Texas and the feds square off over $33 million in special education funds

NEW ORLEANS — After arguing its case in a federal appeals court Wednesday, Texas will soon know whether its decision to spend $33.3 million less on students with disabilities in 2012 will cost it millions in future federal funding.

The U.S. Department of Education is attempting to withhold that same amount from Texas in special education grants, saying a 1997 statute prohibits states from reducing their funding for kids with disabilities from year to year. Texas appealed that determination to the Fifth Circuit Court of Appeals, claiming the federal statute is vague and the penalty should not be enforced.

Lawyers for both the state and federal government took less than a half hour Wednesday morning to lay out their arguments before a trio of federal judges. Sitting at the front of the wood-paneled courtroom, the three judges barely interrupted the lawyers to ask questions or make statements on the case.

Kyle Hawkins, the state's new solicitor general, argued the case on behalf of Texas in his first appearance at the 5th Circuit in his new role. He started by asking the court to "set aside" the U.S. Department of Education's determination to take away the $33.3 million, which equates to about 3 percent of Texas' annual federal special education grant.

Hawkins said Texas' interpretation of the statute is "at least reasonable." Texas weights funding for kids with disabilities, paying schools more to educate kids who have more severe disabilities or need personalized attention to learn — meeting their "unique needs."

"The state is a purely passive actor" in the funding system for kids with disabilities, Hawkins said. School districts reported students in need of less expensive services in 2011-12, and so the state allocated less money. Texas' funding system has been in place since 1995, two years before the federal statute in question was implemented.

Any conditions the federal government attaches to a grant must be "unambiguous," according to U.S. Supreme Court precedent. Texas says the special education statute is ambiguous, in not specifically prohibiting its interpretation, and therefore unenforceable. But that argument was met with some skepticism from at least one judge.

"You have rewritten the statute in the process," said Judge Jerry Smith, who was appointed by former President Ronald Reagan.

Stephanie Marcus, representing the federal government, argued that the statute is clear and Texas' interpretation violates it. Federal special education law prohibits states from decreasing their funding from year to year, to ensure states use the additional federal money to enhance services and not trim their budgets. A state that violates the provision will be forced to forfeit the same amount in a future federal grant.

The feds provided guidance to states in 2009 on how to calculate their financial support.

Marcus pointed out that Texas could have applied for a waiver through the U.S. Department of Education and produced "clear and convincing evidence" that it was appropriately decreasing its special education funding that year. Texas, under the governorship of Republican Rick Perry at the time, declined that opportunity.

Judge James Graves, who was appointed by former President Barack Obama, asked why Texas did not apply for an official waiver.

"We didn't have to," Hawkins said, referring to the waiver process as "burdensome" and "expensive." Texas views its interpretation of the statute as accurate and permissible, he argued, so it didn’t ask for permission to spend less that year.

"Litigation is less expensive?" Graves asked.

"We didn't think this would need to come to litigation," Hawkins said, pointing out that the feds initiated the situation by threatening to withhold funding. He asked the judges to rule on the case before Dec. 15, to allow Texas to budget for the upcoming legislative session starting in January.

For parents and advocates paying attention back in Texas, the three judges and lawyers failed to point out the elephant in the room: a federal investigation concluded earlier this year that found Texas had failed to adequately educate may students with disabilities, and in fact had effectively denied services to thousands of students with disabilities who needed extra educational support. Texas spent less on special education in 2011-12 in part because its rate of enrollment in special education dropped to 8.6 percent, lower than any other state.

Texas is arguing its special education programs are so successful at getting students to "overcome their disabilities" that many of them don't need expensive, personalized services as they get older — despite the fact that months ago Secretary of Education Betsy DeVos demanded Texas completely overhaul those very programs. The investigation is legally entirely separate from the case argued Wednesday — which only asks judges to decide whether Texas violated federal law when it spent less on special education that year.

As state education officials slog through a long list of federally mandated special education reforms, they estimate spending $3 billion more on kids with disabilities over the next three years, with more students likely to be eligible for services.