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The State of 21st Century Financial Incentives for Americans with Disabilities
Letter of Transmittal
August 11, 2008
The President
The White House
Washington, DC 20500
Dear Mr. President:
On behalf of the National Council on Disability (NCD), I am pleased to submit a report titled The State of 21st Century Financial Incentives for Americans with Disabilities. We believe that this groundbreaking document provides a road map for equality of economic rights for people of all abilities, regardless of race or socioeconomic background.
This NCD report defines or describes financial incentives affecting people with disabilities and presents research findings in key areas of people’s lives, such as education and health care. It also describes selected state-level innovations affecting asset development and wealth accumulation. In addition, the report suggests several strategies for securing meaningful employment, career advancement, and benefits needed for daily living and accommodations.
The State of 21st Century Financial Incentives for Americans with Disabilities recognizes that the potential for Americans with disabilities to become full citizens cannot and will not be realized without a redesign of public policy. To that end, this report offers recommendations that can increase opportunities for people with disabilities to become fully involved in the economic mainstream of American society.
We thank you for your leadership in promoting the full participation of people with disabilities through your New Freedom Initiative (NFI). The NFI programs have proved to be comprehensive and effective in addressing challenges faced by people with disabilities in all areas of society. NCD believes that many ideas in this report will help achieve the goals of the NFI, and our Council stands prepared to work with you and the Office of Domestic Policy in the planning and implementation of cooperative actions on these matters.
Sincerely,
John R. Vaughn
Chairperson
(The same letter of transmittal was sent to the President Pro Tempore of the
U.S. Senate and the Speaker of the U.S. House of Representatives.)
National Council on Disability Members and Staff
Members
John R. Vaughn, Chairperson
Chad Colley, Vice Chairperson
Patricia Pound, Vice Chairperson
Milton Aponte, J.D.
Victoria Ray Carlson
Robert R. Davila, Ph.D.
Graham Hill
Marylyn Howe
Young Woo Kang, Ph.D.
Kathleen Martinez
Lisa Mattheiss
Lonnie Moore
Anne M. Rader
Cynthia Wainscott
Linda Wetters
Staff
Michael C. Collins, Executive Director
Martin Gould, Ed.D., Director of Research
Mark S. Quigley, Director of External Affairs
Julie Carroll, Senior Attorney Advisor
Joan M. Durocher, Senior Attorney Advisor
Sharon M. Lisa Grubb, Special Assistant to the Executive Director
Geraldine Drake Hawkins, Ph.D., Senior Program Analyst
Stacey S. Brown, Staff Assistant
Carla Nelson, Secretary
Acknowledgments
The National Council on Disability thanks the staff and subcontract team of the National Disability Institute (NDI) of the National Cooperative Bank Development Cooperation (NCBDC) for conducting the research for this report. They include principal investigators Steve Mendelssohn, J.D., and Johnette T. Hartnett, Ed.D. (NDI Director of Research and Strategic Planning), along with NDI Director Michael Morris, J.D., who contributed research, and Carol Harvey, Ph.D., who contributed economic analyses.
NCD also wishes to acknowledge the contributions of study advisors contacted during the early phases of work, including Charlie Hammerman, John Hetterick, Elizabeth Jennings, Tobey Partch-Davies, and Robert Zdenek.
TABLE OF CONTENTS
For over half a million people with disabilities, the specific reason they never leave home is that they cannot get the transportation they need;[0] the current federal regulations force adults with significant disabilities to remain in a poverty state.[1]
Limited access to money is one of the most serious problems facing Americans with disabilities, according to a recent National Organization on Disability/Harris survey.[2] The Federal Government spends large amounts on behalf of people with disabilities in terms of health care, education, vocational rehabilitation (VR), transportation, housing, and in other areas, whether sources are direct, indirect, or community based (i.e., through specialized services, resources, or environmental access). Yet, the knowledge base is small regarding the extent, costs, utilization, or impact of these incentives, financial or otherwise, on the everyday lives of people with disabilities.
As disability policy stands today, a child with significant disabilities born in the United States in 2007 has little chance of gaining access to assets and escaping poverty, despite advances in health care and technology. In part, a major reason for this conclusion is the all-or-nothing dichotomy of public policy that continues to view disability as the inability to work and that provides needed public assistance only if one remains poor and completely dependent on government help. More than 30 years after the creation of the federal mandate for a free, appropriate public education for children and youth with disabilities, each new generation of parents has higher expectations. Parents envision their son or daughter with a disability having a quality of life as an adult anchored by job satisfaction, independent living, and the benefits of full participation in the economic mainstream. This National Council on Disability (NCD) report, The State of 21st Century Financial Incentives for Americans with Disabilities, recognizes challenges to meeting such expectations. Without a redesign of public policy, the potential for Americans with disabilities to become full citizens with the same access to the economic mainstream as Americans without disabilities cannot and will not become a reality. The redesign must create policy that consistently supports individual objectives to advance self-sufficiency and economic independence. This NCD research is the third in a series (two earlier reports were on Social Security issues[3] and employment matters[4]) building upon prior NCD work on livable communities. This report is part of an effort, under the umbrella of inclusive livable communities, to guide future policy and practice to advance choice, full community participation, and economic independence for people with disabilities.
This report introduces a new vocabulary as a way to define financial incentives, track their major outcome and impact, and apply this methodology to the study of a number of key incentives. It also provides research findings from a review of the literature in six selected domains: education, employment, transportation, health care and long-term services and supports, income maintenance and asset development, and housing. In addition, this report analyzes research on promising state innovations and introduces a new framework based on four case studies presented with a cost-benefit analysis. The report comprises five chapters.
Chapter 1 defines the concept of financial incentives for the purpose of this study as an intended benefit conferred by Federal Government programs that provide social transfers, usually of cash or in-kind services, designed to change behavior, increase cash flow, supplement services, and support—but rarely enhance or create—assets. This definition differs from the traditional understanding of financial incentives, which implies a benefit intended to enhance profit.
Built upon the aforementioned background information, chapter 1 introduces a topology that draws the strands of policy and experience more tightly together to parlay what was known about the six selected domains and other spheres of public policy into a coherent whole. The proposed topology divides disability-related financial incentives into three broad categories: (1) direct funds, which are provided directly to individuals with a disability; (2) indirect funds, which are provided to third parties for use in connection with or on behalf of people with disabilities; and (3) community-based funds, which are used for developing various kinds of infrastructure and resources that have a specific purpose or significant effect on the lives of people with disabilities.
Chapter 2 presents a review of the literature conducted and condensed into major findings in the six life domains—education, employment, transportation, health care and long-term services and supports, income maintenance and asset development, and housing. Ten years ago, NCD also reported data like the 17 key findings in this chapter.[5] The findings have two purposes: to describe barriers, utilization, impact, and outcomes of financial incentives; and to add fresh insight and propose a framework for revising federal programs incorporating social transfer benefits (such as increased cash flow, supplemental services, and supports) that affect the lives of people with disabilities.
Chapter 3 provides the results from research on promising state innovations (direct, indirect, or community based) in Louisiana, Missouri, Wisconsin, Maryland, Kentucky, and Washington. The selection of each program was based on potential for state- or federal-level replication, diverse strategies, and potential to affect people with disabilities. Each selected program addressed a different element of the challenges to facilitate a more advanced social and economic status for individuals with disabilities and their families. Each selected state has adopted policy that may exist in other states but has program elements that are unique in terms of public and private participation and the leveraging of resources to compound the benefits to the individual and family, the community, and the state.
