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Online Appendices
Supplement to the National Council on Disability Report:
The State of 21st Century Financial Incentives for Americans with Disabilities
August 11, 2008
TABLE OF CONTENTS
Many major federal programs that target eligible beneficiaries, such as programs administered under the auspices of the Social Security Administration (SSA), the Departments of Education (Education), Transportation (DOT), Health and Human Services (HHS), Housing and Urban Development (HUD) or carried out by the Internal Revenue Service (IRS), include elements of the three incentive types: direct, indirect, community-based. Nevertheless, by agreeing to forgo undue dispute over program features that split the difference or blur the boundaries, it should be possible to use the predominant features of each program for purposes of categorization.
The main source of federal funding in education of students with disabilities is the Individuals with Disabilities Education Improvement Act of 2004. While subject to the annual federal budget process, expenditures under this program have grown steadily over the years and are expected to continue to do so. How are these expenditures to be categorized?
IDEA is not a statute intended primarily to provide incentives directly to individuals with disabilities, although local educational agencies (LEAs) utilize federal special education funds in conjunction with local resources to purchases goods and services for students based on Individualized Education Programs (IEPs). The purchases often include assistive technology (AT) or other devices given to students with disabilities for use in school and in connection with school. In addition, the levels of federal special education funding for particular states and districts are determined largely from child-find and counts of students receiving special education and related services. In its overwhelming design and function, IDEA provides resources to school systems to enable them to identify and meet the needs of eligible children and school-age youth with disabilities.
Perhaps the closest that IDEA comes to providing incentives directly to individuals is in two areas: in its recognition of the central role of individualized service-planning through the IEP, and in the authorization of attorney fees to parents who successfully litigate against school system placement or service decisions. Yet neither role constitutes a direct financial incentive to students with disabilities.
It also is arguable that in authorizing the payment from public funds of certain special education costs on behalf of students attending non-public schools, IDEA provides a direct incentive to those students and their families. The incentive here consists in the degree to which the costs for attending private or parochial school are reduced below what they would otherwise have been if the family had been obliged to pay the add-on special education costs itself. If the premise is accepted that public support for such costs does constitute a direct incentive to attendance at non-public schools, then a further distinction must be made between status-based and purpose-based incentives. A status-based incentive, like a non–means-tested half-price mass transit fare to all people with disabilities, is available to anyone who meets the status requirement of having a disability. A purpose-based incentive is one, like the school example just noted, that is available in a particular context to those who make a particular choice, such as attend a private or parochial school rather than a public school.
The rationale for supporting non-public school special education in this way is twofold. First, it is based on an equity argument, and in some instances on a religious freedom argument. Second, it is based on the assumption that in many instances the costs to the public school system of defraying these special education costs will be less than the costs of fully educating and serving the child in the public schools would be. This latter argument has efficacy, though, only if the policymakers or school administrators advancing it actually believe that the subsidy is an incentive to desired behavior. For if the special education payments did not actually increase the likelihood that students receiving the subsidies would choose private over public schools, then what would be the point of giving subsidies?
Another key question surrounding IDEA involves the allocation of federal funds between third party and community-based resources. Public policymakers must decide whether it is necessary to make a distinction between the public school system as a community-based resource or activity, on the one hand, and the consultants, teachers, and other personnel who actually provide services, on the other. Part of the answer to this question may hinge on whether special education funding to the public schools is regarded as a community-based expenditure at all, or whether such expenditures are regarded as expenditures intended to help people with disabilities exclusively. On that debate, far larger than can be addressed here, hinges much of the destiny of public attitudes toward special education in general, and toward mainstreaming in particular.
For present purposes, and in the interests of supporting the policy goals of community integration and full participation that underlie IDEA, in this report NCD adopts the view that special education funds are community-based expenditures. Largely, the funds go to a major public sector institution, are community-based expenditures, made largely on behalf of students with disabilities, and as such fall within Category 3 (community-based financial incentives) of the NCD topology. Except in those cases where the status of individual service providers as independent contractors makes a critical difference to the nature or cost of services provided, or except where any sort of personnel costs raise issues that require in-depth consideration, there is little basis for separating these out as Category 2 items (indirect financial incentives). Nothing in the wording of the federal law, or indeed in the structure of relevant line items in the federal budget, would warrant such further distinctions.
