This article explores possible fiscal incentives associated with various state formulas for allocating special education funds and the degree to which such incentives affect special education. First we review empirical and contextual evidence in the literature that addresses the relationship between funding formulas and special education identification and placement decisions.We also examine non-fiscal influences on special education and the extent to which they confound the effects one might attribute to fiscal policies. In addition, we examine states with funding formulas that place premiums on certain disability categories or types of placement. Although there is some evidence of a relationship between fiscal incentives and program practice, this relationship does not appear to apply consistently. The relationship between fiscal incentives and program practice is complex and must be understood in the context of each state, with its own array of social, economic, and political factors. (Contains 9 footnotes, 2 tables, and 2 figures.)