Archived Information

School Finance: Circuit Breaker

Report on the Implementation of the Special Education Reimbursement ("Circuit Breaker") Program

January 24, 2005

Program Implementation

The special education reimbursement ("circuit breaker") program was enacted in 2000 (St. 2000, c.159, s.171) and first implemented in FY04. The program reimburses school districts for high cost special needs students. In its initial year, reimbursements were made on a current year basis, i.e., FY04 payments were made based on FY04 district expenses. The claims process was developed and training sessions were held around the state in July and August 2003. The process required three separate claims submissions by districts - an initial claim filing in the fall, a mid-year update in early spring, and a final claim filing at the end of the school year. The multiple filing process was necessary in order to make partial payments to districts during the year and at the same time reflect changes in eligible costs as student placements changed throughout the year. Four payments were made to districts: the first two were based on the initial claims; the third was based on the updated claim filed in the spring; and the final payment was based on the final claim after the year was complete.

FY04 Claims Received

School districts are eligible for reimbursements for students whose programs cost greater than four times the statewide foundation budget ($29,320 in FY04). By law, districts are reimbursed for 75% of the costs above four times statewide foundation, subject to appropriation (For certain students who are wards of the state, the statutory reimbursement rate is 100% rather than 75%.). In FY04, appropriations were sufficient to generate a reimbursement percentage of 40.2%. The following table shows the total claim amounts at each stage of the process:

	Students	Eligible Costs	Less Cost Sharing	Less 4X Foundation	Net Claim
Initial Claim	10,633	621,462,378	40,941,691	311,759,560	295,761,127
Mid-year Update	11,626	605,021,598	38,671,859	307,009,720	241,925,941
Final claim	11,810	625,214,399	43,121,692	324,053,797	258,014,097

The deduction for cost sharing represents student placements where a portion of the costs are paid by the Department of Social Services or other state agencies. The district's reimbursement is based only on its share of the placement costs.

A significant amount of training and technical assistance was provided throughout the year to district business and special education staffs to help them understand the new program's requirements and to improve the accuracy of their filings.

FY05 Program Changes

In 2004 legislation was enacted (St. 2004, c.149, ss.128, 129) changing the program from a current year reimbursement model to a prior year reimbursement model, beginning with FY05. As a result of this change, reimbursements to districts in FY05 will be based on their FY04 eligible costs; reimbursements in FY06 will be based on their FY05 eligible costs; and so on. This change offered two significant benefits. First, it eliminated the need for multiple claims filings in the course of each year, thus reducing the administrative burden on district and Department staff. Second, it allows the Department to provide districts with an accurate estimate of their expected payments much earlier in the fiscal year.

At the same time, it was recognized that the switch to a prior year reimbursement model could create problems in districts that experience a sudden and unexpected spike in their current year costs. As a result, the Department was authorized to set aside up to $3 million to provide supplemental assistance to districts with significant increases in costs. Districts will be given the opportunity to request funds under this provision later this winter. At this time we do not have an estimate of how many districts will be eligible.

Audits

Chapter 149 also required the Department to conduct audits in fifty districts of FY04 claims no later than January 1, 2005. Department staff developed an audit protocol to verify individual student claims submitted by the districts and to ensure that the amounts of the claims were in accordance with the program's regulations. Verification consisted of examining student's individualized educational plans (IEP's) as well as tuition bills paid by the districts for students placed out of district. Overpayments and underpayments identified during the audit process will result in subsequent adjustments to the district's payments.

A total of 1265 individual student claims were audited in the fifty districts. Audit results indicated that costs were overclaimed for 391 students and underclaimed for 217 students. The following chart shows the reasons for the variances:

Overclaims

Services claimed not included on student's IEP	164
Incorrect dates of service	125
Claimed incorrect tuition	97
Did not include or incorrect cost share	22
Total	412 *

Underclaims

Incorrect dates of service	90
Claimed incorrect tuition	72
Did not claim all services rendered	46
Did not claim an eligible student	13
Incorrect cost share	12
Total	233 *

(*Some claims had more than one error)

One hundred fifteen of the adjustments were for $1000 or less. These small differences occurred for a number of reasons: district didn't reconcile the actual tuition paid with the amount claimed; district overpaid private schools by one day's tuition; district paid a different tuition rate than the one established by OSD; district entered incorrect dates on the claim form; etc.

The audit process resulted in a net reduction of claims for these students from $34,867,312 to $31,836,996, or 9.5%. Given that this was the first year of implementation of a complex new program, the number of audit adjustments is not totally unexpected. The audit process will continue on an on-going basis. In addition, the analysis of common mistakes will be used to improve the program documentation and training programs for local officials. Our goal is to significantly reduce the number of audit findings in the second and subsequent years of the program's operation. During the audit process we also identified a situation with one of the service delivery categories, where the standard program rate significantly exceeded the actual cost to districts. This will be corrected for FY06 claims.

Actual and Estimated Program Costs - FY04 through FY06

The following chart summarizes the program's costs in its first three years of operation:

($ millions)	FY04 Actual	FY05 Estimated	FY06 Projected
Appropriation	121.6	201.6	tbd
Net claims	258.0	248.5	244.8
Payments to districts	105.8	187.4	183.6
Reimbursement rate	40.2%	74.5%	75.0%
Other earmarked costs	9.7	13.8	tbd

As noted earlier, beginning in FY05 reimbursements will be based on claims for services rendered in the prior fiscal year.