Can Virginia cap private day special education tuition increases at 2% without violating federal law that guarantees a free, appropriate public education?

Plain-English summary

Senator George Barker asked the AG a budget-vs-federal-law question that affects how thousands of Virginia children with disabilities get their education. The General Assembly's 2018-2020 budget (Item 282(N)) caps annual rate increases that localities pay to private day special education providers under the Children's Services Act (CSA) at 2% above the prior year's rate. Does that cap violate the federal Individuals with Disabilities Education Act (IDEA), which guarantees a free appropriate public education (FAPE)?

AG Mark Herring's answer had two parts:

1. The cap itself is not preempted by IDEA. IDEA contains "maintenance of effort" provisions (20 U.S.C. § 1412(a)(18); § 1413(a)(2)(A)(iii)) that bar states and localities from cutting their year-over-year special education funding. Capping the rate of increase is not a cut, so the maintenance-of-effort rules don't bar it. The opinion was carefully scoped: it analyzed only the rate cap as drafted, not any future or more permanent rate-setting structure.

2. But the cap doesn't excuse the locality's IDEA obligation to provide a FAPE. This is the practical sting. IDEA at 20 U.S.C. § 1412(a)(5)(B) says: "A State funding mechanism shall not result in placements that violate the requirements [for a free appropriate public education in the least restrictive environment] ...." If a child's IEP requires placement in a private day program, and all the qualifying providers have raised their rates by more than 2%, the locality is still obligated to place the child appropriately. The CSA funding mechanism can't pay above the cap, but other sources of funding can. Or, if multiple qualifying providers exist and at least one has held to the 2% cap, the IEP team can take that into consideration when deciding placement.

The Fourth Circuit's Barnett v. Fairfax County School Board (1991) was cited for the proposition that states may balance economic necessity against the special needs of children with disabilities when making placement decisions. (Note: Barnett is a federal appellate decision; "F.2d" is the Federal Reporter, not the U.S. Supreme Court.) But the IDEA floor stays.

The opinion noted that the cap was a temporary measure adopted while the Office of Children's Services (OCS) developed a formal rate-setting methodology for private day special education programs. OCS delivered its final rate study report on October 1, 2019.

Currency note

This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Federal IDEA framework. IDEA conditions federal special education funding on a state's commitment to make a "free appropriate public education" available to all children with disabilities (20 U.S.C. § 1412(a)(1)(A); 34 C.F.R. §§ 300.101, 300.102). FAPE may be provided in a public or private placement, as the child's IEP determines (20 U.S.C. §§ 1412(a)(5)(A), 1412(a)(10)(B), 1414; 34 C.F.R. §§ 300.114-116, 300.118, 300.145-147).

Maintenance of effort. A state may not reduce its financial support for special education and related services below the prior fiscal year's level (20 U.S.C. § 1412(a)(18); 34 C.F.R. § 300.163). A local educational agency may not reduce its expenditures for the education of children with disabilities below the prior year's level (20 U.S.C. § 1413(a)(2)(A)(iii); 34 C.F.R. § 300.203).

Funding-mechanism restriction. 20 U.S.C. § 1412(a)(5)(B): "A State funding mechanism shall not result in placements that violate the requirements [for a free appropriate public education in the least restrictive environment], and a State shall not use a funding mechanism by which the State distributes funds on the basis of the type of setting in which a child is served that will result in the failure to provide a child with a disability a free appropriate public education according to the unique needs of the child as described in the child's IEP."

Virginia framework. Section 22.1-214 and § 22.1-215 require a FAPE for children with disabilities aged 2 to 21. Each local school division must develop and implement an IEP for each child with a disability served (8 VAC § 20-81-110). The CSA (§§ 2.2-5200 et seq.) sets up the funding mechanism. Section 22.1-218 says private placement costs called for by an IEP are paid from the state pool of funds under § 2.2-5211. Community Policy and Management Teams (CPMTs), under § 2.2-5204, manage state and local CSA funds for private day special education placements.

Section 2.2-5214 normally lets the market set rates: "by competition of the market place and by a process sufficiently flexible to ensure that family assessment and planning teams and providers can meet the needs of individual children and families." But Item 282(N) of the 2019 Appropriation Act overrides that for FY 2020 onward, capping annual increases at 2%. The Appropriation Act's § 4-13.00 makes budget language prevail over conflicting code provisions through June 30, 2020, but does not (and could not) override federal law.

