20061105 Murray and Mattix Enable the Disabled An Analysis of the Kentucky Students with Special Needs Scholarship Program

B lu e g r a s s I n s t i t u t e f o r P u b l i c P o l i c y S o lu t i o n s
Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program |
A report by the bluegrass institute for Public Policy Solutions
Enable the Disabled:
An Analysis of the Kentucky Students
with Special Needs Scholarship Program
By Vicki E. Murray, Ph.D., and Arwynn Mattix, M.A.
$10.00

ii | Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program
Cover photos: James H. Ecker
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On the cover
Louisville residents Betsy Gibbs and daughter Elizabeth attend a press conference in the
Capitol Rotunda where a scholarship program for special-needs students was announced.
Photo used with permission of the Courier-Journal.

Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program | iii
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iv | Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program

Contents
Executive Summary......................................................................................1
Introduction....................................................................................................4
Overview of Kentucky’s special-needs student population......................6
Costs of over-identifying special-education students.............................16
Evidence of a costly, cumbersome special-education system ..............18
The Kentucky Students with Special Needs Scholarship Program.......23
Other programs...........................................................................................24
Florida’s McKay Scholarships for Students with Disabilities Program.......24
Ohio’s Autism Scholarship Program ..........................................................26
Utah’s Carson Smith Special Needs Scholarship Program .......................26
The Arizona Scholarships for Pupils with Disabilities Program .................27
The Cleveland Scholarship and Tutoring Grant Program..........................27
The Milwaukee Parental Choice Program..................................................28
Overview of the Kentucky Students with Special
Needs Scholarship Program......................................................................29
Fiscal impact of the Kentucky Students
with Special Needs Scholarship Program................................................29
Determining parental demand....................................................................30
Mitigating the costs of over-identifying students in special education...31
Reduce excessive compliance costs........................................................33
Savings from using special-needs student scholarships ......................33
Summary of special-education costs and savings..................................37
Conclusion...................................................................................................39
About the Authors.......................................................................................41
Appendix A...................................................................................................42
Appendix B...................................................................................................46

vi | Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program

Executive Summary
More than 30 years after Congress passed what is now called the Indi-
viduals with Disabilities Education Act (IDEA), the law’s goal of pro-
viding a “free and appropriate public education” remains elusive.
In theory, the IDEA was supposed to restore parental control over chil-
dren’s education and guarantee public schools provided educational
services to special-needs students. In practice, regulatory compliance
– not student learning – has become its chief purpose. Such compliance
is achieved largely through an adversarial process that pits parents and
educators against each other.
In spite of numerous amendments to the IDEA, the President’s Com-
mission on Excellence in Special Education concluded in a recent report
that parents still lack options when their children are not progressing
at their current schools. In many cases, their only recourse is to sue
school districts for separate placement. This constant specter of litiga-
tion has created a “culture of compliance,” in which paperwork comes
before pupils and bureaucratic demands have increased at all levels
– for special-needs students, parents, educators and schools.
Several states have taken the lead in attempting to rectify the short-
comings of the IDEA and fulfill its promise of providing all disabled
children with a quality education that meets their needs. Since 1990,
statewide scholarship programs in Florida, Ohio, Utah and Arizona
and city-wide programs in Milwaukee and Cleveland have been serv-
ing special-needs students. Together, these scholarship programs are

| Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program
assisting approximately 21,000 of these students. An estimated 122,000
more special-needs students nationwide utilize the IDEA to attend
nonpublic schools at public expense.
State and national data strongly indicate that over-identification of stu-
dents in special education – especially disproportionate representation
among minority students – is a real and growing problem in Kentucky.
The need to end the practice of over-identifying special-needs students,
conserve limited public resources and direct those funds to provide
services for genuinely disabled students are pressing public-policy
concerns.
In Kentucky, special-education funding is based on the number of stu-
dents school districts identify as disabled. Some researchers refer to
this system as “bounty funding” because it introduces perverse finan-
cial incentives for districts to label students as disabled.
A growing body of evidence suggests that bounty funding is respon-
sible for much of the growth in special-education enrollment. In fact, re-
searchers estimate that bounty funding is responsible for an average of
62 percent of the growth in enrollments of special-needs children among
states that fund special education in the same manner as Kentucky.
The Students with Special Needs Scholarship Program proposed by
state Rep. Stan Lee represents a significant step toward achieving an
identification-neutral funding mechanism. Parents dissatisfied with
their children’s progress could use scholarships offered by the pro-
gram to send their children to another participating public or nonpub-
lic schools for needed services without having to hire a lawyer and go
to court.
Scholarships would be worth the state’s current SEEK (Support Edu-
cational Excellence in Kentucky) base amount – guaranteed for every
public-school student in the commonwealth – plus the add-on fund-
ing for each student’s disability type, and would range from $4,300 to
$12,000, depending on the severity of the disability.
Today, approximately 2,500 Kentucky students attend public schools
outside their resident district or nonpublic schools to receive the spe-
cial educational services they require. Kentucky has more than 400
nonpublic schools where tuition averages between $4,500 for elemen-
tary school and $6,700 for high school.
By implementing a more placement-neutral mechanism, the Kentucky
Students with Special Needs Scholarship Program could help reduce
the number of students over-identified in special education each year.
Parents dissatisfied
with their children’s
progress could use
scholarships offered
by the program to
send their children to
another participating
public or nonpublic
schools for needed
services without
having to hire a
lawyer and go to
court.

The program could also help curb the excessive compliance costs and
reduce the regulatory burden of the existing adversarial separate-place-
ment process for these students.
With the proposed scholarship program, parents and educators would
no longer have to spend large amounts of time filling out paperwork or
navigating through bureaucratic red tape. Instead, parents could con-
centrate on their children, and teachers could focus their talents back
on the classroom.
An initial estimate based on available total-enrollment data found that
about 11,400 students were likely over-identified because of Kentucky’s
bounty-funding system. However, data subsequently provided by the
U.S. Department of Education Office of Special Education Programs
(OSEP) show that Kentucky’s special-education enrollment growth
rate is significantly higher than the rate of the commonwealth’s total
enrollment, which accelerated after 1990 when the state adopted a
bounty-funding system. Thus, the initial over-identification estimate
derived from total enrollment figures was artificially low. The adjusted
estimated number of students over-identified in special education from
1990 to 2005 is 20,210 students.
Key findings of this analysis of the Kentucky Students with Special
Needs Scholarship Program include:
• Kentucky’s special-education enrollment growth nearly doubled
the decade after the state adopted a bounty-funding system in 1990
– compared to the previous decade.
• In the decade before bounty funding was adopted, an average of 11
percent of Kentucky’s students were in special education annually.
As of 2005, 17 percent of the state’s student population was in special
education.
• During the next decade, the practice of over-identifying students in
special education and associated costs of regulatory compliance is
projected to exceed $500 million.
• Every special-needs student who receives a scholarship could save
the state and local school districts approximately $5,100 each. If just
1 percent of Kentucky’s special-needs students – roughly 1,100 chil-
dren – could have participated in the scholarship program in 2005,
the state and local school districts would have realized an estimated
savings of $5.7 million.
During the next
decade, the practice
of over-identifying
students in special
education and
associated costs of
regulatory compliance
is projected to exceed
$500 million.

• If just 1 percent of Kentucky’s special-needs students participate in
the scholarship program during the next decade, the state and local
school districts could realize a projected savings of more than $61
million.
• Participation rates in Florida’s McKay Scholarship Program for Stu-
dents with Disabilities reached 4 percent of its total special-needs
student population in just six years. At those rates, the savings to
Kentucky’s taxpayers and local school districts could exceed $200
million during the next decade.
Introduction
Congress passed what is now called the Individuals with Disabilities
Education Act (IDEA) in 1975 after becoming concerned that too many
disabled American children were being denied an appropriate educa-
tion. At that time, nearly half of all disabled students had limited ac-
cess to needed services within the education system; a million more
disabled children had no access whatsoever.1
For all the noble intentions of the IDEA, the President’s Commission on
Excellence in Special Education concluded nearly 30 years later that:
The current system often places process above results, and bureau-
cratic compliance above student achievement, excellence and out-
comes. The system is driven by complex regulations, excessive pa-
perwork and ever-increasing administrative demands at all levels
– for the child, the parent, the local education agency and the state
education agency. … When a child fails to make progress in special
education, parents do not have adequate options and recourse. Par-
ents have their child’s best interests in mind, but they often do not
feel they are empowered when the system fails them. … The culture
of compliance has often developed from the pressures of litigation,
diverting much energy from the public schools’ first mission: edu-
cating every child.2
On Sept. 14, 2006, state Rep. Stan Lee proposed the Students with Spe-
cial Needs Scholarship Program to help rectify the shortcomings of the
IDEA and fulfill its promise to provide all of Kentucky’s disabled chil-
dren with a quality education that meets their needs.
The proposal affords any parent of a special-needs student in public
school who is dissatisfied with their child’s progress the opportunity
to apply for a scholarship that would allow the child to attend a public
school outside their resident district or nonpublic school. To qualify,
eligible students must have an individual education plan (IEP) from
When a child fails
to make progress in
special education,
parents do not have
adequate options and
recourse.

