There has been a shift in the political landscape where the Governor, the State Regents, the NY State Legislature, and more are finally recognizing the importance of independent special education schools and the lack of parity that has existed for more than a decade. They are much more receptive to hearing from the leaders within the industry, which could result in some positive conversation and results.
On the other hand, some providers, especially in NY City, are still struggling with low enrollment, lack of staffing, diminishing resources, and a high level of uncertainty. Furthermore, COVID related regulations come from many administrative agencies, with different guidance from each lead agency, so providers really need to work through many of the issues themselves in an effort to keep their staff and families safe.
Unlike Dickens, I am not clairvoyant. I do not have a crystal ball that allows me to divine how all the issues will play-out … all I can do is fill you in on what we know and where I think we should be going.
The best of times …
- In December, Governor Hochul vetoed the parity bill that would have aligned private special education schools with school districts, so annual increases would have been consistent across the educational spectrum. With the veto, providers are only entitled to the 4% increase that SED had presented to and received approval from the Division of Budget during the spring, as opposed to the 7% + that districts are receiving. The 4% increases will be retroactive to July 1, 2021 and should be paid out soon. While Governor Hochul vetoed the Parity Bill, she did promise an 11% increase for preschool and school-age special education providers during the 2022-23 year. Yes, this is a major increase, but if you consider how much more school districts received over the last decade, NY State has a long way to go to close the gap.
- The NY State Regents and Governor seem to be more sympathetic to special education programs then in the past. As a result, now is the time to step up your organizational lobbying efforts. Many of the trade associations are stepping up conversations about:
- Increased rate enhancements for private schools to gain true parity with districts on an on-going basis
- Create more flexibility within the continuum of special education to allow for a more truer least restrictive environment when and where it is needed
- Interim plus rates to ensure that even if a program is not reconciled (especially with all of the waivers out there) that they will get the cash flow from rate increases to be able to effectively run their programs.
- A movement to the 5 year reconciliation process that SED was advocating for a few years back. This will allow providers to smooth out spending issues brough about by enrollment and staffing issues.
- A change in the rate methodology that rethinks the 30% non-direct care screen, especially with the difficulty in attracting and retaining qualified staff and drops in related service delivery rates in a remote environment; coupled with increases in real estate costs.
- Educational staff enhancements that are being offered to School Districts also finding their way into the special education marketplace for private special education providers.
- Additional funding levels for teacher retention funds to allow providers to give more money to much needed staff.
- Don’t forget that there are provisions (which was finally issued on 2/15/22) within the 2021/2022 rate methodology letter that have positive impacts on providers:
- The 1% corridor which 853 schools have been enjoying for the last 5 or 6 years is now available to 4410 providers. In a nutshell, if your actually expenditures are within 1% of your allowable rate (greater of prior year trended forward or current prospective rate), your rate will not be reconciled, and as such shortfalls will not be recovered or overages are not appealable (can’t file a waiver). If you are outside the 1% corridor, the rates will be reconciled as normal.
- The 7.5% enrollment decline provision. If your enrollment declines by more than 7.5% as compared to the 3 year average enrollment for fiscal 2017, 2018, and 2019, you may be entitled to an enhancement in your rate to cover losses incurred.
- Many New York City based providers have submitted applications for the UPK enhancement. While the enhancements will be awarded on a first come first serve basis, with preference given to providers that met the February 1st due date. The program is open until March 31, 2022 for any providers that are still interested. We are still unsure at this point how much of an enhancement the City will provide to approved providers.
- In December, Governor Hochul signed the EI Covered Lives bill which eliminates the need to bill insurance carriers, and billing the State directly. This will have a significant decrease on the administrative burden that EI providers have in billing insurance companies. It is still uncertain as to when this new law will go into effect.
The worst of times …
- Providers are still experiencing enrollment declines attributable to several reasons:
- More people are working from home, which is delaying the number of children in daycare, resulting in children not being evaluated as timely.
- With district employees working remotely and staff shortages, there have been delays in paperwork and getting children into appropriate programs.
- With the federal mandates pushing towards least restrictive environment, many of the higher functioning children that would have found their way into 10:1:2 and 12:1:2 classes are being served within district classes.
- Staffing shortages continue to persist, and they will continue to deteriorate in the near future as staff continue to leave special education providers for the bigger pay-day of district employment. Until some level of pay parity is put in place, it will continue to be difficult for special education providers to compete with districts. Without incentives (tuition/student loan subsidies), pay increases (special education providers are paying salaries equivalent to the lowest 5% of what districts are paying), and other programs to increase the flow of teachers to special education schools, it will be increasingly difficult for providers to staff their classrooms.
- COVID relief funds are drying up. While some providers that have applied for ERTC funds (you have 3 years to file for relief) are still waiting for the cash (could take a year for the refund to come from the IRS), it is unlikely that additional funding will be made available providers (there is a bill circulating that would allow providers to apply for ERTC for the fourth quarter of 2021 if they are eligible). As you know, PPP funds are considered offsetting revenue for tuition-based programs and could be recouped by SED if they result in underspending. SED is one of the few NY State agencies that is not allowing providers to keep their PPP funding.
- There are currently no rate increases in the works for Early Intervention providers, who have gone nearly 20 years without additional funds. This is an issue that the various umbrella organizations are focused on rectifying.
- The OSC continues to perform audits of 4410 providers and issue reports that disallow costs. What began as audits that were established to identify abuses within the industry, has, over the years, turned into the OSC’s rather liberal interpretation of the RCM resulting in significant disallowances for such things as timing differences, misapplication of documentation and benefits standards, and more.
With the impact of the COVID pandemic on provider operations, we expect to see a large increase in the number of waiver requests by providers for enrollment drops, admin levels in excess of 30%, increases in intensity of classrooms and service needs of children and more.
The next year or so will go a long way in setting the tone for the future of special education providers. For too long, special education providers have not been seen in the same light as other education providers, even though these programs are an extension of district services dealing with some of the most needy and vulnerable children in the State. This is an opportunity for New York State to rectify more than 20 years of lack of consideration and focus on the education of these children in their most formidable years where real long-term savings to the State can be developed … but those are decisions for smarter people than me.
Just realize that you are making a difference, and while things are difficult, it is a far, far better thing that you are doing, than has ever been done. Thank you!
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.