Chapter 4 sets forth a conceptual framework based on the research findings from the first three chapters, a direction for making changes and providing supports to improve the daily living and economic status of people with disabilities. Fundamental to development of the conceptual framework used in this study is a set of financial incentive principles linked to four proposed core strategies for action. The principles are seeing financial incentives as a tool linked to Americans with Disabilities Act (ADA) goals, making choices available to all people with disabilities, aiming for full community participation, and striving toward universal impact that can boost involvement in livable communities for all citizens. Grounded in the identified principles, the conceptual framework, called Policies Optimizing Workers’ Economic Reach (POWER), is a combination of strategies that modify existing policies and enhance direct, indirect, and community-based incentives as a comprehensive blueprint for change. The POWER strategies propose modification to federal entitlement policy, modification to tax policy, enhancement of direct asset-building options, and enhancement of indirect, community-based, and employer incentives, including new and expanded tax deductions. The POWER strategies in chapter 4 involve individual behavioral and Federal Government-level changes that also will affect the major life domains by encouraging work, income preservation, asset building, and awareness raising related to improved access to health care, transportation, continuing education, and affordable and accessible housing, including home ownership.
Finally, chapter 5 recapitulates the key findings pertaining to financial incentives and the NCD core recommendations for action at the federal level. The findings and recommendations are as follows.
1. Financial incentives are complex and need explanations pertaining to definition and type.
There is no simple definition of financial incentives. While some operational definitions might involve disability-based, case, in-kind, or other funding streams as categories of financial incentives, this report uses three overarching categories—direct, indirect, and community based—according to the topology developed for this research. Efforts to gain an understanding of these variations and to account for as many of them as possible will contribute to making this research meaningful.
2. Financial incentives are underutilized.
Financial incentives in tax and social policy are multifaceted, used in limited fashion, and not well communicated to the public. Examples include limited use of a true asset-building and tax-filing opportunity for employed recipients of public benefits and a tax deduction for individuals who itemize income tax returns.
3. Individuals with and without disabilities are denied the opportunity for savings and asset growth because of the means testing required to remain eligible for many public benefits.
Well-intentioned public programs sometimes reflect disconnections that reduce their effectiveness and put the programs at cross-purposes. The disconnections also render a negative impact likely. For example, means-tested eligibility for public benefits entitlements (Social Security, Medicaid) denies many individuals with disabilities the opportunity to preserve income, save, and build assets.
4. Low-income wage earners do not benefit from many federal tax provisions that promote savings and asset development.
Financial incentives in tax policy that promote asset building are out of reach to low-income wage earners who do not itemize.
5. Direct, indirect, and community-based financial incentives have an important impact on people with disabilities and their families.
Financial incentives across the major life domains (e.g., education, employment, transportation, health care and long-term services and supports, income maintenance and asset development, and housing) affect people. The impact can be direct, indirect, or through community-based entities.
6. There are no one-size-fits-all financial incentives strategies.
Americans with disabilities will benefit from existing and new financial incentives strategies only through targeted and customized outreach that communicates information, training, and technical assistance in formats that are accessible, understandable, and relevant for all ranges of ability.
7. Financial incentives funding strategies are interrelated.
None of the financial incentives funding strategies studied for this report operates in isolation from the others. One cannot understand housing patterns in the United States unless one understands the tax code, the mortgage industry, and the funding for automobiles versus mass transit. Similarly, one cannot understand the economic status of Americans generally, and of people with disabilities in particular, without reference to the educational system of the United States. No single financial incentive directly or indirectly can produce a better economic future for individuals with disabilities. Many incentives overlap in their goals and together offer a combined and cumulative response to the challenges of poverty for Americans with and without disabilities.
8. Opportunities that encourage and support savings and asset acquisition are limited and need to be expanded for people with low incomes who have disabilities.
A meaningful definition of assets in the modern world must go beyond tangible possessions such as bank accounts, investments, and real estate. The definition also must include resources such as education and health, as well as networked connections such as access to expertise and influence.
The realities of cash flow in the sense of income stream, on the one hand, and assets in the sense of tangible and intangible goods, resources, and other types of assets, on the other hand, are very different things. Disability-related programs, ranging from entry-level employment to cash payments in lieu of employment, have been predicated on a belief in cash flow/income stream. By contrast, most tax-based policy is predicated on cash payments in lieu of employment, in that the policy intentions and effect are to increase the size and leverage value of existing assets, particularly capital assets, rather than to encourage initial asset acquisition.
9. Disability remains an all-or-nothing proposition based on eligibility determination and disability definition.
In public policy, as articulated in the definitions and rules governing almost every law and program, disability is an all-or-nothing proposition. Certainly, this is clearest in the financial support programs. However, even under laws like the Americans with Disabilities Act (ADA), which adopted an enlightened attitude about the ultimate social meaning of disability, the notion of disability has been converted into a largely jurisdictional issue. If a person is determined eligible for public benefits based on a particular definition of disability, then he or she receives benefits A and B. If that person is determined ineligible for public benefits based on a particular definition of disability, then he or she does not receive benefits A and B. Accordingly, under most program models, the existence of disability is correlated with need—need for income support, need for services, need for exemption from otherwise applicable requirements, or need for supervision and control.
10. Several financial incentives need modification to provide parity for people with disabilities.
Some financial incentives incorporate a universal approach and offer benefit to a large class of individuals with and without disabilities. Some financial incentives require modification to provide parity for people with disabilities comparable to their peers without disabilities. Comparable opportunities should be based on consideration of the extra gateway costs needed to level the playing field for a person with a disability because of extra health care costs, assistive technology needs, or other services.
11. A consensus model is unavailable for evaluating the impact of financial incentives.
There are no adequate or consensus models for evaluating the impact of most financial incentives. Even when researchers limit their inquiry to the expenditures and programs that have people with disabilities as their conscious, intended, and sole focus, the absence of suitable baseline data compounds the lack of evaluative criteria. For a variety of reasons, including the small size of cohorts and the lack of comparability in the life circumstances of individuals with disabilities, standard research methodologies are insufficient, and observational research fails to overcome the ideological fault lines that run through disability policy.
12. Gateway costs of living with a disability are more expensive than costs of living without a disability.
Function for function (e.g., getting back and forth to work, obtaining education, and giving informed consent to a medical procedure), living with a disability costs individuals and families more than living without one. This is one reason that disability costs must be factored into generic financial incentives in order to portray equal value for people with and without disabilities. The gateway costs of living with a disability are unique, often high, and rarely taken into account in the design of public programs or the federal tax code.
13. Disability programs are weighted heavily toward the use of resources for determination of status and assessment of eligibility.
Most federal disability programs are weighted heavily and unduly toward the determination of status and the assessment of eligibility. Most ADA court decisions involve the threshold question of whether the individual has a disability. From the huge investment historically made by vocational rehabilitation in determining eligibility and need for services to the role of objective test dividing lines in determining levels of intellectual disability (often to the detriment of resources for providing the necessary services), programs are concerned as much with ferreting out improper benefit as with helping people who could benefit.
14. The conversion of federal financial disincentives to incentives is possible.
The operation of needs-based program limits across a broad range of federal programs regarding what beneficiaries can receive creates a major disincentive to work, entrepreneurship, or other asset-accumulation activities. This report proposes that, through the development of the Policies Optimizing Workers’ Economic Reach (POWER) framework, needs-based programs could be converted experimentally from disincentives to incentives that help people gain employment and self-sufficiency.
15. Public accounting practices, especially the practices related to federal savings across programs and services, need review.
Existing public accounting practices do not readily permit the computation of projected long-term savings into federal budgeting and appropriations decisions that cut across program authorities. Strictly speaking, the Congressional Budget Office (CBO) legally would not be permitted to take into account the lifetime savings to the Supplemental Security Income (SSI) Program envisioned by the POWER framework in “scoring” the program, which cuts across multiple funding authorities.
16. Definite cost benefits are found when the framework and strategies introduced in this report are applied to three of the case studies presented.
Estimates of disability and health coverage benefits and tax revenue associated with the POWER framework that allow for changes in the treatment of disability benefits and other financial incentives demonstrate positive cost-benefits over total lifetime earnings.