their current school. Maximum scholarship amounts would be equal to
the student’s base funding – as determined by the state’s Support Edu-
cational Excellence in Kentucky (SEEK) formula – and corresponding
disability add-on funds.3
Currently, state law allows special-needs students to attend another
school district or nonpublic school or facility to receive educational ser-
vices if programs at their current schools do not exist or are not appro-
priate for their specific disability.4
Each year, an average of 1.3 percent
of all special-needs students ages 6 to 21 in Kentucky receive needed
services using public dollars outside their resident school districts.5
However, local school districts’ admissions and release committees
(ARC) – not parents – determine whether their schools offer appropri-
ate educational services. Parents who are dissatisfied with those services
have few options within the current system. They can simply accept the
services their current schools offer, pay the full cost of educating their
children elsewhere or sue the resident school district, which is costly and
time-consuming and can take months or even years to resolve.
Hiring a lawyer and taking time off from work to sue their children’s
schooldistrictisnotaviableoptionformostKentuckyfamilies.According
to the Kentucky Department of Education (KDE), 59 percent of students
come from homes where both parents work.6
Moreover, it is not possible
for many parents of special-needs children in the commonwealth to
afford the out-of-pocket expenses for educational services. According to
the Annie E. Casey Foundation, 30 percent of Kentucky children reside
in single-parent homes and 38 percent of the state’s children come from
families where no parent has full-time, year-round employment.7
Denying special-needs students appropriate services or requiring dis-
satisfied parents to pay for services their children should already be
receiving from the public-education system is also contrary to federal
and state law.
Federal law guarantees a “free and appropriate public education” to
every qualified special-needs student, and that no one with a disability
shall “be excluded from the participation in, be denied the benefits of,
or be subjected to discrimination under any program or activity receiv-
ing Federal financial assistance.”8
Last year, Kentucky school districts
received $428 million in federal grant allocations, nearly one-third of
which was for special-education services.9
Kentucky law also guarantees that parents “play a critical role in the
education of their students” and state law affirms that parents “have
a major responsibility to assist in the education of their students and
Hiring a lawyer and
taking time off from
work to sue their
children’s school
district is not a viable
option for most
Kentucky families.

deserve respect and meaningful involvement in the decision-making
process relating to their children’s education.”10
School districts violate the law when they deny special-needs students
and their parents these rights. Yet there is little accountability under the
current system. For example, only one of the more than 10,000 special-
education compliance cases that was considered by the U.S. Depart-
ment of Education’s Office of Civil Rights between 1987 and 1993 was
deemed to have merit. According to City College New York education
professors Stephen Agbenyega and Joseph Jiggetts, such an enforce-
ment rate is “ridiculous by the standards deemed acceptable in a mod-
ern, civilized polity in which the poor can expect to gain relief from
their own government.”11
Florida was the first state to attempt to rectify this problem. In 2000, it
adopted the McKay Scholarship Program for Students with Disabili-
ties, which allows parents of special-needs students to use scholarships
to send their children to any public or nonpublic school they believe
offers the best educational services.
A 2003 empirical evaluation of the program found that 93 percent
of scholarship parents were satisfied with their children’s schools,
compared to only 33 percent of nonscholarship parents.12
Scholarship
parents also indicated that their children’s school provided all the
agreed-upon IEP services 86 percent of the time, compared to only 30
percent of the time, according to nonscholarship parents.
Given the growing numbers of students requiring individualized
services and the associated costs of providing those services – including
litigation expenses – Ohio, Utah and Arizona have also adopted
programs offering scholarships to special-needs students.13
This
report examines Kentucky’s current policy for educating special-needs
students and the potential impact of Rep. Lee’s proposed Students with
Special Needs Scholarship Program.
Overview of Kentucky’s
special-needs student population
During the 2005-06 school year, there were about 109,000 special-needs
students – 17 percent of Kentucky’s total public-school student popu-
lation – attending public schools throughout the commonwealth. As
Table 1 illustrates, enrollment of special-needs students increased more
than 60 percent between 1980 and 2005. During the same time period,
however, overall student enrollment declined 4 percent.
School districts
violate the law when
they deny special-
needs students and
their parents these
rights.

Table 1: Total and Special-Needs Student Enrollment Compared
1980-2005

Special-Needs
Student Enrollment
Annual # Change
Total Student
Enrollment
Annual #
Change
1980 67,633 669,796
1981 69,006 1,373 658,350 -11,446
1982 70,022 1,016 651,084 -7,266
1983 71,353 1,331 647,414 -3,670
1984 71,791 438 644,421 -2,993
1985 70,392 -1,399 643,833 -588
1986 70,352 -40 642,778 -1,055
1987 73,221 2,869 642,696 -82
1998 73,104 -117 637,627 -5,069
1999 75,174 2,070 630,668 -6,959
1990 76,202 1,028 636,401 5,733
1991 78,967 2,765 646,024 9,623
1992 79,003 36 655,041 9,017
1993 79,516 513 655,265 224
1994 80,759 1,243 657,642 2,377
1995 82,889 2,130 659,821 2,179
1996 85,052 2,163 656,089 -3,732
1997 86,240 1,733 669,322 13,233
1998 87,973 1,733 655,687 -13,635
1999 91,537 3,564 648,180 -7,507
2000 94,572 3,035 665,850 17,670
2001 98,146 3,574 654,363 -11,487
2002 100,298 2,152 660,782 6,419
2003 103,783 3,485 663,885 3,103
2004 106,916 3,133 645,700 -18,185
2005 108,798 1,882 642,500 -3,200
# Change
1980-2005
41,165 -27,296
% Change
1980-2005
61% -4%
Sources: Authors’ calculations based on data from the U.S. Department of Education, Office
of Special Education Programs, “Annual Reports to Congress on the Implementation of the
Individuals with Disabilities Education Act”; Kentucky Department of Education, “Child Count
by Disability, 1992-2005.” Note: Special-needs student enrollment figures represent students
ages 3 to 21.
State law allows special-needs students to attend another public or non-
public school or facility to receive educational services if the programs
they need are not available at their resident district school.14
Given the
dramatic growth of Kentucky’s special-needs student population, it is not
surprising that separate placements of special-needs students by school
districts increased 24 percent – from 983 students in 1992, the earliest
year for which separate-placement data are available, to 1,214 in 2005.15
State law allows
special-needs
students to attend
another public or
nonpublic school
or facility to receive
educational services
if the programs they
need are not available
at their resident district
school.

Each year, more than half of Kentucky’s school districts – 97 on aver-
age – send nearly 1,200 special-needs students to separate public and
nonpublic schools or facilities for the educational programs they need.
Another 1,250 children with learning disabilities received separate
nonpublic placement at their parents’ request in 2005.16
Table 2: Average Annual Number of School Districts and
Special-Needs Students Using Separate Placements, 1996-2005
Separate Setting
Average Annual #
Districts Using
Average Annual # Students Using
Public Separate Day 45 572
Nonpublic Separate Day 25 124
Public Separate Residential 18 345
Nonpublic Separate
Residential
10 120
Totals 98 1,161
Source: Kentucky Department of Education, “Placement by District 1992 through 2005.”
While Kentucky’s special-needs student population has increased 60
percent since 1980, this growth has not been uniform across all dis-
ability categories.17
It is possible to see how Kentucky’s special-educa-
tion growth in distinct disability categories compares to U.S. growth by
comparing data from 1993 to 2002, the latest year for which comparable
national and state data are available.18
Federal law recognizes 13 disability categories, 12 of which are listed in
Table 3. Because federal reports did not include developmental-delay
disabilities in all years, state and national enrollment growth figures
for this category are not included in the comparison.
Table 3 also divides the 12 disability categories into “soft” and “hard”
categories. For nearly 40 years, a consistent and substantial body of
research has identified the disproportionate enrollment growth of spe-
cial-education students using four categories of “soft” or “judgmental”
disabilities: “emotional behavioral disability,” “communication disor-
ders,” “specific learning disabilities” and “other health impairments.”
Typically, students are labeled with these disabilities based on assess-
ments by education committees, not clinical diagnoses.19
The remain-
ing disability categories are considered “low incidence” or “hard” dis-
abilities because medical doctors diagnose them. Historically, there has
been no significant overrepresentation of students in “hard” disability
categories.20
While Kentucky’s
special-needs student
population has
increased 60 percent
since 1980, this
growth has not been
uniform across all
disability categories.