Another area in which IDEA contemplates subsidies to individuals, albeit dispensed through community-based institutions, is in the area of personnel preparation. To the extent that IDEA appropriations may be available or used to help defray the tuition or other costs of people acquiring postgraduate credentials in special education–related disciplines, such funds properly can be regarded as intended to benefit individuals. Since the individuals receiving the funds are not the children with disabilities ultimately intended to benefit from the services of those with improved teaching skills, such subsidies are regarded as going to third parties for the benefit of individuals with disabilities.
As the examples show, IDEA provides incentives of all three types (direct, indirect, and community-based). However, IDEA is not the only source of financial incentives for students with disabilities in the educational context.
Important civil rights laws, including the Americans with Disabilities Act (ADA) and Section 504 of the Rehabilitation Act (Section 504) require both public and private educational institutions to take various steps to make their facilities and programs accessible to students and staff with disabilities. These situations present three analytical complexities with respect to financial incentives. First, they involve not the direct expenditure of federal funds, but rather the use of federal law to leverage the expenditure of state, local and private funds. Second, precisely because of this indirect effect, estimation of the sums expended on accessibility is far from easy. Third and finally, to whatever extent such expenditures are counted in the overall assessment, a question arises regarding categorical fit. While one might see such expenditures as institutional or community-based expenses, their very specific nature requires treating ADA and Section 504 compliance-related costs as expenses incurred by third parties for the benefit of individuals with disabilities. Add to this reasoning the fact that the expenses likely would not have been incurred except for federal civil rights law and the consciousness the law engenders.
This problem of defining and accounting for the costs of civil rights compliance and enforcement must in fact be confronted in each of the six domains or subject areas, because various federal civil rights laws apply to all of them. Reiteration of this discussion occurs in cases where identifiable federal funding, for example in the form of technical assistance, is provided to help achieve civil rights goals. IDEA authorizes some federal funds to be used by states in compliance monitoring, but this appears to be of a fairly routine administrative nature.
An important source of financial incentives, that suffuses every subject area, is the Internal Revenue Code. Although this report could address the tax law as a separate incentive category, the relevance consists in the extent to which and the ways in which tax law subsidizes education, transportation, housing, and other life domains. Thus, tax issues will be addressed, as appropriate, within each of the six subject areas used in this study.
As it relates to education, the tax law provides two kinds of incentives. Through the tax-exempt status of private educational institutions, the subsidy is to the people who make tax-deductible charitable contributions to the institutions. There is nothing particular to people with disabilities in this aspect of the law.
Federal tax law also provides purpose-based financial incentives to individuals, including individuals with disabilities, but again, primarily, there is nothing specific to individuals with disabilities in these provisions. There are certain small provisions allowing families to liberate funds intended for higher education or other school costs when the disability of the student prevents the anticipated activity, but such provisions are likely of minimal significance.
Where the tax law does provide important financial incentives to people with disabilities is in its treatment of certain out-of-pocket, non-reimbursed special education costs borne by families. These opportunities arise under the medical expense itemized deduction.
While the law is clear in denying tax deductibility for any educational expense, those special education expenses that can be characterized as medical in nature (ranging from the costs of specialized services aimed at overcoming the effects of a disability, and the add-on costs of accessible transportation vehicles for getting to and from school, to the costs of specialized AT devices necessitated by a disability) do qualify for the medical expense deduction.
The distinctions the law makes, as well as those it winks at, are slippery at best, putting a premium on expert use of language and on close familiarity with the law. These facts combine with the limitations on the number of taxpayers who can itemize at all, and further combine with the limitations on medical expense deductions (which must exceed 7.5 percent of adjusted gross income in order to be allowable). Such factors combine to form a rather rare incentive. It is available only to people with sophisticated tax-planning resources, the resources to expend money first and wait for reimbursement, and with tax profiles that allow them to make maximum use of their special education expenses. In short, this is an incentive for the people already sophisticated and financially established.