Common questions

Q: If the private day school raises its rate by 5%, can the locality just pay the 2% allowed by the cap and tell the school to take it or leave it?
A: That works only if the school accepts the capped rate or another qualifying school is available within the cap. If neither, the locality has to find another source of funding to meet IDEA's FAPE requirement.

Q: What are "other sources of funding" in practice?
A: The opinion did not enumerate them, but in practice this could mean local general fund money outside the CSA mechanism, federal IDEA funds, or other state appropriations. The point is that the CSA cap-out doesn't excuse IDEA noncompliance; the locality has to fund the IEP somehow.

Q: What if multiple qualifying private day schools exist, only some of which stayed within the 2% cap?
A: The IEP team can take cost into consideration when picking among qualifying placements. The team isn't required to ignore the rate cap when multiple providers can meet the child's needs.

Q: Can the IEP team be forced to change the placement to a public school just because the private school's rate exceeds the cap?
A: Not if the IEP team determines a private day program is the FAPE in the least restrictive environment. Changing placement to save money would violate the funding-mechanism restriction at § 1412(a)(5)(B).

Q: What about stay-put if the parents disagree with a placement change?
A: 20 U.S.C. § 1415(j) protects the child's current placement during the pendency of proceedings. The opinion's footnote 24 notes that absent agreement between parents and the school division, the child must remain in the then-current program while review is pending.

Q: Did the rate study lead to a permanent rate-setting framework?
A: The opinion describes the OCS rate study and its October 1, 2019 final report, which proposed a methodology for operating and personnel costs and recommended a second round of data collection. The opinion expressly notes that the General Assembly's future authority to set rates on a more permanent basis was beyond its scope.

Q: Does the cap apply to public school division placements too?
A: No. The cap is on rates paid to private day special education providers under the CSA. Public placements are handled through separate funding mechanisms.

Q: Are there cases where IDEA litigation has been triggered by underfunding?
A: Yes. The opinion cites Honig v. Doe (1988) for the substantive right to public education under IDEA's predecessor, Laster v. District of Columbia (D.D.C. 2005) and Petties v. District of Columbia (D.D.C. 1995) for the proposition that failure to fund private placements is a unilateral change. But the opinion also cites A SAH v. New Jersey Department of Education (D.N.J. 2018) and Fallis v. Ambach (2d Cir. 1983) as examples of courts rejecting broad constitutional challenges to state special-education funding caps.

Citations

The opinion is built on Item 282(N) of the 2019 Appropriation Act; §§ 2.2-5204, 2.2-5211, 2.2-5214; § 22.1-214, § 22.1-215, § 22.1-218; 8 VAC §§ 20-81-10, -20, -30(B), -100, -110; 20 U.S.C. §§ 1412 and 1413; 34 C.F.R. § 300.101 et seq.; the Fourth Circuit's Barnett decision; and the Honig, Laster, Petties, A SAH, and Fallis cases.

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2019/19-012-Barker-issued.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring

202 North Ninth Street
Richmond, Virginia 23219
804-786-2071
Fax 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

Attorney General

December 6, 2019

The Honorable George L. Barker
Member, Senate of Virginia
Post Office Box 10527
Alexandria, Virginia 22310

Dear Senator Barker:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented
You ask whether the two percent cap on rate increases for private day special education schools found in Paragraph N of Item 282 of the 2019 Appropriation Act is prohibited or otherwise limited by the Individuals with Disabilities Education Act. If it is not, you ask how a locality could implement the cap with regard to a student who has been placed in a private day special education school pursuant to his individualized education program (IEP) when the same private day school has increased its rate by more than two percent.