Table 3: Kentucky and U.S. Disability Enrollment Changes
1993-2002
‘Soft’ Disabilities
KY Percentage
Change 1993-2002
US Percentage
Change 1993-2002
Other Health Impairments 1,726% 372%
Emotional Behavioral Disability 45% 16%
Communication Disorders -3% -63%
Specific Learning Disability -18% 18%
Average % Change: All ‘Soft’ Disabilities 438% 86%
‘Hard’ Disabilities
Autism 1461% 528%
Traumatic Brain Injury 218% 306%
Deaf/Blind 200% 17%
Multiple Disabilities 164% 20%
Orthopedic Impairment 15% 31%
Mental Retardation -2% 7%
Visual Impairment -16% 5%
Hearing Impairment -25% 12%
Average % Change: All ‘Hard’ Disabilities 252% 116%
Average % Change: All Disabilities 314% 106%
Sources: Authors’ percentage changes based on data from the U.S. Department of Education,
Office of Special Education Programs, “20th
Annual Report to Congress on the Implementation
of the Individuals with Disabilities Education Act,” 1998, Table AA9 and “26th
Annual Report,”
2004, Tables 3-8f to 3-8pp. Notes: 1. Percentages for developmental delay are not included in
the table because that disability category was not contained in the 1998 “Annual Report.” 2.
Kentucky disability categories of “functional mental disabilities” and “mild mental disabilities”
are combined for federal reporting purposes in the “mental retardation” category. 3. Figures
represent enrollments of students ages 6 to 21. 4. Federal “US and outlying areas” category
used for both years.
As Table 3 illustrates, Kentucky’s overall disability enrollment growth
rate from 1993 to 2002 is three times higher than the national rate. Turn-
ing to specific disabilities, the state’s enrollment growth rate is higher
than the national rate in half of the categories listed.
To put those figures in perspective, Kentucky’s enrollment growth rates
outpace national growth rates by: 12 to one in the “deaf/blind disabil-
ity” category, eight to one in the “multiple disabilities” category, five
to one in the “other health impairments” category and three to one in
both the “emotional behavioral” and “autism” disabilities categories.
Likewise, despite the statewide and national decline in enrollments of
students with communication disorders, Kentucky’s enrollment rate in
this category still exceeds the national rate by 21 to one.
Notwithstanding declining enrollments in communication disorders
and specific learning disabilities, Kentucky’s total enrollment growth
rate in “soft” disability categories is more than five times the national
Despite the statewide
and national decline
in enrollments
of students with
communication
disorders, Kentucky’s
enrollment rate in this
category still exceeds
the national rate by 21
to one.

10 | Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program
rate of growth, which suggests students are being over-identified as hav-
ing other health impairments and emotional-behavioral disabilities.
Kentucky’s declining enrollment in communication disorders follows a
national trend. Given that trend, the U.S. Office of Civil Rights (OCR)
discontinued monitoring this disability category for disproportionate-
ly high enrollment rates in 1994.21
However, the 3-percent decline in
the state’s communication-disorders enrollment rate during that same
period is markedly lower than the national decline of 63 percent.
Kentucky student enrollments also declined in the “specific learning
disabilities” category, which runs counter to the national trend of in-
creasing enrollment. However, the state’s lower specific-disabilities
enrollment should be viewed cautiously. Researchers note that no uni-
form disability definitions exist.22
When states define disability categories comparable to the federal cate-
gories, the definitions may be fluid enough that one student could eas-
ily be identified in several different categories, which appears to be the
case in Kentucky.23
And it is possible that students who may otherwise
be labeled in the “specific learning disability” category may instead
be characterized as having “other health impairments” or “emotional
behavioral” disabilities.
The KDE explains that around 1995, the federal government allowed
attention deficit disorders (attention deficit disorder, or ADD, and at-
tention deficit hyperactivity disorder, or ADHD) to be included under
“other health impairments.” Previously, children with those disabili-
ties were not counted.24
Kentucky’s definition of “other health impair-
ments” resulted in a 1,726-percent increase in enrollments in that cat-
egory between 1993 and 2002.
Given the addition of those students, one would expect to see a large
spike in total special-education enrollment numbers from 1994 to
1996. As Table 1 shows, enrollment did increase during those years,
but by fewer than 1,000 students. Larger annual special-education en-
rollment increases occurred in 1987, 1991 and from 1999 to 2004. This
suggests that the inclusion of students labeled as having ADD and
ADHD is not responsible for Kentucky’s dramatic special-education
enrollment growth.
Researchers describe “other health impairments” as a “catch-all”
category. Under Kentucky law, the bar for labeling students could
be as low as limited or heightened alertness stemming from asth-
ma or even unspecified health problems. Likewise, while federal
reports use a strict definition for emotional-behavioral disabilities,
Kentucky’s definition
of ‘other health
impairments’
resulted in a 1,726-
percent increase in
enrollments in that
category between
1993 and 2002.

Enable the Disabled: An Analysis of the Kentucky Students with Special Needs Scholarship Program | 11
Kentucky’s definition is vague, referring to unspecified “behavioral
excess or deficit” that interferes with students’ “interpersonal rela-
tionships or learning process.”
So too is Kentucky’s “specific learning disabilities” category. These dis-
abilities are defined as a disorder in the “psychological processes” that
“selectively and significantly interferes” with reading, writing, math,
speaking, reasoning or even listening.
Amazingly, Kentucky’s definition of “specific learning disabilities” in-
dicates this category excludes learning problems relating to “environ-
mental, cultural, or economic differences.” This explicit exclusion of
socioeconomic factors such as race or poverty does not appear in any
other state disability definition, and may be an attempt to prevent what
research shows is an alarming trend of over-identification of minority
children in the “specific learning disabilities” category.25
Still, given the fluidity of Kentucky’s “soft”-disability definitions, a
type of identification shift may be occurring. Kentucky students who
might otherwise be labeled with a specific learning disability are pos-
sibly being labeled under the “other health impairments” category in-
stead. Both of these types of disabilities fall within the second highest
add-on funding category.
Kentucky’s enrollment growth in “hard” disabilities is also more than
twice the national rate, despite declining enrollment of students iden-
tified with visual, hearing and mental-retardation impairments. Re-
search indicates that students enrolled in “hard” disability categories
are less likely to be over-identified because these disabilities are based
on medical diagnoses. To help determine whether increased state and
national disability-enrollment rates are the result of over-identification,
disability-enrollment numbers should be compared as a proportion of
total enrollment for 1993 and 2002.26
At the national level, enrollments in “soft” disability categories in-
creased as a proportion of total student enrollment, with the exception
of communication-disorders enrollment rates, which declined. With
the exception of autism, enrollments in the “hard” disability categories
remained fairly constant as a proportion of total student enrollment.
In Kentucky, enrollments in only five of the eight “hard” categories re-
mained fairly constant as a proportion of total enrollment. Enrollments
increased in the “autism,” “multiple disabilities” and “traumatic brain
injury” categories.
Some researchers suggest that more frequent early detection accounts
for increases in these “hard”-disability categories.27
Other researchers
Enrollments increased
in the ‘autism,’
‘multiple disabilities’
and ‘traumatic brain
injury’ categories.

counter that the incidence of childhood disabilities should be declining
because of medical advances, including better prenatal care, preventive
medicine and early intervention, as well as the increased use of child
safety devices like car seats and helmets.28
While earlier detection may indeed partially account for Kentucky’s in-
creased enrollment in the “autism,” “traumatic brain injury” and “mul-
tiple disabilities” categories, it is highly improbable that it accounts
for a nearly 2,000 percentage-point combined increase in one decade.
For such an increase to occur, early detection rates in those disabilities
would have to quadruple every year for 10 years.
These results suggest there is an urgent need in Kentucky to reduce
over-identification of students in special education and ensure rigor-
ous, medically based identification procedures are in place. That way,
resources can be directed to students with the greatest need.
To get a clearer picture of Kentucky’s special-education enrollment
growth in “soft” learning-disability categories, Table 4 compares na-
tional and state disability enrollment figures as a proportion of total
student enrollment numbers from 1980 to 2002, the latest year national
special-education enrollment data are available.
Initially, in 1980, state and national special-education enrollment rates
were the same – 10 percent of total enrollment. However, despite de-
clining total enrollment in Kentucky during this time period, the state’s
special-education enrollment growth of 5 percent exceeded the nation-
al 4-percent growth rate as a portion of total enrollment. Given the re-
sults presented in Table 3, it appears that Kentucky’s higher enrollment
growth in the “soft” disability categories is contributing greatly to the
state’s overall special-education enrollment growth rate.
There is an urgent
need in Kentucky
to reduce over-
identification of
students in special
education and ensure
rigorous, medically
based identification
procedures are in
place.

