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Lesson 8.6

Categorical funds:
Special education and other exceptions

Yep, there are always exceptions.

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In the previous lesson we looked at California’s school funding system, particularly the Local Control Funding Formula (LCFF).

In public finance, some funds may only be used for a specific purpose, sort of like coupons. These limited-use funds are known as categorical funds. LCFF is important because it doesn't use the coupon approach. It defines the flexible, "foundational" funding for school operations and directs where most of the money in the education system goes.

This lesson explains some of the most important categorical funds.

Special Education

Federal law requires schools to provide "specially defined instruction, and related meet the unique needs of a child with a disability." Approximately 12% of California students are identified for Special Education services, an increase from 10% in the early 2000s. Most of these students require services that cost only modestly more than a normal program, but some need intensive interventions that cost far more. The average cost of education for special ed students is more than double the norm.

Federal and state laws require schools to educate all students, including those with special needs. The cost of providing special education falls mostly to local school districts, but some state and federal categorical funds are directed specifically for this purpose.

The earmarked state and federal funding does not cover the full cost of Special Education services. Local school districts use their general purpose funding to make up the difference, effectively reducing the amount they have for their basic programs. In 2018-19, federal funding fell short by a whopping $3.2 billion. The gap has been widening for the past decade.

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:

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 Lesson 2.7.

Facility funds

With over 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 they are accounted separately from the money used to operate the schools. This topic is explained in Ed100 Lesson 5.9.

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 that allocated at the beginning of the fiscal year. Because the state legislature did not set aside funding to address these situations beforehand, it must distribute emergency support to schools in crisis.

Covid-19 presented one such special circumstance. 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. Because the federal government can take on debt, it is far better equipped than states to expend large sums of money. 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.

More exceptions to come

Over time, additional categorical program exceptions will almost certainly be added, partly because these programs are usually separated from the core Proposition 98 budget. If the state budget has a bad year, it is somewhat easier to cut these programs than it is to cut core funding. This page on the Department of Education website appears to be 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.


What portion of the cost of special education in California is funded by the federal budget?

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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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