17. Cost benefits for Case Study 4 are unknown because scientifically reviewed, methodologically valid studies for this purpose are lacking.
The necessary data were unavailable to support policies and programmatic proposals that attempt to address barriers to employment and quality of life for people with disabilities.
For the Federal Government to invigorate programs and policies with financial incentives that tap into the potential of people with disabilities, it is necessary to assess the economic impacts and measure the behavioral response to policies that seek to influence individual behavior and decisions. Methodologically sound cost-benefit analyses in the social policy arena require significant time and resources to conduct. Observing the complete impact can take years. Research and implementation efforts used to assess cost-benefits in the arena of public policy encounter a number of challenges at the federal level. The findings of this report also underscore the need for an overhaul of federally funded financial incentives in ways that modify programs and expand benefits for people with disabilities. Such is the intent of the POWER framework. Indeed, the unveiling and effective implementation of the framework also can unleash literal power yet unseen as a 21st century movement supporting more people with disabilities than in the past—lifting people from the roles of poverty to the ranks of empowerment.
Disability and its role in the mainstream economy, despite the efforts of ADA since 1990, still are not considered a “natural part of the human experience.” The potential for individuals with disabilities to be integrated fully into the workforce and thus into the formal U.S. economy is not understood fully by policymakers or private sector business. This report, The State of 21st Century Financial Incentives for Americans with Disabilities, is part of the evolutionary journey of disability policy in the United States and provides a road map for equality of economic rights for people of all abilities regardless of race or socioeconomic background. The following recommendations provide a new frontier for the next generation of Americans with disabilities—allowing them to participate fully in the economy.
Recommendation 1: NCD recommends that the Administration create a federal interagency workgroup on financial incentives for people with disabilities and their families; develop an Executive order calling for all agencies to identify policy barriers; and create a time-limited body to facilitate a consistent, coordinated, comprehensive, and consumer-friendly approach to advance opportunities for full community participation and economic self-sufficiency.
Implementation Lead: The President and Cabinet members should implement this recommendation. The federal agency lead should be the director of the Office on Disability, Department of Health and Human Services. Other interagency workgroup members should include the departments of Labor, Housing and Urban Development (HUD), Transportation, Education, and Treasury, the Social Security Administration (SSA), and representatives from the Department of Health and Human Services Centers for Medicare and Medicaid Services.
NCD urges the President to issue a new Executive order that charges the full range of federal agencies with identification of policy barriers and facilitation of a consistent, coordinated, comprehensive, and consumer-friendly approach to financial incentives. The intent is to advance full community participation and economic self-sufficiency for people with disabilities and their families through financial incentives, both directly and through third parties in the public and private sectors. The time-limited workgroup (six months) would develop an action plan with recommendations for policy and program changes that would accomplish the following:
- Increase consumer choice
- Encourage income preservation and asset building
- Improve interagency coordination
- Reduce and eliminate policy barriers to improved economic status and community participation
- Provide incentives for private sector support of community access and participation in the economic mainstream
- Adopt universal design principles in housing, transportation, public spaces, and public accommodations
- Reduce the connection between disability and poverty in the continued eligibility for public benefits
The secretary of the U.S. Department of Health and Human Services would request the director of the Office on Disability to chair the workgroup. The final report to the President would include recommendations for policy and program changes not limited to changes to the federal tax code or entitlement authority.
No single agency or policy solution can produce the comprehensive reforms needed to align financial incentives that directly and indirectly will support the range of choices people with disabilities desire to be fully productive, independent, and active participants in the economic mainstream. The workgroup would bring to the table the array of agencies needed to transform policy and practice.
Recommendation 2: NCD recommends that Congress review, introduce, and consider adoption of the POWER framework through changes in federal legislation pertaining to Social Security, Medicaid, savings, asset building, and the relevant aspects of the federal tax code.
Implementation Lead: Through the committee chairperson, the Senate Finance Committee, with its jurisdiction over the federal tax code and entitlement programs, may be the logical starting point for a congressional hearing to clarify the current challenges that force people with disabilities to remain poor in order to access minimal public benefits. Recommended for additional consideration are the House Committee on Ways and Means and the House Committee on Energy and Commerce.
The multiple components of the POWER framework offer the opportunity to advance a consistent agenda for a better economic future for individuals with disabilities and their families.
Recommendation 3: NCD recommends that the Department of Education take appropriate actions to expand the knowledge available about the cost-benefit outcomes of direct and indirect financial incentives and to advance self-sufficiency for people with disabilities. These actions would include the establishment of a new Rehabilitation Research and Training Center (RRTC) on Financial Incentives to Advance Self-Sufficiency charged to increase the sparse knowledge base.
Implementation Lead: NCD recommends for leadership the U.S. Department of Education, with the involvement of the assistant secretary for the Office of Special Education and Rehabilitative Services and the director for the National Institute on Disability and Rehabilitation Research (NIDRR). NCD recommends collaboration with the assistant secretary for planning and evaluation, Centers for Medicare and Medicaid Services, in the Department of Health and Human Services, and the Social Security Administration.
In collaboration with the agencies identified, NIDRR should establish a new RRTC on Financial Incentives to Advance Self-Sufficiency. The RRTC would develop new methods and measures to help diverse audiences better understand the impact of financial incentives and disincentives across federal agency authorities. These impacts are related to community inclusion and economic participation for individuals with disabilities and their families.
The research findings indicate how little is known about the impact of financial incentives and disincentives for people with disabilities and their families. New knowledge and methodologies designed to clarify the potential impact of direct and indirect incentives on people with disabilities and their families are needed. Multiple federal agencies listed as lead implementers must refine their research priorities to focus much-needed attention on evidence-based financial incentives research. The outcomes can help policymakers at each level of government make informed decisions about resource allocation to support a better economic future on individual and community levels for people with disabilities.
Recommendation 4: NCD recommends that key federal agencies (see below) fund demonstration projects that improve capacity for employer and community use of financial incentives to advance real economic impact. This work should be included in the written plans and annual reports to Congress of each agency.
Implementation Lead: Senior-level leaders with budget authority should account for effective implementation. The collaboration should occur through HUD as it works with the departments of Labor, Commerce, Transportation, Education, and Treasury, and the Internal Revenue Service (IRS).
The research findings of this report document the potential benefits of leveraging employer and community interest to advance self-sufficiency and integration of people with disabilities and their families. NCD recommends using financial incentives to capture employer and housing developer interests that promote positive economic impact at individual and community levels, and providing data where not enough is known about the cost benefit of indirect financial incentives to advance self-sufficiency and economic status of individuals with disabilities.
A series of demonstration projects coordinated among HUD, the departments of Labor, Commerce, Transportation, Education, and Treasury, and the IRS could evaluate the benefits of a set of financial incentives that encourage affordable and accessible housing design. For example, the evaluative research could study Low-Income Housing Tax Credits, job creation with appropriate supports using New Markets Tax Credits, and employer support of the cost of transportation, continuing education, and rent subsidies leading to home ownership based on expanded tax benefits.
These projects would allow for community development of diverse supports with public and private sector collaboration. These supports stimulated by financial incentives would be evaluated for economic impact and cost-benefit, which has not been studied previously. The results will support potential policy change and new approaches to the much-needed improvement of interagency collaboration at federal, state, and local levels.
Recommendation 5: NCD recommends the establishment of a federally funded joint education effort to expand and improve financial education and outreach to children and adults with disabilities across economic levels and types of abilities.
Implementation Lead: At least five federal entities should form a partnership to lead implementation of this recommendation. The initial partnership should include the Federal Deposit Insurance Corporation, IRS, the departments of Labor and Education, and the Social Security Administration.