Table 4: Kentucky and U.S. Total Disability
Enrollment Growth Compared, 1980 and 2002
1980 2002
Change 1980-
2002
Total US Enrollment 40,877,481 48,183,066 7,305,585
Total US Special Education Enrollment 3,933,981 6,606,702 2,672,721
Total KY Enrollment 669,796 660,782 -9,014
Total KY Special Education Enrollment 67,633 100,298 32,665
% Total US Enrollment in Special
Education
10% 14% 4%
% Total KY Enrollment in Special
Education
10% 15% 5%
of Special Education Programs, “Annual Reports to Congress on the Implementation of
the Individuals with Disabilities Education Act”; Kentucky Department of Education, “Child
Count by Disability, 1992-2005.” Note: Special-needs enrollment figures represent students
ages 3 to 21.
It is possible that special-needs students were under-identified in Ken-
tucky and enrollment growth in special education simply reflects a
correction to proper identification levels, especially in light of medi-
cal advances that make earlier detection of disabilities like autism pos-
sible. However, other factors suggest medical advances alone cannot
account for Kentucky’s significantly higher overall special-education
enrollment rates compared to the national average.
As presented in Table 1, since 1980, annual special-education enroll-
ment rates have increased steadily in Kentucky, even in years when
total enrollment declined. The state’s special-ed enrollment increased
61 percent from 1980 to 2005, while total enrollment fell by 4 percent
during the same period.
There is compelling evidence that the way Kentucky funds special edu-
cation is behind the state’s special-needs student enrollment growth.
The commonwealth began distributing funding to districts based on the
number of students they identified as having special needs in 1990.29
In their 1995 analysis, researchers with the Center for Special Education
Finance (CSEF) found that between the 1989-90 school year – just be-
fore those changes went into effect – and the 1993-94 school year, iden-
tification rates increased significantly throughout Kentucky, especially
among “soft” disability categories, which receive the second-highest
amount of add-on funding.
Identification rates in all disability categories increased the great-
est among districts that received the most additional funding within
Medical advances
alone cannot account
for Kentucky’s
significantly higher
overall special-
education enrollment
rates compared to the
national average.

the new system. A subsequent analysis by the center’s researchers
also found that in Kentucky, nonmedically based, or “soft,” disabili-
ties were over-funded by approximately 16 percent, while clinical, or
“hard,” disabilities were underfunded by about 13 percent.30
Potential over-identification in Kentucky is not limited to particular
disability categories. It also appears to be occurring among racial
groups. Research during the past several decades indicates minority
students are disproportionately represented in special education.31
To help see whether racial over-identification of students is occurring
in Kentucky, Table 5 compares state disability-enrollment numbers
to total state enrollment by race since 2000, the first year racially
disaggregated data from the state are available.32
The state’s total special-needs student enrollment grew significantly
– by 15 percent – compared to only a 1-percent increase in total en-
rollment during this period. Disability-enrollment growth among dis-
tinct racial groups in Kentucky was even more staggering. As Table 5
illustrates, even though total enrollment of white students declined
slightly, disability enrollment among whites increased by 11,740 stu-
dents between 2000 and 2005.
Disability-enrollment growth increased at a rate two-and-a-half times
faster than the total-enrollment growth rate for Hispanic students, and
at a rate four-and-a-half times faster for students who are Asian/Pacific
Islanders. Only among black students did the total enrollment-growth
rate outpace the disability-enrollment growth rate – by a full 33 per-
centage points.
While over-identification of students with disabilities is harmful, so
too is denying genuinely disabled students the educational services
they need. The fact that disability enrollment among black students is
so far below their total enrollment while disability enrollment among
all other racial groups exceeds their total enrollment raises the pos-
sibility that blacks who may require special-education services might
not be receiving them.
It is indeed possible that black students’ disability-identification rates
are a more accurate reflection of real disability rates, but that those
numbers appear alarmingly low in comparison to other student racial
subgroups. However, it may also be the case that over-identification of
students in some racial subgroups may result in under-identification
in other racial subgroups.
While over-
identification of
students with
disabilities is
harmful, so too is
denying genuinely
disabled students the
educational services
they need.
Just as under-identifying students in need of special-education services
harms them, so too does over-identification. The Committee on Minor-

Table 5: Comparison of Total and Special-Needs Student Enrollment
in Kentucky by Race, 2000 and 2005
2000 2005
# Enrollment
Change 2000-2005
% Enrollment
Change 2000-2005
Total Enrollment 649,958 656,503 6,545 1.01%
Total Special-Needs
Student Enrollment
94,572 108,798 14,226 15.04%
Total White Enrollment 535,195 534,110 -1,085 -0.20%
White Special-Needs
Student Enrollment
81,926 93,666 11,740 14.33%
Total Black Enrollment 31,926 65,791 33,865 106.07%
Black Special-Needs
Student Enrollment
1,420 2,319 899 63.31%
Total Hispanic
Enrollment
6,021 11,836 5,815 96.58%
Hispanic Special-Needs
Student Enrollment
91 309 218 239.56%
Total Asian/Pacific
Islander Enrollment
4,074 5,596 1,522 37.36%
Asian/Pacific Islander
Special-Needs Student
Enrollment
36 96 60 166.67%
Total American Indian
Enrollment
918 1,134 216 23.53%
American Indian
Special-Needs Student
Enrollment
na na na na
Sources: Kentucky Department of Education, “Race Ethnicity Data by Disability” reports for 2000
and 2005, and “Superintendent’s Annual Attendance” reports school years 2000-01 to 2004-
05. Notes: 1. Enrollment data represent students ages 3 to 21. 2. Race-ethnicity reports do not
include a distinct category for American Indian students, only an “other” category. Those data are
not included in the above table, indicated by “na.”
Ending the practice of
mislabeling students
who are not disabled
while conserving
limited public
resources so that
sufficient funding is
available for genuinely
disabled students is a
pressing public-policy
concern.ity Representation in Special Education reports that when a student is
inappropriately placed in special education, it is a problem that “stig-
matizes or otherwise identifies a student as inferior, results in lowered
expectations, and leads to poor educational outcomes such as dropping
out, failure to receive a meaningful diploma, or move into productive
post school endeavors.”33
The human cost of over-identifying students as learning disabled is in-
calculable, but the fiscal cost is not. State and national data strongly in-
dicate that over-identification across disability categories and student
groups is a real and growing problem in Kentucky. Ending the practice
of mislabeling students who are not disabled while conserving limited
public resources so that sufficient funding is available for genuinely
disabled students is a pressing public-policy concern.

Costs of over-identifying special-education students
There can be several possible explanations for over-identification of stu-
dents in special education. One is a lack of cultural awareness among
teachers toward students of different races.34
Another is identified by
researchers from the National Institutes of Health, who have found evi-
dence that poor reading instruction in the early grades results in read-
ing deficiencies that are later misidentified as learning disabilities.35
Yet
another possible incentive for over-identifying students in special edu-
cation is to qualify more students for testing accommodations, which
tend to inflate scores on Kentucky’s high-stakes Commonwealth Ac-
countability Testing System (CATS).36
A growing body of evidence, however, suggests the way states fund
school districts for special education contributes greatly to the over-
identification problem.37
Most states, including Kentucky, fund special
education based on the number of students school districts identify as
disabled, a practice that many education researchers refer to as “boun-
ty funding.” Manhattan Institute education scholars Jay Greene and
Greg Forster estimate that the bounty-funding system accounts for 62
percent of the total increase in special-education enrollments in those
states.38
That amounts to nearly 400,000 more students in special educa-
tion nationwide at a cost of $2.3 billion annually.
In response to growing concern about the influence of financial incen-
tives on special-education growth because of bounty funding, Con-
gress changed the way it distributes federal funds to the states during
the 1997 reauthorization of the IDEA. Instead of determining funding
states receive for special education based on the number of students
districts themselves label with disabilities, Congress now distributes
federal special-ed funding to states in lump-sum amounts based on
their demographic profile. This approach is intended to help reduce
the incidence of over-identification.39
Congress was not alone in its concern about bounty funding. In 1995,
then-New Jersey Education Commissioner Leo Klagholz publicly ac-
knowledged:
We spend the money every year, but we have no way of knowing
whether the money we spend actually goes to the education of
disabled children. … I’m not sure that school officials actually sit
around and say they can increase state aid by increasing the num-
ber of classified children. But the incentive is there and, sometimes,
close calls can be justified on the grounds of the good they are doing
by increasing a district’s resources.40
We spend the money
every year, but we
have no way of
knowing whether the
money we spend
actually goes to the
education of disabled
children.

