Fiscal Incentives Raise Student Disability Rates

More than 35 percent of the six-year increase in student disability rates in Texas is explained by the contemporaneous increase in fiscal incentives.

Student disability rates have increased by more than 50 percent in U.S. school districts over the past two decades. Since 1977, the proportion of students nationally in grades K through 12 that have been classified as disabled has increased from 8 percent to 12 percent. Over the same period, the fraction of school district spending that is allocated to special education has increased from 4 percent to 17 percent. For the 1993-4 school year, the 5.4 million students who received special education services cost taxpayers more than $32 billion in total spending (above what was spent for other students). In The Impact of Fiscal Incentives on Student Disability Rates (NBER Working Paper No. 7173), author Julie Berry Cullen finds a link between these increases and the state funding formulas that reward local school districts for identifying additional students with special needs.

Relying on data from Texas schools in the 1991-2 through the 1996-7 school years, Cullen finds that a 10 percent increase in the supplemental revenue generated by a disabled student attributable to the state aid formula results in a 1.4 percent increase in the fraction of students classified as disabled. The data show that more than 35 percent of the six-year increase in student disability rates in Texas is explained by the contemporaneous increase in fiscal incentives. As expected, the greatest increase in student disabilities over this period was in the mildest and least well defined disability categories. These categories currently represent approximately 80 percent of the special education population.

Cullen also finds that minority students, students in districts that receive declining levels of state aid, and students in districts with more concentrated enrollments are more likely to be classified as disabled in response to fiscal incentives, suggesting that school districts may be classifying such students for fiscal gain. Cullen cites a study of the Vermont special education system which shows that over a three-year period following a switch from per-pupil funding for special education to a total district enrollment funding model, the number of students receiving special education declined by over 17 percent. Most of the students who returned to general education had been classified with minor learning disabilities or speech impairments. Cullen suggests that localities appear to manipulate special education populations to leverage state funds.

-- Lester A. Picker