$300M Special Ed Funding Cut: Texas Loses Final Appeal of Federal Audit 

In December, shortly before most school districts closed for winter break, the Health and Human Services Commission (HHSC) that Texas school districts are expected to face a cut of $300 million in special education funding under a recent federal administrative decision. 

This cut in special education funding is the culmination of a lengthy dispute following a 2017 audit by the Office of Inspector General for the U.S. Department of Health and Human Services. The federal audit found issues with the state’s billing practices under the School Health and Related Services (SHARS) program.  

SHARS provides a mechanism for Texas school districts and charter schools to receive Medicaid reimbursement for health-related services offered to Medicaid-eligible students with disabilities. The services eligible for coverage include speech therapy, occupational therapy, physical therapy, audiology services, and more. SHARS plays a crucial role in serving students by mitigating some of the costs to school districts and charter schools associated with delivering these necessary services. 

The federal government’s 2017 audit scrutinized the state’s billing practices under the SHARS program and found discrepancies in how Texas had been coding its medical services for Medicaid reimbursement. The audit concluded that Texas had been overbilling the federal government by misclassifying certain educational services as health services, leading to HHSC’s failed appeal and the resulting funding reduction. 

School districts like Northside ISD, Dallas ISD, Cypress-Fairbanks ISD, Houston ISD, and Austin ISD are among those facing the largest cuts in the state, and they are left grappling with significant budget deficits. Northside ISD, for example, is expected to face a local funding cut of approximately $14 million. 

This substantial reduction in federal funding exacerbates an already critical situation for special education in Texas, coming at a time when Local Education Agencies (LEAs) are underfunded by the state by approximately $2 billion annually. This “special education funding gap” reflects the difference between what the state provides and the actual expenditure on special education services by school districts and charter schools. Chronic underfunding, coupled with the recent cut, is threatening to harm access to and the quality of the services that special education students in Texas need. 

It is now more urgent than ever that the state commits to fully funding public education in Texas, including services for students with disabilities, rather than sending scarce taxpayer dollars to private school voucher scams. 

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