This study examined the flow of all special education funds to Illinois school districts, in order to identify the financial incentives which influence school districts to educate children with disabilities away from their home schools. Background information on inclusive education precedes the study report. The study involved a review of federal and state statutes and regulations, examination of the Illinois special education administrative structure, analysis of data on actual educational placements and funding sources, and a look at how the funding system works in 20 districts and cooperatives. The study found that economic disincentives were but one manifestation of the larger reality of wholesale segregation of persons with disabilities from mainstream society. The report concludes with the strong recommendation that Illinois fund special education with a single formula tied to school district membership and that the dollars be sent directly to school districts, which should be held responsible for achieving students' Individualized Education Plans. Alternative recommendations are also offered to reduce existing financial disincentives. Appendices include a list of districts and cooperatives visited, data on children in placement at private facilities, data on the special education population distribution, placement data, and data on grants and reimbursements. (Contains 69 reference notes, 32 tables, and 7 figures.) (DB)