Act 173 Vermont Special Education: What the Funding Change Actually Means for Your Child

You're sitting in an IEP meeting and someone on the school team says, "With the new funding model, we just don't have the resources to continue this level of support." It sounds authoritative. It sounds final. And if you don't know what Act 173 actually does — and more importantly, what it does not do — you have no way to push back.

Here's a plain-language explanation of Vermont's special education funding reform, why it matters, and what it means for your child's legal rights.

What Act 173 Changed

Act 173 was passed in 2018 and fully implemented in the 2022-2023 school year. Before it, Vermont used a categorical reimbursement model: districts received state funding based on the number of students identified as having disabilities and the costs associated with serving them. The more students identified, the more money came in.

Critics argued this created a perverse incentive — districts might over-identify students to capture more funding. Whether or not that was actually happening, the legislature decided to change the model.

Under Act 173, Vermont switched to a census-based block grant. Instead of counting identified students, the state now gives each district a flat grant based on its total enrollment. The assumption baked into the law is that a predictable percentage of any population will need special education services — so fund based on that statistical baseline, not based on individual identification.

The reform's stated intent included earlier, less restrictive general-education interventions through the Multi-Tiered System of Supports (MTSS) — catching struggling kids before they ever reach a formal IEP referral.

The Extraordinary Cost Threshold

For students with the most expensive, intensive needs — residential placements, specialized therapeutic programs — the state does still provide additional reimbursement. But Act 173 raised the bar significantly.

As of FY25, a district only receives state reimbursement (at a 90% rate) for costs exceeding $67,446 per student per year. Below that threshold, those costs are covered through the district's block grant and other state and local funding.

That means a district placing a student in a $55,000-per-year therapeutic day school gets no extraordinary cost reimbursement under that threshold. The district must cover the placement through its other state and local funding. This is why your district's special education director talks about budgets at IEP meetings — the financial pressure is real.

What Act 173 Did NOT Change

This is the part schools sometimes leave out.

Act 173 is a Vermont state funding mechanism. It determines how the state sends money to districts. It does not change the federal law that governs what your child is entitled to receive.

The Individuals with Disabilities Education Act (IDEA) is federal law. It requires every district to provide a Free Appropriate Public Education (FAPE) to every eligible student with a disability. FAPE is individualized — it means the specific services your child needs to make meaningful educational progress, documented in their IEP.

Vermont cannot pass a state funding law that eliminates a federal entitlement. The fact that a district's block grant is running thin does not legally justify:

• Reducing a service that is currently in an IEP without going through the proper amendment process
• Refusing to add a service your child needs because it's expensive
• Capping related services (speech, OT, PT) at a predetermined budget ceiling
• Pushing your child into MTSS tiered supports as a substitute for specially designed instruction they're entitled to under IDEA

The AOE has acknowledged this tension. The money may be tighter. But districts cannot lawfully solve their budget problems by denying services that students are legally owed.

Why Parents Are Noticing the Effects

The anxiety around Act 173 is legitimate. Vermont averaged $28,288 per special education student in FY23 — and local budgets are feeling the squeeze as state reimbursements don't keep pace with actual costs.

Families may see proposals to reduce paraprofessional hours, increase class sizes, or consolidate related service providers across supervisory unions, meaning your child might see a speech pathologist who drives between four different schools each week, with less time at each. Those proposals may reflect capacity or budget pressure, but any specific change still must be based on your child's individual needs.

Parents of students who had stable IEPs before 2022 are sometimes finding that annual reviews suddenly include proposals to reduce hours, shift services from pull-out to classroom-based, or replace direct therapy with "consultation" models — where a therapist advises the general ed teacher rather than working with your child directly.

Whether any specific change is appropriate depends entirely on your child's current needs, not on what fits the budget. If your child still needs 45 minutes of direct speech therapy per week to make meaningful progress, that is what the IEP must say — regardless of Act 173.

What to Watch for at IEP Meetings

Budget pressure tends to surface in predictable ways during IEP meetings. Watch for language like:

• "With our current staffing situation, we're moving toward a consultation model."
• "The district is trying to use MTSS supports more consistently before going straight to direct services."
• "We need to be realistic about what we can provide given the new funding structure."

None of these statements, by themselves, constitute a legal justification for reducing your child's services. Before a proposed change to identification, evaluation, placement, or the provision of FAPE can be implemented, the district must issue a Prior Written Notice (Form 7a) explaining the specific reason for the change, what data supports it, and what alternatives were considered.

For a disputed non-disciplinary proposed change, file for due process before the change is implemented to preserve the current placement and services under stay-put; disciplinary appeals follow separate placement rules.

How to Respond When Act 173 Comes Up

If a school team member invokes Act 173 or "the new funding model" to justify a service reduction, a measured response is:

"I understand the district is under budget pressure, and I appreciate that context. But my understanding is that Act 173 changes how Vermont funds districts, not what IDEA requires districts to provide. My child still has an individualized need for [specific service], and I'd like the team to document in the Prior Written Notice the specific data showing that need has changed — not the funding picture."

Then request the Prior Written Notice in writing.

For a deeper look at how to push back on specific Act 173-related service cuts — including exact language and letter templates — see our post on how to fight Act 173 budget excuses in Vermont IEP meetings.

The Bottom Line

Act 173 changed Vermont's school funding formula. It did not change your child's rights under federal law. Districts are under real financial stress, and families may see that pressure reflected in proposals about individual students' services. That pressure does not itself establish that a proposed change is legally justified. Knowing the difference between a budget argument and a legal argument puts you in a far stronger position at the IEP table.

If you want a complete toolkit for navigating Vermont's specific rules — including Act 173 defense scripts, Rule 2360 timelines, and ready-to-send letter templates — the Vermont IEP & 504 Advocacy Playbook has everything in one place.

See more Vermont guides →