Under federal and California law, cost alone cannot be used as a defense for modifying or denying education and support services to a student with a disability. This has contributed to growth in special education spending. However, funding has not kept up with costs, forcing school administrators to "encroach" upon general education revenues to pay the costs of special education. Over a quarter of special education program expenditures in California, on average, are paid from a school district's general fund. Because most students with disabilities today spend the majority of the school day in regular classrooms, the actual cost of educating a child with a disability is higher than the program costs alone would imply. There is a need to re-examine special education spending. Reductions in costs could come about by implementing a reasonableness standard to protect schools from excessive costs, neutralizing adverse financial incentives, allowing more private sector participation, funding special education on a block grant basis, and relaxing some staffing requirements. Appendixes provide detailed statistical data from the study. (Contains 35 endnotes.) (JDD)