On July 1, 2024, the New York State Education Department (SED) issued the 2024–25 tuition rate-setting methodology letters for both school-age and preschool providers serving students with disabilities. The final methodology letters include most of the recommendations SED proposed to the New York State Division of Budget (DOB) in April 2024. This development is a positive turn of events for special education providers in the forthcoming school year. The subsequent information provides a summary of the key elements in the new tuition rate methodology letters.
Trend Factor
For the 2024–25 school year, both school-age and preschool programs have an annual trend factor of 4.3%. The DOB approved the proposed 4.3% trend factor recommended by the SED, which was positive for special education providers. This contrasts the overall increase for school aid and foundation aid, which has an average adjustment of 2.4% and 2.1% over the previous year for the 2024–25 budget season, according to the New York State Budget summary.
This trend differs from the 2023–24 season, where special education schools had a lower trend factor of 6.25% compared to overall school aid and foundation aid increases of 10% and 12.8%, respectively. As referenced in the SED’s tuition rate-setting methodology letter to DOB dated April 15, 2024, the recommended 4.3% trend factor is based on the consumer price index (CPI) for “all urban consumers” using the Bureau of Labor Statistics data. This represents the U.S. government’s best estimate of average cost increases for a given year and demonstrates solid support for the recommended trend factor as a crucial element in progressing to the final approval stage.
While the 4.3% trend factor is seen as a positive indicator this year, there remains a long-standing disparity in trend factors and wage parities between special education schools and other New York State education system sectors. This disparity continues to present challenges for special education providers in funding annual cost inflation, recruiting, and retaining teaching and clinical staff to serve students with special needs.
Non-Direct Care Cost Parameter
A notable update in the 2023–24 methodology is the modification of the non-direct care cost parameter from 30/70 (0.4286) to 35/65 (0.5385). This was again approved in the 2024–25 methodology letter. Applying the 35/65 ratio assists providers who are unable to reduce their overall non-direct costs within a relatively short timeframe, particularly those experiencing staff shortages or enrollment challenges. This measure serves to alleviate some of the issues related to non-direct care costs.
Enrollment Adjustment Factor
The enrollment adjustment factor (EAF) remained consistent from the 2021–22 school year through 2024–25. The SED had once again proposed to reduce the EAF from 7.5% to 5% in its recommendation letter. However, this proposal was not adopted in the final tuition methodology letter for 2024–25. In order to be eligible for the EAF, providers must experience a decrease in their enrollment-to-capacity percentage exceeding 7.5%, compared to the average enrollment-to-capacity percent from the 2016–17 to 2018–19 school years.
Prospective Rate Setting
In the 2024–25 rate methodology letters, a new section, Section E – Prospective Rate Setting Process, has been introduced. This section pertains to the overall prospective rate setting. It mirrors the language used in Section D.1, which solely applies to the total cost screen calculation used for reconciliation rate setting. This section aims to minimize the effect of underspending in a given year on the tuition rate for subsequent years.
Surplus Retainage
Consistent with the previous two school years, the 2024–25 methodology letter continues a provision that permits providers to retain an annual surplus of up to 11% for 2024–25. The annual surplus retainage will be progressively reduced to 8% in 2025–26, 5% in 2026–27, and 2% in 2027–28 and subsequent years.
Furthermore, the SED issued a memorandum on April 30, 2024 offering guidance on surplus reporting in financial statements and the Consolidated Fiscal Report (CFR). For more detailed information, please refer to the Surplus Reporting Guidance.
Interim Rates
The interim rates for providers for the 2024–25 school year are now accessible on SED’s rate-setting unit website. These interim rates are designed to facilitate cash flow until the provider’s 2024–25 prospective tuition rates are issued. In years prior to 2024–25, the interim rates typically were based on the most recently published rate with the current year’s trend factor. In the past, this practice has caused disruptions for special education providers, as the interim rate only included the current year’s trend and often resulted in a cash reduction in a subsequent school year if their tuition rates were not reconciled in a timely manner.
The methodology letter for 2024–25 has altered the language on the interim rates calculation to encompass up to three years of compounded growth. This concept, referred to as “interim plus plus,” has been a topic of discussion between providers, trade associations, and the SED for several years. Its inclusion in the SED’s recommendation letter to the DOB and subsequent approval marks a significant advancement in aiding the provision of operational cash flow.
A comparison of the 2024–25 interim rates with the 2023–24 interim rates (list downloaded on July 5, 2024) reveals that at least 63 providers, operating a total of 114 school-age and preschool special education programs, have experienced an increase in their interim rate of over 10%. Among these, 23 providers with 35 special education programs have seen their interim rate increase by over 20%, demonstrating the positive impact on cash flow for providers. However, it should be noted that some providers’ interim rates have not yet been updated, while others have seen a decrease due to underspending in the 2021–22 school year.
Below is a five-year comparison of key factors from the rate methodology letters.
| 2020–21 | 2021–22 | 2022–23 | 2023–24 | 2024–25 | |
|---|---|---|---|---|---|
| Trend factor | 0% | 4% | 11% | 6.25% | 4.30% |
| Surpluses retainage max % | N/A | N/A | 11% | 11% | 11% |
| Non-direct care cost parameter | 30/70 | 30/70 | 30/70 | 35/65 | 35/65 |
| % decrease on enrollment-to-capacity to qualify for enrollment adjustment factor (compared to 16–17, 17–18, and 18–19 average) | 5.00% | 7.50% | 7.50% | 7.50% | 7.50% |
| Interim Rate | Current year trend | Current year trend | Current year trend | Current year trend | Up to three years trend |
In addition to the 2024–25 tuition rate methodology, it’s crucial to highlight the SED memo titled “Extraordinary federal COVID-19 revenue reporting guidance” published April 19, 2024. This memo advises providers with CFRs that exhibit discrepancies between federal revenue and expenses to contemplate amending the cost report to align revenue and expenses within the same year.
While some rate years may already be closed at this juncture, the memo signifies the SED’s openness to revisiting certain closed years. This is particularly relevant in instances where special education providers experienced a significant decrease in reimbursement during the pandemic due to federal funding reporting issues. Special education providers are encouraged to engage their certified public accountants to explore the potential benefits of revising prior year CFRs.
Here are recommended action items for special education school-age and preschool providers:
- Evaluate whether your interim tuition rate(s) include all applicable trend factors (up to three years’ trend per methodology letter). If not, consult with your assigned SED program accountant regarding the rates used in the calculation.
- Determine the potential impact on reimbursement for all years during the pandemic periods in accordance with the SED “Extraordinary federal COVID-19 revenue reporting guidance” and consider revising the CFR if needed.
- Perform tuition rate calculations for unreconciled CFR years to project the effect on the upcoming year’s tuition rate.
- Adjust annual operating budgets for school-age and preschool center-based programs that are in place based on the new trend factor.
- Monitor program expenses and calculate projected tuition rates during the year to help ensure rate maximization.
- Engage in discussions with program stakeholders and devise strategies for utilizing any projected surpluses, if applicable.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.