As explained previously, Kentucky began distributing funding in 1990 to
districts based on the number of students they identified as disabled. In
1995, CSEF researchers found that compared to the 1989-90 school year
– just before those changes went into effect – special-education identifi-
cation rates in Kentucky increased significantly each year through the
1993-94 school year, the last year of available data.
Enrollment increases were most dramatic among the “soft” disability
categories, which receive the second-highest amount of add-on
funding. Subsequent analysis by CSEF researchers also showed that
“soft” disabilities were over-funded in Kentucky by approximately 16
percent; “hard” disabilities were under-funded by about 13 percent.
A comparison of Kentucky’s special-education enrollment growth
rates in the years before and after the state adopted a bounty-fund-
ing system also substantiates the findings of Greene and Forster. As
Table 6 illustrates, students enrolled in special education increased
20 percent between 1990 – when the state adopted a bounty-funding
system – and 1999, compared to an 11-percent increase between 1980
and 1989.
In the years prior to bounty funding, the number of students in special
education represented an annual average of 11 percent of total enroll-
ment. As of 2005, however, special-needs children represented 17 per-
cent of Kentucky’s total student enrollment.
Table 6: Special-Education Enrollment Growth
Before and After ‘Bounty’ Funding

Before Bounty Funding:
1980-1989
After Bounty Funding:
1990-1999
KY Special Education
Enrollment Growth
11.1% 20.1%
KY Total Enrollment
Growth
-5.8% 1.9%
of Special Education Programs, “Annual Reports to Congress on the Implementation of the
Individuals with Disabilities Education Act”; Kentucky Department of Education, “Child Count
by Disability, 1992-2005.” Note: Special-needs student enrollment figures represent students
ages 3 to 21.
An initial estimate based on available enrollment data found that about
11,400 students were likely over-identified because of Kentucky’s boun-
ty-funding system.41
However, data subsequently provided by the U.S.
Department of Education Office of Special Education Programs (OSEP)
going back to 1980 (illustrated in Table 6), show that special-ed enroll-
ment growth is significantly higher than Kentucky’s total enrollment
‘Soft’ disabilities
were over-funded
in Kentucky by
approximately
16 percent; ‘hard’
disabilities were
under-funded by about
13 percent.

growth and accelerated after the state adopted a bounty-funding sys-
tem in 1990. Thus, the initial over-identification estimate derived from
total enrollment figures was artificially low.
Greene and Forster estimate that bounty funding is responsible for 62
percent of special-education enrollment growth. From 1990 to 2005,
Kentucky’s special-education enrollment grew by 32,596 students, of
which an estimated 20,210 (62 percent) were likely over-identified since
the state began using the bounty system.
Depending on the disability labels these students received, such over-
identification cost between $17 million and $164 million during that
time period. However, given Kentucky’s growth in the higher-funded
moderate- and severe-disability categories, it is more likely that such
over-identification cost between $82 and $164 million.42
Moreover, the
percentage of special-needs students likely over-identified increased
from 12 percent in 1990 – when Kentucky adopted the bounty-funding
system – to 17 percent in 2005.
Evidence of a costly, cumbersome
special-education system
To help end discrimination of disabled children by the public-
education system, Congress passed the Individuals with Disabilities
Education Act (IDEA) in 1975 to ensure all children had access to a
“free and appropriate public education.”43
For all its good intentions,
however, Agbenyega and Jiggetts write that “a Special Education
bureaucracy now exists feeding upon itself, upon national mandates,
and perpetuating its own interests.”44
In theory, the IDEA was supposed to restore parental control over chil-
dren’s education and guarantee public schools provided services to
special-needs students. In practice, regulatory compliance – not student
learning – has become its chief purpose. Such compliance is achieved
largely through an adversarial process that pits parents and educators
against each other.45
Before a student receives special-education services, school districts
conduct an evaluation – which can take months – and develop an IEP
(individual education plan) with teachers and parents. Compliance
with federal IEP requirements has grown increasingly burdensome
for school and district staff, who must complete excessive paperwork
and documentation.46
According to a national survey by the Council
for Exceptional Children, the “tyranny of paperwork overshadows the
thoughtful planning needed for individualized student instruction.”47
In theory, the IDEA
was supposed to
restore parental
control over children’s
education and
guarantee public
schools provided
services to special-
needs students.

One Columbia University Teachers College professor explains that spe-
cial-ed teachers “complain they’re spending 50 to 60 percent of their
time filling out forms.”48
If parents of special-needs students are dissatisfied with the educa-
tional services their children’s schools provide, or if they want separate
placement for their children, complaint hearings or litigation are typi-
cally their only recourse. According to Perry A. Zirkel, Lehigh Univer-
sity professor of education and law, education litigation has declined
in general nationwide since the 1970s, but special-education litigation
“has steadily skyrocketed.”49
Zirkel finds that parents who sue school
districts over their children’s education plans prevail about half the
time. However, he explains the initial due-process hearings can last
more than a year.
Next is the judicial review process, which Zirkel says “often entails
additional witnesses and exhibits and – caught in the complexities and
congestion of the courts – can be interminable.” Ultimately, a final de-
cision about a student’s IEP or separate placement might take as long
as three years.50
The time, expense and complexity of special-educa-
tion disputes may prevent some dissatisfied parents from ever taking
formal action to get the services they think are best for their children,
according to special educators and advocates interviewed by federal
General Accounting Office (GAO) researchers.51
Kentucky is one of about two-dozen states offering mediation between
parents of special-needs children and their schools to help resolve dis-
putes locally and avoid litigation. Amendments to the IDEA in 1997
also attempt to strengthen parental input and promote local school-
and district-level resolutions to special-education disputes.52
However,
adding another regulatory layer may make compliance with special-ed
laws even more time-consuming and costly.53
Unfortunately, no com-
prehensive state-level, special-education cost studies exist for Ken-
tucky, and researchers have long noted that in all states, such costs are
not easily identifiable in school budgets.54
The absence of such analyses is especially troubling given claims by pub-
lic-school representatives that special education is a financial burden that
drains resources.55
Schools and districts should be eager to document and
publicize the actual costs they incur, including compliance costs such as
maintaining special-ed offices, faculty and staff time devoted to dispute
hearings and related paperwork, legal fees, court costs and compensa-
tory awards assessed when schools do not comply with regulations.
In 2002, education analyst and former Baltimore City school-board
member Kalman Hettleman used the Baltimore City Public School Sys-
The time, expense and
complexity of special-
education disputes
may prevent some
dissatisfied parents
from ever taking
formal action to get the
services they think are
best for their children.

tem to conduct perhaps the most thorough compliance-cost analysis of
special education to date.56
Table 7 shows Hettleman’s findings.
He assumes only half of all the annual compliance costs he identifies
are excessive because in the absence of comprehensive school reports,
precise estimates are not possible. For this reason, Hettleman errs on
the side of caution. However, even by Hettleman’s most conservative
estimates, excessive compliance costs amounted to $14 million annu-
ally in just that one school district.
There are obvious limitations with any attempt to compare the com-
pliance experience of a Maryland school district to that of a Kentucky
district. However, the sheer scope of compliance costs incurred by the
Baltimore City Public School System is highly instructive for under-
standing the impact of a special-education system designed to achieve
regulatory compliance rather than student learning.
Schools and districts
should be eager
to document and
publicize the actual
costs they incur.

Table 7: Annual Special-Education Compliance Cost
Estimates for the Baltimore City Public School System
Special Education Office Cost Totals
Office of Special Education Monitoring and Compliance $1,000,000
Office of Special Education Officer $100,000
Compensatory Awards $1,700,000
Policies and Procedures $500,000
Inclusion Services $100,000
Support for Child Study Teams $200,000
Total $3,600,000
Special Education School-based
Special Education Teachers (10% of their time) $6,800,000
Speech and Language Pathologists (15% of their time) $1,000,000
Psychologists (25% of their time) $1,400,000
Social Workers (25% of their time) $1,800,000
Instructional Associates (75% of their time) $6,000,000
Total $17,000,000
Vaughn G., et al. v. Mayor and City Council of Baltimore, et al.
Court Special Master $480,000
Maryland Disability Law Center (counsel for plaintiffs) $250,000
Outside Counsel for Baltimore Public School System $175,000
Baltimore Public School System’s Counsel’s office $50,000
Plaintiffs’ Representative $12,000
All Legal Costs $967,000
Total Legal Costs of Compliance (@ 75% of legal costs) $725,000
Indirect Compliance Costs (time spent by general-education staff)
Attendance at Child Study Team Meetings by:
*Principals and Asst. Principals (10%-25% of their time)
*General Education Teachers (1%-10% of their time)
Total Indirect Compliance Cost (@ 2% of $362 million general instruc-
tion budget)
$7,200,000
Total Compliance Cost (rounded) $28,000,000
Total Excessive Compliance Cost (@50% of Total Compliance Cost) $14,000,000
Source: Adapted from 2002 compliance-cost analysis by Kalman R. Hettleman of the Balti-
more City Public Schools for the Abell Foundation. Notes: 1. Hettleman rounds all figures.
2. Costs are in 2002 dollars. 3. The Maryland Disability Law Center filed Vaughn G., et al. v.
Mayor and City Council of Baltimore, et al. in the U.S. District Court of Maryland in 1984 on
behalf of students with disabilities in Baltimore City Public Schools who did not receive timely
evaluations and/or progress on their IEPs. The case was settled with a consent decree in
1988. The court continued to monitor the schools’ progress, and in 2000, the court adopted a
15-point compliance plan negotiated by the parties. As of 2004, Baltimore City Public Schools
were still out of compliance on nine measures. See the Maryland Disability Law Center.

