This study sought to determine whether state special education aid in New Jersey influences the number or types of pupils referred to special education services, the designation of their specific disability, and the setting in which special education services are provided. Analysis of data in state education agency reports and interviews with school officials found that: (1) costs incurred by local districts are more important than the amount of state aid in special education decisions; (2) state aid for special education does not promote excessive identification of children with disabilities, but may in fact inhibit the identification of pupils with disabilities because it does not fully cover the additional costs for services; (3) state aid does not promote the selection of classifications with higher reimbursements or additional cost factors; (4) state aid does not appear to be a primary factor in determining student placements; (5) financial resources of school districts become an important factor in placement decisions; and (6) there are several major deficiencies in the state special education aid system. Recommendations are offered concerning reforms to the special education service delivery and financing systems, emphasizing provision of comprehensive financial support of all forms of special education placement and promotion of placement in the least restrictive environment. (Contains 27 references.) (JDD)