Background
Paragraph N of Item 282 of the 2019 Appropriation Act for the 2018-2020 biennium (the "Appropriation Act") provides as follows:

Notwithstanding any other provision of law, the rates paid by localities to providers of private day special education services under the Children's Services Act shall not increase more than two percent above the rates paid in the prior fiscal year. This provision shall take effect July 1, 2019, such that the rates paid in fiscal year 2020 shall not increase more than two percent over the rates paid in fiscal year 2019. All localities shall submit their contracted rates for private day education services to the Office of Children's Services by August 1 of each year.[1]

This cap on rate increases may be characterized as a temporary measure pending the General Assembly's gathering of data and recommendations relating to the rates paid by localities to private day special education programs.[2] To that end, Paragraph M of Item 282 of the Appropriation Act required the Office of Children's Services (OCS) to contract for a study of the rates paid by localities to private day special education programs licensed by the Virginia Department of Education (VDOE), to include recommendations for implementing a rate-setting structure for educational services.[3] OCS provided the final rate study report to the Governor and the Chairmen of the Senate Finance and House Appropriations Committees on October 1, 2019. The report develops a proposed methodology to calculate rates for operating and personnel costs for private day special education programs and recommends a secondary mandatory round of data collection to calculate program-specific rates.[4]

In light of this background, you ask whether the current cap on a locality's ability to pay for rate increases for private day special education services under the Children's Services Act (CSA) violates the Individuals with Disabilities Education Act (IDEA),[5] and if not, how the cap is to be implemented by a locality if the cost of private day special education services increases by more than two percent.

Applicable Law and Discussion
As a condition of receiving federal funds for special education and related services, the IDEA requires a State to make a "free appropriate public education" available to all children with disabilities who reside in the State.[6] The provision of a free appropriate public education may be made in a public school or other type of educational environment, including a private school, as determined by a child's individualized education program (IEP).[7] There are separate "maintenance of effort" provisions in the IDEA applicable to States and local educational agencies to ensure that state and local funding levels for special education and related services remain constant from year to year. Under the IDEA, a State generally is prohibited from reducing the amount of its financial support for special education and related services below the amount of that support for the preceding fiscal year.[8] Similarly, a local educational agency generally is prohibited from reducing the level of its expenditures for the education of children with disabilities below the level of those expenditures for the preceding fiscal year.[9] In my view, the current cap on rate increases for private day special education services does not violate IDEA's state or local maintenance-of-effort provisions because, standing alone, the rate cap will not cause a decrease in financial support or expenditures.

Similar to federal law, Virginia state law requires that all children with disabilities aged two to 21, inclusive, residing in the Commonwealth, be provided a "free and appropriate education" (FAPE), including special education.[10] In accordance with the regulations of the Virginia Department of Education, each local school division in Virginia is required to ensure that an IEP is developed and implemented for each child with a disability served by the local division.[11] Depending on the needs of the particular child, the IEP may provide that placement in a private day special education program is required and constitutes the least restrictive environment for the child.[12]

In Virginia, the costs associated with the placement of children with disabilities in private day special education programs are funded by state funds and local government matching funds. Section 22.1-218 provides that "[i]f a child's individualized education program calls for placement in a private nonreligious school, agency, or institution, payment for reasonable tuition cost and other reasonable charges shall be made from the state pool of funds pursuant to § 2.2-5211."[13] Consistent with Paragraph C of Item 282 of the Appropriation Act, payment from the state pool is made in the form of a percentage reimbursement to a locality, thus requiring that a local government appropriate matching funds for private day special education services.[14] Pursuant to the CSA, the General Assembly and the governing body of each county and city are required to annually appropriate funds sufficient to (i) provide special education services for children who have received educational placements in approved private school programs, and (ii) meet relevant federal mandates for the provision of these services.[15]

Section 2.2-5204 of the CSA directs the establishment of community policy and management teams (CPMTs), who are appointed by local governing bodies.[16] A CPMT manages state and local funds appropriated for children who are placed in private day special education programs pursuant to IEPs. Pursuant to § 2.2-5214 of the CSA, the rates paid for private day special education services shall be "determined by competition of the market place and by a process sufficiently flexible to ensure that family assessment and planning teams and providers can meet the needs of individual children and families referred to them."[17] To the extent this statute freely permits increases in rates by private day special education programs, however, it is currently superseded by Paragraph N of Item 282 of the Appropriation Act.[18]

Although the two percent cap on rate increases set forth in Paragraph N of Item 282 is not expressly prohibited by federal law, the IDEA and federal regulations will nevertheless require that children with disabilities be provided a FAPE in the least restrictive environment (LRE).[19] The IDEA states:

A State funding mechanism shall not result in placements that violate the requirements [for a free appropriate public education in the least restrictive environment], and a State shall not use a funding mechanism by which the State distributes funds on the basis of the type of setting in which a child is served that will result in the failure to provide a child with a disability a free appropriate public education according to the unique needs of the child as described in the child's IEP.[20]

Therefore, if an IEP requires placement in a private day special education program to provide a FAPE to a child, and the private day special education programs that are capable of providing a FAPE to the child all have increased their rates by more than two percent, the IDEA will require that the child be placed in one of the private day education programs regardless of the provisions in the 2019 Appropriation Act.[21] While localities are prohibited by Paragraph N of Item 282 of the Appropriation Act from paying increases in rates over the two percent cap through the funding mechanism set out in the CSA, other sources of funding may be provided. Moreover, if multiple private day special education programs capable of providing a FAPE exist, and one or more of those providers have abided by the two percent rate increase cap in their contracts with localities, the IEP team would be permitted to take that[22] into consideration when deciding where to place the child. As the Fourth Circuit has observed, "[b]ecause the Act requires the state to establish 'priorities for providing a free appropriate public education to all handicapped children,' we find that Congress intended the states to balance the competing interests of economic necessity, on the one hand, and the special needs of a ... child [with disabilities], on the other, when making education placement decisions."[23] Thus, in my view, the two percent rate cap on local funding under the CSA does not, standing alone, violate the IDEA's requirement for a FAPE.

Conclusion
The two percent cap on increases in the rates of private day special education services in Paragraph N of Item 282 of the Appropriation Act limits the amount that localities may pay to private providers under the Children's Service's Act. While the two percent cap is not expressly prohibited by federal law, local educational agencies must still provide a free appropriate public education to all children with disabilities in accordance with the Individuals with Disabilities Education Act and § 22.1-215 of the Code of Virginia. If the cost of private day special education services exceeds the rate cap, appropriate steps must be taken to ensure that each child with a disability continues to receive a free appropriate public education, including finding other sources of funding or placing the child in another private day special education program that can, within the rate cap, implement the child's individualized education plan as required by the Individuals with Disabilities Act and Virginia law.[24]