As indicated above, because of the close relationship and indeed in some cases inseparability, the information presented here is a result of consolidating job training, placement and employment into one subject area. Under the employment domain is information about vocational rehabilitation, Ticket to Work and Work Incentives Improvement Act, One-Stop Centers, the Office of Disability Employment Policy (ODEP), and other work and tax incentives to employment.
By far the largest and most important source of federal incentives for the vocational rehabilitation training and job placement of people with disabilities is the federal-state vocational rehabilitation system (VR). VR is a system that works through designated state agencies—called designated state units (DSUs)—in each state and territory to provide a variety of services to job-seekers with disabilities and to participate in a number of partnerships and collaborations with other entities involved in labor market issues. In addition to the VR programs in states and U.S. territories, American Indian Vocational Rehabilitation Services (AIVRS) programs are funded by the Department of Education. While the culturally relevant AIVRS programs serve only an estimated 10 percent of the federally recognized tribal nations, the AIVRS role as a source of financial incentives is similar to that of the VR programs in states and U.S. territories. Additional information is available about AIVRS challenges, promising practices, and suggested changes to programs for greater impact on the population served. The Rehabilitation Act also includes authorization and funding for independent living services and services to older adults with vision loss. These incentives defray the costs of services provided by others, to benefit the person with a disability, including the peer counseling and other peer services of independent living centers.
Although the VR Program addresses many activities, its largest and most important role likely remains in providing funds for direct case services to individuals. While some funds go to individual consumers under various circumstances (e.g., through experimental programs or as training stipends), the overwhelming majority of case services funds are channeled through the DSUs to a variety of private, other public and nonprofit sector service providers.
Two points are initially important in categorizing these funds. First, the VR system differs from the special education system in that, unlike the school systems that receive IDEA funds, the state agencies that receive VR funding ordinarily do not regard themselves, and are not generally regarded by others, as direct service providers. That being so, it seems appropriate to characterize most VR incentives as paid to third parties for the benefit, through the provision of specified services, of individuals with disabilities.
Properly, some VR funds are allocable to the other categories as well (indirect and community-based). To the extent, for example, that some program funds may be used to subsidize long-term placements in extended employment (sheltered workshops, in common parlance), these would constitute direct incentives to individuals, but purpose-based incentives in that they are only available to individuals who are deemed eligible to and who opt to work in these settings.
Generally, speaking with respect to the panoply of case services funding administered and provided through VR, the role of consumer-control is a theme of continuing controversy. A most notable example is the requirement for mutually-agreed upon individualized plans of employment (IPE) that serve, as IEPs do in education, to set forth almost by contract the services, activities and responsibilities of both parties, in this case the agency and the service recipient. However, to the degree that state agencies largely retain authority to accept or reject an individual’s determinations so far as long-term goals and interim measures for obtaining them are concerned, one would not characterize VR as a consumer-controlled or consumer-directed system. The researchers identified no instance (other than some limited experiments) under the VR Program in which funds go directly to individual service-recipients under circumstances that give them any discretion in their use.
In its partnership and technical assistance role, the VR system may be providing resources to various third parties for the benefit of individuals with disabilities. Job analysis and reasonable accommodation services provided to employers would be an example of this. Other forms of broad educational outreach may constitute community-based supports by not being directed toward any previously identifiable individual.
An interesting variation of mainstream VR Title I expenditure is presented with funds used to provide AT devices to job seekers and employed people with disabilities. These funds are not specifically differentiated or line-itemed in federal appropriations, and may represent an incidental component of program expenditures.
The Ticket to Work and Work Incentives Improvement Act (TWWIIA) represents an innovative effort to broaden the range of service-providers able to work with job seekers with disabilities, and to reduce financial disincentives in the health insurance area faced by such individuals when they seek to enter or return to work.
