As funding for special education increases, it becomes important for educational policy-makers to understand the effects caused by the distribution of monies. This paper focuses on key programmatic and management issues in the funding of special education. Four main topics are discussed: (1) the relationship between special education programs and costs, (2) primary funding formulas used for special education, (3) policy issues affected by the funding formulas, and (4) motivational effects of the various funding formulas. Also examined are the effects of the funding approach used by P.L. 94-142 (Education for All Handicapped Children Act) to allocate federal funds. (Author/LD)