This paper describes the State Children's Health Insurance Program's (SCHIP's) financing system, examining two alternatives under consideration for changing the system of redistributing unspent SCHIP funds. Section 1 presents background on SCHIP's financing structure (it is a block grant program, each state's share of federal SCHIP funds is established by formula, states must spend some of their own funds in order to secure federal funds, and unused SCHIP funds are reallocated). Section 2 discusses trends in SCHIP expenditures. Section 3 examines proposals to change the reallocation system, highlighting two types of proposals that have emerged in Congress: Bilbray/Chafee and Roth/Commerce. Though both proposals would give states with unspent SCHIP funds more time to use them, the Roth/Commerce proposal is preferable, assuring that some of the unspent funds will be reallocated as current law envisions. If the reallocation process does not go forward, there could be deleterious consequences: states scaling back their child health expansions, limited ability of states that have succeeded in using their full SCHIP allotments to prepare for the coming drop in federal funding, and undermining the basic principle that SCHIP funds should go to states that can and will use them to insure children. (SM)