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Meeting of the Board of Regents | May 2008

Thursday, May 1, 2008 - 11:00pm

sed seal                                                                                                 






Theresa E. Savo  and Rebecca H. Cort




Update on Implementing Changes to the Special Education Tuition Rate Setting System



May 6, 2008








Executive Summary


Issue for Discussion


At the Higher Education Committee Meeting in March, Committee members requested an update on progress implementing changes to the rate setting system including answers to the following questions (see Attachment I):


  • Who is impacted by the rate setting process?
  • What are the issues?
  • How are these issues being addressed?
  • What progress has been made and what is the timeline for resolution?


Reason(s) for Consideration


              For information.


Proposed Handling


Review and discussion.


Procedural History


Pursuant to Chapter 57 of the Laws of 2007, the Temporary Task Force on Preschool Special Education’s Rate Setting Workgroup (TF) concluded on November 6, 2007 with the approval and release of final recommendations for improving the State’s preschool special education programs.  The TF recommendations included a proposal that the Department and the Division of the Budget (DOB) involve stakeholders to work out details for a new rate setting system.


Background Information


See Attachment II for an overview of the current Special Education Tuition Rate Setting Process.  A more detailed overview of the current rate methodology is also available online at ).






Timetable for Implementation


              See Attachment I.




Attachment I







Who is impacted by the rate setting process?


The Department’s Rate Setting Unit (RSU) establishes annual tuition rates for over 850 approved special education programs at private schools, public schools, special act school districts, BOCES, and State Operated (Rome and Batavia) schools.


What are the issues?


Approximately 10 to 20 percent of those rates are appealed in any given year, generally due to programmatic changes, additional IEP requirements or higher lease or capital costs.  Appeals consume a significant amount of time and effort for the Department and the schools.


  For some time, the Department, the Division of the Budget (DOB) and other stake holders had been discussing problems and possible alternatives to the current special education tuition rate setting process that would overhaul the rate setting methodology to make it more flexible and timely and allow providers to better plan long term fiscal strategies.  The Temporary Task Force on Preschool Special Education’s Rate Setting Workgroup (TF) used these ideas as the basis for many of the rate setting recommendations in the Report.


How are these issues being addressed?


Implementation of the TF recommendations will establish a new rate setting methodology, using principles already being practiced by other State Agency rate setting systems in New York State to promote greater predictability and improved timeliness. The new methodology will include:


  • Creating allowable cost parameters in clearly defined areas such as direct classroom expenses, support services, clinical services, non-personnel expenses, administration and property.
  • Allowing greater flexibility by replacing the current non-direct care cost limit with separate administrative and region-based property-related parameters.
  • Promoting recruitment and retention of educational staff by recognizing regional salary differences.
  • Developing a mechanism to accommodate fluctuations in enrollment while maintaining required efficiencies and ensuring that the program operates at efficient enrollment levels.
  • Eliminating the reconciliation rate process (a process that requires agencies to rebill districts and countries because of recalculated rates), which would become unnecessary under the revised methodology, to reduce redundancy, promote increased timeliness, and improve planning opportunities for providers.
  • Reducing the large number of rate appeal requests and improving the timeliness of such requests through the creation of a streamlined process.
  • Modifying the Special Education Itinerant Teacher (SEIT) billing practices to align payment more closely to services actually delivered.  This could include requirements for make-up sessions for staff and student absences.  Also establishing incentives for serving students in groups and for providing bilingual SEIT services.
  • Ensuring the availability of 1:1 aides and 1:1 nurses by adjusting rates to reflect the appropriate cost of providing these services.


What progress has been made and what is the timeline for resolution?


The Department has proposed the following timeline and process to the Governor’s staff for implementation of the TF rate methodology changes and the Department’s RSU is preparing and will deliver the material outlined below:


  • the RSU will draft revised methodology, formulas and regulations based upon the TF discussions and recommendations (June 2008);
  • the revised methodology, formulas and regulations will be shared/reviewed with the Division of the Budget (DOB) for their input (response due July 2008);
  • based upon DOB’s input, the RSU will model the new methodology to determine projected costs and VESID will establish capacity levels for each program (completed by October 2008);
  • once the proposal is revised/acceptable to SED and DOB (by December 2008) the final draft proposal will be shared with all stakeholders for their input through regional meetings (completed by March 2009);
  • the RSU and DOB will then review and include any appropriate stakeholder suggestions and prepare the proposal and regulations for Regents review and implementation (March 2009);
  • as part of the regulatory process there will be additional opportunity for public comment (regulations published, public comment accepted and regulations finalized, April 2009 through July 2009);
  • final regulations submitted for Board of Regents action (Board of Regents act on regulations, July 2009);
  • implementation of the new rate methodology (September 2009). (Note: the 1980’s era mainframe rate setting system will need to be redesigned and reprogrammed based upon the final methodology.)