Research findings documented the importance of developing financial literacy in children and adults with disabilities. Financial incentives require knowledge and basic understanding of money management, credit, and the importance of savings and asset accumulation. The creation of individual budgets, access and use of favorable tax provisions, and the selection of one or more asset-building strategies require expanded emphasis on outreach, education, and training for the targeted population.
The IRS has been expanding its outreach to low-income workers with disabilities to educate and inform eligible individuals about the benefits of the Earned Income Tax Credit. The Federal Deposit Insurance Corporation recently produced Money Smart, a financial education curriculum, in Braille. However more education and increased public awareness are needed. They should include development and dissemination of consumer-friendly information through efforts involving the Social Security Administration (SSA) and the Department of Labor (DOL) and Department of Education. The education should begin in elementary school and continue in multiple venues that support adults with disabilities in order to improve the skills that empower and support income preservation and asset building. The purpose is to advance real economic impact using direct and indirect financial incentives.
SSA and DOL, respectively, should train employees in the SSA-funded Work Incentives Planning and Assistance (WIPA) Program and the DOL-funded Disability Program Navigator Program on how to access the full spectrum of financial incentives that could benefit people with disabilities. Ongoing technical assistance should be available to help support the use of knowledge and to enhance access by people with disabilities.
Outcomes from implementation of these recommendations could turn financial disincentives into incentives. Bold new approaches and directions hold the hope of breaking existing patterns and providing a way to eliminate economic and other disparities between people with disabilities and those without disabilities. This report makes detailed, far-reaching proposals for conducting the necessary demonstrations, as highlighted in the five recommendations above and discussed more specifically in the full report.
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An individual with a disability is three to four times more likely to live in poverty as an individual without a disability.[6]
The federal and state governments and the nonprofit sector spend enormous sums on people with disabilities and in connection with disability-related issues—more than $300 billion annually. Determining the exact amount of such expenditures is difficult.
To be fully meaningful, an effort for aggregate fiscal or expenditure data collection must accomplish three goals. First, it must create expenditure and outcome categories that are meaningful to the people receiving, spending, or benefiting from the funds, and that resonate with the public’s and legislators’ understanding of the issues. Second, it must both allow for comparative assessments of investment in various options and permit analysis of the impact of increases or decreases in one area of spending upon costs in other areas. Third, it must allow for the creation of outcome criteria that are measurable and against which difficult value judgments can be made nonpolitically and nonideologically.
Accomplishing these goals is no easy task. Appropriate baseline data do not exist; prospective information-collection procedures are not in place; consensus has yet to form around the definition of expenditure categories that make most sense; outcome measures are still in their infancy; and outcome criteria are subject to innumerable political, economic, and philosophical cross-currents. A building process likely of several years’ duration must be put in place before the key questions can be asked and answered, and before evidence-based policy and resource allocation decisions truly can be made.
For a number of years, NCD has published groundbreaking studies that assess the status and impact of public policy in major areas of life, such as education, housing, health care, long-term services and supports, employment, and transportation. Taken together, these and other studies present a broad panorama of government efforts, societal conditions, and program strengths and failures. Consistent with a long-established value framework, a review of these studies as they have been published (or updated) provides an unequaled overview of the structure and nature of disability policy, and of the way people with disabilities live their lives in this country.
The strands of policy and experience need to be drawn together more tightly to parlay into a coherent whole what is known about education, housing, health care, long-term services and supports, employment, transportation, and other spheres. A common vocabulary and topology allows assessment of the six areas in combination and also allows us to compare, contrast, and integrate findings effectively, and to study overlaps and interconnections with new flexibility, facility, and confidence. Issues of definition and questions of categorization are certain to arise. Therefore, while extensive details of the topology are available on the NCD Web site (www.ncd.gov), definitions essential to this research report and information about an economic and demographic context are presented below.
Broadly, financial incentives are defined as benefits that confer economic well-being and opportunity. Webster’s Unabridged Dictionary defines an incentive as something that promotes or incites greater productivity.[7] The economist Levitt describes incentives as “the cornerstone of modern life and that the ability to understand them is the key to solving just about any riddle.”[8] Levitt and Dubner write that incentives come in “three flavors, economic, social and moral,” but rarely does an incentive represent all three.[9] The most common definition of a financial incentive is a benefit that is intended to enhance profit. Financial incentives drive the marketplace for pharmaceuticals, insurance companies, health care, and technology industries. The other definition of financial incentives and the one used in this study is the intended benefit conferred by Federal Government programs that provide social transfers, usually of cash or in-kind services, designed to change behavior, increase cash flow, and supplement services and supports, but that rarely enhance or create assets.
Disincentives also play a large role in understanding financial incentives. An example is the current debate about the development of an AIDS vaccine.[10] While the Federal Government and private industry both are investing resources in research for a vaccine, none has been found.[11] The problem probably is not a lack of resources from the public or private sector but a competing “disincentive” created by profit margins already being realized from existing AIDS drugs. Arguably, the profit margins may be too great to leverage the relative profitability of a vaccine, although inevitably a vaccine will be discovered and marketed for profit.
Disincentives are rife in disability policy as well. Selected disability policies are at odds with advancing independence and productivity. A good example of the consequences of conflicting policies is the chronic unemployment experienced by individuals with disabilities. Failure is all but guaranteed when an individual with a disability attempts to work full time while receiving federal benefits. Federal eligibility and program rules do not complement each other across federal disability programs, so the incentives from one federal program turn into disincentives when interfaced with another program. Misdirected policy and funding of programs that promote “work incentives” that are really “disincentives” cannot in truth produce outcomes that include employment. As this review will demonstrate, current disability policy does not have unified goals, measurable program outcomes, and clear funding expectations that are universal across federal agencies and that promote economic independence and self-sufficiency.
The United States enters the 21st century ill prepared to finance its current spending and tax entitlements that benefit low-, middle-, and upper-income Americans with and without disabilities.[12] Federal spending for all entitlements, whether mandatory or discretionary, whether means-tested or not, for retirements, for safety net programs, and for tax deductions, is rising and unsustainable.[13] Rising costs for health care provided by Medicaid and Medicare are at the center of the problem.[14] Actuaries are reluctant to predict future spending scenarios given the uncertainties of future health care costs that continue to rise yearly at double-digit rates. Even though Medicaid growth rates have slowed in the past few years, Medicaid accounts for 21 percent of total state budgets.[15] The comptroller general of the Government Accountability Office wrote that incremental reform for entitlement spending is no longer good enough to fix the problem.[16]
One way to define a problem is to measure it. How a problem is measured is more than a rudimentary process of tallying or counting: it is a conscious act of inclusion or exclusion.
—Deborah Stone, The Policy Paradox, 1997, p. 164
Recent research on federal disability programs highlights the costs of more than 200 federal disability programs but is silent about the benefits and impact for 34 million beneficiaries with disabilities.[17] What is known is the Federal Government is spending more than $245 billion a year for programs dedicated to individuals with disabilities—half of which is for health care programs such as Medicaid and Medicare.[18] Evidence-based research to date is thin and does not correlate the impact and costs with outcomes clearly and consistently across the wide array of federal programs. Without evidence of the impact and outcomes on the lives of individuals with disabilities, researchers and policymakers do not know if too much, too little, or just the right amount is being spent. Congress and the White House have received research that demonstrates the “high risk” and “high costs” of current disability program spending, but have not been given research on the “benefits” and “outcomes” for individuals with disabilities and their families or for American society as a whole. Congress cannot answer these questions fully without cost-benefit research. Federal disability spending from a market perspective could be paying for itself because of the overall “benefit” and “cost savings” it confers. Certainly, life for the one out of five people in the general population (or more than 50 million Americans with disabilities) would look quite different given no federal spending or tax entitlements on their behalf.