Undoubtedly, compliance costs vary widely among school districts and
states but include common kinds of expenditures. Moreover, Hettle-
man’s findings serve as an important conceptual gauge for understand-
ing the potential statewide fiscal impact of regulatory compliance in
the absence of school- and district-level analyses.
It is not appropriate to apply Hettleman’s compliance-costs estimate
of $14 million for a single district to the entire state of Kentucky,
which has 176 school districts. However, it is possible to estimate an
indirect compliance-cost estimate for the commonwealth based on
Hettleman’s projections.
His estimate includes only the time principals and assistant principals
spend (10 to 25 percent) and the time general-education teachers spend
(1 to 10 percent) in special-ed assessment meetings. Within this narrow
definition, Hettleman finds that indirect compliance costs consume 2
percent of the district’s general-instruction budget. This is extremely
conservative, Hettleman notes, because “the compliance maze will eat
up more of their time in the future as the inclusion of special education
students into the general education classrooms increases.”57
Many compliance factors will differ between various districts and
states. However, it is reasonable to apply Hettleman’s finding that in-
direct compliance costs amount to roughly 2 percent of the general-in-
struction budget based on the time administration and staff spends in
special-education meetings.
Assuming that Kentucky principals and assistant principals spend 10
percent to 25 percent of their time and general-education teachers spend
up to 10 percent of their time each year in special-education meetings
each year, the state’s estimated indirect compliance costs amounted to
$44 million during the 2005-06 school year, roughly $404 for each of
Kentucky’s 109,000 special-needs students.58
New York Times writer Robert Worth prefers “bureacrazy” to bureau-
cracy when describing the current special-ed system.59
Likewise, in her
analysis of how special education affects school districts in Michigan,
education writer Anna B. Huff finds:
In trying to make sure that special-needs children get an education,
federal and state governments have created a massive procedural
maze that frustrates teachers, parents, and administrators alike. …
The law ultimately binds parents to the districts where they live,
and the school district to all students who live there. When parents
want something and the district says no – or vice versa – someone
either has to capitulate or initiate legal action for the conflict to be
The state’s estimated
indirect compliance
costs amounted to
$44 million during
the 2005-06 school
year, roughly $404 for
each of Kentucky’s
109,000 special-
needs students.

resolved. This is not a recipe for peace. … If school districts could
say to parents, ‘This is our program; take it or leave it,’ and parents
could, in fact, leave it, a measure of peace might be attained.60
The proposed Kentucky Students with Special Needs Scholarship Pro-
gram would help make such peace possible.
The Kentucky Students with
Special Needs Scholarship Program
In September 2006, state Rep. Stan Lee proposed the Students with
Special Needs Scholarship Program.61
The program would allow any
parent of a special-needs student in a Kentucky public school who is
dissatisfied with their child’s progress to apply for a scholarship to at-
tend a nonpublic school or another public school outside their resident
school district. Eligible students must have an IEP from their current
school. Maximum scholarship amounts would be worth the state’s cur-
rent SEEK base amount – guaranteed for every public-school student
in the commonwealth – plus the add-on funding designated for each
student’s disability type.62
Since 2000, four states have adopted similar statewide scholarship pro-
grams for special-needs students. Florida was the first state to do so,
followed by Ohio in 2003, Utah in 2005 and, most recently, Arizona in
2006. Two other states have general, city-wide scholarship programs
for low-income children that also assist special-needs students. The
Cleveland Scholarship and Tutoring Program has served special-needs
students since 1996, and the Milwaukee Parental Choice Program – the
country’s first publicly supported scholarship program – has included
at-risk students, including those with learning disabilities, since 1990.
The public may be aware that school districts nationwide regularly
send special-needs students to other public schools or state facilities at
public expense to receive educational services. However, most may not
know that school districts also pay tuition for approximately 2 percent
of the nation’s 6.1 million special-needs students – roughly 122,000 chil-
dren – to attend nonpublic schools.63
Kentucky is no exception. Current state law mandates that all special-
needs students are eligible to attend another public or nonpublic
school or facility to receive educational services if programs at their
current schools do not exist or are not appropriate for their specific
disabilities.64
In 2005, approximately 2,500 Kentucky students attended
separate public and nonpublic schools outside their resident districts to
receive the special educational services they require.65
If school districts could
say to parents, ‘This is
our program; take it or
leave it,’ and parents
could, in fact, leave it,
a measure of peace
might be attained.

What follows is a summary of results to date of operating scholarship pro-
grams serving special-needs students in Florida, Ohio, Cleveland and Mil-
waukee. That is followed by a section considering the likely impact of the
proposed Kentucky Students with Special Needs Scholarship Program.
Other programs
Florida’s McKay Scholarships for
Students with Disabilities Program
Named in honor of its sponsor, then-state Sen. John McKay, Florida’s
special-needs student scholarship program was enacted in 1999 as a
pilot effort for these students in Sarasota County and was implemented
statewide for the 2000-01 school year.66
As a father of a special-needs child, McKay was well aware that public
schools pay tuition for nonpublic schools to educate disabled students
they are unable to serve.67
Just prior to adoption of the McKay Scholar-
ship Program, more than 8,500 of Florida’s special-needs students were
already being educated using public dollars in nonpublic schools at a
cost exceeding $45 million annually.68
In 2000, Leon County Circuit Court Judge L. Ralph Smith affirmed
that as with current school-district practice, McKay scholarships for
nonpublic schools do not violate the state’s constitution “because they
provide specialized services to some of Florida’s students who cannot
readily be served in the system of free public schools.”69
McKay knew firsthand the bureaucratic and financial barriers that prevent
many parents – especially low-income ones – from pursuing separate non-
public placements when school districts are not amenable. Leveling the
playing field for all families was therefore a primary concern for him.
“I grew up in a small town,” explains McKay, recalling a conversation
with Florida’s education commissioner, “I told him, ‘Look at what hap-
pens when parents come in with a lawyer who can quote the case law.
The state ends up paying for non-public placement.’ We were doing a
great job of empowering the powerful. My question was: What about the
rest of parents?”70
During the 2005-06 school year, more than 17,000 special-needs stu-
dents used McKay scholarships, up from 970 during the 2000-01 school
year.71
Scholarship amounts averaged $6,900, ranging from $4,900 to
$21,000. 72
There are currently 757 nonpublic schools participating in
the program, and student participation has increased a remarkable 18-
fold in just six years.
Just prior to adoption
of the McKay
Scholarship Program,
more than 8,500 of
Florida’s special-
needs students
were already being
educated using public
dollars in nonpublic
schools.

Researchers have confirmed that parents of special-needs children are
very satisfied with the program. The examination by Manhattan Insti-
tute scholars Greene and Forster of Florida’s McKay Scholarships for
Students with Disabilities Program is the first empirical evaluation to
date of a special-needs scholarship program.73
Their findings are sum-
marized in Figure 1.
On important measures of class size, school safety, behavior and account-
ability, parents of special-needs children using McKay scholarships are
significantly more satisfied than they were with their children’s previous
schools. Satisfaction rates among McKay parents are nearly three times
higher than public-school parents of special-needs students.
Classes in McKay schools are, on average, about half the size of McKay
students’previous schools – 13 students compared to 25 students. McKay
scholarship students are three times less likely to be assaulted and nine
times less likely to be bothered by other students in their scholarship
schools. McKay students are also three times more likely than special-
needs students in their residential public schools to receive promised ser-
vices. Also, McKay parents are five times less likely to have IEP conflicts
with their children’s scholarship schools than at their previous schools.
Figure 1: Summary of Select Results from
the McKay Scholarship Program Evaluation
Satisfaction rates
among McKay parents
are nearly three
times higher than
public-school parents
of special-needs
students.100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Scholarship Participants Non-scholarship Participants
94%
86%
33%
30%
19%
40%
10%
54%
6%
25%
5%
47%
Parental
satisfaction
Schools provided
all the services
they promised
to offer
Students exhibited
behavior problems
in their schools
Conflicts with their
children’s schools
over IEPs
Students physically
assaulted in their
schools
Students bothered
often in their
schools
Source: Authors’ summary based on results from Jay P. Greene and Greg Forster,
“An Evaluation of Florida’s McKay Scholarship Program,” Manhattan Institute, Civic Report
38, June 2003.