The most innovative thing this law does is create the Ticket, a voucher or authorization that enables individuals with disabilities (Ticket holders) who receive Social Security benefits to obtain services of a designated value from Employment Networks (ENs). These Ticket holders need to be new entrants to the job training and placement field, motivated by the opportunity, through providing services under the Ticket, of receiving federal reimbursement for their services. In fact, in more states, in part because of: 1) the high cost of serving people with significant disabilities, 2) the extraordinary complexity of the program, and 3) for other reasons, many state VR agencies also have emerged as the most likely EN to provide services to Ticket holders under TWWIIA.
The Social Security Administration (SSA) administers TWWIIA through a series of administrative and implementing contractors. The non-Ticket funds paid to these contractors can be regarded as third party payments. The Tickets and the milestone-based payments that ENs receive for their work contribute to the complexity. Because the Ticket is more a voucher than anything else, redeemable only at the company store, so to speak, it is difficult to view the Ticket as an incentive paid directly to individuals.
The other major financial incentive to employment provided by TWWIIA is the preservation of health insurance under both Medicare and Medicaid for recipients who would otherwise lose such coverage upon going to work. This is a financial incentive for two primary reasons. First, because the continued provision of coverage costs the Federal Government money, and second, because the insurance has a clear monetary value to covered individuals, even if the amount is not precisely knowable, and even though no funds change hands. As such, continued eligibility for Medicare or Medicaid represents tangible, non-cash, financial incentive directly to individuals. It is probably among the most powerful incentives that go into influencing the calculation, assuming any opportunities for work exist, of how to respond to and deal with such opportunities. Incentives that combat disincentives are no less important, perhaps more important, whether they come in cash or in the rearrangement of program rules.
The VR system is a complex combination of stand-alone and collaborative functions. In its collaborative role, the VR system is one component of the overall federal employment system operating under the auspices of the Workforce Investment Act (WIA). Central to the overall WIA scheme are the so-called one-stop centers, designed to centralize and rationalize the often bewildering array of federal jobs programs. Consistent with the nondiscrimination and accessibility provisions of WIA, one-stop centers are required to serve all job seekers, including people with disabilities.
There are undoubtedly expenses, constituting incentives paid from federal funds that go for meeting these civil rights requirements of facilities and program accessibility, including expenses for making electronic and information technology (E&IT) accessible. Although it is widely believed that many centers have failed to comply fully with the mandate of full accessibility, or have taken the view that their core funding should not be used to meet what they regard as specialized expenses for high-cost clientele, these civil rights compliance costs, as noted in the discussion of education above, are not an immediate concern. What is the concern here are the programmatic components specifically designed to meet the accessibility mandate and to give the one-stops incentives for doing so.
Among these, one of the most interesting is the Disability Program Navigator pilot program (DPN). This program places liaison personnel in one-stop centers to assist their staff in working with service-applicants with disabilities, and in ensuring that such individuals are made aware of and given appropriate referrals to collateral services that may be of relevance. To the degree that the DPN is intended to directly aid both the one-stop-center staff and its service-recipients with disabilities, it is a financial incentive falling within the indirect and community-based, third party classifications.
The Department of Labor’s Office of Disability Employment Policy (ODEP) serves a limited coordinating function with respect to disability-related issues within the Department of Labor. Additionally, it administers, with what must be regarded as discretionary funds, a number of outreach, education, technical assistance and training programs, the most notable of which probably being National Disability Awareness Month. Also, the employer-educational work of ODEP may be added to that of the Department of Justice’s Civil Rights Division and that of the Equal Employment Opportunity Commission (EEOC) in the disability nondiscrimination area. To these may be added certain aspects of the work of the Protection and Advocacy (P&A) system.
Taken together, these programs, which may be regarded as incentives to the employment of people with disabilities, can be described best as community-based resources. Their importance lies in two features. The first is what they accomplish and the means for evaluating what they accomplish (to be addressed in a later phase of this study). The second is that they may represent the types of efforts that enforcement agencies increasingly will prefer to litigate in the civil rights area.
We normally think of SSA as an agency that distributes income-replacement funds. But features of both the Supplementary Security Income (SSI) and Social Security Disability Insurance (SSDI) programs are designed to facilitate employment by recipients of funds under these programs.