While the value of the emerging disability industry from a market perspective is a different question not addressed in this review, it is worth mentioning. Whether growth in the private disability market is correlated to growth in federal disability legislation is unclear. However, the disability market is here to stay and will expand and produce profits as the population ages and prevalence of disabilities rises.
As this review begins, there are two camps of support for federal financial incentives, each with different goals. On the one hand is the support for financial incentives that are intended to enhance and increase wealth through tax deductions, such as pension or health insurance contributions paid by employers. Primarily, these incentives target Americans under age 65.[19] On the other hand there is support for financial incentives that are intended to supplement or provide cash or in-kind services to a population of Americans both over and under age 65, with or without disabilities, who often are poor. Unlike the tax incentives, the spending or safety net incentives, given their rising costs and increasing roles, are at the center of much federal agency and congressional concern. There is much discussion about the costs of these incentives but little discussion about what reforms or changes are necessary to ensure sustainable and equitable policy well into the 21st century. This chapter will briefly review definitions of spending and tax entitlements as well as their economic and historical context to clarify their role in this financial incentive research.
For the purpose of this study, financial incentives are defined as the outcome conferred, whether cash or in-kind, on individuals with disabilities, whether positively or negatively impacted by government spending and tax entitlements. Eligibility for federal spending and tax entitlements is broad for both individuals with and without disabilities: One can be a member of a particular group, like a veteran or senior or a homeowner; or one can earn a benefit through payroll deductions such as Social Security pension or Social Security Disability Insurance. Some entitlements, such as Medicaid, are means-tested and require income eligibility tests, versus a program like Medicare whose primary entrance criterion is age.
Some entitlements, such as Social Security and Medicare, are formula based or have dedicated revenue streams attached to them that pay benefits without an annual appropriation by Congress.[20],[21] Historically, this authority was granted to “reduce the uncertainty of the annual funding cycle through which programs traditionally pass.”[22] Other entitlements, such as Medicaid, Supplemental Security Income, welfare, and other safety net programs, require yearly appropriations from Congress to pay benefits in accordance with underlying statutes. The House and Senate budget committees define entitlements as a combination of “any federal outlay that either requires no annual appropriation by Congress or must be appropriated by Congress according to the terms of some underlying statute or program legislation.”[23]
In addition to the traditional spending entitlements for retirement programs, safety net programs, and health care, there are tax entitlements that confer benefits on individuals through the tax code and allow for special deductions and credits.[24] For example, to a homeowner the tax benefit allows deducting mortgage interest; to a builder the tax benefit means receiving tax credits for targeting housing units for individuals with disabilities; to low-income individuals the tax benefit could mean receipt of the Earned Income Tax Credit or participation in a matched savings account; and to an employer the tax benefit could mean tax credits for providing pension and health care contributions to employees.
AARP’s policy research division found that “during times of recession entitlement spending increases as a share of the GDP [gross domestic product] and declines as a share during expansions” and that different categories of entitlements experience different growth patterns.[25] In the past 15 years the only spending entitlement that has increased and that is projected to increase as a share of the economy in the next 10 years is health care or Medicare and Medicaid. Retirement and safety net programs (including SSI, food stamps, social services, and unemployment compensation, to name a few) declined by 2.4 percent of the GDP between 1983 and 2001 and are projected to decline by 0.3 percent of the GDP by 2021. Health entitlements (Medicare and Medicaid) increased by 1.5 percent of GDP for the same time period and are expected to reach 2.5 percent by 2012.[26]
AARP researchers found that more than 50 percent of spending entitlements, for the population ages 65 and over, go to household units whose annual incomes are below $30,000.[27] On the other hand, 72 percent of tax entitlements (mortgage interest, child tax credit, untaxed Social Security, Earned Income Tax Credit, child care credit, charitable contributions, savings and loan income, property tax, real estate tax, and medical expenses) go to individuals making over $50,000 and only 22 percent go to people making under $30,000. The Earned Income Tax Credit is an exception because it is “both a spending entitlement and tax entitlement (because it reduces taxes but also results in cash benefits) and if it were excluded more than 82 percent of the tax benefits would flow to people with incomes above $50,000.”[28] Unlike spending entitlements that benefit mainly individuals over age 65, tax entitlements benefit mainly individuals under age 65.[29] If 82 percent of tax benefits go, not surprisingly, to people with income, then it follows that spending programs, to the extent they exist to help the less wealthy, should be equally skewed to the poor and individuals with disabilities.
The world’s population quadrupled in the 20th century and is predicted to grow by 50 percent by the end of the 21st century.[30] In less than a hundred years, life expectancy in the United States increased 30 years, with the fastest-growing age group now in their eighties. Along with this unprecedented population growth is the fact that the industrialized countries, with the United States in the lead, account for only 20 percent of the world’s population but produce about 80 percent of the gross world product.[31] As the industrialized world ages, it is projected that its productivity will decline as it is forced to allocate resources to health care and pensions.[32] A number of trends in the United States will require significant changes in American social and tax policy, such as the reduced number of workers per retiree; reduced fertility rates; the growing challenges of the health care workforce; and the low national savings rate. Add to these changes the increase of diverse racial and ethnic groups, lack of any national long-term services and supports policy, rising health care costs, growing numbers of underinsured and uninsured Americans, the 25 percent increase in disability since 1990, and the projected doubling in the number of elders over the next decade.[33]
There were 54 million Americans reporting a disability in 2004; over 20 million of those represent families who report having at least one member with a disability.[34] Thirteen percent of families report having at least one member with a disability, and 25.7 percent report having two members with a disability.
In 2000, 8.7 million people with disabilities were poor, with 17.6 percent age 5 and older, compared to 10.6 percent for people without disabilities. Twenty-five percent of American children with disabilities (ages 5 to 15) live in poverty compared to 15.7 percent of children without disabilities. Americans with disabilities between the ages of 16 and 64 make up the group with the next largest number of people living in poverty, at 18.8 percent—nearly double the rate for people without disabilities (9.6 percent).[35]
Data indicate that the number of all children living in poverty has risen since 2000 to 17.3 percent, or 12.5 million. Fifty-seven percent of these children live in families headed by their mother; 33 percent have no family workers; 33 percent live in families with year-round full-time workers; and 26 percent live in families headed by an immigrant. The financial incentives that make up the society safety net for children are mostly direct (needs-based transfers of cash and noncash benefits) and indirect (earnings-based social insurance and tax credits).[36]
Disability prevalence[37] is higher in the South than in the other three regions of the United States. Two out of every five people in the South—20.9 percent, or 19.2 million people—have a disability, while in the other three regions of the United States one out of every five people has a disability. The West is second, with 10.8 million; the Midwest is third, with 10.5 million; and the Northeast is last, with 9.5 million people with disabilities. For families, disability prevalence is even higher, with 30.8 percent of families in the South, or 8.1 million, reporting a member with a disability.[38]
Among states, West Virginia has the highest disability rate, with 24.4 percent, followed closely by Kentucky (23.7 percent), Arkansas (23.6 percent), Mississippi (23.6 percent), and Alabama (23.2 percent). The five states also register higher rates of individual disability measures than the rest of the country in sensory (hearing and vision), physical, and intellectual disabilities.[39] Virginia, Maryland, and Delaware, on the other hand, register disability rates significantly below the national rate. The highest disability rates were found clustered in the coal-mining areas of Kentucky and West Virginia in 2000.
Employment favors people without disabilities, with 79.9 percent of working-age men between the ages of 16 and 64 employed compared to 60.1 percent of men with a disability. Working-age women without disabilities also experience higher employment rates of 67.3 percent compared to 51.4 percent for their colleagues with disabilities. The employment rates for family householders with disabilities were 53.3 percent, compared to 80.7 percent of all family householders.[40]
Families with members with a disability had a median income of $39,155, below the overall family median income of $50,046 for families without members with a disability. The data show that family income changes across disability types. For example, families with members with an intellectual disability had a median income of $36,197, while families with members with a sensory disability or a physical disability had a median income of $36,950.
