Federal, state, and local governments fund K–12 public education in the United States. Under the Constitution, the state is responsible for public education. Annual funding levels vary dramatically across the country, with an average range from $4,000 to $10,000 for students without disabilities and $10,000 to $20,000 for students with disabilities. The federal government contributes about 10% of the total budget for both groups, primarily in the form of categorical grants to state education agencies. Local taxes generate the bulk of school funding (40%–50%). The heavy reliance on local property taxes causes significant funding differences within and across states. Some states have attempted to address the inequity by developing formulas that help equalize disparities and increase funding to disadvantaged areas.
Federal special education funding comes primarily from two sources: the Every Student Succeeds Act (ESSA) and the Individuals with Disabilities Act (IDEA). ESSA provides categorical funding to support student achievement in low-income areas. IDEA accounts for the bulk of the federal government's ongoing contribution to special education.
The Individuals with Disabilities Education Act (IDEA) ensures services to children with disabilities. IDEA governs how states and public agencies provide early intervention, special education, and related services to children and youth. Infants and toddlers with disabilities (birth–age 2) and their families receive early intervention services under IDEA Part C. Children and youths (ages 3–21) receive special education and related services under IDEA Part B. The total IDEA state allocation is split between Parts B and C. The state distributes the funds to the local systems to be used in accordance with state and federal law. The state has the option to reserve a small portion of the total federal allocations for discretionary purposes.
Up to 15% of IDEA special education funds may also be used to support early intervening services for low achieving and at-risk students. Many districts are now using this provision to help fund their Response to Intervention (RtI) efforts.
IDEA does not fully fund special education programs and services. Although Congress authorized 40% of average per-pupil expenditure in the state, appropriations historically have ranged between 10% and 20%. The economic downturn has caused serious shortfalls in many states and districts, forcing severe cuts to both general and special education funding.
State allocation formulas for special education vary and are dependent on the local district's tax structure. Equalization is not guaranteed and there is a wide disparity in funding in some geographical areas across the nation.
Local funding formulas also vary widely and district budgets rely heavily on local revenues. Technically, there are no unfunded federal "mandates." Each federal education law is conditioned on a state's decision to accept federal funds. The federal law applies only when a state voluntarily chooses to accept federal funds. Any state that does not want to abide by a federal program's requirements can choose not to accept the federal funds associated with that program. Many states and districts accept the requirements and then find that state and federal funding is insufficient to cover local expenses. In these cases, local districts must transfer money from their general funds to pay expenses. This practice is often termed "encroachment" and can cause tension between general education and special education programs.
Medicaid is another important source of revenue for school districts. Congress annually appropriates funds intended to help states' cover the cost of medical assistance to low income individuals. In 1988, the Catastrophic Medicare Act allowed some providers to bill Medicaid for special education services delivered in the schools. The U.S. Department of Health and Human Services authorizes the Centers for Medicare and Medicaid Services to distribute Medicaid funds to states. Funds are allocated to each state to match state expenditures for the cost of medical assistance. The matching rates are determined by a formula tied to state per-capita income. States may or may not require local education agencies or districts to bill for Medicaid services. If schools do participate, a system for billing is established. States can retain a percentage for administrative costs. School districts place funds in the school budget according to state and/or local policy. Each state has specific requirements for how a local district may use funds and the local district determines how the funds will reach related service providers.
Each state provides a list of permissible expenditures. Funds may be used for individualized education program (IEP) implementation, school health services, salaries for service providers, assistive technology equipment, hearing assistance technology, professional development and instructional supplies, materials, and software.
Each district determines the standards for and costs of providing IEP mandated speech and language services using restricted special education funds. In addition, districts may also choose to implement and fund unmandated services for students without identified disabilities using money from the general fund.