This policy brief examines the relationship between fiscal policies in special education and the requirement under the Individuals with Disabilities Education Act that students with disabilities be educated in the least restrictive environment appropriate to their needs. It discusses the effects of state fiscal policy on the provision of special education programs, focusing in particular on fiscal incentives related to the identification and placement of students with disabilities. The brief emphasizes that changes in fiscal policy alone are unlikely to effect reform. State fiscal policies affecting the placement of students with disabilities include aid differentials related to placement, separate funding mechanisms for separate placements, and separate funding for transportation. States reporting success with fiscal reform stress the need not only to remove disincentives for restricted placements, but to provide a comprehensive system of professional development and support related to the desired program reform. (Author/DB)