Families reporting earnings from wages or salaries in 1999 were 73.1 percent of the total for families with members with a disability compared to 84.9 percent for families without members with a disability. Families with disabilities were more likely to receive income from public programs (42.8 percent received income from Social Security compared to 22.5 percent of all families without members with a disability).[41]
Ethnicity is a strong variable in the poverty and disability mix. Available data indicate that an average of 22 percent of African-American, American Indian, and Alaska Native families who have members with disabilities live in poverty. The rates are compared to 8.3 percent of non-Hispanic white families and 12.4 percent of Asian-American, Native Hawaiian, and other Pacific Island families.[42] Nationally, 28.9 percent of the 72.2 million families reported members with a disability. The disability prevalence rate among families reporting one or more members with a disability was 38.5 percent for American Indian and Alaska Native householders; 35.7 percent (2.9 million) for African-American householders; 33.2 percent (2.5 million) for Hispanic householders; 27.1 percent for non-Hispanic white householders; and 26.5 percent for Asian-American householders.
Over the past 30 years, 500,000 to 1 million people have come to the United States yearly from other countries. Today, one in 10 Americans is born outside the United States, compared to one in 20 just 30 years ago.[43] Since the September 11, 2001, attacks, the number of people granted legal permanent residence in the United States has dropped. For example, the FY 2003 number was fewer than 706,000 (34 percent), down from 1.06 million in 2002.[44]
For developing countries, the modern age of social spending dawned in the 18th century, when less than 1 percent of any one country’s gross national product (GNP) was spent on welfare, unemployment, pensions, health, and housing subsidies.[45] Today in the United States, federal spending on just three social programs, Medicaid, Medicare, and Social Security, accounts for 42 percent of all federal outlays—compared to 2 percent of federal spending on social programs in 1950 prior to the creation of these programs.[46] Since the 1950s, the United States’ federal outlays have averaged 20 percent of the GDP and composition of this spending has changed as well, with mandatory programs now representing over 50 percent of federal spending compared to one-third in the early 1960s.[47]
During the time of Adam Smith and Thomas Jefferson, there were practically no social programs (education included) for elders, individuals with disabilities, or children except for “poor relief.” Although the concept of the government’s taxing its citizens for education was discussed, it did not begin until the 19th century in the United States.[48] A rare exception was the military half-pensions that began during the Revolutionary War for veterans permanently disabled by combat-related injuries. It is reported that between 1880 and 1920, expenditures to provide pensions for aging veterans and veterans with disabilities of the Grand Army of the Republic grew to a quarter of federal expenditures.[49] Spending by towns for individuals who were blind began in the early 1800s, as did funding for institutions to house individuals with disabilities.
The United States in FY 2004 reported its largest deficit since the end of World War II at $412 billion, representing 3.6 percent of the GDP.[50] The Congressional Budget Office (CBO) projected the increases that would be needed in the public debt, which results in a $2,234 trillion increase[51] since 1997 (at the writing of this report the public debt stood at more than $9 trillion dollars).[52] Mandatory outlays representing over 50 percent of federal spending are projected to grow by $339 billion, from $1.385 trillion for FY 2006 to $1.724 trillion for FY 2010.[53] Discretionary outlays were projected to grow by $65 billion, from $915 billion for 2006 to $980 billion for 2010.[54]
The CBO reported that Medicare and Medicaid—the two major health care entitlements—consume a growing share of the nation’s economic output, having risen from 1.0 percent of GDP in 1970 to 4.2 percent in 2005.[55] The CBO provides projections and options for slowing spending for both Medicare and Medicaid that involve difficult choices and decisions about reductions, whether in the number of beneficiaries served, the amount of government support provided, or the types of services provided.[56]
Recent findings from a report by NCD on long-term services and supports financing showed that there is no long-term services and supports policy for working Americans with disabilities in the United States except for Medicaid, and that new funding mechanisms and new policy must be designed to meet the growing needs of individuals under age 65 who are working and have disabilities.[57] In addition, this report found that there are very few data on individuals age 65 and under with lifelong disabilities needing personal assistance services, transportation, housing, and services other than the functional limitation measurements of activities of daily living and instrumental activities of daily living; most research relates to the needs and costs of services for elders.
Similar to the growth in federal spending over the past 200 years, revenues have grown and have fluctuated between 16.1 percent and 20.9 percent of the GDP since 1951.[58] Like the change in spending priorities, the composition of revenues has changed, with the major portion coming from social insurance payroll taxes such as Social Security, Medicare, unemployment insurance, and retirement programs for federal civilian employees, and corporate income taxes and excise taxes decreasing.[59]
The growth of social spending over the past 200 years is attributed to aging of the population, the rise in average income, and a shift of power and political voice to marginal populations (poor) as well as a change in voting rights.[60] The United States experienced all four conditions in the 20th century as the population and income more than doubled, life expectancy increased by 30 years, and the civil rights legislation of the 1960s opened the door to voting and disability rights for all Americans.
An international study that examined the history of social spending of industrialized countries over the past three centuries found that with few exceptions, the distribution and redistribution of wealth from “the rich to the poor is least present when and where it seems most needed.”[61] For example, during the period of 1985–1990, Lindert (2005) found that countries that were members of the Organization for Economic Cooperation and Development spent 16.3 percent of their GDP for social security or social insurance programs, compared to 2.7 percent in developing countries where the need was far higher.[62] Lindert describes this phenomenon as a “program drift” from “help-the-poor” programs to big, broad social safety nets that give back many benefits to income classes that paid the tax originally.
This “program drift” is evident when one looks at spending and tax entitlements in the United States today. The Government Accountability Office (GAO), for example, identified a number of federal programs wholly devoted to serving mostly low-income individuals with disabilities as “high risk” and calculated the cost conservatively, when combined with costs of Medicare and Medicaid, to be over $240 billion.[63] The GAO surveyed 20 different federal agencies that administer more than 200 disability programs (many of which are defined as financial incentives in this research) and found that 59 percent of the programs provided indirect support to people with disabilities through state grants, while the rest provided direct support to 34 million beneficiaries or clients.
Another study conducted by the Corporation for Enterprise Development, a private nonprofit, examined four tax entitlements that benefit homeowners, savers, investors, and small-business entrepreneurs. The study estimated that 98 percent of these four federal asset-building initiatives totaled $345 billion and benefited individuals and households with incomes over $50,000.[64] One-third of the assets went to 1 percent of Americans who earned over $1 million, and less than 5 percent went to the bottom 60 percent of taxpayers.[65] The top 20 percent with incomes over $81,000 received the largest share of tax benefits; the poorest 20 percent of taxpayers received an average benefit of $4.24, while 1 percent with incomes $1 million and over netted a benefit of $38,107.[66] The research found that the “government gives up $642 in revenue for every dollar spent on asset-building outlays.”[67]
The study did not include asset policies that benefited corporations and included only a limited number of policies that benefited individuals. If corporate income tax revenues in 2004 were $189.4 billion (1.6 percent of GDP), and when combined with state corporate tax revenues totaled $225.8 billion (2.1 percent of GDP), one must wonder what the benefit amount to corporations would have been if asset policies that benefited corporations had been included.[68] It is clear that the two entitlements—spending programs viewed mainly as safety net programs and tax spending—provide benefits to two very different groups of stakeholders and represent the phenomenon of program drift. Although some individuals with disabilities do own homes (less than 44 percent and less than 10 percent for people with intellectual disabilities), research shows that many do not take advantage of the home mortgage deduction.
