1. If a school district or special district fails or is unable to provide special educational services to each handicapped or severely handicapped child as required in sections 162.670 to 162.995, the district shall contract with a nearby district or districts or public agency or agencies for such special educational services. If the board of education of the district finds that no adequate program for handicapped or severely handicapped children is available in nearby districts or through public agencies, it may contract with any organization within the state which has programs meeting the standards established by the state board of education. If such district fails to contract for such services, the state board of education may contract for such services with a nearby district or districts or public agency or agencies. If the state board of education finds, after investigation by the state department of education, that no adequate program for handicapped or severely handicapped children is available in nearby districts or through public agencies, the state board of education may contract with any organization within the state which has programs meeting the standards established by the state board of education. Assignment of handicapped or severely handicapped children under this section shall be made to a particular school or program which, in the judgment of the state department of elementary and secondary education, can best provide special educational services to meet the needs of the child, and such assignment shall be made upon the basis of competent evaluation. The state board of education may seek the advice of established and ad hoc advisory committees in developing standards for approving programs and costs of programs operated by organizations. Nothing contained within this section shall be construed to affect the provisions of section 162.700 or 162.725.

2. Per pupil costs of contractual arrangements shall be the obligation of the district of residence, except districts which are part of a special school district, or special district of residence; provided, however, that if the contract is with another district or special district, the district providing the services under contractual arrangements shall include children served under such contractual arrangements in determining the total per pupil cost for which the district of residence is responsible. If the contract is with a public agency or an organization, the district of residence shall be entitled to receive state aid as provided in section 163.031 and in section 162.980. Where the state board of education contracts for special educational services pursuant to subsection 1 of this section, the state board of education shall submit to the responsible district a bill for the per pupil cost payable by that district under the terms of this subsection. Failure of a district to pay such cost within ninety days after a bill is submitted by the state board of education shall result in the deduction of the amount due by the state board of education from subsequent payments of state moneys due such district or special district.

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3. If the state board of education determines, after inspection by the state department of elementary and secondary education and upon the recommendation of the commissioner of education, that handicapped or severely handicapped children residing within the district may better be provided special educational services by the district or special district of residence, the state board of education shall order the district to provide special educational services in accordance with sections 162.670 to 162.995.

4. If the state board of education determines, after public hearing before the commissioner of education held in the school district on due notice, that the district has failed to provide special educational services in accordance with an order issued under subsection 3 of this section, the state board of education shall withhold all or such portion of the state aid under sections 162.670 to 162.995 and under chapter 163 as in its judgment is necessary to require the district to carry out its responsibility under sections 162.670 to 162.995. The denial of state financial assistance hereunder may continue until the failure to provide special educational services is remedied.

5. No contract shall be made under sections 162.670 to 162.995 contrary to the provisions of Article I, Section 7 or Article IX, § 8 of the Constitution of Missouri.