The Role of Funding Structures in Special Education Identification and Outcomes

Do financial incentives improve special needs services?

Providing special needs services is costly, and with limited financial incentives, school districts may opt to meet only minimal support requirements. Targeted funding incentives could therefore play a crucial role in ensuring adequate service levels.

Yet, we don't know much about how different funding approaches influence the number of students identified for services and the quality of support they receive. 

To shed light on this, I study two policy changes in British Columbia, showing how financial incentives can shape the availability and quality of special needs services. 

Policy 1: The Removal of Financial Incentives

The first policy change I study is a removal of funding for students with "moderate handicaps" in public schools.

This change in funding formula had important consequences for the funding generated by special needs categories. The total funding from special needs categories dropped from approximately $444 million in 2001 to about $220 million in 2002.

This policy marks a big shift in how public schools receive funding. Instead of getting extra money for every student identified with a moderate disability, school districts now get these funds based on their total student enrolment.

How did this change affect the number of students identified with special needs? And what happened to the quality of services provided?

Policy 2: Increasing Financial Incentives in the Private Sector

In 2005, a policy change raised per-student grants for special needs students in independent schools to match 100% of the amount granted to public schools, up from the previous 50%.

This adjustment led to a notable increase in funding for independent schools. In 2003, independent schools received around $163.5 million, including $7 million for special education. By 2006, total funding had risen to an estimated $211 million, with special education grants increasing to $19 million, boosting the share of special needs funding from 4.3% to 9%. This share continued to grow, reaching approximately 11.6% by 2009.

How do increased funding incentives in the private sector affect where students with disabilities go to school? Do they make private schools more appealing for these students? And what impact does this have on their educational outcomes?  

I examine these questions to understand how changes in funding incentives affect the identification rates of students with special needs, the quality of services they receive, and their choices between public and private schools.