Lindert’s theory of program drift may explain why more than half of federal spending or tax entitlements are directed to nonpoor Americans.[69] The issue that will face 21st century policy analysts will be the struggle to balance market values with social values—a dilemma well known to the disability advocacy world. Charlton writes, “It is not easy to think about social phenomena in terms of dualities or paradoxes and contradictions but reality is complex and contradictory, no matter how much we yearn for something simpler.”[70] Charlton describes the fundamental paradox facing the disability movement as the struggle “to incorporate differences into a strong, unified economy while simultaneously differentiating itself in the process.” Martha Minow, a Harvard law professor, suggests that the cultural and political focus on identifying disability has replicated rather than resolved the conflicting conceptions of individual freedom and social meaning.[71] It is possible that the focus on the critical issues of integration and equal access dominated disability policy over the second half of the 20th century and that until now little attention has been paid to the integration and equity issues of financial incentives derived from federal spending and tax programs.
The six subject areas identified for review in this study are education, employment, transportation, health care and long-term services and supports, income maintenance and asset development, and housing. Chapter 2 addresses these six subject areas and identifies and describes key financial incentives that exist in each of them. This chapter has established the background to begin formulation of a topology for looking at all expenditures, including those expenditures that are defined as incentives.
The proposed topology divides disability-related financial incentives into three broad categories: incentives involving direct payments (to people with disabilities), indirect payments (to third parties for disability-related purposes), and community-based expenditures. The community-based category includes services or programs that have a direct, intentional, or otherwise significant effect on the lives of people with disabilities in some way exceeding or differing from the impact on all other members of the community. In each of the six key subject areas, this report identifies and describes incentives falling into each of these three categories.
This chapter has introduced and described many of the key financial incentives, such as direct, indirect, and community based, to promote the full participation in society of people with disabilities. These incentives are grouped in ways that reflect their operation in a complex modern society. Some novel concepts have been employed to clarify how the incentives operate.
In attempting to create a flexible framework for understanding the range and impact of the incentives that exist today, this chapter lays the groundwork for a new policy vocabulary. By creating new categories into which most or all incentives, and for that matter disincentives, can be placed, this chapter has sought to create conditions under which various approaches, policies, and measures can be effectively compared, and through which the relationships among diverse measures, systems, laws, and funding streams can be understood integrally.
Chapter 2 will draw together research findings concerning the effects of these incentives, with a view to identifying which are successful and which are not. Chapter 2 also identifies some of the design features and factors for the proposed conceptual framework described in chapter 4. Such factors may have predictive value in determining the outcome of a particular incentive.
Return To Table of Contents
The economic realities in which economists such as Smith, Richards, and Keynes lived are distant worlds away from the one we inhabit at the beginning of the 21st century, as indicated in The Next Global Stage: Challenges and Opportunities in Our Borderless World. (Kenichi Ohmae, 2005, Wharton School Publishing Pearson Education, Inc.)
This chapter includes information pertaining to each of the six domains and presents the information in terms of an introduction, purpose and method, and findings based on available research. With consideration for the limited volume of relevant evidence-based research, the information addresses the impact, outcomes, utilization, and challenges of financial incentives for individuals with disabilities.
Introduction
Financial incentives and disincentives have an impact on special education funding and practice, whether local, state, tribal, or federal.[72] Although substantive, evidence-based research exploring special education funding and practice in the United States is limited, this review will explore relevant available literature looking at how special education is funded in U.S. schools, along with its effectiveness and impact, with an eye toward unpacking financial incentives and disincentives as they relate to students with disabilities. This review also will look at the effectiveness of special education practice, with particular attention to its impact on the representation of students coming from diverse cultural, linguistic, and economic status; students with disabilities in the judicial system; and postschool outcomes for special education students. Finally, this review will provide recommendations for research, funding, and practice in the broad field of special education.
Purpose and Method
The purpose of this section is to examine the evidence-based practices that demonstrate the impact of education financial incentives on the daily lives of individuals with disabilities. The research examines the direct, indirect, and community-based impact of education financial incentives. It also looks at whether education financial incentives work better for some individuals with disabilities than for others; the gaps in access and availability of education financial incentives for individuals with disabilities compared to individuals without disabilities; and what policy changes are needed to expand use of and participation in education financial incentives for individuals with disabilities. The findings from this section will be used to inform the recommendations for any changes or reform that will include a framework for congressional, legislative, and executive-level involvement.
Although the Americans with Disabilities Act of 1990 and Section 504 of the Rehabilitation Act of 1973 have broad application in schools, it is really the federal special education law passed in the mid-1970s that has had the most impact on students with disabilities.[73] Before the early 1970s, students with disabilities in the United States either received very poor educational services or were prohibited from attending school altogether. Largely as the result of advocacy on the part of parents, Congress first codified federal law regarding special education in 1975, with passage of P.L. 94-142, known as the Education for All Handicapped Children Act. Over time, this law has been changed, modified, and reauthorized several times. In 1990, its name was changed to the Individuals with Disabilities Education Act (IDEA), with another major reauthorization in 1997.[74] The most recent version of the act was reauthorized in 2004, and its name was changed to the Individuals with Disabilities Education Improvement Act, attempting to align it with the recent No Child Left Behind legislation.[75]
Findings
A key principle on which IDEA is based is that students with disabilities deserve a “free and appropriate public education” (FAPE). This principle was inserted into legislation in order to ensure that students with disabilities were no longer excluded from public schools—prior to passage of P.L. 94-142, many students with disabilities were not receiving education in public schools. In fact, OSEP reports that by 1975, Congress had determined that millions of American children with disabilities were still not receiving an appropriate education,[76] finding that “More than half of the handicapped children in the United States do not receive appropriate educational services which would enable them to have full equality of opportunity” (Education for All Handicapped Children Act (EAHCA), §3(b)(3)). Public Law 94-142 was enacted to remedy this situation by requiring that all students with disabilities receive FAPE and by providing a funding mechanism to help defray the costs of special education programs (Martin, Martin, & Terman, 1996).[77]
- Along with the FAPE principle is the requirement that students with disabilities be educated in the “least restrictive environment” by being included in regular classrooms and regular schools (OSEP, 2006).[78]
- In 2001, approximately 5.2 percent of children ages 3–5 received special education and related services in the United States and 12.1 percent of students ages 6–21 attending school received special education services.
- The number of students receiving special education services in both the group ages 6–12 and the group ages 13–17 grew during the 1992–2001 period. Forty-three percent of students ages 6–12 and 56 percent of students ages 13–17 had two or more disabilities. Disabilities included specific learning disabilities, speech/language impairments, intellectual disabilities, emotional disturbance, hearing impairments, visual impairments, orthopedic impairments, other health impairments, autism, traumatic brain injury, multiple disabilities, and deaf-blindness. Boys represented about two-thirds of students with disabilities.[79]
Educational funding has changed substantially since the early 20th century in the United States. Then, schools were funded principally by tuition and charity mechanisms. Later, local taxes provided public school funding. State funding also was added to the mix to assist school districts that were not able to provide a minimum, foundational level of funding. Later funding mechanisms sought to establish equitable educational funding across poor and wealthy school districts. Currently, with the No Child Left Behind (NCLB) Act, both federal and state school funding schemes are tied to learning outcomes based on standardized tests.[80] NCD is investigating the impact of both IDEA and NCLB on the educational outcomes for students with disabilities.
Findings
Receipt of funding by states from the Federal Government for special education services is conditional on provision of a FAPE in the state for Part B of IDEA. Part C of IDEA provides for services for infants and toddlers. According to the Congressional Research Service, federal funding of IDEA has grown substantially in recent years—over 250 percent between 1995 and 2005—to $11.7 billion in FY 2005.[81] Although there is overall growth in special education funding appropriated for FY 2006, K–12 funding actually has gone down slightly.[82]
According to data from the Special Education Expenditure Project[83] (SEEP), total special education funding for students with disabilities in the United States was $77.3 billion for school year 1999–2000.