Significantly, Greene and Forster also find that even parents who left
the McKay program, and presumably would be dissatisfied with it,
also reported that their children’s scholarship schools outperformed
their public schools on nearly every measure, including smaller class
sizes, better services, significantly fewer conflicts involving their
child’s IEP, their child’s behavior in school and fewer problems with
other students.
Ohio’s Autism Scholarship Program
Enacted in 2003, the program became effective in the spring of 2004.
Autistic students, including those with autism-spectrum disorders, are
allowed to receive services from nonpublic providers or schools and
then apply to the state for reimbursement of expenses up to $20,000.
During the 2004-05 school year, 270 students and 93 service providers
participated in the program.
Eligible students must be ages 3 to 21, diagnosed with an autism-spec-
trum disorder and registered in a public school’s special-education sys-
tem. Nonpublic-school students may also participate in the program as
long as they officially enroll in the public system (although they are not
required to transfer out of their current nonpublic schools).74
Utah’s Carson Smith Special Needs Scholarship Program
Special-needs children enrolled in public schools and students enrolled
in nonpublic schools that served special-ed students before joining the
program are eligible to participate in Utah’s program, which went into
effect for the 2005-06 school year. Last year, 13 nonpublic schools par-
ticipated in the program, and 138 students received scholarships worth
approximately $3,420 or $5,700, depending on the number of hours of
service they need.75
This year, 26 nonpublic schools were approved by the state to par-
ticipate in the program.76
Students who receive less than 180 minutes
of special-ed service per day in a public school are eligible to receive
scholarships up to $3,625.50. Students receiving more than 180 minutes
of service each day in a public school are eligible to receive scholar-
ships up to $6,042.50.
Scholarships may not exceed nonpublic school tuition and fees, and
students’ scholarships remain in effect for three years – as long as
recipients continue to meet eligibility requirements and are enrolled
in an eligible nonpublic school. Scholarships may be extended for an
additional three years provided students continue to fulfill eligibility
requirements.
Greene and Forster
also find that even
parents who left the
McKay program, and
presumably would
be dissatisfied with
it, also reported
that their children’s
scholarship schools
outperformed their
public schools
on nearly every
measure.

The Arizona Scholarships for Pupils with Disabilities Program
This is the first year for the program, which offers scholarships worth
the current state base level of student funding and additional weighted
funding for various disability categories as prescribed by existing stat-
ute. Individual scholarship amounts will vary depending on the type
of disability and students’ grade level, but could range from $4,000 to
more than $20,000. The program is capped at $2.5 million annually
from the state general fund; students will be accepted until that limit
is reached.
The Cleveland Scholarship and Tutoring Grant Program
Implemented in 1996, this program gives priority to students from low-
income families living within the Cleveland Municipal School District
boundaries.
Students must first apply to the program when they are in grades K-8;
they are not allowed to apply after enrolling in high school. Currently,
student scholarships are renewed each year through grade 11 and will
be expanded to include grade 12 for the 2006-07 school year.
Nonpublic schools within the district and public schools bordering the
district are eligible to participate. Scholarship amounts are pro-rated
based on family income level. The maximum scholarship amount was
$3,450 for the 2004-05 school year, and 5,675 students participated in
the program.77
Public- and private-school students are eligible for scholarships, but no
more than half of new students can be from private schools. The pro-
gram also makes state-funded tutorial grants available to public-school
students for additional services not offered by their schools. Average
grants are as much as 20 percent of the basic scholarship amount and
will be worth up to $400 in the 2006-07 school year.
Interviews between education author Daniel McGroarty and partici-
pating Cleveland private-school representatives reveal “special educa-
tion students on the milder side of the spectrum routinely utilize” the
program, and scholarships “have proven a welcome safety valve for
public schools” struggling to educate more challenging students.78
Al-
though the Cleveland Scholarship Program was not designed specifi-
cally for special-needs children, its governing statute explicitly states
they are eligible to receive scholarships that “take into account the in-
struction, related services, and transportation costs of educating such
students.”79
Scholarships ‘have
proven a welcome
safety valve for public
schools’ struggling
to educate more
challenging students.

The Hannah Perkins School is the only private school in the city that
currently uses this provision to enroll children with emotionally based
developmental difficulties. According to former executive director
Joan Horwitz, “individually tailored education is the norm, and each
student’s family works with a therapist to strengthen the connection
between school and home environments.”80
Since the program’s inception, Indiana University’s Center for Evalu-
ation and Education Policy has conducted regular evaluations of the
program. In its 2006 evaluation, the center found that even after con-
trolling for other variables, scholarship students enrolled in Cleve-
land’s program since kindergarten were performing at about one full
grade ahead of their nonscholarship peers in language, science and
social studies.81
The Milwaukee Parental Choice Program
In 1990, Milwaukee enacted the country’s first publicly funded scholar-
ship program. The Milwaukee Parental Choice Program offers low-in-
come families scholarships worth up to the full amount of state funding
their children would receive if they were enrolled in the city’s public
schools. During the 2004-05 school year, 15,435 students used the schol-
arships to attend 118 private schools.82
For the 2005-06 school year, the
scholarships were worth $6,351, or the operating and debt-service cost
of the nonpublic schools students attended, whichever was less.
In 2005-06, enrollment in the Milwaukee Parental Choice Program
exceeded its cap of 15 percent of the enrollment in Milwaukee Pub-
lic Schools – roughly 15,000 students – so the cap was raised to
22,500 students in March 2006. Participating nonpublic schools ac-
cept scholarship students by a random lottery if applications exceed
availability.
Although Milwaukee’s program was not specifically designed for spe-
cial-needs students, research indicates they are enrolling at city public
and nonpublic schools at a comparable rate of about 12 to 15 percent.83
McGroarty reports that Milwaukee nonpublic schools educate students
with disabilities ranging from attention deficit disorder (ADD), atten-
tion deficit hyperactivity disorder (ADHD) and emotional disabilities
to brain trauma, mental retardation and cerebral palsy.84
Contrary to concerns that nonpublic schools would exclude students,
participating Milwaukee nonpublic schools must agree to operate un-
der random assignment rules. Parents do the choosing and schools are
not granted access to student records until they have been selected.
Scholarship
students enrolled in
Cleveland’s program
since kindergarten
were performing
at about one full
grade ahead of their
nonscholarship peers
in language, science
and social studies.

Low-income parents relish the freedom they now have to send their
special-needs children to another school if they wish – without having
to take time off work to attend lengthy IEP dispute hearings. These
parents do not have to worry about how they will afford a lawyer to
sue for nonpublic separate placement for their special-needs children if
their children’s school denies their request.
Annualevaluationsandcontrol-groupstudiesfindthattheperformance
of Milwaukee’s scholarship students in math and reading steadily im-
proves each year. The research also indicates high-school graduation
rates from scholarship schools serving low-income children exceed the
city’s most academically selective public high schools.85
Overview of the Kentucky Students with
Special Needs Scholarship Program
TheproposedStudentswithSpecialNeedsScholarshipProgramallowspar-
ent of a special-needs students who is dissatisfied with their child’s progress
the opportunity to obtain a scholarship to send their child to a nonpublic
school or another participating public school outside their resident district.
Eligible students must have IEPs from their current public schools and
be accepted for admission at a school that has become a participant in
the program. Parents request a scholarship application from the KDE,
which then notifies the child’s current school district, which has three
days to send the student’s IEP to the education department so it can
determine the appropriate scholarship amount. The KDE then notifies
parents of their child’s scholarship award, along with an explanation of
how the amount was determined.
Maximum scholarship amounts are worth the state’s base amount of
funding, as established for each school district by the SEEK formula,
plus the add-on funding, the amount of which depends upon the se-
verity of students’ disabilities. During the 2006-07 school year, the esti-
mated scholarship amounts would be $4,350 for students with speech
disabilities, $7,612 for students with moderate disabilities and $11,752
for students with severe disabilities.86
Fiscal impact of the Kentucky Students
Calculating the fiscal impact of the Students with Special Needs Schol-
arship Program is difficult because the cost will depend upon parental
demand, how many students enroll, the severity of their disabilities
and how many public and nonpublic schools participate.
Annual evaluations
and control-group
studies find that
the performance
of Milwaukee’s
scholarship students
in math and reading
steadily improves each
year.

