Educ. Code § 42.151 (1999).
Utah Code Ann. § 53A-17a-111 (1998).
Va. Code Ann. § 22.1-175.4 (1998).
W. Va. Code § 18-9A-(2-3) (1999).
Wis. Stat. § 121.135 (1998).
w.
s.
§
21-13-102(a)(i) (1983
w.
s.
§
21-13-201(a)
(1983) .
w.
s.
§
21-13-303(a)
(1983) .
w.
s.
§
21-13 308(c)
(1999) .
w.
s.
§
21-13-321 (1999) .
Other Resources
21 Cong. Rec. 37415 (1975) .
118 Cong. Rec. 525 (1972) .
121 Cong. Rec. 19 (1975) .
142 Cong. Rec. 6051 (1997).
Center for Special Education Finance. 1999. "FAQ:
Federal Funding for Special Education Under P.L.
105-17." Available online from:
htto://csef.air.orq/faal-1,html#l.
Gallaudet College Website. 1998. Department of Public
Information Webpage. Available online from:
http://www.gallaudet.edu/xxxxxx.html.

244
Krantz, D. O. January, 1997. "Funded into Perpetuity."
Education Week on the Web [On-line]. Available
online from htto://www.edweek.ora/htbin/fastweb?
aetdoc+view4 + ewl997 + 116 + l+wAAA+%2 6%2 8Krantz%29%26AN
D%26%28Krantz%29%3AKEYWORDS%26QR%26%28Krantz%29
Lipton, D. 1994. The Full Inclusion Court Cases: 1989-
1994. Paper Prepared for the Wingspread Conference,
Racine, WI.
Office of Special Education programs. 1997. Ninteenth
Annual Report to Congress on the Implementation of
the Individuals with Disabilities Education Act
[On-line]. Available from http://www.ed.gov
Office of Special Education programs. 1995. Seventeenth
Annual Report to Congress on the Implementation of
the Individuals with Disabilities Education Act
[On-line]. Available online from:
htto://www.ed.gov/oubs/OSEP95AnlRpt/index.html
Office of Special Education Programs. 1998. Twentieth
Annual Report to Congress on the Implementation of
the Individuals with Disabilities Education Act
[On-line]. Available from: htto://www.ed.
crov/off ices/OSERS/OSEP/OSEP98AnlRpt/
Parrish, T. B. 1998. Interview at the 1997 American
Education Finance Association Conference, Mobile
Alabama.
Schnaiberg, L. September, 1995. District Seeks to Pare
$136,000 Spec.-ed. Bill. Education Week on the Web
[On-line]. Available online from: htto://
www.edweek.ora/htbin/fastweb?qetdoc+view4+ewl995+14
21+34+wAAA+%26%28Lvnn%26Schnaiberg%26%29%26AND%26%2
8Lvnn%26Schnaibera%26%29%3AKEYWORDS%26QR%26%28Lvnn%
26Schnaibera%26%29
Office of the White House Press Secretary. Statement by
the President upon the Signing of S.6. Washington,
D.C., December 2, 1975.
Tappe, D. R. 1995. "Nineteen Reasons Why Special
Education Should Cost More Than Regular Education.
Conference Proceedings of the American Council on
Rural Special Education. Salt Lake City, UT:
American Council on Rural Special Education,
Department of Special Education. (ERIC Document
Reproduction Service No. ED 381297).
Taylor, D. B. Letter to Senator Jennings Randolph, June
17, 1977.

245
U.S. Senate, Committee on Labor and Public Welfare.
June, 1975. Education of the Handicapped Act of
1975. 94th Congress, 1st Session. Senate Report No.
94-168. 1-82.
U.S. Senate, Joint Explanatory Statement of the
Committee of Conference. June, 1975. 94th Congress,
1st Session, Senate Conference Report No. 455-2829
(1975),
U.S. House of Representatives. June, 1975. Education of
the Handicapped Act of 1975. 94th Congress, 1st
Session. House of Representatives Report No. 94-
332. 1-300.

BIOGRAPHICAL SKETCH
Matthew C. Wanzenberg was born in Fort Lauderdale,
Florida, in 1971. He attended Gainesville High School in
Gainesville, Florida, and graduated in 1989. He studied at
Davidson College in Davidson, North Carolina for two years
before enrolling in the University of Florida's Proteach
Program in Special Education. After conducting research in the
fields of physical disabilities and transition services for
adults with disabilities, he graduated in 1994 with
bachelor's and master's degrees. He taught in a self-contained
classroom for students with medical and physical impairments
at Howard Bishop Middle School for four years before pursuing
his advanced degree full time.
In 1994, he began doctoral coursework at the University
of Florida in the Department of Educational Leadership. During
this period he served as a consultant throughout 16 North
Florida school districts in the fields of inclusion, assistive
246

247
technology, and instruction for students with physical
disabilities.
In 1998, he moved to Warrenville, Illinois, and began
employment with the La Grange Area Department of Special
Education (LADSE) in the Emotional and Behavioral Disorders
Network. In 1999, he accepted a professorship in the
Department of Educational Leadership at Aurora University in
Aurora, Illinois. He currently resides in DuPage County,
Illinois, with his wife, Anne Wheaton Wanzenberg.

I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosop
R. Craig Woe
B.O. Smith Research/
Professor of Educational
Leadership, Policy, and
Foundations
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
Jaipfes L. Doud, Co-Chair
Professor of Educational
Leadership, Policy, and
Foundations
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in/ftcope and quality, as
a dissertation for the degree of Docto1/ of Philosophy.
Professor of Educational
Leadership, Policy, and
Foundations
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
iTavid ’Miller"
Professor of Educational
Psychology

This dissertation was submitted to the Graduate Faculty
of the College of Education and to the Graduate School and
was accepted as partial fulfillment of the requirements for
the degree of Doctor of Philosophy.
December, 1999

UNIVERSITY OF FLORIDA
3 1262 08555 1652



UNIVERSITY OF FLORIDA
3 1262 08555 1652