Newton, Massachusetts, an affluent city of 85,000 people on the western edge of Boston, is the sort of community that should have no problems financing its schools. "Starter" homes there begin at $400,000 and the average annual household income is around $80,000. Yet in recent years, skyrocketing education costs have forced the Newton public school district to defer maintenance on its physical plant. This summer, the town voted to override the state's property- tax cap and approved a 7 percent property surcharge in order to pay for school maintenance and build a new technology center.

The fiscal difficulties stem largely from the addition of roughly 500 new teachers and aides to the school district's workforce since 1996. Some of these new teachers have been used to reduce class sizes and improve the district's bilingual education offerings, but the main reason for the increase in resources and demands can be summed up in two words: special education. In the past three years alone, Newton's special-education expenditures have grown by 25 percent. Spending on special-education students, who currently make up 10 percent of Newton's student body and run the gauntlet from children with autism to those with mild learning disabilities, now consumes nearly one- quarter of the school district's $120 million budget.

Newton's struggle to cope with a growing population of special- education students is not unusual. During the 1990s, the number of children with disabilities rose from 4.3 million to 5.5 million nationwide. Those eligible for special-ed services now make up approximately 12 percent of all students in grades K-12 in the United States. Moreover, as states have cut back on education funding because of budget shortfalls, the financial burden for providing such services has shifted to local governments and school districts.

With enrollments and costs surging, researchers and state officials are asking what is behind the recent explosion in the number of children with disabilities. Experts attribute some of the increase in moderately- to severely-disabled children to advances in neo-natal care: Babies born prematurely are much more likely to have serious disabilities than other infants. That doesn't explain the largest category of growth, however--the increase in the number of children with "specific learning disabilities."

In the past, researchers subscribed to the notion that the increased incidence of learning disabilities was due to a variety of socio- economic factors. But recently, a number of educators and experts have embraced a different explanation. They say that the new emphasis on accountability and standardized testing has revealed a widespread failure on the part of schools to teach children how to read.

Earlier this year, the Commission on Excellence in Special Education, a presidential panel chaired by former Iowa Governor Terry Branstad, issued a report contending that as many as 40 percent of the estimated 6 million children with disabilities have been categorized as such because of poor reading skills. Even worse, the commission found that when these students finally do receive assistance, it is often too late to help them catch up with their peers. In short, the report declared: "The current system uses an antiquated model that waits for a child to fail, instead of a model based on prevention and intervention."

It's an argument that is finding a receptive audience among many educators and state officials for both financial and pedagogic reasons. Researchers say that the typical special-education student costs 1.9 times more to educate than a general-education student. The assessment process alone averages about $1,800 per student. At a time when state support is in danger of drying up, many educators are eager to have the flexibility to spend $800 on an early reading intervention before conducting an $1,800 assessment and designating a child as a student with learning disabilities.

Even more important than the potential for saving money, though, is the promise of educational improvement. Thanks to the Leave No Child Behind Act, the sweeping education reform bill signed into law earlier this year by President George W. Bush, schools are under unprecedented pressure to improve the educational achievements of all students, including students with disabilities. Under the measure, school districts must disaggregate test results for students with disabilities and demonstrate yearly progress in their achievement or face "interventions" that can culminate with staff dismissals and a state takeover. Moreover, by 2013-14, all students must achieve a state-determined level of "proficiency."

Experts say that identifying children with reading problems early on is the key to reducing the number of students who end up in the special-education system. "If you look at NAEP scores for 4th-grade students, you'll see that about 38 percent of 4th graders are substantially impaired," says G. Reid Lyon, chief of the child development and behavior branch of the National Institute for Child Development at the National Institutes of Health. "If we were able to get to them in kindergarten, 38 percent reduces down to 5 or 6 percent, at most. And it is that 5 or 6 percent who we believe are bona fide children with learning disabilities."

Some states already have begun to implement the kinds of early intervention programs that the Commission on Excellence in Special Education recommended. And the initial results are promising. They suggest that the spur of accountability and flexible early interventions can produce impressive gains for students with disabilities, even in high-poverty school districts. Yet as states begin to better understand how their special-education students compare with their general-education population, they are almost certainly in for some sobering discoveries about just how wide the achievement gaps among the various groups of students with disabilities are.

Since 1975, Congress has required states to provide a "free and appropriate" education to children with disabilities. The legislation, which was reauthorized in 1990 as the Individuals with Disabilities Education Act, requires schools to create an "individual education plan" for every student with disabilities. Some IEPs call for modest interventions, such as additional reading assistance, while others can require measures such as enrolling autistic students in specialized private schools--a step that can cost $40,000 per student and devastate a small school district's budget. Regardless of the price tag, however, schools are legally obligated to meet the terms of each student's IEP.

Parents and pediatricians can quickly identify some disabilities, such as deafness, blindness, traumatic brain injury and orthopedic impairments. These children often are eligible to receive services as soon as they leave the hospital. However, the vast majority start their journey into the special-education system in elementary school with a referral from a teacher. Some of these kids are having problems learning to read. Others cause trouble in the classroom. Once a student is referred for an assessment, these problems are flagged as potential "disabilities."