With kindest regards, I am,
Very truly yours,

Mark R. Herring
Attorney General

1. 2019 Acts of Assembly, Chapter 854, Item 282(N); see also 2018 Acts of Assembly (Spec. Sess. I), Chapter 2, Item 282(N) (containing same language).
2. See 2018 Special Session I, Budget Amendments - HB5002 (Senate Committee Approved), Item 282 #1s, accessed at https://budget.lis.virginia.gov/amendment/2018/2/hb5002/introduced/se/282/1s/ (last visited Dec. 5, 2019) (setting out the first proposal for inclusion of Paragraph N of Item 282 in the budget, and characterizing the rate caps therein as "temporary").
3. 2019 Acts of Assembly, Chapter 854, Item 282(M); see also 2018 Acts of Assembly (Spec. Sess. I), Chapter 2, Item 282(M).
4. OFFICE OF CHILDREN'S SERVICES, Cost Study of Private Day Special Education Programs - Final Report at 24, available at https://rga.lis.virginia.gov/Published/2019/RD424/PDF (last visited Dec. 5, 2019).
5. The scope of this opinion is strictly limited to an analysis of the language contained in Paragraph N of Item 282 of the Appropriation Act with respect to IDEA. This opinion does not address the General Assembly's authority to set or cap rates applicable to private day special education programs based on the results of a rate study or studies, and any legal implications for such rate setting on a more permanent basis are beyond the scope of this opinion.
6. 20 U.S.C. § 1412(a)(1)(A) (providing certain exceptions); 34 C.F.R. §§ 300.101, -102; see generally 20 U.S.C. § 1401(9) (defining the term "free appropriate public education" as used in the IDEA); 34 C.F.R. § 300.17.
7. See, e.g., 20 U.S.C. § 1412(a)(5)(A) & (a)(10)(B); 20 U.S.C. § 1414; and 34 C.F.R. §§ 300.114 to -116, -118, -145 to -147 (establishing that, in certain circumstances, a child's IEP may require placement in a private school); see generally 20 U.S.C. § 1412(a)(4) (requiring that States ensure the development and implementation of IEPs); 20 U.S.C. § 1414(d)(1)(A)(i) (defining the term "individualized education program" (IEP) as used in the IDEA).
8. 20 U.S.C. § 1412(a)(18); 34 C.F.R. § 300.163.
9. 20 U.S.C. § 1413(a)(2)(A)(iii); 34 C.F.R. § 300.203 (providing that a locality must spend at least the same amount of local, or local and state, funds for the education of children with disabilities on a year-to-year basis).
10. VA. CODE ANN. §§ 22.1-214 (Supp. 2019), -215 (2016); see also 8 VA. ADMIN. CODE § 20-81-20; 8 VA. ADMIN. CODE § 20-81-30(B). Exceptions are set forth in 8 VA. ADMIN. CODE § 20-81-100.
11. 8 VA. ADMIN. CODE § 20-81-110; see also 8 VA. ADMIN. CODE § 20-81-20 (setting forth the Virginia Department of Education's supervisory role in ensuring that a local school division develops and implements an IEP for each child with a disability).
12. See, e.g., VA. CODE ANN. § 22.1-218(A) (2016); 8 VA. ADMIN. CODE § 20-81-110.
13. VA. CODE ANN. § 22.1-218(A).
14. Matching funds must be provided in accordance with the applicable formula set forth in Item 282(C).
15. VA. CODE ANN. § 2.2-5211(C) (2017).
16. VA. CODE ANN. § 2.2-5204 (2017).
17. VA. CODE ANN. § 2.2-5214 (2017).
18. 2019 Acts of Assembly, Chapter 854, Item 282(N). In addition, § 4-13.00 of the Appropriation Act provides that "[n]otwithstanding any other provision of law, and until June 30, 2020, the provisions of this act shall prevail over any conflicting provision of any other law, without regard to whether such other law is enacted before or after this act ...." The budget language does not supersede federal law or regulations.
19. 20 U.S.C. § 1412(a)(5)(A) (providing that to the maximum extent appropriate, children with disabilities should be educated with children who are not disabled, and separate schooling should occur only when the nature or severity of the child's disability is such that education in regular classes cannot be achieved satisfactory).
20. 20 U.S.C. § 1412(a)(5)(B).
21. Failure to adequately fund special educational services and programs under the IDEA may be actionable. See, e.g., Honig v. Doe, 484 U.S. 305, 310 (1988) (holding that the Education of All Handicapped Children Act of 1975 (Pub. L. 94-142), predecessor to the IDEA, confers upon students with disabilities an enforceable, substantive right to a public education); Laster v. Dist. of Columbia, 394 F. Supp.2d 60, 67 (D.D.C. 2005) (finding that the failure to fund a student's private placement under an IEP amounts to a unilateral change in the placement and violates the IDEA requirement that students be permitted to "stay-put" in their current educational placement during the pendency of review proceedings); Petties v. Dist. of Columbia, 881 F. Supp. 63, 66 (D.D.C. 1995) (finding that failure to fund in whole or part special education programs amounts to a unilateral change in students' placement in violation of the IDEA). But see ASAH v. New Jersey Dep't. of Educ., 330 F.Supp.3d 975 (D. New Jersey 2018) (dismissing various state and federal constitutional claims challenging regulations limiting tuition reimbursement for approved private schools for students with disabilities); Fallis v. Ambach, 710 F.2d 49, 55 (2nd Cir. 1983) (stating that the Education of All Handicapped Children Act of 1975 was not intended as an avenue for challenging state fiscal decisions).
22. See generally 20 U.S.C. § 1414(d)(1)(B) (listing members of an individualized education program team); 8 VA. ADMIN. CODE § 20-81-10 (defining "individualized education program team" as "a group of individuals described in 8 VAC 20-81-110 that is responsible for developing, reviewing, or revising an IEP for a child with a disability").
23. Barnett v. Fairfax Cty. Sch. Bd., 927 F.2d 146, 154 (4th Cir. 1991) (decided under the Education of the Handicapped Act).
24. If the child's parents dispute a proposed change in location, and the change in location would result in a change in educational placement, 20 U.S.C. § 1415(j) requires that, absent an agreement between the parents and the local school division, the child must remain in the then-current program during the pendency of proceedings conducted pursuant to that statute.