My situation is similar to Annette's. Our youngest is 8 and is on the Autism Spectrum. His challenges are social and behavioral, but it was interfering with his education. We took a leap of faith and chose to enroll him in a different school - a special ed school that serves our district. We were very, very nervous, but it has absolutely been the right decision. The teachers and staff there are very experienced with all types of different challenges and have really helped our son improve, which has allowed him to learn.
It can be a bit of a challenge dealing with two schools and sometimes two different calendars (not too often, but there are differences), but for our son it is more than worth it.
I have heard many parents complain about frustrations in working with the special ed teachers and IEP teams at their schools. I can tell you it was very, very frustrating for us. It truly felt like they had never seen anyone like our son before. A year and a half ago I was in tears every day. We had so many meetings, and the school was trying this and that and then another thing. Each time we had a meeting I was encouraged, and each time after the meeting I was soon in tears again. I feared I would have to quit my job and homeschool our son ... which was terrifying, because I absolutely did not feel qualified to do that! We had behavioral problems at home, as well as at school.
So I just want you to know that you are not alone! It is not an easy process at all for many of us! Talk to the teacher, talk to the principal, talk to the IEP team and ask them what else can be done. What other options do they have. Is there a different program at another school that might benefit your son.
I don't want to say that having him repeat 3rd grade is a bad idea. It might be exactly what he needs. But I think it would be a really good idea to ask them what other options you have first. They might have something else in the district that would work for him. Also, if you know if anything in a neighboring district that you think might be good for him, learn more about it. If there are services in another district that your district doesn't have, it's possible for you to apply for a transfer based on the fact that your district doesn't offer a needed service.
Keep asking questions and working with the IEP team. Hang in there! It might take time, but you WILL find something that works for your son.