Next comes the assessment itself. Most states currently use what are known as "IQ-achievement discrepancy tests" to determine whether a child who has been referred does in fact have a learning disability. "What they typically do is a series of IQ tests, and you have to show a discrepancy between what your performance level is and what your functioning level of intelligence tells you you should be," says Nancy Reder, deputy executive director of the National Association of State Directors of Special Education. The existence of a significant "discrepancy" is usually taken as an indication that the child has a learning disability.

But a growing number of special-education experts say that states' reliance on this model actually fuels the phenomenon it documents. "The system we have right now is failing the students," says Bob Runkel, Montana's special-education director and the current head of the National Association of State Mental Health Directors. "It results in really expensive intervention being applied too late."

Students often are not being identified until the upper-elementary grades, when the curriculum broadens and children go from learning to read to reading to learn. "This is why learning disabled kids are not identified until the 4th grade," Reder notes. "If you pick these kids up in 1st grade and started with intensive services, these discrepancies would not emerge."

Some schools have already experienced remarkable successes with common-sense, early-intervention programs, among them Lora B. Peck Elementary School in south-central Houston. When LaWanna Goodwin took over as the new principal in 1995, only 40 percent of Peck 4th graders were meeting the state reading standard. Peck's single special- education teacher was struggling to deal with approximately 60 special-education students--the vast majority of whom were students who had not learned to read. Not surprisingly, the state of Texas considered Peck a failing school.

Three years later, Peck's rating was "exemplary." Student achievement was up, and the number of students with learning disabilities had plummeted. "We were down to maybe serving 10 to 12 students [in special education] who were not involved in speech therapy," says Goodwin, who is now an educational leadership consultant in Houston. "There were maybe an additional six or seven kids who were in speech [therapy]."

Goodwin worked hard to break down the traditional division between "special" education and "general" education. She points to a shared sense of responsibility for all of the students among the teachers and a school-wide commitment to quick remedial action as the essential ingredients of Peck's turnaround. "One of the keys to having a small population of special-education kids is to identify the difficulties that they're having early and to attack it immediately and to do something about it," says Goodwin. "And if one thing doesn't work, to try something else."

In addition, at least some of Peck's success seems attributable to its location in Texas. In the late 1990s, Texas began to field an assessment measure known as the Texas Primary Reading Inventory in kindergarten. Its purpose: to identify children moving into 1st grade who were having reading problems so that they could receive intensive reading assistance.

Researchers say that the kind of early intervention that Texas encourages is precisely the right approach. "It's a very good model," says Lyon of the National Institute for Child Development. "You'll find it applied unevenly, but it's the kind of system we need to apply universally."

Other states have also achieved promising results by emphasizing pre- referral interventions. During the 1999-2000 school year, Kansas largely abandoned the IQ achievement-discrepancy standard in favor of a new approach that requires schools "to try general-education interventions before they are even referred to special education," says Alexa Pochowski, assistant commissioner of the Kansas Department of Education. Thus, a student struggling with her reading might receive one-on-one tutoring, rather than a referral to special education.

According to Pochowski, the decision to de-emphasize special- education referrals and the IQ achievement-discrepancy test was a nerve-wracking one: "The biggest concern was that if we got rid of the discrepancy formula, our numbers would skyrocket" as more students with learning problems became eligible for assistance. "That did not happen," she notes. "In fact, because we're catching some of the students earlier, we're finding that if there is a reading problem, we can solve it before putting them into special ed."

New York launched a similar effort in the late 1990s as part of a wider effort to "make special-education referral for kids with really special needs," according to Lawrence Gloeckler, deputy commissioner of New York's Office of Vocational and Education Services for Individuals with Disabilities. Gloeckler credits the focus on pre- referral intervention with dramatically slowing the rate of growth for special-education enrollment in the state.

New York, however, hasn't focused solely on reducing the number of children classified as special-education students. It has also made a major effort to ensure that children with disabilities take part in the state's regular 4th- and 8th-grade performance assessments and to track their results--something that most states have failed to do. As a result, many officials look to New York for insights into what it will take to meet the requirements of the Leave No Child Behind Act.

According to Gloeckler, New York's experiences with extending accountability to students with disabilities has been both encouraging and sobering. The good news has been that students with disabilities seem to respond well to higher expectations. "What we found was, once everyone understands that kids need to be included and that access to general curriculum is absolutely essential, we're finding that kids are doing better than people thought they would," says Gloeckler.

But New York's data on the performance of students with disabilities have also highlighted the educational chasm that divides the wealthiest 15 percent of the state's school districts from the state's four largest urban school districts. "We found in the 4th grade particularly, but also in the 8th grade, the special-education students in wealthy districts are outperforming general-education students in the cities," says Gloeckler. In short, by Westchester County standards, almost all inner-city students are learning disabled.

It's a vivid example of how arbitrary the term "learning disability" can be--and how great a challenge it will be to address the real achievement discrepancies that such designations can hide. "Labeling kids is not important anymore," says Montana's Runkel. "What we really need to do is to unify our two systems"--special education and general education--"so they mutually support one another. I don't want to suggest or even imply that [special ed] hasn't been great for kids or helped tremendous numbers out, but we've sure got a hole here for kids who are in between. That dualistic system creates a gap that has to be filled. We've got to figure out how to do that."