In constant dollars, SEEP found that the total special education per-pupil cost (which includes both special and regular education dollars) rose by 110 percent between school years 1968–1969 and 1999–2000.
The $77.3 billion total special education funding reflects $12,474 per student receiving special education services in the United States for school year 1999–2000. The special education per-pupil cost was slightly less than half the per-pupil cost of students who were not receiving special education services. Put another way, the cost of providing regular and special education services to students receiving special education was 1.90 times the cost of providing education services to students not receiving special education in school year 1999–2000. This reflects little change from the estimated 1.92 times the cost of providing education services to students not receiving special education in school year 1968–1969.[84]
During the school periods 1968–1969 through 1999–2000, total per-pupil cost for all students (both special and regular education) rose 140 percent.[85]
Concerns about the effectiveness and impact of educational funding are not new. The same concerns have been expressed about the effectiveness and impact of educational funding for special purposes, some as early as almost half a century ago.[86] Yet there is little evidence-based research exploring these concerns. Some argue about what that research should explore. A broad exploration of the utility of educational funding in general found that it would be helpful to evaluate the effectiveness of individual interventions rather than to explore the effects of large educational programs in aggregate, because federally funded educational programs allow a great deal of grantee flexibility in how to use that funding.[87]
Findings
In spite of large increases in educational funding over the last decade, funding levels continue to fall short of what is necessary to address the need. When Congress initially enacted special education legislation in the 1970s, it decided that it wanted to fund up to 40 percent of the “excess” cost of special education—the cost of educating a student with disabilities over and above the cost of educating a student without a disability, which was felt then to be approximately twice the cost of educating students without disabilities.[88]
While Congress has steadily increased its funding levels over time, it has never come close to reaching its goal at the 40 percent level. In FY 2005, special education funding of Part B of IDEA (both as proposed by the President and as actually appropriated by Congress) did not even reach half the excess cost, at only 18.6 percent. Given a federal appropriation of $10.6 billion for IDEA Part B in FY 2005, this left a balance of the estimated excess cost for students with disabilities of $46.2 billion.[89] This balance is borne typically by local school districts already overwhelmed by budget shortfalls.[90]
Funding for special education to local school districts in the United States is provided in two different ways. Traditionally, funding is provided through child count—the number of students with disabilities is counted in a particular district, and funding provided to the district proportional to that number. The other special education funding approach is a lump-sum method.[91] Child-count funding methods, referred to by some as a bounty approach, appear to encourage school districts to label students as having disabilities.
Findings
- One study done at the Manhattan Institute for Policy Research found a direct correlation between child-count funding methodologies and the increase in the number of students with disabilities. According to research, lump-sum funding methods remove this incentive. While some have argued that the increase in the number of students with disabilities reflects either a real increase in the incidence of disability or the effect of high-stakes testing, the Manhattan Institute for Policy Research study found no such effects.[92]
- A cross-national comparative study of special education funding practices described two different modes of funding: supply-oriented and demand-oriented funding.[93] The study defined supply-oriented funding mechanisms as the traditional approach to funding special education, in which students with disabilities are moved from their neighborhood schools to special (“segregated”) schools, where specialized supports are congregated. Control of special education funds and resources is held at the district, sometimes interdistrict, level, with only limited control at the school building level. Researchers saw this funding approach as a disincentive to the inclusion of students with disabilities in regular education schools and classrooms.
- The authors then outlined another funding approach, demand-oriented or pupil-bound funding, in which funding goes directly to local schools and is completely under local school control. Decisionmaking happens much closer to student and family, and was described as offering more incentive to at least the physical integration (if not necessarily always the social inclusion) of students with disabilities.
- In the countries using a demand-oriented approach, researchers found that parents had control over whether students could be included in regular education schools and classrooms, and that they could choose between schools (if available). Objective criteria for developing budgets for individual students were not developed in countries using a demand-oriented approach. Using demand-oriented approaches does not mean that inclusion will then be a foregone conclusion, the authors point out.
- Voucher approaches have been variously proposed and implemented. With only a few exceptions, according to a NCD (2003) study, special education has been left out of model voucher programs. Where special education has been included, programs may not serve as an appropriate model for replication. Substantial research is needed before voucher approaches can be applied broadly in special education.[94]
A report by the NCD (1995) found that significant state funding barriers prevented students with Individual Education Programs (IEPs) from receiving educational services in anything but segregated settings.[95] In a preliminary study of the cost of inclusion, researchers at the Center for Special Education Finance found similar problems at both state and local levels. Education agencies allocated the most funds when special education and related services were provided in segregated or separate education environments. Such practices created disincentives for educating students with disabilities in regular education schools and classrooms. Finance reform that encourages educational intervention for all students, funding following students, and direct training would support a move away from disincentives.[96] Funding reforms alone, it was felt, would not be enough to change where students with disabilities receive special education services.[97]
Findings
According to the 1995 NCD study on inclusionary education referenced above, inclusion was no more expensive, and was perhaps often less expensive, than providing education to students with disabilities in segregated settings.[98] Conclusions from data gathered for the Center for Special Education Finance, also were that cost savings may be realized as the result of implementing inclusive special education services. The studies point out that districts implementing inclusion reform did so as a move toward best educational practice rather than to save money.[99]
There are roughly 200 programs, across 20 separate federal agencies, providing supports and services to people with disabilities, with a funding level of over $120 billion in 2003 for programs focused solely on people with disabilities. Of that funding, 8 percent was spent on education. The Department of Education alone administers 33 programs either wholly or partially targeted to people with disabilities. Among other issues related to these many programs, there are concerns regarding the interaction among them.[100]
Findings
One study by the Government Accountability Office (1999) looked at the interaction between Medicaid (which funds medically related services for students with disabilities in schools) and IDEA. The report, which looked at 12 states, found problems related to coordination, including identification, documentation, and a lack of federal guidance.[101]
Another funding stream that impacts students with disabilities comes from the Higher Education Act. NCD (2003)[102] found little research about the impact of funding on the postsecondary education outcomes of students with disabilities. NCD encouraged the Federal Government to improve access to postsecondary education for students with disabilities.
The GAO (2005) investigation found differences between the percentages of children determined eligible for services (which ranged from 1.3 to 7.1 percent, depending on the state). States had differences in assessment and eligibility criteria, as well as differences in sources of funding. States were encouraged to concentrate on improving efforts to make the transition from Part C to Part B services seamless.[103]
Families and people with disabilities indicate that changes in the IDEA legislation and supporting regulations, over time, have moved laws farther away from protecting the rights of students with disabilities and their families and closer to protecting the interests of school systems. Others have expressed concern that the Department of Education has not done enough to ensure that students with disabilities, perhaps especially people with the most severe disabilities, receive educational services in the least restrictive environment.[104]
Findings
Based on Office of Special Education Programs (OSEP) information,[105] fewer than half of students ages 6–21 receiving special education services spent most of their time (80 percent or more) in regular education classrooms in 2000, and almost 20 percent spent more than 60 percent of their school time in segregated classes, outside of regular education classrooms. A full 4.2 percent of students with disabilities in the 6–21 age range received their education in completely segregated settings outside of regular education buildings (residential facilities and other separate facilities, or in homebound or hospital environments [terms used in the OSEP data]). Students with deaf-blindness, multiple disabilities, and emotional disabilities were the most likely to receive educational services in completely segregated settings. Even when receiving their education in regular education buildings, students with intellectual disabilities, autism, multiple disabilities, deaf-blindness, and emotional disabilities were likely to spend most of their time in segregated classes outside of regular education classrooms.
The Congressional Research Service also expressed concern that some provisions of NCLB may be disincentives to inclusion of children with disabilities, and in conflict with the provisions of IDEA. NCLB testing and accountability measures may force IEP team decisions that exclude students with disabilities from regular education curricula. While regulations have been proposed to address this issue, they have not yet been implemented.[106]
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