Attachment II





January 4, 2008




  • New York State Education Law, Section 4405, requires the State Education Department (SED) to annually submit recommendations for the special education tuition rate setting methodology to the Division of the Budget (DOB) for their approval.  DOB also is required to approve each individual rate established using the methodology.
  • SED sets special education tuition rates but does not make the tuition payments.
  • Tuition rates are established for special education programs approved by VESID.  Specifically, SED establishes tuition rates for:
  • approved school age 12-month programs operated by Special Act School Districts and  private providers;
  • approved school age 2-month summer only programs operated by Special Act School Districts, private providers, school districts and BOCES; and
  • approved preschool programs operated by private providers, school districts and BOCES.

Rates are annually established for over 525 entities that operate over 850 programs.  (Many providers operate more than one program type).

  • As with almost every rate setting system employed by New York State agencies, the SED tuition rate system is cost-based; that means that rates are established using actual provider historical costs trended forward.  The methodology includes cost containment features listed below.




  • Providers are required to submit CPA certified cost reports annually.
  • These cost reports are used by SED to establish Prospective and Reconciliation rates for the providers. Example:  We are now receiving cost reports for the 2006-07 school year.  Those reports will be the basis for 2008-09 Prospective rates and will be used to reconcile the 2006-07 school year rates.
  • The cost reports are reviewed by staff in terms of completeness and allowable costs.
  • Once the cost reports are deemed to be in good form they are processed through the system using the DOB approved methodology.
  • Providers are given an opportunity to comment on the tuition rates prior to the rates being sent to DOB for approval.  Any appropriate changes are made when comments are received.
  • Once the rates are finalized internally they are sent to DOB for approval.
  • Ninety percent of the rates submitted annually for over 850 special education programs are approved as submitted.
  • Approximately 10 percent of those rates are appealed, generally due to programmatic changes, additional IEP requirements or higher lease or capital costs.  Appeals consume a significant amount of time and effort for the Department, the schools and DOB.  As a result, the exchange of information regarding these appeals can significantly delay DOB approval.
  • Once approved the rates are sent to the providers.


Cost Containment Components:


  • Non-Direct Care Cost Screen:  This component limits reimbursement for property and administrative expenses to 30 cents of each reimbursable dollar.  It is expected that 70 percent of each reimbursable dollar will be spent on direct services to students.
  • Rate Growth Cost Screen:  This component limits the per diem tuition rate to a percentage increase from year to year.  The percentage is one of the variables that change each year and is recommended by SED and approved by DOB.   The 2007-08 increase was 4 percent.


Rate Appeals and Cost Screen Waivers:


  • Providers are allowed to file appeals for established rates and for waivers to the cost containment components.  Rate appeals generally are filed because the provider has been approved for a programmatic change such as an intensification of staffing because the students’ disabilities are more severe.  Similarly, when providers experience additional Individualized Education Program (IEP) requirements, most commonly increases in related service units (Occupational, Physical and Speech Therapy), they may file an appeal.  The most common reason providers file appeals for the Non-Direct Care component is increases in property costs resulting from moving into new space with higher lease costs or because of additional capital costs associated with a new building.
  • Schools must provide documentation to SED supporting their appeal request.  Appeals involving programmatic changes must be approved by VESID.  Appeals involving property are reviewed by Facilities Planning in the Office of P-16.  The school’s documentation and VESID’s and/or Facilities Planning’s recommendations are included in appeal packages created by the SED Rate Setting Unit for transmittal to DOB for approval.




  • SED begins preliminary discussions with DOB on the annual rate methodology in the winter before the start of the school year.
  • The methodology is typically submitted to DOB for approval in mid-winter or early spring and DOB approval can come as early as the June prior to the start of the new school year.  The 2007-08 methodology was approved by DOB on August 31, 2007.
  • If the methodology is not approved in time for rates to be set by the start of the new school year, with DOB’s approval, SED uses the approved rates from the prior year as Interim Rates in order to provide a rate that schools can use to bill for services until the new rates are approved.


Payment to Providers:


  • Tuition payments to school age program providers are made in the first instance by the school district or Local Social Service District that placed the child in the provider’s program.  The districts then claim State aid.  For an average wealth school district, State aid is approximately 80 percent of the approved tuition rate.   Social Services districts receive 50 percent of the approved tuition rate back from the State.
  • Payment to preschool providers is made in the first instance by the municipality in which the student’s parents reside.  The State then reimburses the municipality 59.5 percent of their approved expenditures.