In 1983 the California Legislature passed Senate Bill 813, which appropriated an additional one billion dollars yearly for each of 4 years to the schools. Most of the additional money was distributed through the state's general aid formula. However, a portion of the money was offered through eight other new programs designed to encourage specific behavior on the part of school districts, such as lengthening the school year to at least 180 days and increasing instructional time at all levels. A substantial amount of the additional money was distributed in the form of incentives. This report shows that SB 813's incentive funds had a stimulative effect on district instructional funding; districts spent $2.00 on instruction for every incentive dollar received from the state. The report attempts to help policy makers identify the range of fiscal instruments or funding formulas most likely to stimulate desired changes in school district spending patterns. By analyzing the revenue and expenditures of California unified school districts between 1980-81 and 1985-86, this paper shows that the distribution mechanism influences how local school districts spend additional funds. The study found that: (1) incentive grants appear to be more effective than other types of intergovernmental grant mechanisms in increasing school district spending for instruction; and (2) incentives are useful only under limited conditions and for limited time periods. (33 references) (MLH)