The background of the work disincentives problems plaguing this nation’s social benefits is beyond the scope of this study as well. The two problems central here are: 1) that benefits are tied both to the ability to work and to the income and resources of recipients, and 2) that eligibility for health insurance is tied to SSI and SSDI Program eligibility.
The way the law tries to avoid these problems is by creating circumstances in which various items of income or types of resources will be excluded from “countability” for eligibility purposes, including for example key eligibility for Medicare or Medicaid. The mechanisms in question include Impairment-Related Work Expenses (IRWE), substantial gainful activity (SGA), plans for achieving self-support (PASS), along with several demonstration and waiver programs, and (although not yet much used for people with disabilities) individual development accounts (IDAs). These exemptions constitute important purpose-based incentives to individuals with disabilities.
The tax system includes all three kinds of incentives to employment of people with disabilities. By way of direct incentives to individuals, there are the Impairment-Related Work Expenses (IRWE) deduction and the extremely important Earned Income Tax Credit (EITC). The IRWE is an itemized deduction that allows individuals with disabilities to deduct a number of disability-related expenses incurred in order to work. Once again though, its obscurity, together with its status as an itemized deduction, probably limits its usefulness for most people with disabilities. This limitation is particularly egregious when it is recognized that the times at which people will most need to incur large disability-related expenses, such as for the costs of additional training or costs for AT, are likely to be times when people have the smallest income against which to absorb the value of this deduction.
As for the EITC, it is of course a broadly applicable and very important provision for all low-income workers, particularly people with children. It has one provision that makes it of specific applicability to people with disabilities, however. Whereas the coverage of children is limited to those who are young (under 19 or under age 24 and a full-time student), in the case of children with serious disabilities whose parents remain their primary caretakers, the upper age limit is waived. Parents may thus continue to take these children into account for purposes of determining their eligibility for, and the amount of, the EITC.
Provisions of the Internal Revenue Code (IRC) that provide incentives to third parties for the training or employment of individuals with disabilities include the Disabled Access Credit (DAC) and the architectural and transportation barriers removal deduction. While tax aficionados generally have thought of these two provisions as having their greatest impact in the area of public accommodations, both are available for use in defraying the costs of barrier removal and reasonable accommodation as well.
For small businesses, as defined under the law, the Disabled Access Credit provides a 50 percent tax credit of up to $10,000 per year in “eligible access expenditures,” including readers, sign-language interpreters, or the purchase or modification of equipment. The architectural and transportation barriers removal deduction allows businesses of any size a deduction of up to $15,000 a year for the removal, according to specified design guidelines, of access barriers to people with disabilities and elders.
One may ask how these provisions act as incentives to the employment of people with disabilities. After all, although they may help offset any add-on costs associated with hiring employees with disabilities, would not such costs be tax deductible anyway, just as any other legitimate business expenses would be? What makes these into specific incentives is that they enhance and accelerate the value of the tax deduction. The expenses covered by the DAC normally would qualify as ordinary deductions. By converting them to a credit, they become worth more to the business. Related provisions also offer flexibility regarding when they can be claimed. The expenses covered by the architectural and transportation barriers removal deduction normally would be characterized as capital expenses, meaning they would have to be allocated over a number of years equal to the useful life of the renovation or property. By re-characterizing them as an itemized deduction, they can be claimed in the year the expenses were incurred.
Finally, there are a number of tax provisions that, though not directly targeting or specifically impacting people with disabilities, have the potential with minor changes to be of great incentive value to the employment of such people as members of a broader community. The provisions in question are the Low-Income Housing Tax Credit and New Markets Tax Credit Program.
We need to recognize the role that accessible and affordable housing, in itself and as it interacts with accessible transportation, plays in employment. While the details of the changes that would be needed are beyond the scope of this paper, the tax provisions are noted to highlight the complex web of infrastructural underpinnings that underlie the employment destiny of given individuals.
In-depth attention to a variety of other broad-based job-development efforts is warranted to identify simple and inexpensive measures that would make them more responsive to the aspirations of people with disabilities. A convergence of anti-poverty and disability-based efforts is required for this to take place.
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