The KDE collects publicly available annual data on student enrollment
by disability type and general information about special-needs stu-
dents who receive educational services outside their resident districts.
Unfortunately, much of the necessary data for a more precise cost esti-
mate is not reported by districts to the state education department and
is therefore not readily available.
Such data include annual special-ed cost studies and lists naming the
public and nonpublic schools accepting special-needs students sent
to them by the districts. Also not reported are annual district reports
detailing the number of parent-initiated requests for separate public
and nonpublic placement of their special-needs children, how many of
those requests are granted or denied by districts, how many of those
denials are disputed by parents and the outcome of those disputes.87
Determining parental demand
The absence of such comprehensive data makes it nearly impossible to
know the actual demand by parents for separate placement. Available
state-level placement data from the KDE’s “Placement by District 1992
through 2005” report indicate that from 1992 to 2005, an average of 224
special-needs students attended nonpublic schools and nonpublic resi-
dential facilities outside their resident districts each year, and an av-
erage of 917 special-needs students annually attended public schools
and public residential facilities outside their resident districts.88
Thus,
an average of more than 1 percent of the state’s special-needs student
population attends public or nonpublic schools outside their resident
district each year.89
Information provided by the KDE in an unpublished 2005 placement
report also shows that during the 2005-2006 school year, 1,250 special-
needs students – more than 1 percent of Kentucky’s total special-needs
student population – were placed in separate nonpublic schools at their
parents’ request.90
One way to approximate parental demand is to compare the average
number of special-needs students in separate placements at school
districts’ requests nationwide with the number of Kentucky’s special-
needs students who also were given separate placements, as reported
by districts to the U.S. Department of Education and shown in Table 8.
U.S. separate special-education placement by school district figures for
2004 – the most recent year national figures are available – are lower
than the KDE’s figures because the U.S. Department of Education re-
ports on students ages 6 to 21 instead of 3 to 21. Based on that compari-
An average of more
than 1 percent of the
state’s special-needs
student population
attends public or
nonpublic schools
outside their resident
district each year.

son, Kentucky should have had 2,600 more district-initiated separate
placements in 2004, roughly 1,300 more special-needs students each in
public and nonpublic settings.
This comparison illustrates that district-initiated separate placements for
Kentucky special-needs students are well below the national average,
and it suggests the state’s 2004 total separate-placement rate of 1,768 stu-
dents would nearly have to triple just to meet the national average.
Table 8: U.S. and Kentucky Special-Needs
Students in Separate Placements, 2004

Students in Separate
Public Placements:
District-Initiated
Students in Separate
Non-public
Placements:
District-Initiated
Subtotal:
Separate
Placements by
Districts
Students in
Separate Non-public
Placements:
Parent-Initiated
Total: Separate
Placements by
Districts Parents
U.S. Average 1,950 1,337 3,287 1,586 4,873
Kentucky 617 71 688 1,080 1,768
Difference 1,333 1,266 2,599 506 3,105
Source: “26th
Annual Report to Congress on the Implementation of the Individuals with Dis-
abilities in Education Act,” 2004, Vol. 2, Tables F-10d and F-10e. Notes: 1. Enrollments figures
represent students ages 6 to 21 during fall 2001. 2. U.S. average based on enrollment in the
50 states and D.C., including Bureau of Indian Affairs (BIA) schools.
Absent data on the number of parent-initiated requests for separate
placements for their special-needs children and how many of those
requests were ultimately granted or disputed by school districts, it is
impossible to know if Kentucky parents are simply more satisfied with
the services their children receive at their current schools than parents
nationwide. Evidence suggests, however, that the complexity and ad-
versarial nature of the process probably discourages many parents
from pursuing separate placements for their special-needs children.91
Offering parents scholarships so they could send their children to other
schools would likely increase the number of separate placements for
special-needs children across the commonwealth.
Mitigating the costs of over-identifying
students in special education
Florida’s scholarship policy, which is the country’s largest statewide ef-
fort for special-needs students and serves as a model for the proposed
Kentucky program, is revenue-neutral because students receive the full
funding – including federal funds – they would have received had they
not participated in the program. If Kentucky adopted Florida’s full-
funding model, it would further mitigate a perverse financial incentive

that exists as part of the state’s current bounty-funding system to over-
identify special-ed students, particularly those in the “soft,” nonmedi-
cally based disability categories.
Currently, schools receive funding according to the number of students
districts identify as having a disability. Congress was so concerned
about the incentive to over-identify students created by this bounty-
funding system that it changed the way federal funds are distributed
to states in the 1997 reauthorization of the IDEA. Instead of determin-
ing how much funding states will receive for special education based
on the number of students districts label with disabilities, Congress
now distributes federal special-education funds to states in lump-sum
amounts based on their demographic profiles. Sixteen states have fol-
lowed suit, but Kentucky still uses the bounty-funding system.92
The proposed scholarship program would entirely change the incentive
structure. No longer would districts be assured of receiving additional
funding for students they identify as disabled since parents could opt
to enroll their children elsewhere. Neither would the program offer fi-
nancial incentives for districts to under-identify students with actual
disabilities, making the Kentucky Special Needs Scholarship Program
an important step toward ensuring an identification-neutral fund-
ing mechanism. As noted previously, from 1990 to 2005, an estimated
20,210 special-needs students were over-identified because of bounty
funding, costing between $82 and $164 million, depending on the dis-
ability labels they receive from their schools.
Other important steps Kentucky can take to reduce the likelihood of
over-identifying students include replacing the bounty-funding system
with a more placement-neutral, lump-fund finance system as Congress
did in 1997.
Kentucky should also adopt rigorous, medically-based early identifica-
tion procedures. As noted previously, the Institutes for Health found
that poor reading instruction in the early grades results in reading defi-
ciencies that are later misidentified as learning disabilities.93
In fact, the
research found that the number of students identified as learning dis-
abled could be reduced by as much as 70 percent with rigorous early
reading instruction. This is a pressing concern given that in 2005, more
than one out of three Kentucky fourth-graders scored below the “ba-
sic” level in reading on the latest National Assessment of Educational
Progress (NAEP).94
Poor reading
instruction in
the early grades
results in reading
deficiencies that are
later misidentified as
learning disabilities.

Reduce excessive compliance costs
If the proposed Kentucky Students with Special Needs Scholarship Pro-
gram adopted the full-funding model of Florida’s policy, excessive com-
pliance costs incurred by the existing adversarial separate-placement
process for special-needs students – which amounted to an estimated
$44 million during the 2005-06 school year – would be reduced.95
Kentucky’s program would ensure that securing separate placements
for special-needs children would no longer have to follow an adver-
sarial compliance model. Dissatisfied parents would have the option
of using a scholarship to send their children elsewhere, without being
forced to hire lawyers or take their children’s school districts to court.
Removing the specter of dispute-resolution hearings and litigation
could therefore mitigate excessive annual compliance costs overall – in
addition to an estimated $47 million in average annual indirect-compli-
ance costs – during the next decade.
Savings from using special-needs student scholarships
The Kentucky Students with Special Needs Scholarship Program could
mitigate the over-identification of students in special education, which
is projected to cost between an estimated $5.4 million and $10.9 million
annually during the next decade, depending on the disability labels
students receive from their school districts.
Unlike Florida’s full-funding model, Kentucky’s program awards
scholarships worth the state base funding amount determined by the
SEEK formula and add-on monies that special-needs students would
receive if they attended public schools in their resident district. Maxi-
mum scholarship amounts for the 2006-07 school year would be worth
an estimated $4,350 for students with speech disabilities, $7,612 for stu-
dents with moderate disabilities and $11,752 for students with severe
disabilities.96
Those amounts exclude additional state, local and federal
funding. Nevertheless, in most cases, the special-needs scholarships
would be sufficient to cover tuition and related expenses at nonpub-
lic schools. Tuition at Kentucky’s nonpublic schools averages less than
$4,500 for elementary school, $4,700 for middle school and $6,100 for
high school.97
Nonpublic schools in Kentucky are currently providing educational
services to special-needs students that parents want or resident dis-
tricts cannot provide. Evidence from existing scholarship programs in
other states demonstrates that when given the opportunity, nonpublic
schools educate special-needs children at rates comparable to public
schools. The authors’ survey of Arizona nonpublic schools also indi-
In most cases,
the special-needs
scholarships would
be sufficient to cover
tuition and related
expenses at nonpublic
schools.

cates that 56 percent of respondents are currently educating students
with disabilities ranging from mild to severe.98
Many more respondents
would likely have enrolled special-needs students in the past or would
likely do so in the future if they had the necessary resources to provide
the individualized services these children require.
There are more than 400 nonpublic schools – day and residential facili-
ties – in Kentucky, based on publicly available lists from the National
Center for Education Statistics’ Private School Universe Survey data-
base, “The Directory for Exceptional Children” and “The Handbook of
Private Schools.” (A complete list of those schools and facilities by city,
including contact information, may be found in Appendix B.)
Of particular concern is whether scholarships for students with se-
vere disabilities would be sufficient to cover their educational costs.
Research indicates that Kentucky’s current bounty-funding system,
which contributes to the over-identification of students in the “soft,”
nonmedically based disability categories, results in severe-disability
categories being insufficiently funded.99
Policymakers should investi-
gate further and adjust funding levels for students with severe, medi-
cally diagnosed disabilities accordingly.
Table 9 shows that nonpublic day and residential facilities are currently
educating Kentucky students in all disability categories at the request
of public-school districts, particularly students with the most severe
types of disabilities. Another 1,250 special-needs students received
nonpublic placement at their parents’ request in 2005.100
Research indicates
that Kentucky’s
current bounty-
funding system,
which contributes to
the over-identification
of students in the
‘soft,’ nonmedically
based disability
categories, results
in severe-disability
categories being
insufficiently funded.

20061105 Murray and Mattix Enable the Disabled An Analysis of the Kentucky Students with Special Needs Scholarship Program

20061105 Murray and Mattix Enable the Disabled An Analysis of the Kentucky Students with Special Needs Scholarship Program

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