New Jersey grapples with solutions to soaring special-education costs

School officials have long complained that escalating special-education costs are stressing their budgets – and taxpayers.

New Jersey Senate President Stephen Sweeney is proposing to lessen the burden on local districts with an infusion of state money for special education — paid for by a corporate-tax hike.

It's unclear whether Sweeney's plan will gain the backing of Gov. Murphy, who will deliver his first budget address Tuesday.

But school business officials agree a solution is needed for soaring special-education costs that now consume more than a fifth of their budgets on average.

"I have been asked, if the state could provide school districts with additional support, where would you put it? My answer is special education," said John Donahue, executive director of the New Jersey Association of School Business Officials. "Every district has this problem."

School districts spend on average about 22 percent of their budgets on special education, Donahue said — up from 13 percent in 2006-07, according to an association survey of business administrators.

While districts can't increase their budgets by more than 2 percent without voter approval, "special-education costs have no cap," Donahue said.

The costs have added to school district budget pressures in a state with some of the highest property taxes in the country — and that has for years failed to follow its formula for distributing money to schools. Recent pushes to increase state funding for education relied on tax increases that were vetoed by former Republican Gov. Chris Christie.

Murphy, a Democrat, has called for ramping up funding for schools by raising taxes on millionaires, an approach that Sweeney, a Gloucester County Democrat, has opposed in the wake of the recent federal tax overhaul limiting deductions for state and local taxes.

Last week, he proposed a different tax increase: a 3 percent surcharge on the state's corporation business tax for companies earning more than $1 million in net income. Sweeney said the plan would capture "a portion of the windfall" to employers from the recent federal tax changes slashing the corporate tax rate from 35 to 21 percent.

The corporate-tax increase would net the state a projected $657 million, Sweeney said — and he would put the bulk of it, $431 million, toward special education. The state budget is about $34.7 billion.

Sweeney, whose daughter was born with Down syndrome, said he also plans to introduce legislation to shift responsibility and oversight of special education to the state, although he didn't provide specifics.

Overall, Sweeney proposes to increase spending on public education by $631 million. He would also take $127 million away from some school districts, sending it to others that are underfunded by the state — part of a plan to redistribute money that was intended to be temporary under the funding formula passed in 2008, but that has never been phased out. Sweeney's push to shift that money has been controversial, including with the state's main teachers' union.

Such increases would be significant: Last year, New Jersey added about $180 million for public education, including $25 million for special-education costs.

A spokesman for Murphy said the governor would defer comment on what his plan would include until his budget address Tuesday. At a separate news conference last week, Murphy said Sweeney's plan "has got some appeal," though he questioned the structure of the business-tax increase. He also said he didn't view it as an alternative to his proposed millionaire's tax, but "perhaps as an additional weapon on our disposal."

In addition to budgetary pressures, districts have been facing legal challenges over special education, Donahue said. "Many parents are suing districts because they're not complying with the needs" of students, he said.

Children with disabilities have been entitled to special-education services under federal law since the mid-1970s. But the federal government hasn't been providing the level of funding the law promised.

In Pennsylvania, special-education costs may rise by $260 million next year, according to the Pennsylvania School Boards Association. Gov. Wolf has proposed spending an additional $20 million on special education.

In New Jersey, the state formula directs money to districts based on the statewide percentage of students requiring special-education services — 14.7 percent — regardless of whether they have a larger or smaller share of students, according to Brenda Considine, coordinator for the New Jersey Coalition for Special Education Funding Reform. Special-education rates in districts vary from as low as 8 percent to higher than 25, Considine said.

After calculating the aid for each district based on the state average, the state sends one-third of the money to school districts. The rest of the money is wealth-equalized — meaning wealthier districts get a lesser share of aid — and counted among the overall aid that school districts receive from the state to support an "adequate" budget, determined by the funding formula based on the needs of students in each district.

The state previously sent special-education aid to districts based on a count of students in each district requiring such services, and the level of services those students were provided. The argument for switching to the statewide-average model was that counting students gave districts incentive to classify them as requiring a higher level of services to get more money, Considine said. But she said classification rates have grown slightly despite the new model.

Districts can apply for additional state money if the cost of educating a particular student exceeds thresholds between $40,000 and $50,000, depending on where the student is placed, Considine said. But the state hasn't been able to meet those demands.

Districts requested $354 million from the state for extraordinary special-education costs in 2016-17 but were reimbursed only $195 million, said David Sciarra, executive director of the nonprofit Education Law Center. The state sent districts $790 million that year in the other main form of special-education aid, although the formula required it to distribute $990 million, Sciarra said.

Overall, New Jersey is underfunding districts by about $2 billion, if the formula's caps on aid to growing districts are removed.

Many districts aren't spending what the formula requires — because the state isn't sending enough money, districts aren't raising enough money, or both, Sciarra said. He questioned whether focusing a funding increase on special education would exclude other needy students.

"Students across the board are not getting the resources they need," Sciarra said.

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