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5th Circuit Upholds $33M Penalty Against Texas for Decreasing Special Ed Funding

By William Vogeler, Esq. on November 16, 2018 | Last updated on March 21, 2019

Sometimes a court opinion can be summed up in a few words like: "a perverse incentive."

That's how the U.S. Fifth Circuit Court of Appeals described things in Texas Education Agency v. United States Department of Education. Texas had cut $33.3 million in education funds for students with disabilities.

Texas said the students didn't need the funds so it held back federal grant money. The appeals courts said the scheme was "a perverse incentive" to escape obligations to students with special needs.

"Perverse Incentive"

It became a legal issue after Texas reduced its special education funds by $33.3 million in 2012. Based on that decision, the U.S. Department of Education notified Texas that it was ineligible for $33.3 million under the Individuals with Disabilities Education Act.

Under the Act, the Secretary of Education may withhold funding if a state reduces its financial support for special education. Texas challenged the determination, but an administrative law judge said the secretary acted appropriately.

The case turned on a "weighted funding system" that Texas used to allocate expenditures for children with disabilities. The Fifth Circuit said the system "poses the potential for future abuse."

"Though Texas law requires the state to allocate funding based on the needs of disabled children, it is the state itself that assesses what those needs are," Judge Jerry Smith wrote for the court. "Hence, the weighted-student model creates a perverse incentive for a state to escape its financial obligations merely by minimizing the special education needs of it students."

"Weighted Funding"

Texas has weighted funding for students with disabilities since 1995. Under the system, the state pays schools more for students who have severe disabilities or need more services.

But in 2012, Texas said, schools reported that many students had "overcome their disabilities" and didn't need the funds. So the state allocated less money.

The appeals panel said the argument was "unpersuasive." In a few words, the court also ordered Texas to pay the federal government's appeal costs.

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