The report updates aspects of the 1977 report on California's Master Plan for Special Education. Reasons are sought for the intense debate over state funding for special education, which has substantially increased over recent years while special education enrollments have increased only modestly. In visits to nearly 100 local education agencies, the study team found that costs charged to special education varied dramatically, apparently as a result of accounting rather than program differences. Analysis of special education costs revealed a low degree of compliance with established guidelines for school accounting. Problems brought about by using the reported costs of special education for 1979-80 as the basis for funding special education are explored. Analysis of six districts was undertaken to examine equity among districts. It is concluded that the state's special education program is adequately funded to pay for actual costs. Difficulties with California's lack of specific eligibility criteria, and confusion over learning disabilities, are discussed. The need for standardized procedures and program coordination are emphasized. Among recommendations offered are that the State Department of Education should adopt clear and consistent standards for the accounting of expenditures in special education programs. The Master Plan for Special Education, accounting definitions, comments by the Department of Education and a response by the Department of Finance are appended. (CL)