This report discusses the findings from two case studies of state use of discretionary funds under the Individuals with Disabilities Education Act (IDEA), Part B. The two states involved in the study were Michigan and Wisconsin. Documents and interviews were used to gather detailed descriptive information from both states regarding: (1) the establishment of priority areas for Part B discretionary projects; (2) the process for selecting discretionary projects; (3) the use of discretionary funds for the administration of complaint investigation and monitoring; (4) the discretionary projects funded between 1990 and 1992; (5) the discretionary projects funded in 1993; and (6) the evaluation of discretionary projects. The paper also discusses the IDEA requirements with respect to discretionary funds, the importance of flexibility in the use of these funds, and the overall impact of discretionary money on the ability of states to exercise leadership in special education program improvement. (Author)