(1) Student transportation services shall be defined by the commissioner, as approved by the state board.
(2) State funds for student transportation shall be included in the transportation component of the BEP funding formula. In making the calculation, only the ADA of students transported at public expense who live one and one-half (1½) miles or more from the school to which they are assigned by the respective board and in which they are enrolled shall be taken into account. However, the board may, in its discretion, provide, at local expense, student transportation services for children who live less than one and one-half (1½) miles from the school to which they are assigned and in which they are enrolled. State funds shall be generated under the rules and regulations for the transportation of students with a physical disability who are transported less than one and one-half (1½) miles.