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Lesson 8.6

Categorical funds:
Special education and other exceptions

Yep, there are always exceptions.

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The previous lesson explained California's school funding system, particularly the Local Control Funding Formula (LCFF).

This lesson focuses on the important funds that are not part of LCFF.

What are categorical funds?

In public education finance, funds that may only be used for specific purposes are known as categorical or restricted funds. They work kind of like coupons — valuable, but inflexible and a bit cumbersome to keep track of.

In many cases, categorical programs are connected with Federal funding. In other cases, they are created as temporary state-funded programs.

How does funding work for special education?

Federal law requires schools to provide "specially defined instruction, and related services… to meet the unique needs of a child with a disability." It's the biggest categorical program in education.

Approximately one of every eight students in California students is identified for Special Education services, an increase from one in ten in the early 2000s, driven significantly by autism. Most of these students require services that cost only modestly more than a normal program, but some students need intensive interventions that cost far more. The average cost of education for special ed students is more than double the norm.

Both federal and state laws require public schools to educate all students, including those with special needs. Categorical funds from the state and federal government are meant to support the cost of Special Education, but the categorical funds do not cover the full cost of providing these services. Much of the cost of providing special education falls to local school districts.

The federal government has a weak record when it comes to delivering on its commitments to fund special education. In 2018-19, federal funding for special education fell short by a whopping $3.2 billion, more than $4,000 per identified student. Local school districts are obligated to use their general purpose funding to make up the difference, effectively reducing the amount they have for their basic programs.

In a 2020 study, California Special Education Funding System, WestEd estimated that schools in California spent $13 billion on special education in 2018-19, and well over half came from local sources. During the 2021-22 school year, combined state and federal categorical funding covered about a third of the extra cost of special education. Roughly two-thirds of the additional special education costs were paid by local funding sources.

The state disburses categorical funds for special education to local consortia of schools and districts primarily based on the total student population in those schools, rather than an actual count of students with special needs. This is known as a census-based method. The consortia, called Special Education Local Planning Areas or SELPAs, develop local plans for allocating the funds to their districts and charter schools. The actual per-pupil amounts for each SELPA vary based on historical factors.

Federal funds cover about a tenth of the cost of special education

Special education funding is a lightning rod for complaints. Local districts say it costs them too much. Parents and teachers worry that students don’t get the services they should. And policymakers struggle to even make sense of how the system works. There is widespread agreement that the system needs to be rebuilt, but not strong agreement about how to do it. LCFF reform specifically excluded special education funding, leaving improvement of that part of the school funding system for another time. For more about special education, see Ed100 Lesson 2.7.

How does funding work for school facilities?

With nearly 6 million school children and tens of thousands of buildings, facility costs are a substantial and ongoing expense that school district and state officials must plan for.

The money associated with building and renovating school facilities comes from a combination of local and (sometimes) state sources. These capital funds and expenses involve debt and depreciation, so the accounting is kept separately from the operational funds used to run the schools. This topic is explained in Ed100 Lesson 5.9: School Facilities.

Special programs and partnerships

Both the state and federal governments from time to time provide financial incentives to encourage K-12 schools to take actions or participate in programs.

For example, as part of the fiscal stimulus measures enacted under the Obama administration, the federal government created the Investing in Innovation Fund, better known as the i3 grants. These awards provided temporary funding to local education agencies and community-based organizations to test new ideas and demonstrate the value of new practices.

California officials perhaps took a page from the federal book when they set aside $250 million to encourage innovation in the area of career-technical education by creating the "California Career Pathways Trust." The program awarded grants to schools and community colleges to work in partnership with local business to create new technical programs and curriculum. The Low Performing Schools block grant directed $300 million to schools with low results, subject to an application process and two rounds of reporting, one due in early 2019, the other in late 2021.

Emergency funds

Sometimes, California’s schools face special circumstances that require funding beyond what is allocated at the beginning of the fiscal year.

Covid-19 was an example. Because the pandemic imposed dramatic costs on California’s education system – distance learning required new technology and teacher training – spending on education spiked during the 2020-2021 school year.

During times of crisis, aid from the federal government is crucial. California's constitution requires a balanced budget. The federal government can take on debt, so it is far better equipped to expend large sums. The Coronavirus Aid, Recovery, and Economic Security (CARES) Act, passed in March of 2020, provided $30.75 billion to states for education. California increased education spending in 2020 in part by taking funds from other state programs. That strategy was only viable because Congress passed the American Rescue Plan, granting states the financial support they needed to respond to the calamity.

California schools feed all children

Food service is one of the oldest federal interventions in school systems. Meals are prepared or coordinated through schools, with the costs supported by a mix of federal, state and local funds. In 2022-23, California became the first state in the country to provide all students with free lunch.

More exceptions to come

The initial implementation of LCFF was a form of housecleaning. It purged the system of little categorical programs in favor of local control. Over time, categorical program exceptions will almost certainly re-blossom. Some will be framed as trial programs, or temporary investments. Many will be made separate from the Prop. 98 budget so that if the state budget has a bad year, it is somewhat easier to cut them without affecting ongoing core funding. This page on the Department of Education website is a good source for information about exceptions to the Local Control Funding Formula.

Of course none of these funds and programs are meaningful unless they ultimately benefit students, right? The next lesson examines how little we know about how funds are actually used.

Updated August 2017
February 2019
October 2021
September 2022


What can categorical funds be used for?

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Questions & Comments

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user avatar
Jamie Kiffel-Alcheh November 30, 2019 at 8:04 pm
I feel that if more people understood the following, passing bond measures might be easier: “When local school districts want to pass a bond, they have to get the voters in their community to agree to pay more taxes, thus guaranteeing the bond will be repaid.”
That is eloquently stated, and I never really understood it before.
user avatar
Caryn-C September 11, 2017 at 6:46 pm
I would count me as one of the parents who are concerned that special education is woefully underfunded. However, services vary dramatically from district to district. There's a series called Speechless starring Minnie Driver as the mom of a child with CP who moves her family around frequently trying to find schools with the best services for her son. It's an interesting show. Anecdotally, I know a now-retired special ed teacher in California who was a one woman fundraising machine, tirelessly recycling bottles and cans, etc. just so she could provide some meaningful learning experiences to her students. I am proud of her quiet heroism but saddened at how hard she had to work to provide what she considered were the basics to her students.
user avatar
Jamie Kiffel-Alcheh November 30, 2019 at 8:05 pm
This is what I’ve heard from most of my friends who have kids with disabilities. I always felt that they were a little bit paranoid that the district was working against them and doing everything to save money, but now, I am not so sure.
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